Registration Nos. 33-57730
811-2441
As filed with the Commission on April 1, 1998
--------------------------------------
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. 7 X
and/or
REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY ACT OF 1940
Amendment No. 68 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.
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)
|X| Immediately upon filing pursuant to paragraph (b) of Rule 485
|_| On (date) 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
Title of Securities Being Registered:
Units of interest in American General Life Insurance Company Separate
Account D under variable annuity contracts
<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................................................ 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>
WM 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 WM Variable Trust (the "Trust"): the Money Market Fund, Short-Term High
Quality Bond Fund, U.S. Government Securities Fund, Income Fund, Growth &
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 April 1, 1998, is incorporated by reference
into this Prospectus. The "Table of Contents" of the Statement appears at page
41 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 WM VARIABLE TRUST.
Prospectus dated April 1, 1998
<PAGE>
<TABLE>
CONTENTS
<S> <C>
Glossary................................................................. 4
Fee Table................................................................ 7
Synopsis of Contract Provisions.......................................... 10
Minimum Investment Requirements........................................ 10
Purchase Payment Accumulation.......................................... 10
Fixed and Variable Annuity Payments.................................... 10
Changes in Allocations Among Divisions and Guarantee Periods........... 11
Surrenders, Withdrawals and Cancellations.............................. 11
Death Proceeds......................................................... 11
Limitations Imposed by Retirement Plans and Employers.................. 11
Communications to Us................................................... 11
Financial and Performance Information.................................. 12
Selected Accumulation Unit Data ......................................... 13
AGL...................................................................... 16
Separate Account D....................................................... 16
The Funds................................................................ 16
Voting Privileges....................................................... 17
The Fixed Account........................................................ 18
Contract Issuance and Purchase Payments.................................. 19
Owner Account Value...................................................... 20
Variable Account Value................................................. 20
Fixed Account Value.................................................... 21
Transfer, Surrender and Partial Withdrawal of Owner Account Value........ 21
Transfers.............................................................. 21
Surrenders and Partial Withdrawals..................................... 22
Annuity Period and Annuity Payment Options............................... 23
Annuity Commencement Date.............................................. 23
Application of Owner Account Value..................................... 24
Fixed and Variable Annuity Payments.................................... 24
Annuity Payment Options................................................ 24
Transfers.............................................................. 26
Death Proceeds........................................................... 27
Death Proceeds Prior to the Annuity Commencement Date.................. 27
Death Proceeds After the Annuity Commencement Date..................... 28
Proof of Death......................................................... 28
Charges Under the Contracts.............................................. 28
Premium Taxes.......................................................... 28
Surrender Charge....................................................... 28
Transfer Charges....................................................... 30
Charge to Separate Account D........................................... 30
Miscellaneous.......................................................... 30
One-Time Reinstatement Privilege....................................... 31
Reduction in Surrender Charges or Administrative Charges............... 31
Long-Term Care and Terminal Illness...................................... 31
Long-Term Care......................................................... 31
2
<PAGE>
Terminal Illness....................................................... 31
Other Aspects of the Contracts........................................... 31
Owners, Annuitants and Beneficiaries; Assignments...................... 32
Reports................................................................ 32
Rights Reserved by Us.................................................. 32
Payment and Deferment.................................................. 33
Federal Income Tax Matters............................................... 33
General................................................................ 33
Non-Qualified Contracts................................................ 34
Individual Retirement Annuities ("IRAs")............................... 35
Roth IRAs.............................................................. 37
Simplified Employee Pension Plans...................................... 37
Simple Retirement Accounts............................................. 37
Other Qualified Plans.................................................. 37
Private Employer Unfunded Deferred Compensation
Plans................................................................ 38
Federal Income Tax Withholding and Reporting........................... 39
Taxes Payable by AGL and Separate Account D............................ 39
Distribution Arrangements................................................ 39
Services Agreement....................................................... 40
Legal Matters............................................................ 40
Other Information on File................................................ 40
Contents of Statement of Additional Information.......................... 41
</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.
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.
4
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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 WM 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,
408, or 408A 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, 408, or
408A 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.
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.
5
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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 WM Strategic 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 OTHER EXPENSES TOTAL FUND OPERATING
FEES AFTER EXPENSE AFTER EXPENSE EXPENSES AFTER
REIMBURSEMENT REIMBURSEMENT EXPENSE REIMBURSEMENT
AND WAIVER AND WAIVER AND WAIVER
------------------ -------------- -----------
<S> <C> <C> <C>
Money Market 0.40% 0.35% 0.75%
Short-Term High Quality Bond 0.50% 0.50% 1.00%
U.S. Government Securities 0.60% 0.30% 0.90%
Income 0.65% 0.31% 0.96%
Growth & Income 0.80% 0.28% 1.08%
Growth 0.89% 0.29% 1.18%
Emerging Growth 0.88% 0.32% 1.20%
International Growth 0.93% 0.42% 1.35%
<FN>
(1) Management fees and other expenses are derived from 1997 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>
Money Market 0.50% 0.35% 0.85%
Short-Term High Quality Bond 0.50% 0.53% 1.03%
U.S. Government Securities 0.60% 0.31% 0.91%
Income 0.65% 0.31% 0.96%
Growth & Income 0.80% 0.28% 1.08%
Growth 0.89% 0.30% 1.19%
Emerging Growth 0.88% 0.33% 1.21%
International Growth 0.93% 0.43% 1.36%
</TABLE>
EXAMPLE: If you surrender your Contract (or if you annuitize under
circumstances where a Surrender Charge is payable) 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>
Money Market $93 $124 $156 $258
Short-Term High Quality Bond $95 $132 $169 $284
U.S. Government Securities $94 $129 $164 $274
Income $95 $131 $167 $280
Growth & Income $96 $134 $173 $291
Growth $97 $137 $178 $301
Emerging Growth $97 $138 $179 $303
International Growth $99 $142 $186 $318
</TABLE>
EXAMPLE: If you do NOT surrender your Contract (or if you annuitize under
circumstances where a surrender charge is not payable) (1) or
8
<PAGE>
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 YEARS 10 YEARS
------ ------- ------- --------
<S> <C> <C> <C> <C>
Money Market $23 $70 $120 $258
Short-Term High Quality Bond $25 $78 $133 $284
U.S. Government Securities $24 $75 $128 $274
Income $25 $77 $131 $280
Growth & Income $26 $80 $137 $291
Growth $27 $83 $142 $301
Emerging Growth $27 $84 $143 $303
International Growth $29 $88 $150 $318
</TABLE>
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) For a description of the circumstances under which the Surrender Charge
may be payable upon annuitization, see "Surrender Charge."
9
<PAGE>
SYNOPSIS OF CONTRACT PROVISIONS
This synopsis should be read together with the other information set forth in
this Prospectus. Variations due to requirements particular to your state are
described in supplements which are attached to this Prospectus, or in
endorsements to your Contract, as appropriate.
The Contracts are designed to provide retirement benefits through the
accumulation of purchase payments on a fixed or variable basis, and by the
application of such accumulations to provide Fixed or Variable Annuity
Payments.
MINIMUM INVESTMENT REQUIREMENTS
Your initial purchase payment must be at least $5,000 ($2,000 in the case of
an Individual Retirement Annuity ("IRA")). 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 eight available Divisions of
Separate Account D. Each such Division invests solely in shares of one of
eight 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."
10
<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
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
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<PAGE>
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 Money Market Division.
"Effective yield" is higher than "yield" because it assumes weekly compounding
over the course of the year.
Total return is the total change in value of an investment in the Division
over a period of time specified in the advertisement. The rate of "average
annual total return" shown would produce that change in value over the
specified period, if compounded annually. The rate of "aggregate total return"
is the cumulative amount of such change over the specified period, expressed
as a percentage of the initial investment.
Yield figures do not reflect the Surrender Charge, and yield and total return
figures do not reflect premium tax charges. Such total return figures may be
used together with total return figures that also exclude the Surrender
Charge. The exclusion of charges makes the performance shown more favorable. A
Fund's adviser may waive or reimburse certain fees or charges, which will
enhance the related Division's performance results. Additional information
concerning the Divisions' performance figures appears in the Statement.
AGL may also advertise or report to Owners its ratings as an insurance company
by the A. M. Best Company. Each year, A. M. Best reviews the financial status
of thousands of insurers, culminating in the assignment of Best's Ratings.
These ratings reflect their current opinion of the relative financial strength
and operating performance of an insurance company in comparison to the norms
of the life/health industry.
Best's Ratings range from A++ to F. An A++ rating means, in the opinion of A.
M. Best, that the insurer has demonstrated the strongest ability to meet its
respective policyholder and other contractual obligations.
A. M. Best publishes Best's Insurance Reports, Life-Health Edition. The 1997
edition reaffirmed AGL's rating of A++ (Superior), as of July 1997 for
financial position and operating performance.
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
12
<PAGE>
insurance policies in accordance with their terms. Standard & Poor's ratings
range from AAA to D. The Company's claims-paying ability is A++ (Excellent),
reaffirmed as of June 1997.
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. Duff & Phelps rate the
claims-paying ability of AGL as AAA, the highest level, reaffirmed as of
August 1997.
The ratings from A. M. Best, Standard & Poors, and Duff & Phelps reflect the
claims paying ability and financial strength of AGL. THEY ARE NOT A RATING OF
INVESTMENT PERFORMANCE THAT PURCHASERS OF INSURANCE PRODUCTS HAVE EXPERIENCED
OR ARE LIKELY TO EXPERIENCE IN THE FUTURE.
SELECTED ACCUMULATION UNIT DATA
The table below shows the Accumulation Unit value for the below-listed
Divisions of Separate Account D on the date purchase payments were first
allocated to each Division, as well as the Accumulation Unit value and number
of Accumulation Units outstanding for the indicated date thereafter.
13
<PAGE>
SELECTED ACCUMULATION UNIT DATA (CONT.)
<TABLE>
<CAPTION>
Short Term U.S.
Money High Quality Government
Market Bond Securities Income
------- ------------ ---------- ------
<S> <C> <C> <C> <C>
Accumulation
Unit Values
(Beginning
of Period)* $1 $1 $1 $1
Accumulation
Unit Values
at 12/31/93 $1.006053 N/A $1.012669 $1.045867
Accumulation
Unit Values
at 12/31/94 $1.028063 $0.969705 $0.957302 $0.946638
Accumulation
Unit Values
at 12/31/95 $1.068122 $1.044070 $1.102324 $1.166536
Accumulation
Unit Values
at 12/31/96 $1.104596 $1.067037 $1.126013 $1.154101
Accumulation
Unit Values
at 12/31/97 $ 1.142761 $1.113184 $1.213519 $1.265975
Accumulation
Units out-
standing at
12/31/93 1,479,140.661 N/A 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 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 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 59,114,942.951 51,843,333.618
Accumulation
Units out-
standing at
at 12/31/97 28,109,67.118 10,688,974.372 50,293,307.671 40,784,632.255
</TABLE>
14
<PAGE>
SELECTED ACCUMULATION UNIT DATA (CONT.)
<TABLE>
<CAPTION>
Growth
& 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
Unit Values
at 12/31/97 $1.919847 $1.901874 $1.610263 $1.216333
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
Accumulation
Units out-
standing at
at 12/31/97 62,313,547.982 63,454,068.969 28,042,281.808 40,387,999.121
<FN>
* Purchase payments were first allocated to the Money Market Division on
May 7, 1993; to the Short-Term High Quality Bond Division on January 11,
1994; ; to the U.S. Government Securities Division on May 5, 1993; to
the Income Division on May 6, 1993; to the Growth & 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>
15
<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 58 Divisions, eight of which are available under the Contracts
offered by this Prospectus and 50 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 eight Divisions of the
Separate Account. These Divisions invest in shares of eight of the fifteen
separate mutual fund portfolios of the Trust. Fund shares are sold, without
sales charges, exclusively to Separate Account D. Shares of the other seven
mutual funds 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.
The investment adviser to the Trust is WM Advisors, Inc. which is not
affiliated with AGL.
16
<PAGE>
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 Money Market Fund
o Short-Term High Quality Bond Fund
o U.S. Government Securities Fund
o Income Fund
o Growth & 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 & Income, Growth and
Emerging Growth Funds may each invest up to 35% 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 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
17
<PAGE>
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. 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 Money Market 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
18
<PAGE>
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 ($2,000 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 WM Fund Services, Inc., as distributor of the Contracts.
When a purchase payment accompanies an application to purchase a Contract, and
the application is in proper form and includes all necessary information,
either the application will be processed and the purchase payment credited or
the application will be rejected and the purchase payment returned within two
Valuation Dates after receipt of the application at the processing center for
Contract applications.
If the application is not in a proper form or does not include all necessary
information, the applicant will be requested to provide additional materials
or information within five Valuation Dates after receipt of the application at
the processing center for Contract applications. If the application is not
made proper and complete within this five day period, the purchase payment
will be returned 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
19
<PAGE>
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 Money Market
Division. This right does not apply to the Account Value of a Division that
falls below $500 immediately following a transfer under the WM Strategic 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 (gains or losses) or the Guarantee Periods of the Fixed Account as
of the date we credit the purchase payments to your Contract. When you apply
for a Contract, you select (in whole percentages) the amount of each purchase
payment that is to be allocated to each Division and each Guarantee Period.
You can change these allocation percentages at any time by Written notice to
us.
OWNER ACCOUNT VALUE
Prior to the Annuity Commencement Date, your Account Value under a Contract is
the sum of your Variable Account Value and Fixed Account Value, as discussed
below.
VARIABLE ACCOUNT VALUE
Your Variable Account Value as of any Valuation Date prior to the Annuity
Commencement Date is the sum of your Variable Account Values in each Division
of Separate Account D as of that date. Your Variable Account Value in any such
Division is the product of the number of your 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.
20
<PAGE>
The value of an Accumulation Unit for a Division on any Valuation Date is
equal to the previous value of that Division's Accumulation Unit multiplied by
that Division's net investment factor for the Valuation Period ending on that
Valuation Date.
The net investment factor for a Division is determined by dividing (1) the net
asset value per share of the Fund shares held by the Division, determined at
the end of the current Valuation Period, plus the per share amount of any
dividend or capital gains distribution made with respect to the Fund shares
held by the Division during the current Valuation Period, by (2) the net asset
value per share of the Fund shares held in the Division as determined at the
end of the previous Valuation Period, and subtracting from that result a
factor representing the mortality risk, expense risk and administrative
expense charge.
FIXED ACCOUNT VALUE
Your Fixed Account Value as of any Valuation Date prior to the Annuity
Commencement Date is the sum of your Fixed Account Value in each Guarantee
Period as of that date. Your Fixed Account Value in any Guarantee Period is
equal to the following amounts, in each case increased by accrued interest at
the applicable Guaranteed Interest Rate: (1) the amount of purchase payments,
renewals and transferred amounts allocated to the Guarantee Period less (2)
the amount of any transfers or withdrawals out of the Guarantee Period,
including withdrawals to pay applicable charges.
Your Fixed Account Value is guaranteed by 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 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
WM Strategic 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 WM Strategic Asset Management
Program, described below.
21
<PAGE>
No more than 25% of the Account Value you allocated to a Guarantee Period at
its inception may be transferred during any Contract Year. This 25% limitation
does not apply to transfers within 15 days before or after the end of the
Guarantee Period in which the transferred amounts were being held.
Subject to the above general rules concerning transfers including transfer
charges, you may establish an automatic transfer plan, whereby amounts are
automatically transferred by us from the Money Market 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 WM Strategic Asset Management Program Agreement and
Disclosure Statement that is on file with us, we will accept transfer requests
from WM Fund Services, Inc. The WM Strategic Asset Management Program ("SAM
Program") provides for WM Fund Services, Inc. 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 WM Fund Services, Inc. by 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 the
correct information, so there is a risk of possible loss to you if
unauthorized persons use this service in your name. 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.
22
<PAGE>
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
(except the Money Market Division), we will automatically transfer, without
charge, the remaining balance to the Money Market 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 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 1/2under any
Contract or after April 1 of the year following the calendar year in which the
Annuitant attains age 70 1/2under Qualified Contracts.
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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 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
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whether the minimum distribution requirements are being met, unless we have
received a specific Written request to do so.
No election of any Annuity Payment Option may be made unless an initial
annuity payment of at least $100 would be provided, where only a Fixed or only
Variable Annuity Payments are elected, and $50 on each basis when a
combination of Variable and Fixed Annuity Payments is elected. If these
minimums are not met, we will first reduce the frequency of annuity payments,
and if the minimums are still not met, we will make a lump-sum payment to the
Annuitant or other properly-designated payee in the amount of the Owner's
Account Value, less any applicable Surrender Charge.
Within 60 days after the death of the Owner or Annuitant, the Owner, or if the
Owner has not done so, the Beneficiary, may elect that any amount due to the
Beneficiary be applied under any option described below, subject to certain
tax law requirements. See "Death Proceeds." Thereafter, the Beneficiary will
have all the remaining rights and powers under the Contract and be subject to
all the terms and conditions thereof. The first annuity payment will be made
at the beginning of the second month following the month in which we approve
the settlement request. Annuity Units will be credited based on Annuity Unit
Values at the end of the Valuation Period that contains the tenth day prior to
the beginning of said second month.
When an Annuity Payment Option becomes effective, the Contract must be
delivered to our Home Office, in exchange for a payment contract providing for
the option elected.
Information about the relationship between the Annuitant's sex and the amount
of annuity payments, including requirements for gender-neutral annuity rates
in certain states and in connection with certain employee benefit plans is set
forth under "Gender of Annuitant" in the Statement. 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
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Annuitant or other properly-designated payee.
OPTION 5 - PAYMENTS OF A SPECIFIC DOLLAR AMOUNT - The amount due is paid in
equal monthly installments of a designated dollar amount (not less than $125
nor more than $200 per annum per $1,000 of the original amount due) until the
remaining balance is less than the amount of one installment. If the person
receiving these payments dies, the remaining payments continue to be made to
the Beneficiary. Payments under this option are available on a fixed basis
only. To determine the remaining balance at the end of any month, such balance
at the end of the previous month is decreased by the amount of any installment
paid during the month and the result will be accumulated at an interest rate
not less than 3.5% compounded annually. If the remaining balance at any time
is less than the amount of one installment, such balance will be paid and will
be the final payment under the option.
Under the fourth option there is no mortality guarantee by us, even though
Variable Annuity Payments will be reduced as a result of a charge to Separate
Account D which is partially for mortality risks. See "Charge to Separate
Account D."
A payee receiving Variable (but not Fixed) Annuity Payments under the fourth
option can elect at any time to commute (terminate) such option and receive
the current value of the annuity, which would be based on the values next
determined after the Written request for payment is received by us. The
current value of the annuity under the fourth option is the value of all
remaining annuity payments, assumed to be level, discounted to present value
at an annual rate of 3.5%. Other than by election of such a lump-sum payment
under the fourth option, an Annuity Payment Option may not be terminated once
annuity payments have commenced.
Under federal tax regulations, the election of the fourth or fifth options may
be treated in the same manner as a surrender of the total account. For tax
consequences of such treatment, see "Federal Income Tax Matters." Also, in
such a case, tax-deferred treatment of subsequent earnings may not be
available.
ALTERNATIVE AMOUNT UNDER FIXED LIFE ANNUITY OPTIONS - Each Contract provides
that when Fixed Annuity Payments are to be made under one of the first three
Annuity Payment Options described above, the Owner (or if the Owner has not
elected a payment option, the Beneficiary) may elect monthly payments to the
Annuitant or other properly-designated payee equal to the monthly payment
available under similar circumstances based on single payment immediate fixed
annuity 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
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fixed Annuity Payment Option. No charge will be assessed for such transfer. No
transfers from a fixed to a variable Annuity Payment Option are permitted. The
value transferred must be at least $500 or the payee's total value
attributable to a Division, if less. If a transfer would cause the value that
is attributable to a Contract in any Division to fall below $500, the
remaining balance in that Division also will be transferred in the same
proportion as the transfer request. Transfers will be effected at the end of
the Valuation Period in which we receive the Written transfer request at our
Home Office. We reserve the right to terminate or restrict transfers at any
time.
DEATH PROCEEDS
DEATH PROCEEDS PRIOR TO THE ANNUITY COMMENCEMENT DATE
The death proceeds described below are payable to the Beneficiary under the
Contract if, prior to the Annuity Commencement Date, any of the following
events occurs (a) the Annuitant dies and no Contingent Annuitant has been
named under a Non-Qualified Contract; (b) the Annuitant dies and we also
receive proof of death of any named Contingent Annuitant; or (c) the Owner
(including the first to die in the case of joint owners) of a Non-Qualified
Contract dies, regardless of whether said deceased Owner was also the
Annuitant, except that a Beneficiary who is the Owner's surviving spouse may
elect to continue the Contract as described in the second paragraph below. If
the deceased Annuitant or Owner had not reached age 85 at his or her death, as
applicable, the death proceeds will equal the greatest of (1) the sum of all
purchase payments made (less any previously-deducted premium taxes and all
prior partial withdrawals), (2) the Owner's Account Value as of the end of the
Valuation Period in which we receive, at our Home Office, all required proofs
of death and the Written request as to the manner of payment, or (3) the
Owner's Account Value as of the most recent five-year Contract Anniversary,
less the amount of any subsequent partial withdrawals. THE AMOUNT SPECIFIED IN
(3) ABOVE IS NOT AN AVAILABLE OPTION IN ALL STATES, AND YOU SHOULD THEREFORE
CONSULT YOUR SALES REPRESENTATIVE OR OUR HOME OFFICE AS TO WHETHER IT WILL
APPLY TO YOU. IN THOSE STATES WHERE (3) IS NOT AVAILABLE, THE DEATH PROCEEDS
WILL EQUAL THE GREATER OF (1) OR (2) ABOVE. If the Annuitant or Owner had
attained age 85 at his or her death, as applicable, the death proceeds will be
the amount specified in (2) above.
We will pay the death proceeds to the Beneficiary as of the date the proceeds
become payable. Such date is the end of the Valuation Period in which we
receive proof of the Owner's or Annuitant's death and a
Written request in good order from the Beneficiary as to the manner of
payment.
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
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meaning of the Code. Failure to satisfy these Code distribution requirements
may result in serious adverse tax consequences. Under a parallel section of
the Code, similar requirements apply to retirement plans in connection with
which Qualified Contracts are issued.
DEATH PROCEEDS AFTER THE ANNUITY COMMENCEMENT DATE
If the Annuitant dies following the Annuity Commencement Date, the only
amounts payable to the Beneficiary or other properly-designated payee are any
continuing payments provided for under the Annuity Payment Option selected.
See "Annuity Payment Options." In such a case, the payee will have all the
remaining rights and powers under a Contract and be subject to all the terms
and conditions thereof.
Also, if the Annuitant dies following the Annuity Commencement Date, no
Contingent Annuitant can become the Annuitant.
If the payee under a Non-Qualified Contract dies after the Annuity
Commencement Date, any remaining amounts payable under the terms of the
Annuity Payment Option must be distributed at least as rapidly as under the
method of distribution then in effect. If the payee is not a natural person,
this requirement applies upon the death of the primary Annuitant within the
meaning of the Code. Failure to satisfy these requirements of the Code may
result in serious adverse tax consequences. Under a parallel section of the
Code, similar requirements apply to the retirement plans in connection with
which Qualified Contracts are issued.
PROOF OF DEATH
We accept the following as proof of any person's death: a copy of a certified
death certificate; a copy of a certified decree of a court of competent
jurisdiction as to the finding of death; a written statement by a medical
doctor who attended the deceased at the time of death; or any other proof
satisfactory to us.
Once we have paid the death proceeds, the Contract terminates and we have no
further obligations thereunder.
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
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Surrender Charge. We will pay such excess out of our general surplus, which
might include profits from the charge for the assumption of mortality and
expense risks.
Unless a withdrawal is exempt from the Surrender Charge (as discussed below),
the Surrender Charge is a percentage of the amount of each purchase payment
that is withdrawn during the six years after it was received. The percentage
declines depending on how many years have passed since the withdrawn purchase
payment was originally credited to your Account Value, as follows:
<TABLE>
<CAPTION>
SURRENDER CHARGE AS A
YEARS ELAPSED PERCENTAGE OF PURCHASE
SINCE RECEIVED PAYMENT WITHDRAWN
-------------- ----------------------
<S> <C>
Less than 1 7%
1 or more, but less than 3 6%
3 or more, but less than 4 5%
4 or more, but less than 5 4%
5 or more, but less than 6 2%
6 or more 0%
</TABLE>
Only for the purpose of computing the Surrender Charge, the earliest purchase
payments are deemed to be withdrawn first, and before any amounts in excess of
purchase payments are withdrawn from your Account Value. The following
transactions will be considered as withdrawals, for purposes of assessing the
Surrender Charge: total surrender, partial withdrawal, commencement of an
Annuity Payment Option, and termination due to insufficient Account Value.
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
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arrangement established with us. Unused portions of this 10% free withdrawal
amount are carried forward during the year ONLY in connection with automatic
withdrawal arrangements established with us. Any unused portion of the 10%
free withdrawal amount never carries forward from one year to another. If an
automatic withdrawal arrangement is established with us after a non-automatic
withdrawal of less than the full 10% free withdrawal amount has been made in
the same Contract Year, the balance of 10% will be available for automatic
withdrawals during the remainder of that Contract Year. However, once an
automatic withdrawal has been made during any Contract Year in reliance on the
10% free withdrawal privilege, no non-automatic withdrawal may rely on that
privilege during the balance of that Contract Year.
The Surrender Charge will not apply to any amounts withdrawn which are in
excess of the amount permitted by the 10% free withdrawal privilege, described
above, if such amounts are required to be withdrawn to obtain or retain
favorable tax treatment. This exception is subject to our approval.
A free withdrawal pursuant to any of the foregoing Surrender Charge exceptions
is not deemed to be a withdrawal of purchase payments, except for purposes of
computing the 10% free withdrawal described in the preceding paragraph. See
"Penalty Tax on Premature Distributions."
TRANSFER CHARGES
The charges to defray the expense of effecting transfers are described under
"Transfer, Surrender and Partial Withdrawal of Owner Account Value -
Transfers" and "Annuity Period and Annuity Payment Options - Transfers." These
charges are designed not to yield a profit to us.
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
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for any federal or local taxes incurred or that may be incurred by us, and
that may be deemed attributable to the Contracts.
ONE-TIME REINSTATEMENT PRIVILEGE
If you have made a full surrender of your Account Value, you may reinstate the
Contract if we receive the Written reinstatement request, together with a
return to us of the net proceeds of such surrender, not more than 30 days
after the date as of which the surrender was made. In such a case, your
Account Value will be restored to what it was at the time of the surrender and
any subsequent Surrender Charge will be computed as if the Contract had been
issued at the date of reinstatement in consideration of a Purchase Payment in
the amount of such net surrender proceeds. Unless you request otherwise, the
reinstated Account Value will be allocated among the Divisions and Guarantee
Periods in the same proportions as the prior surrender. You may use this
privilege only once.
REDUCTION IN SURRENDER CHARGES OR ADMINISTRATIVE CHARGES
We may reduce the surrender charges or administrative charges imposed under
certain Qualified Contracts in connection with employer-sponsored plans. Any
such reductions will reflect differences in costs or services (due to such
factors as reduced sales expenses or administrative efficiencies relating to
serving a large number of employees of a single employer and functions assumed
by the employer that we otherwise would have to perform) and will not be
unfairly discriminatory as to any person.
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
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non-participating and are not entitled to share in any dividends, profits or
surplus of AGL.
OWNERS, ANNUITANTS, AND BENEFICIARIES; ASSIGNMENTS
The Owner of a Contract will be the same as the Annuitant, unless the
purchaser designates a different Owner when applying to purchase a Contract.
In the case of joint ownership, both Owners must join in the exercise of any
rights or privileges under the Contract. The Annuitant and any Contingent
Annuitant are designated by the purchaser when applying for a Contract and may
not thereafter be changed.
The Beneficiary and, under a Non-Qualified Contract, any Contingent
Beneficiary are designated by the purchaser when applying for a Contract. A
Beneficiary or Contingent Beneficiary may be changed by the Owner prior to the
Annuity Commencement Date, while the Annuitant is still alive, and by the
payee following the Annuity Commencement Date. Any designation of a new
Beneficiary or Contingent Beneficiary is effective as of the date it is
signed, but will not affect any payments we 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
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in any Division, the shares of another Fund or the shares of another
investment company or any other investment permitted by law; (7) make any
changes required by the Code or by any other applicable law, regulation or
interpretation in order to continue treatment of the Contract as an annuity;
(8) commence deducting premium taxes or adjust the amount of premium taxes
deducted in accordance with applicable state law; or (9) make any changes
required to comply with the rules of any Fund. 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. Congress has in the past and may again in the
future enact legislation changing the tax treatment of annuities in both the
Qualified and the Non-Qualified markets. The Treasury Department may issue new
or amended regulations or other interpretations of existing tax law. Judicial
interpretations may also affect the tax treatment of annuities. It is possible
that such changes could have a retroactive effect. We suggest that you consult
your legal or tax adviser on these issues.
The discussion does not address state or local tax or estate and gift tax
consequences associated with the Contracts.
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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 Funds in which it invests
are "adequately diversified" in accordance with Treasury Department
regulations. Although we do not control the Funds, the investment advisers to
the Funds have undertaken to operate the Fund and the Portfolios in compliance
with these diversification requirements. A Contract investing in a Fund that
failed to meet the diversification requirements would, unless and until the
failure can be corrected in a procedure afforded by the Internal Revenue
Service, subject Owners to taxation of income in the Contract for that or any
subsequent period. Income means the excess of the Account Value over the
Owner's investment in the Contract (discussed below).
Current regulations do not provide guidance as to any circumstances in which
control over allocation of values among different investment alternatives may
cause Owners or persons receiving annuity payments to be treated as the owners
of Separate Account D assets for tax purposes. We reserve the right to amend
the Contracts in any way necessary to avoid any such result. The Treasury
Department has stated that it may establish standards in this regard through
regulations or rulings and has informally indicated that a regulation or
ruling could limit the number of underlying funds or the frequency of
transfers among those funds. Such standards may apply only prospectively,
although retroactive application is possible if such standards are considered
not to embody a new position.
Owners that are not natural persons -- that is, Owners such as corporations --
are taxable currently on annual increases in their Account Value unless an
exception applies. Exceptions exist for, among other things, Owners that are
not natural persons but that hold the Contract as an agent for a natural
person.
TAXATION OF ANNUITY PAYMENTS. Each annuity payment received after the Annuity
Commencement Date is excludible from gross income in part. In the case of
Fixed Annuity Payments, the excludible portion is determined by multiplying
the amount paid by the ratio of the investment in the Contract (discussed
below) to the expected return under the fixed Annuity Payment Option. In the
case of Variable Annuity Payments, the amount paid is multiplied by the ratio
of the investment in the Contract to the number of expected payments. In both
cases, the remaining portion of each annuity payment, and all payments made
after the investment in the Contract has been reduced to zero, are included in
the payee's income. Should annuity payments cease on account of the death of
the Annuitant before the investment in the Contract has been fully recovered,
the payee is allowed a deduction for the unrecovered amount. If the payee is
the Annuitant, the deduction is taken on the final tax return. If the payee is
a Beneficiary, that Beneficiary may recover the balance of the total
investment as payments are made or on the Beneficiary's final tax return. An
Owner's "investment in the Contract" is the amount equal to the portions of
purchase payments made by or on behalf of the Owner that have not been
excluded or deducted from the individual's gross income, less amounts
previously received under the Contract that were not included in income.
TAXATION OF PARTIAL WITHDRAWALS AND TOTAL SURRENDERS. Partial withdrawals from
a Contract are includible in income to the extent that the Owner's Account
Value exceeds the investment in the Contract.
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In the event a Contract is surrendered in its entirety, any amount received in
excess of the investment in the Contract is includible in income, and any
remaining amount received is excludible from income. All annuity contracts
issued by us to the same Owner during any calendar year are to be aggregated
for purposes of determining the amount of any distribution that is includible
in gross income.
PENALTY TAX ON PREMATURE DISTRIBUTIONS. A penalty tax is imposed on
distributions under a Contract equal to 10% of the amount includable in
income. The penalty tax will not apply, however, to (1) distributions made
after the recipient attains age 59 1/2, (2) distributions on account of the
recipient's becoming disabled, (3) distributions that are made after the death
of the Owner prior to the Annuity Commencement Date or the payee after the
Annuity Commencement Date (or if such person is not a natural person, that are
made after the death of the primary Annuitant, as defined in the Code), and
(4) distributions that are part of a series of substantially equal periodic
payments made 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 an 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 $30,000 may fully deduct their IRA purchase payments. Those who have
adjusted gross income in excess of $40,000 will not be able to deduct purchase
payments, and for those with adjusted gross income between $30,000 and $40,000
the deduction is phased out based on the amount of income. Beginning in 1999,
the income range over which the otherwise deductible portion of an IRA
purchase payment will be phased out for single persons will increase, as
follows: 1999--$31,000 to $41,000; 2000--$32,000 to $42,000; 2001-- $33,000 to
$43,000; 2002--$34,000 to $44,000; 2003--$40,000 to $50,000; 2004--$45,000 to
$55,000; and 2005 and thereafter--$50,000 to $60,000.
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 $50,000 and $60,000, and in the case of married
individuals filing separately, with adjusted gross income between $0 and
$10,000. Beginning in 1999, the income range over which the otherwise
deductible portion of an IRA purchase payment will be phased out for married
individuals filing joint tax returns will increase as follows: 1999-- $51,000
to $61,000; 2000--$52,000 to $62,000; 2001--$53,000 to $63,000; 2002-- $54,000
to $64,000; 2003--$60,000 to $70,000; 2004--$65,000 to $75,000; 2005--$70,000
to $80,000; 2006--$75,000 to $85,000; and 2007 and thereafter--$80,000 to
$100,000.
A married individual filing a joint tax return, who is not an active
participant in a tax qualified retirement plan, but whose spouse is an active
participant in such a plan, may, in any year, deduct from his or her taxable
income purchase payments for an IRA equal to the lesser of $2,000 or 100% of
the individual's earned income. For such an individual, the income range over
which the otherwise deductible portion of an IRA purchase payment will be
phased out is $150,000 to $160,000.
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
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, including distributions for qualified first-time home
purchases for the individual, a spouse, children, grandchildren or ancestor,
subject to a $10,000 lifetime maximum, and distributions for higher education
expenses for the individual, a spouse, children, or grandchildren. 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.
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ROTH IRAS
Beginning in 1998, individuals may purchase a new type of non-deductible IRA,
known as a Roth IRA.
Purchase payments for a Roth IRA are limited to $2,000 per year. This
limitation is reduced for adjusted gross income beginning at $95,000 and is
eliminated at $110,000 in the case of single taxpayers, between $150,000 and
$160,000 in the case of married taxpayers filing joint returns, and between $0
and $15,000 in the case of married taxpayers filing separately. An overall
$2,000 annual limitation continues to apply to all of a taxpayer's IRA
contributions, including Roth IRAs and non-Roth IRAs.
An individual may make a rollover contribution from a non-Roth IRA to a Roth
IRA, unless the individual has adjusted gross income over $100,000 or the
individual is a married taxpayer filing a separate return. The individual must
pay tax on any portion of the IRA being rolled over that represents income or
a previously deductible IRA contribution. For rollovers in 1998, the
individual may pay that tax ratably in 1998 and over the succeeding three
years. There are no similar limitations on rollovers from a Roth IRA to
another Roth IRA.
Qualified distributions from Roth IRAs are entirely tax free. A qualified
distribution requires that the individual has held the Roth IRA for at least
five years and, in addition, that the distribution is made either after the
individual reaches age 59 1/2 on the individual's death or disability, or as a
qualified first-time home purchase, subject to a $10,000 lifetime maximum, for
the individual, a spouse, child, grandchild, or ancestor.
SIMPLIFIED EMPLOYEE PENSION PLANS
Employees and employers may establish an IRA plan known as a simplified
employee pension plan ("SEP") if certain requirements are met. An employee may
make contributions to a SEP in accordance with the rules applicable to IRAs
discussed above. Employer contributions to an employee's SEP are deductible by
the employer and are not currently includible in the taxable income of the
employee. However, total employer contributions are limited to 15% of an
employee's compensation or $30,000, whichever is less.
SIMPLE RETIREMENT ACCOUNTs
Employees and employers may establish an IRA plan known as a simple retirement
account ("SRA"), if certain requirements are met. Under an SRA, the employer
contributes elective employee compensation deferrals up to a maximum of $6,000
a year. The employer must, in general, make a fully vested matching
contribution for employee deferrals up to 3% of compensation.
OTHER QUALIFIED PLANS
PURCHASE PAYMENTS. Purchase payments made by an employer under a pension,
profit-sharing, or annuity plan qualified under section 401 or 403(a) of the
Code, not in excess of certain limits, are deductible by the employer. Such
purchase payments are also excluded from the current income of the employee.
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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 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
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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.
FEDERAL INCOME TAX WITHHOLDING AND REPORTING
Amounts distributed from a Contract, to the extent includible in taxable
income, are subject to federal income tax withholding. The payee may, however,
elect to have no income tax withheld by submitting a withholding exemption
certificate to us.
In some cases, if you own more than one Qualified annuity contract, such
contracts may be aggregated for purposes of determining whether the federal
tax law requirement for minimum distributions after age 70 1/2, or retirement,
in appropriate circumstances, has been satisfied. If, under this aggregation
procedure, you are relying on distributions pursuant to another annuity
contract to satisfy the minimum distribution requirement under a Qualified
Contract issued by us, you must sign a waiver releasing us from any liability
to you for not calculating and reporting the amount of taxes and penalties
payable for failure to make required minimum distributions under the Contract.
TAXES PAYABLE BY AGL AND SEPARATE ACCOUNT D
AGL is taxed as a life insurance company under the Code. The operations of
Separate Account D are part of the total operations of AGL and are not taxed
separately. Under existing federal income tax laws, AGL is not taxed on
investment income derived by Separate Account D (including realized and
unrealized capital gains) with respect to the Contracts. AGL reserves the
right to allocate to the Contracts any federal, state or other tax liability
that may result in the future from maintenance of Separate Account D or the
Contracts.
Certain Series may make an election to pass through to AGL any taxes withheld
by foreign taxing jurisdictions on foreign source income. Such an election
will result in additional taxable income and income tax to AGL. The amount of
additional income tax, however, may be more than offset by credits for the
foreign taxes withheld, which are also passed through. These credits may
provide a benefit to AGL.
DISTRIBUTION ARRANGEMENTS
The Contracts will be sold by individuals who, in addition to being licensed
by state insurance authorities to sell the Contracts of AGL, are also
registered representatives of WM Fund Services, Inc. or other broker-dealer
firms or representatives of other firms that are exempt from broker-dealer
regulation.
WM Fund Services, Inc. has contracted with American General Securities
Incorporated ("AGSI"), the principal underwriter of the Contracts, for WM Fund
Services, Inc. to distribute the Contracts. AGSI is a wholly-owned subsidiary
of AGL. WM Fund Services, Inc. also provides certain administrative services
to AGL in connection with the processing of applications for Contracts. WM
Fund Services, Inc., 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. WM Fund Services, Inc. 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 WM Fund Services, Inc. or other broker-dealers that sell the
Contracts at a rate that does not exceed 6% of purchase payments received
pursuant to the Contracts. This compensation must be wholly or partially
refunded if a Contract is cancelled or otherwise terminated within twenty-four
months after issuance. 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.
SERVICES AGREEMENT
American General Independent Producer Division ("AGIPD") is party to an
existing general services agreement with AGL. AGIPD, an affiliate of AGL, is a
corporation incorporated in Delaware on November 24, 1997. Pursuant to this
agreement, AGIPD provides services to AGL, including most of the
administrative, data processing, systems, customer services, product
development, actuarial, auditing, accounting and legal services for AGL and
the Contracts.
LEGAL MATTERS
The legality of the Contracts described in this Prospectus has been passed
upon by Steven A. Glover, Esquire, Senior Counsel of AGIPD. 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:
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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
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(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, 1997.
This Disclosure Statement is not part of your annuity 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 annuity
contract 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 annuity contract is delivered that you do not desire to retain your IRA,
written notification to the Company must be mailed, together with your annuity
contract, within that period. If such notice is mailed within 20 days, current
annuity contract value or contributions if required, without adjustments for
any applicable sales commissions or administrative expenses, will be refunded.
MAIL NOTIFICATION OF REVOCATION AND YOUR ANNUITY CONTRACT 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 total deduction will, in general,
be the lesser of $4,000 or 100% of the combined earned income of both spouses,
reduced by any deduction for an IRA purchase payment allowed to your spouse.
If you are an active participant, but have an adjusted gross income (AGI)
below a certain level (see B. below), you may still make a deductible
contribution. If, however, you or your spouse is an active participant and
your combined AGI is above the specified level, the amount of the deductible
contribution you may make to an IRA will be phased down and eventually
eliminated.
A. ACTIVE PARTICIPANT
You are an "active participant" for a year if you are covered by a retirement
plan. You are covered by a "retirement plan" for a year if your employer or
union has a retirement plan under which money is added to your account or you
are eligible to earn retirement credits. For example, if you are covered under
a profit-sharing plan, certain government plans, a salary reduction
arrangement (such
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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, (i) filed a separate tax return, and did not live with
your spouse at any time during the year, or (ii) filed a joint return and have
a joint AGI of less than $150,000, your spouse's active participation will not
affect your ability to make deductible contributions. If you are married and
file jointly, your deduction will be phased out between an AGI of $150,000 to
$160,000.
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, the Threshold Level is $30,000. If you are married and file
a joint tax return, the Threshold Level is $50,000. If you are married but
file a separate tax return, the Threshold Level will be $0.
For taxable years beginning in 1999, the Threshold Levels for single
individuals and for married individuals filing jointly will increase as
follows:
<TABLE>
<CAPTION>
For taxable years beginning in : Single Married (filing jointly)
-------------------------------- ------ ------------------------
<S> <C> <C>
1999 $31,000 $51,000
2000 $32,000 $52,000
2001 $33,000 $53,000
2002 $34,000 $54,000
2003 $40,000 $60,000
2004 $45,000 $65,000
2005 $50,000 $70,000
2006 $50,000 $75,000
2007 and thereafter $50,000 $80,000
</TABLE>
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A married individual filing a joint tax return, who is not an active
participant, but whose spouse is, may, in any year, make deductible IRA
contributions equal to the lesser of $2,000 or 100% of the individual's earned
income. The Threshold Level for such individual is $150,000.
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. In the case of a married individual filing jointly and
earning less than his or her spouse, the maximum Allowable Deduction is the
lesser of $2,000 or the spouse's income, less any deductible IRA contributions
or contributions to a Roth IRA. You can estimate your Deduction Limit as
follows:
(Your Deduction Limit may be slightly higher if you use this formula rather
than the table provided by the IRS.)
$10,000 - EXCESS AGI
-------------------- x Maximum Allowable Deduction = Deduction Limit
$10,000
For the taxable year beginning in 2007, the deduction limit for married
individuals filing jointly will be determined as follows:
$10,000 - EXCESS AGI
-------------------- x Maximum Allowable Deduction = Deduction Limit
$20,000
You must round up the result to the next highest $10 level (the next highest
number which ends in zero). For example, if the result is $1,525, you must
round it up to $1,530. If the final result is below $200 but above zero, your
Deduction Limit is $200. Your Deduction Limit cannot, in any event, exceed
100% of your compensation.
EXAMPLE 1: Ms. Smith, a single person, is an active participant and has an AGI
of $31,619. In 1998, she would calculate her deductible IRA contribution as
follows:
Her AGI is $31,619
Her Threshold Level is $30,000
Her Excess AGI is (AGI - Threshold Level) or ($36,619-$30,000) = $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. Their 1999 combined AGI is
$55,255. Neither
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spouse contributed to a Roth IRA. They may each contribute to an IRA and
calculate their deductible contributions to each IRA as follows:
Their AGI is $55,255
Their Threshold Level is $51,000
Their Excess AGI is (AGI - Threshold Level) or ($55,255 - $51,000)
= $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 could still contribute to an IRA and calculate their deductible
contribution to each IRA as in Example 2.
EXAMPLE 4: In 1998, 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.
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.
Page 4
<PAGE>
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)
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
---- ---------- --------------
1990 $ 2,000
1991 1,800
1994 1,000 $ 1,000
1996 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 12/31/98: $ 9,000
(before distributions in 1998).
Page 5
<PAGE>
In 1998, the individual takes a distribution of $3,000. The total account
balance in the IRAs on 12/31/98 before 1998 distributions is $9,000. The
non-taxable portion of the distributions for 1998 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 1998 will not be included in the
individual's taxable income. The remaining $2,200 will be taxable for 1998.
ROLLOVER IRA RULES
1. IRA TO IRA
You may withdraw, tax-free, all or part of the assets from an IRA and reinvest
them in one or more IRAs. The reinvestment must be completed within 60 days of
the withdrawal. No IRA deduction is allowed for the reinvestment. Amounts
required to be distributed because the individual has reached age 70 1/2 may
not be rolled over.
2. EMPLOYER PLAN DISTRIBUTIONS TO IRA
All taxable distributions (known as "eligible rollover distributions") from
qualified pension, profit-sharing, stock bonus and tax sheltered annuity plans
may be rolled over to an IRA, with the exception of (1) annuities paid over a
life or life expectancy, (2) installments for a period of ten years or more,
and (3) required minimum distributions under section 401(a)(9).
Rollovers may be accomplished in two ways. First, you may elect to have an
eligible rollover distribution paid directly to an IRA (a "direct rollover").
Second, you may receive the distribution directly and then, within 60 days of
receipt, roll the amount over to an IRA. Under the law, however, any amount
that you elect not to have distributed as a direct rollover will be subject to
20 percent income tax withholding, and, if you are younger than age 59 1/2,
may result in a 10% excise tax on any amount of the distribution that is
included in income. Questions regarding distribution options under the Act
should be directed to your Plan Trustee or Plan Administrator, or may be
answered by consulting IRS Regulations ss.1.401(a)(31)-1, ss.1.402(c)-2T and
ss.31.3405(c)-1.
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, (f) is used for a qualified first time home purchase for you, your
spouse, children, grandchildren, or ancestor, subject to a $10,000 lifetime
maximum or (g) is for higher education purposes for you, your spouse, children
or grandchildren.
Page 6
<PAGE>
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 annuity 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 annuity 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 annuity contract by the required beginning date. These
periodic distributions may be taken over (a) your life; (b) the lives of you
and your named beneficiary; (c) a period not extending beyond your life
expectancy; or (d) a period not extending beyond the joint life expectancy of
you and your named beneficiary.
If you do not satisfy the minimum distribution requirements, then, pursuant to
Code ss.4974, you may have to pay a 50% excise tax on the amount not
distributed as required that year.
The foregoing minimum distribution rules are discussed in detail in IRS
Publication 590, "Individual Retirement Arrangements."
REPORTING
You are required to report penalty taxes due on excess contributions, excess
accumulations, premature distributions, and prohibited transactions.
Currently, IRS Form 5329 is used to report such information to the Internal
Revenue Service.
PROHIBITED TRANSACTIONS
Neither you nor your beneficiary may engage in a prohibited transaction, as
that term is defined in Code ss.4975.
Borrowing any money from this IRA would, under Code ss.408(e)(3), cause the
annuity 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 annuity 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
Page 7
<PAGE>
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
(WM ADVANTAGE VARIABLE ANNUITY)
This Financial Disclosure is applicable to IRAs using the WM Advantage
Variable Annuity purchased from American General Life Insurance Company on or
after April 1, 1998.
Earnings under Variable Annuities are not guaranteed, and depend on the
performance of the investment options selected. As such, earnings cannot be
projected. Set forth below are the charges associated with these annuities.
CHARGES:
(a) A maximum charge of $25 for each transfer, in excess of 12 free
transfers annually, of contract value between divisions of the
Separate Account.
(b) To compensate for mortality and expense risks assumed under the
contract, variable divisions only will incur a daily charge at an
annualized rate of 1.20% of the average Separate Account Value of
the contract during both the Accumulation and the Payout Phase.
(c) Premium taxes, if applicable, may be charged against Accumulation
Value at time of annuitization, a full or partial surrender or upon
the death of the Annuitant. If a jurisdiction imposes premium taxes
at the time purchase payments are made, the Company may deduct a
charge at that time.
(d) If the contract is surrendered, or if a withdrawal is made, there
may be a Surrender Charge. The Surrender Charge equals the sum of
the following:
7.0% of purchase payments for surrenders and withdrawals made
during the first contract year following receipt of the
purchase payments surrendered;
6.0% of purchase payments for surrenders and withdrawals made
during the second through third contract year following receipt
of the purchase payments surrendered;
5.0% of purchase payments for surrenders and withdrawals made
during the fourth contract year following receipt of the
purchase payments surrendered;
4.0% of purchase payments for surrenders and withdrawals made
during the fifth contract year following receipt of the
purchase payments surrendered;
Page 8
<PAGE>
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
and other expenses deducted directly from the underlying fund during
the Accumulation and Payout Phase. The fee will range between 0.75%
and 1.35%, depending on the Division.
Page 9
<PAGE>
AMERICAN GENERAL LIFE INSURANCE COMPANY SEPARATE ACCOUNT D
COMBINATION FIXED AND VARIABLE ANNUITY CONTRACTS
OFFERED BY
AMERICAN GENERAL LIFE INSURANCE COMPANY
ANNUITY ADMINISTRATION DEPARTMENT
P.O. BOX 1401, HOUSTON, TEXAS 77251-1401
1-800-247-6584 713-831-3505
STATEMENT OF ADDITIONAL INFORMATION
Dated April 1, 1998
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 WM Advantage Contracts ("Contracts") investing in certain mutual fund
portfolios of the WM Variable Trust, dated April 1, 1998. 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
AGL and American General Independent Producer Division ("AGIPD") are parties
to a services agreement which has been entered into among most of the
affiliated companies within the American General Corporation holding company
system, including certain life insurance companies. AGIPD is a corporation
incorporated in Delaware on November 24, 1997, with its home office located at
2727-A Allen Parkway, Houston, Texas 77019. AGIPD provides shared services
including data processing, systems, customer services, product development,
actuarial, auditing, accounting and legal to AGL and certain other life
insurance companies at cost. AGL did not pay any fees to AGIPD in 1997 because
no services were performed.
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, AGL's
Separate Account A, and AGL's Separate Account VL-R, all of which are unit
investment trusts registered under the Investment Company Act of 1940, as
amended.
As principal underwriter with respect to all contracts issued by AGL and
funded through Separate Account D, AGSI has received from AGL $13,954 in 1997
and less than $1,000 of compensation for each of the previous two 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 Money Market 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, 1997 are set forth in
the table below.
4
<PAGE>
<TABLE>
<CAPTION>
DIVISION ONE YEAR SINCE DIVISION INCEPTION*
-------- -------- -------------------------
<S> <C> <C>
Money Market (3.54)% 2.20%
Short-Term High Quality Bond (2.68)% 1.68%
U.S. Government Securities 0.77% 3.57%
Income 2.69% 4.55%
Growth & Income 19.61% 17.15%
Growth 2.59% 14.34%
Emerging Growth 3.92% 11.95%
International Growth (11.08)% 3.63%
<FN>
* The U.S. Government Securities Division commenced operations on May 5,
1993. The Growth, International Growth and Income Divisions commenced
operations on May 6, 1993. The Money Market Division commenced
operations on May 7, 1993. The Growth & 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, 1997 are set forth in the table below.
<TABLE>
<CAPTION>
DIVISION ONE YEAR SINCE DIVISION INCEPTION*
-------- -------- -------------------------
<S> <C> <C>
Money Market 3.46% 2.91%
Short-Term High Quality Bond 4.32% 2.74%
U.S. Government Securities 7.77% 4.24%
Income 9.69% 5.20%
Growth & Income 26.60% 17.86%
Growth 9.59% 14.81%
Emerging Growth 10.92% 12.75%
International Growth (4.08)% 4.30%
<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, 1997 are set forth in the table below:
<TABLE>
<CAPTION>
DIVISION ONE YEAR SINCE DIVISION INCEPTION*
-------- -------- -------------------------
<S> <C> <C>
Money Market 3.46% 14.28%
Short-Term High Quality Bond 4.32% 11.32%
U.S. Government Securities 7.77% 21.35%
Income 9.69% 26.60%
Growth & Income 26.60% 91.98%
Growth 9.59% 90.19%
Emerging Growth 10.92% 61.03%
International Growth (4.08)% 21.63%
<FN>
* See footnote to previous table for dates when Divisions commenced
operations.
</FN>
</TABLE>
YIELD CALCULATIONS
The yields for the U.S. Government Securities, Short Term High Quality Bond,
and Income Divisions are each computed in accordance with a standard method
prescribed by the SEC. The
6
<PAGE>
yields for the U.S. Government Securities, Short Term High Quality Bond, and
Income Divisions, based upon the one month period ended December 31, 1997,
were 4.45%, 4.09%, and 4.97%, 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.
MONEY MARKET DIVISION YIELD AND EFFECTIVE YIELD CALCULATIONS
The Money Market 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 Money Market Fund's assets are not
included in the calculation. The Money Market Division's yield for the
seven-day period ended December 31, 1997 was 3.49%.
The Money Market Division's effective yield is determined by taking the base
period return (computed as described above) and calculating the effect of
assumed compounding. The formula for the effective yield is: (base period
365/7-1
return +1). The Money Market Division's effective yield for the
seven-day period ended December 31, 1997 was 3.55%.
Yield and effective yield do not reflect the deduction of Surrender Charges or
the charges for any applicable premium taxes.
7
<PAGE>
PERFORMANCE COMPARISONS
The performance of any or all of the Divisions of Separate Account D may be
compared in advertisements and sales literature to the performance of other
variable annuity issuers in general or to the performance of particular types
of variable annuities investing in mutual funds, or series of mutual funds,
with investment objectives similar to each of the Divisions of Separate
Account D. Lipper Analytical Services, Inc. ("Lipper") and the Variable
Annuity Research and Data Service ("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.
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>
8
<PAGE>
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
Separate Account D has 58 Divisions as of the date of this Statement, eight of
which are available under the Contracts which are the subject of this
Statement. The December 31, 1997 financial statements for Separate Account D
which are included herein relate to nine of the 44 Divisions which had
operations as of December 31, 1997. One of those nine Divisions, the Short
Term Global Government division, was available under the Contracts as of
December 31, 1997 and therefore is included in the financial statements. On
January 20, 1998 the Short Term Global Government Division was merged into the
Short Term High Quality Bond Division.
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>
<TABLE>
INDEX TO
FINANCIAL STATEMENTS
PAGE NO.
<S> <C>
I. WM Advantage Divisions (formerly 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............................................ 12
Statement of Changes in Net Assets................................. 13
Notes to Financial Statements...................................... 14
II. AGL Consolidated Financial Statements
Report of Ernst & Young LLP, Independent Auditors.................. 20
Consolidated Balance Sheets........................................ 21
Consolidated Statements of Income.................................. 23
Consolidated Statements of Shareholders'Equity..................... 24
Consolidated Statements of Cash Flows.............................. 25
Notes to Consolidated Financial Statements......................... 26
</TABLE>
10
<PAGE>
Report of Independent Auditors
Board of Directors
American General Life Insurance Company
and
Contract Owners
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, 1997, 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 31,1997,
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, 1997, 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.
Houston, Texas /s/ERNST & YOUNG LLP
February 20, 1998 --------------------
Ernst & Young LLP
Page 11
<PAGE>
American General Life Insurance Company
Sierra Advantage Divisions
SEPARATE ACCOUNT D
<TABLE>
STATEMENT OF NET ASSETS
December 31, 1997
<S> <C>
ASSETS:
Investment securities - at market (cost $436,908,096)........ $ 490,422,882
Due from American General Life Insurance Company............. 31,578
-------------
NET ASSETS................................................. $ 490,454,460
=============
CONTRACT OWNER RESERVES:
Reserves for redeemable annuity contracts.................... $ 490,164,695
Reserves for annuity contracts on benefit.................... 289,765
-------------
TOTAL CONTRACT OWNER RESERVES.............................. $ 490,454,460
=============
</TABLE>
<TABLE>
STATEMENT OF OPERATIONS
Year Ended December 31, 1997
<S> <C>
INVESTMENT INCOME:
Dividends from mutual funds.................................. $ 12,394,967
EXPENSES:
Expense and mortality fee.................................... 7,330,194
-------------
NET INVESTMENT INCOME...................................... 5,064,773
-------------
REALIZED AND UNREALIZED GAIN ON INVESTMENTS:
Net realized gain on investments............................. 10,638,305
Capital gain distributions from mutual funds................. 25,830,621
Net unrealized gain on investments........................... 2,175,791
-------------
NET REALIZED AND UNREALIZED GAIN ON INVESTMENTS............ 38,644,717
-------------
INCREASE IN NET ASSETS RESULTING FROM OPERATIONS........... $ 43,709,490
=============
</TABLE>
See accompanying notes.
Page 12
<PAGE>
American General Life Insurance Company
Sierra Advantage Divisions
SEPARATE ACCOUNT D
<TABLE>
STATEMENT OF CHANGES IN NET ASSETS
<CAPTION>
Year Ended December 31,
1997 1996
<S> <C> <C>
OPERATIONS:
Net investment income........................................ $ 5,064,773 $ 5,933,703
Net realized gain on investments............................. 10,638,305 8,253,869
Capital gain distributions from mutual funds................. 25,830,621 19,044,845
Net unrealized gain on investments........................... 2,175,791 1,870,223
------------- -------------
Increase in net assets resulting from operations....... 43,709,490 35,102,640
------------- -------------
PRINCIPAL TRANSACTIONS:
Contract purchase payments, less sales and administrative
expenses and premium taxes................................. 14,585,220 62,319,889
Payments to contract owners:
Annuity benefits........................................... (75,522) (21,080)
Terminations and withdrawals........................... (48,587,933) (24,125,839) *
------------- -------------
Increase (decrease) in net assets resulting from
principal transaction....................................... (34,078,235) 38,172,970
------------- -------------
TOTAL INCREASE IN NET ASSETS................................ 9,631,255 73,275,610
NET ASSETS:
Beginning of year........................................... 480,823,205 407,547,595
------------- -------------
End of year................................................. $490,454,460 $480,823,205
============= =============
<FN>
* Includes 1996 death benefits of $5,785,466; reclassified from annuity
benefits.
</FN>
</TABLE>
See accompanying notes.
Page 13
<PAGE>
NOTES TO FINANCIAL STATEMENTS
Sierra Advantage Divisions
SEPARATE ACCOUNT D
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 at December 31, 1997 consisted of forty-four Divisions, forty-two of which
are currently available to purchasers through annuity contracts. On December
23, 1997, shareholders of the Short Term Global Government Fund of the Sierra
Variable Trust ("Trust") approved a plan of reorganization. This plan resulted
in the Short Term Global Government Fund being merged into and with the Short
Term High Quality Bond Fund of the Trust on January 30, 1998. As a consequence
of the impending merger, effective January 12, 1998, interests in the Short
Term Global Government Division of Separate Account D were no longer offered
to Sierra Advantage contract owners. On January 30, 1998, all contract owner
account values which had been previously allocated to the Short Term Global
Government Division were converted into the same dollar amount of account
value in the Short Term High Quality Bond Division. During the first quarter
of 1998, the Global Money Fund will be renamed Money Market Fund. The
Divisions currently funded by series of the Sierra Variable Trust which are
available to Sierra Advantage contract owners are as follows:
International Growth Fund Growth and Income Fund
Growth Fund Corporate Income Fund
Global Money Fund Short Term High Quality Bond Fund
U.S. Government Fund Emerging Growth Fund
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.
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 expense charge is 0.30% and the annual rate for the
mortality and expense risk charge 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, 1997 were $1,341,792.
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.
Page 14
<PAGE>
NOTE B - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES & BASIS OF PRESENTATION -
CONTINUED
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 risk 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.
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, 1997.
<TABLE>
<CAPTION>
Net Value of Cost of Unrealized
Asset Shares at Shares Appreciation/
Fund Shares Value Market Held (Depreciation)
---- ------ ------ --------- ------- --------------
<S> <C> <C> <C> <C> <C>
------------- ------------- -------------
International Growth Fund 4,009,881.994 $ 12.26 $ 49,161,153 $ 48,822,903 $ 338,250
Short Term Global Government Fund 7,298,973.514 2.48 18,101,454 17,792,874 308,580
Growth Fund 7,835,129.120 15.41 120,739,340 104,025,962 16,713,378
Global Money Fund 32,122,249.310 1.00 32,122,249 32,122,249 0
U.S. Government Fund 6,081,727.705 10.04 61,060,546 59,051,369 2,009,177
Growth and Income Fund 5,939,800.160 16.92 100,501,419 76,357,854 24,143,565
Corporate Income Fund 5,068,889.130 10.19 51,651,980 48,930,724 2,721,256
Short Term High Quality Bond Fund 4,898,665.602 2.43 11,903,757 12,069,364 (165,607)
Emerging Growth Fund 2,890,657.924 15.63 45,180,984 37,734,797 7,446,187
------------- ------------- -------------
$490,422,882 $436,908,096 $ 53,514,786
============= ============= =============
</TABLE>
The aggregate cost of purchases and proceeds from sales of investments
for the period ended December 31, 1997 were $89,230,849 and $92,445,267,
respectively. The cost of total investments owned at December 31, 1997 was the
same for both financial reporting and federal income tax purposes. Gross
unrealized appreciation and gross unrealized depreciation as of December 31,
1997 were $53,680,393 and $165,607, respectively.
Page 15
<PAGE>
SEPARATE ACCOUNT D - Sierra Advantage Divisions
NOTES TO FINANCIAL STATEMENTS - CONTINUED
Note E - Summary of Changes in Units
Summary of Changes in Units for the Year Ended December 31, 1997
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... 49,208,677.687 20,093,503.244 66,849,400.755 21,051,065.909 59,114,942.951
Purchase payments................... 1,368,306.336 302,715.958 1,588,056.880 1,276,385.612 1,469,411.569
Surrenders.......................... (4,119,589.671) (2,371,874.000) (6,223,304.506) (2,517,039.513) (5,396,986.584)
Transfers to annuity................ (25,820.684) (6,528.383) (29,264.701) 0.000 (2,956.090)
Transfers between funds............. (6,043,574.547) (1,923,793.259) 1,269,180.541 8,299,259.110 (4,891,104.175)
--------------- --------------- --------------- --------------- ---------------
Outstanding at end of period 40,387,999.121 16,094,023.560 63,454,068.969 28,109,671.118 50293307.671
=============== =============== =============== =============== ===============
</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.......................... 41,176,555.767 51,843,333.618 11,613,016.642 38,477,387.014
Purchase payments................... 1,744,717.237 1,180,921.519 353,090.726 1,189,260.411
Surrenders.......................... (4,462,517.038) (4,553,483.320) (776,476.187) (3,312,246.151)
Transfers to annuity................ (39,050.980) (4,429.448) (6,655.461) (12,100.967)
Transfers between funds............. (13,893,842.996) (7,681,710.114) (494,001.348) (8,300,018.499)
---------------- --------------- --------------- ---------------
Outstanding at end of period 52,313,547.982 40,784,632.255 10,688,974.372 28,042,281.808
================ =============== =============== ===============
</TABLE>
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.. 14,905.021 18,793.341 15,030.132 7,893.562 19,180.553
Transfers from accumulation......... 25,780.084 6,374.970 29,264.701 0.000 2,886.619
Annuity benefits.................... (7,850.282) (7,150.189) (8,740.231) (1,947.619) (5,251.987)
------------ ------------ ------------ ------------ ------------
Outstanding at end of period........ 32,834.823 18,018.122 35,554.602 5,945.943 16,815.185
============ ============ ============ ============ ============
</TABLE>
<TABLE>
<CAPTION>
Growth and Corporate Emerging
Income Fund Income Fund Growth Fund
<S> <C> <C> <C>
Outstanding at beginning of period.. 8,843.952 22,490.997 0.000 10,611.843
Transfers from accumulation......... 39,050.980 4,325.352 6,499.058 12,100.967
Annuity benefits.................... (8,479.492) (7,936.717) (1,162.440) (4,549.112)
------------ ------------ ------------ ------------
Outstanding at end of period........ 39,415.440 18,879.632 5,336.618 18,163.698
============ ============ ============ ============
Page 16
<PAGE>
Summary of Changes in Units for the Year Ended December 31, 1996
<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... 38,882,135.444 23,376,496.403 65,732,670.354 19,070,427.181 47,440,751.595
Purchase payments.................... 5,764,727.855 823,425.493 7,956,730.419 5,200,191.953 6,228,720.252
Surrenders........................... (2,265,550.102) (1,734,078.214) (3,016,815.821) (1,095,488.892) (3,518,537.910)
Transfers to annuity................. (15,963.133) (6,097.866) (12,788.652) (8,500.903) (20,672.538)
Transfers between funds.............. 6,843,327.623 (2,366,242.572) (3,810,395.545) (2,115,563.430) 8,984,681.552
--------------- --------------- --------------- --------------- ---------------
Outstanding at end of period......... 49,208,677.687 20,093,503.244 66,849,400.755 21,051,065.909 59,114,942.951
=============== =============== =============== =============== ===============
</TABLE>
<TABLE>
<CAPTION>
Short Term
High
Growth and Corporate Quality Emerging
Income Fund Income Fund Bond Fund Growth Fund
<S> <C> <C> <C> <C>
Outstanding at beginning of period... 36,675,025.766 52,014,100.048 11,822,728.277 34,379,287.120
Purchase payments.................... 8,537,457.784 5,251,049.786 1,617,072.331 6,624,985.814
Surrenders........................... (1,751,987.311) (3,393,206.396) (545,483.502) (1,578,433.352)
Transfers to annuity................. (9,531.916) (8,122.761) 0.000 (11,325.843)
Transfers between funds.............. (2,274,408.556) (2,020,487.059) (1,281,300.464) (937,126.725)
--------------- --------------- --------------- ---------------
Outstanding at end of period......... 41,176,555.767 51,843,333.618 11,613,016.642 38,477,387.014
=============== =============== =============== ===============
</TABLE>
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 benefits..................... (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 2,0438.943 0.000
Transfers from accumulation.......... 9,531.916 8,122.761 11,325.843
Annuity benefits..................... (687.964) (6,070.707) (714.000)
--------------- --------------- ---------------
Outstanding at end of period......... 8,843.952 22,490.997 10,611.843
=============== =============== ===============
</TABLE>
Page 17
SEPARATE ACCOUNT D - Sierra Advantage Divisions
NOTES TO FINANCIAL STATEMENTS - CONTINUED
Note F - Net Assets Represented By:
December 31,1997
<TABLE>
CONTRACTS IN ACCUMULATION PERIOD:
<CAPTION>
Units Unit Value Amount
<S> <C> <C> <C>
International Growth Fund........... 40,387,999.121 $ 1.216333 $ 49,125,256
Short Term Global Government Fund... 16,094,023.560 1.123566 18,082,698
Growth Fund......................... 63,454,068.969 1.901874 120,681,644
Global Money Fund................... 28,109,671.118 1.142761 32,122,636
U.S. Government Fund................ 50,293,307.671 1.213519 61,031,884
Growth and Income Fund.............. 52,313,547.982 1.919847 100,434,008
Corporate Income Fund............... 40,784,632.255 1.265975 51,632,325
Short Term High Quality Bond Fund... 10,688,974.372 1.113184 11,898,795
Emerging Growth Fund................ 28,042,281.808 1.610263 45,155,449
-------------
490,164,695
-------------
CONTRACTS IN ANNUITY PERIOD:
International Growth Fund........... 32,834.823 1.216333 39,938
Short Term Global Government Fund... 18,018.122 1.123566 20,244
Growth Fund......................... 35,554.602 1.901874 67,620
Global Money Fund................... 5,945.943 1.142761 6,795
U.S. Government Fund................ 16,815.186 1.213519 20,406
Growth and Income Fund.............. 39,415.440 1.919847 75,672
Corporate Income Fund............... 18,879.632 1.265975 23,901
Short Term High Quality Bond Fund... 5,336.618 1.113184 5,941
Emerging Growth Fund................ 18,163.698 1.610263 29,248
-------------
289,765
-------------
TOTAL CONTRACT OWNER RESERVES....... $490,454,460
=============
</TABLE>
Page 18
<PAGE>
Note F - Net Assets Represented By: - Continued
December 31, 1996
<TABLE>
CONTRACTS IN ACCUMULATION PERIOD:
<CAPTION>
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>
Note G - Year 2000 Contingency
The Company is in the process of modifying its information technology to
be ready for the Year 2000. The Company expects the project to be
substantially complete by 1998. All costs associated with required
modifications will be paid for by the Company.
Page 19
<PAGE>
CONSOLIDATED FINANCIAL STATEMENTS
AMERICAN GENERAL LIFE INSURANCE COMPANY
YEARS ENDED DECEMBER 31, 1997 AND 1996
<PAGE>
AMERICAN GENERAL LIFE INSURANCE COMPANY
CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 1997 AND 1996
CONTENTS
Report of Independent Auditors.........................................
Audited Consolidated Financial Statements
Consolidated Balance Sheets............................................
Consolidated Income Statements.........................................
Consolidated Statements of Shareholders' Equity........................
Consolidated Statements of Cash Flows..................................
Notes to Consolidated Financial Statements.............................
<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 and Stockholders
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, 1997 and ,
and the related consolidated statements of income, shareholders' equity, and
cash flows for each of the three years in the period ended December 31, 1997.
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, 1997 and , and the
consolidated results of their operations and their cash flows for each of the
three years in the period ended December 31, 1997, in conformity with
generally accepted accounting principles.
/s/ERNST & YOUNG LLP
--------------------
Ernst & Young LLP
February 23, 1998
Ernst & Young LLP is a member of Ernst & Young International, Ltd.
20
<PAGE>
AMERICAN GENERAL LIFE INSURANCE COMPANY
Consolidated Balance Sheets
<TABLE>
<CAPTION>
December 31
1997 1996
---------------------------------
(IN THOUSANDS)
<S> <C> <C>
ASSETS
Investments:
Fixed maturity securities, at fair value (amortized cost -
$26,131,207 in 1997 and $24,762,134 in 1996) $ 27,386,715 $ 25,395,381
Equity securities, at fair value (cost - $19,208 in 1997
and $17,642 in 1996) 21,114 20,555
Mortgage loans on real estate 1,659,921 1,707,843
Policy loans 1,093,694 1,006,137
Investment real estate 129,364 145,442
Other long-term investments 55,118 43,344
Short-term investments 100,061 94,882
---------------------------------
Total investments 30,445,987 28,413,584
Cash 99,284 33,550
Investment in Parent Company (cost - $8,597 in 1997
and 1996) 37,823 28,597
Indebtedness from affiliates 96,519 86,488
Accrued investment income 433,111 392,058
Accounts receivable 208,209 170,457
Deferred policy acquisition costs 835,031 1,042,783
Property and equipment 33,827 35,414
Other assets 132,659 134,289
Assets held in separate accounts 11,242,270 7,727,189
---------------------------------
Total assets $ 43,564,720 $ 38,064,409
=================================
</TABLE>
SEE ACCOMPANYING NOTES.
21
<PAGE>
<TABLE>
<CAPTION>
December 31
1997 1996
---------------------------------
(IN THOUSANDS)
<S> <C> <C>
LIABILITIES AND SHAREHOLDERS' EQUITY
Liabilities:
Future policy benefits $ 27,849,893 $ 26,558,538
Other policy claims and benefits payable 42,677 41,679
Other policyholders' funds 398,314 376,675
Federal income taxes 543,379 402,361
Indebtedness to affiliates 4,712 3,376
Other liabilities 421,861 325,630
Liabilities related to separate accounts 11,242,270 7,727,189
---------------------------------
Total liabilities 40,503,106 35,435,448
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 1,184,743 933,342
Net unrealized investment gains 427,526 219,151
Retained earnings 1,442,495 1,469,618
---------------------------------
Total shareholders' equity 3,061,614 2,628,961
---------------------------------
Total liabilities and shareholders' $ 43,564,720 $ 38,064,409
equity =================================
</TABLE>
SEE ACCOMPANYING NOTES.
22
<PAGE>
AMERICAN GENERAL LIFE INSURANCE COMPANY
Consolidated Income Statements
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31
1997 1996 1995
---------------------------------------------
(IN THOUSANDS)
Revenues:
<S> <C> <C> <C>
Revenues:
Premiums and other considerations $ 428,721 $ 382,923 $ 342,420
Net investment income 2,198,623 2,095,072 2,011,088
Net realized investment gains (losses) 29,865 28,502 (1,942)
Other 53,370 41,968 27,172
---------------------------------------------
Total revenues 2,710,579 2,548,465 2,378,738
Benefits and expenses:
Benefits 1,757,504 1,689,011 1,641,206
Operating costs and expenses 379,012 347,369 309,110
Interest expense 782 830 2,180
---------------------------------------------
Total benefits and expenses 2,137,298 2,037,210 1,952,496
---------------------------------------------
Income before income tax expense 573,281 511,255 426,242
Income tax expense 198,724 176,660 143,947
---------------------------------------------
Net income $ 374,557 $ 334,595 $ 282,295
=============================================
</TABLE>
SEE ACCOMPANYING NOTES.
23
<PAGE>
AMERICAN GENERAL LIFE INSURANCE COMPANY
Consolidated Statements of Shareholders' Equity
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31
1997 1996 1995
--------------------------------------------
(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 850 850 -
Change during year - - 850
--------------------------------------------
Balance at end of year 850 850 850
Additional paid-in capital:
Balance at beginning of year 933,342 858,075 850,358
Capital contribution from Parent Company 250,000 75,000 -
--------------------------------------------
Other changes during year 1,401 267 7,717
--------------------------------------------
Balance at end of year 1,184,743 933,342 858,075
Net unrealized investment gains (losses):
Balance at beginning of year 219,151 493,594 (730,900)
Change during year 208,375 (274,443) 1,224,494
--------------------------------------------
Balance at end of year 427,526 219,151 493,594
Retained earnings:
Balance at beginning of year 1,469,618 1,324,703 1,249,109
Net income 374,557 334,595 282,295
Dividends paid (401,680) (189,680) (206,701)
--------------------------------------------
Balance at end of year 1,442,495 1,469,618 1,324,703
--------------------------------------------
Total shareholders' equity $ 3,061,614 $ 2,628,961 $ 2,683,222
=============================================
</TABLE>
SEE ACCOMPANYING NOTES.
24
<PAGE>
AMERICAN GENERAL LIFE INSURANCE COMPANY
<TABLE>
Consolidated Statements of Cash Flows
<CAPTION>
YEAR ENDED DECEMBER 31
1997 1996 1995
-----------------------------------------------
(IN THOUSANDS)
<S> <C> <C> <C>
OPERATING ACTIVITIES
Net income $ 374,557 $ 334,595 $ 282,295
Adjustments to reconcile net income to net cash
(used in) provided by operating activities:
Change in accounts receivable (37,752) 3,846 (18,654)
Change in future policy benefits and other
policy claims (1,143,736) (543,193) (70,383)
Amortization of policy acquisition costs 115,467 102,189 68,295
Policy acquisition costs deferred (219,339) (188,001) (203,607)
Change in other policyholders' funds 21,639 63,174 (69,126)
Provision for deferred income tax expense 13,264 12,388 (9,773)
Depreciation 16,893 16,993 18,119
Amortization (28,276) (30,758) (35,825)
Change in indebtedness to/from affiliates (8,695) 4,432 7,596
Change in amounts payable to brokers 31,769 (25,260) 30,964
Net (gain) loss on sale of investments (29,865) (28,502) 1,942
Other, net 30,409 32,111 46,863
-----------------------------------------------
Net cash (used in) provided by operating activities (863,665) (378,286) 181,006
INVESTING ACTIVITIES
Purchases of investments and loans made (29,638,861) (27,245,453) (14,573,323)
Sales or maturities of investments and receipts
from repayment of loans 28,300,238 25,889,422 12,528,185
Sales and purchases of property and equipment, net (9,230) (8,057) (12,114)
-----------------------------------------------
Net cash used in investing activities (1,347,853) (1,364,088) (2,057,252)
FINANCING ACTIVITIES
Policyholder account deposits 4,187,191 3,593,380 3,372,522
Policyholder account withdrawals (1,759,660) (1,746,987) (1,258,560)
Dividends paid (401,680) (189,680) (206,701)
Capital contribution from Parent 250,000 75,000 -
Other 1,401 267 67
-----------------------------------------------
Net cash provided by financing activities 2,277,252 1,731,980 1,907,328
-----------------------------------------------
Increase (decrease) in cash 65,734 (10,394) 31,082
Cash at beginning of year 33,550 43,944 12,862
Cash at end of year $ 99,284 $ 33,550 $ 43,944
===============================================
</TABLE>
Interest paid amounted to approximately $1,004,000, $1,080,000, and $1,933,000
in 1997, 1996, and 1995, respectively.
SEE ACCOMPANYING NOTES.
25
<PAGE>
AMERICAN GENERAL LIFE INSURANCE COMPANY
Notes to Consolidated Financial Statements
DECEMBER 31, 1997
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 is 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-sized
businesses. AGNY offers a broad array of traditional and interest-sensitive
insurance, in addition to individual annuity products. VALIC provides
tax-deferred retirement annuities and employer-sponsored retirement plans to
employees of health care, educational, public sector, and other not-for-profit
organizations throughout the United States.
1. ACCOUNTING POLICIES
1.1 PREPARATION OF FINANCIAL STATEMENTS
The consolidated financial statements have been prepared in accordance with
generally accepted accounting principles ("GAAP") and include the accounts of
the Company and its wholly owned 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.
26
<PAGE>
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, 1997.
Statutory financial statements differ from GAAP. Significant differences were
as follows (in thousands):
<TABLE>
<CAPTION>
1997 1996 1995
-----------------------------------------------
<S> <C> <C> <C>
Net income:
Statutory net income (1997 balance is
unaudited) $ 327,813 $ 284,070 $ 197,769
Deferred policy acquisition costs 103,872 85,812 135,312
Deferred income taxes (13,264) (12,388) 9,773
Adjustments to policy reserves (30,162) (19,954) (77,591)
Goodwill amortization (2,067) (2,169) (2,195)
Net realized gain on investments 20,139 14,140 22,874
Gain on sale of subsidiary - - 661
Other, net (31,774) (14,916) (4,308)
-----------------------------------------------
GAAP net income $ 374,557 $ 334,595 $ 282,295
===============================================
Shareholders' equity:
Statutory capital and surplus (1997 balance
is unaudited) $ 1,636,327 $ 1,441,768 $ 1,298,323
Deferred policy acquisition costs 835,031 1,042,783 605,501
Deferred income taxes (535,703) (410,007) (549,663)
Adjustments to policy reserves (319,680) (297,434) (311,065)
Acquisition-related goodwill 51,424 55,626 57,795
Asset valuation reserve ("AVR") 255,975 291,205 263,295
Interest maintenance reserve ("IMR") 9,596 63 3,114
Investment valuation differences 1,272,339 643,289 1,417,775
Benefit plans, pretax 6,103 6,749 6,023
Surplus from separate accounts (150,928) (106,026) (76,645)
Other, net 1,130 (39,055) (31,231)
-----------------------------------------------
Total GAAP shareholders' equity $ 3,061,614 $ 2,628,961 $ 2,683,222
================================================
</TABLE>
27
<PAGE>
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 AVR and
an IMR. The AVR is designed to address the credit-related risk for bonds,
preferred stocks, derivative instruments, and mortgages and market risk for
common stocks, real estate, and other invested assets. The IMR is composed of
investment- and liability-related realized gains and losses that result from
interest rate fluctuations. These realized gains and losses, net of tax, are
amortized into income over the expected remaining life of the asset sold or
the liability released.
1.3 INSURANCE CONTRACTS
The insurance contracts accounted for in these financial statements include
primarily long-duration contracts. Long-duration contracts include traditional
whole life, endowment, guaranteed renewable term life, universal life, limited
payment, and investment contracts. Long-duration contracts generally require
the performance of various functions and services over a period of more than
one year. The contract provisions generally cannot be changed or canceled by
the insurer during the contract period; however, most new contracts written by
the Company allow the insurer to revise certain elements used in determining
premium rates or policy benefits, subject to guarantees stated in the
contracts.
28
<PAGE>
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 nonperforming 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.
29
<PAGE>
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 impaired 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.
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.
30
<PAGE>
1. ACCOUNTING POLICIES (CONTINUED)
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 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
31
<PAGE>
1. ACCOUNTING POLICIES (CONTINUED)
1.7 PREMIUM RECOGNITION (CONTINUED)
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.
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 2.0% to 13.5% at December 31, 1997.
32
<PAGE>
1. ACCOUNTING POLICIES (CONTINUED)
1.10 POLICY AND CONTRACT CLAIMS RESERVES (CONTINUED)
The claims 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.
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.
33
<PAGE>
1. ACCOUNTING POLICIES (CONTINUED)
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 2.22% and 2.47% of life
insurance in force at December 31, 1997 and 1996, respectively. Such business
is accounted for in accordance with Statement of Financial Accounting
Standards ("SFAS") No. 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/non-life consolidated tax return with the Parent Company and its
noninsurance subsidiaries. The Company participates in a tax sharing agreement
with other companies included in the consolidated tax return. Under this
agreement, tax payments are made to the Parent Company as if the companies
filed separate tax returns; and companies incurring operating and/or capital
losses are reimbursed for the use of these losses by the consolidated return
group.
Income taxes are provided for in accordance with SFAS No. 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 No. 109, state
income taxes are included in income tax expense.
1.14 NEW ACCOUNTING STANDARD NOT YET ADOPTED
In June 1997, the Financial Accounting Standards Board issued SFAS No. 130,
REPORTING COMPREHENSIVE INCOME, which establishes standards for reporting and
displaying comprehensive income and its components in the financial
statements. Beginning in 1998, the Company must adopt this statement for all
periods presented. Application of this statement will not change recognition
or measurement of net income and, therefore, will not impact the Company's
consolidated results of operations or financial position.
34
<PAGE>
2. INVESTMENTS
2.1 INVESTMENT INCOME
Investment income by type of investment was as follows:
<TABLE>
<CAPTION>
1997 1996 1995
-----------------------------------------------
(IN THOUSANDS)
<S> <C> <C> <C>
Investment income:
Fixed maturities $ 1,966,528 $ 1,846,549 $ 1,759,358
Equity securities 1,067 1,842 6,773
Mortgage loans on real estate 157,035 175,833 185,022
Investment real estate 22,157 22,752 16,397
Policy loans 62,939 58,211 52,939
Other long-term investments 3,135 2,328 1,996
Short-term investments 8,626 9,280 6,234
Investment income from affiliates 11,094 11,502 12,570
-----------------------------------------------
Gross investment income 2,232,581 2,128,297 2,041,289
Investment expenses 33,958 33,225 30,201
-----------------------------------------------
Net investment income $ 2,198,623 $ 2,095,072 $ 2,011,088
===============================================
</TABLE>
The carrying value of investments that have produced no investment income
during 1997 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.
35
<PAGE>
2. INVESTMENTS (CONTINUED)
2.2 NET REALIZED INVESTMENT GAINS (LOSSES)
Realized gains (losses) by type of investment were as follows:
<TABLE>
<CAPTION>
1997 1996 1995
-----------------------------------------------
(IN THOUSANDS)
<S> <C> <C> <C>
Fixed maturities:
Gross gains $ 42,966 $ 46,498 $ 38,657
Gross losses (34,456) (47,29 (41,022)
-----------------------------------------------
Total fixed maturities 8,510 (795) (2,365)
Equity securities 1,971 18,304 9,710
Other investments 19,384 10,993 (9,287)
-----------------------------------------------
Net realized investment gains (losses)
before tax 29,865 28,502 (1,942)
Income tax expense 10,452 9,976 547
-----------------------------------------------
Net realized investment gains (losses)
after tax $ 19,413 $ 18,526 $ (2,489)
================================================
</TABLE>
36
<PAGE>
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, 1997 and 1996 were as follows:
<TABLE>
<CAPTION>
GROSS GROSS
AMORTIZED COST UNREALIZED UNREALIZED FAIR
GAIN LOSS VALUE
-------------------------------------------------------------------
(IN THOUSANDS)
<S> <C> <C> <C> <C>
DECEMBER 31, 1997
Fixed maturity securities:
Corporate securities:
Investment-grade $ 17,913,942 $ 906,235 $ 17,551 $ 18,802,626
Below investment-grade 950,438 34,290 4,032 980,696
-------------------------------------------------------------------
Mortgage-backed securities* 6,614,704 278,143 4,260 6,888,587
U.S. government obligations 289,406 46,529 74 335,861
Foreign governments 318,212 18,076 3,534 332,754
State and political subdivisions 44,505 1,686 - 46,191
-------------------------------------------------------------------
Total fixed maturity securities $ 26,131,207 $ 1,284,959 $ 29,451 $ 27,386,715
===================================================================
Equity securities $ 19,208 $ 2,145 $ 239 $ 21,114
===================================================================
Investment in Parent Company $ 8,597 $ 29,226 $ - $ 37,823
===================================================================
</TABLE>
37
<PAGE>
2. INVESTMENTS (CONTINUED)
2.3 FIXED MATURITY AND EQUITY SECURITIES (CONTINUED)
<TABLE>
<CAPTION>
GROSS GROSS
AMORTIZED COST UNREALIZED UNREALIZED FAIR
GAIN LOSS 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
===================================================================
<FN>
* Primarily include pass-through securities guaranteed by and mortgage
obligations ("CMOs") collateralized by the U.S. government and
government agencies.
</FN>
</TABLE>
38
<PAGE>
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>
1997 1996
------------------------------------
(IN THOUSANDS)
<S> <C> <C>
Gross unrealized gains $ 1,316,330 $ 808,713
Gross unrealized losses (29,690) (152,553)
DPAC and other fair value adjustments (621,867) (315,117)
Deferred federal income taxes (237,247) (121,892)
------------------------------------
Net unrealized gains on securities $ 427,526 219,151
====================================
</TABLE>
The contractual maturities of fixed maturity securities at December 31, 1997
were as follows:
<TABLE>
<CAPTION>
AMORTIZED FAIR
COST VALUE
------------------------------------
(IN THOUSANDS)
<S> <C> <C>
Fixed maturity securities, excluding mortgage-backed securities:
Due in one year or less $ 205,719 $ 207,364
Due after one year through five years 5,008,933 5,216,174
Due after five years through ten years 9,163,681 9,604,447
Due after ten years 5,138,169 5,470,143
Mortgage-backed securities 6,614,705 6,888,587
------------------------------------
Total fixed maturity securities $ 26,131,207 $ 27,386,715
====================================
</TABLE>
Actual maturities may differ from contractual maturities, since borrowers may
have the right to call or prepay obligations. In addition, corporate
requirements and investment strategies may result in the sale of investments
before maturity. Proceeds from sales of fixed maturities were $14.8 billion,
$16.2 billion, and $7.3 billion during 1997, 1996, and 1995, respectively.
39
<PAGE>
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, 1997 and :
<TABLE>
<CAPTION>
OUTSTANDING PERCENT OF PERCENT
AMOUNT TOTAL NONPERFORMING
-----------------------------------------------------
(IN MILLIONS)
<S> <C> <C> <C>
DECEMBER 31, 1997
Geographic distribution:
South Atlantic $ 456 27.5% 1.8%
Pacific 340 20.5 14.4
Mid-Atlantic 288 17.3 -
East North Central 186 11.2 -
Mountain 151 9.1 2.7
West South Central 132 7.9 .1
East South Central 94 5.7 -
West North Central 19 1.1 -
New England 17 1.1 -
Allowance for losses (23) (1.4) -
-------------------------------
Total $ 1,660 100.0% 3.6%
===============================
Property type:
Office $ 622 37.5% 4.6%
Retail 463 27.9 3.0
Industrial 324 19.5 1.8
Apartments 223 13.4 6.1
Hotel/motel 40 2.4 -
Other 11 .7 -
Allowance for losses (23) (1.4) -
-------------------------------
Total $ 1,660 100.0% 3.6%
===============================
</TABLE>
40
<PAGE>
2. Investments (continued)
2.4 Mortgage Loans on Real Estate (continued)
<TABLE>
<CAPTION>
OUTSTANDING PERCENT OF PERCENT
AMOUNT TOTAL NONPERFORMING
-----------------------------------------------------
(IN MILLIONS)
<S> <C> <C> <C>
DECEMBER 31, 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>
41
<PAGE>
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
1997 1996
------------------------------------
(IN MILLIONS)
<S> <C> <C>
Impaired loans:
With allowance* $ 35 $ 60
Without allowance - -
------------------------------------
Total impaired loans $ 35 $ 60
====================================
<FN>
* Represents gross amounts before allowance for mortgage loan losses of
$10 million and $9 million, respectively.
</FN>
</TABLE>
<TABLE>
<CAPTION>
1997 1996 1995
------------------------------------------------------
(IN MILLIONS)
<S> <C> <C> <C>
Average investment $ 48 $ 72 $ 102
Interest income earned $ 3 $ 6 $ 8
Interest income -- cash basis $ - $ 6 $ 8
</TABLE>
42
<PAGE>
2. INVESTMENTS (CONTINUED)
2.5 INVESTMENT SUMMARY
Investments of the Company were as follows:
<TABLE>
<CAPTION>
December 31, 1997
-----------------------------------------------------
FAIR CARRYING
COST VALUE AMOUNT
-----------------------------------------------------
(IN THOUSANDS)
<S> <C> <C> <C>
Fixed maturities:
Bonds:
United States government and government
agencies and authorities $ 289,406 $ 335,861 $ 335,861
States, municipalities, and political
subdivisions 44,505 46,191 46,191
Foreign governments 318,212 332,754 332,754
Public utilities 1,848,546 1,952,724 1,952,724
Mortgage-backed securities 6,614,704 6,888,587 6,888,587
All other corporate bonds 17,015,834 17,830,598 17,830,598
-----------------------------------------------------
Total fixed maturities 26,131,207 27,386,715 27,386,715
Equity securities:
Common stocks:
Industrial, miscellaneous, and other 5,604 5,785 5,785
Nonredeemable preferred stocks 13,604 15,329 15,329
-----------------------------------------------------
Total equity securities 19,208 21,114 21,114
Mortgage loans on real estate* 1,659,921 xxx 1,659,921
Investment real estate 129,364 xxx 129,364
Policy loans 1,093,694 xxx 1,093,694
Other long-term investments 55,118 xxx 55,118
Short-term investments 100,061 xxx 100,061
-----------------------------------------------------
Total investments $ 29,188,573 $ xxx $ 30,445,987
=====================================================
<FN>
* Amount is net of a $23 million allowance for losses.
</FN>
</TABLE>
43
<PAGE>
3. DEFERRED POLICY ACQUISITION COSTS
The balance of DPAC at DECEMBER 31 and the components of the change reported
in operating costs and expenses for the years then ended were as follows:
<TABLE>
<CAPTION>
1997 1996 1995
------------------------------------------------------
(IN THOUSANDS)
<S> <C> <C> <C>
Balance at January 1 $ 1,042,783 $ 605,501 $ 1,479,115
Capitalization 219,339 188,001 203,607
Amortization (115,467) (102,189) (68,295)
Change in the effect of SFAS No. 115 (311,624) 351,470 (1,008,926)
------------------------------------------------------
Balance at December 31 $ 835,031 $ 1,042,783 $ 605,501
======================================================
</TABLE>
4. OTHER ASSETS
Other assets consisted of the following:
<TABLE>
<CAPTION>
December 31
1997 1996
------------------------------------
(IN THOUSANDS)
<S> <C> <C>
Goodwill $ 51,424 $ 55,626
Other 81,235 78,663
------------------------------------
Total other assets $ 132,659 $ 134,289
====================================
</TABLE>
44
<PAGE>
5. FEDERAL INCOME TAXES
5.1 TAX LIABILITIES
Income tax liabilities were as follows:
<TABLE>
<CAPTION>
December 31
1997 1996
------------------------------------
(IN THOUSANDS)
<S> <C> <C>
Current tax (receivable) payable $ 7,676 $ (7,646)
Deferred tax liabilities, applicable to:
Net income 298,456 288,115
Net unrealized investment gains 237,247 121,892
------------------------------------
Total deferred tax liabilities 535,703 410,007
------------------------------------
Total current and deferred tax liabilities $ 543,379 $ 402,361
====================================
</TABLE>
Components of deferred tax liabilities and assets at December 31 were as
follows:
<TABLE>
<CAPTION>
1997 1996
------------------------------------
(IN THOUSANDS)
<S> <C> <C>
Deferred tax liabilities applicable to:
Deferred policy acquisition costs $ 226,653 $ 308,802
Basis differential of investments 486,194 254,402
------------------------------------
Other 139,298 130,423
------------------------------------
Total deferred tax liabilities 852,145 693,627
Deferred tax assets applicable to:
Policy reserves (232,539) (219,677)
Other (83,903) (63,943)
------------------------------------
Total deferred tax assets before valuation
allowance (316,442) (283,620)
Valuation allowance - -
------------------------------------
Total deferred tax assets, net of valuation
allowance (316,442) (283,620)
------------------------------------
Net deferred tax liabilities $ 535,703 $ 410,007
====================================
</TABLE>
45
<PAGE>
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, 1997. 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>
1997 1996 1995
------------------------------------------------------
(IN THOUSANDS)
<S> <C> <C> <C>
Current expense $ 185,460 $ 164,272 $ 153,720
Deferred expense (benefit):
Deferred policy acquisition cost 27,644 21,628 38,275
Policy reserves (27,496) (27,460) (49,177)
Basis differential of investments 3,769 4,129 3,710
Other, net 9,347 14,091 (2,581)
------------------------------------------------------
Total deferred expense (benefit) 13,264 12,388 (9,773)
------------------------------------------------------
Income tax expense $ 198,724 $ 176,660 $ 143,947
======================================================
</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>
1997 1996 1995
------------------------------------------------------
(IN THOUSANDS)
<S> <C> <C> <C>
Income tax at statutory percentage of GAAP
pretax income $ 200,649 $ 178,939 $ 149,185
Tax-exempt investment income (9,493) (9,347) (10,185)
Goodwill 723 759 768
Tax on sale of subsidiary - - (661)
Other 6,845 6,309 4,840
------------------------------------------------------
Income tax expense $ 198,724 $ 176,660 143,947
======================================================
</TABLE>
46
<PAGE>
5. FEDERAL INCOME TAXES (CONTINUED)
5.3 TAXES PAID
Income taxes paid amounted to approximately $168 million, $182 million, and
$90 million in 1997, 1996, and 1995, respectively.
5.4 TAX RETURN EXAMINATIONS
The Parent Company and the majority of its subsidiaries file a consolidated
federal income tax return. The Internal Revenue Service has completed
examinations of the Company's tax returns through 1988 and is currently
examining tax returns for 1989 through 1996. In addition, the tax returns of
companies recently acquired are also being examined. Although the final
outcome of any issues raised in examination is uncertain, the Company believes
that the ultimate liability, including interest, will not exceed amounts
recorded in the consolidated financial statements.
6. TRANSACTIONS WITH AFFILIATES
Affiliated notes and accounts receivable were as follows:
<TABLE>
<CAPTION>
December 31, 1997 December 31, 1996
-----------------------------------------------------------------------
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 $ 3,288 $ 4,725 $ 3,239
American General Corporation,
8 1/4%, due 2004 17,125 32,953 19,572 19,572
American General Corporation,
Restricted Subordinated Note,
13 1/2%, due 2002 31,494 31,494 33,550 33,550
-----------------------------------------------------------------------
Total notes receivable from
affiliates 53,344 67,735 57,847 56,361
Accounts receivable from affiliates - 28,784 - 30,127
-----------------------------------------------------------------------
Indebtedness from affiliates $ 53,344 $ 96,519 $ 57,847 $ 86,488
=======================================================================
</TABLE>
47
<PAGE>
6. TRANSACTIONS WITH AFFILIATES (CONTINUED)
Various American General companies provide services to the Company,
principally mortgage servicing and investment advisory services. The Company
paid approximately $33,916,000, $22,083,000, and $21,006,000 for such services
in 1997, 1996, and 1995, respectively. Accounts payable for such services at
December 31, 1997 and were not material. In addition, the Company rents
facilities and provides services to various American General companies. The
Company received approximately $6,455,000, $1,255,000, and $2,086,000 for such
services and rent in 1997, 1996, and 1995, respectively. Accounts receivable
for rent and services at December 31, 1997 and 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.
7. STOCK-BASED COMPENSATION
Certain officers of the Company participate in American General Corporation's
stock and incentive plans which provide for the award of stock options,
restricted stock awards, performance awards, and incentive awards to key
employees. Stock options constitute the majority of such awards. Expense
related to stock options is measured as the excess of the market price of the
stock at the measurement date over the exercise price. The measurement date is
the first date on which both the number of shares that the employee is
entitled to receive and the exercise price are known. Under the stock option
plans, no expense is recognized, since the market price equals the exercise
price at the measurement date.
48
<PAGE>
7. STOCK-BASED COMPENSATION (CONTINUED)
Under an alternative accounting method, compensation expense arising from
stock options would be measured at the estimated fair value of the options at
the date of grant. Had compensation expense for the stock options been
determined using this method, net income would have been as follows:
<TABLE>
<CAPTION>
1997 1996 1995
------------------------------------------------------
(IN THOUSANDS)
<S> <C> <C> <C>
Net income as reported $ 374,557 $ 334,595 $ 282,295
Net income pro forma 373,328 334,029 281,821
</TABLE>
The average fair values of the options granted during 1997, 1996, and 1995
were $10.33, $7.07, and $6.93, respectively. The fair value of each option was
estimated at the date of grant using a Black-Scholes option pricing model. The
weighted average assumptions used to estimate the fair value of the stock
options were as follows:
<TABLE>
<CAPTION>
1997 1996 1995
------------------------------------------------------
<S> <C> <C> <C>
Dividend yield 3.0% 4.0% 4.0%
Expected volatility 22.0% 22.3% 23.0%
Risk-free interest rate 6.4% 6.2% 6.9%
Expected life 6 YEARS 6 years 6 years
</TABLE>
8. BENEFIT PLANS
8.1 PENSION PLANS
The Company has noncontributory, 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.
49
<PAGE>
8. BENEFIT PLANS (CONTINUED)
8.1 PENSION PLANS (CONTINUED)
The components of pension expense and underlying assumptions were as follows:
<TABLE>
<CAPTION>
1997 1996 1995
------------------------------------------------------
(IN THOUSANDS)
<S> <C> <C> <C>
Service cost - benefits earned during period $ 1,891 $ 1,826 $ 1,346
Interest cost on projected benefit obligation 2,929 2,660 2,215
Actual return on plan assets (15,617) (9,087) (10,178)
Amortization of unrecognized net asset - (261) (888)
Amortization of unrecognized prior service cost 195 197 197
Deferral of net asset gain 10,148 4,060 5,724
Amortization of gain - 68 38
------------------------------------------------------
Total pension income $ (454) $ (537) $ (1,546)
======================================================
Assumptions:
Weighted average discount rate on benefit
obligation 7.25% 7.50% 7.25%
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>
50
<PAGE>
8. BENEFIT PLANS (CONTINUED)
8.1 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
1997 1996
------------------------------------
(IN THOUSANDS)
<S> <C> <C>
Actuarial present value of benefit obligation:
Vested $ 32,926 $ 27,558
Nonvested 3,465 4,000
Additional minimum liability - 205
------------------------------------
Accumulated benefit obligation 36,391 31,763
Effect of increase in compensation levels 7,002 5,831
------------------------------------
Projected benefit obligation 43,393 37,594
Plan assets at fair value 80,102 65,159
------------------------------------
Plan assets in excess of projected benefit obligation 36,709 27,565
Unrecognized net gain (23,548) (15,881)
Unrecognized prior service cost 78 274
------------------------------------
Prepaid pension expense $ 13,239 $ 11,958
====================================
</TABLE>
More than 85% of the plan assets were invested in fixed maturity and equity
securities at the plan's most recent balance sheet date.
8.2 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.
51
<PAGE>
8. BENEFIT PLANS (CONTINUED)
8.2 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
1997 1996
------------------------------------
(IN THOUSANDS)
<S> <C> <C>
Actuarial present value of benefit obligation:
Retirees $ 2,469 $ 5,199
Fully eligible active plan participants 259 251
Other active plan participants 3,214 2,465
------------------------------------
Accumulated postretirement benefit obligation 5,942 7,915
Plan assets at fair value 159 106
------------------------------------
Accumulated postretirement benefit obligation in excess
of plan assets at fair value 5,783 7,809
Unrecognized net gain (1,950) (243)
------------------------------------
Accrued postretirement benefit cost $ 3,833 $ 7,566
====================================
Weighted-average discount rate on postretirement benefit
obligation 7.25% 7.50%
</TABLE>
The components of postretirement benefit expense were as follows:
<TABLE>
<CAPTION>
1997 1996 1995
------------------------------------------------------
(IN THOUSANDS)
<S> <C> <C> <C>
Service cost-- benefits earned $ 211 $ 218 $ 171
Interest cost on accumulated postretirement
benefit obligation 390 626 638
------------------------------------------------------
Postretirement benefit expense $ 601 $ 844 $ 809
======================================================
</TABLE>
52
<PAGE>
9. DERIVATIVE FINANCIAL INSTRUMENTS
9.1 USE OF DERIVATIVE FINANCIAL INSTRUMENTS
The Company's use of derivative financial instruments is generally limited to
interest rate and currency swap agreements, and options to enter into interest
rate swap agreements (call swaptions). The Company accounts for its derivative
financial instruments as hedges. Hedge accounting requires a high correlation
between changes in fair values or cash flows or the derivative financial
instruments and the specific items being hedged, both at inception and
throughout the life of the hedge.
9.2 INTEREST RATE AND CURRENCY SWAP AGREEMENTS
Interest rate swap agreements are used to convert specific investment
securities from a floating to a fixed-rate basis, or vice versa, and to hedge
against the risk of 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.
The difference between amounts paid and received on swap agreements is
recorded on an accrual basis as an adjustment to net investment income or
interest expense, as appropriate, over the periods covered by the agreements.
The related amount payable to or receivable from counterparties is included in
other liabilities or assets.
The fair values of swap agreements are recognized in the consolidated balance
sheet if they hedge investments carried at fair value or if they hedge
anticipated purchases of such investments. In this event, changes in the fair
value of a swap agreement are reported in net unrealized gains on securities
included in shareholders' equity, consistent with the treatment of the related
investment security. For swap agreements hedging anticipated investment
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.
Swap agreements generally have terms of two to ten years. Any gain or loss
from early termination of a swap agreement is deferred and amortized into
income over the remaining term of the related investment. If the underlying
investment is extinguished or sold, any related gain or loss on swap
agreements is recognized in income. Average floating rates may change
significantly, thereby affecting future cash flows.
53
<PAGE>
9. DERIVATIVE FINANCIAL INSTRUMENTS (CONTINUED)
9.2 INTEREST RATE AND CURRENCY SWAP AGREEMENTS (CONTINUED)
Interest rate and currency swap agreements related to investment securities at
December 31 were as follows:
<TABLE>
<CAPTION>
1997 1996
------------------------------------
(DOLLARS IN MILLIONS)
<S> <C> <C>
Interest rate swap agreements to pay fixed rate:
Notional amount $ 15 $ 60
Average receive rate 6.74% 6.19%
Average pay rate 6.48% 6.42%
Interest rate swap agreements to receive fixed rate:
Notional amount $144 $ 44
Average receive rate 6.89% 6.84%
Average pay rate 6.37% 6.01%
Currency swap agreements (receive U.S. dollars/pay Canadian
dollars):
Notional amount (in U.S. dollars) $139 $ 99
Average exchange rate 1.50 1.57
</TABLE>
9.3 CALL SWAPTIONS
Options to enter into interest rate swap agreements are used to limit the
Company's exposure to reduced spreads between investment yields and interest
crediting rates should interest rates decline significantly over prolonged
periods. During such periods, the spread between investment yields and
interest crediting rates may be reduced as a result of certain limitations on
the Company's ability to manage interest crediting rates. Call swaptions allow
the Company to enter into interest rate swap agreements to receive fixed rates
and pay lower floating rates, effectively increasing the spread between
investment yields and interest crediting rates.
Premiums paid to purchase call swaptions are included in investments and are
amortized to net investment income over the exercise period of the swaptions.
If a call swaption is terminated, any gain is deferred and amortized to
insurance and annuity benefits over the expected life of the insurance and
annuity contracts and any unamortized premium is charged to income. If a call
swaption ceases to be an effective hedge, any related gain or loss is
recognized in income.
54
<PAGE>
9. DERIVATIVE FINANCIAL INSTRUMENTS (CONTINUED)
9.3 CALL SWAPTIONS (CONTINUED)
During 1997, the Company purchased call swaptions which expire in 1998. These
call swaptions had a notional amount of $1.35 billion and strike rates ranging
from 4.5% to 5.5% at December 31, 1997. Should the strike rates remain below
market rates, the call swaptions will expire and the Company's exposure would
be limited to the premiums paid.
9.4 CREDIT AND MARKET RISK
Derivative financial instruments expose the Company to credit risk in the
event of non-performance by counterparties. The Company limits this exposure
by entering into agreements with counterparties having high credit ratings and
by regularly monitoring the ratings. The Company does not expect any
counterparty to fail to meet its obligation; however, non-performance would
not have a material impact on the Company's consolidated results of operations
and financial position.
The Company's exposure to market risk is mitigated by the offsetting effects
of changes in the value of the agreements and the related items being hedged.
Derivative financial instruments related to investment securities did not have
a material effect on net investment income in 1997, 1996 or 1995.
10. FAIR VALUE OF FINANCIAL INSTRUMENTS
SFAS No. 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 for life insurance contracts 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.
55
<PAGE>
10. FAIR VALUE OF FINANCIAL INSTRUMENTS (CONTINUED)
Carrying amounts and fair values for those financial instruments covered by
SFAS 107 at DECEMBER 31, 1997 are presented below:
<TABLE>
<CAPTION>
FAIR CARRYING
VALUE AMOUNT
------------------------------------
(IN MILLIONS)
<S> <C> <C>
Assets:
Fixed maturity and equity securities * $ 27,408 $ 27,408
Mortgage loans on real estate $ 1,702 $ 1,660
Policy loans $ 1,127 $ 1,094
Investment in parent company $ 38 $ 38
Indebtedness from affiliates $ 97 $ 97
Liabilities:
Insurance investment contracts $ 24,011 $ 24,497
<FN>
* Includes derivative financial instruments with negative fair value of
$4.2 million and $10.8 million and positive fair value of $7.2 million
and $.6 million at December 31, 1997 and 1996, respectively.
</FN>
</TABLE>
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.
56
<PAGE>
10. FAIR VALUE OF FINANCIAL INSTRUMENTS (CONTINUED)
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.
INDEBTEDNESS FROM AFFILIATES
Indebtedness from affiliates is composed of accounts receivable and
notes receivable from affiliates. Due to the short-term nature of
accounts receivable, fair value is assumed to equal carrying value. Fair
value of notes receivable was estimated using discounted cash flows
based on contractual maturities and discount rates that were based on
U.S. Treasury rates for similar maturity ranges.
11. DIVIDENDS PAID
American General Life Insurance Company paid $402 million, $189 million, and
$207 million in dividends on common stock to AGC Life Insurance Company in
1997, 1996, and 1995, 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.
57
<PAGE>
12. RESTRICTIONS, COMMITMENTS, AND CONTINGENCIES
The Company and its insurance subsidiaries are restricted by state insurance
laws as to the amounts they may pay as dividends without prior approval from
their respective state insurance departments. At December 31, 1997,
approximately $2.6 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 $2.0 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.
In recent years, various life insurance companies have been named as
defendants in class action lawsuits relating, to life insurance pricing and
sales practices, and a number of these lawsuits has resulted in substantial
settlements. The Company is a defendant in such purported class action
lawsuits, asserting claims related to pricing and sales practices. These
claims are being defended vigorously by the Company. Given the uncertain
nature of litigation and the early stages of this litigation, the outcome of
these actions cannot be predicted at this time. The Company nevertheless
believes that the ultimate outcome of all such pending litigation should not
have a material adverse effect on the Company's financial position; however,
it is possible that settlements or adverse determinations in one or more of
these actions or other future proceedings could have a material adverse effect
on results of operations for a given period. No provision has been made in the
consolidated financial statements related to this pending litigation because
the amount of loss, if any, from these actions cannot be reasonably estimated
at this time.
The Company is a party to various other lawsuits and proceedings arising in
the ordinary course of business. Many of these lawsuits and proceedings arise
in jurisdictions, such as Alabama, that permit damage awards disproportionate
to the actual economic damages
58
<PAGE>
12. RESTRICTIONS, COMMITMENTS, AND CONTINGENCIES (CONTINUED)
incurred. Based upon information presently available, the Company believes
that the total amounts that will ultimately be paid, if any, arising from
these lawsuits and proceedings will not have a material adverse effect on the
Company's results of operations and financial position. However, it should be
noted that the frequency of large damage awards, including large punitive
damage awards, that bear little or no relation to actual economic damages
incurred by plaintiffs in jurisdictions like Alabama continues to increase and
creates the potential for an unpredictable judgment in any given suit.
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, 1997 and , the Company has accrued $7.6
million and $16.1 million, respectively, for guaranty fund assessments, net of
$4.3 million and $4.1 million, respectively, of premium tax deductions. The
Company has recorded receivables of $9.7 million and $10.9 million at December
31, 1997 and 1996, respectively, for expected recoveries against the payment
of future premium taxes. Expenses incurred for guaranty fund assessments were
$2.1 million, $6.0 million, and $22.4 million in 1997, 1996, and 1995,
respectively.
59
<PAGE>
13. REINSURANCE
Reinsurance transactions for the years ended December 31, 1997, 1996, and 1995
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, 1997
Life insurance in force $ 45,963,710 $ 10,926,255 $ 4,997 $ 35,042,452 0.01%2
=======================================================================
Premiums:
Life insurance and annuities $ 100,357 $ 37,294 $ 75 $ 63,138 0.12%
Accident and health insurance 1,208 172 - 1,036 0.00%
-----------------------------------------------------------------------
Total premiums $ 101,565 $ 37,466 $ 75 $ 64,174 0.12%
=======================================================================
Premiums:
Life insurance and annuities $ 104,225 $ 34,451 $ 36 $ 69,810 0.05%
Accident and health insurance 1,426 64 - 1,362 0.00%
-----------------------------------------------------------------------
Total premiums $ 105,651 $ 34,515 $ 36 $ 71,172 0.05%
=======================================================================
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%
=======================================================================
</TABLE>
60
<PAGE>
13. REINSURANCE (CONTINUED)
Reinsurance recoverable on paid losses was approximately $2,278,000,
$6,904,000, and $6,190,000 at December 31, 1997, 1996, and 1995, respectively.
Reinsurance recoverable on unpaid losses was approximately $3,210,000,
$4,282,000, and $2,775,000 at December 31, 1997, 1996, and 1995, respectively.
14. 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.
15. YEAR 2000 CONTINGENCY (UNAUDITED)
Management has been engaged in a program to render the Company's computer
systems (hardware and mainframe and personal applications software) Year 2000
compliant. The Company will incur internal staff costs as well as third-party
vendor and other expenses to prepare the systems for Year 2000. The cost of
testing and conversion of systems applications has not had, and is not
expected to have, a material adverse effect on the Company's results of
operations or financial condition. However, risks and uncertainties exist in
most significant systems development projects. If conversion of the Company's
systems is not completed on a timely basis, due to nonperformance by
third-party vendors or other unforeseen circumstances, the Year 2000 problem
could have a material adverse impact on the operations of the Company.
61
<PAGE>
PART C
OTHER INFORMATION
ITEM 24. FINANCIAL STATEMENTS AND EXHIBITS
(a) Financial Statements
PART A: None
PART B:
Financial Statements of the WM Advantage (formerly
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, 1997
Statement of Operations for the year ended December 31,
1997
Statement of Changes in Net Assets for the years ended
December 31, 1997 and 1996
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, 1997 and
1996
Consolidated Statements of Income for the years ended
December 31, 1997, 1996 and 1995
Consolidated Statements of Shareholder's Equity for the
years ended December 31, 1997, 1996 and 1995
Consolidated Statements of Cash Flows for the years
ended December 31, 1997,1996 and1995
Notes to Consolidated Financial Statements
PART C: None
(b) Exhibits
<TABLE>
<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 (12)
(iii) Participation Agreement Among American General Life Insurance
Company, American General Securities Incorporated, The Sierra
Variable Trust and Composite Funds Distributor, Inc. (13)
(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 (12)
(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. (12)
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 Application, revised April 1, 1998
(iv) Specimen form of Application, revised July 1, 1998
(v) Specimen form of SNAP Annuity Ticket application (6)
(vi) Specimen form of Application, revised April, 1995 (11)
C-2
<PAGE>
(b)(i) Election of Annuity Payment Option/Change Form (5)
(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)
(B) Contract Service Request, including telephone transfer
authorization, revised January, 1996 (11)
(C) Contract Service Request, including telephone transfer
authorization, revised April 1, 1998
(D) Contract Service Request, including telephone transfer
authorization, revised July 1, 1998
(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 Counse (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, 1994 (6)
C-3
<PAGE>
(e) Computation of 7 Day Yield for the Global Money Division for the
Period Ended December 31, 1994 (6)
14 Financial Data Schedule (See Exhibit 27 below)
15(a) Power of Attorney with respect to Registration Statements and
Amendments thereto signed by the following persons in their
capacities as directors and, where applicable, officers of
American General Life Insurance Company: Messrs. Devlin, Rashid,
and Luther (6)
(b) Power of Attorney with respect to Registration Statements and
Amendments thereto signed by 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 (12)
(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 (12)
(i) 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. D'Agostino, Imhoff and
Polkinghorn (14)
16 Statement concerning applicable SEC Exemptive Order (8)
C-4
<PAGE>
27 (Inapplicable, because, notwithstanding Item 24.(b) as to
Exhibits, the Commission staff has advised that no such Schedule
is required.)
<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.
(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.
(12) Previously filed in Post-Effective Amendment No. 6 to this Form N-4
Registration Statement (File No. 33-57730), filed on April 29, 1997.
(13) Incorporated herein by reference to Post-Effective Amendment No. 1 to
Separate Account D's Registration Statement (File No. 333-25549), filed
on April 1, 1998.
(14) Incorporated herein by reference to Pre-Effective Amendment No. 1 to
Separate Account D's Registration Statement (File No. 333-40637), filed
on February 12, 1998.
</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>
James S. D'Agostino Director
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
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 Officer, Treasurer
Houston, TX 77019 & Controller
Royce G. Imhoff, II Director, Senior Vice President
2727-A Allen Parkway & Chief Marketing Officer
Houston, TX 77019
John V. LaGrasse Director, Senior Vice President
2727-A Allen Parkway & Chief Systems Officer
Houston, TX 77019
Philip K. Polkingorn
2727-A Allen Parkway Director
Houston, TX 77019
Peter V. Tuters Director, Vice President & Chief
2929 Allen Parkway Investment Officer
Houston, TX 77019
C-6
<PAGE>
F. Paul Kovach, Jr. Senior Vice President, Broker Dealers
2727 Allen Parkway and Financial Institutions Marketing Group
Houston, TX 77019
Wayne A. Barnard Vice President & Chief Actuary
2727-A Allen Parkway
Houston, TX 77019
Shelby B. Baetz Senior Vice President, General Counsel
2727-A Allen Parkway & Secretary
Houston, TX 77019
Simon J. Leech, ACS Senior Vice President, Houston Service Center
2727-A Allen Parkway
Houston, TX 77019
Don M. Ward Senior Vice President, Variable Products
2727-A Allen Parkway
Houston, TX 77019
Larry M. Robinson Vice President, Variable Products-Marketing
2727-A Allen Parkway
Houston, TX 77019
Timothy W. Still Vice President
2727-A Allen Parkway
Houston, TX 77019
Steven A. Glover Assistant Secretary
2727-A Allen Parkway
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>
C-7
<PAGE>
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
February 28, 1998. All subsidiaries listed are corporations, unless otherwise
indicated. Subsidiaries of subsidiaries are indicated by indentations and
unless otherwise indicated, all subsidiaries are wholly owned. Inactive
subsidiaries are denoted by an asterisk (*).
<TABLE>
<CAPTION>
Jurisdiction of
Name Incorporation
----------------------------------------------------------------------------- -----------------
<S> <C>
AGC Life Insurance Company...................................................... Missouri
American General Life and Accident Insurance Company ........................ Tennessee
American General Exchange, Inc. .......................................... Tennessee
Independent Fire Insurance Company........................................ Florida
American General Property Insurance Company of Florida................. Florida
Old Faithful General Agency, Inc....................................... Texas
Independent Life Insurance Company........................................ Georgia
American General Life Insurance Company (6).................................. Texas
(REGISTRANT IS A SEPARATE ACCOUNT OF AMERICAN GENERAL LIFE INSURANCE
COMPANY, DEPOSITOR)
American General Annuity Service Corporation ............................. Texas
American General Life Insurance Company of New York ..................... New York
The Winchester Agency Ltd. ............................................ New York
The Variable Annuity Life Insurance Company .............................. Texas
The Variable Annuity Marketing Company ................................ Texas
VALIC Investment Services Company ..................................... Texas
VALIC Retirement Services Company ..................................... Texas
VALIC Trust Company ................................................... Texas
Astro Acquisition Corp....................................................... Delaware
The Franklin Life Insurance Company ......................................... Illinois
The American Franklin Life Insurance Company ............................. Illinois
Franklin Financial Services Corporation .................................. Delaware
HBC Development Corporation ................................................. Virginia
Western National Corporation................................................. Delaware
WNL Holding Corp.......................................................... Delaware
American General Annuity Insurance Company (7)......................... Texas
Conseco Annuity Guarantee Company...................................... Texas
Independent Advantage Financial and Insurance Services, Inc............ California
Western National Financial Institution Group, Inc...................... Delaware
WNL Brokerage Services, Inc............................................ Delaware
WNL Insurance Services, Inc............................................ Delaware
WNL Investment Advisory Services, Inc.................................. Delaware
American General Capital Services, Inc. ........................................ Delaware
American General Corporation* .................................................. Delaware
American General Delaware Management Corporation1 .............................. Delaware
American General Finance, Inc. ................................................. Indiana
AGF Investment Corp. ........................................................ Indiana
American General Auto Finance, Inc. . ....................................... Delaware
American General Finance Corporation8 ....................................... Indiana
American General Finance Group, Inc. ..................................... Delaware
C-8
<PAGE>
American General Financial Services, Inc. (9) ......................... 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 Independent Producer Division Co............................... Delaware
American General Investment Advisory Services, Inc.* .......................... Texas
American General Investment Holding Corporation (10)............................ Delaware
American General Investment Management Corporation (10)......................... Delaware
American General Realty Advisors, Inc. ......................................... Delaware
American General Realty Investment Corporation ................................. Texas
AGLL Corporation (12)........................................................ Delaware
American General Land Holding Company ....................................... Delaware
AG Land Associates, LLC (12).............................................. California
GDI Holding, Inc.* (11) .................................................... California
Hunter's Creek Communications Corporation ................................... Florida
Pebble Creek Service Corporation ............................................ Florida
SR/HP/CM Corporation ........................................................ Texas
American General Property Insurance Company .................................... Tennessee
Green Hills Corporation ........................................................ Delaware
Knickerbocker Corporation ...................................................... Texas
American Athletic Club, Inc. ................................................ Texas
Pavilions Corporation........................................................... Delaware
USLIFE Corporation.............................................................. New York
All American Life Insurance Company.......................................... Illinois
1149 Investment Corp...................................................... Delaware
American General Life Insurance Company of Pennsylvania...................... Pennsylvania
New D Corporation*........................................................... Iowa
The Old Line Life Insurance Company of America............................... Wisconsin
The United States Life Insurance Company in the City of New York New York
USLIFE Advisers, Inc......................................................... New York
USLIFE Agency Services, Inc.................................................. Illinois
USLIFE Credit Life Insurance Company......................................... Illinois
USLIFE Credit Life Insurance Company of Arizona........................... Arizona
USLIFE Indemnity Company.................................................. Nebraska
USLIFE Financial Corporation of Delaware*.................................... Delaware
Midwest Holding Corporation............................................... Delaware
I.C. Cal*.............................................................. Nebraska
Midwest Property Management Co......................................... Nebraska
USLIFE Financial Institution Marketing Group, Inc............................ California
USLIFE Insurance Services Corporation........................................ Texas
USLIFE Realty Corporation.................................................... Texas
C-9
<PAGE>
405 Leasehold Operating Corporation....................................... New York
405 Properties Corporation*............................................... New York
USLIFE Real Estate Services Corporation................................... Texas
USLIFE Realty Corporation of Florida...................................... Florida
USLIFE Systems Corporation................................................... Delaware
American General Finance Foundation, Inc. is not included on this list. It is
a non-profit corporation.
<FN>
NOTES
(1) The following limited liability companies were formed in the State of
Delaware on March 28, 1995. The limited liability interests of each are
jointly owned by AGC and AGDMC and the business and affairs of each are
managed by AGDMC:
American General Capital, L.L.C.
American General Delaware, L.L.C.
(2) On November 26, 1996, American General Institutional Capital A ("AG Cap
Trust A"), a Delaware business trust, was created. On March 10, 1997,
American General Institutional Capital B ("AG Cap Trust B"), also a
Delaware business trust, was created. Both AG Cap Trust A's and AG Cap
Trust B's business and affairs are conducted through their trustees:
Bankers Trust Company and Bankers Trust (Delaware). Capital securities
of each are held by non-affiliated third party investors and common
securities of AG Cap Trust A and AG Cap Trust B are held by AGC.
(3) On November 14, 1997, American General Capital I, American General
Capital II, American General Capital III, and American General Capital
IV (collectively, the "Trusts"), all Delaware business trusts, were
created. Each of the Trusts' business and affairs are conducted through
its trustees: Bankers Trust (Delaware) and James L. Gleaves (not in his
individual capacity but solely as Trustee).
(4) On July 10, 1997, the following insurance subsidiaries of AGC became the
direct owners of the parenthetically indicated percentages of membership
units of SBIL B, L.L.C. ("SBIL B"), a U.S. limited liability company:
VALIC (22.6%), FL (8.1%), AGLA (4.8%) and AGL (4.8%).
Through its aggregate 40.3% interest in SBIL B, VALIC, FL, AGLA and AGL
indirectly own approximately 28% of the securities of SBI, an English
company, and 14% of the securities of ESBL, an English company, SBP, an
English company, and SBFL, a Cayman Islands company.
These interests are held for investment purposes only.
(5) 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 Whirlpool (which is a corporations that is not
associated with AGC) are held for investment purposes only.
(6) 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:
C-10
<PAGE>
American General Insurance Agency, Inc. (Missouri)
American General Insurance Agency of Hawaii, Inc. (Hawaii)
American General Insurance Agency of Massachusetts, Inc. (Massachusetts)
In addition, the following agencies are indirectly related to AGSI, but
not owned or controlled by AGSI:
American General Insurance Agency of Ohio, Inc. (Ohio)
American General Insurance Agency of Texas, Inc. (Texas)
American General Insurance Agency of Oklahoma, Inc. (Oklahoma)
Insurance Masters Agency, Inc. (Texas)
AGSI and the foregoing agencies are not affiliates or subsidiaries of
AGL under applicable holding company laws, but they are part of the AGC
group of companies under other laws.
(7) WNL Series Trust is a Massachusetts business trust, all of the shares of
which are held in the separate account of American General Annuity
Insurance Company ("AGAIC") for the benefit of AGAIC variable annuity
policyholders.
(8) 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.
(9) 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.
(10) American General Investment Management, L.P. is jointly owned by AGIHC
and AGIMC. AGIHC holds a 99% limited partnership interest, and AGIMC
owns a 1% general partnership interest.
(11) AGRI owns only a 75% interest in GDI Holding, Inc.
(12) AG Land Associates, LLC is jointly owned by AGLH and AGLL. AGLH holds a
98.75% managing interest and AGLL owns a 1.25% managing interest.
</FN>
</TABLE>
ITEM 27. NUMBER OF CONTRACT OWNERS
As of February 28, 1998 there were 9,006 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
C-11
<PAGE>
serving at the request of the Company, against expenses, judgments, fines,
settlements, and other amounts actually and reasonably incurred in connection
with such proceeding if such person acted in good faith and in a manner such
person reasonably believed to be in the best interest of the Company and, in
the case of a criminal proceeding, had no reasonable cause to believe the
conduct of such person was unlawful.
Article VII, section 1 (in part), section 2, and section 3, provide that the
Company shall have power to indemnify any person who was or is a party or is
threatened to be made a party to any threatened, pending, or completed action
by or in the right of the Company to procure a judgment in its favor by reason
of the fact that such person is or was acting on behalf of the Company,
against expenses actually and reasonably incurred by such person in connection
with the defense or settlement of such action if such person acted in good
faith, in a manner such person believed to be in the best interests of the
Company, and with such care, including reasonable inquiry, as an ordinarily
prudent person in a like position would use under similar circumstances.
No indemnification shall be made under Article VII, section 1: (a) in respect
of any claim, issue, or matter as to which such person shall have been
adjudged to be liable to the Company, unless and only to the extent that the
court in which such action was brought shall determine upon application that,
in view of all the circumstances of the case, such person is fairly and
reasonably entitled to indemnity for the expenses which such court shall
determine; (b) of amounts paid in settling or otherwise 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
C-12
<PAGE>
material facts for which the Distributor or its affiliates are responsible in
this Registration Statement or otherwise or as a result of any failure by the
Trust or the Distributor to meet its obligations under the Trust Participation
Agreement.
Section 6 of the Master Marketing and Distribution Agreement that is filed as
Exhibit 3(a)(ii) to this Registration Statement is hereby incorporated by
reference in response to this item. Paragraph 5.1 thereof provides that the
Company and AGSI will indemnify the Distributor and any other broker-dealer
affiliated with the Distributor and contracted to sell the Contracts, and
their officers, directors and controlling persons from losses and costs due to
any misstatements or omissions of material facts for which the Company or AGSI
is responsible in this Registration Statement or due to any negligent, illegal
or fraudulent acts of the Company or AGSI. Paragraph 5.2 provides that the
Distributor will indemnify the Company and AGSI, and their officers, directors
and controlling persons from losses and costs due to any misstatements or
omissions of material facts for which the Distributor or its affiliates are
responsible in this Registration Statement, or as a result of any negligent,
illegal or fraudulent acts or omissions by the Distributor.
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.
C-13
<PAGE>
(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
Royce G. Imhoff, II Director
American General Life
2727-A Allen Parkway
Houston, Texas 77019
Rodney O. Martin, Jr. Director
American General Life
2727-A Allen Parkway
Houston, TX 77019
Robert F. Herbert Associate Tax Officer
American General Life
2727-A Allen Parkway
Houston, Texas 77019
John V. LaGrasse Vice President
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
</TABLE>
C-14
<PAGE>
2727 Allen Parkway
Houston, TX 77019
Kenneth D. Nunley Associate Tax Officer
2727-A Allen Parkway
Houston, TX 77019
(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 Independent Producer Division 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.
This representation applies to all Contracts sold pursuant to this
Registratrion Statement, including those sold on the terms specifically
described in the prospectus contained herein, or any variations therein, based
on supplements, endorsements, or riders to any Contracts or prospectus, or
othewise.
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 30th day of March,
1998.
AMERICAN GENERAL LIFE INSURANCE
COMPANY SEPARATE ACCOUNT D
(Registrant)
BY: AMERICAN GENERAL LIFE
INSURANCE COMPANY
(On behalf of the Registrant and itself)
BY: /s/ROBERT F. HERBERT, JR.
-------------------------
Robert F. Herbert, Jr.
Senior Vice President
ATTEST: /s/STEVEN A. GLOVER
-------------------
Steven A. Glover
Assistant Secretary
Pursuant to the requirements of the Securities Act of 1933, this amended
Registration Statement has been signed by the following persons in the
capacities and on the dates indicated.
<TABLE>
<CAPTION>
Signature Title
----------- -------
<S> <C>
RODNEY O. MARTIN, JR.* Principal Executive Officer
--------------------------
(Rodney O. Martin, Jr.)
ROBERT F. HERBERT, JR.* Principal Financial and
-------------------------- Accounting Officer
(Robert F. Herbert, Jr.)
</TABLE>
<TABLE>
Directors
-----------
<S> <C>
JAMES S. D' AGOSTINO, JR.* JOHN V. LaGRASSE*
-------------------------- -------------------------
(James S. D' Agostino, Jr.) (John V. LaGrasse)
DAVID A. FRAVEL* RODNEY O. MARTIN, JR.*
-------------------------- -------------------------
(David A. Fravel) (Rodney O. Martin, Jr.)
ROBERT F. HERBERT, JR.* JON P. NEWTON*
-------------------------- -------------------------
(Robert F. Herbert, Jr.) (Jon P. Newton)
ROYCE G. IMHOFF, II* PHILIP K. POLKINGHORN*
-------------------------- -------------------------
(Royce G. Imhoff, II) (Philip K. Polkinghorn)
PETER V. TUTERS*
-------------------------
(Peter V. Tuters)
/s/STEVEN A. GLOVER
--------------------------
<FN>
*By: Steven A. Glover, Attorney-in-Fact March 30, 1998
</FN>
</TABLE>
<PAGE>
<TABLE>
EXHIBIT INDEX
<S> <C>
5(a)(iii) Specimen form of Application, revised April 1, 1998
(iv) Specimen form of Application, revised July 1, 1998
5 (c)(i)(C) Contract Service Request, including telephone transfer
authorization, revised April 1, 1998
(D) Contract Service Request, including telephone transfer
authorization, revised July 1, 1998
10 Consent of Independent Auditors
</TABLE>
EXHIBIT (5)(a)(iii)
AMERICAN GENERAL LIFE INSURANCE COMPANY of New York ("AGNY")
300 SOUTH STATE STREET, SYRACUSE, NEW YORK 13202
[American General Logo] WM Advantage(TM)
VARIABLE ANNUITY APPLICATION
INSTRUCTIONS: Please type or print in permanent black ink.
1. ANNUITANT
______________________________________
NAME (If no middle name, use NMN)
______________________________________
CONTINGENT ANNUITYANT (IF APPLICABLE)
______________________________________
STREET ADDRESS
______________________________________
CITY STATE ZIP
Daytime telephone number (___)________
Social Security # ____________________
DOB of ANNUITANT _________ AGE:______ (Max Age 85)
DOB of CONT. ANNUITANT _________ AGE:______ (Max Age 85)
DOB of CONT. ANNUITANT _________ AGE:______ (Max Age 85)
Sex of Annuitant [ ]M [ ]F
Sex of Cont. Annuitant [ ]M [ ]F
The Annuitant(s) will be the Owner unless specified below.
-----------------------------------------------------------------------------
2. CONTRACT OWNER(S) Complete only if different than the Annuitant. If Joint
Owners are to be established, registration must be "and."
______________________________________
NAME (If no middle name, use NMN)
AND______________________________________
JOINT OWNER NAME (IF APPLICABLE)
______________________________________
STREET ADDRESS
______________________________________
CITY STATE ZIP
Social Security # ____________________
OR
Tax ID of Owner ______________________
Date of Birth _____________________________
MONTH/DAY/YEAR (Max Age 85)
Date of Birth _____________________________
MONTH/DAY/YEAR (Max Age 85)
-----------------------------------------------------------------------------
3. TYPE OF PLAN
_______ Qualified ________ Non-Qualified
______ IRA (circle one): Regular Rollover Transfer
______ Simplified Employee Pension IRA (employer established)
______ Self-employed Retirement Plan (Keogh-type)
______ 401 Corporate Plan
-----------------------------------------------------------------------------
4. PURCHASE PAYMENT
Minimum investment of $5,000 for Non-Qualified.
An initial purchase payment of $____________________ is attached.
Allocate this purchase payment ot the ______ year.
-----------------------------------------------------------------------------
5. ANNUITY COMMENCEMENT DATE
-----------------------------------------------------------------------------
6. INITIAL PURCHASE PAYMENT DIVISION ALLOCATION
Money Market (53) ______%
Short Term High Quality Bond (58) ______%
U. S. Government (54) ______%
Corporate Income (57) ______%
Growth and Income (56) ______%
Growth (52) ______%
Emerging Growth (59) ______%
International Growth (50) ______%
1-Year Guarantee Period (111) ______%
3-Year Guarantee Period (113) ______%
5-Year Guarantee Period (115) ______%
TOTAL MUST EQUAL 100%: NO FRACTIONAL PERCENTAGES
-----------------------------------------------------------------------------
7. BENEFICIARY
______________________________________ ______________________
PRIMARY RELATIONSHIP
______________________________________ ______________________
CONTINGENT RELATIONSHIP
______________________________________ ______________________
CONTINGENT RELATIONSHIP
-----------------------------------------------------------------------------
8. REPLACEMENT Will the proposed contract replace any existing annuity or
insurance contract? [ ] NO [ ] YES
(If yes, list company name, plan, year of issue and complete appropriate
replacement documents.)
Company:____________________________________________
-----------------------------------------------------------------------------
L8375 REV 398 Page 1 of 2
<PAGE>
-----------------------------------------------------------------------------
9. SIGNATURES
All statements made in this application are true to the best of our
knowledge and belief, and we agree to all terms and conditions as shown.
We further agree that this application shall be a part of the annuity
contract, and verify our understanding that ALL PAYMENTS AND VALUES
PROVIDED BY THE CONTRACT, WHEN BASED ON INVESTMENT EXPERIENCE OF A
PORTFOLIO, ARE VARIABLE AND NOT GUARANTEED AS TO THE DOLLAR AMOUNT.
If this application is for an IRA or a Simplified Employee Pension IRA, we
acknowledge receipt of the Individual Retirement Annuity Disclosure
Statement provided to us in conjunction with the current prospectuses for
American General Life Insurance Company Separate Account D and Sierra
Variable Trust.
---------------------
UNDER PENALTIES OF PERJURY, I CERTIFY: (1) THAT THE SOCIAL SECURITY (OR
TAXPAYER IDENTIFICATION) NUMBER IS CORRECT AS IT APPEARS IN THIS
APPLICATION; AND (2) THAT I AM NOT SUBJECT TO BACKUP WITHHOLDING UNDER
SECTION 3406 (A)(1)(C) OF THE INTERNAL REVENUE CODE.
THE INTERNAL REVENUE SERVICE DOES NOT REQUIRE YOUR CONSENT TO ANY
PROVISION OF THIS DOCUMENT OTHER THAN THE CERTIFICATIONS REQUIRED TO AVOID
BACKUP WITHHOLDING.
---------------------
Signed at _________________________________ Date: ______________________
CITY STATE
_________________________________ Date: ______________________
SIGNATURE OF ANNUITANT
_________________________________ Date: ______________________
SIGNATURE OF CONTINGENT ANNUITANT
_________________________________ Date: ______________________
SIGNATURE OF OWNER
_________________________________ Date: ______________________
SIGNATURE OF JOINT OWNER
-----------------------------------------------------------------------------
10. DEALER INFORMATION
Registered Representative:_________________ (_____)_______________________
PRINT NAME REPRESENTATIVE NUMBER/LOCATION
Broker Dealer: _________________ ______________________________
PRINT NAME TELEPHONE NUMBER
______________________________
STATE LICENSE NUMBER
Branch Office:____________________________________________________________
STREET ADDRESS CITY STATE ZIP
Signature of Registered Principal of Broker Dealer:_______________________
-----------------------------------------------------------------------------
11. REPRESENTATIVE'S SIGNATURE
Will the proposed contract replace any existing annuity or insurance
contract? [ ] NO [ ] YES
The representative hereby certifies he/she witnessed the signature(s)
contained in this application and that all information contained in this
application is true to the best of his or her knowledge and belief.
Signature:_________________________________
-----------------------------------------------------------------------------
Send completed application - with a check made out to American General Life
Insurance Company - to your investment dealer's home office.
L8375 REV 398 Page 2 of 2
EXHIBIT (5)(a)(iv)
AMERICAN GENERAL LIFE INSURANCE COMPANY of New York ("AGNY")
300 SOUTH STATE STREET, SYRACUSE, NEW YORK 13202
[American General Logo] WM Advantage(TM)
VARIABLE ANNUITY APPLICATION
INSTRUCTIONS: Please type or print in permanent black ink.
1. ANNUITANT
______________________________________
NAME (If no middle name, use NMN)
______________________________________
CONTINGENT ANNUITYANT (IF APPLICABLE)
______________________________________
STREET ADDRESS
______________________________________
CITY STATE ZIP
Daytime telephone number (___)________
Social Security # ____________________
DOB of ANNUITANT _________ AGE:______ (Max Age 85)
DOB of CONT. ANNUITANT _________ AGE:______ (Max Age 85)
DOB of CONT. ANNUITANT _________ AGE:______ (Max Age 85)
Sex of Annuitant [ ]M [ ]F
Sex of Cont. Annuitant [ ]M [ ]F
The Annuitant(s) will be the Owner unless specified below.
-----------------------------------------------------------------------------
2. CONTRACT OWNER(S) Complete only if different than the Annuitant. If Joint
Owners are to be established, registration must be "and."
______________________________________
NAME (If no middle name, use NMN)
AND______________________________________
JOINT OWNER NAME (IF APPLICABLE)
______________________________________
STREET ADDRESS
______________________________________
CITY STATE ZIP
Social Security # ____________________
OR
Tax ID of Owner ______________________
Date of Birth _____________________________
MONTH/DAY/YEAR (Max Age 85)
Date of Birth _____________________________
MONTH/DAY/YEAR (Max Age 85)
-----------------------------------------------------------------------------
3. TYPE OF PLAN
_______ Qualified ________ Non-Qualified
______ IRA (circle one): Regular Rollover Transfer
______ Simplified Employee Pension IRA (employer established)
______ Self-employed Retirement Plan (Keogh-type)
______ 401 Corporate Plan
-----------------------------------------------------------------------------
4. PURCHASE PAYMENT
Minimum investment of $5,000 for Non-Qualified.
An initial purchase payment of $____________________ is attached.
Allocate this purchase payment ot the ______ year.
-----------------------------------------------------------------------------
5. ANNUITY COMMENCEMENT DATE
-----------------------------------------------------------------------------
6. INITIAL PURCHASE PAYMENT DIVISION ALLOCATION
Money Market (53) ______%
Short Term High Quality Bond (58) ______%
U. S. Government (54) ______%
Corporate Income (57) ______%
Growth & Income (56) ______%
Growth (52) ______%
Emerging Growth (59) ______%
International Growth (50) ______%
1-Year Guarantee Period (111) ______%
3-Year Guarantee Period (113) ______%
5-Year Guarantee Period (115) ______%
TOTAL MUST EQUAL 100%: NO FRACTIONAL PERCENTAGES
-----------------------------------------------------------------------------
7. BENEFICIARY
______________________________________ ______________________
PRIMARY RELATIONSHIP
______________________________________ ______________________
CONTINGENT RELATIONSHIP
______________________________________ ______________________
CONTINGENT RELATIONSHIP
-----------------------------------------------------------------------------
8. REPLACEMENT Will the proposed contract replace any existing annuity or
insurance contract? [ ] NO [ ] YES
(If yes, list company name, plan, year of issue and complete appropriate
replacement documents.)
Company:____________________________________________
-----------------------------------------------------------------------------
L8375 REV 398 Page 1 of 2
<PAGE>
-----------------------------------------------------------------------------
9. SIGNATURES
All statements made in this application are true to the best of our
knowledge and belief, and we agree to all terms and conditions as shown.
We further agree that this application shall be a part of the annuity
contract, and verify our understanding that ALL PAYMENTS AND VALUES
PROVIDED BY THE CONTRACT, WHEN BASED ON INVESTMENT EXPERIENCE OF A
PORTFOLIO, ARE VARIABLE AND NOT GUARANTEED AS TO THE DOLLAR AMOUNT.
If this application is for an IRA or a Simplified Employee Pension IRA, we
acknowledge receipt of the Individual Retirement Annuity Disclosure
Statement provided to us in conjunction with the current prospectuses for
American General Life Insurance Company Separate Account D and Sierra
Variable Trust.
---------------------
UNDER PENALTIES OF PERJURY, I CERTIFY: (1) THAT THE SOCIAL SECURITY (OR
TAXPAYER IDENTIFICATION) NUMBER IS CORRECT AS IT APPEARS IN THIS
APPLICATION; AND (2) THAT I AM NOT SUBJECT TO BACKUP WITHHOLDING UNDER
SECTION 3406 (A)(1)(C) OF THE INTERNAL REVENUE CODE.
THE INTERNAL REVENUE SERVICE DOES NOT REQUIRE YOUR CONSENT TO ANY
PROVISION OF THIS DOCUMENT OTHER THAN THE CERTIFICATIONS REQUIRED TO AVOID
BACKUP WITHHOLDING.
---------------------
Signed at _________________________________ Date: ______________________
CITY STATE
_________________________________ Date: ______________________
SIGNATURE OF ANNUITANT
_________________________________ Date: ______________________
SIGNATURE OF CONTINGENT ANNUITANT
_________________________________ Date: ______________________
SIGNATURE OF OWNER
_________________________________ Date: ______________________
SIGNATURE OF JOINT OWNER
-----------------------------------------------------------------------------
10. DEALER INFORMATION
Registered Representative:_________________ (_____)_______________________
PRINT NAME REPRESENTATIVE NUMBER/LOCATION
Broker Dealer: _________________ ______________________________
PRINT NAME TELEPHONE NUMBER
______________________________
STATE LICENSE NUMBER
Branch Office:____________________________________________________________
STREET ADDRESS CITY STATE ZIP
Signature of Registered Principal of Broker Dealer:_______________________
-----------------------------------------------------------------------------
11. REPRESENTATIVE'S SIGNATURE
Will the proposed contract replace any existing annuity or insurance
contract? [ ] NO [ ] YES
The representative hereby certifies he/she witnessed the signature(s)
contained in this application and that all information contained in this
application is true to the best of his or her knowledge and belief.
Signature:_________________________________
-----------------------------------------------------------------------------
Send completed application - with a check made out to American General Life
Insurance Company - to your investment dealer's home office.
L8375 REV 398 Page 2 of 2
EXHIBIT (5)(c)(i)(C)
AMERICAN GENERAL LIFE INSURANCE COMPANY of New York ("AGL")
SEPERATE ACCOUNT D
--------------------------------------------
A Subsidiary of American General Corporation
--------------------------------------------
Houston, Texas
WM ADVANTAGE SERVICE REQUEST
COMPLETE AND RETURN THIS REQUEST TO: WM Advantage (TM)
Annuity Administration
P.O. Box 1401
Houston, TX 77251-1401
(800)247-6584
-----------------------------------------------------------------------------
1. [X] CERTIFICATE INDENTIFICATION (COMPLETE SECTION 1 AND 14 FOR ALL
REQUESTS.) INDICATE CHANGE OR REQUEST DESIRED BELOW.
CONTRACT #:_____________________ ANNUITANT:______________________________
CONTRACT OWNER(S):________________________________________________________
ADDRESS:__________________________________________________________________
[ ]CHECK HERE IF CHANGE OF ADDRESS________________________________________
S.S. NO. OR TAX I.D. NO.:_____-_____-_____ Phone Number:(____)____________
-----------------------------------------------------------------------------
2. [ ] NAME CHANGE
[ ] Annuitant* [ ] Beneficiary* [ ] Owner(s)*
*Does not change Annuitant, Beneficiary, or Ownership designations.
FROM:_____________________________________________________________________
(First, Middle, Last)
TO: _____________________________________________________________________
(First, Middle, Last)
------------------------
Reason: [ ] Marriage [ ] Divorce [ ] Correction [ ] Other
(Attach certified copy of court order.)
-----------------------------------------------------------------------------
3. [ ] DUPLICATE CERTIFICATE
I/we hereby certify that the contract for the listed number has been
[ ] LOST [ ] DESTROYED [ ] OTHER Unless I/we have directed cancellation of
the contract, I/we request that a Certificate of Lost Contract be issued.
If the original contract is located, I/we will return the Certificate of
Lost Contract to AGL to be voided.
-----------------------------------------------------------------------------
4. [ ] BENEFICIARY CHANGE
PRIMARY BENEFICIARY:______________________________________________________
(Indicate name, taxpayer Identification Number
(S.S. No.), and relationship to Annuitant.)
CONTINGENT BENEFICIARY:___________________________________________________
(Indicate name, taxpayer Identification Number
(S.S. No.), and relationship to Annuitant.)
-----------------------------------------------------------------------------
THIS SECTION IS FOR HOME OFFICE USE ONLY
This change of beneficiary has been approved by AGL at its Home Office,
and presentation of the Contract for endorsement has been waived.
DATE OF APPROVAL:______________ BY:_______________________________________
AMERICAN GENERAL LIFE INSURANCE COMPANY
-----------------------------------------------------------------------------
5. [ ] DOLLAR COST AVERAGING
Dollar cost average [ ]$___________ OR [ ] _________% (whole % only)
taken from the Money Market (53)
Frequency: [ ] Monthly [ ] Quarterly [ ] Semiannually [ ] Annually
Duration: [ ] 12 months [ ] 24 months [ ] 36 months
Begin Date: ______/______/______ (Date must be at least 30 days after
issue date and must be between the 1st and the 28 th of the month.)
If no begin date is elected, dollar cost averaging will begin at the
beginning of the next interval from the date of receipt of this form.
Allocate to the following divisions as indicated. (Use dollars or whole
percentages.)
Short Term High Quality Bond (58) ______
U.S. Government (54) ______
Corporate Income (57) ______
Growth and Income (56) ______
Growth (52) ______
Emerging Growth (59) ______
International Growth (50) ______
1-Year Guarantee Period(111) ______
3-Year Guarantee Period (113) ______
5-Year Guarantee Period(115) ______
-----------------------------------------------------------------------------
6. [ ] TELEPHONE TRANSFER AUTHORIZATION
I (or if joint owners, either of us acting independently) hereby authorize
American General Life Insurance Company ("AGL") to act on telephone
instructions to transfer values among the Variable Divisions and Fixed
Accounts and to change allocations for future purchase payments given by:
(INITIAL APPROPRIATE BOX(ES) BELOW.)
[ ] Contract Owner(s)
[ ] Agent/Registered Representative who is both appointed to represent AGL
and with the firm authorized to service my contract.
AGL and any person designated by this authorization will not be
responsible for any claim, loss, or expense based upon telephone transfer
instructions received and acted on in good faith, including losses due to
telephone instruction communication errors. AGL's liability for erroneous
transfers, unless clearly contrary to instructions received, will be
limited to correction of the allocations on a current basis. If an error,
objection, or other claim arises due to a telephone transfer transaction,
I will notify AGL in writing within five working days from receipt of
confirmation of the transaction from AGL. I understand that this
authorization is subject to the terms and provisions of my WM Advantage
contract and its related prospectus. This authorization will remain in
effect until my written notice of its revocation is received by AGL at its
main office.
[ ] Check here to decline telephone transfer privilege.
-----------------------------------------------------------------------------
L8394 REV 398 PAGE 1 OF 2
<PAGE>
-----------------------------------------------------------------------------
7. [ ] TRANSFER OF ACCUMULATED VALUES
A MINIMUM OF $500 MUST BE MAINTAINED IN EACH DIVISION.
INDICATE GROSS DOLLAR OR PERCENTAGE AMOUNT.
______ from Div. ______ to Div. ______
______ from Div. ______ to Div. ______
______ from Div. ______ to Div. ______
______ from Div. ______ to Div. ______
______ from Div. ______ to Div. ______
______ from Div. ______ to Div. ______
______ from Div. ______ to Div. ______
______ from Div. ______ to Div. ______
______ from Div. ______ to Div. ______
-----------------------------------------------------------------------------
8. [ ] CHANGE ALLOCATION OF FUTURE PURCHASE PAYMENTS
USE WHOLE PERCENTAGES. TOTAL MUST EQUAL 100%.
________ Division to ________%
________ Division to ________%
________ Division to ________%
________ Division to ________%
________ Division to ________%
________ Division to ________%
________ Division to ________%
________ Division to ________%
________ Division to ________%
-----------------------------------------------------------------------------
9. [ ] REQUEST FOR PARTIAL WITHDRAWAL
(ALSO COMPLETE SECS. 12 & 13.) MINIMUM WITHDRAWAL IS $500.
$ OR % ______ Div. No. ______
$ OR % ______ Div. No. ______
$ OR % ______ Div. No. ______
$ OR % ______ Div. No. ______
$ OR % ______ Div. No. ______
$ OR % ______ Div. No. ______
$ OR % ______ Div. No. ______
$ OR % ______ Div. No. ______
$ OR % ______ Div. No. ______
Amounts requested are to be: ( ) net or ( ) gross of applicable charges.
-----------------------------------------------------------------------------
10. [ ] SYSTEMATIC WITHDRAWAL
(ALSO COMPLETE SECS. 12 & 13.) MINIMUM WITHDRAWAL IS $500.
Specified Dollar Amount $______________________
Frequency: [ ] Monthly [ ] Quarterly [ ] Semiannually [ ] Annually
Begin Date: ______/______/______ (Date must be at least 30 days after
issue date and must be between the 5th and the 24th of the month.)
-----------------------------------------------------------------------------
11. [ ] REQUEST FOR FULL SURRENDER
(ALSO COMPLETE SECS. 12 & 13.)
[ ] Contract is attached.
[ ] I hereby declare that the contract specified above has been lost,
destroyed, or misplaced and request that the value of the contract be
paid. I agree to indemnify and hold harmless AGL against any claims which
may be asserted on my behalf and on the behalf of my heirs, assignees,
legal representatives, or any other person claiming rights derived through
me against AGL on the basis of the contract.
-----------------------------------------------------------------------------
12. [ ] METHOD OF DISTRIBUTION
NOTE: If no method is indicated, check(s) will be mailed to the owner at
the address of record.
Check one: [ ] Mail check to owner. [ ] Mail check to alternate address.
[ ] Deposit funds directly to bank/firm.*
(available only for systematic withdrawals)
__________________________________________________________________________
INDIVIDUAL OR BANK/FIRM
______________________________________ __________________________________
ADDRESS CITY/STATE/ZIP
__________________________________________________________________________
IF BANK/FIRM, PROVIDE ACCOUNT NUMBER TO BE REFERENCED FOR DEPOSIT.
Type of account: [ ] Checking [ ] Savings
*Enclose a voided check from account where funds are to be deposited.
PLEASE DO NOT ENCLOSE A DEPOSIT SLIP.
-----------------------------------------------------------------------------
13. [ ] NOTICE OF WHITHHOLDING
The taxable portion of the distribution you receive from your annuity
contract is subject to federal income tax withholding unless you elect not
to have withholding apply. Withholding of state income tax may also be
required by your state of residence. You may elect not to have withholding
apply by checking the appropriate box below. If you elect not to have
withholding apply to your distribution or if you do not have enough income
tax withheld, you may be responsible for payment of estimated tax. You may
incur penalties under the estimated tax rules if your withholding and
estimated tax are not sufficient.
[ ] I do NOT want income tax withheld from this distribution.
[ ] I do want 10% OR [ ] ________% income tax withheld from this
distribution.
-----------------------------------------------------------------------------
14. [ ] AFFIRMATION/SIGNATURE
(COMPLETE THIS SECTION FOR ALL REQUESTS.)
-----------------------
CERTIFICATION: Under penalties of perjury, I certify that: (1) the number
shown on this form is my correct Social Security (or taxpayer
identification) number; and (2) I am not subject to backup withholding
under Section 3406(a)(1)(c) of the Internal Revenue Code.
The Internal Revenue Service does not require your consent to any
provision of this document other than the certification required to avoid
backup withholding.
-----------------------
_________________________________________ _______________________________
Signature of Owner(s) Date
-----------------------------------------------------------------------------
L8394 REV 398 PAGE 2 OF 2
EXHIBIT (5)(c)(i)(D)
AMERICAN GENERAL LIFE INSURANCE COMPANY of New York ("AGL")
SEPERATE ACCOUNT D
--------------------------------------------
A Subsidiary of American General Corporation
--------------------------------------------
Houston, Texas
WM ADVANTAGE SERVICE REQUEST
COMPLETE AND RETURN THIS REQUEST TO: WM Advantage (TM)
Annuity Administration
P.O. Box 1401
Houston, TX 77251-1401
(800)247-6584
-----------------------------------------------------------------------------
1. [X] CERTIFICATE INDENTIFICATION (COMPLETE SECTION 1 AND 14 FOR ALL
REQUESTS.) INDICATE CHANGE OR REQUEST DESIRED BELOW.
CONTRACT #:_____________________ ANNUITANT:______________________________
CONTRACT OWNER(S):________________________________________________________
ADDRESS:__________________________________________________________________
[ ]CHECK HERE IF CHANGE OF ADDRESS________________________________________
S.S. NO. OR TAX I.D. NO.:_____-_____-_____ Phone Number:(____)____________
-----------------------------------------------------------------------------
2. [ ] NAME CHANGE
[ ] Annuitant* [ ] Beneficiary* [ ] Owner(s)*
*Does not change Annuitant, Beneficiary, or Ownership designations.
FROM:_____________________________________________________________________
(First, Middle, Last)
TO: _____________________________________________________________________
(First, Middle, Last)
------------------------
Reason: [ ] Marriage [ ] Divorce [ ] Correction [ ] Other
(Attach certified copy of court order.)
-----------------------------------------------------------------------------
3. [ ] DUPLICATE CERTIFICATE
I/we hereby certify that the contract for the listed number has been
[ ] LOST [ ] DESTROYED [ ] OTHER Unless I/we have directed cancellation of
the contract, I/we request that a Certificate of Lost Contract be issued.
If the original contract is located, I/we will return the Certificate of
Lost Contract to AGL to be voided.
-----------------------------------------------------------------------------
4. [ ] BENEFICIARY CHANGE
PRIMARY BENEFICIARY:______________________________________________________
(Indicate name, taxpayer Identification Number
(S.S. No.), and relationship to Annuitant.)
CONTINGENT BENEFICIARY:___________________________________________________
(Indicate name, taxpayer Identification Number
(S.S. No.), and relationship to Annuitant.)
-----------------------------------------------------------------------------
THIS SECTION IS FOR HOME OFFICE USE ONLY
This change of beneficiary has been approved by AGL at its Home Office,
and presentation of the Contract for endorsement has been waived.
DATE OF APPROVAL:______________ BY:_______________________________________
AMERICAN GENERAL LIFE INSURANCE COMPANY
-----------------------------------------------------------------------------
5. [ ] DOLLAR COST AVERAGING
Dollar cost average [ ]$___________ OR [ ] _________% (whole % only)
taken from the Money Market (53)
Frequency: [ ] Monthly [ ] Quarterly [ ] Semiannually [ ] Annually
Duration: [ ] 12 months [ ] 24 months [ ] 36 months
Begin Date: ______/______/______ (Date must be at least 30 days after
issue date and must be between the 1st and the 28 th of the month.)
If no begin date is elected, dollar cost averaging will begin at the
beginning of the next interval from the date of receipt of this form.
Allocate to the following divisions as indicated. (Use dollars or whole
percentages.)
Short Term High Quality Bond (58) ______
U.S. Government (54) ______
Corporate Income (57) ______
Growth & Income (56) ______
Growth (52) ______
Emerging Growth (59) ______
International Growth (50) ______
1-Year Guarantee Period(111) ______
3-Year Guarantee Period (113) ______
5-Year Guarantee Period(115) ______
-----------------------------------------------------------------------------
6. [ ] TELEPHONE TRANSFER AUTHORIZATION
I (or if joint owners, either of us acting independently) hereby authorize
American General Life Insurance Company ("AGL") to act on telephone
instructions to transfer values among the Variable Divisions and Fixed
Accounts and to change allocations for future purchase payments given by:
(INITIAL APPROPRIATE BOX(ES) BELOW.)
[ ] Contract Owner(s)
[ ] Agent/Registered Representative who is both appointed to represent AGL
and with the firm authorized to service my contract.
AGL and any person designated by this authorization will not be
responsible for any claim, loss, or expense based upon telephone transfer
instructions received and acted on in good faith, including losses due to
telephone instruction communication errors. AGL's liability for erroneous
transfers, unless clearly contrary to instructions received, will be
limited to correction of the allocations on a current basis. If an error,
objection, or other claim arises due to a telephone transfer transaction,
I will notify AGL in writing within five working days from receipt of
confirmation of the transaction from AGL. I understand that this
authorization is subject to the terms and provisions of my WM Advantage
contract and its related prospectus. This authorization will remain in
effect until my written notice of its revocation is received by AGL at its
main office.
[ ] Check here to decline telephone transfer privilege.
-----------------------------------------------------------------------------
L8394 REV 398 PAGE 1 OF 2
<PAGE>
-----------------------------------------------------------------------------
7. [ ] TRANSFER OF ACCUMULATED VALUES
A MINIMUM OF $500 MUST BE MAINTAINED IN EACH DIVISION.
INDICATE GROSS DOLLAR OR PERCENTAGE AMOUNT.
______ from Div. ______ to Div. ______
______ from Div. ______ to Div. ______
______ from Div. ______ to Div. ______
______ from Div. ______ to Div. ______
______ from Div. ______ to Div. ______
______ from Div. ______ to Div. ______
______ from Div. ______ to Div. ______
______ from Div. ______ to Div. ______
______ from Div. ______ to Div. ______
-----------------------------------------------------------------------------
8. [ ] CHANGE ALLOCATION OF FUTURE PURCHASE PAYMENTS
USE WHOLE PERCENTAGES. TOTAL MUST EQUAL 100%.
________ Division to ________%
________ Division to ________%
________ Division to ________%
________ Division to ________%
________ Division to ________%
________ Division to ________%
________ Division to ________%
________ Division to ________%
________ Division to ________%
-----------------------------------------------------------------------------
9. [ ] REQUEST FOR PARTIAL WITHDRAWAL
(ALSO COMPLETE SECS. 12 & 13.) MINIMUM WITHDRAWAL IS $500.
$ OR % ______ Div. No. ______
$ OR % ______ Div. No. ______
$ OR % ______ Div. No. ______
$ OR % ______ Div. No. ______
$ OR % ______ Div. No. ______
$ OR % ______ Div. No. ______
$ OR % ______ Div. No. ______
$ OR % ______ Div. No. ______
$ OR % ______ Div. No. ______
Amounts requested are to be: ( ) net or ( ) gross of applicable charges.
-----------------------------------------------------------------------------
10. [ ] SYSTEMATIC WITHDRAWAL
(ALSO COMPLETE SECS. 12 & 13.) MINIMUM WITHDRAWAL IS $500.
Specified Dollar Amount $______________________
Frequency: [ ] Monthly [ ] Quarterly [ ] Semiannually [ ] Annually
Begin Date: ______/______/______ (Date must be at least 30 days after
issue date and must be between the 5th and the 24th of the month.)
-----------------------------------------------------------------------------
11. [ ] REQUEST FOR FULL SURRENDER
(ALSO COMPLETE SECS. 12 & 13.)
[ ] Contract is attached.
[ ] I hereby declare that the contract specified above has been lost,
destroyed, or misplaced and request that the value of the contract be
paid. I agree to indemnify and hold harmless AGL against any claims which
may be asserted on my behalf and on the behalf of my heirs, assignees,
legal representatives, or any other person claiming rights derived through
me against AGL on the basis of the contract.
-----------------------------------------------------------------------------
12. [ ] METHOD OF DISTRIBUTION
NOTE: If no method is indicated, check(s) will be mailed to the owner at
the address of record.
Check one: [ ] Mail check to owner. [ ] Mail check to alternate address.
[ ] Deposit funds directly to bank/firm.*
(available only for systematic withdrawals)
__________________________________________________________________________
INDIVIDUAL OR BANK/FIRM
______________________________________ __________________________________
ADDRESS CITY/STATE/ZIP
__________________________________________________________________________
IF BANK/FIRM, PROVIDE ACCOUNT NUMBER TO BE REFERENCED FOR DEPOSIT.
Type of account: [ ] Checking [ ] Savings
*Enclose a voided check from account where funds are to be deposited.
PLEASE DO NOT ENCLOSE A DEPOSIT SLIP.
-----------------------------------------------------------------------------
13. [ ] NOTICE OF WHITHHOLDING
The taxable portion of the distribution you receive from your annuity
contract is subject to federal income tax withholding unless you elect not
to have withholding apply. Withholding of state income tax may also be
required by your state of residence. You may elect not to have withholding
apply by checking the appropriate box below. If you elect not to have
withholding apply to your distribution or if you do not have enough income
tax withheld, you may be responsible for payment of estimated tax. You may
incur penalties under the estimated tax rules if your withholding and
estimated tax are not sufficient.
[ ] I do NOT want income tax withheld from this distribution.
[ ] I do want 10% OR [ ] ________% income tax withheld from this
distribution.
-----------------------------------------------------------------------------
14. [ ] AFFIRMATION/SIGNATURE
(COMPLETE THIS SECTION FOR ALL REQUESTS.)
-----------------------
CERTIFICATION: Under penalties of perjury, I certify that: (1) the number
shown on this form is my correct Social Security (or taxpayer
identification) number; and (2) I am not subject to backup withholding
under Section 3406(a)(1)(c) of the Internal Revenue Code.
The Internal Revenue Service does not require your consent to any
provision of this document other than the certification required to avoid
backup withholding.
-----------------------
_________________________________________ _______________________________
Signature of Owner(s) Date
-----------------------------------------------------------------------------
L8394 REV 398 PAGE 2 OF 2
EXHIBIT 10
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 February 20, 1998, as to the
Sierra Advantage Divisions of American General Life Insurance Company Separate
Account D, and February 23, 1998, as to American General Life Insurance
Company, in Post-Effective Amendment No. 7 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
March 30, 1998
