<PAGE>
Registration Nos. 333-40637
811-2441
As filed with the Commission on March 30, 1999
______________________________________
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. 3 [X]
---
and/or
REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY ACT OF 1940
Amendment No. 73 [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, TX 77019-2191
(Address of Depositor's Principal Executive Offices) (Zip Code)
(713) 831-8471
(Depositor's Telephone Number, including Area Code)
Pauletta P. Cohn, Esq.
Associate General Counsel and Secretary
American General Life Companies
2727 Allen Parkway
Houston, TX 77019
(Name and Address of Agent for Service)
Approximate Date of Proposed Public Offering: Continuous.
It is proposed that the filing will become effective (check appropriate box)
[ ] immediately upon filing pursuant to paragraph (b) of Rule 485
[X] on April 1, 1999 pursuant to paragraph (b) of Rule 485
[ ] 60 days after filing pursuant to paragraph (a)(1) of Rule 485
[ ] on (date) pursuant to paragraph (a)(1) of Rule 485
[ ] 75 days after filing pursuant to paragraph (a)(2) of Rule 485
[ ] on (date) pursuant to paragraph (a)(3) of Rule 485
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
PROFILE OF THE SELECT RESERVE(SM)
FLEXIBLE PAYMENT VARIABLE AND FIXED INDIVIDUAL DEFERRED ANNUITY CONTRACTS
This Profile summarizes information you should know before investing in a
Contract. The Contracts are more fully described in the Prospectus that
accompanies this Profile. Please read the Prospectus carefully.
1. THE CONTRACTS. The Select Reserve(SM) Contracts ("Contracts") are flexible
payment variable and fixed individual deferred annuity Contracts issued by
American General Life Insurance Company ("AGL"). They are primarily designed
for investment of after-tax money in non-qualified annuities in order to provide
retirement income. Because of a minimum initial purchase payment of $50,000,
the Contracts may not be suitable for many tax-qualified plan programs.
However, you may wish to use a Contract for programs such as a rollover
individual retirement annuity.
You may use the Divisions of American General Life Insurance Company Separate
Account D ("Separate Account") for a variable investment return under a
Contract. Variable returns are based on one or more series of the mutual funds
listed in Section 4, below. You may also use AGL's Fixed Account, for
investment in Guarantee Periods with guaranteed principal and interest.
The Divisions of the Separate Account offer an opportunity to realize better
returns than those guaranteed under the Guarantee Periods. The Divisions
involve risk, however, and you can lose money. You may make transfers among the
Divisions and Guarantee Periods.
The Contracts have an accumulation phase and an annuity phase. During the
accumulation phase, earnings accumulate on a tax-deferred basis and are taxed as
income when you make a withdrawal. When you begin receiving regular annuity
payments, a portion of each payment is taxable. Various distribution methods
are available during the accumulation phase and the annuity phase.
2. ANNUITY PAYMENTS. Your Contract's value may be applied to any one of the
following annuity payout options (assuming that you are the annuitant): (1)
Life Annuity - monthly payments during your life; (2) Life Annuity - Period
Certain - monthly payments, during your life, but with payments continuing to
the beneficiary for the balance of the 10, 15 or 20 years (as you choose) if you
die before the end of the chosen period; (3) Joint and Last Survivor-Life -
monthly payments during your life and the life of another payee, with payments
continuing during the lifetime of the survivor; (4) Certain Period - monthly
payments to you or another payee and on your death or the death of the other
payee to a beneficiary for a specified period of time between 5 and 40 years,
with no life contingencies; (5) Specified Dollar Amount - monthly payments in
<PAGE>
amounts not less than $125 nor more than $200 per year for each $1,000 of the
original amount due, with the balance to a beneficiary if the person receiving
the payments dies prior to completion of the payments.
With the exception of option 5, you may choose annuity payments under the above
options to be made on a fixed or variable basis. The dollar amount of your
payments on a variable basis will depend upon the investment performance of the
Divisions. Option 5 is available only on a fixed basis. A payee receiving
variable (but not fixed) annuity payments under option 4 may elect at any time
to terminate the option and receive the commuted (current) value of the annuity.
3. PURCHASE. You can purchase a Contract by submitting an application. The
minimum initial purchase payment is $50,000. You may contribute additional
amounts of $5,000 or more at any time during the accumulation phase.
4. INVESTMENT OPTIONS. Through the Divisions, you may invest in one or more of
the following series of the mutual funds named below:
<TABLE>
<CAPTION>
<S> <C> <C>
AMERICAN GENERAL SERIES NAVELLIER VARIABLE INSURANCE ROYCE CAPITAL FUND
PORTFOLIO COMPANY SERIES FUND, INC. . Royce Premier
. Money Market Fund . Navellier Growth Portfolio
Portfolio . Royce Total Return
HOTCHKIS AND WILEY Portfolio
VARIABLE TRUST OFFITBANK VARIABLE
. Equity Income VIP INSURANCE FUND, INC. WRIGHT MANAGED BLUE
Portfolio . OFFITBANK VIF- CHIP SERIES TRUST
. Low Duration VIP Emerging Markets Fund . Wright International
Portfolio . OFFITBANK VIF- Blue Chip Portfolio
High Yield Fund . Wright Selected Blue
LEVCO SERIES TRUST . OFFITBANK VIF- Chip Portfolio
. LEVCO Equity Value Total Return Fund
Fund . OFFITBANK VIF-
U.S. Government
Securities Fund
</TABLE>
You may also invest in a Guarantee Period. Currently, AGL offers a one-year
Guarantee Period. Other Guarantee Periods may be offered, in the future, with
different interest rates and durations.
5. EXPENSES. We deduct a daily charge for mortality and expense risks at an
annual rate of 0.36%, and a daily charge for administration expenses at an
annual rate of 0.04%, of the average daily net asset value of a Division.
2
<PAGE>
There also are investment series charges, ranging from 0.54% to 2.00% of the
average annual assets of the series listed in Section 4, above, depending on the
series involved. Charges for state premium and other applicable taxes ("premium
taxes") may also apply at the time you elect to start receiving annuity
payments.
The first two columns in the following chart show the Contract charges and the
investment series charges. The third column, "Total Annual Charges," shows the
total of the charges in the first two columns. The last two columns provide two
examples of the total annual charges, in dollars, that you would pay under a
Contract, assuming that you invest $1,000 in a Contract that earns 5% annually
and that you withdraw your money: (1) at the end of year 1, and (2) at the end
of year 10. The column for year 1 shows the total annual charges for that year.
The column for year 10 shows the aggregate of all the annual charges assessed
for the 10 years. The examples assume that there are no charges for premium
taxes.
<TABLE>
<CAPTION>
EXAMPLES OF
TOTAL ANNUAL TOTAL ANNUAL TOTAL ANNUAL
CONTRACT SERIES TOTAL ANNUAL CHARGES AT END OF:
INVESTMENT SERIES CHARGES CHARGES CHARGES 1 YEAR 10 YEARS
- --------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Hotchkis and Wiley Equity Income VIP 0.40% 1.15% 1.55% $16 $185
Hotchkis and Wiley Low Duration VIP 0.40% 0.58% 0.98% $10 $120
LEVCO Equity Value 0.40% 1.10% 1.50% $15 $179
Navellier Growth 0.40% 1.50% 1.90% $19 $222
OFFITBANK VIF-Emerging Markets 0.40% 1.50% 1.90% $19 $222
OFFITBANK VIF-High Yield 0.40% 1.15% 1.55% $16 $200
OFFITBANK VIF-Total Return 0.40% 0.80% 1.20% $12 $145
OFFITBANK VIF-U.S. Government 0.40% 0.60% 1.00% $10 $122
Securities
Royce Premier 0.40% 1.35% 1.75% $18 $206
Royce Total Return 0.40% 1.35% 1.75% $18 $206
Wright International Blue Chip 0.40% 2.00% 2.40% $25 $309
Wright Selected Blue Chip 0.40% 1.27% 1.67% $17 $198
Money Market 0.40% 0.54% 0.94% $10 $121
</TABLE>
The charges reflect any expense reimbursement or waiver. For more information,
see the Fee Table in the Prospectus.
6. TAXES. Usually, you pay taxes on earnings only when distributions are made
from your Contract. You may also pay a 10% penalty on the taxable portion of
distributions received prior to age 59 1/2.
3
<PAGE>
7. ACCESS TO YOUR MONEY. Prior to the annuity starting date, you may receive
distributions under your Contract through the following withdrawal options: (1)
partial withdrawals of at least $100 may be taken at any time, and (2)
systematic withdrawals paid monthly, quarterly, semiannually or annually,
subject to a $100 minimum for each payment.
You also have access to your Contract's value by surrendering the Contract. You
may do this at any time prior to the annuity starting date. During the annuity
payout period, a person receiving variable payments, under a certain period
option, may also surrender the Contract. Withdrawals and surrenders may be
subject to income tax and a tax penalty.
8. PERFORMANCE. During the accumulation phase, your Contract's value in the
Divisions may fluctuate, reflecting the investment performance of the Divisions
you have selected. The following chart shows hypothetical total returns for
Divisions whose corresponding series have at least one full calendar year of
operations. The returns shown are based on the actual historical performance of
the corresponding series. They reflect all charges and deductions of the series
and the Divisions that would have been made during the periods shown. Thus, the
chart reflects all of the charges in the third column of the chart in Section 5,
above, for the Divisions included below. If also included, premium taxes would
reduce the performance numbers shown below. Past performance is not a guarantee
of future results.
<TABLE>
<CAPTION>
Calendar Year
Division 1998 1997 1996 1995 1994 1993 1992 1991 1990 1989
- -------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
LEVCO Equity Value 15..22% N/A N/A N/A N/A N/A N/A N/A N/A N/A
OFFITBANK VIF - (16.91%) 5.77% N/A N/A N/A N/A N/A N/A N/A N/A
Emerging Markets
OFFITBANK VIF- 3.63% 11.20% N/A N/A N/A N/A N/A N/A N/A N/A
High Yield
Royce Premier 8.20% 16.32% N/A N/A N/A N/A N/A N/A N/A N/A
Wright International 7.68% 5.06% 16.62% 9.34% N/A N/A N/A N/A N/A N/A
Blue Chip
Wright Selected (3.28%) 31.21% 21.99% 25.43% N/A N/A N/A N/A N/A N/A
Blue Chip
Money Market 4.47% 4.49% 4.32% 4.85% 3.11% 2.01% 2.57% 4.83% 7.18% 8.24%
</TABLE>
9. DEATH BENEFIT. If you die before the annuity starting date, the beneficiary
will receive a death benefit. The death benefit is the Contract value at the
time we receive proof of death and a written request specifying the manner of
payment, less premium taxes. However, if death occurs prior to age 81, and
before the annuity starting date, the death benefit is the greater of (1) the
death benefit in the preceding sentence or (2) the sum of all purchase payments
you have paid under the Contract, less any partial withdrawals and premium
taxes.
4
<PAGE>
10. OTHER INFORMATION.
TAX-QUALIFIED PLANS. Please consult your tax adviser before purchasing a
Contract as a rollover from an existing tax-qualified retirement plan, including
another individual retirement account or annuity under Section 408 of the
Internal Revenue Code. Any discussion of taxes in this Profile does not apply
to such a Contract.
FREE LOOK. You can examine your Contract for a period of 10 days after you
receive it, and return it to us for a refund. Your refund will equal your
Contract's value, reflecting any investment gain or loss in the Divisions you
have specified. Some states require us to refund the sum of your purchase
payments if it is larger than your Contract's value. Other states allow us to
refund only the sum of your purchase payments.
AUTOMATIC REBALANCING. You can have your money automatically rebalanced among
the Divisions quarterly, semiannually, or annually in order to retain the
proportional investments you select.
REPORTS. We will mail to Contract owners or annuitants any reports and
communications required by law. The toll-free number for daily Division values
is 1-800-813-5065.
11. INQUIRIES. If you need more information, please contact your registered
representative. You may also contact us at:
American General Insurance Company
Annuity Administration Department
P.O. Box 1401
Houston, Texas 77251-1401
Telephone 1-800-813-5065 and 1-713-831-3505
5
<PAGE>
SELECT RESERVE(SM)
FLEXIBLE PAYMENT VARIABLE AND
FIXED INDIVIDUAL DEFERRED ANNUITY CONTRACTS
OFFERED BY
AMERICAN GENERAL LIFE INSURANCE COMPANY
ANNUITY ADMINISTRATION DEPARTMENT
P.O. BOX 1401, HOUSTON, TEXAS 77251-1401
1-800-813-5065; 1-713-831-3505
American General Life Insurance Company ("AGL") is offering the flexible payment
variable and fixed individual deferred annuity contracts (the "Contracts")
described in this Prospectus.
You may use American General Life Insurance Company Separate Account D ("the
Separate Account") for a variable investment return under the Contracts based on
one or more series of the mutual funds named below, as follows:
<TABLE>
<CAPTION>
<S> <C> <C>
AMERICAN GENERAL SERIES PORTFOLIO NAVELLIER VARIABLE INSURANCE SERIES ROYCE CAPITAL FUND
COMPANY FUND, INC. . Royce Premier
. Money Market Fund . Navellier Growth Portfolio Portfolio
. Royce Total Return
HOTCHKIS AND WILEY OFFITBANK VARIABLE Portfolio
VARIABLE TRUST INSURANCE FUND, INC.
. Hotchkis and Wiley Equity . OFFITBANK VIF- WRIGHT MANAGED BLUE
Income VIP Portfolio Emerging Markets Fund CHIP SERIES TRUST
. Hotchkis and Wiley Low . OFFITBANK VIF- . Wright International
Duration VIP Portfolio High Yield Fund Blue Chip Portfolio
. OFFITBANK VIF- . Wright Selected Blue
LEVCO SERIES TRUST Total Return Fund Chip Portfolio
. LEVCO Equity Value . OFFITBANK VIF-
Fund U.S. Government
Securities Fund
</TABLE>
You may also use AGL's guaranteed interest option. This option currently has
one Guarantee Period, with a guaranteed interest rate.
This Prospectus provides you with information that you should have before
investing in the Contracts. Please read the Prospectus carefully and keep it
for future reference.
For additional information about the Contracts, you may request a copy of the
Statement of Additional Information (the "Statement"), dated April 1, 1999. We
have filed the Statement with the Securities and Exchange Commission ("SEC") and
have incorporated it by reference into this Prospectus. The "Contents" of the
Statement appears at page 49 of this Prospectus. You may obtain a free copy of
the Statement if you write or call AGL's Annuity Administration Department,
which is located at 2727-A Allen Parkway, Houston, Texas 77019-2191. The
telephone number is 1-800-813-5065. You may obtain the Statement through the
SEC's Web site at http://www.sec.gov.
You should rely only on the information contained in this document or that we
have referred you to. We have not authorized anyone to provide you with
information that is different.
Neither the Securities and Exchange Commission nor any state securities
commission has approved or disapproved of these securities or passed upon the
adequacy or accuracy of the Prospectus. Any representation to the contrary is a
criminal offense. The Contracts are not available in all states.
This Prospectus is valid only if you also receive current fund prospectuses of
the American General Series Portfolio Company, Hotchkis and Wiley Variable
Trust, Levco Series Trust, Navellier Variable Insurance Series Fund, Inc.,
Offitbank Variable Insurance Fund, Inc., Royce Capital Fund, and Wright Managed
Blue Chip Series Trust.
This Prospectus is dated April 1, 1999.
<PAGE>
<TABLE>
<CAPTION>
CONTENTS
<S> <C>
Definitions................................................................................ 4
Fee Table.................................................................................. 7
Communications to Us....................................................................... 9
Performance Information.................................................................... 9
Financial Ratings........................................................................ 10
Other Information........................................................................ 11
Selected Accumulation Unit Data (Unaudited)................................................ 11
Financial Information...................................................................... 12
AGL........................................................................................ 13
Separate Account D......................................................................... 13
The Series................................................................................. 13
Voting Privileges........................................................................ 17
The Fixed Account.......................................................................... 18
Guarantee Periods........................................................................ 18
Crediting Interest....................................................................... 19
New Guarantee Periods.................................................................... 20
Contract Issuance and Purchase Payments.................................................... 20
Minimum Requirements..................................................................... 21
Payments................................................................................. 21
Cancellation............................................................................. 21
Owner Account Value........................................................................ 22
Variable Account Value................................................................... 22
Fixed Account Value...................................................................... 23
Transfer, Automatic Rebalancing, Surrender and Partial Withdrawal of Owner Account Value... 23
Transfers................................................................................ 23
Automatic Rebalancing.................................................................... 25
Surrenders............................................................................... 25
Partial Withdrawals...................................................................... 26
Annuity Period and Annuity Payment Options................................................. 27
Annuity Commencement Date................................................................ 27
Application of Owner Account Value....................................................... 27
Fixed and Variable Annuity Payments...................................................... 27
Annuity Payment Options.................................................................. 28
Election of Annuity Payment Option....................................................... 29
Available Annuity Payment Options........................................................ 29
Transfers................................................................................ 31
Death Proceeds............................................................................. 31
Death Proceeds Before the Annuity Commencement Date...................................... 31
Death Proceeds After the Annuity Commencement Date....................................... 33
Proof of Death........................................................................... 33
Charges Under the Contracts................................................................ 34
Premium Taxes............................................................................ 34
Transfer Charges......................................................................... 34
Charge to the Separate Account........................................................... 34
Miscellaneous............................................................................ 35
</TABLE>
2
<PAGE>
<TABLE>
<CAPTION>
<S> <C>
Systematic Withdrawal Plan............................................................... 35
Reduction in Administrative Expense Charge............................................... 35
Other Aspects of the Contracts............................................................. 35
Owners, Annuitants, and Beneficiaries; Assignments....................................... 36
Reports.................................................................................. 36
Rights Reserved by Us.................................................................... 36
Payment and Deferment.................................................................... 37
Federal Income Tax Matters................................................................. 38
General.................................................................................. 38
Non-Qualified Contracts.................................................................. 38
Individual Retirement Annuities ("IRAs")................................................. 40
Roth IRAs................................................................................ 42
Simplified Employee Pension Plans........................................................ 43
Simple Retirement Accounts............................................................... 43
Other Qualified Plans.................................................................... 43
Private Employer Unfunded Deferred Compensation Plans.................................... 44
Federal Income Tax Withholding and Reporting............................................. 45
Taxes Payable by AGL and the Separate Account............................................ 45
Distribution Arrangements.................................................................. 46
Services Agreements........................................................................ 46
Legal Matters.............................................................................. 46
Year 2000 Considerations................................................................... 46
Other Information on File.................................................................. 48
Contents of Statement of Additional Information............................................ 49
</TABLE>
3
<PAGE>
DEFINITIONS
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 is
generally the Owner of a Contract.
ACCOUNT VALUE - the sum of your Fixed Account Value and your Variable Account
Value after deduction of any fees. We may subtract certain other charges from
your Account Value in the case of transfers or distribution of your Account
Value.
ACCUMULATION UNIT - a measuring unit used in calculating your interest in a
Division of the Separate Account before the Annuity Commencement Date.
ANNUITANT - the person named as Annuitant in the application for a 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 you elect a single sum payment instead.
ANNUITY PAYMENT OPTION - one of the ways in which you can request us to make
annuity payments to you. An Annuity Payment Option will control the amount of
each payment, how often we make payments, and for how long we make payments.
ANNUITY PERIOD - the period of time during which we make annuity payments under
an Annuity Payment Option.
ANNUITY UNIT - a measuring unit used to calculate the amount of Variable Annuity
Payments.
BENEFICIARY - the person who will 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 whom you designate under a Non-Qualified
Contract to become the Annuitant if the Annuitant dies before the Annuity
Commencement Date and the Contingent Annuitant is alive when the Annuitant dies.
CONTINGENT BENEFICIARY - a person whom 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 is alive when the 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 the
Separate Account is divided. Each Division invests in shares of a Series.
4
<PAGE>
FIXED ACCOUNT - the name of the investment option that allows you to allocate
purchase payments to AGL's General Account.
FIXED ACCOUNT VALUE - the sum of your net purchase payments and transfers in the
Fixed Account, plus accumulated interest, less any partial withdrawals and
transfers you make out of the Fixed Account.
FIXED ANNUITY PAYMENTS - annuity payments that are fixed in amount and do not
vary with the investment experience of any Division of the Separate Account.
GENERAL ACCOUNT - all assets of AGL other than those in the Separate Account 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 we credit a Guaranteed Interest Rate.
HOME OFFICE - our office at the following address and phone number: American
General Life Insurance Company, 2727-A Allen Parkway, Houston, Texas 77019,
(713) 831-3505.
NON-QUALIFIED - not eligible for the kind of federal income tax treatment that
occurs with retirement plans allowed by 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 kind of federal income tax treatment that occurs
with retirement plans under sections 401, 403, 408 or 408A of the Code.
SEPARATE ACCOUNT AND SEPARATE ACCOUNT D - the segregated asset account of AGL
named American General Life Insurance Company Separate Account D which invests
purchase payments under the Contracts.
SERIES - an individual portfolio of a mutual fund that you may choose for
investment under the Contracts. Currently, the Series are part of either the
American General Series Portfolio Company, Hotchkis and Wiley Variable Trust,
LEVCO Series Trust, Navellier Variable Insurance Series Fund, Inc., OFFITBANK
Variable Insurance Fund, Inc., Royce Capital Fund, and Wright Managed Blue Chip
Series Trust.
VALUATION DATE - a day when we are open for business. However, a day is not a
Valuation Date, if the Series in which a Division invests does not calculate the
value of its shares on that day.
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 New York Stock Exchange on the next Valuation Date.
VARIABLE ACCOUNT VALUE - the sum of your account values in the Separate Account
Divisions. Your account value in a Separate Account Division equals the value
of a Division's Accumulation Unit multiplied by the number of Accumulation Units
you have in that Division.
5
<PAGE>
VARIABLE ANNUITY PAYMENTS - annuity payments that vary in amount based on the
investment earnings and losses of one or more of the Divisions.
WRITTEN - signed, dated, and in a form satisfactory to us and received at our
Home Office. You must use special forms we or your sales representative provide
to elect an Annuity Option.
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 under a Contract.
The table reflects expenses of the Separate Account and the Series. We may also
deduct amounts for state premium taxes or similar assessments, where applicable.
PARTICIPANT TRANSACTION CHARGES
Front-End Sales Charge Imposed on Purchases....................0%
Surrender Charge...............................................0%
(computed as a percentage of purchase payments surrendered)
Transfer Charge...............................................$0/1/
ANNUAL CONTRACT FEE................................................$0
SEPARATE ACCOUNT ANNUAL EXPENSES (as a percentage of average
daily net asset value)
Mortality and Expense Risk Charge...........................0.36%
Administrative Expense Charge...............................0.04%
-----
Total Separate Account Annual Expenses.........................0.40%
=====
- -------------
/1/ This charge is $25 after the 12th transfer during each Contract Year before
the Annuity Commencement Date. Certain exceptions apply.
7
<PAGE>
<TABLE>
<CAPTION>
THE SERIES' ANNUAL EXPENSES/1,2/ (as a percentage of average daily Variable Account value)
Management Other
Fees After Expenses Annual Expenses
Expense After Expense After Expense
Reimbursement Reimbursement Reimbursement
and Waiver/4/ and Waiver/4/ and Waiver/4/
------------- ------------- --------------
<S> <C> <C> <C>
Hotchkis and Wiley Equity Income VIP 0.75% 0.40% 1.15%
Hotchkis and Wiley Low Duration VIP 0.46% 0.12% 0.58%
LEVCO Equity Value 0.00% 1.10% 1.10%
Navellier Growth 0.85% 0.65% 1.50%
OFFITBANK VIF-Emerging Markets 0.00% 1.50% 1.50%
OFFITBANK VIF-High Yield 0.66% 0.49% 1.15%
OFFITBANK VIF-Total Return/3/ 0.00% 0.80% 0.80%
OFFITBANK VIF-U. S. Government Securities 0.00% 0.60% 0.60%
Royce Premier 0.00% 1.35% 1.35%
Royce Total Return 0.00% 1.35% 1.35%
Wright International Blue Chip 0.00% 2.00% 2.00%
Wright Selected Blue Chip 0.00% 1.27% 1.27%
Money Market 0.50% 0.04% 0.54%
- ------------------------
</TABLE>
/1/ The Series advisers or managers have entered into administrative services
agreements with AGL. The advisers or managers pay fees to AGL for these
services. The fees do not have a direct relationship to the Series' Annual
Expenses. (See "Services Agreements.")
/2/ We estimate other expenses for the current fiscal year for the Hotchkis
and Wiley Equity Income VIP, Hotchkis and Wiley Low Duration VIP, Navellier
Growth, OFFITBANK VIF-Total Return, OFFITBANK VIF-U.S. Government Securities,
and Royce Total Return Series, because these Series do not have financial
statements covering a period of at least ten months.
/3/ OFFITBANK VIF-Total Return may invest a portion of its assets in shares of
OFFITBANK VIF-High Yield, OFFITBANK VIF-Emerging Markets, and OFFITBANK VIF-U.S.
Government Securities. Shareholders of OFFITBANK VIF-Total Return will
indirectly bear the expenses of the underlying funds at the rates stated above.
/4/ If expense reimbursements and fee waivers were terminated, management fees
and other expenses would have been as shown in the following table.
<TABLE>
<CAPTION>
Management Other Total Annual
Fees Expenses Expenses
------------- ------------- --------------
<S> <C> <C> <C>
Hotchkis and Wiley Equity Income VIP 0.75% 7.06% 7.81%
Hotchkis and Wiley Low Duration VIP 0.46% 5.10% 5.56%
LEVCO Equity Value 0.85% 1.19% 2.04%
Navellier Growth 0.85% 69.32% 70.17%
OFFITBANK VIF- Emerging Markets 0.90% 2.02% 2.92%
OFFITBANK VIF- High Yield 0.85% 0.70% 1.55%
OFFITBANK VIF-Total Return/2/ 0.80% 11.56% 12.36%
OFFITBANK VIF-U. S. Government Securities 0.00% 0.60% 0.60%
Royce Premier 1.00% 6.05% 7.05%
Royce Total Return 1.00% 17.08% 18.08%
Wright International Blue Chip 0.80% 4.36% 5.16%
Wright Selected Blue Chip 0.65% 1.46% 2.11%
Money Market 0.50% 0.04% 0.54%
</TABLE>
8
<PAGE>
Example/5/ Whether or not you surrender or annuitize at the end of the
applicable time period, the following expenses would apply to a
$1,000 investment if you assume a 5% annual return on assets:
<TABLE>
<CAPTION>
If all amounts are allocated
to a Division that invests in
one of the following Series: 1 year 3 years 5 years/5/ 10 years/5/
- ----------------------------- ------ ------ ----- -----
<S> <C> <C> <C> <C>
Hotchkis and Wiley Equity Income VIP $ 16 $ 49 N/A N/A
Hotchkis and Wiley Low Duration VIP $ 10 $ 31 N/A N/A
LEVCO Equity Value $ 15 $ 47 N/A N/A
Navellier Growth $ 19 $ 60 N/A N/A
OFFITBANK VIF-Emerging Markets $ 19 $ 60 $ 103 $ 222
OFFITBANK VIF-High Yield $ 16 $ 50 $ 88 $ 200
OFFITBANK VIF-Total Return $ 12 $ 38 N/A N/A
OFFITBANK VIF-U. S. Government Securities $ 10 $ 32 N/A N/A
Royce Premier $ 18 $ 55 $ 95 $ 206
Royce Total Return $ 18 $ 55 N/A N/A
Wright International Blue Chip $ 25 $ 78 $ 136 $ 309
Wright Selected Blue Chip $ 17 $ 53 $ 91 $ 198
Money Market $ 10 $ 30 $ 53 $ 121
</TABLE>
- -------------------------
/5/ In this Example, "N/A" reflects SEC rules that require Hotchkis and
Wiley Equity Income VIP, Hotchkis and Wiley Low Duration VIP, LEVCO Equity
Value, Navellier Growth, OFFITBANK VIF-Total Return, OFFITBANK VIF-U.S.
Government Securities, and Royce Total Return to complete the Example for only
the one and three year periods.
The Example is not a representation of past or future expenses. Actual
expenses may be greater or less than those shown. The assumed 5% annual rate of
return is not an estimate or a guarantee of future investment performance. The
Example assumes an estimated Average Account Value of $50,000.
COMMUNICATIONS TO US
You should include, in communications to us, your Contract number, your name,
and, if different, the Annuitant's name. You may direct communications to the
addresses and phone numbers on the first page of this Prospectus.
Unless this Prospectus states differently, we will consider purchase payments or
other communications to be received at our Home Office on the date we actually
receive them, if they are in proper form. However, we will consider purchase
payments to be received on the next Valuation Date if we receive them (1) after
the close of regular trading on the New York Stock Exchange or (2) on a date
that is not a Valuation Date.
PERFORMANCE INFORMATION
From time to time, we may include in advertisements and other sales materials
several types of performance information for the Divisions. This information
may include "average annual total return" and "cumulative total return." The
Hotchkis and Wiley Low Duration VIP Division, OFFITBANK VIF-
9
<PAGE>
High Yield Division and OFFITBANK VIF-U.S. Government Securities Division may
also advertise "yield." The Money Market Division may advertise "yield" and
"effective yield."
The performance information that we may present is not an estimate or guarantee
of future investment performance and does not represent the actual investment
experience of amounts invested by a particular Owner. Additional information
concerning a Division's performance appears in the Statement.
Total Return and Yield Quotations. Average annual total return and cumulative
total return figures measure the net income of a Division and any realized or
unrealized gains or losses of the underlying investments in the Division, over
the period stated. Average annual total return figures are annualized and
represent the average annual percentage change in the value of an investment in
a Division over the period stated. Cumulative total return figures represent
the cumulative change in value of an investment in a Division for various
periods stated.
Yield is a measure of the net dividend and interest income earned over a
specific one-month or 30-day period (seven-day period for the Money Market
Division), expressed as a percentage of the value of the Division's Accumulation
Units. Yield is an annualized figure, which means that we assume that the
Division generates the same level of net income over a one-year period and
compound that income on a semi-annual basis. We calculate the effective yield
for the Money Market Division similarly, but include the increase due to assumed
compounding. The Money Market Division's effective yield will be slightly
higher than its yield due to this compounding effect.
Average annual total return figures reflect deduction of all recurring charges
and fees applicable under the Contract to all Owner accounts, including the
following:
. the Mortality and Expense Risk Charge, and
. the Administrative Expense Charge.
Division Performance. The investment performance for each Division that invests
in a corresponding Series of the Trust will reflect the investment performance
of that Series for the periods stated. This information appears in the
Statement. For periods before the date the Contracts became available, we
calculate the performance information for a Division on a hypothetical basis. In
so doing, we reflect deductions of current Separate Account fees and charges
under the Contract from the historical performance of the corresponding Series.
We may waive or reimburse certain fees or charges applicable to the Contract.
Such waivers or reimbursements will affect each Division's performance results.
Information about the experience of the investment advisers to the Series of the
Fund appears in the prospectus for the Fund.
FINANCIAL RATINGS
AGL may 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 A.M. Best's current opinion of the relative
10
<PAGE>
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.
AGL may also advertise or report to Owners its ratings as to claims-paying
ability by the Standard & Poor's Corporation. A Standard & Poor's insurance
claims-paying ability rating is an assessment of an operating insurance
company's financial capacity to meet the obligations of its insurance policies
in accordance with their terms. Standard & Poor's ratings range from AAA to D.
AGL may additionally advertise its ratings as to claims-paying ability by the
Duff & Phelps Credit Rating Co. A Duff & Phelps claims-paying ability rating is
an assessment of a company's insurance claims-paying ability. Duff & Phelps
ratings range from AAA to CCC.
Current ratings from A.M. Best, Standard & Poor's, and Duff & Phelps may be used
from time to time in any advertising about the Contracts, as well as in any
reports that publish the ratings.
The ratings reflect the claims-paying ability and financial strength of AGL.
They are not a rating of investment performance that purchasers of insurance
products funded through separate accounts, such as the Separate Account, have
experienced or are likely to experience in the future.
OTHER INFORMATION
AGL may also advertise endorsements from organizations, individuals or other
parties that recommend AGL or the Contracts. AGL may occasionally include in
advertisements (1) comparisons of currently taxable and tax-deferred investment
programs, based on selected tax brackets, or (2) discussions of alternative
investment vehicles and general economic conditions.
SELECTED ACCUMULATION UNIT DATA (UNAUDITED)
The following table shows the Accumulation Unit value for the Divisions
available with the Contracts on the date purchase payments were first allocated
to each Division. It also shows the Accumulation Unit value and the number of
Accumulation Units outstanding at the end of the last calendar year.
11
<PAGE>
Accumulation Accumulation
Unit Values Accumulation Units
(Beginning of Unit Values Outstanding
Divisions Period)* at 12/31/98 at 12/31/98
- --------- ------------- ------------ -----------
Hotchkis and Wiley Equity Income VIP 5.000000 4.673982 10,458.649
Hotchkis and Wiley Low Duration VIP 5.000000 5.121855 134,280.851
LEVCO Equity Value 5.000000 5.122522 12,926.642
Navellier Growth 5.000000 5.356685 17,224.179
OFFITBANK VIF-Emerging Markets 5.000000 4.910106 862,692.096
OFFITBANK VIF-High Yield 5.000000 5.282978 5,255,659.406
OFFITBANK VIF-Total Return 5.000000 5.068333 197,419.407
OFFITBANK VIF-
U.S. Government Securities 5.000000 5.112243 0.000
Royce Premier 5.000000 4.798086 10,977.370
Royce Total Return 5.000000 5.100029 2,000.000
Wright International Blue Chip 5.000000 4.906973 259,926.894
Wright Selected Blue Chip 5.000000 4.675727 744,426.830
Money Market 5.000000 5.081157 10,286.729
___________________
*The dates when the Divisions commenced operations are as follows: the Hotchkis
and Wiley Equity Income VIP, LEVCO Equity Value, Navellier Growth, Royce
Premier, and Royce Total Return Divisions, May 14, 1998; the Wright
International Blue Chip and Wright Selected Blue Chip Divisions, June 22, 1998;
the Hotchkis and Wiley Low Duration VIP and OFFITBANK VIF-Total Return
Divisions, June 29, 1998; the Money Market Division, July 30, 1998; the
OFFITBANK VIF-Emerging Markets and OFFITBANK VIF-High Yield Divisions, August
18, 1998; the OFFITBANK VIF-U.S. Government Securities Division, August 21,
1998.
FINANCIAL INFORMATION
The financial statements of AGL appear in the Statement. Please see the first
page of this Prospectus for information on how to obtain a copy of the
Statement. You should consider the financial statements of AGL only as bearing
on the ability of AGL to meet its contractual obligations under the Contracts.
The financial statements do not bear on the investment performance of the
Separate Account. (See "Contents of Statement of Additional Information.").
The financial statements of the Select Reserve Divisions of Separate Account D
also appear in the Statement. They provide financial information about the
Select Reserve Divisions which invest in the Series.
12
<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, 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
AGL established Separate Account D on November 19, 1973. The Separate Account
has 69 Divisions, 13 of which are available under the Contracts offered by this
Prospectus. The Separate Account is registered with the Securities and Exchange
Commission as a unit investment trust under the 1940 Act.
Each Division of the Separate Account is part of AGL's general business. The
assets of the Separate Account belong to AGL. Under Texas law and the terms of
the Contracts, the assets of the Separate Account will not be chargeable with
liabilities arising out of any other business that AGL may conduct. These
assets will be held exclusively to meet AGL's obligations under variable annuity
Contracts. Furthermore, AGL credits or charges the Separate Account with the
income, gains, and losses from the Separate Account's assets, whether or not
realized, without regard to other income, gains, or losses of AGL.
THE SERIES
The Separate Account has 13 Divisions funding the variable benefits under the
Contracts. These Divisions invest in shares of one or more series of American
General Series Portfolio Company, Hotchkis and Wiley Variable Trust, LEVCO
Series Trust, Navellier Variable Insurance Series Fund, Inc., OFFITBANK Variable
Insurance Fund, Inc., Royce Capital Fund and Wright Managed Blue Chip Series
Trust (collectively, the "Underlying Funds").
The Underlying Funds offer shares of these Series, without sales charges,
exclusively to insurance company variable annuity and variable life insurance
separate accounts and not directly to the public. The Underlying Funds also
offer shares to variable annuity and variable life insurance separate accounts
of insurers that are not affiliated with AGL.
We do not foresee any disadvantage to you 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 one of the Underlying Funds could cause the contracts or certificates funded
through another separate account to lose their tax deferred status. Such a
result might require us to take remedial action. A separate account may have to
withdraw its participation in the Underlying Fund, if a material irreconcilable
conflict arises between separate accounts. In that event, the Underlying Fund
may have to liquidate portfolio securities at a loss to pay for a separate
account's redemption of Trust or Fund shares. At the same time, the Boards of
13
<PAGE>
Trustees and the Boards of Directors of the Underlying Funds, and we, will
monitor events for any material irreconcilable conflicts that may possibly arise
and determine what action, if any, to take to remedy or eliminate the conflict.
We automatically reinvest any dividends or capital gain distributions that we
receive on shares of the Series held under Contracts. We reinvest at the
Series' net asset value on the date payable. Dividends and distributions will
reduce the net asset value of each share of the corresponding Series and
increase the number of shares outstanding of the Series by an equivalent value.
However, these dividends and distributions do not change your Account Value.
14
<PAGE>
The Series of the Underlying Funds and their management are as follows:
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------
INVESTMENT COMPANY SERIES ADVISER/MANAGER
- ------------------------------------------------------------------------------------------------------------
<S> <C> <C>
American General Series Portfolio The Variable Annuity Life
Company Money Market Fund Insurance Company
- ------------------------------------------------------------------------------------------------------------
Hotchkis and Wiley Variable Trust Hotchkis and Wiley Equity Hotchkis and Wiley
Income VIP Portfolio
Hotchkis and Wiley Low
Duration VIP Portfolio
- ------------------------------------------------------------------------------------------------------------
LEVCO Series Trust LEVCO Equity Value John A. Levin and Co., Inc.
Fund
- ------------------------------------------------------------------------------------------------------------
Navellier Variable Insurance Series Navellier Growth Navellier & Associates, Inc.
Fund, Inc. Portfolio
- ------------------------------------------------------------------------------------------------------------
OFFITBANK Variable Insurance Fund, OFFITBANK VIF-Emerging OFFITBANK
Inc. Markets Fund
OFFITBANK VIF-High Yield
Fund
OFFITBANK VIF-Total
Return Fund
OFFITBANK VIF- U.S.
Government Securities
Fund
- ------------------------------------------------------------------------------------------------------------
Royce Capital Fund Royce Premier Portfolio Royce & Associates, Inc.
Royce Total Return
Portfolio
- ------------------------------------------------------------------------------------------------------------
Wright Managed Blue Chip Series Trust Wright International Blue Wright Investors' Service, Inc.
Chip Portfolio
Wright Selected Blue Chip
Portfolio
- ------------------------------------------------------------------------------------------------------------
</TABLE>
15
<PAGE>
The investment objective of each Series is as follows:
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------
SERIES INVESTMENT OBJECTIVE
- ------------------------------------------------------------------------------------------------------------------
<S> <C>
Money Market Fund Liquidity, protection of capital and current income through investments in short-term
money market instruments. Shares of the Money Market Fund are neither insured nor
guaranteed by the U.S. Government. There is no assurance that this Fund will be able
to maintain a stable net asset value of $1.00 per share.
- ------------------------------------------------------------------------------------------------------------------
Hotchkis and Wiley Provide current income and long term growth of income, accompanied by growth of
Equity Income VIP capital. Invests in domestic equity securities.
Portfolio
- ------------------------------------------------------------------------------------------------------------------
Hotchkis and Wiley Low Maximize total return, consistent with preservation of capital. Invests in a
Duration VIP Portfolio diversified portfolio of fixed-income securities of varying maturities with a
portfolio duration of one to three years.
- ------------------------------------------------------------------------------------------------------------------
LEVCO Equity Value Fund Achieve long term growth of capital by emphasizing the preservation of capital and
control of volatility. A research intensive, value oriented stock selection process
is used in constructing a diversified portfolio.
- ------------------------------------------------------------------------------------------------------------------
Navellier Growth Achieve long-term growth of capital primarily through investment in companies with
Portfolio appreciation potential.
- ------------------------------------------------------------------------------------------------------------------
OFFITBANK VIF-Emerging Provide investors with a competitive total investment return by focusing on current
Markets Fund yield and opportunities for capital appreciation primarily by investing in corporate
and sovereign debt securities of emerging market countries.
- ------------------------------------------------------------------------------------------------------------------
OFFITBANK VIF-High High current income, with capital appreciation as a secondary objective. Invests
Yield Fund primarily in U.S. corporate fixed income securities which are rated below investment
grade or unrated at the time of investment.
- ------------------------------------------------------------------------------------------------------------------
OFFITBANK VIF- Total Maximize total return from a combination of capital appreciation and current income by
Return Fund investing in a diversified portfolio of fixed income securities, including U.S.
Government or agencies' obligations, investment grade fixed income, high yield and
fixed income securities and securities of other investment companies. An SEC
exemptive order permits this Fund to purchase shares of any of the existing or any new
Series of the OFFITBANK Variable Insurance Fund, Inc.
- ------------------------------------------------------------------------------------------------------------------
OFFITBANK VIF- U.S. Current income consistent with preservation of capital. Invests at least 80% of its
Government Securities assets in U.S. Government obligations.
Fund
- ------------------------------------------------------------------------------------------------------------------
Royce Premier Portfolio Long-term growth and, as a secondary objective, current income. Invests in a limited
number of equity securities of small-cap companies viewed by Royce & Associates, Inc.
as having superior financial characteristics and/or unusually attractive business
prospects.
- ------------------------------------------------------------------------------------------------------------------
Royce Total Return Equal focus on both long-term growth of capital and current income. Invests primarily
Portfolio in a diversified portfolio of dividend-paying securities of small and mid-cap
companies selected on a value basis.
- ------------------------------------------------------------------------------------------------------------------
Wright International Long-term capital appreciation by investing primarily in equity securities of
Blue Chip Portfolio well-established, non-U.S. companies that meet the advisor's quality standards.
- ------------------------------------------------------------------------------------------------------------------
Wright Selected Blue Long-term capital appreciation and, as a secondary objective, reasonable current
Chip Portfolio income, by investing primarily in equity securities of well-established U.S. companies
that meet the Advisor's quality standards.
- ------------------------------------------------------------------------------------------------------------------
</TABLE>
16
<PAGE>
Before selecting any Division, you should carefully read the Underlying Fund
Prospectus. The Prospectus provides more complete information about the Series
in which the Division invests, including investment objectives and policies,
charges and expenses. An Underlying Fund may accompany its Prospectus with a
summary of the Prospectus called a "profile."
You can find information about the investment performance of a Series of the
Underlying Funds and information about the business experience of the investment
advisers to the Series in the Prospectuses. You may obtain additional copies of
a Prospectus by contacting AGL's Home Office at the addresses and phone numbers
on the first page of this Prospectus. When making your request, please specify
the Series of the Underlying Fund in which you are interested.
High yielding fixed-income securities such as those in which the OFFITBANK VIF-
High Yield, Emerging Markets and Total Return Divisions invest are subject to
greater market fluctuations and risk of loss of income and principal than
investments in lower yielding fixed-income securities. You should carefully
read the Underlying Fund Prospectuses for each Series in which these Divisions
invest and consider your ability to assume the risks of making an investment in
these Divisions.
VOTING PRIVILEGES
The following people may give us voting instructions for Series shares held in
the Separate Account Divisions attributable to their Contract:
. You, as the Owner, before the Annuity Commencement Date, and
. The Annuitant or other payee, during the Annuity Period.
We will vote according to such instructions at meetings of shareholders of the
Series.
We will determine who is entitled to give voting instructions and the number of
votes for which they may give directions as of the record date for a meeting.
We will calculate the number of votes in fractions. We will calculate the
number of votes for any Series as follows:
. For each Owner before the Annuity Commencement Date, we will divide (1)
the Owner's Variable Account Value invested in the corresponding Division
by (2) the net asset value of one share of that Series.
. For each Annuitant or payee during the Annuity Period, we will divide (1)
our liability for future Variable Annuity Payments to the Annuitant or
payee by (2) the value of an Annuity Unit. We will calculate our
liability for future Variable Annuity Payments based on the mortality
assumptions and the assumed interest rate that we use in determining the
number of Annuity Units under a Contract and the value of an Annuity
Unit.
17
<PAGE>
We will vote all shares of each Series owned by the Separate Account as follows:
. Shares for which we receive instructions, in accordance with those
instructions, and
. Shares for which we receive no instructions, in the same proportion as
the shares for which we receive instructions.
Shares of each Series may be owned by separate accounts of insurance companies
other than us. We understand that each Series will see that all insurance
companies vote shares uniformly.
We believe that our voting instruction procedures comply with current federal
securities law requirements. However, we reserve the right to modify these
procedures to conform with legal requirements and interpretations that are put
in effect or modified from time to time.
THE FIXED ACCOUNT
AMOUNTS IN THE FIXED ACCOUNT OR SUPPORTING FIXED ANNUITY PAYMENTS BECOME PART OF
OUR GENERAL ACCOUNT. WE HAVE NOT REGISTERED INTERESTS IN THE GENERAL ACCOUNT
UNDER THE SECURITIES ACT OF 1933, AND WE HAVE NOT REGISTERED THE GENERAL ACCOUNT
AS AN INVESTMENT COMPANY UNDER THE 1940 ACT BASED ON FEDERAL LAW EXCLUSION AND
EXEMPTION. THE STAFF OF THE SECURITIES AND EXCHANGE COMMISSION HAS ADVISED US
THAT IT HAS NOT REVIEWED THE DISCLOSURES IN THIS PROSPECTUS THAT RELATE TO THE
FIXED ACCOUNT OR FIXED ANNUITY PAYMENTS. AT THE SAME TIME, WE HAVE LEGAL
RESPONSIBILITY FOR THE ACCURACY AND COMPLETENESS OF THIS PROSPECTUS.
Our obligations for the Fixed Account are legal obligations of AGL. Our General
Account assets support these obligations. These General Account assets also
support our obligations under other insurance and annuity contracts.
Investments purchased with amounts allocated to the Fixed Account are the
property of AGL. Owners have no legal rights in such investments.
GUARANTEE PERIODS
Account Value that the Owner allocates to the Fixed Account earns a Guaranteed
Interest Rate beginning with the date of the allocation. This Guaranteed
Interest Rate continues for the number of years that the Owner selects from
among the Guarantee Periods that we then offer.
At the end of a Guarantee Period, we will allocate your Account Value in that
Guarantee Period, including interest you have earned, to a new Guarantee Period
of the same length. In the alternative, the Owner may submit a Written request
to us to allocate this amount to a different Guarantee Period or Periods or to
one or more of the Divisions of the Separate Account. We must receive this
Written request at least three business days before the end of the Guarantee
Period.
18
<PAGE>
We will contact the Owner regarding the scheduled Annuity Commencement Date, if
the Owner has not provided the necessary Written request and the renewed
Guarantee Period extends beyond the scheduled 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 in
writing at least 15 days and not more than 45 days before the end of any
Guarantee Period.
If the Owner's Account Value in a Guarantee Period is less than $500, we reserve
the right to transfer, without charge, the balance to the Money Market Division
at the end of that Guarantee Period. However, we will transfer the balance to
another Division selected by the Owner, if we have received Written instructions
to transfer the balance to that Division.
CREDITING INTEREST
We declare the Guaranteed Interest Rates from time to time as market conditions
dictate. We tell an Owner the Guaranteed Interest Rate for a chosen Guarantee
Period at the time we receive a purchase payment, make a transfer, or renew a
Guarantee Period. We may credit a different interest rate to one Guarantee
Period than to another Guarantee Period that is the same length but that began
on a different date. The minimum Guaranteed Interest Rate is an effective
annual rate of 3%.
Proceeds from an exchange, rollover or transfer accrue interest if you allocate
them to the Fixed Account within 60 days following the date of application for a
Contract. We credit interest to such proceeds during the Guarantee Period
chosen. We calculate interest at a rate that is the higher of:
. the current interest rate we use on the date of application for the
Guarantee Period selected; or
. the current interest rate that we use on the date we receive the
proceeds.
Proceeds that we receive more than 60 days after the date the application is
signed receive interest at the rate in effect on the date we receive the
proceeds.
We credit interest to the Fixed Account starting with the date we receive the
proceeds. The interest rate we use remains the same for the duration of the
applicable Guarantee Period.
AGL's management makes the final determination of the Guaranteed Interest Rates
to be declared. AGL cannot predict or assure the level of any future Guaranteed
Interest Rates in excess of the minimum Guaranteed Interest Rate stated in your
Contract.
You may obtain information concerning the Guaranteed Interest Rates that apply
to the various Guarantee Periods at any time from your sales representative or
from the addresses or telephone numbers on the first page of this Prospectus.
19
<PAGE>
NEW GUARANTEE PERIODS
Each allocation or transfer of an amount to a Guarantee Period starts the
running of a new Guarantee Period for that amount. That new Guarantee Period
will earn a Guaranteed Interest Rate that will continue unchanged until the end
of that Period. The Guaranteed Interest Rate will never be less than the
minimum Guaranteed Interest Rate stated in your Contract.
We may offer one or more Guarantee Periods with a required dollar cost averaging
feature. (See "Transfers.") Currently, we make available a one-year Guarantee
Period and no others. However, we reserve the right to change the Guarantee
Periods that we make available at any time, except that we will always make
available a one-year Guarantee Period.
CONTRACT ISSUANCE AND PURCHASE PAYMENTS
The minimum initial purchase payment is $50,000. The minimum subsequent
purchase payment is $5,000. We reserve the right to modify these minimums at our
discretion.
Your application to purchase a Contract must be on a Written application that we
provide and that you sign. AGL and American General Securities Incorporated, as
distributor of the Contracts, may agree on a different medium or format for the
application. When a purchase payment accompanies an application to purchase a
Contract and you have properly completed the application, we will either--
. process the application, credit the purchase payment, and issue the
Contract, or
. reject the application and return the purchase payment within two
Valuation Dates after receipt of the application at our Home Office.
If you have not completed the application or have not completed it correctly, we
will request additional documents or information within five Valuation Dates
after receipt of the application at our Home Office.
If we have not received a correctly completed application within five Valuation
Dates after receipt of the purchase payment at our Home Office, we will return
the purchase payment immediately. However, you may specifically consent to our
retaining the purchase payment until you complete the application. In that
case, we will credit the initial purchase payment as of the end of the Valuation
Period in which we receive, at our Home Office, the last information required to
process the application.
We will credit subsequent purchase payments as of the end of the Valuation
Period in which we receive them and any required Written identifying information
at our Home Office.
We reserve the right to reject any application or purchase payment for any
reason.
20
<PAGE>
MINIMUM REQUIREMENTS
If your Account Value in any Division falls below $500 because of a partial
withdrawal from the Contract, we reserve the right to transfer, without charge,
the remaining balance to the Money Market Division.
If your Account Value in any Division falls below $500 because of a transfer to
another Division or to the Fixed Account, we reserve the right to transfer the
remaining balance in that Division, without charge and pro rata, to the
investment option or options to which the transfer was made.
We will waive these minimum requirements for transfers under the automatic
rebalancing program. (See "Automatic Rebalancing.")
If your total Account Value falls below $10,000, we may cancel the Contract. We
consider such a cancellation a full surrender of the Contract. We will provide
you with 60 days advance notice of any cancellation in these circumstances.
So long as the Account Value does not fall below $10,000, you do not have to
make further purchase payments. You may, however, elect to make subsequent
purchase payments at any time before the Annuity Commencement Date, if the Owner
and Annuitant are still living.
PAYMENTS
You should make checks for subsequent purchase payments payable to American
General Life Insurance Company and forward them directly to our Home Office. We
also accept purchase payments by wire or by exchange from another insurance
company. You may obtain further information about how to make purchase payments
by either of these methods from your sales representative or from us at the
addresses and telephone numbers on the first page of this Prospectus.
You may make purchase payments pursuant to employer sponsored plans only with
our agreement.
Your purchase payments are allocated to the Divisions of the Separate Account or
the Guarantee Periods of the Fixed Account as of the date we credit the purchase
payments to your Contract. In your application form, you select (in whole
percentages) the amount of each purchase payment that you are allocating to each
Division and Guarantee Period. You can change these allocation percentages at
any time by Written notice to us.
CANCELLATION
You may cancel your Contract by delivering it or mailing it with a Written
cancellation request to our Home Office or to your sales representative, before
the close of business on the 10th day after you receive the Contract. If you
send these items by mail, properly addressed and postage prepaid, we will
consider them received at our Home Office on the date we actually receive them.
21
<PAGE>
We will refund to you in most states, the sum of:
. your Account Value, and
. any additional amount deducted for premium taxes.
Some states require us to refund the sum of your purchase payments if it is
larger than the amount just described. Other states allow us to refund only the
sum of your purchase payments.
OWNER ACCOUNT VALUE
Before 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
As of any Valuation Date before the Annuity Commencement Date--
. Your Variable Account Value is the sum of your Variable Account Values in
each Division of the Separate Account.
. Your Variable Account Value in a 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 the Separate Account, you bear the entire
investment risk.
We credit Accumulation Units in a Division to you when you allocate purchase
payments or transfer amounts to that Division. Similarly, we redeem
Accumulation Units when you transfer or withdraw amounts from a Division or when
we pay certain charges under the Contract. We determine the value of these
Accumulation Units at the end of the Valuation Date on which we make the credit
or charge.
The value of an Accumulation Unit for a Division on any Valuation Date is equal
to the previous value of that Division's Accumulation Unit multiplied by that
Division's net investment factor for the Valuation Period ending on that
Valuation Date.
The net investment factor for a Division is determined by dividing (1) the net
asset value per share of the Series shares held by the Division, determined at
the end of the current Valuation Period, plus the per share amount of any
dividend or capital gains distribution made for the Series shares held by the
Division during the current Valuation Period, by (2) the net asset value per
share of the Series shares held in the Division determined at the end of the
previous Valuation Period. We then subtract from that result a factor
representing the mortality risk, expense risk and administrative expense charge.
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FIXED ACCOUNT VALUE
As of any Valuation Date before the Annuity Commencement Date--
. Your Fixed Account Value is the sum of your Fixed Account Value in each
Guarantee Period.
. 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 net purchase
payments, renewals and transferred amounts allocated to the Guarantee
Period, less (2) the amount of any transfers or withdrawals out of the
Guarantee Period, including withdrawals to pay applicable charges.
AGL guarantees the Fixed Account Value. AGL bears the investment risk for
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
minimum Guaranteed Interest Rate stated in your Contract).
TRANSFER, AUTOMATIC REBALANCING, SURRENDER AND PARTIAL
WITHDRAWAL OF OWNER ACCOUNT VALUE
TRANSFERS
You can transfer your Account Value beginning 30 days after we issue your
Contract and before the Annuity Commencement Date. The following rules apply:
. You may transfer your Account Value at any time among the available
Divisions of the Separate Account and Guarantee Periods. Transfers will
be effective at the end of the Valuation Period in which we receive your
Written transfer request.
. If a transfer causes your Account Value in any Division or Guarantee
Period to fall below $500, we reserve the right to transfer the remaining
balance in that Division or Guarantee Period in the same proportions as
the transfer request.
. Before the Annuity Commencement Date and after the first 30 days
following the date the Contract was issued, you may make up to 12
transfers each Contract Year without charge. We will charge you $25 for
each additional transfer.
. You may transfer no more than 25% of the Account Value you allocated to a
Guarantee Period at its inception during any Contract Year. This 25%
limitation does not apply to transfers (1) within 15 days before or after
the end of the Guarantee Period in which you held the transferred
amounts, or (2) a renewal at the end of the Guarantee Period to the same
Guarantee Period.
We reserve the right to defer any transfer from the Fixed Account to any
Division for up to 6 months.
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You may establish an automatic transfer plan. (We also refer to this plan as a
dollar cost averaging plan.) The rules about transfers, which we describe above,
will apply to this plan. Under this plan, we will automatically transfer
amounts from the Money Market Division or the one-year Guarantee Period (or any
other Guarantee Period that is available at that time) to one or more other
Divisions. By transferring a set amount on a regular schedule instead of
transferring the total amount at one particular time, you may reduce the risk of
investing in the corresponding Division only when the price is high. An
automatic transfer plan does not guarantee a profit and it does not protect
against a loss if market prices decline. You will select--
. the amount we are to transfer under the plan;
. the frequency of the transfers--either monthly, quarterly, semi-annually,
or annually; and
. the duration of the plan.
Transfers under any automatic transfer plan will--
. not count towards the 12 free transfers each Contract Year,
. not incur a $25 charge,
. not be subject to the 25% limitation on transfers from a Guarantee
Period, and
. not be subject to the Account Value minimum requirement described above.
You may obtain additional information about how to establish an automatic
transfer plan from your sales representative or from us at the telephone numbers
and addresses on the first page of this Prospectus. You cannot have an
automatic transfer plan in effect at the same time you have Automatic
Rebalancing, described below, in effect.
You can make transfers by telephone if you have completed a Telephone Transfer
Privilege form and given it to us. The form provides certain rules about
telephone transfers which you will have to follow. 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 an unauthorized person uses this
service in your name. Currently we try to limit the availability of telephone
transfers only to the Owner of the Contract. We are not liable for any acts or
omissions based upon telephone instructions that we reasonably believe to be
genuine. We are not responsible for 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;
. verification of the identity of the caller;
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. verification of both the Annuitant's and Owner's names; and
. a form of personal identification from the caller.
We will mail to the Owner a written confirmation of the transaction. We might
receive telephone transfer instructions from more than one person on the same
day, or our recording equipment might malfunction. 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, we will not process the transaction
if, due to malfunction or other circumstances, the recording of your telephone
request is incomplete or not fully comprehensible. The phone number for
telephone transfers is 1-800-813-5065.
We have not designed the Contracts for professional market timing organizations
or other entities using programmed and frequent transfers. We may not
unilaterally terminate or discontinue transfer privileges. However, we reserve
the right to suspend such privileges for a reasonable period.
AUTOMATIC REBALANCING
You may arrange for Automatic Rebalancing among the Separate Account Divisions
if your Contract has an Account Value of $25,000 or more at the time we receive
the application for Automatic Rebalancing. You may apply for Automatic
Rebalancing either at issue or after issue, and you may subsequently discontinue
it.
Under Automatic Rebalancing, we transfer funds among the Separate Account
Divisions to maintain the percentage allocation you have selected for each
Division. At your election, we will make these transfers on a quarterly, semi-
annual or annual basis, measured from the Contract Anniversary date. A Contract
Anniversary date that falls on the 29th, 30th, or 31st of the month will result
in Automatic Rebalancing starting with the 1st of the next month.
Automatic Rebalancing does not permit transfers to or from any Guarantee Period.
Transfers under Automatic Rebalancing will not count towards the 12 free
transfers each Contract Year and will not incur a $25 charge. You cannot have
Automatic Rebalancing in effect at the same time you have an automatic transfer
plan, described above, in effect.
SURRENDERS
At any time before the Annuity Commencement Date and while the Annuitant is
still living, the Owner may make a full surrender from a Contract.
We will pay you the following upon full surrender:
. your Account Value at the end of the Valuation Period in which we receive
a Written surrender request,
. minus any applicable premium tax.
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Our current practice is to require that you return the Contract to our Home
Office 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 under the Contract will end.
All collateral assignees of record must consent to any full surrender.
PARTIAL WITHDRAWALS
Your Written request for a partial withdrawal should specify the Divisions of
the Separate Account, or the Guarantee Periods of the Fixed Account, from which
you wish to make the partial withdrawal. We will take the withdrawal pro rata
from the Divisions and Guarantee Periods, if (1) you do not tell us how to make
the withdrawal, or (2) we cannot make the withdrawal as you requested.
Partial withdrawal requests must be for at least $100 or, if less, all of your
Account Value. If your remaining Account Value in a Division or Guarantee
Period would be less than $500 as a result of the withdrawal (except for the
Money Market Division), we reserve the right to transfer the remaining balance
to the Money Market Division. We will do this without charge.
We will always pay you the amount of your partial withdrawal request (except
that we may deny your request for a partial withdrawal if it would reduce your
Account Value below $10,000). The value of your Accumulation Units and Fixed
Account interests that we redeem will equal the amount of the withdrawal
request, plus any applicable premium tax. You can also tell us to take income
tax from the amount you want withdrawn.
We also make available a systematic withdrawal plan. Under this plan, you may
make automatic partial withdrawals in amounts and at periodic intervals that you
specify. The terms and conditions that apply to other partial withdrawals will
also apply to this plan. You may obtain additional information about how to
establish a systematic withdrawal plan from your sales representative or from us
at the addresses and telephone numbers on the first page of this Prospectus. We
reserve the right to modify or terminate the systematic withdrawal plan at any
time.
The Code imposes a penalty tax on certain premature surrenders or withdrawals.
See the "Federal Income Tax Matters" section for a discussion of this and other
tax implications of total surrenders and systematic and other partial
withdrawals. The section also discusses tax withholding requirements.
All collateral assignees of record must consent to any partial withdrawals.
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ANNUITY PERIOD AND ANNUITY PAYMENT OPTIONS
ANNUITY COMMENCEMENT DATE
The Annuity Commencement Date may be any day of any month between the
Annuitant's 50th and 99th birthday. Your Annuity Commencement Date must be at
least ten years after the Contract's issue date. (Pennsylvania has special
limitations that require the Annuity Commencement Date to be no later than age
90, and as early as age 85.) You may select the Annuity Commencement Date in
the Contract application. You may also change a previously selected date any
time before that date by submitting a Written request, subject to our approval.
See "Federal Income Tax Matters" for a discussion of the penalties that may
result from distributions before the Annuitant's reaching age 59 1/2 under any
Contract or after April 1 of the year following the calendar year in which the
Annuitant reaches age 70 1/2 under certain Qualified Contracts.
APPLICATION OF OWNER ACCOUNT VALUE
We will automatically apply your Variable Account Value in any Division to
provide Variable Annuity Payments based on that Division and your Fixed Account
Value to provide Fixed Annuity Payments. However, we will apply your Account
Value in different proportions, if you give us Written instructions at least 30
days before the Annuity Commencement Date.
We deduct any applicable state and local premium taxes from the amount of
Account Value that we apply to an Annuity Payment Option. Subject to any such
adjustments, we apply your Variable and Fixed Account Values to an Annuity
Payment Option, as discussed below, as of the end of the Valuation Period that
contains the 10th day before the Annuity Commencement Date.
FIXED AND VARIABLE ANNUITY PAYMENTS
We will determine your first monthly Fixed or Variable Annuity Payment using the
annuity tables in the Contract and the amount of your Account Value that is
applied to provide the Fixed or Variable Annuity Payments.
We determine the amount of each monthly Fixed Annuity Payment thereafter based
on the terms of the Annuity Payment Option selected.
We determine the amount of each monthly Variable Annuity Payment thereafter as
follows:
. We convert the Account Value that we apply to provide Variable Annuity
Payments to a number of Annuity Units. We do this by dividing the amount
of the first Variable Annuity Payment by the value of an Annuity Unit of
a Division as of the end of the Valuation Period that includes the 10th
day before the Annuity Commencement Date. This number of Annuity Units
remains constant for any Annuitant.
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. We determine the amount of each subsequent Variable Annuity Payment by
multiplying the number of Annuity Units by the value of an Annuity Unit
as of the end of the Valuation Period that contains the 10th day before
the date of each payment.
. If we base the Variable Annuity Payments on more than one Division, we
perform these calculations 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.
The Contract's annuity tables use a 3.5% assumed interest rate. A Variable
Annuity Payment based on a Division will be greater than the previous month, if
the Division's investment return for the month is at an annual rate greater than
3.5%. Conversely, a Variable Annuity Payment will be less than the previous
month, if the Division's investment return is at an annual rate less than 3.5%.
ANNUITY PAYMENT OPTIONS
Sixty to ninety days before the scheduled Annuity Commencement Date, we will (1)
notify you that the Contract is scheduled to mature, and (2) request that you
select an Annuity Payment Option.
If you have not selected an Annuity Payment Option ten days before the Annuity
Commencement Date, we will proceed as follows--
. we will extend the Annuity Commencement Date to the Annuitant's 99th
birthday, if the scheduled Annuity Commencement Date is any date before
the Annuitant's 99th birthday; or
. we will pay the Account Value, less any applicable charges and premium
taxes, in one sum to you, if the scheduled Annuity Commencement Date is
the Annuitant's 99th birthday.
The procedure just described is different in Pennsylvania because the Annuity
Commencement Date cannot exceed age 90.
In Texas, we will proceed differently if you have not selected an Annuity
Payment Option within ten days before the Annuity Commencement Date. We will
pay you as if you had elected to receive 120 payments under Annuity Payment
Option 2. See the following description of Option 2.
The Code imposes minimum distribution requirements on the Annuity Payment Option
you choose for a Qualified Contract. (See "Federal Income Tax Matters.") We
are not responsible for monitoring or advising Owners whether they are meeting
the minimum distribution requirements, unless we have received a specific
Written request to do so.
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ELECTION OF ANNUITY PAYMENT OPTION
You may elect an Annuity Payment Option only if the initial annuity payment
meets the following minimum requirements--
. where you elect only Fixed or Variable Annuity Payments, the initial
payment must be at least $20; or
. where you elect a combination of Variable and Fixed Annuity Payments, the
initial payment must be at least $10 on each basis.
If the initial annuity payment falls below these amounts, we will reduce the
frequency of annuity payments. If the initial payment still falls below these
amounts, we will make a single payment to the Annuitant or other properly-
designated payee equal to your Account Value. We will deduct premium tax from
such payment, if it is required in your state.
You may elect the annuity option for payments to a Beneficiary, if you or the
Annuitant dies. If you have not made this election, the Beneficiary may do so
within 60 days after your or the Annuitant's death. (See "Death Proceeds.")
Thereafter, the Beneficiary will have all the remaining rights and powers under
the Contract and be subject to all of its terms and conditions. We will make
the first annuity payment at the beginning of the second month following the
month in which we approve the settlement request. We will credit Annuity Units
based on Annuity Unit Values at the end of the Valuation Period that contains
the 10th day before the beginning of that second month.
When an Annuity Payment Option becomes effective, you must deliver the Contract
to our Home Office, in exchange for a payment contract providing for the option
elected.
We provide information about the relationship between the Annuitant's gender and
the amount of annuity payments, including any requirements for gender-neutral
annuity rates and in connection with certain employee benefit plans under
"Gender of Annuitant" in the Statement. (See "Contents of Statement of
Additional Information.")
AVAILABLE ANNUITY PAYMENT OPTIONS
Each Annuity Payment Option, except Option 5, is available on both a fixed and
variable basis. Option 5 is available on a fixed basis only.
OPTION 1 - LIFE ANNUITY - We make annuity payments monthly during the lifetime
of the Annuitant. These payments stop with the last payment due before the
death of the Annuitant. We do not guarantee a minimum number of payments under
this arrangement. For example, the Annuitant or other payee might receive only
one annuity payment, if the Annuitant dies before the second annuity payment.
OPTION 2 - LIFE ANNUITY WITH 120, 180, OR 240 MONTHLY PAYMENTS CERTAIN - We make
annuity payments monthly during the lifetime of an Annuitant. In addition, we
guarantee that the Beneficiary will receive monthly payments for the remainder
of the period certain, if the Annuitant dies during that period.
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OPTION 3 - JOINT AND LAST SURVIVOR LIFE ANNUITY - We make annuity payments
monthly during the lifetime of the Annuitant and another payee and during the
lifetime of the survivor of the two. We stop making payments with the last
payment before the death of the survivor. We do not guarantee a minimum number
of payments under this arrangement. For example, the Annuitant or other payee
might receive only one annuity payment if both die before the second annuity
payment. The election of this option is ineffective if either one dies before
the Annuity Commencement Date. In that case, the survivor becomes the sole
Annuitant, and we do not pay death proceeds because of the death of the other
Annuitant.
OPTION 4 - PAYMENTS FOR A DESIGNATED PERIOD - We make annuity payments monthly
to an Annuitant or other properly designated payee, or at his or her death, to
the Beneficiary, for a selected number of years ranging from five to 40. If this
option is selected on a variable basis, the designated period may not exceed the
life expectancy of the Annuitant or other properly designated payee.
Under the fourth option, we make no mortality guarantee, even though we reduce
Variable Annuity Payments as a result of a charge to the Separate Account that
is partially for mortality risks. (See "Charge to the Separate Account.")
A payee receiving Variable (but not Fixed) Annuity Payments under Option 4 can
elect at any time to commute (terminate) the option and receive the current
value of the annuity option in a single sum. The current value of an annuity
under Option 4 is the value of all remaining annuity payments, assumed to be
level, discounted to present value at an annual rate of 3.5%. We calculate that
value the next time we determine values after receiving your Written request for
payment. The election of a single sum payment under Option 4 is the only way
you may terminate any Annuity Payment Option once annuity payments have started.
OPTION 5 - PAYMENTS OF A SPECIFIC DOLLAR AMOUNT - We pay the amount due in equal
monthly installments of a designated dollar amount until the remaining balance
is less than the amount of one installment. The amount of each installment may
not be less than $125 or more than $200 each year per $1,000 of the original
amount due. If the person receiving these payments dies, we continue to make
the remaining payments 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, we decrease the balance at the end of the previous month by the
amount of any installment paid during the month. We then apply, to the
remainder, interest at a rate not less than 3.5% compounded annually. If the
remaining balance at any time is less than the amount of one installment, we
will pay the balance as the final payment under the option.
The Code may treat the election of Option 4 or Option 5 in the same manner as a
surrender of the total account. For tax consequences of such treatment, see
"Federal Income Tax Matters." In addition, the Code may not give tax-deferred
treatment to subsequent earnings.
ALTERNATIVE AMOUNT UNDER FIXED LIFE ANNUITY OPTIONS - In the case of Fixed
Annuity Payments under one of the first three Annuity Payment Options described
above, we make a special election available. In that case, the Owner (or the
Beneficiary, if the Owner has not elected a payment option) may elect monthly
payments based on single payment immediate fixed annuity rates we offer at that
time. This
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provision allows the Annuitant or other properly-designated payee to receive the
fixed annuity purchase rate in effect for new single payment immediate annuity
contracts, if it is more favorable.
In place of monthly payments, you may elect payments on a quarterly, semi-annual
or annual basis. In that case, we determine the amount of each annuity payment
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 six transfers every Contract Year among the available Divisions
of the Separate Account or from the Divisions to a Fixed Annuity Payment Option.
We will assess no charge for the transfer. We do not permit transfers from a
Fixed to a Variable Annuity Payment Option. If a transfer causes the value in
any Division to fall below $500, we reserve the right to transfer the remaining
balance in that Division in the same proportion as the transfer request. We
make transfers effective 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 BEFORE THE ANNUITY COMMENCEMENT DATE
The death proceeds described below are payable to the Beneficiary under the
Contract if any of the following events occurs before the Annuity Commencement
Date:
. the Annuitant dies, and no Contingent Annuitant has been named under a
Non-Qualified Contract;
. the Annuitant dies, and we also receive proof of death of any named
Contingent Annuitant; or
. the Owner (including the first to die in the case of joint Owners) of a
Non-Qualified Contract dies, regardless of whether the deceased Owner was
also the Annuitant. (However, if the Beneficiary is the Owner's surviving
spouse, or the Owner's surviving spouse is a joint Owner, the surviving
spouse may elect to continue the Contract as described later in this
section.)
If the deceased Owner was a joint Owner, we will pay the death proceeds to the
surviving joint Owner. In this case, we will treat the surviving joint Owner as
the Beneficiary, and we will not recognize any other designation of Beneficiary.
However, joint Owners may provide written instructions to pay death proceeds in
a different manner.
Before age 81, the death proceeds will equal the greater of -
. the sum of all net purchase payments made (less any premium taxes we
deducted previously and all prior partial withdrawals); or
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. the Owner's Account Value as of the end of the Valuation Period in which
we receive, at our Home Office, proof of death and the Written request as
to the manner of payment.
At age 81 and afterward, the death proceeds will equal the Account Value.
In all cases, we will deduct any applicable premium taxes.
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 from the Beneficiary specifying the manner of payment.
If the Owner has not already done so, the Beneficiary may, within 60 days after
the date the death proceeds become payable, elect to receive the death proceeds
as (1) a single sum or (2) in the form of one of the Annuity Payment Options
provided in the Contract. (See "Annuity Payment Options.") If we do not
receive a request specifying the manner of payment, we will make a single
payment, based on values we determine at that time.
If the Owner (including the first to die if there are joint Owners) under a Non-
Qualified Contract dies before the Annuity Commencement Date, we will distribute
all amounts payable under the Contract in accordance with the following rules:
. We will distribute all amounts--
(a) within five years of the date of death, or
(b) if the Beneficiary elects, as annuity payments, beginning within one
year of the date of death and continuing over a period not extending
beyond the life or 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. If the original Owner was the
Annuitant, the surviving spouse may also elect to become the new
Annuitant. This election is also available to the surviving spouse who is
a joint Owner, even if the surviving spouse is not the Beneficiary. In
this case, we will treat the surviving spouse as the Beneficiary, and we
will not recognize any other designation of Beneficiary.
. If the Owner is not a natural person, these distribution requirements
apply at the death of the primary Annuitant, within the meaning of the
Code. Under a parallel section of the Code, similar requirements apply to
retirement plans for which we issue Qualified Contracts.
Failure to satisfy the requirements described in this section may result in
serious adverse tax consequences.
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DEATH PROCEEDS AFTER THE ANNUITY COMMENCEMENT DATE
If the Annuitant dies on or after the Annuity Commencement Date, the amounts
payable to the Beneficiary or other properly designated payee are any continuing
payments under the Annuity Payment Option in effect. (See "Annuity Payment
Options.") In such case, the payee will:
. have all the remaining rights and powers under a Contract, and
. be subject to all the terms and conditions of the Contract.
Also, if the Annuitant dies on or after the Annuity Commencement Date, no
previously named Contingent Annuitant can become the Annuitant.
If the payee under a Non-Qualified Contract dies after the Annuity Commencement
Date, we will distribute any remaining amounts payable under the terms of the
Annuity Payment Option at least as rapidly as under the method of distribution
in effect when the payee died. If the payee is not a natural person, this
requirement applies upon the death of the primary Annuitant, within the meaning
of the Code.
Under a parallel section of the Code, similar requirements apply to retirement
plans for which we issue Qualified Contracts.
Failure to satisfy the requirements described in this section may result in
serious adverse tax consequences.
PROOF OF DEATH
We accept the following as proof of any person's death:
. a certified death certificate;
. 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 our
obligations are complete.
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CHARGES UNDER THE CONTRACTS
PREMIUM TAXES
When applicable, we will deduct premium taxes imposed by certain states. We may
deduct such amount either at the time the tax is imposed or later. We may
deduct the amount as follows:
. from purchase payment(s) when received;
. from the Owner's Account Value at the time annuity payments begin;
. from the amount of any partial withdrawal; or
. from proceeds payable upon termination of the Contract for any other
reason, including death of the Owner or Annuitant, or surrender of the
Contract.
If premium tax is paid, AGL may reimburse itself for the tax when making the
deduction under the second, third, and fourth items on the list, immediately
above, by multiplying the sum of Purchase Payments being withdrawn by the
applicable premium tax percentage.
Applicable premium tax rates depend upon the Owner's then-current place of
residence. Applicable rates currently range from 0% to 3.5%. The rates are
subject to change by legislation, administrative interpretations, or judicial
acts. We will not make a profit on this charge.
TRANSFER CHARGES
We describe the charges to pay for the expense of making transfers under
"Transfer, Automatic Rebalancing, Surrender and Partial Withdrawal of Owner
Account Value - Transfers" and "Annuity Period and Annuity Payment Options -
Transfers." These charges are not designed to yield a profit.
CHARGE TO THE SEPARATE ACCOUNT
We deduct from Separate Account assets a daily charge at an annualized rate of
0.40% (which we may change, but which will never exceed 0.66%) of the average
daily net asset value of the Separate Account attributable to the Contracts.
This charge (1) offsets administrative expenses and (2) compensates us for
assuming mortality and expense risks under the Contract. The 0.40% charge
divides into .04% for administrative expenses and 0.36% for assumption of
mortality and expense risk.
We do not expect to earn a profit on that portion of the charge that is for
administrative expenses. However, we do expect to derive a profit from the
portion that is for the assumption of mortality and expense risks. There is no
necessary relationship between the amount of administrative charges deducted for
a given Contract and the amount of expenses actually attributable to that
Contract.
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In assuming the mortality risk, we incur the risks that:
. our actuarial estimate of mortality rates may prove erroneous,
. Annuitants will live longer than expected, and
. more Owners or Annuitants than expected will die at a time when the death
benefit we guarantee is higher than the net surrender value of their
interests in the Contracts.
In assuming the expense risk, we incur the risk that the revenues from the
expense charges under the Contracts (charges that we guarantee will not
increase) will not cover our expense of administering the Contracts.
MISCELLANEOUS
Each Series pays charges and expenses out of its assets. The prospectus for
each Series describes the charges and expenses.
We reserve the right to impose charges or establish reserves for any federal or
local taxes that we incur today or may incur in the future and that we deem
attributable to the Contracts.
SYSTEMATIC WITHDRAWAL PLAN
You may make automatic partial withdrawals, at periodic intervals, through a
systematic withdrawal program. Minimum payments are $100. You may choose from
payment schedules of monthly, quarterly, semi-annual, or annual payments. You
may start, stop, increase, or decrease payments. You may elect to (1) start
withdrawals as early as 30 days after the issue date of the Contract and (2)
take withdrawals from the Fixed Account or any Division. Systematic withdrawals
are subject to the terms and conditions applicable to other partial withdrawals.
REDUCTION IN ADMINISTRATIVE EXPENSE CHARGE
We may reduce the Administrative Expense Charge imposed under certain Qualified
Contracts for employer sponsored plans. Any such reductions will reflect
differences in costs or services and will not be unfairly discriminatory as to
any person. Differences in costs and services result from factors such 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.
OTHER ASPECTS OF THE CONTRACTS
Only an officer of AGL can agree to change or waive the provisions of any
Contract. The Contracts are non-participating, which means they are not
entitled to share in any dividends, profits or surplus of AGL.
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OWNERS, ANNUITANTS, AND BENEFICIARIES; ASSIGNMENTS
You, as the Owner of a Contract, will be the same as the Annuitant, unless you
choose a different Annuitant when you purchase a Contract. In the case of joint
ownership, both Owners must join in the exercise of any rights or privileges
under the Contract. You choose the Annuitant and any Contingent Annuitant in
the application for a Contract and may not change that choice.
You choose the Beneficiary and any Contingent Beneficiary when you purchase a
Contract. You may change a Beneficiary or Contingent Beneficiary before the
Annuity Commencement Date, while the Annuitant is still alive. The payee may
make this change after the Annuity Commencement Date. We will make any
designation of a new Beneficiary or Contingent Beneficiary effective as of the
date it is signed. However, the change in designation will not affect any
payments we make or action we take before we receive the Written request. We
also need the Written consent of any irrevocably-named Beneficiary or Contingent
Beneficiary before we make a change. Under certain retirement programs, the law
may require spousal consent to name or 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 the Beneficiary or Contingent Beneficiary is not living at the time we are to
make any payment, you as the Owner will be the Beneficiary. If you are not then
living, your estate will be the Beneficiary.
In the case of joint ownership, we will treat the surviving joint Owner as the
Beneficiary upon the death of a joint Owner. We will not recognize any other
designation of Beneficiary, unless joint Owners provide written instructions to
pay death proceeds in a different manner.
Owners and other payees may assign their rights under Qualified Contracts only
in certain narrow circumstances referred to in the Contracts. 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.
Owners must make a change in ownership rights in Writing and send a copy to our
Home Office. We will make the change effective on the date it was made.
However, 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 anyone receiving payments following the Annuity
Commencement Date), any reports and communications required by applicable law.
We will mail to the last known address of record. You should give us prompt
written notice of any address change.
RIGHTS RESERVED BY US
Upon notice to the Owner, we may modify a Contract to the extent necessary to:
. reflect a change in the Separate Account or any Division;
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. create new separate accounts;
. operate the Separate Account in any form permitted under the 1940 Act or
in any other form permitted by law;
. transfer any assets in any Division to another Division, or to one or
more separate accounts, or the Fixed Account;
. add, combine or remove Divisions in the Separate Account, or combine the
Separate Account with another separate account;
. add, restrict or remove Guarantee Periods of the Fixed Account;
. make any new Division available to you on a basis we determine;
. substitute, for the shares held in any Division, the shares of another
Series or the shares of another investment company or any other
investment permitted by law;
. make any changes required by the Code or by any other law, regulation or
interpretation to continue treatment of the Contract as an annuity;
. commence deducting premium taxes or adjust the amount of premium taxes
deducted in accordance with state law that applies; or
. make any changes required to comply with the rules of any Series.
When required by law, we will obtain (1) your approval of changes and (2) the
approval of any appropriate regulatory authority.
PAYMENT AND DEFERMENT
We will normally pay amounts surrendered or withdrawn from a Contract within
seven calendar days after the end of the Valuation Period in which we receive
the Written surrender or withdrawal request at our Home Office. A Beneficiary
may request the manner of payment of death proceeds within 60 days after the
death proceeds become payable. If we do not receive a Written request
specifying the manner of payment, we will pay the death benefit as a single sum,
normally within seven calendar days after the end of the Valuation Period that
contains the last day of the 60 day period. We reserve the right, however, to
defer payments or transfers out of the Fixed Account Value 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, annuity
payment, or death proceeds out of the Variable Account Value if:
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. the New York Stock Exchange is closed other than customary weekend and
holiday closings, or trading on the New York Stock Exchange is restricted
as determined by the Securities and Exchange Commission ("SEC");
. the SEC determines that an emergency exists, as a result of which
disposal of securities held in a Division is not reasonably practicable
or it is not reasonably practicable to fairly determine the Variable
Account Value; or
. the SEC by order permits the delay for the protection of Owners.
We may also postpone transfers and allocations of Account Value among the
Divisions and the Fixed Account under these circumstances.
FEDERAL INCOME TAX MATTERS
GENERAL
We cannot comment on all of the federal income tax consequences associated with
the Contracts. Federal income tax law is complex. Its application to a
particular person may vary according to facts peculiar to the person.
Consequently, we do not intend for you to take this discussion as tax advice.
You should consult with a competent tax adviser before purchasing a Contract.
We base this discussion on our understanding of the law, regulations and
interpretations existing on the date of this Prospectus. Congress, in the past,
has enacted legislation changing the tax treatment of annuities in both the
Qualified and the Non-Qualified markets and may do so again in the future. The
Treasury Department may issue new or amended regulations or other
interpretations of existing tax law. The courts may also interpret the tax law
in ways that affect the tax treatment of annuities. Any such change 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, estate and gift tax, or
social security tax consequences associated with the Contracts.
NON-QUALIFIED CONTRACTS
Purchase Payments. Purchasers of a Contract that does not qualify for special
tax treatment and is "Non-Qualified" may not deduct from their gross income the
amount of purchase payments made.
Tax Deferral Before Annuity Commencement Date. Owners who are natural persons
are not taxed currently on (1) increases in their Account Value resulting from
interest earned in the Fixed Account, or (2) the investment experience of the
Separate Account so long as the Separate Account complies with certain
diversification requirements. These requirements mean that the Separate Account
must invest in
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Series that are "adequately diversified" in accordance with Treasury Department
regulations. We do not control the Series, but we have received commitments from
the investment advisers to the Series to use their best efforts to operate the
Series in compliance with these diversification requirements. A Contract
investing in a Series that failed to meet the diversification requirements would
subject Owners to current taxation of income in the Contract for the period of
the diversification failure (and any subsequent period). Income means the excess
of the Account Value over the Owner's investment in the Contract (discussed
below).
Control over allocation of values among different investment alternatives may
cause Owners or persons receiving annuity payments to be treated as the owners
of the Separate Account's assets for tax purposes. However, current regulations
do not provide guidance as to how to avoid this result. We reserve the right to
amend the Contracts in any way necessary to avoid this result. The Treasury
Department has stated that it may establish standards through regulations or
rulings. These standards may apply only prospectively, although they could
apply retroactively if the Treasury Department considers the standards not to
reflect a new position.
Owners that are not natural persons -- that is, Owners such as corporations --
are taxed currently on annual increases in their Account Value, unless an
exception applies. Exceptions apply for, among other things, Owners that are
not natural persons but that hold a Contract as an agent for a natural person.
Taxation of Annuity Payments. Part of 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 found 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 excludible portion is the
investment in the Contract divided by 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 stop on account of the death of
the Annuitant before the investment in the Contract has been fully paid out, the
payee is allowed a deduction for the unpaid 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 receive 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.
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Taxation of Partial Withdrawals and Total Surrenders. Partial withdrawals from
a Contract are includible in income to the extent that the Owner's Account Value
exceeds the investment in the Contract. In the event you surrender a Contract
in its entirety, the amount of your investment in the Contract is excludable
from income, and any amount you receive in excess of investment in the Contract
is includible in income. All annuity contracts or certificates we issue to the
same Owner during any calendar year are aggregated for purposes of determining
the amount of any distribution that is includible in gross income.
Penalty Tax on Premature Distributions. A penalty tax is imposed on
distributions under a Contract equal to 10% of the amount includible in income.
The penalty tax will not apply, however, to distributions:
. made on or after the recipient reaches age 59 1/2,
. made on account of the recipient's becoming disabled,
. that are made after the death of the Owner before 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), or
. 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 a Contract or
assignment of a Contract, or the early death of an Annuitant, unless the third
clause listed 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 under 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 $31,000 may fully deduct their IRA purchase payments. Those who have
adjusted gross
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income in excess of $41,000 will not be able to deduct purchase payments. For
those with adjusted gross income in the range between $31,000 and $41,000, the
deduction decreases to zero, based on the amount of income. Beginning in 2000,
that income range will increase, as follows:
- -------------------------------------------------------------------------------
2000 2001 2002 2003 2004 2005 and
thereafter
- -------------------------------------------------------------------------------
$32,000 to $33,000 to $34,000 to $40,000 to $45,000 to $50,000 to
$42,000 $43,000 $44,000 $50,000 $55,000 $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 $51,000 and $61,000, and in the case of married
individuals filing separately, with adjusted gross income between $0 and
$10,000. (A husband and wife who file separate returns and live apart at all
times during the taxable year are not treated as married individuals.)
Beginning in 2000 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:
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------------------
2007 and
2000 2001 2002 2003 2004 2005 2006 thereafter
- -------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
$52,000 to $53,000 to $54,000 to $60,000 to $65,000 to $70,000 to $75,000 to $80,000 to
$62,000 $63,000 $64,000 $70,000 $75,000 $80,000 $85,000 $100,000
- -------------------------------------------------------------------------------------------------------
</TABLE>
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 the individual, the adjusted gross 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
(1) a tax-qualified plan to an IRA or (2) from one IRA to another IRA if, the
transfer meets certain conditions. All taxable distributions ("eligible
rollover distributions") from tax qualified plans are eligible to be rolled over
with the exception of:
. annuities paid over a life or life expectancy,
. installments for a period of ten years or more, and
. required minimum distributions under section 401(a)(9) of the Code.
Rollovers may be accomplished in two ways. First, we may pay an eligible
rollover distribution directly to an IRA (a "direct rollover"). Second, we may
pay the distribution directly to the Annuitant and then, within 60 days of
receipt, the Annuitant may roll the amount 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
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recipients' income. If nondeductible purchase payments have been made, a pro
rata portion of such distributions may not be includible in income. A 10%
penalty tax is imposed on the amount includible in gross income from
distributions that occur before the Annuitant reaches age 59 1/2 and that are
not made on account of death or disability, with certain exceptions. These
exceptions include:
. distributions that are part of a series of substantially equal periodic
payments made at least annually over the life (or life expectancy) of the
Annuitant or the joint lives (or joint life expectancies) of the
Annuitant and the Beneficiary; provided such payments are made for a
minimum of five years and the distribution method is not changed before
the recipient reaches age 59 1/2 (except in the case of death and
disability):
. distributions for medical expenses in excess of 7.5% of the Annuitant's
adjusted gross income and withdrawals for medical insurance (without
regard to the 7.5% AGI floor) if the individual has received unemployment
compensation under federal or state law for at least 12 consecutive weeks
under certain conditions;
. distributions for qualified first-time home purchases for the individual,
a spouse, children, grandchildren, or ancestor of the individual or the
individual's spouse, subject to a $10,000 lifetime maximum; and
. distributions for higher education expenses for the individual, a
spouse, children, or grandchildren.
Distributions of minimum amounts required by the Code must commence by April 1
of the calendar year following the calendar year in which the Annuitant reaches
age 70 1/2 or retires (whichever is later). 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 a penalty tax of 50%
of the amount by which the minimum distribution required exceeds the actual
distribution.
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 permitted contribution is phased out for adjusted gross income
between $95,000 and $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 $10,000 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 that occurred in 1998,
the individual
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could chose to 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 (1) the individual has held the Roth IRA for at least
five years and (2) the distribution is made either after the individual reaches
age 59 1/2, on the individual's death or disability, or as qualified first-time
home purchase. Qualified Distributions for a qualified first-time home
purchase, are subject to a $10,000 lifetime maximum for the individual, a
spouse, child, grandchild, or ancestor of such individual or the individual's
spouse.
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
Eligible 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 to the employee's SRA. The employer must, in general, make a fully vested
matching contribution for employee deferrals up to a maximum of 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. The
purchase payments are also excluded from the current income of the employee.
Distributions Before the Annuity Commencement Date. Purchase payments
includible in an employee's taxable income (less any amounts previously received
that were not includible in the employee's taxable income) represent the
employee's "investment in the Contract." Amounts received before 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. 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, 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
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be available, for tax years beginning before December 31, 1999, 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 reaches age 59 1/2 and that are not
made on account of death or disability, with certain exceptions. These
exceptions include distributions that are:
. part of a series of substantially equal periodic payments made at least
annually 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; provided
such payments are made for at least five years and the distribution
method is not changed before the recipient reaches age 59 1/2 (except in
the case of death or disability);
. made after the employee's separation from service on account of early
retirement after attaining age 55;
. made to pay for qualified higher education or first-time home buyer
expenses;
. made to an alternate payee pursuant to a qualified domestic relations
order; or
. made for the payment of health insurance premiums to an individual after
separation from employment.
Annuity Payments. A portion of annuity payments received under Contracts for
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." The difference is that, here, the number of
expected payments is determined under a provision in the Code. Distributions of
minimum amounts required by the Code generally must commence by April 1 of the
calendar year following the calendar year in which the employee reaches age 70
1/2 (or retires, if later). Failure to comply with the minimum distribution
rules will result in 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 (1) receipt of up to 100% of
compensation that would otherwise be includible in income and (2) payment of
federal income taxes on the amounts, as
44
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well as the earnings on those amounts. Purchase payments made by the employer,
however, are not immediately deductible by the employer, and the employer is
currently taxed on any increase in Account Value.
Deferred compensation plans represent a contractual promise on the part of the
employer to pay current compensation at some future time. The Contract is owned
by the employer and is subject to the claims of the employer's creditors. The
employee 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.
Purchase payments made by the employer, however, are not immediately deductible
by the employer and the employee is not currently taxed on any increase in
Account Value.
Taxation of Distributions. Amounts that an individual receives 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. In some cases, if you own more
than one Qualified annuity contract or Contract, the contracts or Contracts may
be considered together to determine whether the federal tax law requirement for
minimum distributions after age 70 1/2, or retirement in appropriate
circumstances, has been satisfied. You may rely on distributions from another
annuity contract or Contract to satisfy the minimum distribution requirement
under a Qualified Contract we issued. However, 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 THE SEPARATE ACCOUNT
AGL is taxed as a life insurance company under the Code. The operations of the
Separate Account 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 the Separate Account (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 the Separate Account or the Contracts.
Certain Series may elect 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
that the Series will also pass through. These credits may provide a benefit to
AGL.
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DISTRIBUTION ARRANGEMENTS
Individuals who sell the Contracts will be licensed by state insurance
authorities as agents of AGL. The individuals will also be registered
representatives of (1) American General Securities Incorporated ("AGSI"), the
principal underwriter of the Contracts, or (2) other broker-dealer firms.
However, some individuals may be representatives of firms that are exempt from
broker-dealer regulation. AGSI and any non-exempt broker-dealer firms are
registered with the Securities and Exchange Commission under the Securities
Exchange Act of 1934 as broker-dealers and are members of the National
Association of Securities Dealers, Inc.
AGSI is an affiliate of AGL. AGSI's principal business address is 2727 Allen
Parkway, Houston, Texas 77019-2191. AGL offers the Contracts on a continual
basis. AGL does not pay any compensation for distribution of the Contracts.
SERVICES AGREEMENTS
American General Life Companies ("AGLC") is party to a general services
agreement with AGL. AGLC, an affiliate of AGL, is a corporation incorporated in
Delaware on November 24, 1997. Its address is 2727-A Allen Parkway, Houston,
Texas 77019-2191. Under this agreement, AGLC provides services to AGL,
including most of the administrative, data processing, systems, customer
services, product development, actuarial, auditing, accounting and legal
services for AGL and the Contracts.
AGL has entered into administrative services agreements with the advisers or
managers for the mutual funds that offer shares to the Divisions. AGL receives
fees for the administrative services it performs. These fees do not result in
any additional charges under the Contracts that are not described under "Charges
under the Contracts."
LEGAL MATTERS
We are not involved in any legal matters about the Separate Account that would
be considered material to the interests of Owners. Steven A. Glover, Esquire,
Senior Counsel of AGLC has passed upon the legality of the Contracts described
in this Prospectus. Freedman, Levy, Kroll & Simonds, Washington, D.C., has
advised AGL on certain federal securities law matters.
YEAR 2000 CONSIDERATIONS
Internal Systems. AGL's ultimate parent, American General Corporation
("AGC"), has numerous technology systems that are managed on a decentralized
basis. AGC's Year 2000 readiness efforts are being undertaken by its key
business units with centralized oversight. Each business unit, including AGL,
has developed and is implementing a plan to minimize the risk of a significant
negative impact on its operations.
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While the specifics of the plans vary, the plans include the following
activities: (1) perform an inventory of our information technology and non-
information technology systems; (2) assess which items in the inventory may
expose us to business interruptions due to Year 2000 issues; (3) reprogram or
replace systems that are not Year 2000 ready; (4) test systems to prove that
they will function into the next century as they do currently; and (5) return
the systems to operations. As of December 31, 1998, substantially all of our
critical systems are Year 2000 ready and have been returned to operations.
However, activities (3) through (5) for certain systems are ongoing, with vendor
upgrades expected to be received during the first half of 1999.
Third Party Relationships. We have relationships with various third
parties who must also be Year 2000 ready. These third parties provide (or
receive) resources and services to (or from) AGL and include organizations with
which we exchange information. Third parties include vendors of hardware,
software, and information services; providers of infrastructure services such as
voice and data communications and utilities for office facilities; investors;
customers; distribution channels; and joint venture partners. Third parties
differ from internal systems in that we exercise less, or no, control over Year
2000 readiness. We developed a plan to assess and attempt to reduce the risks
associated with the potential failure of third parties to achieve Year 2000
readiness. The plan includes the following activities: (1) identify and
classify third party dependencies; (2) research, analyze, and document Year 2000
readiness for critical third parties; and (3) test critical hardware and
software products and electronic interfaces. As of December 31, 1998, AGC has
identified and assessed approximately 700 critical third party dependencies,
including those relating to AGL. A more detailed evaluation will be completed
during first quarter 1999 as part of our contingency planning efforts. Due to
the various stages of third parties' Year 2000 readiness, our testing activities
will extend through 1999.
Contingency Plans. AGL and its affiliates have commenced contingency
planning to reduce the risk of Year 2000-related business failures. The
contingency plans, which address both internal systems and third party
relationships, include the following activities: (1) evaluate the consequences
of failure of business processes with significant exposure to Year 2000 risk;
(2) determine the probability of a Year 2000-related failure for those processes
that have a high consequence of failure; (3) develop an action plan to complete
contingency plans for those processes that rank high in consequence and
probability of failure; and (4) complete the applicable action plans. We are
currently developing contingency plans and expect to substantially complete all
contingency planning activities during the second quarter of 1999.
Risks and Uncertainties. Based on our plans to make internal systems ready
for Year 2000, to deal with third party relationships, and to develop
contingency actions, we believe that we will experience at most isolated and
minor disruptions of business processes following the turn of the century. Such
disruptions are not expected to have a material effect on AGL's future results
of operations, liquidity, or financial condition. However, due to the size and
complexity of this project, risks and uncertainties exist, and we cannot predict
a most reasonably likely worst case scenario. If conversion of our internal
systems is not completed on a timely basis (due to non-performance by
significant third-party vendors, lack of qualified personnel to perform the Year
2000 work, or other unforeseen circumstances in completing our plans), or if
critical third parties fail to achieve Year 2000 readiness on a timely basis,
the Year 2000 issues could have a material adverse impact on our operations
following the turn of the century.
47
<PAGE>
Costs. Through December 31, 1998, AGL has incurred, and anticipates that
it will continue to incur, costs for internal staff, third-party vendors, and
other expenses to achieve Year 2000 readiness. The cost of activities related
to Year 2000 readiness has not had a material adverse effect on our results of
operations or financial condition. In addition, we have elected to accelerate
the planned replacement of certain systems as part of the Year 2000 plans.
Costs of the replacement systems are not passed to Divisions of the Separate
Account.
OTHER INFORMATION ON FILE
We have filed a Registration Statement with the Securities and Exchange
Commission under the Securities Act of 1933 for the Contracts described in this
Prospectus. We have not included all of the information in the Registration
Statement and its exhibits. Statements contained in this Prospectus concerning
the Contracts and other legal instruments are intended to be summaries. For a
complete statement of their terms, you should refer to the documents that we
filed with the Securities and Exchange Commission.
We will send you a Statement on request without charge. Its contents are as
follows:
48
<PAGE>
CONTENTS OF STATEMENT OF ADDITIONAL INFORMATION
General Information................................. 2
Regulation and Reserves............................. 2
Independent Auditors................................ 4
Services............................................ 4
Principal Underwriter............................... 4
Annuity Payments.................................... 4
Gender of Annuitant............................... 4
Misstatement of Age or Gender and Other Errors... 5
Change of Investment Adviser or Investment Policy... 5
Performance Data for the Divisions.................. 5
Average Annual Total Return Calculations........... 5
Cumulative Total Return Calculations............... 6
Hypothetical Performance........................... 7
Money Market Division Yield and Effective
Yield Calculations.............................. 9
Performance Comparisons............................ 9
Effect of Tax-Deferred Accumulation................. 10
Financial Statements................................ 11
Index to Financial Statements....................... 12
49
<PAGE>
(THE FOLLOWING DOCUMENTS ARE NOT PART OF A PROSPECTUS.)
SELECT RESERVE VARIABLE ANNUITY
DISCLOSURES AND FORMS SECTION
INDEX
<TABLE>
<CAPTION>
<S> <C>
Individual Retirement Annuity Disclosure Statement and Financial Disclosure..... page 1
1035 Exchange Instructions...................................................... page 9
Qualified and Non-Qualified Funds Transfer Instructions......................... page 10
Assignment and Transfer Request................................................. page 11
Change Request Form............................................................. page 13
Systematic Withdrawals Request Form............................................. page 15
Automatic Additional Purchase Payment Form...................................... page 17
Change of Beneficiary Form...................................................... page 19
Statement of Additional Information Request Form................................ page 21
</TABLE>
<PAGE>
(THIS DOCUMENT IS NOT PART OF A PROSPECTUS)
INDIVIDUAL RETIREMENT ANNUITY DISCLOSURE STATEMENT
INTRODUCTION
THIS DISCLOSURE STATEMENT IS DESIGNED FOR OWNERS OF IRAs ISSUED BY THE AMERICAN
GENERAL LIFE INSURANCE COMPANY ON OR AFTER APRIL 1, 1999.
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) 813-5065 and (713) 831-3505.
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 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
Page 1
<PAGE>
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:
Threshold Level
For taxable years beginning in: Single Married (filing jointly)
- ------------------------------- ------- ------------------------
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
Page 2
<PAGE>
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 $36,619. In 1998, she would calculate her deductible IRA
contribution as follows:
Her AGI is $36,619
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
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<PAGE>
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 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
---------------
$10,000 x $2,000 = $1,149 (rounded to $1,150)
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.
Page 4
<PAGE>
If you make a non-deductible contribution to an IRA, you must report the amount
of the non-deductible contribution to the IRS on Form 8606 as a part of your tax
return for the year.
You may make a $2,000 contribution (or up to $4,000 in the case of married
individuals filing a joint return) at any time during the year, if your
compensation for the year will be at least $2,000 (or up to $4,000 in the case
of married individuals filing a joint return), without having to know how much
will be deductible. When you fill out your return, you may then figure out how
much is deductible.
You may withdraw an IRA contribution made for a year any time before April 15 of
the following year. If you do so, you must also withdraw the earnings
attributable to that portion and report the earnings as income for the year for
which the contribution was made. If some portion of your contribution is not
deductible, you may decide either to withdraw the non-deductible amount, or to
leave it in the IRA and designate that portion as a non-deductible contribution
on your tax return.
IRA DISTRIBUTIONS
Generally, IRA distributions which are not rolled over (see "Rollover IRA
Rules," below) are included in your gross income in the year they are received.
Non-deductible IRA contributions, however, are made using income which has
already been taxed (that is, they are not deductible contributions). Thus, the
portion of the IRA distributions consisting of non-deductible contributions will
not be taxed again when received by you. If you make any non-deductible IRA
contributions, each distribution from your IRA(s) will consist of a non-taxable
portion (return of deductible contributions, if any, and account earnings).
Thus, you may not take a distribution which is entirely tax-free. The following
formula is used to determine the non-taxable portion of your distributions for a
taxable year:
Remaining
Non-Deductible Contributions
----------------------------
Year-End Total IRA Balances x Total Distributions = Nontaxable Distributions
(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
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<PAGE>
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).
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
------
Total account balance in the IRAs, before distributions $9,000 x $3,000 = $800
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 (S)1.401(a)(31)-1, (S)1.402(c)-2T and (S)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 (S)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
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<PAGE>
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.
MINIMUM DISTRIBUTIONS
Under the rules set forth in Code (S)408(b)(3) and (S)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 (S)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 (S)4975.
Borrowing any money from this IRA would, under Code (S)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 (S)408(e)(4), cause the portion
so used to be treated as a taxable distribution.
EXCESS CONTRIBUTIONS
Tax Code (S)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.
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<PAGE>
IRS APPROVAL
Your annuity contract and IRA endorsement have been approved by the Internal
Revenue Service as a tax qualified Individual Retirement Annuity. When
received, such approval by the Internal Revenue Service is a determination only
as to the form of the annuity and does not represent a determination of the
merits of such annuity.
This disclosure statement is intended to provide an overview of the applicable
tax laws relating to Individual Retirement Arrangements. It is not intended to
constitute a comprehensive explanation as to the tax consequences of your IRA.
AS WITH ALL SIGNIFICANT TRANSACTIONS SUCH AS THE ESTABLISHMENT OR MAINTENANCE
OF, OR WITHDRAWAL FROM AN IRA, APPROPRIATE TAX AND LEGAL COUNSEL SHOULD BE
CONSULTED. Further information may also be acquired by contacting your IRS
District Office or consulting IRS Publication 590.
FINANCIAL DISCLOSURE
(SELECT RESERVE VARIABLE ANNUITY, FORM NO. 97505)
This Financial Disclosure is applicable to IRAs using a Select Reserve Variable
Annuity (contract form number 97505) purchased from American General Life
Insurance Company on or after April 1, 1999. Earnings under variable annuities
are not guaranteed, and depend on the performance of the investment option(s)
selected. As such, earnings cannot be projected. Set forth below are the
charges associated with such annuities.
CHARGES:
(a) During the Accumulation Phase, a maximum charge of $25 for each transfer,
in excess of 12 free transfers annually, of contract value between
divisions of the Separate Account. During the Payout Phase (the time
during which regular payments are received), this charge is applicable
for each transfer in excess of six free transfers annually.
(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 0.36% 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 or upon the death of the Annuitant. If a
jurisdiction imposes premium taxes at the time purchase payments are
made, the Company may deduct a charge at that time, or defer the charge
until the purchase payments are withdrawn, whether on account of a full
or partial surrender, annuitization, or death of the Annuitant.
(d) To compensate for administrative expenses, a daily charge will be
incurred at an annualized rate of 0.04% of the average Separate Account
Value of the contract during the Accumulation and the Payout Phase.
(e) Each variable division will be charged a fee for asset management and
other expenses deducted directly from the underlying fund during the
Accumulation and Payout Phase. Total fees will range between 0.54% and
2.00%.
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1035 EXCHANGE INSTRUCTIONS
- --------------------------------------------------------------------------------
1. PROCESSING RULES
A 1035 exchange is one that qualified under IRC Section 1035 guidelines.
A 1035 exchange is for non-qualified funds only.
The Home Office does not offer tax advice. Applicants and contract owners
should contact their own tax advisors.
To qualify as a 1035 exchange, the following contract types are required:
* An annuity or life insurance contract in exchange for an annuity
contract.
In addition, the following contract type exchanges are required:
* Individual contract to individual contract;
* Joint contract to joint contract; and
* Two individual contracts on same annuitant(s) with the same owner(s) to
individual or joint contract.
The annuitant and owner on the exchanged contract must be the same on the
new contract.
To qualify as a full 1035 exchange, all existing cash value must be
transferred to the new contract and none of the cash value can be refunded.
Money from a 1035 exchange cannot be added to an existing annuity
contract--it must fund a new contract.
- --------------------------------------------------------------------------------
2. FORMS REQUIREMENTS
* Annuity Application (form number which is approved in the state of
application)
* Replacement form as required by state, if applicable
* Assignment and Transfer Request form (L 6742 Rev 0399) for IRC Section
1035(a) Exchange
* External company's contract/policy or lost contract/policy statement
- --------------------------------------------------------------------------------
3. SIGNATURE REQUIREMENTS
The annuitant of the new application (age 15 or older) must sign the
Annuity Application.
The proposed owner of the new contract must sign the Annuity Application
and the Assignment and Transfer Request form (L 6742 Rev 0399).
If the owner is a trust, then the trustee's signature and title are
required on the application and the Assignment and Transfer Request form
(L6742 Rev 0399).
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<PAGE>
QUALIFIED AND NON-QUALIFIED FUNDS
TRANSFER INSTRUCTIONS
- --------------------------------------------------------------------------------
1. PROCESSING RULES
A transfer occurs when an existing policy/contract or account is liquidated
and proceeds are forwarded to another company or to the client.
There are three types of transfers:
* Trustee-to-Trustee (or Custodian) transfer: Proceeds are sent from one
company directly to another company to fund a like plan (Example: TSA to
TSA, IRA to IRA, Non-qualified to Non-qualified).
* Direct Rollover: Proceeds are sent from one company directly to another
company to fund a different type of plan (Example: TSA to IRA, 401(k) to
IRA, etc.).
* Rollover: Proceeds are sent from the original company to the owner. The
owner then forwards the check to the new company within 60 days.
Partial transfers are allowed.
Please consult a tax advisor for any tax consequences.
These types of transfers are not 1035 exchanges and do not qualify under
IRC Section 1035 guidelines.
A transfer may be qualified or non-qualified.
NOTE: The Home Office is responsible for qualified administration of
IRAs/SEPs only. Other than IRAs, administration of qualified plans is
the responsibility of the customer or plan administrator. The Home
Office does not provide a plan prototype.
- --------------------------------------------------------------------------------
2. FORM REQUIREMENTS
* Annuity Application (form number which is approved in the state of
application)
* Replacement form as required by state, if applicable, and only when
another annuity contract is being replaced
* External company/institution's contract or lost contract/contract
statement
* Assignment and Transfer Request form (L 6742 Rev 0399) if the funds are
qualified and the Home Office is to request the funds
* Assignment and Transfer Request form (L 6742 Rev 0399) if the funds are
non-qualified and coming from a non-insurance/annuity contract and the
Home Office is to request the funds
* If the plan type is IRA, refer the customer to the IRA disclosure
attached to the prospectus
* If the plan type is SEP, submit IRS Form 5305 with the application
- --------------------------------------------------------------------------------
3. SIGNATURE REQUIREMENTS
The annuitant/proposed owner of the new contract (age 15 or older) must
sign the Annuity Application (if different individuals, both must sign).
The owner must sign the Assignment and Transfer Request form
(L 6742 Rev 0399).
If the owner is a trust, then the trustee's signature and title are
required on all appropriate forms.
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<PAGE>
ASSIGNMENT AND TRANSFER REQUEST
- --------------------------------------------------------------------------------
Current Trustee/Custodian: Telephone Number:
- --------------------------------------------------------------------------------
Company's Address: City: State: Zip
- --------------------------------------------------------------------------------
Owner(s): Owner's SSN:
- --------------------------------------------------------------------------------
Annuitant's Name (If different from Owner) Contract/Account No:
- --------------------------------------------------------------------------------
Type of Transfer: (Choose only one)
[_] 1035 Non-Taxable Exchange
[_] Other:
[_] Non-Qualified Transfer
(Transfer of funds from a non-qualified mutual funds, CDs, savings account,
etc. to a non-qualified Annuity Contract)
[_] Non-Qualified Transfer
(Transfer of funds from a non-qualified mutual funds, CDs, savings account,
etc. to a non-qualified Annuity Contract)
[_] Qualified Direct Transfer
(Direct Transfer from current IRA trustee or custodian company to new IRA
trustee or custodian)
- --------------------------------------------------------------------------------
REQUEST FOR 1035 EXCHANGE
- --------------------------------------------------------------------------------
I HEREBY ABSOLUTELY ASSIGN AND TRANSFER TO AMERICAN GENERAL LIFE INSURANCE
COMPANY ALL OF MY RIGHTS, TITLE, AND INTEREST OF EVERY NATURE IN AND TO THE
ABOVE REFERENCED CONTRACT/POLICY INCLUDING, BUT NOT LIMITED TO SURRENDER,
ASSIGN, TRANSFER, OR CHANGE BENEFICIARY.
. Section 1035 of the Internal Revenue Code permits certain nontaxable exchanges
of insurance policies and annuity contracts. It is my intention that this
transfer qualify as a Section 1035 exchange and that no portion of this
exchange be actually or constructively received by me. American General Life
Insurance Company makes no representation concerning my tax treatment for this
transaction and has neither responsibility nor liability for my tax treatment.
. I understand the exact amount of the proceeds may vary depending upon the date
of transfer and I agree to execute any additional documents required to
complete the transfer.
. I understand that the exchange is not complete if the company issuing the
contract is unable or unwilling to pay the value of the above referenced
contract(s) to American General Life Insurance Company.
. I understand that as of the date of surrender of the contract by the company,
the surrendered contract no longer provides any coverage and the new contract
is not in effect until American General Life approves the new contract and
receives the funds.
. I represent and warrant that no person, firm, or corporation has a legal or
equitable interest in the contract/policy except the undersigned, and that no
proceedings of either legal or equitable nature have been instituted or are
pending against the undersigned.
------------------------------------------ --------------------------------
Owner's Signature(s) Date
AMERICAN GENERAL LIFE INSURANCE COMPANY, OWNER OF THE ABOVE REFERENCED POLICY,
DOES HEREBY REQUEST IMMEDIATE SURRENDER OF THE ABOVE REFERENCED POLICY OR
CONTRACT.
- --------------------------------------------------------------------------------
REQUEST FOR NON-QUALIFIED TRANSFER, QUALIFIED ROLLOVER OR
QUALIFIED DIRECT TRANSFER
- --------------------------------------------------------------------------------
THIS SERVES AS AUTHORIZATION TO LIQUIDATE AND FORWARD:
[_] All [_] Partial $______________ or _______________%
of my account balance as listed above to the annuity I have established through
American General Life Insurance Company.
_____________________________________________________________
FOR CD TRANSFERS: I am aware that if I request a liquidation of a CD prior to
the maturity date, I may be subject to surrender or withdrawal penalties. I
direct and authorize the above liquidation and transfer of the net liquidation
proceeds:
[_] Upon receipt of this request [_] On the maturity date of
------------------------------------------ --------------------------------
Owner's Signature(s) Date
- --------------------------------------------------------------------------------
LETTER OF ACCEPTANCE
- --------------------------------------------------------------------------------
The above named individual has established a Qualified or Non-Qualified Annuity
with American General Life Insurance Company. We will accept the transfer of
cash assets currently held in your plan for placement into the Qualified or Non-
Qualified Annuity established with American General Life Insurance Company.
FOR A SECTION 1035(A) EXCHANGE, PLEASE PROVIDE US WITH THE PRE AND POST TEFRA
COST BASIS.
By:
----------------------------------------- --------------------------------
Authorized Representative of Date
American General Life Insurance Company
Checks should be made payable to: American General Life Insurance Company
FBO (For the benefit of)_______________________________
Print Name of Contract Owner(s)
Mail to: Annuity Administration Annuity Administration 3-50
P.O. Box 1401 or 2727-A Allen Parkway
Houston, TX 77251-1401 overnight Houston, TX 77019
- --------------------------------------------------------------------------------
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COMPLETE AND RETURN TO: American General Life Insurance Company
Annuity Administration -------------------------------------------- [SELECT RESERVE LOGO APPEARS HERE]
P. O. Box 1401 A Subsidiary of American General Corporation ------- VARIABLE ANNUITY -------
Houston, TX 77251-1401 --------------------------------------------
(800) 813-5065 Houston, Texas
- CHANGE REQUEST -
[X] CONTRACT 1. CONTRACT #: _____________________________________ ANNUITANT: _______________________________________
IDENTIFICATION
(COMPLETE SECTIONS 1 CONTRACT OWNER(S): __________________________________________________________________________________
AND 5 FOR ALL (Name and
REQUESTS.) Address):
INDICATE CHANGE OR
REQUEST DESIRED BELOW. [_] CHECK HERE IF CHANGE ___________________________________________________________________________
OF ADDRESS
S.S. NO. OR TAX I.D. NO.: ___/__/____ Phone Number: (___)_____________________
- ------------------------------------------------------------------------------------------------------------------------------------
[_] DOLLAR 2. Dollar cost average [_] $__________ OR [_] __________% (whole % only) Begin Date: ___/___/____
COST Taken from the [_] Money Market OR [_] 1-Year Guarantee Period
AVERAGING Frequency: [_] Monthly [_] Quarterly [_] Semiannually [_] Annually
(AVAILABLE BY EITHER $ Duration: [_] 12 months [_] 24 months [_] 36 months
OR % ALLOCATION) to be allocated to the following divisions(s) as indicated. (Use only dollars OR percentages below.)
American General Series Portfolio Company OFFITBANK VIF-High Yield (6) _____
Money Market (13) _____ OFFITBANK VIF-Total Return (7) _____
Hotchkis and Wiley Variable Trust OFFITBANK VIF-U.S. Government Securities (8)_____
Equity Income VIP (1) _____ Royce Capital Fund
Low Duration VIP (3) _____
Royce Premier (9) _____
LEVCO Series Trust Royce Total Return (10) _____
LEVCO Equity Value (2) _____ Wright Managed Blue Chip Series Trust
Navellier Variable Insurance Series Fund, Inc. Wright International Blue Chip (11) _____
Wright Selected Blue Chip (12) _____
Navellier Growth (4) _____
OFFITBANK Variable Insurance Fund, Inc. Other
__________________________ _____
OFFITBANK VIF-Emerging Markets (5) _____
- ------------------------------------------------------------------------------------------------------------------------------------
[_] AUTOMATIC 3. [_] Add [_] Change Automatic Rebalancing of variable investments to the percentage allocations
REBALANCING indicated below:
($25,000 MINIMUM) [_] Quarterly [_] Semiannually [_] Annually (based on contract anniversary)
USE WHOLE [_] Stop Automatic Rebalancing
PERCENTAGES; TOTAL
MUST EQUAL 100%. American General Series Portfolio Company OFFITBANK VIF-High Yield (6) ____%
Money Market (13) ____% OFFITBANK VIF-Total Return (7) ____%
Hotchkis and Wiley Variable Trust OFFITBANK VIF-U.S. Government Securities (8)____%
Equity Income VIP (1) ____% Royce Capital Fund
Low Duration VIP (3) ____% Royce Premier (9) ____%
LEVCO Series Trust Royce Total Return (10) ____%
LEVCO Equity Value (2) ____% Wright Managed Blue Chip Series Trust
Navellier Variable Insurance Series Fund, Inc. Wright International Blue Chip (11) ____%
Navellier Growth (4) ____% Wright Selected Blue Chip (12) ____%
OFFITBANK Variable Insurance Fund, Inc. Other
OFFITBANK VIF-Emerging Markets (5) ____% __________________________ ____%
NOTE: Automatic Rebalancing is only available for variable divisions. Automatic Rebalancing will not
change allocation of future purchase payments.
- ------------------------------------------------------------------------------------------------------------------------------------
[_] TRANSFER OF 4. Indicate division number along with gross dollar or percentage amount. (Maintain $ or % consistency)
ACCUMULATED
VALUES __________ from Div.________to Div. _________ __________ from Div.________to Div. _________
(AVAILABLE BY EITHER $ __________ from Div.________to Div. _________ __________ from Div.________to Div. _________
OR % ALLOCATION) __________ from Div.________to Div. _________ __________ from Div.________to Div. _________
NOTE: If a transfer is elected and Automatic Rebalancing is active on your account, you may want to
consider changing the Automatic Rebalancing allocations (Section 3). Otherwise, the Automatic
Rebalancing will transfer funds in accordance with instructions on file.
- ------------------------------------------------------------------------------------------------------------------------------------
[_] AFFIRMATION/ 5. CERTIFICATION: Under penalties of perjury, I certify (1) that the number shown on this form is my
SIGNATURE correct taxpayer identification number and (2) that I am not subject to backup withholding under
(COMPLETE THIS SECTION Section 3406(a)(1)(c) of the Internal Revenue Code.
FOR ALL REQUESTS.) The Internal Revenue Service does not require your consent to any provision of this document other
than the certifications required to avoid backup withholding.
_________________________________ ________________________________________
DATE SIGNATURE OF OWNER(S)
- ------------------------------------------------------------------------------------------------------------------------------------
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COMPLETE AND RETURN TO: American General Life Insurance Company
Annuity Administration -------------------------------------------- [SELECT RESERVE LOGO APPEARS HERE]
P. O. Box 1401 A Subsidiary of American General Corporation ------- VARIABLE ANNUITY -------
Houston, TX 77251-1401 --------------------------------------------
(800) 813-5065 Houston, Texas
- SYSTEMATIC WITHDRAWALS REQUEST -
- -----------------------------------------------------------------------------------------------------------------------------------
CONTRACT 1. CONTRACT #: _____________________________________ ANNUITANT: _______________________________________
IDENTIFICATION
CONTRACT OWNER(S): __________________________________________________________________________________
(Name and
Address): ----------------------------------------------------------------------------------
[_] CHECK HERE IF CHANGE ____________________________________________________________________________
OF ADDRESS
S.S. NO. OR TAX I.D. NO.: ___/__/____ Phone Number: (___)_____________________
- ------------------------------------------------------------------------------------------------------------------------------------
SYSTEMATIC 2. WITHDRAWALS PRIOR TO AGE 59 1/2 MAY BE SUBJECT TO AN IRS PENALTY.
WITHDRAWAL Consult your tax advisor for additional information.
ELECTION
HOW OFTEN SHOULD PAYMENTS BE MADE:
[_] MONTHLY [_] QUARTERLY [_] SEMIANNUALLY [_] ANNUALLY
First check to be processed on _______/_______/_______. Subsequent checks will be processed at the
next payout dates on the SAME DAY of the month elected as your start date. (Date must be between the
5th and 24th of the month and at least 30 days after issue date.)
(MINIMUM CHECK SPECIFIED DOLLAR AMOUNT $______________________ (Not to be used for partial withdrawal request)
AMOUNT IS $100.) Unless specified below, withdrawals will be taken from the divisions as they are currently allocated
in your contract.
American General Series Portfolio Company OFFITBANK VIF-Total Return (7) ____
Money Market (13) ____
OFFITBANK VIF-U.S. Government Securities (8)___
(USE EITHER DOLLARS OR Hotchkis and Wiley Variable Trust
WHOLE PERCENTAGES.) Equity Income VIP (1) ____ Royce Capital Fund
Low Duration VIP (3) ____ Royce Premier (9) ___
Royce Total Return (10) ___
(DOLLARS MUST TOTAL LEVCO Series Trust
SPECIFIED AMOUNT, LEVCO Equity Value (2) ____ Wright Managed Blue Chip Series Trust
OR Wright International Blue Chip (11) ___
PERCENTAGES MUST Navellier Variable Insurance Series Fund, Inc. Wright Selected Blue Chip (12) ___
TOTAL 100%.) Navellier Growth (4) ____
Other
OFFITBANK Variable Insurance Fund, Inc.
OFFITBANK VIF-Emerging Markets (5) ____ _____________________________________ ___
OFFITBANK VIF-High Yield (6) ____ Fixed Account
1-Year Guarantee Period (20) ___
- ------------------------------------------------------------------------------------------------------------------------------------
MAILING OF 3. NOTE: If no method is indicated, check(s) will be mailed to the owner at the address of record.
YOUR SYSTEMATIC Check one: [_] Mail check to owner. [_] Mail check to alternate address. [_] Deposit funds directly
WITHDRAWAL to bank/firm*
(available only for
systematic withdrawals)
------------------------------------------------------------------------------------------------------
INDIVIDUAL OR BANK/FIRM
----------------------------------------------------------- ----------------------------------------
ADDRESS CITY/STATE/ZIP
----------------------------------------------------------- Type of account [_] Checking [_] Savings
IF BANK/FIRM, PROVIDE ACCOUNT NUMBER TO BE REFERENCED FOR DEPOSIT.
*Enclose a voided check from account where funds are to be deposited. PLEASE DO NOT ENCLOSE A
DEPOSIT SLIP.
- ------------------------------------------------------------------------------------------------------------------------------------
NOTICE OF 4. The taxable portion of the distribution you receive from your annuity contract is subject to federal
WITHHOLDING income tax withholding unless you elect not to have withholding apply. Withholding of state income tax
may also be required by your state of residence. You may elect not to have withholding apply by
checking the appropriate box below. If you elect not to have withholding apply to your distribution or
if you do not have enough income tax withheld, you may be responsible for payment of estimated tax.
You may incur penalties under the estimated tax rules if your withholding and estimated tax are not
sufficient.
[_] I do NOT want income tax withheld from each distribution.
[_] I do want _______% or [_] 10% income tax withheld from each distribution.
- ------------------------------------------------------------------------------------------------------------------------------------
AFFIRMATION/ 5. CERTIFICATION: Under penalties of perjury, I certify (1) that the number shown on this form is my
SIGNATURE correct taxpayer identification number; and (2) that I am not subject to backup withholding under
Section 3406(a)(1)(c) of the Internal Revenue Code.
The Internal Revenue Service does not require your consent to any provision of this document other
than the certifications required to avoid backup withholding.
Dated at ______________________ this _________ day of _________________________________, 19_______.
------------------------------------------ ------------------------------------------------
WITNESS OWNER
------------------------------------------------
CO-OWNER (if applicable)
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COMPLETE AND RETURN TO: American General Life Insurance Company
Annuity Administration -------------------------------------------- [SELECT RESERVE LOGO APPEARS HERE]
P. O. Box 1401 A Subsidiary of American General Corporation ------- VARIABLE ANNUITY -------
Houston, TX 77251-1401 --------------------------------------------
(800) 813-5065 Houston, Texas
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AUTOMATIC ADDITIONAL PURCHASE PAYMENTS
Contract #:__________________________________________________
Annuitant :__________________________________________________________________
Contract Owner(s):___________________________________________________________
Name and _______________________________________________________________
Address:
_______________________________________________________________
Amount of Each Payment: ______________________________________________
(Minimum $5,000 per payment)
Frequency: [_] Monthly [_] Quarterly [_] Semiannually [_] Annually
Date of 1st withdrawal: _______________/_______________/_______________
Name of Bank: _________________________________________________________________
Account Number: ______________________________________________________________
ATTACH A VOIDED CHECK.
------------------------------------------------------------------------------
[ ]
[ ]
[ ]
[ ]
[ ]
[ ]
[ ]
[ ]
[ ]
-----------------------------------------------------------------------------
Please sign and date the authorization below.
I, the undersigned bank account owner, hereby authorize and request American
General Life Insurance Company ("Company") to initiate electronic or other
commercially accepted type debits against the indicated bank account in the
depository institution named above ("Depository") for purchase payments due on
the contract listed above. I hereby agree to indemnify and hold the Company
harmless from any loss, claim or liability of any kind by reason or dishonor of
any debit.
I agree that this Authorization may be terminated by me or the Company at any
time and for any reason by providing written notice of such termination to the
non-terminating party and may be terminated by the Company immediately if any
debit is not honored by the Depository named above for any reason.
- -------------------------------------------- -------------------------
Signature of Bank Account Owner(s) Date
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COMPLETE AND RETURN TO: American General Life Insurance Company
Annuity Administration -------------------------------------------- [SELECT RESERVE LOGO APPEARS HERE]
P. O. Box 1401 A Subsidiary of American General Corporation ------- VARIABLE ANNUITY -------
Houston, TX 77251-1401 --------------------------------------------
(800) 813-5065 Houston, Texas
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CHANGE OF BENEFICIARY
(Before completing this form please read instructions below
and on reverse side.)
- --------------------------------------------------------------------------------
Contract No. Contract Owner Annuitant
- --------------------------------------------------------------------------------
METHOD OF PAYMENT: The death proceeds shall be payable in equal shares to the
designated beneficiaries as may be living, unless otherwise provided below. In
the event no beneficiary survives the Annuitant or Owner, and if this form, or
the Contract does not provide otherwise, the proceeds will be paid to the
executors or administrators of the deceased's Estate.
================================================================================
PRIMARY BENEFICIARY:
Full Name Relationship to Annuitant Percentages (if applicable)
- --------- ------------------------- ---------------------------
________________________________________________________________________________
________________________________________________________________________________
________________________________________________________________________________
If a living or non-testamentary trust is designated as a primary beneficiary,
complete the following:
__________________________________________________ Dated: ______________________
Name of Trust
================================================================================
CONTINGENT BENEFICIARY (proceeds payable under this designation only if none of
the designated primary beneficiaries survive the deceased Annuitant or Owner):
Full Name Relationship to Annuitant Percentages (if applicable)
- --------- ------------------------- ---------------------------
________________________________________________________________________________
________________________________________________________________________________
________________________________________________________________________________
If a living or non-testamentary trust is designated as a primary beneficiary,
complete the following:
__________________________________________________ Dated: ______________________
Name of Trust
================================================================================
The undersigned contract owner hereby revokes any previous beneficiary
designation and any optional mode of settlement with respect to any death
benefit proceeds payable at the death of the annuitant or owner.
I represent and certify that no insolvency or bankruptcy proceedings are now
pending against me.
Dated at _____________________ this _________ day of _________________, 19_____.
- ------------------------------------- --------------------------------------
WITNESS CONTRACT OWNER
- ------------------------------------- --------------------------------------
WITNESS ADDITIONAL SIGNATURE (IF REQUIRED)
This change of beneficiary and/or method of settlement has been approved by the
Company at its Home Office, and presentation of the Contract for endorsement has
been waived.
AMERICAN GENERAL LIFE INSURANCE COMPANY
DATE OF APPROVAL:_____________________ BY:____________________________________
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INSTRUCTIONS FOR DESIGNATING BENEFICIARY
1. All signatures must be in INK and should appear exactly as the name is given
in the contract. A separate election for change of beneficiary must be
completed for each contract.
2. The full name of the new Beneficiary, relationship to the Annuitant, current
mailing address and taxpayer identification number (S.S. No.) should be
given for all Beneficiaries. If Beneficiary is to receive payment under life
income option, give date of birth.
3. If a Beneficiary is a married woman, her full given name should be used. For
example, Mary E. Jones, not Mrs. J.F. Jones. If a Trustee is designated,
notification as to the type of trust created should be furnished the
Company.
4. If two Beneficiaries are to share jointly, the last name entered should be
followed by the words "equally, or to the survivor;" if three or more
Beneficiaries are to share jointly, the last name entered should be followed
by the words "equally, or to the survivors or survivor." If the interest of
one Beneficiary is to be contingent to the interest of another, after the
name of the first Beneficiary the following words should be placed: "if
living; otherwise to."
For your assistance, examples of the wording to be used in some of the more
common designations are set out below. In difficult cases where there is doubt
as to the proper wording, the Company will prepare a special form for your
signature on request.
1. One Beneficiary Jane Doe, wife of the Annuitant.
2. Two Primary Beneficiaries Jane Doe, wife of the Annuitant, and
John Doe, son, equally, or to the
survivor.
3. One Primary and Two Contingent Jane Doe, wife of the Annuitant, if
Beneficiaries living; otherwise to John Doe and Mary
Doe, children of the Annuitant, equally,
or to the survivor.
4. One Primary and One Contingent Jane Doe, wife of the Annuitant, if
Beneficiary living; otherwise to John Doe, son.
5. Two Primary and One Contingent John Doe and Mary Doe, parents of the
Beneficiaries Annuitant, equally, or to the survivor;
otherwise, to Jane Doe, sister of the
Annuitant.
6. Wife, Primary; Named and Un-named Jane Doe, wife of the Annuitant, if
Children, Contingent Beneficiaries living; otherwise to Henry Doe, Barbara
Doe, and Paul Doe, children of the
Annuitant, and any other then living
children born of the marriage of the
Annuitant and said wife, equally, or to
the survivors.
7. Wife, Primary; Children and Mary Doe, wife of the Annuitant, if
Step-Children Contingents living; otherwise, Henry Doe, son of the
Annuitant, Mary Doe, step-daughter of
the Annuitant, and any then living
children born of the marriage of the
Annuitant and said wife, equally, or to
the survivor.
8. Wife, Primary; Unnamed Children Jane Doe, wife of the Annuitant, if
with Second Contingents living; otherwise any then living
children born of the marriage of the
Annuitant and said wife, equally, or to
the survivor; otherwise to Harry Doe and
Mabel Doe, parents of the Annuitant,
equally, or to the survivor.
9. Business Designations A. The Beacon Oil Company,
Incorporated, a Texas Corporation
Houston, Texas, employer (or
creditor), or its successors or
assigns.
B. John Doe, Business Partner.
C. Harry Doe, Employer (or employee).
10. Trustee - Written Trust The American General Bank, Houston,
Texas, as Trustee, or its successors in
Trust, under Trust Instrument dated
May 31, 1995.
Trustee - Testamentary Trust Trustee as provided in the Last Will and
Testament of the Annuitant, or
successors thereunder.
11. Estate The Executors, Administrators, or
Assigns of the Annuitant.
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American General Life Insurance Company
-------------------------------------------- [SELECT RESERVE LOGO APPEARS HERE]
A Subsidiary of American General Corporation ------- VARIABLE ANNUITY -------
--------------------------------------------
Houston, Texas
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To Obtain a Statement of Additional Information, please complete the form below
and mail to:
American General Life Insurance Company
Attn: Annuity Correspondence Unit
P.O. Box 1401
Houston, TX 77251-1401
Please send a Statement of Additional Information for the Select Reserve
Variable Annuity to me at the following address:
____________________________________________
Name
____________________________________________
Address
____________________________________________
City/State Zip Code
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AMERICAN GENERAL LIFE INSURANCE COMPANY
SEPARATE ACCOUNT D
SELECT RESERVE(SM)
FLEXIBLE PAYMENT VARIABLE AND
FIXED INDIVIDUAL DEFERRED ANNUITY CONTRACTS
OFFERED BY
AMERICAN GENERAL LIFE INSURANCE COMPANY
ANNUITY ADMINISTRATION DEPARTMENT
P.O. BOX 1401, HOUSTON, TEXAS 77251-1401
1-800-813-5065; 713-831-3505
STATEMENT OF ADDITIONAL INFORMATION
Dated April 1, 1999
This Statement of Additional Information ("Statement") is not a prospectus. You
should read it with the Prospectus for American General Life Insurance Company
Separate Account D (the "Separate Account"), dated April 1, 1999, concerning
flexible payment variable and fixed individual deferred annuity Select
Reserve(SM) contracts (the "Contracts"). The Separate Account invests in certain
Series of the--
. American General Series Portfolio Company,
. Hotchkis and Wiley Variable Trust,
. LEVCO Series Trust,
. Navellier Variable Insurance Series Fund, Inc.,
. OFFITBANK Variable Insurance Fund, Inc.,
. Royce Capital Fund, and
. Wright Managed Blue Chip Series Trust.
<PAGE>
You can obtain a copy of the Prospectus for the Contracts and any Prospectus
supplements 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 on a variable basis
through AGL's Separate Account. Terms have the same meaning in this Statement
that they do in the Prospectus under the heading "Definitions."
TABLE OF CONTENTS
General Information..................................................... 2
Regulation and Reserves................................................. 2
Independent Auditors.................................................... 4
Services................................................................ 4
Principal Underwriter................................................... 4
Annuity Payments........................................................ 4
Gender of Annuitant................................................... 4
Misstatement of Age or Gender and Other Errors....................... 5
Change of Investment Adviser or Investment Policy....................... 5
Performance Data for the Divisions...................................... 5
Average Annual Total Return Calculations............................... 5
Cumulative Total Return Calculations................................... 6
Hypothetical Performance............................................... 7
Money Market Division Yield and Effective Yield Calculations........... 9
Performance Comparisons................................................ 9
Effect of Tax-Deferred Accumulation..................................... 10
Financial Statements.................................................... 11
Index to Financial Statements........................................... 12
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. AGL redomesticated as a Texas insurer effective December
31, 1991 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"). It is 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 where it is licensed to do business. This regulation covers a variety of
areas, including:
. benefit reserve requirements,
. adequacy of insurance company capital and surplus,
2
<PAGE>
. various operational standards, and
. accounting and financial reporting procedures.
AGL's operations and accounts are subject to periodic examination by insurance
regulatory authorities.
Under most insurance guaranty fund laws, a state can assess insurers doing
business in the state for covered insurance contract losses incurred by
insolvent companies. State laws set limits for these assessments. However, AGL
cannot reasonably estimate the amount of any future assessments of AGL under
these laws. Most states have the authority to excuse or defer an assessment, if
it would threaten an insurer's own financial strength. The Account Value held
in the Separate Account may not be covered by insurance guaranty fund laws. The
Account Value held in the Fixed Account is covered by the insurance guaranty
fund laws.
The federal government generally has not directly regulated the business of
insurance. However, 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 are
considering various insurance regulatory matters. This could ultimately result
in direct federal regulation of some aspects of the insurance business. AGL
cannot predict whether this will occur or, if it does, what the effect on AGL
would be.
State insurance law requires AGL to carry reserves on its books, as liabilities,
to meet its obligations under outstanding insurance contracts. AGL bases these
reserves on assumptions about future claims experience and investment returns,
among other things.
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. This might happen, for example, due to a
spread of acquired immune deficiency syndrome or other infectious diseases or
catastrophes, or significant unexpected losses on its investments.
3
<PAGE>
INDEPENDENT AUDITORS
The 1998 consolidated financial statements of AGL and the financial statements
of the Generations Divisions of Separate Account D included in this Statement
were audited by Ernst & Young LLP, independent auditors, as set forth in their
report. We include these financial statements in this Statement in reliance
upon the report of Ernst & Young LLP that appears later on in this Statement.
Ernst & Young LLP gives its report upon their authority as experts in accounting
and auditing. Ernst & Young LLP is located at One Houston Center, 1221
McKinney, Suite 2400, Houston, TX 77010-2007.
SERVICES
AGL and American General Life Companies ("AGLC") are parties to a services
agreement. Most of the affiliated companies within the American General
Corporation holding company system, including certain life insurance companies,
are also parties to the agreement. AGLC is a corporation incorporated in
Delaware on November 24, 1997, with its home office located at 2727-A Allen
Parkway, Houston, Texas 77019. AGLC provides shared services to AGL and certain
other life insurance companies at cost. These services include data processing,
systems, customer services, product development, actuarial, auditing,
accounting, and legal. AGL did not pay any fees to AGLC in 1997, because AGLC
performed no services under the agreement. AGL paid AGLC $70,431,229 in 1998.
PRINCIPAL UNDERWRITER
American General Securities Incorporated ("AGSI") is the principal underwriter
for the Contracts. AGSI also serves as principal underwriter to AGL's Separate
Account A and Separate Account VL-R, and to Separate Account E of American
General Life Insurance Company of New York. All of these other separate accounts
are unit investment trusts registered under the Investment Company Act of 1940.
AGSI, a Texas corporation, is a wholly-owned subsidiary of AGL and a member of
the National Association of Securities Dealers, Inc.
As principal underwriter for the Separate Account, AGSI received from AGL less
than $1,000 for each of the last three years.
AGL offers the securities under the Contracts on a continuous basis.
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.
4
<PAGE>
However, Montana, and certain other jurisdictions, do not permit differences in
annuity payment rates between males and females.
In addition, employers should be aware that, under most employer-sponsored
plans, the law prohibits contracts that make distinctions based on gender.
Under these plans, AGL will make available Contracts with no such differences.
MISSTATEMENT OF AGE OR GENDER AND OTHER ERRORS
If the age or gender of an Annuitant has been misstated to us, any amount
payable will be the amount that the purchase payments paid would have purchased
at the correct age and gender. If we made any overpayments because of incorrect
information about age or gender 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. We will credit or charge the amount of any
adjustment with interest at the assumed interest rate used in the Contract's
annuity tables.
CHANGE OF INVESTMENT ADVISER OR INVESTMENT POLICY
Unless otherwise permitted by law or regulation, no Series may change the
investment adviser to any Series or any investment policy without the consent of
the shareholders. If required, we will file approval of or change of any
investment objective with the insurance department of each state where a
Contract has been delivered. We will notify you (or, after annuity payments
start, the payee) of any material investment policy change that we have
approved. We will also notify you of any investment policy change before its
implementation by the Separate Account, if the change requires your comment or
vote.
PERFORMANCE DATA FOR THE DIVISIONS
We may quote investment results for the available Divisions of Separate Account
D from time to time. These results will not be an estimate or guarantee of
future investment performance. Nor will they represent the actual experience of
amounts invested by a particular Owner. We will carry performance figures to
the nearest one-hundredth of one percent. We may include in the figures the
effect of voluntary fee waivers and expense reimbursements to the Funds from
their investment adviser and administrator.
AVERAGE ANNUAL TOTAL RETURN CALCULATIONS
Each Division may advertise its average annual total return. We calculate each
Division's average annual total return quotation under the following standard
method that the Securities and Exchange Commission ("SEC") prescribes:
. We take a hypothetical $1,000 investment in the Division's
Accumulation Units on the first day of the period at the maximum
offering price. This figure is the Accumulation Unit Value per unit
("initial investment").
5
<PAGE>
. We calculate the ending redeemable value ("redeemable value") of
that investment at the end of the period. The redeemable value
reflects the effect of (1) any applicable Surrender Charge at the
end of the period and (2) all other recurring charges and fees
applicable under the Contract to all Owner accounts. Other charges
and fees include the Mortality and Expense Risk Charge,
the Administrative Expense Charge, and the Annual Contract Fee. We
do not reflect any premium taxes in the calculation.
. We divide the redeemable value by the initial investment.
. We take this quotient to the Nth root (N representing the number of
years in the period), subtract 1 from the result, and express the
result as a percentage.
Average annual total return quotations for the Divisions for the period ended
December 31, 1998 are shown in the table below.
INVESTMENT DIVISION SINCE DIVISION INCEPTION*
- ------------------- -------------------------
Hotchkis and Wiley Equity Income VIP (10.11%)
Hotchkis and Wiley Low Duration VIP 4.87%
LEVCO Equity Value 3.90%
Navellier Growth 11.50%
OFFITBANK VIF-Emerging Markets (4.79%)
OFFITBANK VIF-High Yield 16.05%
OFFITBANK VIF-Total Return 2.71%
OFFITBANK VIF-U. S. Government Securities 6.33%
Royce Premier (6.31%)
Royce Total Return 3.18%
Wright International Blue Chip (3.51%)
Wright Selected Blue Chip (11.97%)
Money Market 3.89%
_____________
* THE DATES WHEN THE DIVISIONS COMMENCED OPERATIONS ARE AS FOLLOWS: THE HOTCHKIS
AND WILEY EQUITY INCOME VIP, LEVCO EQUITY VALUE, NAVELLIER GROWTH, ROYCE
PREMIER, AND ROYCE TOTAL RETURN DIVISIONS, MAY 14, 1998; THE WRIGHT
INTERNATIONAL BLUE CHIP AND WRIGHT SELECTED BLUE CHIP DIVISIONS, JUNE 22, 1998;
THE HOTCHKIS AND WILEY LOW DURATION VIP AND OFFITBANK VIF-TOTAL RETURN
DIVISIONS, JUNE 29, 1998; THE MONEY MARKET DIVISION, JULY 30, 1998; THE
OFFITBANK VIF-EMERGING MARKETS AND OFFITBANK VIF-HIGH YIELD DIVISIONS, AUGUST
18, 1998; THE OFFITBANK VIF-U.S. GOVERNMENT SECURITIES DIVISION, AUGUST 21,
1998.
CUMULATIVE TOTAL RETURN CALCULATIONS
Each Division may also advertise cumulative total return performance.
Cumulative total return performance is the compound rate of return on a
hypothetical initial investment of $1,000 in each Division's Accumulation Units
on the first day of the period at the maximum offering price. This figure is
the Accumulation Unit value per unit ("initial investment"). Cumulative total
return figures (and the related "Growth of a $1,000 Investment" figures set
forth below) do not include the effect of any premium taxes. Cumulative total
return figures reflect changes in Accumulation Unit value. We calculate these
quotations by finding the cumulative rates of return of the hypothetical initial
investment over various periods, according to the following formula, and then
expressing those rates as a percentage:
6
<PAGE>
C = (ERV/P) - 1
Where:
C = cumulative total return
P = a hypothetical initial investment of $1,000
ERV = ending redeemable value at the end of the applicable period of a
hypothetical $1,000 investment made at the beginning of the applicable
period.
HYPOTHETICAL PERFORMANCE
Each Division may advertise hypothetical performance, based on the calculations
described above, where all or a portion of the actual historical performance of
the corresponding Series in which the Division invests pre-dates the effective
date of the Division. The tables below provide hypothetical performance
information for the available Divisions of the Separate Account based on the
actual historical performance of the corresponding Series in which each of these
Divisions invests. This information reflects all actual charges and deductions
of these Series and the Separate Account that hypothetically would have been
made if the Separate Account invested assets under the Contracts in these Series
for the periods indicated.
Hypothetical Historical Average Annual Total Returns
(Through December 31, 1998)
<TABLE>
<CAPTION>
Since
Series
Investment Division One Year Five Years Ten Years Inception(1)
- ------------------- -------- ---------- --------- ----------
<S> <C> <C> <C> <C>
Hotchkis and Wiley Equity Income VIP N/A N/A N/A (10.11)%
Hotchkis and Wiley Low Duration VIP N/A N/A N/A 4.87%
LEVCO Equity Value 15.22% N/A N/A 11.00%
Navellier Growth N/A N/A N/A 11.50%
OFFITBANK VIF-Emerging Markets (16.91)% N/A N/A (3.27)%
OFFITBANK VIF-High Yield 3.63% N/A N/A 9.17%
OFFITBANK VIF-Total Return N/A N/A N/A 2.71%
OFFITBANK VIF-U.S. Gov. Securities N/A N/A N/A 6.33%
Royce Premier 8.20% N/A N/A 12.67%
Royce Total Return N/A N/A N/A 3.18%
Wright International Blue Chip 7.68% N/A N/A 5.59%
Wright Selected Blue Chip (3.28)% N/A N/A 12.74%
Money Market 4.47% 4.25% 4.59% N/A(2)
</TABLE>
7
<PAGE>
Hypothetical Historical Cumulative Total Returns
(Through December 31,1998)
<TABLE>
<CAPTION>
Since
Series
Investment Division One Year Five Years Ten Years Inception(1)
- ------------------- -------- ---------- --------- ----------
<S> <C> <C> <C> <C>
Hotchkis and Wiley Equity Income VIP N/A N/A N/A (6.52)%
Hotchkis and Wiley Low Duration VIP N/A N/A N/A 2.44%
LEVCO Equity Value 15.22% N/A N/A 15.83%
Navellier Growth N/A N/A N/A 7.13%
OFFITBANK VIF-Emerging Markets (16.91)% N/A N/A (7.50)%
OFFITBANK VIF-High Yield 3.63% N/A N/A 27.21%
OFFITBANK VIF-Total Return N/A N/A N/A 1.37%
OFFITBANK VIF-U.S. Gov. Securities N/A N/A N/A 2.24%
Royce Premier 8.20% N/A N/A 27.11%
Royce Total Return N/A N/A N/A 2.00%
Wright International Blue Chip 7.68% N/A N/A 31.19%
Wright Selected Blue Chip (3.28)% N/A N/A 81.90%
Money Market 4.47% 23.12% 56.67% N/A(2)
</TABLE>
Hypothetical Historical Growth of a $1,000 Investment in the Divisions
(Through December 31, 1998)
<TABLE>
<CAPTION>
Since
Series
Investment Division One Year Five Years Ten Years Inception(1)
- ------------------- -------- ---------- --------- ----------
<S> <C> <C> <C> <C>
Hotchkis and Wiley Equity Income VIP N/A N/A N/A $ 935
Hotchkis and Wiley Low Duration VIP N/A N/A N/A $1,024
LEVCO Equity Value $1,152 N/A N/A $1,158
Navellier Growth N/A N/A N/A $1,071
OFFITBANK VIF-Emerging Markets $ 831 N/A N/A $ 925
OFFITBANK VIF-High Yield $1,036 N/A N/A $1,272
OFFITBANK VIF-Total Return N/A N/A N/A $1,014
OFFITBANK VIF-U.S. Gov. Securities N/A N/A N/A $1,022
Royce Premier $1,082 N/A N/A $1,271
Royce Total Return N/A N/A N/A $1,020
Wright International Blue Chip $1,077 N/A N/A $1,312
Wright Selected Blue Chip $ 967 N/A N/A $1,819
Money Market $1,045 $1,231 $1,567 NA(2)
</TABLE>
__________________________
(1) The inception dates for each Series funding the Divisions listed above are:
Money Market, January 16, 1986; Wright International Blue Chip and Wright
Selected Blue Chip, January 5, 1994; OFFITBANK VIF-High Yield, April 4, 1996;
OFFITBANK VIF-Emerging Markets, August 28, 1996; Royce Premier, December 27,
1996; LEVCO Equity Value, August 4, 1997; Hotchkis and Wiley Equity Income VIP,
Navellier Growth and Royce Total Return, May 14, 1998; Hotchkis and Wiley Low
Duration VIP and OFFITBANK VIF-Total Return, June 29, 1998; OFFITBANK VIF-U.S.
Government Securities, August 21, 1998.
(2) "N/A" reflects SEC rules that require us to show return information for no
more than 10 years.
8
<PAGE>
MONEY MARKET DIVISION YIELD AND EFFECTIVE YIELD CALCULATIONS
We calculate the Money Market Division's yield for which we use a standard
method that the SEC prescribes. Under that method, we base the current yield
quotation on a seven-day period and calculate that yield as follows:
. We take the net change in the Accumulation Unit value during the
period.
. We divide that net change by the Accumulation Unit value at the
beginning of the period to obtain the base period return.
. We multiply the base period return by the fraction 365/7 to obtain
the current yield figure.
. We carry the current yield figure to the nearest one-hundredth of one
percent.
We do not include realized capital gains or losses and unrealized appreciation
or depreciation of the Division's Portfolio in the calculation. The Money
Market Division's hypothetical historical yield for the seven-day period ended
December 31, 1998 was 4.23%.
We determine the Money Market Division's effective yield by taking the base
period return (computed as described above) and calculating the effect of
assumed compounding. The formula for the effective yield is: (base period
return +1)/365/7/ -1. The Money Market Division's hypothetical historical
effective yield for the seven day period ended December 31, 1998 was 4.32%.
Yield and effective yield do not reflect the deduction of premium taxes that
may be imposed upon the redemption of Accumulation Units.
PERFORMANCE COMPARISONS
In our advertising and sales literature, we may compare the performance of each
or all of the available Divisions of the Separate Account to the performance of
(1) other variable annuities in general or (2) particular types of variable
annuities that invest in mutual funds, or series of mutual funds, with
investment objectives similar to each of the Divisions of the Separate Account.
Lipper Analytical Services, Inc. ("Lipper") and the Variable Annuity Research
and Data Service ("VARDS(R)") are independent services that 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 insurance 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.
Total return assumes the reinvestment of dividends and distributions, but does
not take into consideration sales charges, redemption fees or certain expense
deductions at the separate account level. In addition, VARDS(R) prepares risk-
adjusted rankings, which consider the effects of market risk on total return
performance.
9
<PAGE>
In addition, we may compare each Division's performance in advertisements and
sales literature to the following benchmarks:
. 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;
. the Dow Jones Industrial Average, an unmanaged unweighted average
of 30 blue chip industrial corporations listed on the New York
Stock Exchange and generally considered representative of the
United States stock market;
. 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 spending groups and generally
is considered to be a measure of inflation;
. the Lehman Brothers Government and Domestic Strategic Income Index,
the Salomon Brothers High Grade Domestic Strategic Income 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
. 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 ACCUMULATION
The Contracts qualify for tax-deferred treatment on earnings. This tax-deferred
treatment increases the amount available for accumulation by deferring taxes on
any earnings until the earnings are withdrawn. The longer the taxes are
deferred, the more the potential you have for the assets under your Contract to
grow over the term of the Contracts.
The hypothetical tables set out below illustrate this potential. The tables
compare accumulations based on a single initial purchase payment of $100,000
compounded annually under:
. a Contract, under which earnings are not taxed until withdrawn in
connection with a full surrender, partial withdrawal, or
annuitization, or termination due to insufficient Account Value
("withdrawal of earnings") and
. an investment under which earnings are taxed on a current basis
("Taxable Investment"), based on an assumed tax rate of 28%, and
the assumed earning rates specified.
10
<PAGE>
5 Years 10 Years 20 Years
------- -------- --------
(7.50% earnings rate)
Contract $143,563 $206,103 $424,785
Contract (after Taxes) $131,365 $176,394 $333,845
Taxable Investment $130,078 $169,202 $286,294
(10.00% earnings rate)
Contract $161,051 $259,374 $672,750
Contract (after Taxes) $143,957 $214,749 $512,380
Taxable Investment $141,571 $200,423 $401,694
The hypothetical tables do not reflect any fees or charges under a Contract or
Taxable Investment. However, the Contracts impose:
. a Mortality and Expense Risk Charge of 0.36%, and
. an Administrative Expense Charge of 0.04%.
A Taxable Investment could incur comparable fees or charges. Fees and charges
would reduce the return from a Contract or Taxable Investment.
Under the Contracts, a withdrawal of earnings is subject to tax, and may be
subject to an additional 10% tax penalty before age 59 1/2.
These tables are only illustrations of the effect of tax-deferred accumulations
and are not a guarantee of future performance.
FINANCIAL STATEMENTS
Separate Account D has 69 Divisions as of the date of this Statement. Thirteen
Divisions (the "Select Reserve Divisions") are available under the Contracts
that are the subject of this Statement. The December 31, 1998 financial
statements for the Select Reserve Divisions which are included in this statement
relate only to these 13 Divisions. Forty-five of the remaining 56 Divisions had
operations as of December 31, 1998. The remaining 11 Divisions of Separate
Account D had no operations as of December 31, 1998.
You should consider the financial statements of AGL that we include in this
Statement primarily as bearing on the ability of AGL to meet its obligations
under the Contracts.
11
<PAGE>
INDEX TO
FINANCIAL STATEMENTS
Page No.
-------
I. Select Reserve Divisions of Separate Account D Financial Statements
Report of Ernst & Young LLP, Independent Auditors..................... D-1
Statement of Net Assets............................................... D-2
Statement of Operations............................................... D-2
Statement of Changes in Net Assets.................................... D-3
Notes to Financial Statements......................................... D-4
II. AGL Consolidated Financial Statements
Report of Ernst & Young LLP, Independent Auditors..................... F-1
Consolidated Balance Sheets........................................... F-2
Consolidated Statements of Income..................................... F-3
Consolidated Statements of Comprehensive Income....................... F-4
Consolidated Statements of Shareholder's Equity....................... F-5
Consolidated Statements of Cash Flows................................. F-6
Notes to Consolidated Financial Statements............................ F-7
12
<PAGE>
[ERNST & YOUNG LLP LOGO] . One Houston Center . Phone: 713-750-1500
Suite 2400 Fax: 713-750-1501
1221 McKinney
Houston, Texas 77210-2007
Report of Independent Auditors
Board of Directors
American General Life Insurance Company
and
Contract Owners
American General Life Insurance Company
Select Reserve Divisions
of Separate Account D
We have audited the accompanying statement of net assets of the Select Reserve
Divisions of American General Life Insurance Company (the "Company") Separate
Account D as of December 31, 1998, and the related statements of operations and
changes in net assets for 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 audit.
We conducted our audit 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, 1998, 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 audit provides 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 Select Reserve Divisions of
American General Life Insurance Company Separate Account D at December 31, 1998,
and the results of its operations and changes in its net assets for the period
then ended, in conformity with generally accepted accounting principles.
ERNST & YOUNG LLP
-----------------
ERNST & YOUNG LLP
February 10, 1999
Ernst & Young LLP is a member of Ernst & Young International, Ltd.
D-1
<PAGE>
AMERICAN GENERAL LIFE INSURANCE COMPANY
SELECT RESERVE DIVISIONS
SEPARATE ACCOUNT D
STATEMENT OF NET ASSETS
DECEMBER 31, 1998
<TABLE>
<CAPTION>
<S> <C>
ASSETS:
Investment securities - at market (cost $39,055,134).......................... $ 38,761,717
Dividends receivable.......................................................... 7,239
Due to American General Life Insurance Company .............................. (464)
------------
NET ASSETS............................................................... $ 38,768,492
============
CONTRACT OWNER RESERVES:
Reserves for redeemable annuity contracts..................................... $ 38,768,492
------------
TOTAL CONTRACT OWNER RESERVES ............................................... $ 38,768,492
============
</TABLE>
STATEMENT OF OPERATIONS
PERIOD ENDED DECEMBER 31, 1998
<TABLE>
<CAPTION>
<S> <C>
INVESTMENT INCOME:
Dividends from mutual funds................................................... $ 43,302
------------
EXPENSES:
Expense and mortality fees.................................................... (30,362)
------------
NET INVESTMENT INCOME 12,940
------------
REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS:
Net realized loss on investments.............................................. (59,405)
Capital gain distributions from mutual funds.................................. 5,259
Net unrealized loss on investments............................................ (293,417)
------------
NET REALIZED AND UNREALIZED LOSS ON INVESTMENTS ........................ (347,563)
------------
DECREASE IN NET ASSETS RESULTING FROM OPERATIONS ........................ $ (334,623)
============
</TABLE>
SEE ACCOMPANYING NOTES.
D-2
<PAGE>
AMERICAN GENERAL LIFE INSURANCE COMPANY
SELECT RESERVE DIVISIONS
SEPARATE ACCOUNT D
STATEMENT OF CHANGES IN NET ASSETS
Period Ended December 31, 1998
<TABLE>
<CAPTION>
<S> <C>
OPERATIONS:
Net investment income.......................................................................... $ 12,940
Net realized loss on investments............................................................... (59,405)
Capital gain distributions from mutual funds................................................... 5,259
Net unrealized loss on investments............................................................. (293,417)
-----------
Decrease in net assets resulting from operations .......................................... (334,623)
-----------
PRINCIPAL TRANSACTIONS:
Contract purchase payments..................................................................... 39,189,991
Payments to contract owners:
Terminations and withdrawals................................................................ (86,876)
-----------
Increase in net assets resulting from principal transactions................................... 39,103,115
-----------
TOTAL INCREASE IN NET ASSETS ................................................................... 38,768,492
NET ASSETS:
Beginning of period............................................................................ 0
-----------
End of period.................................................................................. $38,768,492
===========
</TABLE>
See accompanying notes.
D-3
<PAGE>
NOTES TO FINANCIAL STATEMENTS
SELECT RESERVE DIVISIONS
SEPARATE ACCOUNT D
Note A - Organization
Separate Account D (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 consists of fifty-
eight Divisions, which are available to purchasers through annuity contracts.
The Select Reserve Divisions (the "Divisions") received their first deposits in
May, 1998. These Divisions, funded by series of independently managed mutual
fund portfolios ("Funds") which are available to Select Reserve contract owners,
are as follows:
<TABLE>
<CAPTION>
<S> <C>
AMERICAN GENERAL SERIES PORTFOLIO COMPANY OFFITBANK VARIABLE INSURANCE FUND, INC.:
("AGSPC"): OFFITBANK VIF-Emerging Markets Fund
Money Market Fund OFFITBANK VIF-High Yield Fund
OFFITBANK VIF-Total Return Fund
HOTCHKIS AND WILEY VARIABLE TRUST: OFFITBANK VIF-U.S. Government Securities Fund
Equity Income VIP Portfolio
Low Duration VIP Portfolio ROYCE CAPITAL FUND:
Royce Premier Portfolio
LEVCO SERIES TRUST: Royce Total Return Portfolio
LEVCO Equity Value Fund
WRIGHT MANAGED BLUE CHIP SERIES TRUST:
NAVELLIER VARIABLE INSURANCE SERIES FUND, INC.: Wright International Blue Chip Portfolio
Navellier Growth Portfolio Wright Selected Blue chip Portfolio
</TABLE>
NOTE B - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES AND 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 investments in shares of the Funds listed above, 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 daily net asset value of the
Divisions and are paid to the Company. The annual rate for the administrative
expense charge is 0.04% and effective December 28, 1998, the annual rate for the
mortality and expense risk charge was reduced from 0.62% to 0.36%.
The Funds pay their respective investment advisers a monthly fee based on each
fund's average net asset value.
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.
D-4
<PAGE>
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 sales 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 terminations, withdrawals and amounts payable
to the Company) and reinvestment of distributions made by the funds. The
following is a summary of fund shares owned as of December 31, 1998.
<TABLE>
<CAPTION>
Net Value of Unrealized
Asset Shares at Cost of Appreciation/
Fund Shares Value Market Shares Held (Depreciation)
<S> <C> <C> <C> <C> <C>
American General Series Portfolio Company:
Money Market Fund................................... 52,266.200 $ 1.00 $ 52,266 $ 52,266 $ 0
Hotchkis and Wiley Variable Trust:
Equity Income VIP Portfolio........................ 5,273.074 9.27 48,881 48,504 377
Low Duration VIP Portfolio......................... 68,911.514 9.98 687,737 689,451 (1,714)
----------- ----------- ---------
736,618 737,955 (1,337)
LEVCO Series Trust:
LEVCO Equity Value Fund............................. 5,923.764 11.18 66,228 64,097 2,131
Navellier Variable Insurance Series Fund, Inc.:
Navellier Growth Portfolio.......................... 8,223.846 11.22 92,272 76,063 16,209
OFFITBANK Variable Insurance Fund, Inc.:
OFFITBANK VIF-Emerging Markets Fund ............... 557,155.484 7.60 4,234,382 4,250,963 (16,581)
OFFITBANK VIF-High Yield Fund ..................... 2,669,284.412 10.40 27,760,558 27,760,590 (32)
OFFITBANK VIF-Total Return Fund ................... 98,381.850 10.17 1,000,543 983,708 16,835
OFFITBANK VIF-U.S. Gov't Sec. Fund ................ 0.000 10.23 0 0 0
----------- ----------- ---------
32,995,483 32,995,261 222
Royce Capital Fund:
Royce Premier Portfolio............................. 9,628.530 5.47 52,668 55,517 (2,849)
Royce Total Return Portfolio........................ 2,011.760 5.07 10,200 10,058 142
----------- ----------- ---------
62,868 65,575 (2,707)
Wright Managed Blue Chip Series Trust:
Wright International Blue Chip Portfolio............ 104,029.229 12.26 1,275,398 1,308,770 (33,372)
Wright Selected Blue Chip Portfolio................. 248,613.146 14.00 3,480,584 3,755,147 (274,563)
----------- ----------- ---------
4,755,982 5,063,917 (307,935)
----------- ----------- ---------
Total $38,761,717 $39,055,134 $(293,417)
=========== =========== =========
</TABLE>
The aggregate cost of purchases and proceeds from sales of investments for
the period ended December 31, 1998 were $40,368,162 and $1,253,624,
respectively. The cost of total investments owned at December 31, 1998 was the
same for both financial reporting and federal income tax purposes. Gross
unrealized appreciation and gross unrealized depreciation as of December 31,
1998 were $35,694 and $329,111, respectively.
D-5
<PAGE>
SEPARATE ACCOUNT D - Select Reserve Divisions
NOTES TO FINANCIAL STATEMENTS - CONTINUED
Note E - Summary of Changes in Units
SUMMARY OF CHANGES IN UNITS FOR THE PERIOD ENDED DECEMBER 31, 1998
CONTRACTS IN ACCUMULATION PERIOD:
<TABLE>
<CAPTION>
AGSPC Money Hotchkis and Wiley Hotchkis and Wiley Low LEVCO
Market Fund Equity Income Duration VIP Equity Value
VIP Portfolio Portfolio Fund
<S> <C> <C> <C> <C>
Outstanding at beginning of period............. 0.000 0.000 0.000 0.000
Purchase payments.............................. 32,710.853 2,000.000 121,892.056 2,000.000
Terminations and withdrawals................... 0.000 0.000 (2,777.066) 0.000
Transfers to annuity........................... 0.000 0.000 0.000 0.000
Transfers between funds........................ (22,424.124) 8,458.649 15,165.861 10,926.642
----------- ----------- ------------- -----------
Outstanding at end of period................... 10,286.729 10,458.649 134,280.851 12,926.642
=========== =========== ============= ===========
Navellier OFFITBANK OFFITBANK OFFITBANK
Growth VIF-Emerging VIF-High Yield VIF-Total Return
Portfolio Markets Fund Fund Fund
Outstanding at beginning of period............. 0.000 0.000 0.000 0.000
Purchase payments.............................. 14,632.446 859,935.907 5,253,122.923 175,590.912
Terminations and withdrawals................... 0.000 0.000 (2,360.358) (478.934)
Transfers to annuity........................... 0.000 0.000 0.000 0.000
Transfers between funds........................ 2,591.733 2,756.189 4,896.841 22,307.429
----------- ----------- ------------- -----------
Outstanding at end of period................... 17,224.179 862,692.096 5,255,659.406 197,419.407
=========== =========== ============= ===========
OFFITBANK
VIK -U.S. Royce Royce Wright
Government Premier Total Return International Blue
Securities Fund Portfolio Portfolio Chip Portfolio
Outstanding at beginning of period............. 0.000 0.000 0.000 0.000
Purchase payments.............................. 0.000 7,248.982 2,000.000 320,524.332
Terminations and withdrawals................... 0.000 0.000 0.000 (3,463.953)
Transfers to annuity........................... 0.000 0.000 0.000 0.000
Transfers between funds........................ 0.000 3,728.388 0.000 (57,133.485)
----------- ----------- ------------- -----------
Outstanding at end of period................... 0.000 10,977.370 2,000.000 259,926.894
=========== =========== ============= ===========
Wright
Selected Blue
Chip Portfolio
Outstanding at beginning of period............. 0.000
Purchase payments.............................. 749,535.212
Terminations and withdrawals................... (9,078.524)
Transfers to annuity........................... 0.000
Transfers between funds........................ 3,970.142
-----------
Outstanding at end of period................... 744,426.830
===========
</TABLE>
D-6
<PAGE>
NOTE F - NET ASSETS REPRESENTED BY:
<TABLE>
<CAPTION>
DECEMBER 31, 1998
<S> <C> <C> <C>
CONTRACTS IN ACCUMULATION PERIOD: Units Unit Value Amount
American General Series Portfolio Company:
Money Market Fund........................................ 10,286.729 $ 5.081157 $ 52,268
Hotchkis and Wiley Variable Trust:
Equity Income VIP Portfolio.............................. 10,458.649 4.673982 48,884
Low Duration VIP Portfolio............................... 134,280.851 5.121855 687,767
-----------
736,651
LEVCO Series Trust:
LEVCO Equity Value Fund.................................. 12,926.642 5.122522 66,217
Navellier Variable Insurance Series Fund, Inc.:
Navellier Growth Portfolio............................... 17,224.179 5.356685 92,265
OFFITBANK Variable Insurance Fund, Inc.:
OFFITBANK VIF-Emerging Markets Fund...................... 862,692.096 4.910106 4,235,910
OFFITBANK VIF-High Yield Fund............................ 5,255,659.406 5.282978 27,765,533
OFFITBANK VIF-Total Return Fund.......................... 197,419.407 5.068333 1,000,587
OFFITBANK VIF-U.S. Government Securities Fund............ 0.000 5.112243 0
-----------
33,002,030
Royce Capital Fund:
Royce Premier Portfolio.................................. 10,977.370 4.798086 52,670
Royce Total Return Portfolio............................. 2,000.000 5.100029 10,200
-----------
62,870
Wright Managed Blue Chip Series Trust:
Wright International Blue Chip Portfolio................. 259,926.894 4.906973 1,275,454
Wright Selected Blue Chip Portfolio...................... 744,426.830 4.675727 3,480,737
-----------
4,756,191
-----------
TOTAL CONTRACT OWNER RESERVES................................ $38,768,492
===========
</TABLE>
NOTE G - YEAR 2000 CONTINGENCY (UNAUDITED)
Internal Systems. The Company's ultimate parent, American General
Corporation (AGC), has numerous technology systems that are managed on a
decentralized basis. AGC's Year 2000 readiness efforts are therefore being
undertaken by its key business units with centralized oversight. Each business
unit, including the Company, has developed and is implementing a plan to
minimize the risk of a significant negative impact on its operations.
While the specifics of the plans vary, the plans include the following
activities: (1) perform an inventory of the Company's information technology
and non-information technology systems; (2) assess which items in the inventory
may expose the company to business interruptions due to Year 2000 issues; (3)
reprogram or replace systems that are not Year 2000 ready; (4) test systems to
prove that they will function into the next century as they do currently; and
(5) return the systems to operations. As of December 31, 1998, substantially
all of the Company's critical systems are Year 2000 ready and have been returned
to operations. However, activities (3) through (5) for certain systems are
ongoing, with vendor upgrades expected to be received during the first half of
1999.
D-7
<PAGE>
SEPARATE ACCOUNT D - Select Reserve Divisions
NOTES TO FINANCIAL STATEMENTS - CONTINUED
NOTE G - YEAR 2000 CONTINGENCY (UNAUDITED) - CONTINUED
Third Party Relationships. The Company has relationships with various
third parties who must also be Year 2000 ready. These third parties provide (or
receive) resources and services to (or from) the Company and include
organizations with which the company exchanges information. Third parties
include vendors of hardware, software, and information services; providers of
infrastructure services such as voice and data communications and utilities for
office facilities; investors; customers; distribution channels; and joint
venture partners. Third parties differ from internal systems in that the
Company exercises less, or no, control over Year 2000 readiness. The Company
has developed a plan to assess and attempt to mitigate the risks associated with
the potential failure of third parties to achieve Year 2000 readiness. The plan
includes the following activities: (1) identify and classify third party
dependencies; (2) research, analyze, and document Year 2000 readiness for
critical third parties; and (3) test critical hardware and software products and
electronic interfaces. As of December 31, 1998, AGC has identified and assessed
approximately 700 critical third party dependencies, including those relating to
the Company. A more detailed evaluation will be completed during first quarter
1999 as part of the Company's contingency planning efforts. Due to the various
stages of third parties' Year 2000 readiness, the Company's testing activities
will extend through 1999.
Contingency Plans. The Company has commenced contingency planning to
reduce the risk of Year 2000-related business failures. The contingency plans,
which address both internal systems and third party relationships, include the
following activities: (1) evaluate the consequences of failure of business
processes with significant exposure to Year 2000 risk; (2) determine the
probability of a Year 2000-related failure for those processes that have a high
consequence of failure; (3) develop an action plan to complete contingency plans
for those processes that rank high in consequence and probability of failure;
and (4) complete the applicable action plans. The Company is currently
developing contingency plans and expects to substantially complete all
contingency planning activities by April 30, 1999.
Risks and Uncertainties. Based on its plans to make internal systems ready
for Year 2000, to deal with third party relationships, and to develop
contingency actions, the Company believes that it will experience at most
isolated and minor disruptions of business processes following the turn of the
century. Such disruptions are not expected to have a material effect on the
Company's future results of operations, liquidity, or financial condition.
However, due to the magnitude and complexity of this project, risks and
uncertainties exist and the Company is not able to predict a most reasonably
likely worst case scenario. If conversion of the Company's internal systems is
not completed on a timely basis (due to non-performance by significant third-
party vendors, lack of qualified personnel to perform the Year 2000 work, or
other unforeseen circumstances in completing the Company's plans), or if
critical third parties fail to achieve Year 2000 readiness on a timely basis,
the Year 2000 issues could have a material adverse impact on the Company's
operations following the turn of the century.
Costs. Through December 31, 1998, the Company has incurred, and
anticipates that it will continue to incur, costs for internal staff, third-
party vendors, and other expenses to achieve Year 2000 readiness. The cost of
activities related to Year 2000 readiness has not had a material adverse effect
on the Company's results of operations or financial condition. In addition, the
Company has elected to accelerate the planned replacement of certain systems as
part of the Year 2000 plans. Costs of the replacement systems are being
capitalized and amortized over their useful lives, in accordance with the
Company's normal accounting policies. These costs are not passed to Divisions
of the Separate Account.
D-8
<PAGE>
[ERNST & YOUNG LLP LETTERHEAD] . One Houston Center . Phone: 713 750 1500
Suite 2400 Fax: 713 750 1501
1221 McKinney
Houston, Texas 77010-2007
Report of Independent Auditors
Board of Directors and Stockholder
American General Life Insurance Company
We have audited the accompanying consolidated balance sheets of American General
Life Insurance Company (an indirectly wholly owned subsidiary of American
General Corporation) and subsidiaries as of December 31, 1998 and 1997, and the
related consolidated statements of income, comprehensive income, shareholder's
equity, and cash flows for each of the three years in the period ended
December 31, 1998. These financial statements are the responsibility of the
Company's management. Our responsibility is to express an opinion on these
financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosure in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the consolidated financial position of American General
Life Insurance Company and subsidiaries at December 31, 1998 and 1997, and the
consolidated results of their operations and their cash flows for each of the
three years in the period ended December 31, 1998, in conformity with generally
accepted accounting principles.
/S/ ERNST & YOUNG LLP
---------------------
February 16, 1999
Ernst & Young LLP is a member of Ernst & Young International, Ltd.
F-1
<PAGE>
American General Life Insurance Company
Consolidated Balance Sheets
<TABLE>
<CAPTION>
DECEMBER 31
1998 1997
---------------------------------
<S> <C> <C>
(In Thousands)
ASSETS
Investments:
Fixed maturity securities, at fair value (amortized cost-
$27,425,605 in 1998 and $26,131,207 in 1997) $28,906,261 $27,386,715
Equity securities, at fair value (cost - $193,368 in 1998
and $19,208 in 1997) 211,684 21,114
Mortgage loans on real estate 1,557,268 1,659,921
Policy loans 1,170,686 1,093,694
Investment real estate 119,520 129,364
Other long-term investments 86,194 55,118
Short-term investments 222,949 100,061
---------------------------------
Total investments 32,274,562 30,445,987
Cash 117,675 99,284
Investment in Parent Company (cost - $8,597 in 1998
and 1997) 54,570 37,823
Indebtedness from affiliates 161,096 96,519
Accrued investment income 459,961 433,111
Accounts receivable 196,596 208,209
Deferred policy acquisition costs 1,087,718 835,031
Property and equipment 66,197 33,827
Other assets 206,318 132,659
Assets held in separate accounts 15,616,020 11,242,270
---------------------------------
Total assets $50,240,713 $43,564,720
=================================
LIABILITIES AND SHAREHOLDER'S EQUITY
Liabilities:
Future policy benefits $29,353,022 $27,849,893
Other policy claims and benefits payable 54,278 42,677
Other policyholders' funds 398,587 398,314
Federal income taxes 677,315 543,379
Indebtedness to affiliates 18,173 4,712
Other liabilities 554,783 421,861
Liabilities related to separate accounts 15,616,020 11,242,270
---------------------------------
Total liabilities 46,672,178 40,503,106
Shareholder's equity:
Common stock, $10 par value, 600,000 shares
authorized, issued, and outstanding 6,000 6,000
Preferred stock, $100 par value, 8,500 shares authorized,
issued, and outstanding 850 850
Additional paid-in capital 1,368,089 1,184,743
Accumulated other comprehensive income 679,107 427,526
Retained earnings 1,514,489 1,442,495
---------------------------------
Total shareholder's equity 3,568,535 3,061,614
---------------------------------
Total liabilities and shareholder's equity $50,240,713 $43,564,720
=================================
</TABLE>
See accompanying notes.
F-2
<PAGE>
American General Life Insurance Company
Consolidated Statements of Income
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31
1998 1997 1996
----------------------------------------------------------
<S> <C> <C> <C>
(In Thousands)
Revenues:
Premiums and other considerations $ 470,238 $ 428,721 $ 382,923
Net investment income 2,316,933 2,198,623 2,095,072
Net realized investment gains (losses) (33,785) 29,865 28,502
Other 69,602 53,370 41,968
----------------------------------------------------------
Total revenues 2,822,988 2,710,579 2,548,465
Benefits and expenses:
Benefits 1,788,417 1,757,504 1,689,011
Operating costs and expenses 467,067 379,012 347,369
Interest expense 15 782 830
Litigation settlement 97,096 - -
----------------------------------------------------------
Total benefits and expenses 2,352,595 2,137,298 2,037,210
----------------------------------------------------------
Income before income tax expense 470,393 573,281 511,255
Income tax expense 153,719 198,724 176,660
----------------------------------------------------------
Net income $ 316,674 $ 374,557 $ 334,595
==========================================================
</TABLE>
See accompanying notes.
F-3
<PAGE>
American General Life Insurance Company
Consolidated Statements of Comprehensive Income
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31
1998 1997 1996
--------------------------------------------------------
<S> <C> <C> <C>
(In Thousands)
Net income $316,674 $374,557 $ 334,595
Other comprehensive income:
Gross change in unrealized gains (losses)
on securities (pretax: $341,000;
$318,700; ($404,900)) 222,245 207,124 (263,181)
Less: gains (losses) realized in net income (29,336) (1,251) 11,262
--------------------------------------------------------
Change in net unrealized gains (losses) on
securities (pretax: $387,000; $320,600;
($422,200) 251,581 208,375 (274,443)
-------------------------------------------------------
Comprehensive income $568,255 $582,932 $ 60,152
========================================================
</TABLE>
See accompanying notes.
F-4
<PAGE>
American General Life Insurance Company
Consolidated Statements of Shareholder's Equity
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31
1998 1997 1996
----------------------------------------------------------
<S> <C> <C> <C>
(In Thousands)
Common stock:
Balance at beginning of year $ 6,000 $ 6,000 $ 6,000
Change during year - - -
----------------------------------------------------------
Balance at end of year 6,000 6,000 6,000
Preferred stock:
Balance at beginning of year 850 850 850
Change during year - - -
----------------------------------------------------------
Balance at end of year 850 850 850
Additional paid-in capital:
Balance at beginning of year 1,184,743 933,342 858,075
Capital contribution from Parent
Company 182,284 250,000 75,000
Other changes during year 1,062 1,401 267
----------------------------------------------------------
Balance at end of year 1,368,089 1,184,743 933,342
Accumulated other comprehensive income:
Balance at beginning of year 427,526 219,151 493,594
Change in unrealized gains (losses) on
securities 251,581 208,375 (274,443)
----------------------------------------------------------
Balance at end of year 679,107 427,526 219,151
Retained earnings:
Balance at beginning of year 1,442,495 1,469,618 1,324,703
Net income 316,674 374,557 334,595
Dividends paid (244,680) (401,680) (189,680)
----------------------------------------------------------
Balance at end of year 1,514,489 1,442,495 1,469,618
----------------------------------------------------------
Total shareholder's equity $3,568,535 $3,061,614 $2,628,961
==========================================================
</TABLE>
See accompanying notes.
F-5
<PAGE>
American General Life Insurance Company
Consolidated Statements of Cash Flows
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31
1998 1997 1996
--------------------------------------------------------------------
<S> <C> <C> <C>
(In Thousands)
OPERATING ACTIVITIES
Net income $ 316,674 $ 374,557 $ 334,595
Adjustments to reconcile net income to net cash
(used in) provided by operating activities:
Change in accounts receivable 11,613 (37,752) 3,846
Change in future policy benefits and other policy
claims (866,428) (1,143,736) (543,193)
Amortization of policy acquisition costs 125,062 115,467 102,189
Policy acquisition costs deferred (244,196) (219,339) (188,001)
Change in other policyholders' funds 273 21,639 (69,126)
Provision for deferred income tax expense 15,872 13,264 12,388
Depreciation 19,418 16,893 16,993
Amortization (26,775) (28,276) (30,758)
Change in indebtedness to/from affiliates (51,116) (8,695) 4,432
Change in amounts payable to brokers (894) 31,769 (25,260)
Net (gain) loss on sale of investments 37,016 (29,865) (28,502)
Other, net 57,307 30,409 32,111
--------------------------------------------------------------------
Net cash used in operating activities (606,174) (863,665) (378,286)
INVESTING ACTIVITIES
Purchases of investments and loans made (28,231,615) (29,638,861) (27,245,453)
Sales or maturities of investments and receipts from
repayment of loans 26,656,897 28,300,238 25,889,422
Sales and purchases of property, equipment, and
software, net (105,907) (9,230) (8,057)
--------------------------------------------------------------------
Net cash used in investing activities (1,680,625) (1,347,853) (1,364,088)
FINANCING ACTIVITIES
Policyholder account deposits 4,688,831 4,187,191 3,593,380
Policyholder account withdrawals (2,322,307) (1,759,660) (1,746,987)
Dividends paid (244,680) (401,680) (189,680)
Capital contribution from Parent 182,284 250,000 75,000
Other 1,062 1,401 267
--------------------------------------------------------------------
Net cash provided by financing activities 2,305,190 2,277,252 1,731,980
--------------------------------------------------------------------
Increase (decrease) in cash 18,391 65,734 (10,394)
Cash at beginning of year 99,284 33,550 43,944
--------------------------------------------------------------------
Cash at end of year $ 117,675 $ 99,284 $ 33,550
====================================================================
</TABLE>
Interest paid amounted to approximately $420,000, $1,004,000, and $1,080,000 in
1998, 1997, and 1996, respectively.
See accompanying notes.
F-6
<PAGE>
American General Life Insurance Company
Notes to Consolidated Financial Statements
December 31, 1998
NATURE OF OPERATIONS
American General Life Insurance Company (the "Company") is a wholly owned
subsidiary of AGC Life Insurance Company, which is a wholly owned subsidiary of
American General Corporation (the "Parent Company"). The Company's wholly owned
life insurance subsidiaries are American General Life Insurance Company of New
York ("AGNY") and The Variable Annuity Life Insurance Company ("VALIC"). During
1998, the Company formed a new wholly owned subsidiary, American General Life
Companies (AGLC), to provide management services to certain life insurance
subsidiaries of the Parent Company.
The Company offers a complete portfolio of the standard forms of universal life,
variable universal life, interest-sensitive whole life, term life, structured
settlements, and fixed and variable annuities throughout the United States. In
addition, a variety of equity products is sold through its wholly owned
broker/dealer, American General Securities, Inc. The Company serves the estate
planning needs of middle- and upper-income households and the insurance needs of
small- to medium-sized businesses. AGNY offers a broad array of traditional and
interest-sensitive insurance, in addition to individual annuity products. VALIC
provides tax-deferred retirement annuities and employer-sponsored retirement
plans to employees of health care, educational, public sector, and other not-
for-profit organizations throughout the United States.
1. ACCOUNTING POLICIES
1.1 PREPARATION OF FINANCIAL STATEMENTS
The consolidated financial statements have been prepared in accordance with
generally accepted accounting principles ("GAAP") and include the accounts of
the Company and its wholly owned subsidiaries. Transactions with the Parent
Company and other subsidiaries of the Parent Company are not eliminated from the
financial statements of the Company. All other material intercompany
transactions have been eliminated in consolidation.
The preparation of financial statements requires management to make estimates
and assumptions that affect amounts reported in the financial statements and
disclosures of contingent assets and liabilities. Ultimate results could differ
from those estimates.
F-7
<PAGE>
American General Life Insurance Company
Notes to Consolidated Financial Statements (continued)
1. ACCOUNTING POLICIES (CONTINUED)
1.2 STATUTORY ACCOUNTING
The Company and its wholly owned life insurance subsidiaries are required to
file financial statements with state regulatory authorities. State insurance
laws and regulations prescribe accounting practices for calculating statutory
net income and equity. In addition, state regulators may permit statutory
accounting practices that differ from prescribed practices. The use of such
permitted practices by the Company and its wholly owned life insurance
subsidiaries did not have a material effect on statutory equity at December 31,
1998.
Statutory financial statements differ from GAAP. Significant differences were as
follows (in thousands):
<TABLE>
<CAPTION>
1998 1997 1996
------------------------------------------------------
<S> <C> <C> <C>
Net income:
Statutory net income (1998 balance is
unaudited) $ 259,903 $ 327,813 $ 284,070
Deferred policy acquisition costs and cost
of insurance purchased 116,597 103,872 85,812
Deferred income taxes (53,358) (13,264) (12,388)
Adjustments to policy reserves 52,445 (30,162) (19,954)
Goodwill amortization (2,033) (2,067) (2,169)
Net realized gain on investments 41,488 20,139 14,140
Litigation settlement (63,112) -- --
Other, net (35,256) (31,774) (14,916)
-------------------------------------------------------
GAAP net income $ 316,674 $ 374,557 $ 334,595
=======================================================
Shareholders' equity:
Statutory capital and surplus (1998 balance
is unaudited) $1,670,412 $1,636,327 $1,441,768
Deferred policy acquisition costs 1,109,831 835,031 1,042,783
Deferred income taxes (698,350) (535,703) (410,007)
Adjustments to policy reserves (274,532) (319,680) (297,434)
Acquisition-related goodwill 54,754 51,424 55,626
Asset valuation reserve ("AVR") 310,564 255,975 291,205
Interest maintenance reserve ("IMR") 27,323 9,596 63
Investment valuation differences 1,487,658 1,272,339 643,289
Surplus from separate accounts (174,447) (150,928) (106,026)
Other, net 55,322 7,233 (32,306)
-------------------------------------------------------
Total GAAP shareholders' equity $3,568,535 $3,061,614 $2,628,961
=======================================================
</TABLE>
F-8
<PAGE>
American General Life Insurance Company
Notes to Consolidated Financial Statements (continued)
1. ACCOUNTING POLICIES (CONTINUED)
1.2 STATUTORY ACCOUNTING (CONTINUED)
The more significant differences between GAAP and statutory accounting
principles are that under GAAP: (a) acquisition costs related to acquiring new
business are deferred and amortized (generally in proportion to the present
value of expected gross profits from surrender charges and investment,
mortality, and expense margins), rather than being charged to operations as
incurred; (b) future policy benefits are based on estimates of mortality,
interest, and withdrawals generally representing the Company's experience, which
may differ from those based on statutory mortality and interest requirements
without consideration of withdrawals; (c) deferred tax assets and liabilities
are established for temporary differences between the financial reporting basis
and the tax basis of assets and liabilities, at the enacted tax rates expected
to be in effect when the temporary differences reverse; (d) certain assets
(principally furniture and equipment, agents' debit balances, computer software,
and certain other receivables) are reported as assets rather than being charged
to retained earnings; (e) acquisitions are accounted for using the purchase
method of accounting rather than being accounted for as equity investments; and
(f) fixed maturity investments are carried at fair value rather than amortized
cost. In addition, statutory accounting principles require life insurance
companies to establish an AVR and an IMR. The AVR is designed to address the
credit-related risk for bonds, preferred stocks, derivative instruments, and
mortgages and market risk for common stocks, real estate, and other invested
assets. The IMR is composed of investment- and liability-related realized gains
and losses that result from interest rate fluctuations. These realized gains and
losses, net of tax, are amortized into income over the expected remaining life
of the asset sold or the liability released.
1.3 INSURANCE CONTRACTS
The insurance contracts accounted for in these financial statements include
primarily long-duration contracts. Long-duration contracts include traditional
whole life, endowment, guaranteed renewable term life, universal life, limited
payment, and investment contracts. Long-duration contracts generally require the
performance of various functions and services over a period of more than one
year. The contract provisions generally cannot be changed or canceled by the
insurer during the contract period; however, most new contracts written by the
Company allow the insurer to revise certain elements used in determining premium
rates or policy benefits, subject to guarantees stated in the contracts.
F-9
<PAGE>
American General Life Insurance Company
Notes to Consolidated Financial Statements (continued)
1. ACCOUNTING POLICIES (CONTINUED)
1.4 INVESTMENTS
FIXED MATURITY AND EQUITY SECURITIES
All fixed maturity and equity securities were classified as available-for-sale
and recorded at fair value at December 31, 1998, 1997, and 1996. After adjusting
related balance sheet accounts as if the unrealized gains (losses) had been
realized, the net adjustment is recorded in accumulated other comprehensive
income within shareholders' equity. If the fair value of a security classified
as available-for-sale declines below its cost and this decline is considered to
be other than temporary, the security is reduced to its fair value, and the
reduction is recorded as a realized loss.
During 1998, the Company maintained a trading portfolio of certain fixed
maturity securities. Trading securities are recorded at fair value. Unrealized
gains (losses), as well as realized gains (losses), are included in net
investment income. The Company held no trading securities at December 31, 1998,
and trading securities did not have a material effect on net investment income
in 1998.
MORTGAGE LOANS
Mortgage loans are reported at amortized cost, net of an allowance for losses.
The allowance for losses covers all non-performing loans and loans for which
management has a concern based on its assessment of risk factors, such as
potential non-payment or non-monetary default. The allowance is based on a loan-
specific review and a formula that reflects past results and current trends.
Loans for which the Company determines that collection of all amounts due under
the contractual terms is not probable are considered to be impaired. The Company
generally looks to the underlying collateral for repayment of impaired loans.
Therefore, impaired loans are considered to be collateral dependent and are
reported at the lower of amortized cost or fair value of the underlying
collateral, less estimated cost to sell.
POLICY LOANS
Policy loans are reported at unpaid principal balance.
F-10
<PAGE>
American General Life Insurance Company
Notes to Consolidated Financial Statements (continued)
1. ACCOUNTING POLICIES (CONTINUED)
1.4 INVESTMENTS (CONTINUED)
INVESTMENT REAL ESTATE
Investment real estate is classified as held for investment or available for
sale, based on management's intent. Real estate held for investment is carried
at cost, less accumulated depreciation and impairment write-downs. Real estate
available for sale is carried at the lower of cost (less accumulated
depreciation, if applicable) or fair value less cost to sell.
INVESTMENT INCOME
Interest on fixed maturity securities and performing and restructured mortgage
loans is recorded as income when earned and is adjusted for any amortization of
premium or discount. Interest on delinquent mortgage loans is recorded as income
when received. Dividends are recorded as income on ex-dividend dates.
REALIZED INVESTMENT GAINS
Realized investment gains (losses) are recognized using the specific-
identification method.
1.5 SEPARATE ACCOUNTS
Separate Accounts are assets and liabilities associated with certain contracts,
principally annuities; for which the investment risk lies solely with the
contract holder. Therefore, the Company's liability for these accounts equals
the value of the account assets. Investment income, realized investment gains
(losses), and policyholder account deposits and withdrawals related to separate
accounts are excluded from the consolidated statements of income, comprehensive
income, and cash flows. Assets held in Separate Accounts are primarily shares in
mutual funds, which are carried at fair value based on the quoted net asset
value per share.
F-11
<PAGE>
American General Life Insurance Company
Notes to Consolidated Financial Statements (continued)
1. ACCOUNTING POLICIES (CONTINUED)
1.6 DEFERRED POLICY ACQUISITION COSTS ("DPAC") AND COST OF INSURANCE PURCHASED
("CIP")
Certain costs of writing an insurance policy, including commissions,
underwriting, and marketing expenses, are deferred and reported as DPAC.
CIP represents the cost assigned to insurance contracts in force that are
acquired through the purchase of a block of business. At December 31, 1998, CIP
of $22.1 million was reported within other assets.
DPAC and CIP associated with interest-sensitive life contracts, insurance
investment contracts, and participating life insurance contracts is charged to
expense in relation to the estimated gross profits of those contracts. DPAC and
CIP associated with all other insurance contracts is charged to expense over the
premium-paying period or as the premiums are earned over the life of the
contract.
DPAC and CIP are adjusted for the impact on estimated future gross profits as if
net unrealized gains (losses) on securities had been realized at the balance
sheet date. The impact of this adjustment is included in accumulated other
comprehensive income within shareholder's equity.
The Company reviews the carrying amount of DPAC and CIP on at least an annual
basis. Management considers estimated future gross profits or future premiums,
expected mortality, interest earned and credited rates, persistency, and
expenses in determining whether the carrying amount is recoverable.
1.7 PREMIUM RECOGNITION
Most receipts for annuities and interest-sensitive life insurance policies are
classified as deposits instead of revenue. Revenues for these contracts consist
of mortality, expense, and surrender charges. Policy charges that compensate the
Company for future services are deferred and recognized in income over the
period earned, using the same assumptions used to amortize DPAC (see Note 1.6).
For limited-payment contracts, net premiums are recorded as revenue, and the
difference between the gross premium received and the net premium is deferred
and recognized in a constant relationship to insurance in force. For all other
contracts, premiums are recognized when due.
F-12
<PAGE>
American General Life Insurance Company
Notes to Consolidated Financial Statements (continued)
1. ACCOUNTING POLICIES (CONTINUED)
1.8 OTHER ASSETS
Acquisition-related goodwill, which is included in other assets, is charged to
expense in equal amounts over 40 years. The carrying value of goodwill is
regularly reviewed by management for indicators of impairment in value. If facts
and circumstances suggest that goodwill is impaired, other than temporarily, the
Company assesses the fair value of the underlying assets and reduces goodwill
accordingly.
1.9 POLICY AND CONTRACT CLAIMS RESERVES
Substantially all of the Company's insurance and annuity liabilities relate to
long-duration contracts. The contracts normally cannot be changed or canceled by
the Company during the contract period.
For interest-sensitive life and insurance investment contracts, reserves equal
the sum of the policy account balance and deferred revenue charges. Reserves for
other contracts are based on estimates of the cost of future policy benefits.
Reserves are determined using the net level premium method. Interest assumptions
used to compute reserves ranged from 2.5% to 13.5% at December 31, 1998.
1.10 REINSURANCE
The Company limits its exposure to loss on any single insured to $2.5 million by
ceding additional risks through reinsurance contracts with other insurers. The
Company diversifies its risk of reinsurance loss by using a number of reinsurers
that have strong claims-paying ability ratings. If the reinsurer could not meet
its obligations, the Company would reassume the liability. The likelihood of a
material reinsurance liability being reassumed by the Company is considered to
be remote.
A receivable is recorded for the portion of benefits paid and insurance
liabilities that have been reinsured. Reinsurance recoveries on ceded
reinsurance contracts were $63 million, $25 million, and $24 million during
1998, 1997, and 1996, respectively. The cost of reinsurance is recognized over
the life of the reinsured policies using assumptions consistent with those used
to account for the underlying policies.
F-13
<PAGE>
American General Life Insurance Company
Notes to Consolidated Financial Statements (continued)
1. ACCOUNTING POLICIES (CONTINUED)
1.10 REINSURANCE
Benefits paid and future policy benefits related to ceded insurance contracts
are recorded as reinsurance receivables. The cost of reinsurance is recognized
over the life of the underlying reinsured policies using assumptions consistent
with those used to account for the underlying policies.
1.11 PARTICIPATING POLICY CONTRACTS
Participating life insurance accounted for approximately 2% of life insurance in
force at December 31, 1998 and 1997.
The portion of earnings allocated to participating policyholders that cannot be
expected to inure to shareholders is excluded from net income and shareholder's
equity. Dividends to be paid on participating life insurance contracts are
determined annually based on estimates of the contracts' earnings. Policyholder
dividends were $4.9 million in 1998.
1.12 INCOME TAXES
The Company and its life insurance subsidiaries, together with certain other
life insurance subsidiaries of the Parent Company, are included in a life/non-
life consolidated tax return with the Parent Company and its noninsurance
subsidiaries. The Company participates in a tax sharing agreement with other
companies included in the consolidated tax return. Under this agreement, tax
payments are made to the Parent Company as if the companies filed separate tax
returns; and companies incurring operating and/or capital losses are reimbursed
for the use of these losses by the consolidated return group.
Deferred tax assets and liabilities are established for temporary differences
between the financial reporting basis and the tax basis of assets and
liabilities, at the enacted tax rates expected to be in effect when the
temporary differences reverse. The effect of a tax rate change is recognized in
income in the period of enactment. State income taxes are included in income tax
expense.
F-14
<PAGE>
American General Life Insurance Company
Notes to Consolidated Financial Statements (continued)
1. ACCOUNTING POLICIES (CONTINUED)
1.12 INCOME TAXES (CONTINUED)
A valuation allowance for deferred tax assets is provided if it is more likely
than not that some portion of the deferred tax asset will not be realized. An
increase or decrease in a valuation allowance that results from a change in
circumstances that causes a change in judgment about the realizability of the
related deferred tax asset is included in income. Changes related to
fluctuations in fair value of available-for-sale securities are included in the
consolidated statements of comprehensive income and accumulated other
comprehensive income in shareholder's equity.
1.13 ACCOUNTING CHANGES
During 1998, the Company adopted Statement of Financial Accounting Standards
(SFAS) 130, Reporting Comprehensive Income, which establishes standards for
reporting and displaying comprehensive income and its components in the
financial statements. The Company elected to report comprehensive income and its
components in a separate statement of comprehensive income. Adoption of this
statement did not change recognition or measurement of net income and,
therefore, did not impact the Company's consolidated results of operations or
financial position.
Effective December 31, 1998, the Company adopted SFAS 131, Disclosures about
Segments of an Enterprise and Related Information, which changes the way
companies report segment information. With the adoption of SFAS 131, the Company
reports division earnings exclusive of goodwill amortization, net realized
investment gains, and nonrecurring items. This methodology is consistent with
the manner in which management reviews division results. Adoption of this
statement did not impact the Company's consolidated results of operations or
financial position.
In June 1998, the Financial Accounting Standards Board issued SFAS 133,
Accounting for Derivative Instruments and Hedging Activities, which requires all
derivative instruments to be recognized at fair value as either assets or
liabilities in the balance sheet. Changes in the fair value of a derivative
instrument are to be reported as earnings or other comprehensive income,
depending upon the intended use of the derivative instrument. This statement is
effective for years beginning after June 15, 1999. Adoption of SFAS 133 is not
expected to have a material impact on the Company's consolidated results of
operations or financial position.
F-15
<PAGE>
American General Life Insurance Company
Notes to Consolidated Financial Statements (continued)
2. INVESTMENTS
2.1 INVESTMENT INCOME
Investment income by type of investment was as follows:
<TABLE>
<CAPTION>
1998 1997 1996
----------------------------------------------------------
(In Thousands)
<S> <C> <C> <C>
Investment income:
Fixed maturities $2,101,730 $1,966,528 $1,846,549
Equity securities 1,813 1,067 1,842
Mortgage loans on real estate 148,447 157,035 175,833
Investment real estate 23,139 22,157 22,752
Policy loans 66,573 62,939 58,211
Other long-term investments 3,837 3,135 2,328
Short-term investments 15,492 8,626 9,280
Investment income from affiliates 10,536 11,094 11,502
----------------------------------------------------------
Gross investment income 2,371,567 2,232,581 2,128,297
Investment expenses 54,634 33,958 33,225
----------------------------------------------------------
Net investment income $2,316,933 $2,198,623 $2,095,072
==========================================================
</TABLE>
The carrying value of investments that produced no investment income during 1998
was less than 0.2% of total invested assets. The ultimate disposition of these
investments is not expected to have a material effect on the Company's results
of operations and financial position.
F-16
<PAGE>
American General Life Insurance Company
Notes to Consolidated Financial Statements (continued)
2. INVESTMENTS (CONTINUED)
2.2 NET REALIZED INVESTMENT GAINS (LOSSES)
Realized gains (losses) by type of investment were as follows:
<TABLE>
<CAPTION>
1998 1997 1996
--------------------------------------------------------
(In Thousands)
<S> <C> <C> <C>
Fixed maturities:
Gross gains $ 20,109 $ 42,966 $ 46,498
Gross losses (62,657) (34,456) (47,293)
--------------------------------------------------------
Total fixed maturities (42,548) 8,510 (795)
Equity securities 645 1,971 18,304
Other investments 8,118 19,384 10,993
--------------------------------------------------------
Net realized investment gains (losses)
before tax (33,785) 29,865 28,502
Income tax expense (benefit) (11,826) 10,452 9,976
--------------------------------------------------------
Net realized investment gains (losses)
after tax $(21,959) $ 19,413 $ 18,526
========================================================
</TABLE>
F-17
<PAGE>
American General Life Insurance Company
Notes to Consolidated Financial Statements (continued)
2. INVESTMENTS (CONTINUED)
2.3 FIXED MATURITY AND EQUITY SECURITIES
All fixed maturity and equity securities are classified as available-for-sale
and reported at fair value (see Note 1.4). Amortized cost and fair value at
December 31, 1998 and 1997 were as follows:
<TABLE>
<CAPTION>
GROSS GROSS
AMORTIZED UNREALIZED UNREALIZED FAIR
COST GAIN LOSS VALUE
------------------------------------------------------------------------------
(In Thousands)
<S> <C> <C> <C> <C>
DECEMBER 31, 1998
Fixed maturity securities:
Corporate securities:
Investment-grade $18,800,553 $1,129,504 $(26,353) $19,903,703
Below investment-grade 1,409,198 33,910 (45,789) 1,397,320
Mortgage-backed securities* 6,359,242 294,331 (870) 6,652,703
U.S. government obligations 417,822 69,321 (178) 486,965
Foreign governments 331,699 24,625 (2,437) 353,887
State and political subdivisions 86,778 4,796 (187) 91,387
Redeemable preferred stocks 20,313 - (17) 20,296
------------------------------------------------------------------------------
Total fixed maturity securities $27,425,605 $1,556,487 $(75,831) $28,906,261
==============================================================================
Equity securities $ 193,368 $ 19,426 $ (1,110) $ 211,684
==============================================================================
Investment in Parent Company $ 8,597 $ 45,973 $ - $ 54,570
==============================================================================
</TABLE>
* Primarily include pass-through securities guaranteed by and mortgage
obligations ("CMOs") collateralized by the U.S. government and government
agencies.
F-18
<PAGE>
American General Life Insurance Company
Notes to Consolidated Financial Statements (continued)
2. INVESTMENTS (CONTINUED)
2.3 FIXED MATURITY AND EQUITY SECURITIES (CONTINUED)
<TABLE>
<CAPTION>
GROSS GROSS
AMORTIZED UNREALIZED UNREALIZED FAIR
COST GAIN LOSS VALUE
------------------------------------------------------------------------------
(In Thousands)
<S> <C> <C> <C> <C>
DECEMBER 31, 1997
Fixed maturity securities:
Corporate securities:
Investment-grade $17,913,942 $ 906,235 $(17,551) $18,802,626
Below investment-grade 950,438 34,290 (4,032) 980,696
Mortgage-backed securities* 6,614,704 278,143 (4,260) 6,888,587
U.S. government obligations 289,406 46,529 (74) 335,861
Foreign governments 318,212 18,076 (3,534) 332,754
State and political subdivisions 44,505 1,686 -- 46,191
------------------------------------------------------------------------------
Total fixed maturity securities $26,131,207 $1,284,959 $(29,451) $27,386,715
==============================================================================
Equity securities $ 19,208 $ 2,145 $ (239) $ 21,114
==============================================================================
Investment in Parent Company $ 8,597 $ 29,226 $ -- $ 37,823
==============================================================================
</TABLE>
* Primarily include pass-through securities guaranteed by and mortgage
obligations ("CMOs") collateralized by the U.S. government and government
agencies.
F-19
<PAGE>
American General Life Insurance Company
Notes to Consolidated Financial Statements (continued)
2. INVESTMENTS (CONTINUED)
2.3 FIXED MATURITY AND EQUITY SECURITIES (CONTINUED)
Net unrealized gains (losses) on securities included in accumulated
comprehensive income in shareholders' equity at December 31 were as follows:
<TABLE>
<CAPTION>
1998 1997
--------------------------------------------
(In Thousands)
<S> <C> <C>
Gross unrealized gains $1,621,886 $1,316,330
Gross unrealized losses (76,941) (29,690)
DPAC and other fair value adjustments (488,120) (621,867)
Deferred federal income taxes (377,718) (237,247)
--------------------------------------------
Net unrealized gains on securities $ 679,107 $ 427,526
============================================
</TABLE>
The contractual maturities of fixed maturity securities at December 31, 1998
were as follows:
<TABLE>
<CAPTION>
1998 1997
-----------------------------------------------------------------------------
AMORTIZED MARKET AMORTIZED MARKET
COST VALUE COST VALUE
-----------------------------------------------------------------------------
(In Thousands) (In Thousands)
<S> <C> <C> <C> <C>
Fixed maturity securities,
excluding mortgage-
backed securities:
Due in one year or less $ 531,496 $ 536,264 $ 205,719 $ 207,364
Due after one year
through five years 5,550,665 5,812,581 5,008,933 5,216,174
Due after five years
through ten years 9,229,980 9,747,761 9,163,681 9,604,447
Due after ten years 5,754,220 6,156,950 5,138,169 5,470,143
Mortgage-backed securities 6,359,244 6,652,705 6,614,705 6,888,587
-----------------------------------------------------------------------------
Total fixed maturity securities $27,425,605 $28,906,261 $26,131,207 $27,386,715
=============================================================================
</TABLE>
Actual maturities may differ from contractual maturities, since borrowers may
have the right to call or prepay obligations. In addition, corporate
requirements and investment strategies may result in the sale of investments
before maturity. Proceeds from sales of fixed maturities were $5.4 billion,
$14.8 billion, and $16.2 billion during 1998, 1997, and 1996, respectively.
F-20
<PAGE>
American General Life Insurance Company
Notes to Consolidated Financial Statements (continued)
2. INVESTMENTS (CONTINUED)
2.4 MORTGAGE LOANS ON REAL ESTATE
Diversification of the geographic location and type of property collateralizing
mortgage loans reduces the concentration of credit risk. For new loans, the
Company requires loan-to-value ratios of 75% or less, based on management's
credit assessment of the borrower. The mortgage loan portfolio was distributed
as follows at December 31, 1998 and 1997:
<TABLE>
<CAPTION>
OUTSTANDING PERCENT OF PERCENT
AMOUNT TOTAL NONPERFORMING
------------------------------------------------------------------
(In Millions)
<S> <C> <C> <C>
DECEMBER 31, 1998
Geographic distribution:
South Atlantic $ 429 27.6% 0.2%
Pacific 320 20.6 10.4
Mid-Atlantic 326 20.9 4.1
East North Central 178 11.4 -
Mountain 95 6.1 -
West South Central 118 7.5 -
East South Central 46 3.0 -
West North Central 33 2.1 -
New England 25 1.6 -
Allowance for losses (13) (0.8) -
-------------------------------------
Total $ 1,557 100.00% 3.1%
=====================================
Property type:
Office $ 593 38.1% 7.0%
Retail 423 27.1 0.2
Industrial 292 18.8 -
Apartments 178 11.4 2.9
Hotel/motel 38 2.4 -
Other 46 3.0 -
Allowance for losses (13) (0.8) -
-------------------------------------
Total $ 1,557 100% 3.1%
=====================================
</TABLE>
F-21
<PAGE>
American General Life Insurance Company
Notes to Consolidated Financial Statements (continued)
2. INVESTMENTS (CONTINUED)
2.4 MORTGAGE LOANS ON REAL ESTATE (CONTINUED)
<TABLE>
<CAPTION>
OUTSTANDING PERCENT OF PERCENT
AMOUNT TOTAL NONPERFORMING
------------------------------------------------------------------
(In Millions)
<S> <C> <C> <C>
DECEMBER 31, 1997
Geographic distribution:
South Atlantic $ 456 27.5% 1.8%
Pacific 340 20.5 14.4
Mid-Atlantic 288 17.3 -
East North Central 186 11.2 -
Mountain 151 9.1 2.7
West South Central 132 7.9 .1
East South Central 94 5.7 -
West North Central 19 1.1 -
New England 17 1.1 -
Allowance for losses (23) (1.4) -
-------------------------------------
Total $1,660 100.0% 3.6%
=====================================
Property type:
Office $ 622 37.5% 4.6%
Retail 463 27.9 3.0
Industrial 324 19.5 1.8
Apartments 223 13.4 6.1
Hotel/motel 40 2.4 -
Other 11 .7 -
Allowance for losses (23) (1.4) -
-------------------------------------
Total $1,660 100.0% 3.6%
=====================================
</TABLE>
F-22
<PAGE>
American General Life Insurance Company
Notes to Consolidated Financial Statements (continued)
2. INVESTMENTS (CONTINUED)
2.4 MORTGAGE LOANS ON REAL ESTATE (CONTINUED)
Impaired mortgage loans on real estate and related interest income were as
follows:
<TABLE>
<CAPTION>
DECEMBER 31
1998 1997
-----------------------------------------
(In Millions)
<S> <C> <C>
Impaired loans:
With allowance* $ 13 $ 35
Without allowance - -
-----------------------------------------
Total impaired loans $ 13 $ 35
=========================================
</TABLE>
* Represents gross amounts before allowance for mortgage loan losses of $1.8
million and $10 million, respectively.
<TABLE>
<CAPTION>
1998 1997 1996
---------------------------------------------------------------
(In Millions)
<S> <C> <C> <C>
Average investment $ 24 $ 48 $ 72
Interest income earned $ - $ 3 $ 6
Interest income - cash basis $ - $ - $ 6
</TABLE>
F-23
<PAGE>
American General Life Insurance Company
Notes to Consolidated Financial Statements (continued)
2. INVESTMENTS (CONTINUED)
2.5 INVESTMENT SUMMARY
Investments of the Company were as follows:
<TABLE>
<CAPTION>
DECEMBER 31, 1998 DECEMBER 31, 1997
--------------------------------------------------------------------------------------------------------
CARRYING CARRYING
COST FAIR VALUE AMOUNT COST FAIR VALUE AMOUNT
--------------------------------------------------------------------------------------------------------
(In Thousands) (In Thousands)
<S> <C> <C> <C> <C> <C> <C>
Fixed maturities:
Bonds:
United States government
and government agencies
and authorities $ 417,822 $ 486,965 $ 486,965 $ 289,406 $ 335,861 $ 335,861
States, municipalities,
and political subdivisions 86,778 91,387 91,387 44,505 46,191 46,191
Foreign governments 331,699 353,887 353,887 318,212 332,754 332,754
Public utilities 1,777,172 1,895,326 1,895,326 1,848,546 1,952,724 1,952,724
Mortgage-backed securities 6,359,242 6,652,703 6,652,703 6,614,704 6,888,587 6,888,587
All other corporate bonds 18,432,579 19,405,697 19,405,697 17,015,834 17,830,598 17,830,598
Redeemable preferred stocks 20,313 20,296 20,296 - - -
--------------------------------------------------------------------------------------------------------
Total fixed maturities 27,425,605 28,906,261 28,906,261 26,131,207 27,386,715 27,386,715
Equity securities:
Common stocks:
Banks, trust, and insurance
companies - - - - - -
Industrial, miscellaneous,
and other 176,321 211,684 211,684 5,604 5,785 5,785
Nonredeemable preferred
stocks 17,047 - - 13,604 15,329 15,329
--------------------------------------------------------------------------------------------------------
Total equity securities 193,368 211,684 211,684 19,208 21,114 21,114
Mortgage loans on real
estate* 1,557,268 - 1,557,268 1,659,921 - 1,659,921
Investment real estate 119,520 - 119,520 129,364 - 129,364
Policy loans 1,170,686 - 1,170,686 1,093,694 - 1,093,694
Other long-term investments 86,194 - 86,194 55,118 - 55,118
Short-term investments 222,949 - 222,949 100,061 - 100,061
--------------------------------------------------------------------------------------------------------
Total investments $30,775,590 $ - $32,274,562 $29,188,573 $ - $30,445,987
========================================================================================================
</TABLE>
* Amount is net of allowance for losses of $13 million and $23 million at
December 31, 1996 and 1997, respectively.
F-24
<PAGE>
American General Life Insurance Company
Notes to Consolidated Financial Statements (continued)
3. DEFERRED POLICY ACQUISITION COSTS
The balance of DPAC at December 31 and the components of the change reported in
operating costs and expenses for the years then ended were as follows:
<TABLE>
<CAPTION>
1998 1997 1996
----------------------------------------------------------
(In Thousands)
<S> <C> <C> <C>
Balance at January 1 $ 835,031 $1,042,783 $ 605,501
Capitalization 244,196 219,339 188,001
Amortization (125,062) (115,467) (102,189)
Effect of unrealized gains (losses) on
securities 133,553 (311,624) 351,470
----------------------------------------------------------
Balance at December 31 $1,087,718 $ 835,031 $1,042,783
==========================================================
</TABLE>
4. OTHER ASSETS
Other assets consisted of the following:
<TABLE>
<CAPTION>
DECEMBER 31
1998 1997
------------------------------------
(In Thousands)
<S> <C> <C>
Goodwill $ 54,754 $ 51,424
American General Corporation CBO (Collateralized Bond
Obligation) 98-1 Ltd. 9,740 -
Cost of insurance purchased ("CIP") 22,113 -
Other 119,711 81,235
------------------------------------
Total other assets $206,318 $132,659
====================================
</TABLE>
F-25
<PAGE>
American General Life Insurance Company
Notes to Consolidated Financial Statements (continued)
4. OTHER ASSETS (CONTINUED)
A rollforward of CIP for the year ended December 31, 1998, was as follows:
<TABLE>
<CAPTION>
1998
--------------------
(In Thousands)
<S> <C>
Balance at January 1 $ --
Acquisition of business 23,915
Accretion of interest at 5.88% 733
Amortization (2,535)
--------------------
Balance at December 31 $ 22,113
====================
</TABLE>
5. FEDERAL INCOME TAXES
5.1 TAX LIABILITIES
Income tax liabilities were as follows:
<TABLE>
<CAPTION>
DECEMBER 31
1998 1997
--------------------------------------
(In Thousands)
<S> <C> <C>
Current tax (receivable) payable $ (21,035) $ 7,676
Deferred tax liabilities, applicable to:
Net income 320,632 298,456
Net unrealized investment gains 377,718 237,247
-----------------------------------------
Total deferred tax liabilities 698,350 535,703
-----------------------------------------
Total current and deferred tax liabilities $ 677,315 $ 543,379
=========================================
</TABLE>
F-26
<PAGE>
American General Life Insurance Company
Notes to Consolidated Financial Statements (continued)
5. FEDERAL INCOME TAXES (CONTINUED)
5.1 TAX LIABILITIES (CONTINUED)
Components of deferred tax liabilities and assets at December 31 were as
follows:
<TABLE>
<CAPTION>
1998 1997
------------------------------------------
(In Thousands)
<S> <C> <C>
Deferred tax liabilities applicable to:
Deferred policy acquisition costs $ 307,025 $ 226,653
Basis differential of investments 590,661 486,194
Other 150,189 139,298
------------------------------------------
Total deferred tax liabilities 1,047,875 852,145
Deferred tax assets applicable to:
Policy reserves (212,459) (232,539)
Other (137,066) (83,903)
------------------------------------------
Total deferred tax assets before valuation
allowance (349,525) (316,442)
Valuation allowance - -
------------------------------------------
Total deferred tax assets, net of valuation
allowance (349,525) (316,442)
------------------------------------------
Net deferred tax liabilities $ 698,350 $ 535,703
==========================================
</TABLE>
A portion of life insurance income earned prior to 1984 is not taxable unless it
exceeds certain statutory limitations, is distributed as dividends, or unless
the income tax deferred status of such amount is modified by future tax
legislation. Such income, accumulated in policyholders' surplus accounts,
totaled $87.1 million at December 31, 1998. At current corporate rates, the
maximum amount of tax on such income is approximately $30.5 million. Deferred
income taxes on these accumulations are not required because no distributions
are expected.
F-27
<PAGE>
American General Life Insurance Company
Notes to Consolidated Financial Statements (continued)
5. FEDERAL INCOME TAXES (CONTINUED)
5.2 TAX EXPENSE
Components of income tax expense for the years were as follows:
<TABLE>
<CAPTION>
1998 1997 1996
--------------------------------------------------------
(In Thousands)
<S> <C> <C> <C>
Current expense $134,344 $185,460 $164,272
Deferred expense (benefit):
Deferred policy acquisition cost 33,230 27,644 21,628
Policy reserves 2,189 (27,496) (27,460)
Basis differential of investments 11,969 3,769 4,129
Litigation settlement (33,983) -- --
Year 2000 (9,653) -- --
Other, net 15,623 9,347 14,091
--------------------------------------------------------
Total deferred expense 19,375 13,264 12,388
--------------------------------------------------------
Income tax expense $153,719 $198,724 $176,660
========================================================
</TABLE>
A reconciliation between the income tax expense computed by applying the federal
income tax rate (35%) to income before taxes and the income tax expense reported
in the financial statement is presented below.
<TABLE>
<CAPTION>
1998 1997 1996
--------------------------------------------------------
(In Thousands)
<S> <C> <C> <C>
Income tax at statutory percentage of GAAP
pretax income $164,638 $200,649 $178,939
Tax-exempt investment income (11,278) (9,493) (9,347)
Goodwill 712 723 759
Other (353) 6,845 6,309
--------------------------------------------------------
Income tax expense $153,719 $198,724 $176,660
========================================================
</TABLE>
F-28
<PAGE>
American General Life Insurance Company
Notes to Consolidated Financial Statements (continued)
5. FEDERAL INCOME TAXES (CONTINUED)
5.3 TAXES PAID
Income taxes paid amounted to approximately $159 million, $168 million, and $182
million in 1998, 1997, and 1996, respectively.
5.4 TAX RETURN EXAMINATIONS
The Parent Company and the majority of its subsidiaries file a consolidated
federal income tax return. The Internal Revenue Service ("IRS") has completed
examinations of the Parent Company's tax returns through 1988. The IRS is
currently examining tax returns for 1989 through 1996. In addition, the tax
returns of companies recently acquired are also being examined. Although the
final outcome of any issues raised in examination is uncertain, the Parent
Company believes that the ultimate liability, including interest, will not
materially exceed amounts recorded in the consolidated financial statements.
6. TRANSACTIONS WITH AFFILIATES
Affiliated notes and accounts receivable were as follows:
<TABLE>
<CAPTION>
DECEMBER 31, 1998 DECEMBER 31, 1997
------------------------------------------------------------------------
PAR VALUE BOOK VALUE PAR VALUE BOOK VALUE
------------------------------------------------------------------------
(In Thousands)
<S> <C> <C> <C> <C>
American General Corporation,
9-3/8%, due 2008 $ 4,725 $ 3,345 $ 4,725 $ 3,288
American General Corporation,
Promissory notes, due 2004 14,679 14,679 17,125 17,125
American General Corporation,
Restricted Subordinated
Note, 13-1/2%, due 2002 29,435 29,435 31,494 31,494
------------------------------------------------------------------------
Total notes receivable from
affiliates 48,839 47,459 53,344 51,907
Accounts receivable from
affiliates - 113,637 - 44,612
------------------------------------------------------------------------
Indebtedness from affiliates $48,839 $161,096 $53,344 $96,519
========================================================================
</TABLE>
F-29
<PAGE>
American General Life Insurance Company
Notes to Consolidated Financial Statements (continued)
6. TRANSACTIONS WITH AFFILIATES (CONTINUED)
Various American General companies provide services to the Company, principally
mortgage servicing and investment management services, provided by American
General Investment Management Corporation on a fee basis. The Company paid
approximately $46,921,000, $33,916,000, and $22,083,000 for such services in
1998, 1997, and 1996, respectively. Accounts payable for such services at
December 31, 1998 and 1997 were not material. The Company rents facilities and
provides services on an allocated cost basis to various American General
companies. Beginning in 1998, amounts received by the Company from affiliates
include amounts received by its wholly-owned, non-life insurance subsidiary,
American General Life Companies (AGLC). AGLC provides shared services, including
technology and Year 2000-readiness, to a number of American General
Corporation's life insurance subsidiaries. The Company received approximately
$66,550,000, $6,455,000, and $1,255,000 for such services and rent in 1998,
1997, and 1996, respectively. Accounts receivable for rent and services at
December 31, 1998 and 1997 were not material.
The Company has 8,500 shares of $100 par value cumulative preferred stock
authorized and outstanding with an $80 dividend rate, redeemable at $1,000 per
share after December 31, 2000. The holder of this stock, The Franklin Life
Insurance Company ("Franklin"), an affiliated company, is entitled to one vote
per share, voting together with the holders of common stock.
During 1996, the Company's residential mortgage loan portfolio of $42 million
was sold to American General Finance, Inc., at carrying value plus accrued
interest.
7. STOCK-BASED COMPENSATION
Certain officers of the Company participate in American General Corporation's
stock and incentive plans which provide for the award of stock options,
restricted stock awards, performance awards, and incentive awards to key
employees. Stock options constitute the majority of such awards. Expense related
to stock options is measured as the excess of the market price of the stock at
the measurement date over the exercise price. The measurement date is the first
date on which both the number of shares that the employee is entitled to receive
and the exercise price are known. Under the stock option plans, no expense is
recognized, since the market price equals the exercise price at the measurement
date.
F-30
<PAGE>
American General Life Insurance Company
Notes to Consolidated Financial Statements (continued)
7. STOCK-BASED COMPENSATION (CONTINUED)
Under an alternative accounting method, compensation expense arising from stock
options would be measured at the estimated fair value of the options at the date
of grant. Had compensation expense for the stock options been determined using
this method, net income would have been as follows:
<TABLE>
<CAPTION>
1998 1997 1996
-------------------------------------------------------
(In Thousands)
<S> <C> <C> <C>
Net income as reported $316,674 $374,557 $334,595
Net income pro forma $315,078 $373,328 $334,029
</TABLE>
The average fair values of the options granted during 1998, 1997, and 1996 were
$15.38, $10.33, and $7.07, respectively. The fair value of each option was
estimated at the date of grant using a Black-Scholes option pricing model. The
weighted average assumptions used to estimate the fair value of the stock
options were as follows:
<TABLE>
<CAPTION>
1998 1997 1996
-------------------------------------------------------
<S> <C> <C> <C>
Dividend yield 2.5% 3.0% 4.0%
Expected volatility 23.0% 22.0% 22.3%
Risk-free interest rate 5.76% 6.4% 6.2%
Expected life 6 YEARS 6 years 6 years
</TABLE>
8. BENEFIT PLANS
8.1 PENSION PLANS
The Company has non-contributory defined benefit pension plans covering most
employees. Pension benefits are based on the participant's compensation and
length of credited service.
Equity and fixed maturity securities were 56% and 30%, respectively, of the
plans' assets at the plans' most recent balance sheet dates. Additionally, 1% of
plan assets were invested in general investment accounts of the Parent Company's
subsidiaries through deposit administration insurance contracts.
F-31
<PAGE>
American General Life Insurance Company
Notes to Consolidated Financial Statements (continued)
8. BENEFIT PLANS (CONTINUED)
8.1 PENSION PLANS (CONTINUED)
The benefit plans have purchased annuity contracts from American General
Corporation's subsidiaries to provide benefits for certain retirees. These
contracts are expected to provide future annual benefits to certain retirees of
American General Corporation and its subsidiaries of approximately $52 million.
The components of pension expense and underlying assumptions were as follows:
<TABLE>
<CAPTION>
1998 1997 1996
--------------------------------------------------------
(In Thousands)
<S> <C> <C> <C>
Service cost (benefits earned) $ 3,693 $ 1,891 $ 1,826
Interest cost 6,289 2,929 2,660
Expected return on plan assets (9,322) (5,469) (5,027)
Amortization (557) 195 4
--------------------------------------------------------
Pension (income) expense $ 103 $ (454) $ (537)
========================================================
Discount rate on benefit obligation 7.00% 7.25% 7.50%
Rate of increase in compensation levels 4.25% 4.00% 4.00%
Expected long-term rate of return on plan
assets 10.25% 10.00% 10.00%
</TABLE>
The Company's funding policy is to contribute annually no more than the maximum
deductible for federal income tax purposes. The funded status of the plans and
the prepaid pension expense included in other assets at December 31 were as
follows:
<TABLE>
<CAPTION>
1998 1997
-----------------------------------
(In Thousands)
<S> <C> <C>
Projected benefit obligation (PBO) $ 96,554 $ 43,393
Plan assets at fair value 120,898 80,102
Plan assets at fair value in excess of PBO 24,344 36,709
Other unrecognized items, net (10,176) (23,470)
-----------------------------------
Prepaid pension expense $ 14,168 $ 13,239
===================================
</TABLE>
F-32
<PAGE>
American General Life Insurance Company
Notes to Consolidated Financial Statements (continued)
8. BENEFIT PLANS (CONTINUED)
8.1 PENSION PLANS (CONTINUED)
The change in PBO was as follows:
<TABLE>
<CAPTION>
1998 1997
---------------------------------
(In Thousands)
<S> <C> <C>
PBO at January 1 $43,393 $37,389
Service and interest costs 9,982 4,820
Benefits paid (1,954) (673)
Actuarial loss 17,089 1,810
Amendments, transfers, and acquisitions 28,044 47
---------------------------------
PBO at December 31 $96,554 $43,393
=================================
</TABLE>
The change in the fair value of plan assets was as follows:
<TABLE>
<CAPTION>
1998 1997
----------------------------------
(In Thousands)
<S> <C> <C>
Fair value of plan assets at January 1 $ 80,102 $65,158
Actual return on plan assets 12,269 14,990
Benefits paid (1,954) (673)
Acquisitions and other 30,481 627
----------------------------------
Fair value of plan assets at December 31 $120,898 $80,102
==================================
</TABLE>
POSTRETIREMENT BENEFITS OTHER THAN PENSIONS
The Company has life, medical, supplemental major medical, and dental plans for
certain retired employees and agents. Most plans are contributory, which retiree
contributions adjusted annually to limit employer contributions to predetermined
amounts. The Company has reserved the right to change or eliminate these
benefits at any time.
F-33
<PAGE>
American General Life Insurance Company
Notes to Consolidated Financial Statements (continued)
8. BENEFIT PLANS (CONTINUED)
8.2 POSTRETIREMENT BENEFITS OTHER THAN PENSIONS (CONTINUED)
The life plans are insured through December 31, 1999. A portion of the retiree
medical and dental plans is funded through a voluntary employees' beneficiary
association (VEBA); the remainder is unfunded and self-insured. All of the
retiree medical and dental plans' assets held in the VEBA were invested in
readily marketable securities at its most recent balance sheet date.
Postretirement benefit expense in 1998, 1997, and 1996 was $60,000, $601,000,
and $844,000, respectively. The accrued liability for postretirement benefits
was $19.2 million and $3.8 million at December 31, 1998 and 1997, respectively.
These liabilities were discounted at the same rates used for the pension plans.
9. DERIVATIVE FINANCIAL INSTRUMENTS
9.1 USE OF DERIVATIVE FINANCIAL INSTRUMENTS
The Company's use of derivative financial instruments is generally limited to
reducing its exposure to interest rate and currency exchange risk by utilizing
interest rate and currency swap agreements, and options to enter into interest
rate swap agreements (called swaptions). The Company accounts for these
derivative and financial instruments as hedges. Hedge accounting requires a high
correlation between changes in fair values or cash flows of the derivative
financial instrument and the specific item being hedged, both at inception and
throughout the life of the hedge.
9.2 INTEREST RATE AND CURRENCY SWAP AGREEMENTS
Interest rate swap agreements are used to convert specific investment securities
from a floating to a fixed rate basis, or vice versa, and to hedge against the
risk of declining interest rates on anticipated security purchases. Interest
rate swap agreements are also used to convert a portion of floating-rate
borrowings to a fixed rate and to hedge against the risk of rising interest
rates on anticipated debt issuances.
Currency swap agreements are used to convert cash flows from specific investment
securities denominated in foreign currencies into U.S. dollars at specific
exchange rates, and to hedge against currency rate fluctuation on anticipated
security purchases.
F-34
<PAGE>
American General Life Insurance Company
Notes to Consolidated Financial Statements (continued)
9. DERIVATIVE FINANCIAL INSTRUMENTS (CONTINUED)
9.2 INTEREST RATE AND CURRENCY SWAP AGREEMENTS (CONTINUED)
The difference between amounts paid and received on swap agreements is recorded
on an accrual basis as an adjustment to net investment income or interest
expense, as appropriate, over the periods covered by the agreements. The related
amount payable to or receivable from counterparties is included in other
liabilities or assets.
The fair values of swap agreements are recognized in the consolidated balance
sheet if the hedge investments are carried at fair value or if they hedge
anticipated purchases of such investments. In this event, changes in the fair
value of a swap agreement are reported in net unrealized gains on securities
included in other accumulated comprehensive income in shareholders' equity,
consistent with the treatment of the related investment security. The fair
values of swap agreements hedging debt are not recognized in the consolidated
balance sheet.
For swap agreements hedging anticipated investment purchases or debt issuances,
the net swap settlement amount or unrealized gain or loss is deferred and
included in the measurement of the anticipated transaction when it occurs.
Swap agreements generally have terms of two to ten years. Any gain or loss from
early termination of a swap agreement is deferred and amortized into income over
the remaining term of the related investment or debt. If the underlying
investment or debt is extinguished or sold, any related gain or loss on swap
agreements is recognized in income.
F-35
<PAGE>
American General Life Insurance Company
Notes to Consolidated Financial Statements (continued)
9. DERIVATIVE FINANCIAL INSTRUMENTS (CONTINUED)
9.2 INTEREST RATE AND CURRENCY SWAP AGREEMENTS (CONTINUED)
Interest rate and currency swap agreements related to investment securities at
December 31 were as follows:
<TABLE>
<CAPTION>
1998 1997
-----------------------------------
(Dollars in Millions)
<S> <C> <C>
Interest rate swap agreements to pay fixed rate:
Notional amount $ - $ 15
Average receive rate - 6.74%
Average pay rate - 6.48%
Interest rate swap agreements to receive fixed rate:
Notional amount $ 369 $ 144
Average receive rate 6.06% 6.89%
Average pay rate 5.48% 6.37%
Currency swap agreements (receive U.S. dollars/pay
Canadian dollars):
Notional amount (in U.S. dollars) $ 124 $ 139
Average exchange rate 1.50 1.50
</TABLE>
9.3 CALL SWAPTIONS
Options to enter into interest rate swap agreements are used to limit the
Company's exposure to reduced spreads between investment yields and interest
crediting rates should interest rates decline significantly over prolonged
periods. During such periods, the spread between investment yields and interest
crediting rates may be reduced as a result of certain limitations on the
Company's ability to manage interest crediting rates. Call swaptions allow the
Company to enter into interest rate swap agreements to receive fixed rates and
pay lower floating rates, effectively increasing the spread between investment
yields and interest crediting rates.
Premiums paid to purchase call swaptions are included in investments and are
amortized to net investment income over the exercise period of the swaptions. If
a call swaption is terminated, any gain is deferred and amortized to insurance
and annuity benefits over the expected life of the insurance and annuity
contracts and any unamortized premium is charged to income. If a call swaption
ceases to be an effective hedge, any related gain or loss is recognized in
income.
F-36
<PAGE>
American General Life Insurance Company
Notes to Consolidated Financial Statements (continued)
9. DERIVATIVE FINANCIAL INSTRUMENTS (CONTINUED)
9.3 CALL SWAPTIONS (CONTINUED)
Swaptions at December 31 were as follows:
<TABLE>
<CAPTION>
1998 1997
----------------------------------
(Dollars in Billions)
<S> <C> <C>
Call swaptions:
Notional amount $1.76 $1.35
Average strike rate 3.97% 4.81%
Put swaptions:
Notional amount $1.05 $ -
Average strike rate 8.33% -
</TABLE>
9.4 CREDIT AND MARKET RISK
Derivative financial instruments expose the Company to credit risk in the event
of non-performance by counterparties. The Company limits this exposure by
entering into agreements with counterparties having high credit ratings and by
regularly monitoring the ratings. The Company does not expect any counterparty
to fail to meet its obligation; however, non-performance would not have a
material impact on the Company's consolidated results of operations or financial
position.
The Company's exposure to market risk is mitigated by the offsetting effects of
changes in the value of the agreements and the related items being hedged.
F-37
<PAGE>
American General Life Insurance Company
Notes to Consolidated Financial Statements (continued)
10. FAIR VALUE OF FINANCIAL INSTRUMENTS
Carrying amounts and fair values for certain of the Company's financial
instruments at December 31 are presented below. Care should be exercised in
drawing conclusions based on fair value, since (1) the fair values presented do
not include the value associated with all the Company's assets and liabilities,
and (2) the reporting of investments at fair value without a corresponding
evaluation of related policyholders liabilities can be misinterpreted.
<TABLE>
<CAPTION>
1998 1997
--------------------------------------------------------------------------------
FAIR CARRYING FAIR CARRYING
VALUE AMOUNT VALUE AMOUNT
--------------------------------------------------------------------------------
(In Millions) (In Millions)
<S> <C> <C> <C> <C>
Assets:
Fixed maturity and equity
securities * $29,118 $29,118 $27,408 $27,408
Mortgage loans on real
estate $ 1,608 $ 1,557 $ 1,702 $ 1,660
Policy loans $ 1,252 $ 1,171 $ 1,127 $ 1,094
Investment in parent
company $ 55 $ 55 $ 38 $ 38
Indebtedness from
affiliates $ 161 $ 161 $ 97 $ 97
Liabilities:
Insurance investment
contracts $25,852 $25,675 $24,011 $24,497
</TABLE>
* Includes derivative financial instruments with negative fair values of $1.0
million and $4.2 million and positive fair values of $24.3 million and $7.2
million at December 31, 1998 and 1997, respectively.
F-38
<PAGE>
American General Life Insurance Company
Notes to Consolidated Financial Statements (continued)
10. FAIR VALUE OF FINANCIAL INSTRUMENTS (CONTINUED)
The following methods and assumptions were used to estimate the fair value of
financial instruments:
FIXED MATURITY AND EQUITY SECURITIES
Fair values of fixed maturity and equity securities were based on quoted
market prices, where available. For investments not actively traded, fair
values were estimated using values obtained from independent pricing
services or, in the case of some private placements, by discounting
expected future cash flows using a current market rate applicable to yield,
credit quality, and average life of investments.
MORTGAGE LOANS ON REAL ESTATE
Fair value of mortgage loans was estimated primarily using discounted cash
flows, based on contractual maturities and risk-adjusted discount rates.
POLICY LOANS
Fair value of policy loans was estimated using discounted cash flows and
actuarially determined assumptions, incorporating market rates.
INVESTMENT IN PARENT COMPANY
The fair value of the investment in Parent Company is based on quoted
market prices of American General Corporation common stock.
INSURANCE INVESTMENT CONTRACTS
Fair value of insurance investment contracts was estimated using cash flows
discounted at market interest rates.
F-39
<PAGE>
American General Life Insurance Company
Notes to Consolidated Financial Statements (continued)
10. FAIR VALUE OF FINANCIAL INSTRUMENTS (CONTINUED)
INDEBTEDNESS FROM AFFILIATES
Indebtedness from affiliates is composed of accounts receivable and notes
receivable from affiliates. Due to the short-term nature of accounts
receivable, fair value is assumed to equal carrying value. Fair value of
notes receivable was estimated using discounted cash flows based on
contractual maturities and discount rates that were based on U.S. Treasury
rates for similar maturity ranges.
11. DIVIDENDS PAID
American General Life Insurance Company paid $244 million, $401 million, and
$189 million in dividends on common stock to AGC Life Insurance Company in 1998,
1997, and 1996, respectively. The Company also paid $680 thousand per year in
dividends on preferred stock to an affiliate, The Franklin Life Insurance
Company, in 1998, 1997, and 1996.
12. RESTRICTIONS, COMMITMENTS, AND CONTINGENCIES
The Company and its insurance subsidiaries are restricted by state insurance
laws as to the amounts they may pay as dividends without prior approval from
their respective state insurance departments. At December 31, 1998,
approximately $3.3 billion of consolidated shareholder's equity represents net
assets of the Company which cannot be transferred, in the form of dividends,
loans, or advances to the Parent Company. Approximately $2.5 billion of
consolidated shareholders' equity is similarly restricted as to transfer from
its subsidiaries to the Company.
Generally, the net assets of the Company's subsidiaries available for transfer
to the Parent are limited to the amounts that the subsidiaries' net assets, as
determined in accordance with statutory accounting practices, exceed minimum
statutory capital requirements. However, payments of such amounts as dividends
may be subject to approval by regulatory authorities and are generally limited
to the greater of 10% of policyholders' surplus or the previous year's statutory
net gain from operations.
The Company has various leases, substantially all of which are for office space
and facilities. Rentals under financing leases, contingent rentals, and future
minimum rental commitments and rental expense under operating leases are not
material.
F-40
<PAGE>
American General Life Insurance Company
Notes to Consolidated Financial Statements (continued)
12. RESTRICTIONS, COMMITMENTS, AND CONTINGENCIES (CONTINUED)
In recent years, various life insurance companies have been named as defendants
in class action lawsuits relating to life insurance pricing and sales practices,
and a number of these lawsuits have resulted in substantial settlements. On
December 16, 1998, American General Corporation announced that certain of its
life insurance subsidiaries had entered into agreements to resolve all pending
market conduct class action lawsuits. The settlements are not final until
approved by the courts and any appeals are resolved. If court approvals are
obtained and appeals are not taken, it is expected the settlements will be final
in third quarter 1999.
In conjunction with the proposed settlements, the Company recorded a charge of
$97.1 million ($63.1 million after-tax) in the fourth quarter of 1998. The
charge covers the cost of policyholder benefits and other anticipated expenses
resulting from the proposed settlements, as well as other administrative and
legal costs.
On December 31, 1998, the Company entered into an agreement with the Parent
Company whereby the Company assigned, and the Parent Company assumed, $80.1
million of the liabilities of the Company related to the proposed resolution.
The liabilities of American General Life Insurance Company of New York, which
totaled $17.0 million, were not assumed by the Parent Company. As consideration
for the assumption of the liabilities, the Company paid the Parent Company an
amount equal to the liabilities recorded with respect to the proposed resolution
of the litigation. The assignment of the liabilities was not a novation, and
accordingly, the Company retains a contingent liability related to the
litigation. The litigation liabilities were reduced by payments of $2.7 million,
and the remaining balance of $94.4 million was included in other liabilities on
the Company's balance sheet at December 31, 1998.
The Company is party to various other lawsuits and proceedings arising in the
ordinary course of business. Many of these lawsuits and proceedings arise in
jurisdictions, such as Alabama and Mississippi, that permit damage awards
disproportionate to the actual economic damages incurred. Based upon information
presently available, the Company believes that the total amounts that will
ultimately be paid, if any, arising from these lawsuits and proceedings will not
have a material adverse effect on the Company's consolidated results of
operations and financial position. However, it should be noted that the
frequency of large damage awards, including large punitive damage awards, that
bear little or no relation to actual economic damages incurred by plaintiffs in
jurisdictions like Alabama and Mississippi continues to create the potential for
an unpredictable judgment in any given suit.
F-41
<PAGE>
American General Life Insurance Company
Notes to Consolidated Financial Statements (continued)
12. RESTRICTIONS, COMMITMENTS, AND CONTINGENCIES (CONTINUED)
The increase in the number of insurance companies that are under regulatory
supervision has resulted, and is expected to continue to result, in increased
assessments by state guaranty funds to cover losses to policyholders of
insolvent or rehabilitated insurance companies. Those mandatory assessments may
be partially recovered through a reduction in future premium taxes in certain
states. At December 31, 1998 and 1997, the Company has accrued $6.0 million and
$7.6 million, respectively, for guaranty fund assessments, net of $3.7 million
and $4.3 million, respectively, of premium tax deductions. The Company has
recorded receivables of $6.2 million and $9.7 million at December 31, 1998 and
1997, respectively, for expected recoveries against the payment of future
premium taxes. Expenses incurred for guaranty fund assessments were $3.6
million, $2.1 million, and $6.0 million in 1998, 1997, and 1996, respectively.
F-42
<PAGE>
American General Life Insurance Company
Notes to Consolidated Financial Statements (continued)
13. REINSURANCE
Reinsurance transactions for the years ended December 31, 1998, 1997, and 1996
were as follows:
<TABLE>
<CAPTION>
CEDED TO ASSUMED PERCENTAGE OF
GROSS OTHER FROM OTHER AMOUNT
AMOUNT COMPANIES COMPANIES NET AMOUNT ASSUMED TO NET
----------------------------------------------------------------------------------------
(In Thousands)
<S> <C> <C> <C> <C> <C>
DECEMBER 31, 1998
Life insurance in force $46,057,031 $13,288,183 $629,791 $33,398,639 1.89%
====================================================================
Premiums:
Life insurance and annuities $ 90,298 $ 42,235 $ 117 $ 48,180 0.24%
Accident and health insurance 1,134 87 - 1,047 0.00%
--------------------------------------------------------------------
Total premiums $ 91,432 $ 42,322 $ 117 $ 49,227 0.24%
====================================================================
DECEMBER 31, 1997
Life insurance in force $45,963,710 $10,926,255 $ 4,997 $35,042,452 0.01%
====================================================================
Premiums:
Life insurance and annuities $ 100,357 $ 37,294 $ 75 $ 63,138 0.12%
Accident and health insurance 1,208 172 - 1,036 0.00%
--------------------------------------------------------------------
Total premiums $ 101,565 $ 37,466 $ 75 $ 64,174 0.12%
====================================================================
DECEMBER 31, 1996
Life insurance in force $44,535,841 $ 8,625,465 $ 5,081 $35,915,457 0.01%
====================================================================
Premiums:
Life insurance and annuities $ 104,225 $ 34,451 $ 36 $ 69,810 0.05%
Accident and health insurance 1,426 64 - 1,362 0.00%
--------------------------------------------------------------------
Total premiums $ 105,651 $ 34,515 $ 36 $ 71,172 0.05%
====================================================================
</TABLE>
Reinsurance recoverable on paid losses was approximately $7.7 million, $2.3
million, and $6.9 million at December 31, 1998, 1997, and 1996, respectively.
Reinsurance recoverable on unpaid losses was approximately $2.5 million, $3.2
million, and $4.3 million at December 31, 1998, 1997, and 1996, respectively.
F-43
<PAGE>
American General Life Insurance Company
Notes to Consolidated Financial Statements (continued)
14. YEAR 2000 CONTINGENCY (UNAUDITED)
INTERNAL SYSTEMS
The Company's ultimate parent, American General Corporation, ("AGC") has
numerous technology systems that are managed on a decentralized basis. AGC's
Year 2000 readiness efforts are therefore being undertaken by its key business
units with centralized oversight. Each business unit, including the Company, has
developed and is implementing a plan to minimize the risk of a significant
negative impact on its operations.
While the specifics of the plans vary, the plans include the following
activities: (1) perform an inventory of the Company's information technology and
non-information technology systems; (2) assess which items in the inventory may
expose the Company to business interruptions due to Year 2000 issues; (3)
reprogram or replace systems that are not Year 2000 ready; (4) test systems to
prove that they will function into the next century as they do currently; and
(5) return the systems to operations. As of December 31, 1998, substantially all
of the Company's critical systems are Year 2000 ready and have been returned to
operations. However, activities (3) through (5) for certain systems are ongoing,
with vendor upgrades expected to be received during the first half of 1999.
THIRD PARTY RELATIONSHIPS
The Company has relationships with various third parties who must also be Year
2000 ready. These third parties provide, or receive resources and services to
(or from) the Company and include organizations with which the Company exchanges
information. Third parties include vendors of hardware, software, and
information services; providers of infrastructure services such as voice and
data communications and utilities for office facilities; investors, customers;
distribution channels; and joint venture partners. Third parties differ from
internal systems in that the Company exercises less, or no, control over Year
2000 readiness. The Company has developed a plan to assess and attempt to
mitigate the risks associated with the potential failure of third parties to
achieve Year 2000 readiness. The plan includes the following activities (1)
identify and classify third party dependencies; (2) research, analyze, and
document Year 2000 readiness for critical third parties; and (3) test critical
hardware and software products and electronic interfaces. As of December 31,
1998, AGC has identified and assessed more approximately 700 critical third
party dependencies, including those related to the Company. A more detailed
evaluation will be completed during the first quarter 1999 as part of the
Company's contingency planning efforts. Due to the various stages of third
parties' Year 2000 readiness, the Company's testing activities will extend
through 1999.
F-44
<PAGE>
American General Life Insurance Company
Notes to Consolidated Financial Statements (continued)
14. YEAR 2000 CONTINGENCY (UNAUDITED) (CONTINUED)
CONTINGENCY PLANS
The Company has commenced contingency planning to reduce the risk of Year 2000-
related business failures. The contingency plans, which address both internal
systems and third party relationships, include the following activities: (1)
evaluate the consequences of failure of business processes with significant
exposure to Year 2000 risk; (2) determine the probability of a Year 2000 related
failure for those processes that have a high consequence of failure; (3) develop
an action plan to complete contingency plans for those processes that rank high
in consequence and probability of failure; and (4) complete the applicable
actions plans. The Company is currently developing action plans and expects to
substantially complete all contingency planning activities by April 30, 1999.
RISKS AND UNCERTAINTIES
Based on its plans to make internal systems ready for Year 2000, to deal with
third party relationships, and to develop contingency action, the Company
believes that it will experience at most isolated and minor disruptions of
business processes following the turn of the century. Such disruptions are not
expected to have a material effect on the Company's future results of
operations, liquidity, or financial condition. However, due to the magnitude and
complexity of this project, risks and uncertainties exist and the Company is not
able to predict a most reasonably likely worst case scenario. If conversion of
the Company's internal systems is not completed on a timely basis (due to non-
performance by significant third party vendors, lack of qualified personnel to
perform the Year 2000 work, or other unforeseen circumstances in completing the
Company's plans), or if critical third parties fail to achieve Year 2000
readiness on a timely basis, the Year 2000 issue could have a material adverse
impact on the Company's operation following the turn of the century.
COSTS
Through December 31, 1998, the Company has incurred, and anticipates that it
will continue to incur, costs for internal staff, third-party vendors, and other
expenses to achieve Year 2000 readiness. The cost of activities related to Year
2000 readiness has not had a material adverse effect on the Company's results of
operations or financial condition. In addition, the Company has elected to
accelerate the planned replacement of certain systems as part of the Year 2000
plans. Costs of the replacement systems are being capitalized and amortized over
their useful lives, in accordance with the Company's normal accounting policies.
F-45
<PAGE>
American General Life Insurance Company
Notes to Consolidated Financial Statements (continued)
15. DIVISION OPERATIONS
15.1 NATURE OF OPERATIONS
The Company manages its business operation through two divisions, which are
based on products and services offered.
RETIREMENT SERVICES
The Retirement Services Division provides tax-deferred retirement annuities and
employer-sponsored retirement plans to employees of educational, health care,
public sector, and other not-for-profit organizations marketed nationwide
through exclusive sales representatives.
LIFE INSURANCE
The Life Insurance division provides traditional, interest-sensitive, and
variable life insurance and annuities to a broad spectrum of customers through
multiple distribution channels focused on specific market segments.
15.2 DIVISION RESULTS
Results of each division exclude goodwill amortization, net realized investment
gains, and non-recurring items.
Division earnings information was as follows:
<TABLE>
<CAPTION>
REVENUES INCOME BEFORE TAXES EARNINGS
------------------------------------------------------------------------------------------------------------
1998 1997 1996 1998 1997 1996 1998 1997 1996
------------------------------------------------------------------------------------------------------------
(In Millions)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Retirement Services $1,987 $1,859 $1,745 $ 469 $398 $343 $315 $261 $226
Life Insurance 870 822 774 162 147 141 107 97 92
------------------------------------------------------------------------------------------------------------
Total divisions 2,857 2,681 2,519 631 545 484 422 358 318
Goodwill
amortization - - - (2) (2) (2) (2) (2) (2)
RG (L) (34) 30 29 (34) 30 29 (22) 19 19
Nonrecurring items - - - (125)(a) - - (81)(a) - -
------------------------------------------------------------------------------------------------------------
Total consolidated $2,823 $2,711 $2,548 $ 470 $573 $511 $317 $375 $335
============================================================================================================
</TABLE>
(a) Includes $97 million pretax ($63 million after-tax) in litigation
settlements and $28 million pretax ($18 million after-tax) in Year 2000
costs.
F-46
<PAGE>
American General Life Insurance Company
Notes to Consolidated Financial Statements (continued)
15. DIVISION OPERATIONS (CONTINUED)
15.2 DIVISION RESULTS (CONTINUED)
Division balance sheet information was as follows:
<TABLE>
<CAPTION>
ASSETS LIABILITIES
-------------------------------------------------------------------
DECEMBER 31
-------------------------------------------------------------------
IN MILLIONS 1998 1997 1998 1997
-------------------------------------------------------------------
<S> <C> <C> <C> <C>
Retirement Services $41,347 $35,195 $38,841 $33,136
Life Insurance 8,894 8,370 7,831 7,367
-------------------------------------------------------------------
Total consolidated $50,241 $43,565 $46,672 $40,503
===================================================================
</TABLE>
F-47
<PAGE>
PART C
OTHER INFORMATION
-----------------
ITEM 24. FINANCIAL STATEMENTS AND EXHIBITS
(a) Financial Statements
PART A: None
PART B:
(1) Financial Statements of the Select Reserve 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, 1998
Statement of Operations for the year ended December 31, 1998
Statement of Changes in Net Assets for the year ended
December 31, 1998
Notes to Financial Statements
(2) Consolidated Financial Statements of American General Life Insurance
Company:
Report of Ernst & Young LLP, Independent Auditors
Consolidated Balance Sheets as of December 31, 1998 and 1997
Consolidated Statements for the years ended
December 31, 1998, 1997 and 1996
Consolidated Statements of Comprehensive Income
for the years ended December 31, 1998, 1997 and 1996
Consolidated Statements of Shareholder's Equity for the
years ended December 31, 1998, 1997 and 1996
Consolidated Statements of Cash Flows for the years
ended December 31, 1998, 1997 and 1996
Notes to Consolidated Financial Statements
PART C: None
(b) Exhibits
1 (a) American General Life Insurance Company of Delaware
Board of Directors resolution authorizing the
establishment of Separate Account D./1/
(b) Resolution of the Board of Directors of American
General Life Insurance Company of Delaware
authorizing, among other things, the redomestication
of that company in Texas and the renaming of that
company as American General Life Insurance Company./2/
C-1
<PAGE>
(c) Resolution of the Board of Directors of American
General Life Insurance Company of Delaware providing,
inter alia, for Registered Separate Accounts'
Standards of Conduct./3/
2 None
3 (a)(i) Distribution Agreement, dated October 3, 1991, between
American General Securities Incorporated and American
General Life Insurance Company./2/
(ii) Amended and Restated Distribution Agreement between
American General Securities Incorporated and American
General Life Insurance Company, effective October 15,
1998/15/
(b)(i)(A) Form of fund Participation Agreement between American
General Life Insurance Company and American General
Series Portfolio Company./13/
(B) Participation Agreement by and among American General
Life Insurance Company, American General Securities
Incorporated and American General Series Portfolio
Company./16/
(ii)(A) Form of fund Participation Agreement between American
General Life Insurance Company and Hotchkis and Wiley
Variable Trust./13/
(ii)(B) Participation Agreement by and among American General
Life Insurance Company, American General Securities
Incorporated and Hotchkis and Wiley Variable Trust,
dated as of February 26, 1998 (Filed herewith)
(iii)(A) Form of fund Participation Agreement between American
General Life Insurance Company and LEVCO Series
Trust./13/
(iii)(B) Participation Agreement by and among American
General Life Insurance Company, American General
Securities Incorporated and LEVCO Series Trust, dated
as of February 26, 1998. (Filed herewith)
(iv)(A) Form of fund Participation Agreement between American
General Life Insurance Company and Navellier Variable
Insurance Series Fund, Inc./13/
(iv)(B) Participation Agreement by and among American General
Life Insurance Company, American General Securities
Incorporated and Navellier Variable Insurance Series
Fund, dated as of January 13, 1998. (Filed herewith)
C-2
<PAGE>
(v)(A) Form of fund Participation Agreement between
American General Life Insurance Company and
OFFITBANK Variable Insurance Fund, Inc./13/
(v)(B) Participation Agreement by and among American
General Life Insurance Company, American General
Securities Incorporated and OFFITBANK Variable
Insurance Fund, Inc., dated as of February 26, 1998.
(Filed herewith)
(vi)(A) Form of fund Participation Agreement between
American General Life Insurance Company and Royce
Capital Fund./13/
(vi)(B)(i) Participation Agreement by and among American
General Life Insurance Company, American General
Securities Incorporated and Royce Capital Fund,
dated as of August 1, 1998. (Filed herewith)
(ii) First Amendment to Participation Agreement by and
among American General Life Insurance Company,
American General Securities Incorporated and Royce
Capital Fund, dated as of August 1, 1998. (Filed
herewith)
(vii)(A) Form of fund Participation Agreement between
American General Life Insurance Company and Wright
Managed Blue Chip Series Trust./13/
(vii)(B) Participation Agreement by and among American
General Life Insurance Company, American General
Securities Incorporated and Wright Managed Blue Chip
Series Trust, dated as of February 26, 1998. (Filed
herewith)
(c) Form of Agreement between American General Life
Insurance Company and Dealer regarding exchange and
allocation transaction requests./4/
4(a) Specimen form of Combination Fixed and Variable
Deferred Annuity Select Reserve(SM) Contract (Form
No. 97505)./11/
(b) Form of Qualified Contract Endorsement./2/
(c)(i) Specimen form of Individual Retirement Annuity
Disclosure Statement and additional specialized
forms available under Contract Form No. 97505./5/
(ii) Specimen form of Individual Retirement Annuity
Endorsement./6/
(iii) Specimen form of IRA Instruction Form./4/
C-3
<PAGE>
5(a) Specimen form of Application for Contract Form No.
97505./11/
(b)(i) Specimen form of Separate Account D Election of
Annuity Payment Option/Change Form./4/
(ii) Specimen form of Absolute Assignment to Effect
Section 1035(a) Exchange and Rollover of a Life
Insurance Policy or Annuity Contract./4/
(c)(i) Form of Transaction Request Form./4/
(ii) Specimen form of Select Reserve/SM/ Service Request,
including telephone transfer authorization./13/
(iii) Specimen form of confirmation of initial purchase
payment under Contract Form No. 97505./13/
6(a)(i) Amended and Restated Articles of Incorporation of
American General Life Insurance Company, effective
December 31, 1991./2/
(ii) Amendment to the Amended and Restated Articles of
Incorporation of American General Life Insurance
Company, effective July 13, 1995./17/
(b) Bylaws of American General Life Insurance Company,
adopted January 22, 1992./4/
7 None
8(a) Form of Revenue Sharing Agreement between American
General Series Portfolio Company and American
General Life Insurance Company./12/
(b) Form of Revenue Sharing Agreement between Hotchkis
and Wiley Variable Trust and American General Life
Insurance Company./12/
(c) Form of Revenue Sharing Agreement between LEVCO
Series Trust and American General Life Insurance
Company./12/
(d) Form of Revenue Sharing Agreement between Navellier
Variable Insurance Series Fund, Inc. and American
General Life Insurance Company./12/
(e) Form of Revenue Sharing Agreement between OFFITBANK
Variable Insurance Fund, Inc. and American General
Life Insurance Company./12/
C-4
<PAGE>
(f) Form of Revenue Sharing Agreement between Royce
Capital Fund and American General Life Insurance
Company./12/
(g) Form of Revenue Sharing Agreement between Wright
Managed Blue Chip Series Trust and American General
Life Insurance Company./12/
(h) Form of services agreement, dated July 31, 1975,
(limited to introduction and first two recitals, and
sections 1-3) among various affiliates of American
General Corporation, including American General Life
Insurance Company and American General Independent
Producer Division. /14/
9 Opinion and consent of Counsel./13/
10 Consent of Independent Auditors.
11 None
12 None
13(a) Computations of hypothetical historical average
annual total returns for each Division available
under Contract Form No. 97505 for the one, five and
ten year periods ended December 31, 1996, and since
inception./12/
(b) Computations of hypothetical historical cumulative
total returns for each Division available under
Contract Form No. 97505 for the one, five and ten
year periods ended December 31, 1996, and since
inception./13/
(c) Computations of hypothetical historical seven day
yield and effective yield for the Money Market
Division available under Contract Form No. 97505 for
the seven day period ended December 31, 1996./13/
14 Financial Data Schedule. (See Exhibit 27 below.)
15(a) Power of Attorney with respect to Registration
Statements and Amendments thereto signed by Peter V.
Tuters in his capacity as director and, where
applicable, officer of American General Life
Insurance Company./7/
(b) Power of Attorney with respect to Registration
Statements and Amendments thereto signed by Jon
Newton in his capacity as director and, where
applicable, officer of American General Life
Insurance Company./8/
C-5
<PAGE>
(c) Power of Attorney with respect to Registration
Statements and Amendments thereto signed by the
following persons in their capacities as directors
and, where applicable, officers of American General
Life Insurance Company: Messrs. Martin and
Herbert./9/
(d) Power of Attorney with respect to Registration
Statements and Amendments thereto signed by the
following persons in their capacities as directors
and, where applicable, officers of American General
Life Insurance Company: Messrs. Fravel and
LaGrasse./10/
(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. D'Agostino, Imhoff
and Polkinghorn./13/
27 (Inapplicable, because, notwithstanding Item 24.(b)
as to Exhibits, the Commission staff has advised
that no such Schedule is required).
- ------------------------
/1/ Incorporated herein by reference to the initial filing of Registrant's
Form N-4 Registration Statement (File No. 2-49805) on December 6, 1973.
/2/ Incorporated herein by reference to the initial filing of Registrant's
Form N-4 Registration Statement (File No. 33-43390, filed on October 16,
1991.
/3/ Incorporated herein by reference to Pre-Effective Amendment No. 1 to
Registrant's Registration Statement (File No. 33-43390), filed on December
31, 1991.
/4/ Incorporated herein by reference to Post-Effective Amendment No. 1 to
Registrant's Registration Statement (File No. 33-43390), filed on April
30, 1992.
/5/ Included in Part A of this Amendment.
/6/ Previously filed in Post-Effective Amendment No. 4 to Registrant's Form
N-4 Registration Statement (File No. 33-43390), filed on April 28, 1995.
/7/ Previously filed in Post-Effective Amendment No. 3 to Registrant's Form
N-4 Registration Statement (File No. 33-43390), filed on March 2, 1994.
/8/ Previously filed in Post-Effective Amendment No. 7 to Registrant's Form
N-4 Registration Statement (File No. 33-43390), filed on April 30, 1996.
/9/ Previously filed in Post-Effective Amendment No. 9 to Registrant's Form
N-4 Registration Statement (File No.33-43390), filed on August 16, 1996.
/10/ Previously filed in Post-Effective Amendment No. 12 to Registrant's Form
N-4 Registration Statement (File No. 33-43390), filed on April 30, 1997.
/11/ Previously filed in the initial filing of Registrant's Form N-4
Registration Statement (File No.333-40637), filed on November 20, 1997.
C-6
<PAGE>
/12/ Previously filed in Pre-Effective Amendment No. 1 to Registrant's Form N-4
Registration Statement (File No. 333-40637), filed on February 12, 1998.
These exhibits have not been filed in definitive form in reliance on Rule
483(d)(3) under the Securities Act of 1933.
/13/ Previously filed in Pre-Effective Amendment No. 1 to Registrant's Form N-4
Registration Statement (File No. 333-40637), filed on February 12, 1998.
/14/ Incorporated herein by reference to Post-Effective Amendment No. 23 to the
Form N-4 Registration Statement of AGL's Separate Account A (File No.
33-44745), filed on April 24, 1998.
/15/ Incorporated herein by reference to the initial filing of Registrant's
Form N-4 Registration Statement (File No. 333-70667) filed on January 15,
1999.
/16/ Incorporated herein by reference to Pre-Effective Amendment No. 1 of the
Form S-6 Registration Statement of American General Life Insurance Company
Separate Account VL-R (File No. 333-42567), filed on March 23, 1998.
/17/ Incorporated herein by reference to Pre-Effective Amendment No. 3 of the
Form S-6 Registration Statement (File No. 333-53909) of American General
Life Insurance Company Separate Account VL-R, filed on August 19, 1998.
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.
Positions and Offices
Name and Principal with the
Business Address Depositor
------------------- ---------
David A. Fravel Director and
2929 Allen Parkway Executive Vice President
Houston, Texas 77019
Robert F. Herbert, Jr. Director and
2727-A Allen Parkway Senior Vice President,
Houston, TX 77019 Treasurer and Controller
Royce G. Imhoff, II Director and Senior
2727-A Allen Parkway Vice President and
Houston, TX 77019 Chief Marketing Officer
John V. LaGrasse Director and
2929 Allen Parkway Executive Vice President-
Houston, TX 77019 Chief Systems Officer
Rodney O. Martin, Jr. Director and
2929 Allen Parkway Chairman
Houston, TX 77019
C-7
<PAGE>
Jon P. Newton Director and
2929 Allen Parkway Vice Chairman
Houston, TX 77019
Philip K. Polkinghorn Director,
2929 Allen Parkway Executive Vice President
Houston, Texas 77019 and Chief Financial Officer
Gary D. Reddick Director and
2929 Allen Parkway Executive Vice President
Houston, TX 77019
Ronald H. Ridlehuber Director, President and
2727-A Allen Parkway Chief Executive Officer
Houston, TX 77019
Wayne A. Barnard Senior Vice President
2727-A Allen Parkway and Chief Actuary
Houston, TX 77019
F. Paul Kovach, Jr. Senior Vice President-
2727 Allen Parkway Broker Dealers and FIMG
Houston, TX 77019
Simon J. Leech Senior Vice President-
2727-A Allen Parkway Houston Service Center
Houston, TX 77019
Don M. Ward Senior Vice President-
2727 Allen Parkway Variable Products-Marketing
Houston, TX 77019
Farideh Farrokhi Vice President & Assistant Controller-
2727-A Allen Parkway Financial Reporting and
Houston, TX 77019 Fund Accounting
Rosalia S. Nolan Vice President-
2727-A Allen Parkway Policy Administration
Houston, TX 77019
Larry M. Robinson Vice President-
2727-A Allen Parkway Variable Products-Marketing
Houston, TX 77019
Pauletta P. Cohn Secretary
2727 Allen Parkway
Houston, TX 77019
C-8
<PAGE>
Joyce R. Bilski Administrative Officer
2727-A Allen Parkway
Houston, TX 77019
Timothy M. Donovan Administrative Officer
2727-A Allen Parkway
Houston, TX 77019
Karen Harper Administrative Officer
2727-A Allen Parkway
Houston, TX 77019
Laura Milazzo Administrative Officer
2727-A Allen Parkway
Houston, TX 77019
Patricia L. Myles Administrative Officer
2727-A Allen Parkway
Houston, TX 77019
Linda Price Administrative Officer
2727-A Allen Parkway
Houston, TX 77019
C-9
<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, 1999. All subsidiaries listed are corporation, unless otherwise
indicated. 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/6/............................ Tennessee
Stylistic Distribution Corporation............................................... Delaware
Millennium Distribution Corporation.............................................. Delaware
New Age Distribution Corporation................................................. Delaware
Good-To-Great Distribution Corporation........................................... Delaware
Next Generation Distribution Corporation......................................... Delaware
New Technology Distribution Corporation.......................................... Delaware
Life Application Distribution Corporation........................................ Delaware
American General Exchange, Inc................................................... Tennessee
Independent Fire Insurance Company............................................... Florida
American General Property Insurance Company of Florida..................... Florida
American General Life Insurance Company/7/......................................... Texas
American General Annuity Service Corporation..................................... Texas
American General Life Companies.................................................. Delaware
American General Life Insurance Company of New York.............................. New York
The Winchester Agency Ltd.................................................. New York
The Variable Annuity Life Insurance Company...................................... Texas
PESCO Plus, Inc/15/........................................................ Delaware
American General Gateway Services, L.L.C./ 16/............................. Delaware
The Variable Annuity Marketing Company..................................... Texas
VALIC Investment Services Company.......................................... Texas
VALIC Retirement Services Company.......................................... Texas
VALIC Trust Company........................................................ Texas
American General Property Insurance Company........................................ Tennessee
The Franklin Life Insurance Company................................................ Illinois
The American Franklin Life Insurance Company..................................... Illinois
Franklin Financial Services Corporation.......................................... Delaware
HBC Development Corporation........................................................ Virginia
Templeton American General Life of Bermuda, Ltd/14/................................ Bermuda
Western National Corporation....................................................... Delaware
WNL Holding Corp................................................................. Delaware
American General Annuity Insurance Company/8/.............................. Texas
American General Assignment Corporation.................................... Texas
AGA Brokerage Services, Inc........................................................ Delaware
AGA Investment Advisory Services, Inc............................................ Delaware
Independent Advantage Financial and Insurance Services, Inc........................ California
American General Financial Institution Group, Inc................................ Delaware
WNL Insurance Services, Inc...................................................... Delaware
American General Corporation*...................................................... Delaware
American General Delaware Management Corporation/1/................................ Delaware
</TABLE>
C-10
<PAGE>
<TABLE>
<CAPTION>
<S> <C>
American General Finance, Inc..................................................... Indiana
HSA Residential Mortgage Services of Texas, Inc................................. Delaware
AGF Investment Corp............................................................. Indiana
American General Auto Finance, Inc.............................................. Delaware
American General Finance Corporation/9/......................................... Indiana
American General Finance Group, Inc........................................ Delaware
American General Financial Services, Inc/10./............................ Delaware
The National Life and Accident Insurance Company......................... Texas
Merit Life Insurance Co.................................................... Indiana
Yosemite Insurance Company................................................. Indiana
American General Finance, Inc................................................... Alabama
American General Financial Center............................................... Utah
American General Financial Center, Inc.*........................................ Indiana
American General Financial Center Incorporated*................................. Indiana
American General Financial Center Thrift Company*............................... California
Thrift, Incorporated*........................................................... Indiana
American General Investment Advisory Services, Inc.*.............................. Texas
American General Investment Holding Corporation/11/............................... Delaware
American General Investment Management Corporation/11/............................ 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.*/13/.......................................................... California
Pebble Creek Service Corporation................................................ Florida
SR/HP/CM Corporation............................................................ Texas
Green Hills Corporation........................................................... Delaware
Knickerbocker Corporation......................................................... Texas
American Athletic Club, Inc..................................................... Texas
Pavilions Corporation............................................................. Delaware
USLIFE Corporation................................................................ Delaware
All American Life Insurance Company............................................. Illinois
American General Assurance Company.............................................. Illinois
American General Indemnity Company......................................... Nebraska
USLIFE Credit Life Insurance Company of Arizona............................ Arizona
American General Life Insurance Company of Pennsylvania......................... Pennsylvania
I.C. Cal*....................................................................... California
The Old Line Life Insurance Company of America.................................. Wisconsin
The United States Life Insurance Company in the City of New York................ New York
USLIFE Agency Services, Inc..................................................... Illinois
USMRP, Ltd................................................................. Turks & Caicos
USLIFE Financial Institution Marketing Group, Inc............................... California
USLIFE Insurance Services Corporation........................................... Texas
USLIFE Realty Corporation....................................................... Texas
USLIFE Real Estate Services Corporation.................................... Texas
USLIFE Systems Corporation...................................................... Delaware
</TABLE>
American General Finance Foundation, Inc. is not included on this list. It is a
non-profit corporation.
C-11
<PAGE>
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 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 their 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/ Effective December 5, 1997, AGC and Grupo Nacional Provincial, S.A. ("GNP")
completed the purchase by AGC of a 40% interest in Grupo Nacional
Provincial S.A. de C.V., an new holding company formed by GNP, one of
Mexico's largest financial services companies.
/6/ AGLA owns approximately 12% of Whirlpool Financial Corp. ("Whirlpool")
preferred stock. AGLA's holdings in Whirlpool represents approximately 3%
of the voting power of the capital stock of Whirlpool. The interests in
Whirlpool (which is a corporation that is not associated with AGC) are held
for investment purposes only.
/7/ AGL owns 100% of the common stock of American General Securities
Incorporated ("AGSI"), a full-services NASD broker-dealer. AGSI, in turn,
owns 100% of the stock of the following insurance agencies:
American General Insurance Agency, Inc. (Missouri)
American General Insurance Agency of Hawaii, Inc. (Hawaii)
American General Insurance Agency of Massachusetts, Inc. (Massachusetts)
C-12
<PAGE>
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.
/8/ AGA Series Trust is a Massachusetts business trust, all of the shares of
which are held in the separate account of AGA for the benefit of AGA
variable annuity policyholders.
/9/ 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 10 below.
/10/ 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.
/11/ 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.
/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.
/13/ AGRI owns only a 75% interest in GDI Holding, Inc.
/14/ AGCL owns 50% of the common stock of TAG Life. Templeton International,
Inc., a Delaware corporation, owns the remaining 50% of TAG Life.
Templeton International, Inc. is not affiliated with AGC.
/15/ VALIC holds 900 (90%) of the outstanding common shares of PESCO Plus,
Inc. The Florida Education Association/United, a Florida teachers union
and unaffiliated third party, holds the remaining 100 (10%) of the
outstanding common shares.
/16/ VALIC holds (90%) of the outstanding common shares. Gateway Investment
Services, Inc., a California corporation and an unaffiliated third party,
holds the remaining 10% of the outstanding common shares .
<TABLE>
<CAPTION>
COMPANY ABBREVIATIONS AS USED IN ITEM 26:
State/Jur.
Abb. Company of Domicile
- ---------- ------------------------------------------------------------ -----------
<S> <C> <C>
AAL All American Life Insurance Company......................... IL
AAth American Athletic Club, Inc................................. TX
AFLI The American Franklin Life Insurance Company................ IL
AGA American General Annuity Insurance Company.................. TX
AGAC American General Assurance Company.......................... IL
AGAS American General Annuity Service Corporation................ TX
</TABLE>
C-13
<PAGE>
AGBS AGA Brokerage Services, Inc................................. DE
AGC American General Corporation................................ TX
AGCL AGC Life Insurance Company.................................. MO
AGDMC American General Delaware Management Corporation............ DE
AGF American General Finance, Inc............................... IN
AGFC American General Finance Corporation........................ IN
AGFCI American General Financial Center, Incorporated............. IN
AGFCT American General Financial Center Thrift Company............ CA
AGFG American General Finance Group, Inc......................... DE
AGF Inv AGF Investment Corp......................................... IN
AGFn American General Financial Center........................... UT
AGFnC American General Financial Center, Inc...................... IN
AGFS American General Financial Services, Inc.................... DE
AGGS American General Gateway Services, L.L.C.................... DE
AGIA American General Insurance Agency, Inc...................... MO
AGIAH American General Insurance Agency of Hawaii, Inc............ HI
AGIAM American General Insurance Agency of
Massachusetts, Inc.......................................... MA
AGIAO American General Insurance Agency of Ohio, Inc.............. OH
AGIAOK American General Insurance Agency of Oklahoma, Inc.......... OK
AGIAS AGA Investment Advisory Services, Inc....................... DE
AGIAT American General Insurance Agency of Texas, Inc............. TX
AGIHC American General Investment Holding Corporation............. DE
AGIM American General Investment Management, L.P................. DE
AGIMC American General Investment Management Corporation.......... DE
AGIND American General Indemnity Company.......................... NE
AGFIG American General Financial Institution Group, Inc........... DE
AGL American General Life Insurance Company..................... TX
AGLC American General Life Companies ............................ DE
AGLA American General Life and Accident Insurance Company........ TN
AGLH American General Land Holding Company....................... DE
AGLL AGLL Corporation............................................ DE
AGNY American General Life Insurance Company of New York......... NY
AGPA American General Life Insurance Company of Pennsylvania..... PA
AGPIC American General Property Insurance Company................. TN
AGRA American General Realty Advisors, Inc....................... DE
AGRI American General Realty Investment Corporation.............. TX
AGSI American General Securities Incorporated.................... TX
AGX American General Exchange, Inc.............................. TN
ASGN American General Assignment Corporation..................... TX
FFSC Franklin Financial Services Corporation..................... DE
FL The Franklin Life Insurance Company......................... IL
GHC Green Hills Corporation..................................... DE
GGDC Good-To-Great Distribution Corporation...................... DE
HBDC HBC Development Corporation................................. VA
RMST HSA Residential Mortgage Services of Texas, Inc............. DE
IAFIS Independent Advantage Financial and Insurance Services, Inc. CA
C-14
<PAGE>
IFIC Independent Fire Insurance Company.................... FL
KC Knickerbocker Corporation............................. TX
LADC Life Application Distribution Corporation............. DE
ML Merit Life Insurance Co............................... IN
MDC Millennium Distribution Corporation................... DE
NLA The National Life and Accident Insurance Company...... TX
NADC New Age Distribution Corporation...................... DE
NTDC New Technology Distribution Corporation............... DE
NGDC Next Generation Distribution Corporation.............. DE
OLL The Old Line Life Insurance Company of America........ WI
PAV Pavilions Corporation................................. DE
PCSC Pebble Creek Service Corporation...................... FL
PPI PESCO Plus, Inc....................................... DE
PIFLA American General Property Insurance Company of Florida FL
SRHP SR/HP/CM Corporation.................................. TX
SDC Stylistic Distribution Corporation.................... DE
TAG Life Templeton American General Life of Bermuda, Ltd....... BA
TI Thrift, Incorporated.................................. IN
UAS USLIFE Agency Services, Inc........................... IL
UC USLIFE Corporation.................................... DE
UCLA USLIFE Credit Life Insurance Company of Arizona....... AZ
UFI USLIFE Financial Institution Marketing Group, Inc..... CA
UIS USLIFE Insurance Services Corporation................. TX
URC USLIFE Realty Corporation............................. TX
USC USLIFE Systems Corporation............................ DE
USMRP USMRP, Ltd............................................ T&C
USL The United States Life Insurance Company in the City of
New York.............................................. NY
VALIC The Variable Annuity Life Insurance Company........... TX
VAMCO The Variable Annuity Marketing Company................ TX
VISCO VALIC Investment Services Company..................... TX
VRSCO VALIC Retirement Services Company..................... TX
VTC VALIC Trust Company................................... TX
WA The Winchester Agency Ltd............................. NY
WIS WNL Insurance Services, Inc........................... DE
WNC Western National Corporation.......................... DE
WNLH WNL Holding Corp...................................... DE
YIC Yosemite Insurance Company............................ IN
ITEM 27. NUMBER OF CONTRACT OWNERS
As of February 28, 1999, there were 68 owners of Contracts of the class
presently offered by this Registration Statement.
C-15
<PAGE>
ITEM 28. INDEMNIFICATION
Article VII, section 1, of the Company's By-Laws provides, in part, that
the Company shall have power to indemnify any person who was or is a
party or is threatened to be made a party to any proceeding (other than
an action by or in the right of the Company) by reason of the fact that
such person is or was serving at the request of the Company, against
expenses, judgments, fines, settlements, and other amounts actually and
reasonably incurred in connection with such proceeding if such person
acted in good faith and in a manner such person reasonably believed to
be in the best interest of the Company and, in the case of a criminal
proceeding, had no reasonable cause to believe the conduct of such
person was unlawful.
Article VII, section 1 (in part), section 2, and section 3, provide that
the Company shall have power to indemnify any person who was or is a
party or is threatened to be made a party to any threatened, pending, or
completed action by or in the right of the Company to procure a judgment
in its favor by reason of the fact that such person is or was acting in
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 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.
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
C-16
<PAGE>
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 Accounts A and VL-R.
(b) The directors and principal officers of the principal underwriter are:
Position and Offices
with Underwriter,
Name and Principal American General
Business Address Securities Incorporated
------------------ -----------------------
F. Paul Kovach, Jr. Director and Chairman,
American General Securities President and Chief Executive Officer
Incorporated
2727 Allen Parkway
Houston, TX 77019
Royce G. Imhoff, II Director
American General Life
Companies
2727-A Allen Parkway
Houston, Texas 77019
Rodney O. Martin, Jr. Director and Vice Chairman
American General Life
Companies
2929 Allen Parkway
Houston, TX 77019
John A. Kalbaugh Vice President - Chief Marketing
American General Life Officer
Companies
2727 Allen Parkway
Houston, TX 77019
C-17
<PAGE>
Robert M. Roth Vice President -
American General Securities Administration and Compliance,
Incorporated Treasurer and Secretary
2727 Allen Parkway
Houston, TX 77019
Pauletta P. Cohn Assistant Secretary
American General Life
Companies
2727 Allen Parkway
Houston, TX 77019
Robert F. Herbert Assistant Treasurer
American General Life
Companies
2727-A Allen Parkway
Houston, Texas 77019
Kenneth D. Nunley Assistant Associate Tax Officer
2727-A Allen Parkway
Houston, TX 77019
ITEM 30. LOCATION OF RECORDS
All records referenced under Section 31(a) of the 1940 Act, and Rules 31a-
1 through 31a-3 thereunder, are maintained and in the custody of American
General Life Companies at its principal executive office located at 2727-
A Allen Parkway, Houston, TX 77019.
ITEM 31. MANAGEMENT SERVICES
Not Applicable.
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 a prospectus, a space that an applicant can check to
request a Statement of Additional Information, 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 use to send for a
Statement of Additional Information; C) to deliver any Statement of
Additional Information and any financial statements required to be made
available under this form promptly upon written or oral request.
C-18
<PAGE>
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, in
the aggregate, are reasonable in relation to the services rendered, the
expenses expected to be incurred, and the risks assumed by AGL.
C-19
<PAGE>
EXHIBIT INDEX
-------------
3(b)(ii)(B) Participation Agreement by and among American General Life
Insurance Company, American General Securities Incorporated and
Hotchkis and Wiley Variable Trust, dated as of February 26,
1998.
(iii)(B) Participation Agreement by and among American General Life
Insurance Company, American General Securities Incorporated and
LEVCO Series Trust, dated as of February 26, 1998.
(iv)(B) Participation Agreement by and among American General Life
Insurance Company, American General Securities Incorporated and
Navellier Variable Insurance Series Fund, dated as of January
13, 1998.
(v) (B) Participation Agreement by and among American General Life
Insurance Company, American General Securities Incorporated and
OFFITBANK Variable Insurance Fund, Inc., dated as of February
26, 1998.
(vi)(B)(i) Participation Agreement by and among American General Life
Insurance Company, American General Securities Incorporated and
Royce Capital Fund, dated as of August 1, 1998.
(ii) First Amendment to Participation Agreement by and among by and
among American General Life Insurance Company, American General
Securities Incorporated and Royce Capital Fund, dated as of
August 1, 1998.
(vii)(B) Participation Agreement by and among American General Life
Insurance Company, American General Securities Incorporated and
Wright Managed Blue Chip Series Trust, dated as of February 26,
1998.
10 Consent of Independent Auditors
C-20
<PAGE>
POWERS OF ATTORNEY
Each person whose signature appears below hereby appoints Thomas M. Zurek,
Robert F. Herbert, Jr. and Pauletta P. Cohn and each of them, any one of whom
may act without the joinder of the others, as his/her attorney-in-fact to sign
on his/her behalf and in the capacity stated below and to file all amendments to
this amended Registration Statement, which amendment or amendments may make such
changes and additions to this amended Registration Statement as such attorney-
in-fact may deem necessary or appropriate.
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 amended Registration Statement and has duly caused this
amended Registration Statement to be signed on its behalf, in the City of
Houston, and State of Texas on this 29th day of March, 1999.
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, Treasurer and
Controller
[SEAL]
ATTEST: BY /s/ PAULETTA P. COHN
--------------------
Pauletta P. Cohn
Secretary
<PAGE>
Pursuant to the requirements of the Securities Act of 1933, this amended
registration statement has been signed by the following persons in the
capacities and on the dates indicated.
Signature Title Date
- --------- ----- ----
/s/ RONALD H. RIDLEHUBER Principal Executive Officer and March 29, 1999
- -------------------------- Director
Ronald H. Ridlehuber
/s/ PHILIP K. POLKINGHORN Principal Financial Officer and March 29, 1999
- -------------------------- Director
Philip K. Polkinghorn
/s/ ROBERT F. HERBERT, JR. Principal Accounting Officer and March 29, 1999
- -------------------------- Director
Robert F. Herbert, Jr.
/s/ DAVID A. FRAVEL Director March 29, 1999
- --------------------------
David A. Fravel
/s/ ROYCE G. IMHOFF, II Director March 29, 1999
- --------------------------
Royce G. Imhoff, II
/s/ JOHN V. LAGRASSE Director March 29, 1999
- --------------------------
John V. LaGrasse
/s/ RODNEY O. MARTIN, JR Director March 29, 1999
- --------------------------
Rodney O. Martin, Jr.
Director March __, 1999
- --------------------------
Jon P. Newton
/s/ GARY D. REDDICK Director March 29, 1999
- -------------------
Gary D. Reddick
<PAGE>
EXHIBIT 3(b)(ii)(B)
<PAGE>
PARTICIPATION AGREEMENT
AMONG
AMERICAN GENERAL LIFE INSURANCE COMPANY
AMERICAN GENERAL SECURITIES INCORPORATED
HOTCHKIS AND WILEY VARIABLE TRUST
AND
HOTCHKIS AND WILEY
DATED AS OF
FEBRUARY 26, 1998
-----------------
<PAGE>
TABLE OF CONTENTS
-----------------
Page
----
ARTICLE I. Fund Shares 4
ARTICLE II. Representations and Warranties 6
ARTICLE III. Prospectuses, Reports to Shareholders
and Proxy Statements, Voting 8
ARTICLE IV. Sales Material and Information 12
ARTICLE V. [Reserved] 13
ARTICLE VI. Diversification 13
ARTICLE VII. Potential Conflicts 13
ARTICLE VIII. Indemnification 15
ARTICLE IX. Applicable Law 18
ARTICLE X. Termination 18
ARTICLE XI. Notices 21
ARTICLE XII. Foreign Tax Credits 21
ARTICLE XIII. Miscellaneous 21
SCHEDULE A Portfolios of Hotchkis and Wiley Variable Trust 25
Available for Purchase by American General
Life Insurance Company
SCHEDULE B Separate Accounts and Contracts 26
SCHEDULE C Proxy Voting Procedures 27
<PAGE>
THIS AGREEMENT, made and entered into as of the 26th day of February, 1998
by and among AMERICAN GENERAL LIFE INSURANCE COMPANY (hereinafter the
"Company"), a Texas insurance company, on its own behalf and on behalf of each
separate account of the Company set forth on Schedule B hereto as may be amended
from time to time (each such account hereinafter referred to as the "Account");
AMERICAN GENERAL SECURITIES INCORPORATED ("AGSI"), a Texas corporation; HOTCHKIS
AND WILEY VARIABLE TRUST (hereinafter the "Fund"), a Massachusetts business
trust; and HOTCHKIS AND WILEY (the "Adviser"), a division of The Merrill Lynch
Capital Management Group of Merrill Lynch Asset Management, L.P.
WHEREAS, the Fund desires to act as (i) the investment vehicle for separate
accounts established by insurance companies for individual and group life
insurance policies and annuity contracts with variable accumulation and/or pay-
out provisions (hereinafter referred to individually and/or collectively as
"Variable Insurance Products") and (ii) the investment vehicle for certain
qualified pension and retirement plans (hereinafter "Qualified Plans"); and
WHEREAS, insurance companies desiring to utilize the Fund as an investment
vehicle under their Variable Insurance Products are required to enter into a
participation agreement with the Fund and the Adviser (the "Participating
Insurance Companies"); and
WHEREAS, shares of the Fund are divided into several series of shares, each
representing the interest in a particular managed portfolio of securities and
other assets, any one or more of which may be made available for Variable
Insurance Products of Participating Insurance Companies; and
WHEREAS, the Fund intends to offer shares of the series set forth on
Schedule A (each such series hereinafter referred to as a "Portfolio"), as may
be amended from time to time by mutual agreement of the parties hereto, under
this Agreement to the Accounts of the Company; and
WHEREAS, the Fund has obtained an order from the Securities and Exchange
Commission, dated August 13, 1997, (Rel. No. 1C-22786), granting Participating
Insurance Companies and Variable Insurance Product separate accounts exemptions
from the provisions of Sections 9(a), 13(a), 15(a), and 15(b) of the Investment
Company Act of 1940, as amended (hereinafter the "1940 Act"), and
Rules 6e-2(b)(15) and 6e-3(T)(b)(15) thereunder, to the extent necessary to
permit shares of the Fund to be sold to and held by Variable Insurance Product
separate accounts of both affiliated and unaffiliated life insurance companies
and Qualified Plans (hereinafter the "Shared Funding Exemptive Order"); and
WHEREAS, the Fund is registered as an open-end management investment
company under the 1940 Act and its shares are registered under the Securities
Act of 1933, as amended (hereinafter the "1933 Act"); and
WHEREAS, the Adviser is duly registered as an investment adviser under the
Investment Advisers Act of 1940, as amended, and any applicable state securities
laws; and
3
<PAGE>
WHEREAS, the Adviser acts as investment adviser to the Portfolios of the
Fund; and
WHEREAS, Merrill Lynch Funds Distributor, Inc. (the "Underwriter") is
registered as a broker/dealer under the Securities Exchange Act of 1934, as
amended (hereinafter the "1934 Act"), is a member in good standing of the
National Association of Securities Dealers, Inc. (hereinafter "NASD") and serves
as principal underwriter of the shares of the Fund; and
WHEREAS, the Company has registered or will register certain Variable
Insurance Products under the 1933 Act; and
WHEREAS, each Account is a duly organized, validly existing segregated
asset account, established by resolution or under authority of the Board of
Directors of the Company, on the date shown for such Account on Schedule B
hereto, to set aside and invest assets attributable to the aforesaid Variable
Insurance Product; and
WHEREAS, the Company has registered or will register each Account as a unit
investment trust under the 1940 Act; and
WHEREAS, to the extent permitted by applicable insurance laws and
regulations, the Company intends to purchase shares in the Portfolios on behalf
of each Account to fund certain of the aforesaid Variable Insurance Products and
the Fund intends to sell such shares to the relevant Account at net asset value;
and
WHEREAS, AGSI serves as both the distributor and the principal underwriter
of the Variable Insurance Products that are set forth on Schedule B;
NOW, THEREFORE, in consideration of their mutual promises, the Company, AGSI,
the Fund and the Adviser agree as follows:
ARTICLE I. FUND SHARES
1.1. The Fund agrees to make available for purchase by the Company shares
of the Portfolios set forth on Schedule A and shall execute orders placed for
each Account on a daily basis at the net asset value next computed after receipt
by the Fund or its designee of such order. For purposes of this Section 1.1,
the Company shall be the designee of the Fund for receipt of such orders from
each Account and receipt by such designee by 4:00 p.m. Eastern time on a
Business Day shall constitute receipt by the Fund; provided that the Fund
receives notice of such order as soon as reasonably practical (normally by 10:00
a.m. Eastern time) on the next following Business Day. Notwithstanding the
foregoing, the Company shall use its best efforts to provide the Fund with
notice of such orders by 10:15 a.m. Eastern time on the next following Business
Day. "Business Day" shall mean any day on which the New York Stock Exchange is
open for trading and on which the Fund calculates the net asset value of the
Portfolios' shares pursuant to the rules of the Securities and Exchange
Commission ("SEC"), as set forth in the Fund's Prospectus and Statement of
4
<PAGE>
Additional Information. Notwithstanding the foregoing, the Board of Trustees of
the Fund (hereinafter the "Board") may refuse to permit the Fund to sell shares
of any Portfolio, to any person, or suspend or terminate the offering of shares
of any Portfolio, if such action is required by law or by regulatory authorities
having jurisdiction or is, in the sole discretion of the Board acting in good
faith and in light of their fiduciary duties under federal and any applicable
state laws, necessary in the best interests of the shareholders of such
Portfolio.
1.2. The Fund agrees that shares of the Fund will be sold only to
Participating Insurance Companies and their Variable Insurance Products and to
certain Qualified Plans. No shares of any Portfolio will be sold to the general
public.
1.3. The Fund will not make its shares available for purchase by any
insurance company or separate account unless an agreement containing provisions
substantially the same as Sections 2.4, 2.9, 3.4 and Article VII of this
Agreement is in effect to govern such sales.
1.4. The Fund agrees to redeem for cash, on the Company's request, any
full or fractional shares of the Fund held by the Company, executing such
requests on a daily basis at the net asset value next computed after receipt by
the Fund or its designee of the request for redemption. For purposes of this
Section 1.4, the Company shall be the designee of the Fund for receipt of
requests for redemption from each Account and receipt by such designee by
4:00 p.m. Eastern time on a Business Day shall constitute receipt by the Fund;
provided that the Fund receives notice of such request for redemption on the
next following Business Day in accordance with the timing rules described in
Section 1.1.
1.5. The Company agrees that purchases and redemptions of Portfolio
shares offered by the then current prospectus of the Fund shall be made in
accordance with the provisions of such prospectus. The Accounts of the Company,
under which amounts may be invested in the Fund, are listed on Schedule B
attached hereto and incorporated herein by reference, as such Schedule B may be
amended from time to time by mutual written agreement of all of the parties
hereto. The Company will give the Fund and the Adviser sixty (60) days' written
notice of its intention to make available in the future, as a funding vehicle
under the Variable Insurance Products, any other investment company.
1.6. The Company will place separate orders to purchase or redeem shares
of each Portfolio. Each order shall describe the net amount of shares and
dollar amount of each Portfolio to be purchased or redeemed. In the event of
net purchases, the Company shall pay for Portfolio shares on the next Business
Day after an order to purchase Portfolio shares is made in accordance with the
provisions of Section 1.1 hereof. Payment shall be in federal funds transmitted
by wire. In the event of net redemptions, the Portfolio shall pay the redemption
proceeds in federal funds transmitted by wire on the next Business Day after an
order to redeem a Portfolio's shares is made in accordance with the provision of
Section 1.4 hereof. Notwithstanding the foregoing, if the payment of redemption
proceeds on the next Business Day would require the Portfolio to dispose of
securities or otherwise incur substantial additional costs, and if the Portfolio
has determined to settle redemption transactions for all shareholders on a
delayed basis, proceeds shall be wired to the Company within seven (7) days and
the Portfolio shall notify in writing the person designated by
5
<PAGE>
the Company as the recipient for such notice of such delay by 3:00 p.m. Eastern
time on the same Business Day that the Company transmits the redemption order to
the Portfolio.
1.7. Issuance and transfer of the Fund's shares will be by book entry
only. Share certificates will not be issued to the Company or any Account.
Shares ordered from the Fund will be recorded in an appropriate title for each
Account or the appropriate subaccount of each Account.
1.8. The Fund shall make the dividends or capital gain distributions
payable on the Fund's shares available to the Company as soon as reasonably
practical after the dividends or capital gains are calculated (normally by
6:30 p.m. Eastern time) and shall use its best efforts to furnish same day
notice by 7:00 p.m. Eastern time (by wire or telephone, followed by written
confirmation) to the Company of any dividends or capital gain distributions
payable on the Fund's shares. The Company hereby elects to receive all such
dividends and capital gain distributions as are payable on the Portfolio shares
in additional shares of that Portfolio. The Company reserves the right to revoke
this election and to receive all such dividends and capital gain distributions
in cash. The Fund shall notify the Company of the number of shares so issued as
payment of such dividends and distributions.
1.9. The Fund shall make the net asset value per share for each Portfolio
available to the Company on a daily basis as soon as reasonably practical after
the net asset value per share is calculated (normally by 6:30 p.m. Eastern time)
and shall use its best efforts to make such net asset value per share available
by 7:00 p.m. Eastern time. In the event that the Fund is unable to meet the
7:00 p.m. time stated immediately above, then the Fund shall provide the Company
with additional time to notify the Fund of purchase or redemption orders
pursuant to Sections 1.1 and 1.4, respectively, above. Such additional time
shall be equal to the additional time that the Fund takes to make the net asset
values available to the Company; provided, however, that notification must be
made by 10:15 a.m. Eastern time on the Business Day such order is to be executed
regardless of when the net asset value is made available.
1.10. If the Fund provides materially incorrect share net asset value
information through no fault of the Company, the Company shall be entitled to an
adjustment with respect to the Fund shares purchased or redeemed to reflect the
correct net asset value per share. The determination of the materiality of any
net asset value pricing error shall be based on the SEC's recommended
guidelines, if any. The correction of any such errors shall be made at the
Company level and shall be made pursuant to the SEC's recommended guidelines.
Any material error in the calculation or reporting of net asset value per share,
dividend or capital gain information shall be reported promptly upon discovery
to the Company.
ARTICLE II. REPRESENTATIONS AND WARRANTIES
2.1. The Company represents and warrants that the interests of the
Accounts (the "Contracts") are or will be registered and will maintain the
registration under the 1933 Act and the regulations thereunder to the extent
required by the 1933 Act; that the Contracts will be issued in compliance in all
material respects with all applicable federal and state laws and regulations.
The Company further represents and warrants that it is an insurance company duly
organized and in good
6
<PAGE>
standing under applicable law and that it has legally and validly established
each Account prior to any issuance or sale thereof as a segregated asset account
under the Texas Insurance Law and the regulations thereunder and has registered
or, prior to any issuance or sale of the Contracts, will register and will
maintain the registration of each Account as a unit investment trust in
accordance with and to the extent required by the provisions of the 1940 Act and
the regulations thereunder to serve as a segregated investment account for the
Contracts. The Company shall amend its registration statement for its Contracts
under the 1933 Act and the 1940 Act from time to time as required in order to
effect the continuous offering of its Contracts.
2.2. The Fund represents and warrants that Fund shares sold pursuant to
this Agreement shall be registered under the 1933 Act and the regulations
thereunder to the extent required by the 1933 Act, duly authorized for issuance
in accordance with the laws of the Commonwealth of Massachusetts and sold in
compliance with all applicable federal and state securities laws and regulations
and that the Fund is and shall remain registered under the 1940 Act and the
regulations thereunder to the extent required by the 1940 Act. The Fund shall
amend the registration statement for its shares under the 1933 Act and the 1940
Act from time to time as required in order to effect the continuous offering of
its shares. The Fund shall register the shares for sale in accordance with the
laws of the various states only if and to the extent deemed advisable by the
Fund.
2.3. The Fund and the Adviser will make every effort to qualify each
Portfolio as a Regulated Investment Company under Subchapter M of the Internal
Revenue Code of 1986, as amended (the "Code"), and that the Fund and the Adviser
(with respect to those Portfolios for which such Adviser acts as investment
adviser) thereafter will make every effort to maintain such qualification (under
Subchapter M or any successor or similar provision) and the Fund or the Adviser
will notify the Company immediately upon having a reasonable basis for believing
that a Portfolio has ceased to so qualify or that a Portfolio might not so
qualify in the future.
2.4. The Company represents that each Account is and will continue to be
a "segregated account" under applicable provisions of the Code and that each
Contract is and will be treated as a "variable contract" under applicable
provisions of the Code and that it will make every effort to maintain such
treatments and that it will notify the Fund immediately upon having a reasonable
basis for believing that the Account or Contract has ceased to be so treated or
that they might not be so treated in the future.
2.5. The Fund makes no representation as to whether any aspect of its
operations (including, but not limited to, fees and expenses and investment
policies) complies with the insurance laws or regulations of the various states.
2.6. The Fund and the Adviser represent that the Fund is lawfully
organized and validly existing under the laws of the Commonwealth of
Massachusetts and that the Fund does and will comply in all material respects
with the applicable provisions of the 1940 Act.
2.7. The Adviser and AGSI each represents and warrants that it is and
shall remain duly registered in all material respects under all applicable
federal and state securities laws and that it will perform its obligations for
the Fund and the Company in compliance in all material respects with
7
<PAGE>
the laws and regulations of its state of domicile and any applicable state and
federal securities laws and regulations.
2.8. The Company represents and warrants that all of its trustees,
officers, employees and other individuals/entities dealing with the money and/or
securities of the Fund are covered by a blanket fidelity bond or similar
coverage, in an amount equal to the greater of $5 million or any amount required
by applicable federal or state law or regulation. The aforesaid includes
coverage for larceny and embezzlement is issued by a reputable bonding company.
The Company agrees to make all reasonable efforts to see that this bond or
another bond containing these provisions is always in effect, and agrees to
notify the Fund and the Adviser in the event that such coverage no longer
applies.
ARTICLE III. PROSPECTUSES, REPORTS TO SHAREHOLDERS AND PROXY STATEMENTS,
VOTING
3.1(a). The Fund or its designee shall provide the Company with as many
printed copies of the Fund's current prospectus, including the profile
prospectus, (the "Fund Prospectus") as the Company may reasonably request for
distribution to Contract owners whose Contracts are funded by Portfolio shares.
If requested by the Company, in lieu of providing printed copies of the Fund
Prospectus, the Fund shall provide camera-ready film or computer diskettes
containing the Fund Prospectus and such other assistance as is reasonably
necessary in order for the Company once each year (or more frequently if the
Fund Prospectus is amended during the year) to have the prospectus for the
Contracts (the "Contract Prospectus") and the Fund Prospectus printed together
in one document or separately. The Company may elect to print the Fund
Prospectus in combination with other fund companies' prospectuses. For purposes
hereof, any combined prospectus including the Fund Prospectus along with the
Contract Prospectus or prospectus of other fund companies shall be referred to
as a "Combined Prospectus." For purposes hereof, the term "Fund Portion of the
Combined Prospectus" shall refer to the percentage of the number of Fund
Prospectus pages in the Combined Prospectus in relation to the total number of
pages of the Combined Prospectus.
3.1(b). The Fund shall provide the Company with as many printed copies of
the Fund's current statement of additional information (the "Fund SAI") as the
Company may reasonably request for distribution to any owner of a Contract
funded by Portfolio shares. If requested by the Company in lieu of providing
printed copies of the Fund SAI, the Fund shall provide camera-ready film or
computer diskettes containing the Fund SAI, and such other assistance as is
reasonably necessary in order for the Company once each year (or more frequently
if the Fund SAI is amended during the year) to have the statement of additional
information for the Contracts (the "Contract SAI") and the Fund SAI printed
together or separately. The Company may also elect to print the Fund SAI in
combination with other fund companies' statements of additional information.
For purposes hereof, any combined statement of additional information including
the Fund SAI along with the Contract SAI or statement of additional information
of other fund companies shall be referred to as a "Combined SAI." For purposes
hereof, the term "Fund Portion of the Combined SAI" shall refer to the
percentage of the number of Fund SAI pages in the Combined SAI in relation to
the total number of pages of the Combined SAI.
3.1(c). The Fund shall provide the Company with as many printed copies of
the Fund's
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annual report and semi-annual report (collectively, the "Fund Reports") as the
Company may reasonably request for distribution to Contract owners whose
Contracts are funded by Portfolio shares. If requested by the Company in lieu of
providing printed copies of the Fund Reports, the Fund shall provide camera-
ready film or computer diskettes containing the Fund's Reports, and such other
assistance as is reasonably necessary in order for the Company once each year to
have the annual report and semi-annual report for the Contracts (collectively,
the "Contract Reports") and the Fund Reports printed together or separately. The
Company may also elect to print the Fund Reports in combination with other fund
companies' annual reports and semi-annual reports. For purposes hereof, any
combined annual reports and semi-annual reports including the Fund Reports along
with the Contract Reports or annual reports and semi-annual reports of other
fund companies shall be referred to as "Combined Reports." For purposes hereof,
the term "Fund Portion of the Combined Reports" shall refer to the percentage of
the number of Fund Reports pages in the Combined Reports in relation to the
total number or pages of the Combined Reports.
3.2. Expenses
3.2(a). Expenses Borne by Company. Except as otherwise provided in this
Section 3.2., all expenses of preparing, setting in type and printing and
distributing (i) Contract Prospectuses, Fund Prospectuses, and Combined
Prospectuses; (ii) Fund SAIs, Contract SAIs, and Combined SAIs; (iii) Fund
Reports, Contract Reports, and Combined Reports, and (iv) Contract proxy
material that the Company may require in sufficient quantity to be sent to
Contract owners, annuitants, or participants under Contracts (collectively, the
"Participants"), shall be the expense of the Company.
3.2(b). Expenses Borne by Fund
Fund Prospectuses
With respect to existing Participants, the Fund shall pay the cost of
setting in type, printing and distributing Fund Prospectuses to be made
available by the Company to such existing Participants in order to update
disclosure as required by the 1933 Act and/or the 1940 Act. With respect to
existing Participants, in the event the Company elects to prepare a Combined
Prospectus, the Fund shall pay the cost of setting in type, printing and
distributing the Fund Portion of the Combined Prospectus to be made available by
the Company to its existing Participants in order to update disclosure as
required by the 1933 Act and/or the 1940 Act. In such event, the Fund shall
bear the cost of typesetting to provide the Fund Prospectus to the Company in
the format in which the Fund is accustomed to formatting prospectuses.
Notwithstanding the foregoing, in no event shall the Fund pay for any such costs
that exceed by more than five (5) percent what the Fund would have paid to print
such documents. The Fund shall not pay any costs of typesetting, printing and
distributing the Fund Prospectus (or Combined Prospectus, if applicable) to
prospective Participants.
Fund SAIs, Fund Reports and Proxy Material
With respect to existing Participants, the Fund shall pay the cost of
setting in type and printing Fund SAIs, Fund Reports and Fund proxy material to
be made available by the Company
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to its existing Participants. With respect to existing Participants, in the
event the Company elects to prepare a Combined SAI or Combined Reports, the Fund
shall pay the cost of setting in type and printing the Fund Portion of the
Combined SAI or Combined Reports, respectively, to be made available by the
Company to its existing Participants. In such event, the Fund shall bear the
cost of typesetting to provide the Fund SAI or Fund Reports to the Company in
the format in which the Fund is accustomed to formatting statements of
additional information and annual and semi-annual reports. Notwithstanding the
foregoing, in no event shall the Fund pay for any such costs that exceed by more
than five (5) percent what the Fund would have paid to print such documents. The
Fund shall pay one half the cost of distributing Fund SAIs, Fund Reports and
Fund proxy statements and proxy-related material to such existing Participants.
The Fund shall pay the cost of distributing the Fund Portion of the Combined
SAIs and the Fund Portion of the Combined Reports to existing Participants. The
Fund shall not pay any costs of distributing Fund SAIs, Combined SAIs, Fund
Reports, Combined Reports or proxy statements or proxy-related material to
prospective Participants.
The Company agrees to provide the Fund or its designee with such
information as may be reasonably requested by the Fund to assure that the Fund's
expenses do not include the cost of typesetting, printing or distributing any of
the foregoing documents other than those actually distributed to existing
Participants.
The Fund shall pay no fee or other compensation to the Company under this
Agreement, except that if the Fund or any Portfolio adopts and implements a plan
pursuant to Rule 12b-1 under the 1940 Act to finance distribution expenses, then
the Underwriter may make payments to the Company or to AGSI if and in amounts
agreed to by the Underwriter in writing.
All expenses, including expenses to be borne by the Fund pursuant to
Section 3.2 hereof, incident to performance by the Fund under this Agreement
shall be paid by the Fund. The Fund shall see to it that all its shares are
registered and authorized for issuance in accordance with applicable federal law
and, if and to the extent deemed advisable by the Fund, in accordance with
applicable state laws prior to their sale. The Fund shall bear the expenses for
the cost of registration of the Fund's shares.
3.2(c). Expenses Borne by AGSI.
Fund Prospectuses
With respect to prospective Participants, AGSI shall pay one half of the
cost of setting in type, printing and distributing Fund Prospectuses made
available by the Company as sales literature to such prospective Participants.
With respect to prospective Participants, in the event the Company elects to
prepare a Combined Prospectus, AGSI shall pay one half of the cost of printing
and distributing the Combined Prospectus made available by the Company to its
prospective Participants as sales literature. In such event, AGSI shall bear
the cost of typesetting to provide the Fund Prospectus to the Company in the
format in which the Fund is accustomed to formatting prospectuses.
Notwithstanding the foregoing, in no event shall AGSI pay for any such costs
that exceed by more than five (5) percent what AGSI would have paid to print
such documents.
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Fund SAIs, Fund Reports and Proxy Material.
With respect to prospective Participants, AGSI shall pay one half of the
cost of setting in type and printing Fund SAIs, Fund Reports and Fund proxy
material made available by the Company to its prospective Participants as sales
literature. In the event the Company elects to prepare a Combined SAI or
Combined Reports, AGSI shall pay one half of the cost of printing the Combined
SAI or Combined Reports, respectively, made available by the Company to its
prospective Participants as sales literature. In such event, AGSI shall bear
the cost of typesetting to provide the Fund SAI and Fund Reports to the Company
in the format in which the Fund is accustomed to formatting statements of
additional information and annual and semi-annual reports. Notwithstanding the
foregoing, in no event shall AGSI pay for any such costs that exceed by more
than five (5) percent what AGSI would have paid to print such documents. AGSI
shall pay one half the cost of distributing Fund SAIs, Combined SAIs, Fund
Reports, Combined Reports, and Fund proxy material to such prospective
Participants as sales literature.
3.2(d). If the Company chooses to receive camera-ready film or computer
diskettes in lieu of receiving printed copies of the Fund Prospectus, Fund SAI
or Fund Reports, the Fund or its designee will be responsible for providing the
Fund Prospectus, Fund SAI or Fund Reports in the format in which it is
accustomed to formatting such documents, and, notwithstanding anything in
Sections 3.2(b) or 3.2(c), the Company shall bear the expense of adjusting or
changing the format to conform with any of its prospectuses or reports.
3.3. The Fund SAI shall be obtainable from the Fund, the Company or such
other person as the Fund may designate.
3.4. If and to the extent required by law the Company shall distribute
all proxy material furnished by the Fund to Participants to whom voting
privileges are required to be extended and shall:
(i) solicit voting instructions from Participants;
(ii) vote the Fund shares in accordance with instructions received
from Participants; and
(iii) vote Fund shares for which no instructions have been received
in the same proportion as Fund shares of such Portfolio for
which instructions have been received,
so long as and to the extent that the SEC continues to interpret the 1940 Act to
require pass-through voting privileges for variable contract owners. The
Company reserves the right to vote Fund shares held in any segregated asset
account in its own right, to the extent permitted by law. The Fund and the
Company shall follow the procedures, and shall have the corresponding
responsibilities, for the handling of proxy and voting instruction
solicitations, as set forth in Schedule C attached hereto and incorporated
herein by reference. Participating Insurance Companies shall be responsible for
ensuring that each of their separate accounts participating in the Fund
calculates voting privileges
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in a manner consistent with the standards set forth on Schedule C, which
standards will also be provided to the other Participating Insurance Companies.
3.5. The Fund will comply with all provisions of the 1940 Act requiring
voting by shareholders. Further, the Fund will act in accordance with the SEC's
interpretation of the requirements of Section 16(a) with respect to periodic
elections of Trustees and with whatever rules the SEC may promulgate with
respect thereto.
ARTICLE IV. SALES MATERIAL AND INFORMATION
4.1. The Company shall furnish, or shall cause to be furnished, to the
Fund or its designee, each piece of sales literature or other promotional
material prepared by the Company, AGSI or any person contracting with the
Company or AGSI in which the Fund or the Adviser is named, at least ten Business
Days prior to its use. No such material shall be used if the Fund, the Adviser,
or their designee reasonably objects to such use within ten Business Days after
receipt of such material.
4.2. Neither the Company, AGSI nor any person contracting with the
Company or AGSI shall give any information or make any representations or
statements on behalf of the Fund or concerning the Fund or the Adviser in
connection with the sale of the Contracts other than the information or
representations contained in the registration statement or the Fund Prospectus,
as such registration statement or Fund Prospectus may be amended or supplemented
from time to time, or in reports or proxy statements for the Fund, or in sales
literature or other promotional material approved by the Fund or its designee,
except with the written permission of the Fund.
4.3. The Fund or its designee shall furnish, or shall cause to be
furnished, to the Company or its designee, each piece of sales literature or
other promotional material prepared by the Fund in which the Company or its
Account(s) are named at least ten Business Days prior to its use. No such
material shall be used if the Company or its designee reasonably objects to such
use within ten Business Days after receipt of such material.
4.4. Neither the Fund nor the Adviser shall give any information or make
any representations on behalf of the Company or concerning the Company, each
Account, or the Contracts, other than the information or representations
contained in a registration statement or prospectus for the Contracts, as such
registration statement and prospectus may be amended or supplemented from time
to time, or in published reports or solicitations for voting instructions for
each Account which are in the public domain or approved by the Company for
distribution to Participants, or in sales literature or other promotional
material approved by the Company or its designee, except with the written
permission of the Company.
4.5. The Fund will provide to the Company at least one complete copy of
all registration statements, prospectuses, statements of additional information,
reports, proxy statements, sales
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<PAGE>
literature and other promotional materials, applications for exemptions,
requests for no-action letters, and all amendments to any of the above, that
relate to the Fund or its shares, within five (5) Business Days of the filing of
such document with the SEC or other regulatory authorities.
4.6. The Company will provide to the Fund at least one complete copy of
all registration statements, prospectuses, statements of additional information,
reports, solicitations for voting instructions, sales literature and other
promotional materials, applications for exemptions, requests for no action
letters, and all amendments to any of the above, that relate to the investment
in an Account or Contract within five (5) Business Days of the filing of such
document with the SEC or other regulatory authorities.
4.7. For purposes of this Article IV, the phrase "sales literature or
other promotional material" includes, but is not limited to, any of the
following: advertisements (such as material published, or designed for use in, a
newspaper, magazine, or other periodical, radio, television, telephone or tape
recording, videotape display, signs or billboards, motion pictures, or other
public media), sales literature (i.e., any written communication distributed or
made generally available to customers or the public, including brochures,
circulars, research reports, market letters, form letters, seminar texts,
reprints or excerpts of any other advertisement, sales literature, or published
article), educational or training materials or other communications distributed
or made generally available to some or all agents or employees, and registration
statements, prospectuses, statements of additional information, shareholder
reports, and proxy materials.
ARTICLE V. [RESERVED]
ARTICLE VI. DIVERSIFICATION
6.1. The Adviser represents, as to the Portfolios, that it will use its
best efforts at all times to comply with Section 817(h) of the Code and Treasury
Regulation 1.817-5, relating to the diversification requirements for variable
annuity, endowment, or life insurance contracts and any amendments or other
modifications to such Section or Regulations. In the event a Portfolio ceases
to so qualify, the Adviser will take all reasonable steps (a) to notify the
Company and (b) to adequately diversify the Portfolio so as to achieve
compliance within the grace period afforded by Regulation 817-5.
ARTICLE VII. POTENTIAL CONFLICTS
7.1. The Board will monitor the Fund for the existence of any material
irreconcilable conflict between the interests of the contract owners of all
separate accounts investing in the Fund. An irreconcilable material conflict
may arise for a variety of reasons, including: (a) an action by any state
insurance regulatory authority; (b) a change in applicable federal or state
insurance, tax, or securities laws or regulations, or a public ruling, private
letter ruling, no-action or interpretative
13
<PAGE>
letter, or any similar action by insurance, tax, or securities regulatory
authorities; (c) an administrative or judicial decision in any relevant
proceeding; (d) the manner in which the investments of any Portfolio are being
managed; (e) a difference in voting instructions given by variable annuity
contract owners and variable life insurance contract owners; or (f) a decision
by a Participating Insurance Company to disregard the voting instructions of
Contract owners. The Board shall promptly inform the Company if it determines
that an irreconcilable material conflict exists and the implications thereof.
7.2. The Company will report any potential or existing material
irreconcilable conflicts of which it is aware to the Board. The Company will
assist the Board in carrying out its responsibilities under the Shared Funding
Exemptive Order, by providing the Board with all information reasonably
necessary for the Board to consider any issues raised. This includes, but is
not limited to, an obligation by the Company to inform the Board whenever
contract owner voting instructions are disregarded.
7.3. If it is determined by a majority of the Board, or a majority of its
disinterested Trustees, that a material irreconcilable conflict exists, the
Company and other Participating Insurance Companies shall, at their expense and
to the extent reasonably practicable (as determined by a majority of the
disinterested Trustees), take whatever steps are necessary to remedy or
eliminate the irreconcilable material conflict, up to and including: (1)
withdrawing the assets allocable to some or all of the Separate Accounts from
the Fund or any Portfolio and reinvesting such assets in a different investment
medium, including (but not limited to) another Portfolio of the Fund, or
submitting the question whether such segregation should be implemented to a vote
of all affected Contract owners and, as appropriate, segregating the assets of
any appropriate group (i.e., annuity contract owners, life insurance policy
owners, or variable Contract owners of one or more Participating Insurance
Companies) that votes in favor of such segregation, or offering to the affected
Contract owners the option of making such a change; and (2) establishing a new
registered management investment company or managed separate account. No charge
or penalty will be imposed as a result of such withdrawal. The Company agrees
that it bears the responsibility to take remedial action in the event of a Board
determination of an irreconcilable material conflict and the cost of such
remedial action, and these responsibilities will be carried out with a view only
to the interests of Contract owners.
7.4. If a material irreconcilable conflict arises because of a decision
by the Company to disregard contract owner voting instructions and that decision
represents a minority position or would preclude a majority vote, the Company
may be required, at the Fund's election, to withdraw the affected Account's
investment in the Fund and terminate this Agreement with respect to such Account
(at the Company's expense); provided, however that such withdrawal and
termination shall be limited to the extent required by the foregoing material
irreconcilable conflict as determined by a majority of the disinterested
Trustees of the Board. No charge or penalty will be imposed as a result of such
withdrawal. The Company agrees that it bears the responsibility to take remedial
action in the event of a Board determination of an irreconcilable material
conflict and the cost of such remedial action, and these responsibilities will
be carried out with a view only to the interests of Contract owners.
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7.5. For purposes of Sections 7.3 and 7.4 of this Agreement, a majority
of the disinterested Trustees of the Board shall determine whether any proposed
action adequately remedies any irreconcilable material conflict, but in no event
will the Fund be required to establish a new funding medium for the Contracts.
The Company shall not be required by Section 7.3 or 7.4 to establish a new
funding medium for the Contracts if an offer to do so has been declined by vote
of a majority of Contract owners materially adversely affected by the
irreconcilable material conflict.
7.6. If and to the extent that Rule 6e-2 and Rule 6e-3(T) are amended, or
Rule 6e-3 is adopted, to provide exemptive relief from any provision of the 1940
Act or the rules promulgated thereunder with respect to mixed or shared funding
(as defined in the Shared Funding Exemptive Order) on terms and conditions
materially different from those contained in the Shared Funding Exemptive Order,
then the Fund and/or the Participating Insurance Companies, as appropriate,
shall take such steps as may be necessary to comply with Rules 6e-2 and 6e-3(T),
as amended, and Rule 6e-3, as adopted, to the extent such rules are applicable.
7.7. The Company and the Adviser shall at least annually submit to the
Board of the Fund such reports, materials or data as the Board may reasonably
request so that the Board may fully carry out the obligations imposed upon them
by the provisions hereof, and said reports, materials and data shall be
submitted more frequently if deemed appropriate by the Board. All reports
received by the Board of potential or existing conflicts, and all Board action
with regard to determining the existence of a conflict, notifying Participating
Insurance Companies of a conflict, and determining whether any proposed action
adequately remedies a conflict, shall be properly recorded in the minutes of the
Board or other appropriate records, and such minutes or other records shall be
made available to the SEC upon request.
ARTICLE VIII. INDEMNIFICATION
8.1. Indemnification By Company and AGSI
8.1(a). The Company and AGSI agree to indemnify and hold harmless the Fund
and each member of the Board and officers and agents and the Adviser and each
director and officer of the Adviser, and each person, if any, who controls the
Fund or the Adviser within the meaning of Section 15 of the 1933 Act
(collectively, the "Indemnified Parties" and individually, "Indemnified Party,"
for purposes of this Section 8.1) against any and all losses, claims, damages,
liabilities (including amounts paid in settlement with the written consent of
the Company or AGSI) or expenses (including legal and other expenses), to which
the Indemnified Parties may become subject under any statute or regulation, at
common law or otherwise, insofar as such losses, claims, damages, liabilities or
expenses (or actions in respect thereof) or settlements are related to the sale
or acquisition of the Fund's shares or the Contracts and:
(i) arise out of or are based upon any untrue statements or alleged
untrue statements of any material fact contained in the registration
statement or prospectus for the Contracts or contained in the Contracts or
sales literature for the Contracts (or any amendment or supplement to any
of the foregoing), or arise out of or are based upon the omission or the
alleged omission to state therein a material fact required to be stated
therein or necessary to
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<PAGE>
make the statements therein not misleading, provided that this agreement to
indemnify shall not apply as to any Indemnified Party if such statement or
omission or such alleged statement or omission was made in reliance upon
and in conformity with information furnished to the Company by or on behalf
of the Fund for use in the registration statement or prospectus for the
Contracts or in the Contracts or sales literature (or any amendment or
supplement) or otherwise for use in connection with the sale of the
Contracts or Fund shares; or
(ii) arise out of or as a result of statements or representations
(other than statements or representations contained in the registration
statement, prospectus or sales literature of the Fund not supplied by the
Company or AGSI, or persons under its control and other than statements or
representations authorized by the Fund or the Adviser) or unlawful conduct
of the Company or AGSI or persons under its control, with respect to the
sale or distribution of the Contracts or Fund shares; or
(iii) arise out of or as a result of any untrue statement or alleged
untrue statement of a material fact contained in a registration statement,
prospectus, or sales literature of the Fund or any amendment thereof or
supplement thereto or the omission or alleged omission to state therein a
material fact required to be stated therein or necessary to make the
statements therein not misleading if such a statement or omission was made
in reliance upon and in conformity with information furnished to the Fund
by or on behalf of the Company or AGSI;
(iv) arise as a result of any failure by the Company or AGSI to provide
the services and furnish the materials required under the terms of this
Agreement; or
(v) arise out of or result from any material breach of any
representation and/or warranty made by the Company or AGSI in this
Agreement or arise out of or result from any other material breach of this
Agreement by the Company or AGSI, as limited by and in accordance with the
provisions of Sections 8.1(b) and 8.1(c) hereof.
8.1(b). Neither the Company nor AGSI shall be liable under this
indemnification provision with respect to any losses, claims, damages,
liabilities or litigation incurred or assessed against an Indemnified Party as
such may arise from such Indemnified Party's willful misfeasance, bad faith, or
gross negligence in the performance of such Indemnified Party's duties or by
reason of such Indemnified Party's reckless disregard of obligations or duties
under this Agreement.
8.1(c). Neither the Company nor AGSI shall be liable under this
indemnification provision with respect to any claim made against an Indemnified
Party unless such Indemnified Party shall have notified the Company or AGSI in
writing within a reasonable time after the summons or other first legal process
giving information of the nature of the claim shall have been served upon such
Indemnified Party (or after such Indemnified Party shall have received notice of
such service on any designated agent), but failure to notify the Company or AGSI
of any such claim shall not relieve the Company or AGSI from any liability which
it may have to the Indemnified Party against whom such action is brought
otherwise than on account of this indemnification provision. In case any such
action is brought against the Indemnified Parties, the Company or AGSI shall be
entitled to participate, at its own expense, in the defense of such action. The
Company or AGSI also shall be
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<PAGE>
entitled to assume the defense thereof, with counsel satisfactory to the party
named in the action. After notice from the Company or AGSI to such Party of the
Company's or AGSI's election to assume the defense thereof, the Indemnified
Party shall bear the fees and expenses under this Agreement for any legal or
other expenses subsequently incurred by such Party independently in connection
with the defense thereof other than reasonable costs of investigation.
8.1(d). The Indemnified Parties will promptly notify the Company or AGSI
of the commencement of any litigation or proceedings against them in connection
with the issuance or sale of the Fund shares or the Contracts or the operation
of the Fund.
8.2. Indemnification by the Adviser
8.2(a). The Adviser agrees, with respect to each Portfolio, to indemnify
and hold harmless the Company and each of its directors and officers and each
person, if any, who controls the Company within the meaning of Section 15 of the
1933 Act (collectively, the "Indemnified Parties" and individually, "Indemnified
Party," for purposes of this Section 8.2) against any and all losses, claims,
damages, liabilities (including amounts paid in settlement with the written
consent of the Adviser) or expenses (including legal and other expenses) to
which the Indemnified Parties may become subject under any statute, at common
law or otherwise, insofar as such losses, claims, damages, liabilities or
expenses (or actions in respect thereof) or settlements, result from the gross
negligence, bad faith, willful misconduct of the Adviser or any director,
officer, employee or agent thereof, are related to the operation of the Adviser
or the Fund and:
(i) arise out of or are based upon any untrue statement or alleged
untrue statement of any material fact contained in the registration
statement or prospectus or sales literature of the Fund (or any amendment
or supplement to any of the foregoing), or arise out of or are based upon
the omission or the alleged omission to state therein a material fact
required to be stated therein or necessary to make the statements therein
not misleading, provided that this agreement to indemnify shall not apply
as to any Indemnified Party if such statement or omission or such alleged
statement or omission was made in reliance upon and in conformity with
information furnished to the Adviser or the Fund or the Underwriter by or
on behalf of the Company for use in the registration statement or
prospectus for the Fund or in sales literature (or any amendment or
supplement) or otherwise for use in connection with the sale of the
Contracts or Portfolio shares; or
(ii) arise out of or as a result of statements or representations (other
than statements or representations contained in the registration statement,
prospectus or sales literature for the Contracts not supplied by the
Adviser or persons under its control and other than statements or
representations authorized by the Company) or unlawful conduct of the
Adviser or persons under its control, with respect to the sale or
distribution of the Contracts or Portfolio shares; or
(iii) arise out of or as a result of any untrue statement or alleged
untrue statement of a material fact contained in a registration statement,
prospectus, or sales literature covering the Contracts, or any amendment
thereof or supplement thereto, or the omission or alleged
17
<PAGE>
omission to state therein a material fact required to be stated therein or
necessary to make the statement or statements therein not misleading, if
such statement or omission was made in reliance upon information furnished
to the Company by or on behalf of the Adviser; or
(iv) arise as a result of any failure by the Adviser to provide the
services and furnish the materials required under the terms of this
Agreement; or
(v) arise out of or result from any material breach of any
representation and/or warranty made by the Adviser in this Agreement or
arise out of or result from any other material breach of this Agreement by
the Fund or the Adviser; including without limitation any failure by the
Fund or the Adviser to comply with the conditions of Article VI hereof.
8.2(b). The Adviser shall not be liable under this indemnification
provision with respect to any losses, claims, damages, liabilities or litigation
incurred or assessed against an Indemnified Party as may arise from such
Indemnified Party's willful misfeasance, bad faith, or gross negligence in the
performance of such Indemnified Party's duties or by reason of such Indemnified
Party's reckless disregard of obligations and duties under this Agreement.
8.2(c). The Adviser shall not be liable under this indemnification
provision with respect to any claim made against an Indemnified Party unless
such Indemnified Party shall have notified the Adviser in writing within a
reasonable time after the summons or other first legal process giving
information of the nature of the claim shall have been served upon such
Indemnified Party (or after such Indemnified Party shall have received notice of
such service on any designated agent), but failure to notify the Adviser of any
such claim shall not relieve the Adviser from any liability which it may have to
the Indemnified Party against whom such action is brought otherwise than on
account of this indemnification provision. In case any such action is brought
against the Indemnified Parties, the Adviser will be entitled to participate, at
its own expense, in the defense thereof. The Adviser also shall be entitled to
assume the defense thereof, with counsel satisfactory to the party named in the
action. After notice from the Adviser to such Party of the Adviser's election
to assume the defense thereof, the Indemnified Party shall bear the fees and
expenses of any additional counsel retained by it, and the Adviser will not be
liable to such Party under this Agreement for any legal or other expenses
subsequently incurred by such Party independently in connection with the defense
thereof other than reasonable costs of investigation.
8.2(d). The Company and AGSI agree promptly to notify the Adviser of the
commencement of any litigation or proceedings against it or any of its officers,
trustees or directors in connection with this Agreement, the issuance or sale of
the Contracts with respect to the operation of each Account, or the sale or
acquisition of shares of the Fund.
ARTICLE IX. APPLICABLE LAW
9.1. This Agreement shall be construed and the provisions hereof
interpreted under and in accordance with the laws of the State of Texas.
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9.2. This Agreement shall be subject to the provisions of the 1933, 1934
and 1940 Acts, and the rules and regulations and rulings thereunder, including
such exemptions from those statutes, rules and regulations as the SEC may grant
(including, but not limited to, the Shared Funding Exemptive Order) and the
terms hereof shall be interpreted and construed in accordance therewith.
ARTICLE X. TERMINATION
10.1. This Agreement shall continue in full force and effect until the
first to occur of:
(a) termination by any party for any reason upon six-months advance
written notice delivered to the other parties; or
(b) termination by the Company or AGSI by written notice to the Fund
and the Adviser with respect to any Portfolio based upon the
Company's determination that shares of such Portfolio are not
reasonably available to meet the requirements of the Contracts.
Reasonable advance notice of election to terminate shall be
furnished by the Company, said termination to be effective ten
(10) days after receipt of notice unless the Fund makes
available a sufficient number of shares to reasonably meet the
requirements of the Account within said ten (10) day period; or
(c) termination by the Company or AGSI by written notice to the Fund
and the Adviser with respect to any Portfolio in the event any
of the Portfolio's shares are not registered, issued or sold in
accordance with applicable state and/or federal law or such law
precludes the use of such shares as the underlying investment
medium of the Contracts issued or to be issued by the Company.
The terminating party shall give prompt notice to the other
parties of its decision to terminate; or
(d) termination by the Company or AGSI by written notice to the Fund
and the Adviser with respect to any Portfolio in the event that
such Portfolio ceases to qualify as a Regulated Investment
Company under Subchapter M of the Code or under any successor or
similar provision, or if the Company or AGSI reasonably believes
that the Fund may fail to so qualify; or
(e) termination by the Company or AGSI by written notice to the Fund
and the Adviser with respect to any Portfolio in the event that
such Portfolio fails to meet the diversification requirements
specified in Article VI hereof; or
(f) termination by either the Fund or the Adviser by written notice
to the Company if the Adviser or the Fund shall determine, in
its sole judgment exercised in good faith, that the Company,
AGSI and/or their affiliated companies has suffered a material
adverse change in its business, operations, financial condition
or prospects since the date of this Agreement or is the
19
<PAGE>
subject of material adverse publicity, provided that the Fund or
the Adviser will give the Company sixty (60) days' advance
written notice of such determination of its intent to terminate
this Agreement, and provided further that after consideration of
the actions taken by the Company or AGSI and any other changes
in circumstances since the giving of such notice, the
determination of the Fund or the Adviser shall continue to apply
on the 60th day since giving of such notice, then such 60th day
shall be the effective date of termination; or
(g) termination by the Company or AGSI by written notice to the Fund
and the Adviser, if the Company or AGSI shall determine, in its
sole judgment exercised in good faith, that either the Fund or
the Adviser (with respect to the appropriate Portfolio) has
suffered a material adverse change in its business, operations,
financial condition or prospects since the date of this
Agreement or is the subject of material adverse publicity;
provided that the Company will give the Fund or the Adviser
sixty (60) days' advance written notice of such determination of
its intent to terminate this Agreement, and provided further
that after consideration of the actions taken by the Company and
any other changes in circumstances since the giving of such
notice, the determination of the Company or AGSI shall continue
to apply on the 60th day since giving of such notice, then such
60th day shall be the effective date of termination; or
(h) termination by the Fund or the Adviser by written notice to the
Company, if the Company gives the Fund and the Adviser the
written notice specified in Section 2.4 hereof and at the time
such notice was given there was no notice of termination
outstanding under any other provision of this Agreement;
provided, however any termination under this Section 10.1(h)
shall be effective sixty (60) days after the notice specified in
Section 2.4 was given; or
(i) termination by any party upon the other party's breach of any
representation in Section 2 or any material provision of this
Agreement, which breach has not been cured to the satisfaction
of the terminating party within ten (10) days after written
notice of such breach is delivered to the Fund or the Company,
as the case may be; or
(j) termination by the Fund or the Adviser by written notice to the
Company in the event an Account or Contract is not registered or
sold in accordance with applicable federal or state law or
regulation, or the Company fails to provide pass-through voting
privileges as specified in Section 3.4.
10.2. EFFECT OF TERMINATION. Notwithstanding any termination of this
Agreement, the Fund shall at the option of the Company, continue to make
available additional shares of the Fund pursuant to the terms and conditions of
this Agreement, for all Contracts in effect on the effective
20
<PAGE>
date of termination of this Agreement (hereinafter referred to as "Existing
Contracts") unless such further sale of Fund shares is proscribed by law,
regulation or applicable regulatory body, or unless the Fund determines that
liquidation of the Fund following termination of this Agreement is in the best
interests of the Fund and its shareholders. Specifically, without limitation,
the owners of the Existing Contracts shall be permitted to direct reallocation
of investments in the Fund, redemption of investments in the Fund and/or
investment in the Fund upon the making of additional purchase payments under the
Existing Contracts. The parties agree that this Section 10.2 shall not apply to
any terminations under Article VII and the effect of such Article VII
terminations shall be governed by Article VII of this Agreement.
10.3. The Company shall not redeem Fund shares attributable to the
Contracts (as distinct from Fund shares attributable to the Company's assets
held in the Account) except (i) as necessary to implement Contract Owner
initiated or approved transactions, or (ii) as required by state and/or federal
laws or regulations or judicial or other legal precedent of general application
(hereinafter referred to as a "Legally Required Redemption") or (iii) as
permitted by an order of the SEC pursuant to Section 26(b) of the 1940 Act.
Upon request, the Company will promptly furnish to the Fund the opinion of
counsel for the Company (which counsel shall be reasonably satisfactory to the
Fund and the Adviser) to the effect that any redemption pursuant to clause (ii)
above is a Legally Required Redemption. Furthermore, except in cases where
permitted under the terms of the Contracts, the Company shall not prevent
Contract Owners from allocating payments to a Portfolio that was otherwise
available under the Contracts without first giving the Fund or the appropriate
Adviser 90 days prior written notice of its intention to do so.
ARTICLE XI. NOTICES
Any notice shall be sufficiently given when sent by registered or certified
mail to the other party at the address of such party set forth below or at such
other address as such party may from time to time specify in writing to the
other party.
If to the Fund:
Hotchkis and Wiley Variable Trust
800 West Sixth Street, Fifth Floor
Los Angeles, CA 90017
Attention:
------------------------------
If to Adviser:
Hotchkis and Wiley
800 West Sixth Street, Fifth Floor
Los Angeles, CA 90017
Attention: Gracie Fermelia
------------------------------
21
<PAGE>
If to the Company:
American General Life Insurance Company
2727-A Allen Parkway
Houston, Texas 77019
Attention: Steven A. Glover
If to AGSI:
American General Securities Incorporated
2727 Allen Parkway
Houston, Texas 77019
Attention: F. Paul Kovach, Jr.
ARTICLE XII. FOREIGN TAX CREDITS
The Fund and the Adviser agree to consult with the Company concerning
whether any Portfolio of the Fund qualifies to provide a foreign tax credit
pursuant to Section 853 of the Code.
ARTICLE XIII. MISCELLANEOUS
13.1. All persons dealing with the Fund must look solely to the property
of the Fund for the enforcement of any claims against the Fund as neither the
Board, officers, agents or shareholders assume any personal liability for
obligations entered into on behalf of the Fund.
13.2. Subject to the requirements of legal process and regulatory
authority, each party hereto shall treat as confidential the names and addresses
of the owners of the Contracts and all information reasonably identified as
confidential in writing by any other party hereto and, except as permitted by
this Agreement, shall not disclose, disseminate or utilize such names and
addresses and other confidential information until such time as it may come into
the public domain without the express written consent of the affected party.
13.3. The captions in this Agreement are included for convenience of
reference only and in no way define or delineate any of the provisions hereof or
otherwise affect their construction or effect.
13.4. This Agreement may be executed simultaneously in two or more
counterparts, each of which taken together shall constitute one and the same
instrument.
13.5. If any provision of this Agreement shall be held or made invalid by
a court decision, statute, rule or otherwise, the remainder of this Agreement
shall not be affected thereby.
22
<PAGE>
13.6. Each party hereto shall cooperate with each other party and all
appropriate governmental authorities (including without limitation the SEC, the
NASD and state insurance regulators) and shall permit such authorities
reasonable access to its books and records in connection with any investigation
or inquiry relating to this Agreement or the transactions contemplated hereby.
13.7. The rights, remedies and obligations contained in this Agreement are
cumulative and are in addition to any and all rights, remedies and obligations
at law or in equity, which the parties hereto are entitled to under state and
federal laws.
13.8. This Agreement or any of the rights and obligations hereunder may
not be assigned by any party without the prior written consent of all parties
hereto; provided, however, that the Adviser may assign this Agreement or any
rights or obligations hereunder to any affiliate of or company under common
control with the Adviser, if such assignee is duly licensed and registered to
perform the obligations of the Adviser under this Agreement.
13.9. The Company shall furnish, or shall cause to be furnished, to the
Fund or its designee copies of the following reports:
(a) the Company's annual statement (prepared under statutory
accounting principles) and annual report (prepared under generally
accepted accounting principles ("GAAP"), if any), as soon as
practical and in any event within 90 days after the end of each
fiscal year;
(b) the Company's June 30th quarterly statements (statutory) (and
GAAP, if any), as soon as practical and in any event within 45
days after the end of each semi-annual period:
(c) any financial statement, proxy statement, notice or report of
the Company sent to stockholders and/or policyholders, as soon as
practical after the delivery thereof to stockholders;
(d) any registration statement (without exhibits) and financial
reports of the Company filed with the SEC or any state
insurance regulator, as soon as practical after the filing
thereof; and
(e) any other public report submitted to the Company by independent
accountants in connection with any annual, interim or special audit
made by them of the books of the Company, as soon as practical after
the receipt thereof.
23
<PAGE>
IN WITNESS WHEREOF, each of the parties hereto has caused this Agreement to
be executed in its name and on its behalf by its duly authorized representative
hereto as of the date specified above.
AMERICAN GENERAL LIFE INSURANCE COMPANY on behalf of itself and each
of its Accounts named in Schedule B hereto, as amended from time to
time.
By: /S/ RODNEY O. MARTIN
------------------------------
Name: Rodney O. Martin, Jr.
Title: President and Chief Executive Officer
AMERICAN GENERAL SECURITIES INCORPORATED
By: /S/ F. PAUL KOVACH
------------------------------
Name: F. Paul Kovach, Jr.
Title: President
HOTCHKIS AND WILEY VARIABLE TRUST
By: /S/ NANCY D. CELICK
------------------------------
Name: Nancy D. Celick
Title: President
HOTCHKIS AND WILEY
By: /S/ NANCY D. CELICK
------------------------------
Name: Nancy D. Celick
Title: CFO
24
<PAGE>
SCHEDULE A
PORTFOLIOS OF HOTCHKIS AND WILEY VARIABLE TRUST
AVAILABLE FOR PURCHASE BY
AMERICAN GENERAL LIFE INSURANCE COMPANY
UNDER THIS AGREEMENT
Equity Income VIP Portfolio
Low Duration VIP Portfolio
25
<PAGE>
SCHEDULE B
SEPARATE ACCOUNTS AND CONTRACTS
-------------------------------
<TABLE>
<CAPTION>
<S> <C>
Name of Separate Account and Form Numbers and Names of Contract Funded by
Date Established by Board of Directors Separate Account
- -------------------------------------- --------------------------
American General Life Insurance Company Form No:
Separate Account D -------
Established: November 19, 1973 97505
Name of Contract:
----------------
Flexible Payment Variable and Fixed
Individual Deferred Annuity
</TABLE>
26
<PAGE>
SCHEDULE C
PROXY VOTING PROCEDURES
-----------------------
The following is a list of procedures and corresponding responsibilities for the
handling of proxies and voting instructions relating to the Fund. The defined
terms herein shall have the meanings assigned in the Participation Agreement
except that the term "Company" shall also include the department or third party
assigned by the Company to perform the steps delineated below.
1. The proxy proposals are given to the Company by the Fund as early as
possible before the date set by the Fund for the shareholder meeting to
enable the Company to consider and prepare for the solicitation of voting
instructions from owners of the Contracts and to facilitate the
establishment of tabulation procedures. At this time the Fund will inform
the Company of the Record, Mailing and Meeting dates. This will be done
verbally approximately two months before meeting.
2. Promptly after the Record Date, the Company will perform a "tape run", or
other activity, which will generate the names, addresses and number of
units which are attributed to each contract owner/policyholder (the
"Customer") as of the Record Date. Allowance should be made for account
adjustments made after this date that could affect the status of the
Customers' accounts as of the Record Date.
Note: The number of proxy statements is determined by the activities
described in this Step #2. The Company will use its best efforts to call
in the number of Customers to the Fund, as soon as possible, but no later
than two weeks after the Record Date.
3. The Fund's Annual Report must be sent to each Customer by the Company
either before or together with the Customers' receipt of a proxy statement
or other voting instructions and solicitation material. The Fund will
provide at least one copy of the last Annual Report to the Company pursuant
to the terms of Section 3.3 of the Agreement to which this Schedule
relates.
4. The text and format for the Voting Instruction Cards ("Cards" or "Card") is
provided to the Company by the Fund. The Company, at its expense, shall
produce and personalize the Voting Instruction Cards. The Fund or its
affiliate must approve the Card before it is printed. Allow approximately
2-4 business days for printing information on the Cards. Information
commonly found on the Cards includes:
a. name (legal name as found on account registration)
b. address
c. fund or account number
d. coding to state number of units
e. individual Card number for use in tracking and verification of votes
(already on Cards as printed by the Fund).
27
<PAGE>
(This and related steps may occur later in the chronological process due to
possible uncertainties relating to the proposals.)
5. During this time, the Fund will develop, produce and pay for the Notice of
Proxy and the Proxy Statement (one document). Printed and folded notices
and statements will be sent to Company for insertion into envelopes
(envelopes and return envelopes are provided and paid for by the Company).
Contents of envelope sent to Customers by the Company will include:
a. Voting Instruction Card(s)
b. One proxy notice and statement (one document)
c. return envelope (postage pre-paid by Company) addressed to the Company
or its tabulation agent
d. "urge buckslip" - optional, but recommended. (This is a small, single
sheet of paper that requests Customers to vote as quickly as possible
and that their vote is important. One copy will be supplied by the
Fund.)
e. cover letter - optional, supplied by Company and reviewed and approved
in advance by the Fund.
6. The above contents should be received by the Company approximately 3-5
business days before mail date. Individual in charge at Company reviews and
approves the contents of the mailing package to ensure correctness and
completeness. Copy of this approval sent to the Fund.
7. Package mailed by the Company.
* The Fund must allow at least a 15-day solicitation time to the Company
as the shareowner. (A 5-week period is recommended.) Solicitation
time is calculated as calendar days from (but not including,) the
meeting, counting backwards.
8. Collection and tabulation of Cards begins. Tabulation usually takes place
in another department or another vendor depending on process used. An
often used procedure is to sort Cards on arrival by proposal into vote
categories of all yes, no, or mixed replies, and to begin data entry.
Note: Postmarks are not generally needed. A need for postmark information
would be due to an insurance company's internal procedure and has not been
required by the Fund in the past.
9. Signatures on Card checked against legal name on account registration which
was printed on the Card.
Note: For example, if the account registration is under "John A. Smith,
Trustee," then that is the exact legal name to be printed on the Card and
is the signature needed on the Card.
10. If Cards are mutilated, or for any reason are illegible or are not signed
properly, they are sent
28
<PAGE>
back to Customer with an explanatory letter and a new Card and return
envelope. The mutilated or illegible Card is disregarded and considered to
be not received for purposes of vote tabulation. Any Cards that have been
"kicked out" (e.g. mutilated, illegible) of the procedure are "hand
verified," i.e., examined as to why they did not complete the system. Any
questions on those Cards are usually remedied individually.
11. There are various control procedures used to ensure proper tabulation of
votes and accuracy of that tabulation. The most prevalent is to sort the
Cards as they first arrive into categories depending upon their vote; an
estimate of how the vote is progressing may then be calculated. If the
initial estimates and the actual vote do not coincide, then an internal
audit of that vote should occur. This may entail a recount.
12. The actual tabulation of votes is done in units which is then converted to
shares. (It is very important that the Fund receives the tabulations stated
in terms of a percentage and the number of shares.) The Fund must review
and approve tabulation format.
13. Final tabulation in shares is verbally given by the Company to the Fund on
the morning of the meeting not later than 10:00 a.m. Eastern time. The
Fund may request an earlier deadline if reasonable and if required to
calculate the vote in time for the meeting.
14. A Certification of Mailing and Authorization to Vote Shares will be
required from the Company as well as an original copy of the final vote.
The Fund will provide a standard form for each Certification.
15. The Company will be required to box and archive the Cards received from the
Customers. In the event that any vote is challenged or if otherwise
necessary for legal, regulatory, or accounting purposes, the Fund will be
permitted reasonable access to such Cards.
16. All approvals and "signing-off" may be done orally, but must always be
followed up in writing.
29
<PAGE>
Exhibit 3(b)(iii)(B)
<PAGE>
PARTICIPATION AGREEMENT
AMONG
AMERICAN GENERAL LIFE INSURANCE COMPANY,
AMERICAN GENERAL SECURITIES INCORPORATED,
LEVCO SERIES TRUST
AND
JOHN A. LEVIN & CO., INC.
DATED AS OF
FEBRUARY 26, 1998
-----------------
<PAGE>
TABLE OF CONTENTS
-----------------
Page
----
ARTICLE I. Fund Shares............................... 4
ARTICLE II Representations and Warranties............ 6
ARTICLE III. Prospectuses, Reports to Shareholders
and Proxy Statements, Voting.............. 8
ARTICLE IV. Sales Material and Information............ 12
ARTICLE V [Reserved]................................ 13
ARTICLE VI. Diversification........................... 13
ARTICLE VII. Potential Conflicts....................... 13
ARTICLE VIII. Indemnification........................... 15
ARTICLE IX. Applicable Law............................ 18
ARTICLE X. Termination............................... 19
ARTICLE XI. Notices................................... 21
ARTICLE XII. Foreign Tax Credits....................... 22
ARTICLE XIII. Miscellaneous............................. 22
SCHEDULE A Portfolios of LEVCO Equity Value Fund..... 25
Available for Purchase by American General
Life Insurance Company
SCHEDULE B Separate Accounts and Contracts........... 26
SCHEDULE C Proxy Voting Procedures................... 27
2
<PAGE>
THIS AGREEMENT, made and entered into as of the 26th day of February, 1998
by and among AMERICAN GENERAL LIFE INSURANCE COMPANY (hereinafter the
"Company"), a Texas insurance company, on its own behalf and on behalf of each
separate account of the Company set forth on Schedule B hereto as may be amended
from time to time (each such account hereinafter referred to as the "Account");
AMERICAN GENERAL SECURITIES INCORPORATED ("AGSI"), a Texas corporation; LEVCO
Series Trust (hereinafter the "Fund"), a Delaware business trust; and John A.
Levin & Co., Inc., a Delaware corporation (the "Adviser").
WHEREAS, the Fund engages in business as an open-end management investment
company and is available to act as (i) the investment vehicle for separate
accounts established by insurance companies for individual and group life
insurance policies and annuity contracts with variable accumulation and/or pay-
out provisions (hereinafter referred to individually and/or collectively as
"Variable Insurance Products") and (ii) the investment vehicle for certain
qualified pension and retirement plans (hereinafter "Qualified Plans"); and
WHEREAS, insurance companies desiring to utilize the Fund as an investment
vehicle under their Variable Insurance Products are required to enter into a
participation agreement with the Fund and the Adviser (the "Participating
Insurance Companies"); and
WHEREAS, the Fund intends to offer shares of the series set forth on
Schedule A (each such series hereinafter referred to as a "Portfolio"), as may
be amended from time to time by mutual agreement of the parties hereto, under
this Agreement to the Accounts of the Company; and
WHEREAS, the Fund has obtained an order from the Securities and Exchange
Commission, dated October 8, 1997 (File No. 812-10614), granting Participating
Insurance Companies and Variable Insurance Product separate accounts exemptions
from the provisions of Sections 9(a), 13(a), 15(a), and 15(b) of the Investment
Company Act of 1940, as amended (hereinafter the "1940 Act"), and
Rules 6e-2(b)(15) and 6e-3(T)(b)(15) thereunder, to the extent necessary to
permit shares of the Fund to be sold to and held by Variable Annuity Product
separate accounts of both affiliated and unaffiliated life insurance companies
and Qualified Plans (hereinafter the "Shared Funding Exemptive Order"); and
WHEREAS, the Fund is registered as an open-end management investment
company under the 1940 Act and its shares are registered under the Securities
Act of 1933, as amended (hereinafter the "1933 Act"); and
WHEREAS, the Adviser is duly registered as an investment adviser under the
Investment Advisers Act of 1940, as amended, and any applicable state securities
laws; and
WHEREAS, the Adviser manages the Portfolios of the Fund; and
WHEREAS, LEVCO Securities, Inc. (the "Underwriter") is registered as a
broker/dealer under the Securities Exchange Act of 1934, as amended (hereinafter
the "1934 Act"), is a member in good standing of the National Association of
Securities Dealers, Inc. (hereinafter "NASD") and
3
<PAGE>
serves as principal underwriter of the shares of the Fund; and
WHEREAS, the Company has registered or will register certain Variable
Insurance Products under the 1933 Act; and
WHEREAS, each Account is a duly organized, validly existing segregated
asset account, established by resolution or under authority of the Board of
Directors of the Company, on the date shown for such Account on Schedule B
hereto, to set aside and invest assets attributable to the aforesaid Variable
Insurance Product; and
WHEREAS, the Company has registered or will register each Account as a unit
investment trust under the 1940 Act; and
WHEREAS, to the extent permitted by applicable insurance laws and
regulations, the Company intends to purchase shares in the Portfolios on behalf
of each Account to fund certain of the aforesaid Variable Insurance Products and
the Underwriter is authorized to sell such shares to each such Account at net
asset value; and
WHEREAS, AGSI serves as both the distributor and the principal underwriter
of the Variable Insurance Products that are set forth on Schedule B;
NOW, THEREFORE, in consideration of their mutual promises, the Company, AGSI,
the Fund and the Adviser agree as follows:
ARTICLE I. FUND SHARES
1.1. The Fund agrees to make available for purchase by the Company shares
of the Portfolios set forth on Schedule A and shall execute orders placed for
each Account on a daily basis at the net asset value next computed after receipt
by the Fund or its designee of such order. For purposes of this Section 1.1,
the Company shall be the designee of the Fund for receipt of such orders from
each Account and receipt by such designee shall constitute receipt by the Fund;
provided that (a) such orders are received by the Company in good order prior to
the time the net asset value of the Fund is priced in accordance with its
prospectus and (b) the Fund receives notice of such order as soon as reasonably
practical (normally by 10:00 a.m. Eastern Time) on the next following Business
Day. Notwithstanding the foregoing, the Company shall use its best efforts to
provide the Fund with notice of such orders by 10:15 a.m. Eastern Time on the
next following Business Day. "Business Day" shall mean any day on which the New
York Stock Exchange is open for trading and on which the Fund calculates the net
asset value pursuant to the rules of the SEC, as set forth in the Fund's
Prospectus and Statement of Additional Information. Notwithstanding the
foregoing, the Board of Trustees of the Fund (hereinafter the "Board") may
refuse to permit the Fund to sell shares of any Portfolio to any person, or
suspend or terminate the offering of shares of any Portfolio, if such action is
required by law or by regulatory authorities having jurisdiction or is, in the
sole discretion of the Board acting in good faith and in light of their
fiduciary duties under federal and any applicable state laws, necessary in the
best interests of the shareholders of such Portfolio.
4
<PAGE>
1.2. The Fund agrees that shares of the Fund will be sold only to
Participating Insurance Companies and their Variable Insurance Products and to
certain Qualified Plans. No shares of any Portfolio will be sold to the general
public. The Company agrees that shares of the Fund will be used only for the
purpose of funding the Accounts and Contracts listed on Schedule B, as amended
from time to time.
1.3. The Fund will not make its shares available for purchase by any
insurance company or separate account unless an agreement containing provisions
substantially the same as Sections 2.4, 2.9, 3.4 and Article VII of this
Agreement is in effect to govern such sales.
1.4. The Fund agrees to redeem for cash, on the Company's request, any full
or fractional shares of the Fund held by the Company, executing such requests on
a daily basis at the net asset value next computed after receipt by the Fund or
its designee of the request for redemption. For purposes of this Section 1.4,
the Company shall be the designee of the Fund for receipt of requests for
redemption from each Account and receipt by such designee shall constitute
receipt by the Fund; provided that (a) such orders are received by the Company
in good order prior to the time the net asset value of the Fund is priced in
accordance with its prospectus and (b) the Fund receives notice of such request
for redemption on the next following Business Day in accordance with the timing
rules described in Section 1.1.
1.5. The Company agrees that purchases and redemptions of Portfolio shares
offered by the then current prospectus of the Fund shall be made in accordance
with the provisions of such prospectus. The Accounts of the Company, under
which amounts may be invested in the Fund, are listed on Schedule B attached
hereto and incorporated herein by reference, as such Schedule B may be amended
from time to time by mutual written agreement of all of the parties hereto. The
Company will give the Fund and the Adviser sixty (60) days written notice of its
intention to make available in the future, as a funding vehicle under the
Contracts, any other investment company.
1.6. The Company will place separate orders to purchase or redeem shares of
each Portfolio. Each order shall describe the net amount of shares and dollar
amount of each Portfolio to be purchased or redeemed. In the event of net
purchases, the Company shall pay for Portfolio shares on the next Business Day
after an order to purchase Portfolio shares is made in accordance with the
provisions of Section 1.1 hereof. Payment shall be in federal funds transmitted
by wire. In the event of net redemptions, the Portfolio shall pay the
redemption proceeds in federal funds transmitted by wire on the next Business
Day after an order to redeem a Portfolio's shares is made in accordance with the
provision of Section 1.4. Notwithstanding the foregoing, the payment of
redemption proceeds may be delayed, but not for a greater period than is
permitted by the 1940 Act or by rules or order of the SEC thereunder.
1.7. Issuance and transfer of the Fund's shares will be by book entry only.
Stock certificates will not be issued to the Company or any Account. Shares
ordered from the Fund will be recorded in an appropriate title for each Account
or the appropriate subaccount of each Account.
1.8. The Fund shall make the dividends or capital gain distributions
payable on the Fund's shares available to the Company as soon as reasonably
practical after the dividends or capital gains are calculated (normally by 6:30
p.m. Eastern time) and shall use its reasonable best efforts to furnish same day
notice by 7:00 p.m. Eastern time (by wire or telephone, followed by written
confirmation) to the Company of any dividends or capital gain distributions
payable on the Fund's
5
<PAGE>
shares. The Company hereby elects to receive all such dividends and capital gain
distributions as are payable on the Portfolio shares in additional shares of
that Portfolio. The Company reserves the right to revoke this election and to
receive all such dividends and capital gain distributions in cash on 30 days'
written notice to the Fund. The Fund shall notify the Company of the number of
shares so issued as payment of such dividends and distributions.
1.9. The Fund shall make the net asset value per share for each Portfolio
available to the Company on a daily basis as soon as reasonably practical after
the net asset value per share is calculated (normally by 6:30 p.m. Eastern time)
and shall use its reasonable best efforts to make such net asset value per share
available by 7:00 p.m. Eastern time. In the event that the Fund is unable to
meet the 7:00 p.m. time stated immediately above, then the Fund shall provide
the Company with additional time to notify the Fund of purchase or redemption
orders pursuant to Sections 1.1 and 1.4, respectively, above. Such additional
time shall be equal to the additional time that the Fund takes to make the net
asset values available to the Company; provided, however, that notification must
be made by 10:15 a.m. Eastern time on the Business Day such order is to be
executed regardless of when the net asset value is made available.
1.10. If the Fund provides materially incorrect share net asset value
information through no fault of the Company, the Company shall be entitled to an
adjustment with respect to the Fund shares purchased or redeemed to reflect the
correct net asset value per share. The determination of the materiality of any
net asset value pricing error shall be based on the SEC's recommended guidelines
regarding such errors. The correction of any such errors shall be made at the
Company level and shall be made pursuant to the SEC's recommended guidelines.
Any material error in the calculation or reporting of net asset value per share,
dividend or capital gain information shall be reported promptly upon discovery
to the Company.
ARTICLE II. REPRESENTATIONS AND WARRANTIES
2.1. The Company represents and warrants that the interests of the
Accounts (the "Contracts") are or will be registered and will maintain the
registration under the 1933 Act and the regulations thereunder to the extent
required by the 1933 Act; that the Contracts will be issued in compliance in all
material respects with all applicable federal and state laws and regulations;
and that the sale of the Contracts shall comply in all material respects with
state insurance suitability requirements. The Company further represents and
warrants that it is an insurance company duly organized and in good standing
under applicable law and that it has legally and validly established each
Account prior to any isssurance or sale thereof as a segregated asset account
under the Texas Insurance Law and the regulations thereunder and has registered
or, prior to any issuance or sale of the Contracts, will register and will
maintain the registration of each Account as a unit investment trust in
accordance with and to the extent required by the provisions of the 1940 Act and
the regulations thereunder to serve as a segregated investment account for the
Contracts. The Company shall amend its registration statement for its contracts
under the 1933 Act and the 1940 Act from time to time as required in order to
effect the continuous offering of its Contracts.
2.2. The Fund represents and warrants that Fund shares sold pursuant to
this Agreement shall be registered under the 1933 Act and the regulations
thereunder to the extent required by the
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1933 Act, duly authorized for issuance in accordance with the laws of the State
of Delaware and sold in compliance with all applicable federal and state
securities laws and regulations and that the Fund is and shall remain registered
under the 1940 Act and the regulations thereunder to the extent required by the
1940 Act. The Fund shall amend the registration statement for its shares under
the 1933 Act and the 1940 Act from time to time as required in order to effect
the continuous offering of its shares. The Fund shall register and qualify the
shares for sale in accordance with the laws of the various states only if and to
the extent deemed advisable by the Fund.
2.3 The Fund and the Adviser represent that the Fund is currently
qualified as a Regulated Investment Company under Subchapter M of the Internal
Revenue Code of 1986, as amended (the "Code"), and that the Fund and the Adviser
(with respect to those Portfolios for which such Adviser acts as investment
adviser) will make every effort to maintain such qualification (under
Subchapter M or any successor or similar provision) and that the Fund or the
appropriate Adviser will notify the Company immediately upon having a reasonable
basis for believing that a Portfolio has ceased to so qualify or that a
Portfolio might not so qualify in the future.
2.4. The Company represents that each Account is and will continue to be a
"segregated account" under applicable provisions of the Code and that each
Contract is and will be treated as a "variable contract" under applicable
provisions of the Code and that it will make every effort to maintain such
treatments and that it will notify the Fund immediately upon having a reasonable
basis for believing that the Account or Contract has ceased to be so treated or
that they might not be so treated in the future.
2.5. The Fund represents that to the extent that it decides to finance
distribution expenses pursuant to Rule 12b-1 under the 1940 Act, the Fund
undertakes to have a board of directors, a majority of whom are not interested
persons of the Fund, formulate and approve any plan under Rule 12b-1 to finance
distribution expenses.
2.6. The Fund makes no representation as to whether any aspect of its
operations (including, but not limited to, fees and expenses and investment
policies) complies with the insurance laws or regulations of the various states.
2.7. The Fund represents that the Fund is lawfully organized and validly
existing under the laws of the State of Delaware and that the Fund does and will
comply in all material respects with the 1940 Act.
2.8. The Adviser and AGSI each represents and warrants that it is and shall
remain duly registered in all material respects under all applicable federal and
state securities laws and that it will perform its obligations for the Fund and
the Company in compliance in all material respects with the laws and regulations
of its state of domicile and any applicable state and federal securities laws
and regulations.
2.9. The Company represents and warrants that all of its trustees,
officers, employees, investment adviser, and other individuals/entities dealing
with the money and/or securities of the Fund are covered by a blanket fidelity
bond or similar coverage, in an amount equal to the greater
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of $5 million or any amount required by applicable federal or state law or
regulation. The aforesaid includes coverage for larceny and embezzlement is
issued by a reputable bonding company. The Company agrees to make all reasonable
efforts to see that this bond or another bond containing these provisions is
always in effect, and agrees to notify the Fund and the Underwriter in the event
that such coverage no longer applies.
ARTICLE III. PROSPECTUSES, REPORTS TO SHAREHOLDERS AND PROXY STATEMENTS; VOTING
3.1(a) The Fund or its designee shall provide the Company with as many
printed copies of the Fund's current prospectus, including the profile
prospectus, (the "Fund Prospectus") as the Company may reasonably request. If
requested by the Company, in lieu of providing printed copies of the Fund
Prospectus, the Fund shall provide camera-ready film or computer diskettes
containing the Fund Prospectus and such other assistance as is reasonably
necessary in order for the Company once each year (or more frequently if the
Fund Prospectus is amended during the year) to have the prospectus for the
Contracts (the "Contract Prospectus") and the Fund Prospectus printed together
in one document or separately. The Company may elect to print the Fund
Prospectus in combination with other fund companies' prospectuses. For purposes
hereof, any combined prospectus including the Fund Prospectus along with the
Contract Prospectus or prospectus of other fund companies shall be referred to
as a "Combined Prospectus." For purposes hereof, the term "Fund Portion of the
Combined Prospectus" shall refer to the percentage of the number of Fund
Prospectus pages in the Combined Prospectus in relation to the total number of
pages of the Combined Prospectus.
3.1(b) The Fund shall provide the Company with as many printed copies of
the Fund's current statement of additional information (the "Fund SAI") as the
Company may reasonably request. If requested by the Company in lieu of
providing printed copies of the Fund SAI, the Fund shall provide camera-ready
film or computer diskettes containing the Fund SAI, and such other assistance as
is reasonably necessary in order for the Company once each year (or more
frequently if the Fund SAI is amended during the year) to have the statement of
additional information for the Contracts (the "Contract SAI") and the Fund SAI
printed together or separately. The Company may also elect to print the Fund
SAI in combination with other fund companies' statements of additional
information. For purposes hereof, any combined statement of additional
information including the Fund SAI along with the Contract SAI or statement of
additional information of other fund companies shall be referred to as a
"Combined SAI." For purposes hereof, the term "Fund Portion of the Combined
SAI" shall refer to the percentage of the number of Fund SAI pages in the
Combined SAI in relation to the total number of pages of the Combined SAI.
3.1(c) The Fund shall provide the Company with as many printed copies of
the Fund's annual report and semi-annual report (collectively, the "Fund
Reports") as the Company may reasonably request. If requested by the Company in
lieu of providing printed copies of the Fund Reports, the Fund shall provide
camera-ready film or computer diskettes containing the Fund's Reports, and such
other assistance as is reasonably necessary in order for the Company once each
year to have the annual report and semi-annual report for the Contracts
(collectively, the "Contract Reports") and the Fund Reports printed together or
separately. The Company may also elect to print the Fund Reports in combination
with other fund companies' annual reports and semi-annual reports.
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For purposes hereof, any combined annual reports and semi-annual reports
including the Fund Reports along with the Contract Reports or annual reports and
semi-annual reports of other fund companies shall be referred to as "Combined
Reports." For purposes hereof, the term "Fund Portion of the Combined Reports"
shall refer to the percentage of the number of Fund Reports pages in the
Combined Reports in relation to the total number or pages of the Combined
Reports.
3.2 Expenses
3.2(a) Expenses Borne by Company. Except as otherwise provided in this
Section 3.2., all expenses of preparing, setting in type and printing and
distributing (i) Contract Prospectuses, Fund Prospectuses, and Combined
Prospectuses; (ii) Fund SAIs, Contract SAIs, and Combined SAIs; (iii) Fund
Reports, Contract Reports, and Combined Reports, and (iv) Contract proxy
material that the Company may require in sufficient quantity to be sent to
Contract owners, annuitants, or participants under Contracts (collectively, the
"Participants"), shall be the expense of the Company.
3.2(b) Expenses Borne by Fund
Fund Prospectuses
With respect to existing Participants, the Fund shall pay the cost of
setting in type, printing and distributing Fund Prospectuses made available by
the Company to such existing Participants in order to update disclosure as
required by the 1933 Act and/or the 1940 Act. With respect to existing
Participants, in the event the Company elects to prepare a Combined Prospectus,
the Fund shall pay the cost of setting in type, printing and distributing the
Fund Portion of the Combined Prospectus made available by the Company to its
existing Participants in order to update disclosure as required by the 1933 Act
and/or the 1940 Act. In such event, the Fund shall bear the cost of typesetting
to provide the Fund Prospectus to the Company in the format in which the Fund is
accustomed to formatting prospectus. Notwithstanding the foregoing, in no event
shall the Fund pay for any such costs that exceed by more than five (5) percent
what the Fund would have paid to print such documents. The Fund shall not pay
any costs of typesetting, printing and distributing the Fund Prospectus (or
Combined Prospectus, if applicable) to prospective Participants.
Fund SAIs, Fund Reports and Proxy Material
With respect to existing Participants, the Fund shall pay the cost of
setting in type and printing Fund SAIs, Fund Reports and Fund proxy material
made available by the Company to its existing Participants. With respect to
existing Participants, in the event the Company elects to prepare a Combined SAI
or Combined Reports, the Fund shall pay the cost of setting in type and printing
the Fund Portion of the Combined SAI or Combined Reports, respectively, made
available by the Company to its existing Participants. In such event, the Fund
shall bear the cost of typesetting to provide the Fund SAI or Fund Reports to
the Company in the format in which the Fund is accustomed to formatting
statements of additional information and annual and semi-annual reports.
Notwithstanding the foregoing, in no event shall the Fund pay for any such costs
that exceed by more than five (5) percent what the Fund would have paid to print
such documents. The Fund shall pay one half the cost of distributing Fund SAIs,
Fund Reports and Fund proxy statements and
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<PAGE>
proxy-related material to such existing Participants. The Fund shall pay the
cost of distributing the Fund Portion of the Combined SAIs and the Fund Portion
of the Combined Reports to existing Participants. The Fund shall not pay any
costs of setting type, printing and distributing Fund SAIs, Combined SAIs, Fund
Reports, Combined Reports or proxy statements or proxy-related material to
prospective Participants.
The Company agrees to provide the Fund or its designee with such
information as may be reasonably requested by the Fund to assure that the Fund's
expenses do not include the cost of typesetting, printing or distributing any of
the foregoing documents other than those actually distributed to existing
Participants.
The Fund shall pay no fee or other compensation to the Company under this
Agreement, except that if the Fund or any Portfolio adopts and implements a plan
pursuant to Rule 12b-1 to finance distribution expenses, then the Underwriter
may make payments to the Company or to AGSI if and in amounts agreed to by the
Underwriter in writing.
All expenses, including expenses to be borne by the Fund pursuant to
Section 3.2 hereof, incident to performance by the Fund under this Agreement
shall be paid by the Fund. The Fund shall see to it that all its shares are
registered and authorized for issuance in accordance with applicable federal law
and, if and to the extent deemed available by the Fund, in accordance with
applicable state laws prior to their sale. The Fund shall bear the expenses for
the cost of registration and qualification of the Fund's shares.
3.2(c) Expenses Borne by AGSI.
Fund Prospectuses
With respect to prospective Participants, AGSI shall pay one half of the
cost of setting in type, printing and distributing Fund Prospectuses made
available by the Company as sales literature to such prospective Participants.
With respect to prospective Participants, in the event the Company elects to
prepare a Combined Prospectus, AGSI shall pay one half of the cost of printing
and distributing the Combined Prospectus made available by the Company to its
prospective Participants as sales literature. In such event, AGSI shall bear
the cost of typesetting to provide the Fund Prospectus to the Company in the
format in which the Fund is accustomed to formatting prospectuses.
Notwithstanding the foregoing, in no event shall AGSI pay for any such costs
that exceed by more than five (5) percent what AGSI would have paid to print
such documents.
Fund SAIs, Fund Reports and Proxy Material.
With respect to prospective Participants, AGSI shall pay one half of the
cost of setting in type and printing Fund SAIs, Fund Reports and Fund proxy
material made available by the Company to its prospective Participants as sales
literature. In the event the Company elects to prepare a Combined SAI or
Combined Reports, AGSI shall pay one half of the cost of printing the Combined
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SAI or Combined Reports, respectively, made available by the Company to its
prospective Participants as sales literature. In such event, AGSI shall bear
the cost of typesetting to provide the Fund SAI and Fund Reports to the Company
in the format in which the Fund is accustomed to formatting statements of
additional information and annual and semi-annual reports. Notwithstanding the
foregoing, in no event shall AGSI pay for any such costs that exceed by more
than five (5) percent what AGSI would have paid to print such documents. AGSI
shall pay one half the cost of distributing Fund SAIs, Combined SAIs, Fund
Reports, Combined Reports, and Fund proxy material to such prospective
Participants as sales literature.
3.2(d) If the Company chooses to receive camera-ready film or computer
diskettes in lieu of receiving printed copies of the Fund Prospectus, Fund SAI
or Fund Reports, the Fund or its designee will be responsible for providing the
Fund Prospectus, Fund SAI or Fund Reports in the format in which it is
accustomed to formatting such documents, and, notwithstanding anything in
Sections 3.2(b) or 3.2(c), the Company shall bear the expense of adjusting or
changing the format to conform with any of its prospectuses or reports.
3.3. The Fund SAI shall be obtainable from the Fund, the Company or
such other person as the Fund may designate.
3.4. If and to the extent required by law the Company shall distribute
all proxy material furnished by the Fund to Participants to whom voting
privileges are required to be extended and shall:
(i) solicit voting instructions from Participants;
(ii) vote the Fund shares in accordance with instructions
received from Participants; and
(iii) vote Fund shares for which no instructions have been
received in the same proportion as Fund shares of such
Portfolio for which instructions have been received,
so long as and to the extent that the SEC continues to interpret the 1940 Act to
require pass-through voting privileges for variable contract owners. The
Company reserves the right to vote Fund shares held in any segregated asset
account in its own right, to the extent permitted by law. The Fund and the
Company shall follow the procedures, and shall have the corresponding
responsibilities, for the handling of proxy and voting instruction
solicitations, as set forth in Schedule C attached hereto and incorporated
herein by reference. Participating Insurance Companies shall be responsible for
ensuring that each of their separate accounts participating in the Fund
calculates voting privileges in a manner consistent with the standards set forth
on Schedule C, which standards will also be provided to the other Participating
Insurance Companies.
3.5. The Fund will comply with all provisions of the 1940 Act requiring
voting by shareholders, and in particular the Fund will either provide for
annual meetings (except insofar as the Securities and Exchange Commission may
interpret Section 16 not to require such meetings) or
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comply with Section 16(c) of the 1940 Act (although the Fund is not one of the
trusts described in Section 16(c) of that Act) as well as with Sections 16(a)
and, if and when applicable, 16(b). Further, the Fund will act in accordance
with the Securities and Exchange Commission's interpretation of the requirements
of Section 16(a) with respect to periodic elections of directors and with
whatever rules the Commission may promulgate with respect thereto.
ARTICLE IV. SALES MATERIAL AND INFORMATION
4.1. The Company shall furnish, or shall cause to be furnished, to the Fund
or its designee, each piece of sales literature or other promotional material
prepared by the Company, AGSI or any person contracting with the Company or AGSI
in which the Fund or the Adviser is named, at least ten Business Days prior to
its use. No such material shall be used if the Fund, the Adviser, or their
designee reasonably objects to such use within ten Business Days after receipt
of such material.
4.2. Neither the Company, AGSI nor any person contracting with the Company
or AGSI shall give any information or make any representations or statements on
behalf of the Fund or concerning the Fund in connection with the sale of the
Contracts other than the information or representations contained in the
registration statement or the Fund Prospectus, as such registration statement or
Fund Prospectus may be amended or supplemented from time to time, or in reports
or proxy statements for the Fund, or in sales literature or other promotional
material approved by the Fund or its designee, except with the permission of the
Fund.
4.3. The Fund or its designee shall furnish, or shall cause to be
furnished, to the Company or its designee, each piece of sales literature or
other promotional material prepared by the Fund in which the Company or its
Account(s) are named at least ten Business Days prior to its use. No such
material shall be used if the Company or its designee reasonably objects to such
use within ten Business Days after receipt of such material.
4.4. Neither the Fund nor the Adviser shall give any information or make
any representations on behalf of the Company or concerning the Company, each
Account, or the Contracts, other than the information or representations
contained in a registration statement or prospectus for the Contracts, as such
registration statement and prospectus may be amended or supplemented from time
to time, or in published reports or solicitations for voting instructions for
each Account which are in the public domain or approved by the Company for
distribution to Participants, or in sales literature or other promotional
material approved by the Company or its designee, except with the permission of
the Company.
4.5. The Fund will provide to the Company at least one complete copy of all
registration statements, prospectuses, statements of additional information,
reports, proxy statements, sales literature and other promotional materials,
applications for exemptions, requests for no-action letters, and all amendments
to any of the above, that relate to the Fund or its shares, contemporaneously
with the filing of such document with the SEC or other regulatory authorities.
4.6. The Company will provide to the Fund at least one complete copy of all
registration statements, prospectuses, statements of additional information,
reports, solicitations for voting
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instructions, sales literature and other promotional materials, applications for
exemptions, requests for no action letters, and all amendments to any of the
above, that relate to the investment in an Account or Contract contemporaneously
with the filing of such document with the SEC or other regulatory authorities.
4.7. For purposes of this Article IV, the phrase "sales literature or other
promotional material" includes, but is not limited to, any of the following:
advertisements (such as material published, or designed for use in, a newspaper,
magazine, or other periodical, radio, television, telephone or tape recording,
videotape display, signs or billboards, motion pictures, or other public media),
sales literature (i.e., any written communication distributed or made generally
available to customers or the public, including brochures, circulars, research
reports, market letters, form letters, seminar texts, reprints or excerpts of
any other advertisement, sales literature, or published article), educational or
training materials or other communications distributed or made generally
available to some or all agents or employees, and registration statements,
prospectuses, statements of additional information, shareholder reports, and
proxy materials.
ARTICLE V. [RESERVED]
ARTICLE VI. DIVERSIFICATION
6.1. The Adviser represents, as to the Portfolios for which it acts as
investment adviser, that it will use its best efforts at all times to comply
with Section 817(h) of the Code and Treasury Regulation 1.817-5, relating to the
diversification requirements for variable annuity, endowment, or life insurance
contracts and any amendments or other modifications to such Section or
Regulations. In the event a Portfolio ceases to so qualify, the Adviser will
take all reasonable steps (a) to notify the Company of such breach and (b) to
adequately diversify the Portfolio so as to achieve compliance within the grace
period afforded by Regulation 817-5.
6.2. The Adviser agrees, with respect to each Portfolio that it manages, to
indemnify and hold harmless the Company and each of its directors, officers,
employees and agents and each person, if any, who controls the Company within
the meaning of Section 15 of the 1933 Act (collectively, the "Indemnified
Parties" and individually, "Indemnified Party," for purposes of this Section
6.2) against any and all losses, claims, damages, liabilities (including amounts
paid in settlement with the written consent of the Adviser) or litigation
(including legal and other expenses) to which the Indemnified Parties may become
subject under any statute, at common law or otherwise, insofar as such losses,
claims, damages, liabilities or expenses (or actions in respect thereof) or
settlements, result from the negligence, bad faith, or willful misconduct of the
Adviser or any director, officer, employee or agent thereof, and are related to
the operation of the Adviser or the Fund and arise out of or result from any
material breach of any representation and/or warranty made by the Adviser in
this Agreement or arise out of or result from any other material breach of this
Agreement by the Adviser, including without limitation any failure by the
Adviser to comply with the conditions of Articles II, IV and VI hereof.
ARTICLE VII. POTENTIAL CONFLICTS
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7.1. The Board will monitor the Fund for the existence of any material
irreconcilable conflict between the interests of the contract owners of all
separate accounts investing in the Fund. An irreconcilable material conflict
may arise for a variety of reasons, including: (a) an action by any state
insurance regulatory authority; (b) a change in applicable federal or state
insurance, tax, or securities laws or regulations, or a public ruling, private
letter ruling, no-action or interpretative letter, or any similar action by
insurance, tax, or securities regulatory authorities; (c) an administrative or
judicial decision in any relevant proceeding; (d) the manner in which the
investments of any Portfolio are being managed; (e) a difference in voting
instructions given by variable annuity contract owners and variable life
insurance contract owners; or (f) a decision by a Participating Insurance
Company to disregard the voting instructions of Contract owners. The Board
shall promptly inform the Company if it determines that an irreconcilable
material conflict exists and the implications thereof.
7.2. The Company will promptly report any potential or existing material
irreconcilable conflicts of which it is aware to the Board. The Company will
assist the Board in carrying out its responsibilities under the Shared Funding
Exemptive Order, by providing the Board with all information reasonably
necessary for the Board to consider any issues raised. This includes, but is
not limited to, an obligation by the Company to inform the Board whenever
contract owner voting instructions are disregarded.
7.3. If it is determined by a majority of the Board, or a majority of its
disinterested directors, that a material irreconcilable conflict exists, the
Company and other Participating Insurance Companies shall, at their expense and
to the extent reasonably practicable (as determined by a majority of the
disinterested directors), take whatever steps are necessary to remedy or
eliminate the irreconcilable material conflict, up to and including: (1)
withdrawing the assets allocable to some or all of the Separate Accounts from
the Fund or any Portfolio and reinvesting such assets in a different investment
medium, including (but not limited to) another Portfolio of the Fund, or
submitting the question whether such segregation should be implemented to a vote
of all affected Contract owners and, as appropriate, segregating the assets of
any appropriate group (i.e., annuity contract owners, life insurance policy
owners, or variable Contract owners of one or more Participating Insurance
Companies) that votes in favor of such segregation, or offering to the affected
Contract owners the option of making such a change; and (2) establishing a new
registered management investment company or managed separate account. No charge
or penalty will be imposed as a result of such withdrawal. The Company agrees
that it bears the responsibility to take remedial action in the event of a Board
determination of an irreconcilable material conflict and the cost of such
remedial action, and these responsibilities will be carried out with a view only
to the interests of Contract owners.
7.4. If a material irreconcilable conflict arises because of a decision by
the Company to disregard contract owner voting instructions and that decision
represents a minority position or would preclude a majority vote, the Company
may be required, at the Fund's election, to withdraw the affected Account's
investment in the Fund and terminate this Agreement with respect to such Account
(at the Company's expense); provided, however that such withdrawal and
termination shall be limited to the extent required by the foregoing material
irreconcilable conflict as determined by
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a majority of the disinterested members of the Board. No charge or penalty will
be imposed as a result of such withdrawal. The Company agrees that it bears the
responsibility to take remedial action in the event of a Board determination of
an irreconcilable material conflict and the cost of such remedial action, and
these responsibilities will be carried out with a view only to the interests of
Contract owners.
7.5. For purposes of Sections 7.3 and 7.4 of this Agreement, a majority
of the disinterested members of the Board shall determine whether any proposed
action adequately remedies any irreconcilable material conflict, but in no event
will the Fund be required to establish a new funding medium for the Contracts.
The Company shall not be required by Section 7.3 or 7.4 to establish a new
funding medium for the Contracts if an offer to do so has been declined by vote
of a majority of Contract owners materially adversely affected by the
irreconcilable material conflict.
7.6. If and to the extent that Rule 6e-2 and Rule 6e-3(T) are amended,
or Rule 6e-3 is adopted, to provide exemptive relief from any provision of the
1940 Act or the rules promulgated thereunder with respect to mixed or shared
funding (as defined in the Shared Funding Exemptive Order) on terms and
conditions materially different from those contained in the Shared Funding
Exemptive Order, then the Fund and/or the Participating Insurance Companies, as
appropriate, shall take such steps as may be necessary to comply with Rules 6e-2
and 6e-3(T), as amended, and Rule 6e-3, as adopted, to the extent such rules are
applicable.
7.7 The Company shall at least annually submit to the Board of the
Fund such reports, materials or data as the Board may reasonably request so that
the Board may fully carry out the obligations imposed upon them by the
provisions hereof, and said reports, materials and data shall be submitted more
frequently if deemed appropriate by the Board. All reports received by the Board
of potential or existing conflicts, and all Board action with regard to
determining the existence of a conflict, notifying Participating Insurance
Companies of a conflict, and determining whether any proposed action adequately
remedies a conflict, shall be properly recorded in the minutes of the Board or
other appropriate records, and such minutes or other records shall be made
available to the SEC upon request.
ARTICLE VIII. INDEMNIFICATION
8.1. Indemnification By The Company and AGSI
8.1(a) The Company and AGSI agree to indemnify and hold harmless the
Fund and each member of the Board, officer, employee and agent of the Fund and
the Adviser and each director, officer, employee and agent of the Adviser, and
each person, if any, who controls the Fund or the Adviser within the meaning of
Section 15 of the 1933 Act (collectively, the "Indemnified Parties" and
individually, "Indemnified Party," for purposes of this Section 8.1) against any
and all losses, claims, damages, liabilities (including amounts paid in
settlement with the written consent of the Company or AGSI) or litigation
(including legal and other expenses), to which the Indemnified Parties may
become subject under any statute or regulation, at common law or otherwise,
insofar as such losses, claims, damages, liabilities or expenses (or actions in
respect thereof) or settlements:
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(i) arise out of or are based upon any untrue statements or alleged
untrue statements of any material fact contained in the
registration statement or prospectus for the Contracts or
contained in the Contracts or sales literature for the Contracts
(or any amendment or supplement to any of the foregoing), or
arise out of or are based upon the omission or the alleged
omission to state therein a material fact required to be stated
therein or necessary to make the statements therein not
misleading, provided that this agreement to indemnify shall not
apply as to any Indemnified Party if such statement or omission
or such alleged statement or omission was made in reliance upon
and in conformity with written information furnished to the
Company by or on behalf of the Fund for use in the registration
statement or prospectus for the Contracts or in the Contracts or
sales literature (or any amendment or supplement) or otherwise
for use in connection with the sale of the Contracts or Fund
shares; or
(ii) arise out of or as a result of statements or representations
(other than statements or representations contained in or
accurately derived from the registration statement, prospectus
or sales literature generated and approved by the Fund) or
wrongful conduct of the Company or AGSI or persons under its
control, with respect to the sale or distribution of the
Contracts or Fund shares; or
(iii) arise out of or as a result of any untrue statement or alleged
untrue statement of a material fact contained in a registration
statement, prospectus, or sales literature of the Fund or any
amendment thereof or supplement thereto or the omission or
alleged omission to state therein a material fact required to be
stated therein or necessary to make the statements therein not
misleading if such a statement or omission was made in reliance
upon and in conformity with information furnished to the Fund by
or on behalf of the Company or AGSI;
(iv) arise as a result of any failure by the Company or AGSI to
provide the services and furnish the materials under the terms
of this Agreement; or
(v) arise out of or result from any material breach of any
representation and/or warranty made by the Company or AGSI in
this Agreement or arise out of or result from any other material
breach of this Agreement by the Company or AGSI, as limited by
and in accordance with the provisions of Sections 8.1(b) and
8.1(c) hereof.
8.1(b). Neither the Company nor AGSI shall be liable under this
indemnification provision with respect to any losses, claims, damages,
liabilities or litigation incurred or assessed against an Indemnified Party as
such may arise from such Indemnified Party's willful misfeasance, bad faith, or
negligence in the performance of such Indemnified Party's duties or by reason of
such Indemnified Party's reckless disregard of obligations or duties under this
Agreement.
16
<PAGE>
8.1(c). Neither the Company nor AGSI shall be liable under this
indemnification provision with respect to any claim made against an Indemnified
Party unless such Indemnified Party shall have notified the Company or AGSI in
writing within a reasonable time after the summons or other first legal process
giving information of the nature of the claim shall have been served upon such
Indemnified Party (or after such Indemnified Party shall have received notice of
such service on any designated agent), but failure to notify the Company or AGSI
of any such claim shall not relieve the Company or AGSI from any liability which
it may have to the Indemnified Party against whom such action is brought
otherwise than on account of this indemnification provision. In case any such
action is brought against the Indemnified Parties, the Company or AGSI shall be
entitled to participate, at its own expense, in the defense of such action. The
Company or AGSI also shall be entitled to assume the defense thereof, with
counsel satisfactory to the party named in the action. After notice from the
Company or AGSI to such Party of the Company's or AGSI's election to assume the
defense thereof, the Indemnified Party shall bear the fees and expenses under
this Agreement for any legal or other expenses subsequently incurred by such
Party independently in connection with the defense thereof other than reasonable
costs of investigation.
8.1(d). The Indemnified Parties will promptly notify the Company or AGSI
of the commencement of any litigation or proceedings against them in connection
with the issuance or sale of the Fund shares or the Contracts or the operation
of the Fund.
8.2. Indemnification by the Fund
8.2(a). The Fund agrees to indemnify and hold harmless the Company and
each of its directors, officers, employees and agents and each person, if any,
who controls the Company within the meaning of Section 15 of the 1933 Act
(collectively, the "Indemnified Parties" and individually, "Indemnified Party,"
for purposes of this Section 8.2) against any and all losses, claims, damages,
liabilities (including amounts paid in settlement with the written consent of
the Adviser) or litigation (including legal and other expenses) to which the
Indemnified Parties may become subject under any statute, at common law or
otherwise, insofar as such losses, claims, damages, liabilities or expenses (or
actions in respect thereof) or settlements, result from the negligence, bad
faith, willful misconduct of the Fund or any director, officer, employee or
agent thereof, are related to the operation of the Fund and:
(i) arise out of or are based upon any untrue statement or
alleged untrue statement of any material fact contained in
the registration statement or prospectus or sales literature
of the Fund (or any amendment or supplement to any of the
foregoing), or arise out of or are based upon the omission
or the alleged omission to state therein a material fact
required to be stated therein or necessary to make the
statements therein not misleading, provided that this
agreement to indemnify shall not apply as to any Indemnified
Party if such statement or omission or such alleged
statement or omission was made in reliance upon and in
conformity with written information furnished to the Adviser
or the Fund or the Underwriter by or on behalf of the
Company for use in the registration statement or prospectus
for the Fund or in sales
17
<PAGE>
literature (or any amendment or supplement) or otherwise for
use in connection with the sale of the Contracts or
Portfolio shares; or
(ii) arise out of or as a result of statements or representations
(other than statements or representations contained in the
registration statement, prospectus or sales literature for
the Contracts not supplied by the Fund or persons under its
control and other than statements or representations
authorized by the Company) or unlawful conduct of persons
under its control, with respect to the sale or distribution
of the Contracts or Portfolio shares; or
(iii) arise out of or as a result of any untrue statement or
alleged untrue statement of a material fact contained in a
registration statement, prospectus, or sales literature
covering the Contracts, or any amendment thereof or
supplement thereto, or the omission or alleged omission to
state therein a material fact required to be stated therein
or necessary to make the statement or statements therein not
misleading, if such statement or omission was made in
reliance upon information furnished to the Company by or on
behalf of the Fund; or
(iv) arise as a result of any failure by the Fund to provide the
services and furnish the materials under the terms of this
Agreement; or
(v) arise out of or result from any material breach of any
representation and/or warranty made by the Fund in this
Agreement or arise out of or result from any other material
breach of this Agreement by the Fund; including without
limitation any failure by the Fund to comply with the
conditions of Article VI hereof.
8.2(b). The Fund shall not be liable under this indemnification provision
with respect to any losses, claims, damages, liabilities or litigation incurred
or assessed against an Indemnified Party as may arise from such Indemnified
Party's willful misfeasance, bad faith, or negligence in the performance of such
Indemnified Party's duties or by reason of such Indemnified Party's reckless
disregard of obligations and duties under this Agreement.
8.2(c). The Fund shall not be liable under this indemnification provision
with respect to any claim made against an Indemnified Party unless such
Indemnified Party shall have notified the Fund in writing within a reasonable
time after the summons or other first legal process giving information of the
nature of the claim shall have been served upon such Indemnified Party (or after
such Indemnified Party shall have received notice of such service on any
designated agent), but failure to notify the Fund of any such claim shall not
relieve the Fund from any liability which it may have to the Indemnified Party
against whom such action is brought otherwise than on account of this
indemnification provision. In case any such action is brought against the
Indemnified Parties, the Fund will be entitled to participate, at its own
expense, in the defense thereof. The Fund also shall be entitled to assume the
defense thereof, with counsel satisfactory to the party named in the action.
After notice from the Fund to such Party of the Fund's election to assume the
defense thereof, the Indemnified Party shall bear the fees and expenses of any
additional counsel retained by it, and the
18
<PAGE>
Fund will not be liable to such Party under this Agreement for any legal or
other expenses subsequently incurred by such Party independently in connection
with the defense thereof other than reasonable costs of investigation.
8.2(d). The Company and AGSI agree promptly to notify the Fund of the
commencement of any litigation or proceedings against it or any of its officers,
trustees or directors in connection with this Agreement, the issuance or sale of
the Contracts with respect to the operation of each Account, or the sale or
acquisition of shares of the Fund.
ARTICLE IX. APPLICABLE LAW
9.1. This Agreement shall be construed and the provisions hereof
interpreted under and in accordance with the laws of the State of New York.
9.2. This Agreement shall be subject to the provisions of the 1933,
1934 and 1940 Acts, and the rules and regulations and rulings thereunder,
including such exemptions from those statutes, rules and regulations as the SEC
may grant (including, but not limited to, the Shared Funding Exemptive Order)
and the terms hereof shall be interpreted and construed in accordance therewith.
ARTICLE X. TERMINATION
10.1. This Agreement shall continue in full force and effect until the
first to occur of:
(a) termination by any party for any reason upon six-months
advance written notice delivered to the other parties; or
(b) termination by the Company or AGSI by written notice to the
Fund and the Adviser with respect to any Portfolio based
upon the Company's determination that shares of such
Portfolio are not reasonably available to meet the
requirements of the Contracts. Reasonable advance notice of
election to terminate shall be furnished by the Company,
said termination to be effective ten (10) days after receipt
of notice unless the Fund makes available a sufficient
number of shares to reasonably meet the requirements of the
Account within said ten (10) day period; or
(c) termination by the Company or AGSI by written notice to the
Fund and the Adviser with respect to any Portfolio in the
event any of the Portfolio's shares are not registered,
issued or sold in accordance with applicable state and/or
federal law or such law precludes the use of such shares as
the underlying investment medium of the Contracts issued or
to be issued by the Company. The terminating party shall
give prompt notice to the other parties of its decision to
terminate; or
19
<PAGE>
(d) termination by the Company or AGSI by written notice to the
Fund and the Adviser with respect to any Portfolio in the
event that such Portfolio ceases to qualify as a Regulated
Investment Company under Subchapter M of the Code or under
any successor or similar provision, or if the Company or
AGSI reasonably believes that the Fund may fail to so
qualify; or
(e) termination by the Company or AGSI by written notice to the
Fund and the Adviser with respect to any Portfolio in the
event that such Portfolio fails to meet the diversification
requirements specified in Article VI hereof; or
(f) termination by either the Fund or the Adviser by written
notice to the Company if the Adviser or the Fund shall
determine, in its sole judgment exercised in good faith,
that the Company, AGSI and/or their affiliated companies has
suffered a material adverse change in its business,
operations, financial condition or prospects since the date
of this Agreement or is the subject of material adverse
publicity, provided that the Fund or the Advisor will give
the Company sixty (60) days' advance written notice of such
determination of its intent to terminate this Agreement, and
provided further that after consideration of the actions
taken by the Company or AGSI and any other changes in
circumstances since the giving of such notice, the
determination of the Fund or the Adviser shall continue to
apply on the 60th day since giving of such notice, then such
60th day shall be the effective date of termination; or
(g) termination by the Company or AGSI by written notice to the
Fund and the Adviser, if the Company or AGSI shall
determine, in its sole judgment exercised in good faith,
that either the Fund or the Adviser (with respect to the
appropriate Portfolio) has suffered a material adverse
change in its business, operations, financial condition or
prospects since the date of this Agreement or is the subject
of material adverse publicity; provided that the Company
will give the Fund or the Adviser sixty (60) days' advance
written notice of such determination of its intent to
terminate this Agreement, and provided further that after
consideration of the actions taken by the Company and any
other changes in circumstances since the giving of such
notice, the determination of the Company or AGSI shall
continue to apply on the 60th day since giving of such
notice, then such 60th day shall be the effective date of
termination; or
(h) termination by the Fund or the Adviser by written notice to
the Company, if the Company gives the Fund and the Adviser
the written notice specified in Section 2.4 hereof and at
the time such notice was given there was no notice of
termination outstanding under any other provision of this
Agreement; provided, however any termination under this
Section 10.1(h) shall be effective sixty (60) days after the
notice specified in Section 2.4 was given; or
20
<PAGE>
(i) termination by any party upon the other party's breach of
any representation in Section 2 or any material provision of
this Agreement, which breach has not been cured to the
satisfaction of the terminating party within ten (10) days
after written notice of such breach is delivered to the Fund
or the Company, as the case may be; or
(j) termination by the Fund or the Adviser by written notice to
the Company in the event an Account or Contract is not
registered or sold in accordance with applicable federal or
state law or regulation, or the Company fails to provide
pass-through voting privileges as specified in Section 3.4.
10.2. EFFECT OF TERMINATION. Notwithstanding any termination of this
Agreement, the Fund shall at the option of the Company, continue to make
available additional shares of the Fund subject to all to the terms and
conditions of this Agreement, for all Contracts in effect on the effective date
of termination of this Agreement (hereinafter referred to as "Existing
Contracts") unless such further sale of Fund shares is proscribed by law,
regulation or applicable regulatory body, or unless the Fund determines that
liquidation of the Fund following termination of this Agreement is in the best
interests of the Fund and its shareholders. Specifically, without limitation,
the owners of the Existing Contracts shall be permitted to direct reallocation
of investments in the Fund, redemption of investments in the Fund and/or
investment in the Fund upon the making of additional purchase payments under the
Existing Contracts. The parties agree that this Section 10.2 shall not apply to
any terminations under Article VII and the effect of such Article VII
terminations shall be governed by Article VII of this Agreement.
10.3. The Company shall not redeem Fund shares attributable to the
Contracts except (i) as necessary to implement Contract Owner initiated or
approved transactions, or (ii) as required by state and/or federal laws or
regulations or judicial or other legal precedent of general application
(hereinafter referred to as a "Legally Required Redemption") or (iii) as
permitted by an order of the SEC pursuant to Section 26(b) of the 1940 Act.
Upon request, the Company will promptly furnish to the Fund the opinion of
counsel for the Company (which counsel shall be reasonably satisfactory to the
Fund and the Adviser) to the effect that any redemption pursuant to clause (ii)
above is a Legally Required Redemption. Furthermore, except in cases where
permitted under the terms of the Contracts, the Company shall not prevent
Contract Owners from allocating payments to a Portfolio that was otherwise
available under the Contracts without first giving the Fund or the appropriate
Adviser 90 days prior written notice of its intention to do so.
ARTICLE XI. NOTICES
Any notice shall be sufficiently given when sent by registered or certified
mail to the other party at the address of such party set forth below or at such
other address as such party may from time to time specify in writing to the
other party.
If to the Fund:
21
<PAGE>
Levco Series Trust
One Rockefeller Plaza - 25/th /Floor
New York, NY 10020
Attention: Norris Nissim
If to Adviser:
John A. Levin & Co., Inc.
One Rockefeller - 25/th/ Floor
New York, NY 10020
Attention: Glenn A. Aigen
If to the Company:
American General Life Insurance Company
2727-A Allen Parkway
Houston, Texas 77019
Attention: Steven A. Glover
If to AGSI:
American General Securities Incorporated
2727 Allen Parkway
Houston, Texas 77019
Attention: F. Paul Kovach, Jr.
ARTICLE XII. FOREIGN TAX CREDITS
The Fund and the Adviser agree to consult with the Company concerning
whether any Portfolio of the Fund qualifies to provide a foreign tax credit
pursuant to Section 853 of the Code.
ARTICLE XIII. MISCELLANEOUS
13.1. All persons dealing with the Fund must look solely to the property
of the Fund for the enforcement of any claims against the Fund as neither the
Board, officers, agents or shareholders assume any personal liability for
obligations entered into on behalf of the Fund.
13.2. Subject to the requirements of legal process and regulatory
authority, each party hereto shall treat as confidential the names and addresses
of the owners of the Contracts and all
22
<PAGE>
information reasonably identified as confidential in writing by any other party
hereto and, except as permitted by this Agreement or as required by law, shall
not disclose, disseminate or utilize such names and addresses and other
confidential information until such time as it may come into the public domain
without the express written consent of the affected party.
13.3. The captions in this Agreement are included for convenience of
reference only and in no way define or delineate any of the provisions hereof or
otherwise affect their construction or effect.
13.4. This Agreement may be executed simultaneously in two or more
counterparts, each of which taken together shall constitute one and the same
instrument.
13.5. If any provision of this Agreement shall be held or made invalid by
a court decision, statute, rule or otherwise, the remainder of this Agreement
shall not be affected thereby.
13.6. Each party hereto shall cooperate with each other party and all
appropriate governmental authorities (including without limitation the SEC, the
NASD and state insurance regulators) and shall permit such authorities
reasonable access to its books and records in connection with any investigation
or inquiry relating to this Agreement or the transactions contemplated hereby.
13.7. The rights, remedies and obligations contained in this Agreement are
cumulative and are in addition to any and all rights, remedies and obligations
at law or in equity, which the parties hereto are entitled to under state and
federal laws.
13.8. This Agreement or any of the rights and obligations hereunder may
not be assigned by any party without the prior written consent of all parties
hereto; provided, however, that the Adviser may assign this Agreement or any
rights or obligations hereunder to any affiliate of or company under common
control with the Adviser, if such assignee is duly licensed and registered to
perform the obligations of the Adviser under this Agreement.
13.9 The Company shall furnish, or shall cause to be furnished, to the
Fund or its designee copies of the following reports:
(a) the Company's annual statement (prepared under statutory
accounting principles) and annual report (prepared under
generally accepted accounting principles ("GAAP"), if any), as
soon as practical and in any event within 90 days after the
end of each fiscal year;
(b) the Company's June 30th quarterly statements (statutory) (and
GAAP, if any), as soon as practical and in any event within 45
days after the end of each semi-annual period:
(c) any financial statement, proxy statement, notice or report of
the Company sent to stockholders and/or policyholders, as soon
as practical after the delivery thereof to stockholders;
23
<PAGE>
(d) any registration statement (without exhibits) and financial
reports of the Company filed with the SEC or any state
insurance regulator, as soon as practical after the filing
thereof; and
(e) any other public report submitted to the Company by
independent accountants in connection with any annual, interim
or special audit made by them of the books of the Company, as
soon as practical after the receipt thereof.
24
<PAGE>
IN WITNESS WHEREOF, each of the parties hereto has caused this Agreement to
be executed in its name and on its behalf by its duly authorized representative
hereto as of the date specified above.
AMERICAN GENERAL LIFE INSURANCE COMPANY on behalf of itself and each
of its Accounts named in Schedule B hereto, as amended from time to
time.
By: /S/ RODNEY O. MARTIN
--------------------------------------
Name: Rodney O. Martin, Jr.
Title: President and Chief Executive Officer
AMERICAN GENERAL SECURITIES INCORPORATED
By: /S/ F. PAUL KOVACH
--------------------------------------
Name: F. Paul Kovach, Jr.
Title: President
LEVCO SERIES TRUST
By: /S/ NORRIS NISSIM
--------------------------------------
Name: Norris Nissim
Title: Secretary
JOHN A. LEVIN & CO., INC.
By: /S/ GLENN A. AIGEN
--------------------------------------
Name: Glenn A. Aigen
Title: Vice President
25
<PAGE>
SCHEDULE A
PORTFOLIOS OF LEVCO SERIES TRUST
AVAILABLE FOR
PURCHASE BY AMERICAN GENERAL LIFE
INSURANCE COMPANY UNDER THIS AGREEMENT
LEVCO Equity Value Fund
26
<PAGE>
SCHEDULE B
SEPARATE ACCOUNTS AND CONTRACTS
-------------------------------
<TABLE>
<S> <C>
NAME OF SEPARATE ACCOUNT AND FORM NUMBERS AND NAMES OF CONTRACT FUNDED BY
DATE ESTABLISHED BY BOARD OF DIRECTORS SEPARATE ACCOUNT
- -------------------------------------- ----------------
American General Life Insurance Company Form No:
Separate Account D -------
Established: November 19, 1973 97505
Name of Contract:
----------------
Flexible Payment Variable and Fixed
Individual Deferred Annuity
</TABLE>
27
<PAGE>
SCHEDULE C
PROXY VOTING PROCEDURES
The following is a list of procedures and corresponding responsibilities for the
handling of proxies and voting instructions relating to the Fund. The defined
terms herein shall have the meanings assigned in the Participation Agreement
except that the term "Company" shall also include the department or third party
assigned by the Company to perform the steps delineated below.
1. The proxy proposals are given to the Company by the Fund as early as
possible before the date set by the Fund for the shareholder meeting to
enable the Company to consider and prepare for the solicitation of voting
instructions from owners of the Contracts and to facilitate the
establishment of tabulation procedures. At this time the Fund will inform
the Company of the Record, Mailing and Meeting dates. This will be done
verbally approximately two months before meeting.
2. Promptly after the Record Date, the Company will perform a "tape run", or
other activity, which will generate the names, addresses and number of
units which are attributed to each contract owner/policyholder (the
"Customer") as of the Record Date. Allowance should be made for account
adjustments made after this date that could affect the status of the
Customers' accounts as of the Record Date.
Note: The number of proxy statements is determined by the activities
described in this Step #2. The Company will use its best efforts to call
in the number of Customers to the Fund , as soon as possible, but no later
than two weeks after the Record Date.
3. The Fund's Annual Report must be sent to each Customer by the Company
either before or together with the Customers' receipt of a proxy statement
or other voting instructions and solicitation material. The Fund will
provide at least one copy of the last Annual Report to the Company pursuant
to the terms of Section 3.3 of the Agreement to which this Schedule
relates.
4. The text and format for the Voting Instruction Cards ("Cards" or "Card") is
provided to the Company by the Fund. The Company, at its expense, shall
produce and personalize the Voting Instruction Cards. The Fund or its
affiliate must approve the Card before it is printed. Allow approximately
2-4 business days for printing information on the Cards. Information
commonly found on the Cards includes:
a. name (legal name as found on account registration)
b. address
c. fund or account number
d. coding to state number of units
e. individual Card number for use in tracking and verification of votes
(already on Cards as printed by the Fund).
28
<PAGE>
(This and related steps may occur later in the chronological process due to
possible uncertainties relating to the proposals.)
5. During this time, the Fund will develop, produce and pay for the Notice of
Proxy and the Proxy Statement (one document). Printed and folded notices
and statements will be sent to Company for insertion into envelopes
(envelopes and return envelopes are provided and paid for by the Company).
Contents of envelope sent to Customers by the Company will include:
a. Voting Instruction Card(s)
b. One proxy notice and statement (one document)
c. return envelope (postage pre-paid by Company) addressed to the Company
or its tabulation agent
d. "urge buckslip" - optional, but recommended. (This is a small, single
sheet of paper that requests Customers to vote as quickly as possible
and that their vote is important. One copy will be supplied by the
Fund.)
e. cover letter - optional, supplied by Company and reviewed and approved
in advance by the Fund.
6. The above contents should be received by the Company approximately 3-5
business days before mail date. Individual in charge at Company reviews and
approves the contents of the mailing package to ensure correctness and
completeness. Copy of this approval sent to the Fund.
7. Package mailed by the Company.
* The Fund must allow at least a 15-day solicitation time to the Company
as the shareowner. (A 5-week period is recommended.) Solicitation time
is calculated as calendar days from (but not including,) the meeting,
counting backwards.
8. Collection and tabulation of Cards begins. Tabulation usually takes place
in another department or another vendor depending on process used. An
often used procedure is to sort Cards on arrival by proposal into vote
categories of all yes, no, or mixed replies, and to begin data entry.
Note: Postmarks are not generally needed. A need for postmark information
would be due to an insurance company's internal procedure and has not been
required by the Fund in the past.
9. Signatures on Card checked against legal name on account registration which
was printed on the Card.
Note: For example, if the account registration is under "John A. Smith,
Trustee," then that is the exact legal name to be printed on the Card and
is the signature needed on the Card.
10. If Cards are mutilated, or for any reason are illegible or are not signed
properly, they are sent back
29
<PAGE>
to Customer with an explanatory letter and a new Card and return envelope.
The mutilated or illegible Card is disregarded and considered to be not
received for purposes of vote tabulation. Any Cards that have been "kicked
out" (e.g. mutilated, illegible) of the procedure are "hand verified,"
i.e., examined as to why they did not complete the system. Any questions on
those Cards are usually remedied individually.
11. There are various control procedures used to ensure proper tabulation of
votes and accuracy of that tabulation. The most prevalent is to sort the
Cards as they first arrive into categories depending upon their vote; an
estimate of how the vote is progressing may then be calculated. If the
initial estimates and the actual vote do not coincide, then an internal
audit of that vote should occur. This may entail a recount.
12. The actual tabulation of votes is done in units which is then converted to
shares. (It is very important that the Fund receives the tabulations stated
in terms of a percentage and the number of shares.) The Fund must review
and approve tabulation format.
13. Final tabulation in shares is verbally given by the Company to the Fund on
the morning of the meeting not later than 10:00 a.m. Eastern time. The
Fund may request an earlier deadline if reasonable and if required to
calculate the vote in time for the meeting.
14. A Certification of Mailing and Authorization to Vote Shares will be
required from the Company as well as an original copy of the final vote.
The Fund will provide a standard form for each Certification.
15. The Company will be required to box and archive the Cards received from the
Customers. In the event that any vote is challenged or if otherwise
necessary for legal, regulatory, or accounting purposes, the Fund will be
permitted reasonable access to such Cards.
16. All approvals and "signing-off' may be done orally, but must always be
followed up in writing.
30
<PAGE>
EXHIBIT 3(b)(iv)(B)
<PAGE>
PARTICIPATION AGREEMENT
AMONG
AMERICAN GENERAL LIFE INSURANCE COMPANY,
AMERICAN GENERAL SECURITIES INCORPORATED,
NAVELLIER VARIABLE INSURANCE SERIES FUND, INC.
AND
NAVELLIER & ASSOCIATES, INC.
DATED AS OF
JANUARY 13, 1998
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
----
<S> <C> <C>
ARTICLE I. Fund Shares........................................... 4
ARTICLE II. Representations and Warranties........................ 6
ARTICLE III. Prospectuses, Reports to Shareholders and Proxy
Statements; Voting..................................... 8
ARTICLE IV. Sales Material and Information......................... 12
ARTICLE V. Diversification........................................ 13
ARTICLE VI. Potential Conflicts.................................... 13
ARTICLE VII. Indemnification........................................ 15
ARTICLE VIII. Applicable Law......................................... 18
ARTICLE IX. Termination............................................ 19
ARTICLE X. Notices................................................ 21
ARTICLE XI. Foreign Tax Credits.................................... 22
ARTICLE XII. Miscellaneous.......................................... 22
SCHEDULE A Portfolios of Navellier Variable Insurance Series Fund,
Inc. Available for Purchase by American General Under
this Life Insurance Company Agreement.................. 25
SCHEDULE B Separate Accounts and Contracts........................ 26
SCHEDULE C Proxy Voting Procedures................................ 27
</TABLE>
2
<PAGE>
THIS AGREEMENT, made and entered into as of the 13th day of January,
1998 by and among AMERICAN GENERAL LIFE INSURANCE COMPANY (hereinafter the
"Company"), a Texas insurance company, on its own behalf and on behalf of each
separate account of the Company set forth on Schedule B hereto as may be amended
from time to time (each such account hereinafter referred to as the "Account"),
AMERICAN GENERAL SECURITIES INCORPORATED ("AGSI"), a Texas corporation,
NAVELLIER VARIABLE INSURANCE SERIES FUND, INC. (hereinafter the "Fund"), a
Maryland corporation, and NAVELLIER & ASSOCIATES, INC . (the "Adviser")
, a corporation.
WHEREAS, the Fund engages in business as an open-end management investment
company and is available to act as (i) the investment vehicle for separate
accounts established by insurance companies for individual and group life
insurance policies and annuity contracts with variable accumulation and/or pay-
out provisions (hereinafter referred to individually and/or collectively as
"Variable Insurance Products") and (ii) the investment vehicle for certain
qualified pension and retirement plans (hereinafter "Qualified Plans"); and
WHEREAS, insurance companies desiring to utilize the Fund as an investment
vehicle under their Variable Insurance Products are required to enter into a
participation agreement with the Fund and the Adviser (the "Participating
Insurance Companies"); and
WHEREAS, shares of the Fund are divided into several series of shares, each
representing the interest in a particular managed portfolio of securities and
other assets, any one or more of which may be made available for Variable
Insurance Products of Participating Insurance Companies; and
WHEREAS, the Fund intends to offer shares of the series set forth on
Schedule A (each such series hereinafter referred to as a "Portfolio"), as may
be amended from time to time by mutual agreement of the parties hereto, under
this Agreement to the Accounts of the Company; and
WHEREAS, the Fund intends to apply for an order from the Securities and
Exchange Commission, granting Participating Insurance Companies and Variable
Insurance Product separate accounts exemptions from the provisions of Sections
9(a), 13(a), 15(a), and 15(b) of the Investment Company Act of 1940, as amended
(hereinafter the "1940 Act"), and Rules 6e-2(b)(15) and 6e-3(T)(b)(15)
thereunder, to the extent necessary to permit shares of the Fund to be sold to
and held by Variable Annuity Product separate accounts of both affiliated and
unaffiliated life insurance companies and Qualified Plans (hereinafter the
"Shared Funding Exemptive Order"); and
WHEREAS, the Fund is registered as an open-end management investment
company under the 1940 Act and its shares are registered under the Securities
Act of 1933, as amended (hereinafter the "1933 Act"); and
WHEREAS, the Adviser is duly registered as an investment adviser under the
Investment Advisers Act of 1940, as amended, and any applicable state securities
laws; and
WHEREAS, the Adviser manages certain Portfolios of the Fund; and
3
<PAGE>
WHEREAS, Navellier Securities Corp. (the "Underwriter") is registered as a
broker/dealer under the Securities Exchange Act of 1934, as amended (hereinafter
the "1934 Act"), is a member in good standing of the National Association of
Securities Dealers, Inc. (hereinafter "NASD") and serves as principal
underwriter of the shares of the Fund; and
WHEREAS, the Company has registered or will register certain Variable
Insurance Products under the 1933 Act; and
WHEREAS, each Account is a duly organized, validly existing segregated
asset account, established by resolution or under authority of the Board of
Directors of the Company, on the date shown for such Account on Schedule B
hereto, to set aside and invest assets attributable to the aforesaid Variable
Insurance Product; and
WHEREAS, the Company has registered or will register each Account as a unit
investment trust under the 1940 Act; and
WHEREAS, to the extent permitted by applicable insurance laws and
regulations, the Company intends to purchase shares in the Portfolios on behalf
of each Account to fund certain of the aforesaid Variable Insurance Products and
the Underwriter is authorized to sell such shares to each such Account at net
asset value; and
WHEREAS, AGSI serves as both the distributor and the principal underwriter
of the Variable Insurance Products that are set forth on Schedule B;
NOW, THEREFORE, in consideration of their mutual promises, the Company, AGSI,
the Fund, and the Adviser agree as follows:
ARTICLE I. FUND SHARES
1.1. The Fund agrees to make available for purchase by the Company shares
of the Portfolios set forth on Schedule A and shall execute orders placed for
each Account on a daily basis at the net asset value next computed after receipt
by the Fund or its designee of such order. For purposes of this Section 1.1,
the Company shall be the designee of the Fund for receipt of such orders from
each Account and receipt by such designee shall constitute receipt by the Fund;
provided that the Fund receives notice of such order by 10:15 a.m. Eastern time
on the next following Business Day. Notwithstanding the foregoing, the Company
shall use its best efforts to provide the Fund with notice of such orders by
10:00 a.m. Eastern time on the next following Business Day. "Business Day"
shall mean any day on which the New York Stock Exchange is open for trading and
on which the Fund calculates the net asset value pursuant to the rules of the
SEC, as set forth in the Fund's Prospectus and Statement of Additional
Information. Notwithstanding the foregoing, the Board of Directors of the Fund
(hereinafter the "Board") may refuse to permit the Fund to sell shares of any
Portfolio to any person, or suspend or terminate the offering of shares of any
Portfolio, if such action is required by law or by regulatory authorities having
jurisdiction or is, in the sole discretion of the
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Board acting in good faith and in light of their fiduciary duties under federal
and any applicable state laws, necessary in the best interests of the
shareholders of such Portfolio.
1.2. The Fund agrees that shares of the Fund will be sold only to
Participating Insurance Companies and their Variable Insurance Products and to
certain Qualified Plans all in accordance with the requirements of Section
817(h)(4) of the Internal Revenue Code of 1986, as amended ( the "Code") and
Treasury Regulation 1.817-5. No shares of any Portfolio will be sold to the
general public.
1.3. The Fund will not make its shares available for purchase by any
insurance company or separate account unless an agreement containing provisions
substantially the same as Sections 2.4, 2.9, 3.4 and Article VII of this
Agreement is in effect to govern such sales.
1.4. The Fund agrees to redeem for cash, on the Company's request, any
full or fractional shares of the Fund held by the Company, executing such
requests on a daily basis at the net asset value next computed after receipt by
the Fund or its designee of the request for redemption. For purposes of this
Section 1.4, the Company shall be the designee of the Fund for receipt of
requests for redemption from each Account and receipt by such designee shall
constitute receipt by the Fund; provided that the Fund receives notice of such
request for redemption on the next following Business Day in accordance with the
timing rules described in Section 1.1.
1.5. The Company agrees that purchases and redemptions of Portfolio shares
offered by the then current prospectus of the Fund shall be made in accordance
with the provisions of such prospectus. The Accounts of the Company, under
which amounts may be invested in the Fund, are listed on Schedule B attached
hereto and incorporated herein by reference, as such Schedule B may be amended
from time to time by mutual written agreement of all of the parties hereto. The
Company will give the Fund and the Adviser sixty (60) days written notice of its
intention to make available in the future, as a funding vehicle under the
Contracts, any other investment company.
1.6. The Company will place separate orders to purchase or redeem shares
of each Portfolio. Each order shall describe the net amount of shares and
dollar amount of each Portfolio to be purchased or redeemed. In the event of
net purchases, the Company shall pay for Portfolio shares on the next Business
Day after an order to purchase Portfolio shares is made in accordance with the
provisions of Section 1.1 hereof. Payment shall be in federal funds transmitted
by wire. In the event of net redemptions, the Portfolio shall pay the redemption
proceeds in federal funds transmitted by wire on the next Business Day after an
order to redeem a Portfolio's shares is made in accordance with the provision of
Section 1.4 hereof. Notwithstanding the foregoing, if the payment of redemption
proceeds on the next Business Day would require the Portfolio to dispose of
securities or otherwise incur substantial additional costs, and if the Portfolio
has determined to settle redemption transactions for all shareholders on a
delayed basis, proceeds shall be wired to the Company within seven (7) days and
the Portfolio shall notify in writing the person designated by the Company as
the recipient for such notice of such delay by 3:00 p.m. Eastern time on the
same Business Day that the Company transmits the redemption order to the
Portfolio.
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1.7. Issuance and transfer of the Fund's shares will be by book entry
only. Stock certificates will not be issued to the Company or any Account.
Shares ordered from the Fund will be recorded in an appropriate title for each
Account or the appropriate subaccount of each Account.
1.8. The Fund shall make the dividends or capital gain distributions
payable on the Fund's shares available to the Company as soon as reasonably
practical after the dividends or capital gains are calculated (normally by 6:30
p.m. Eastern time) and shall use its best efforts to furnish same day notice by
7:00 p.m. Eastern time (by wire or telephone, followed by written confirmation)
to the Company of any dividends or capital gain distributions payable on the
Fund's shares. The Company hereby elects to receive all such dividends and
capital gain distributions as are payable on the Portfolio shares in additional
shares of that Portfolio. The Company reserves the right to revoke this
election and to receive all such dividends and capital gain distributions in
cash. The Fund shall notify the Company of the number of shares so issued as
payment of such dividends and distributions.
1.9. The Fund shall make the net asset value per share for each Portfolio
available to the Company on a daily basis as soon as reasonably practical after
the net asset value per share is calculated (normally by 6:30 p.m. Eastern time)
and shall use its best efforts to make such net asset value per share available
by 7:00 p.m. Eastern time. In the event that the Fund is unable to meet the
7:00 p.m. time stated immediately above, then the Fund shall provide the Company
with additional time to notify the Fund of purchase or redemption orders
pursuant to Sections 1.1 and 1.4, respectively, above. Such additional time
shall be equal to the additional time that the Fund takes to make the net asset
values available to the Company; provided, however, that notification must be
made by 10:15 a.m. Eastern time on the Business Day such order is to be executed
regardless of when the net asset value is made available.
1.10. If the Fund provides materially incorrect share net asset value
information through no fault of the Company, the Company shall be entitled to an
adjustment with respect to the Fund shares purchased or redeemed to reflect the
correct net asset value per share. The determination of the materiality of any
net asset value pricing error shall be based on the SEC's recommended guidelines
regarding such errors. The correction of any such errors shall be made at the
Company level and shall be made pursuant to the SEC's recommended guidelines.
Any material error in the calculation or reporting of net asset value per share,
dividend or capital gain information shall be reported promptly upon discovery
to the Company.
ARTICLE II. REPRESENTATIONS AND WARRANTIES
2.1. The Company represents and warrants that the interests of the
Accounts (the "Contracts") are or will be registered and will maintain the
registration under the 1933 Act and the regulations thereunder to the extent
required by the 1933 Act; that the Contracts will be issued in compliance in all
material respects with all applicable federal and state laws and regulations.
The Company further represents and warrants that it is an insurance company duly
organized and in good standing under applicable law and that it has legally and
validly established each Account prior to any issuance or sale thereof as a
segregated asset account under the Texas Insurance Law and the
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regulations thereunder and has registered or, prior to any issuance or sale of
the Contracts, will register and will maintain the registration of each Account
as a unit investment trust in accordance with and to the extent required by the
provisions of the 1940 Act and the regulations thereunder to serve as a
segregated investment account for the Contracts. The Company shall amend its
registration statement for its contracts under the 1933 Act and the 1940 Act
from time to time as required in order to effect the continuous offering of its
Contracts.
2.2. The Fund represents and warrants that Fund shares sold pursuant to
this Agreement shall be registered under the 1933 Act and the regulations
thereunder to the extent required by the 1933 Act, duly authorized for issuance
in accordance with the laws of the State of Maryland and sold in compliance with
all applicable federal and state securities laws and regulations and that the
Fund is and shall remain registered under the 1940 Act and the regulations
thereunder to the extent required by the 1940 Act. The Fund shall amend the
registration statement for its shares under the 1933 Act and the 1940 Act from
time to time as required in order to effect the continuous offering of its
shares. The Fund shall register and qualify the shares for sale in accordance
with the laws of the various states only if and to the extent deemed advisable
by the Fund.
2.3 The Fund and the Adviser represent that the Fund is currently
qualified as a Regulated Investment Company under Subchapter M of the Code and
that the Fund and the Adviser (with respect to those Portfolios for which such
Adviser acts as investment adviser) will make every effort to maintain such
qualification (under Subchapter M or any successor or similar provision) and
that the Fund or the appropriate Adviser will notify the Company immediately
upon having a reasonable basis for believing that a Portfolio has ceased to so
qualify or that a Portfolio might not so qualify in the future.
2.4. The Company represents that each Account is and will continue to be a
"segregated account" under applicable provisions of the Code and that each
Contract is and will be treated as a "variable contract" under applicable
provisions of the Code and that it will make every effort to maintain such
treatments and that it will notify the Fund immediately upon having a reasonable
basis for believing that the Account or Contract has ceased to be so treated or
that they might not be so treated in the future.
2.5. The Fund represents that to the extent that it decides to finance
distribution expenses pursuant to Rule 12b-1 under the 1940 Act, the Fund
undertakes to have a board of directors, a majority of whom are not interested
persons of the Fund, formulate and approve any plan under Rule 12b-1 to finance
distribution expenses.
2.6. The Fund makes no representation as to whether any aspect of its
operations (including, but not limited to, fees and expenses and investment
policies) complies with the insurance laws or regulations of the various states.
2.7. The Fund and the Adviser represent that the Fund is lawfully
organized and validly existing under the laws of the State of Maryland and that
the Fund does and will comply in all material respects with the 1940 Act.
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2.8. The Adviser and AGSI each represents and warrants that it is and
shall remain duly registered in all material respects under all applicable
federal and state securities laws and that it will perform its obligations for
the Fund and the Company in compliance in all material respects with the laws
and regulations of its state of domicile and any applicable state and federal
securities laws and regulations.
2.9. The Company represents and warrants that all of its trustees,
officers, employees, investment Adviser, and other individuals/entities dealing
with the money and/or securities of the Fund are covered by a blanket fidelity
bond or similar coverage, in an amount equal to the greater of $5 million or any
amount required by applicable federal or state law or regulation. The aforesaid
includes coverage for larceny and embezzlement is issued by a reputable bonding
company. The Company agrees to make all reasonable efforts to see that this
bond or another bond containing these provisions is always in effect, and agrees
to notify the Fund and the Underwriter in the event that such coverage no longer
applies.
ARTICLE III. PROSPECTUSES, REPORTS TO SHAREHOLDERS AND PROXY STATEMENTS; VOTING
3.1(a) The Fund or its designee shall provide the Company with as many
printed copies of the Fund's current prospectus, including the profile
prospectus, (the "Fund Prospectus") as the Company may reasonably request. If
requested by the Company, in lieu of providing printed copies of the Fund
Prospectus, the Fund shall provide camera-ready film or computer diskettes
containing the Fund Prospectus and such other assistance as is reasonably
necessary in order for the Company once each year (or more frequently if the
Fund Prospectus is amended during the year) to have the prospectus for the
Contracts (the "Contract Prospectus") and the Fund Prospectus printed together
in one document or separately. The Company may elect to print the Fund
Prospectus in combination with other fund companies' prospectuses. For purposes
hereof, any combined prospectus including the Fund Prospectus along with the
Contract Prospectus or prospectus of other fund companies shall be referred to
as a "Combined Prospectus." For purposes hereof, the term "Fund Portion of the
Combined Prospectus" shall refer to the percentage of the number of Fund
Prospectus pages in the Combined Prospectus in relation to the total number of
pages of the Combined Prospectus.
3.1(b) The Fund shall provide the Company with as many printed copies of
the Fund's current statement of additional information (the "Fund SAI") as the
Company may reasonably request. If requested by the Company in lieu of
providing printed copies of the Fund SAI, the Fund shall provide camera-ready
film or computer diskettes containing the Fund SAI, and such other assistance as
is reasonably necessary in order for the Company once each year (or more
frequently if the Fund SAI is amended during the year) to have the statement of
additional information for the Contracts (the "Contract SAI") and the Fund SAI
printed together or separately. The Company may also elect to print the Fund
SAI in combination with other fund companies' statements of additional
information. For purposes hereof, any combined statement of additional
information including the Fund SAI along with the Contract SAI or statement of
additional information of other fund companies shall be referred to as a
"Combined SAI." For purposes hereof, the term "Fund Portion of the Combined
SAI" shall refer to the percentage of the number of Fund SAI pages in the
Combined SAI in relation to the total number of pages of the Combined SAI.
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3.1(c) The Fund shall provide the Company with as many printed copies of
the Fund's annual report and semi-annual report (collectively, the "Fund
Reports") as the Company may reasonably request. If requested by the Company in
lieu of providing printed copies of the Fund Reports, the Fund shall provide
camera-ready film or computer diskettes containing the Fund's Reports, and such
other assistance as is reasonably necessary in order for the Company once each
year to have the annual report and semi-annual report for the Contracts
(collectively, the "Contract Reports") and the Fund Reports printed together or
separately. The Company may also elect to print the Fund Reports in combination
with other fund companies' annual reports and semi-annual reports. For purposes
hereof, any combined annual reports and semi-annual reports including the Fund
Reports along with the Contract Reports or annual reports and semi-annual
reports of other fund companies shall be referred to as "Combined Reports."
For purposes hereof, the term "Fund Portion of the Combined Reports" shall refer
to the percentage of the number of Fund Reports pages in the Combined Reports in
relation to the total number or pages of the Combined Reports.
3.2 Expenses
3.2(a) Expenses Borne by Company. Except as otherwise provided in this
Section 3.2., all expenses of preparing, setting in type and printing and
distributing (i) Contract Prospectuses, Fund Prospectuses, and Combined
Prospectuses; (ii) Fund SAIs, Contract SAIs, and Combined SAIs; (iii) Fund
Reports, Contract Reports, and Combined Reports, and (iv) Contract proxy
material that the Company may require in sufficient quantity to be sent to
Contract owners, annuitants, or participants under Contracts (collectively, the
"Participants"), shall be the expense of the Company.
3.2(b) Expenses Borne by Fund
Fund Prospectuses
With respect to existing Participants, the Fund shall pay the cost of
setting in type, printing and distributing Fund Prospectuses made available by
the Company to such existing Participants in order to update disclosure as
required by the 1933 Act and/or the 1940 Act. With respect to existing
Participants, in the event the Company elects to prepare a Combined Prospectus,
the Fund shall pay the cost of setting in type, printing and distributing the
Fund Portion of the Combined Prospectus made available by the Company to its
existing Participants in order to update disclosure as required by the 1933 Act
and/or the 1940 Act. In such event, the Fund shall bear the cost of typesetting
to provide the Fund Prospectus to the Company in the format in which the Fund is
accustomed to formatting prospectus. Notwithstanding the foregoing, in no event
shall the Fund pay for any such costs that exceed by more than five (5) percent
what the Fund would have paid to print such documents. The Fund shall not pay
any costs of typesetting, printing and distributing the Fund Prospectus (or
Combined Prospectus, if applicable) to prospective Participants.
Fund SAIs, Fund Reports and Proxy Material
With respect to existing Participants, the Fund shall pay the cost of
setting in type and printing Fund SAIs, Fund Reports and Fund proxy material
made available by the Company to its existing Participants. With respect to
existing Participants, in the event the Company elects to
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prepare a Combined SAI or Combined Reports, the Fund shall pay the cost of
setting in type and printing the Fund Portion of the Combined SAI or Combined
Reports, respectively, made available by the Company to its existing
Participants. In such event, the Fund shall bear the cost of typesetting to
provide the Fund SAI or Fund Reports to the Company in the format in which the
Fund is accustomed to formatting statements of additional information and annual
and semi-annual reports. Notwithstanding the foregoing, in no event shall the
Fund pay for any such costs that exceed by more than five (5) percent what the
Fund would have paid to print such documents. The Fund shall pay one half the
cost of distributing Fund SAIs, Fund Reports and Fund proxy statements and
proxy-related material to such existing Participants. The Fund shall pay the
cost of distributing the Fund Portion of the Combined SAIs and the Fund Portion
of the Combined Reports to existing Participants. The Fund shall not pay any
costs of distributing Fund SAIs, Combined SAIs, Fund Reports, Combined Reports
or proxy statements or proxy-related material to prospective Participants.
The Company agrees to provide the Fund or its designee with such
information as may be reasonably requested by the Fund to assure that the Fund's
expenses do not include the cost of typesetting, printing or distributing any of
the foregoing documents other than those actually distributed to existing
Participants.
The Fund shall pay no fee or other compensation to the Company under this
Agreement, except that if the Fund or any Portfolio adopts and implements a plan
pursuant to Rule 12b-1 to finance distribution expenses, then the Underwriter
may make payments to the Company or to AGSI if and in amounts agreed to by the
Underwriter in writing.
All expenses, including expenses to be borne by the Fund pursuant to
Section 3.2 hereof, incident to performance by the Fund under this Agreement
shall be paid by the Fund. The Fund shall see to it that all its shares are
registered and authorized for issuance in accordance with applicable federal law
and, if and to the extent deemed available by the Fund, in accordance with
applicable state laws prior to their sale. The Fund shall bear the expenses for
the cost of registration and qualification of the Fund's shares.
3.2(c) Expenses Borne by AGSI.
Fund Prospectuses
With respect to prospective Participants, AGSI shall pay one half of the
cost of setting in type, printing and distributing Fund Prospectuses made
available by the Company as sales literature to such prospective Participants.
With respect to prospective Participants, in the event the Company elects to
prepare a Combined Prospectus, AGSI shall pay one half of the cost of printing
and distributing the Combined Prospectus made available by the Company to its
prospective Participants as sales literature. In such event, AGSI shall bear
the cost of typesetting to provide the Fund Prospectus to the Company in the
format in which the Fund is accustomed to formatting prospectuses.
Notwithstanding the foregoing, in no event shall AGSI pay for any such costs
that exceed by more than five (5) percent what AGSI would have paid to print
such documents.
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Fund SAIs, Fund Reports and Proxy Material.
With respect to prospective Participants, AGSI shall pay one half of the
cost of setting in type and printing Fund SAIs, Fund Reports and Fund proxy
material made available by the Company to its prospective Participants as sales
literature. In the event the Company elects to prepare a Combined SAI or
Combined Reports, AGSI shall pay one half of the cost of printing the Combined
SAI or Combined Reports, respectively, made available by the Company to its
prospective Participants as sales literature. In such event, AGSI shall bear
the cost of typesetting to provide the Fund SAI and Fund Reports to the Company
in the format in which the Fund is accustomed to formatting statements of
additional information and annual and semi-annual reports. Notwithstanding the
foregoing, in no event shall AGSI pay for any such costs that exceed by more
than five (5) percent what AGSI would have paid to print such documents. AGSI
shall pay one half the cost of distributing Fund SAIs, Combined SAIs, Fund
Reports, Combined Reports, and Fund proxy material to such prospective
Participants as sales literature.
3.2(d) If the Company chooses to receive camera-ready film or computer
diskettes in lieu of receiving printed copies of the Fund Prospectus, Fund SAI
or Fund Reports, the Fund or its designee will be responsible for providing the
Fund Prospectus, Fund SAI or Fund Reports in the format in which it is
accustomed to formatting such documents, and, notwithstanding anything in
Sections 3.2(b) or 3.2(c), the Company shall bear the expense of adjusting or
changing the format to conform with any of its prospectuses or reports.
3.3 The Fund SAI shall be obtainable from the Fund, the Company or such
other person as the Fund may designate.
3.4. If and to the extent required by law the Company shall distribute all
proxy material furnished by the Fund to Participants to whom voting privileges
are required to be extended and shall:
(i) solicit voting instructions from Participants;
(ii) vote the Fund shares in accordance with instructions received
from Participants; and
(iii) vote Fund shares for which no instructions have been received
in the same proportion as Fund shares of such Portfolio for which
instructions have been received,
so long as and to the extent that the SEC continues to interpret the 1940 Act to
require pass-through voting privileges for variable contract owners. The
Company reserves the right to vote Fund shares held in any segregated asset
account in its own right, to the extent permitted by law. The Fund and the
Company shall follow the procedures, and shall have the corresponding
responsibilities, for the handling of proxy and voting instruction
solicitations, as set forth in Schedule C attached hereto and incorporated
herein by reference. Participating Insurance Companies shall be responsible for
ensuring that each of their separate accounts participating in the Fund
calculates voting privileges
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in a manner consistent with the standards set forth on Schedule C, which
standards will also be provided to the other Participating Insurance Companies.
3.5. The Fund will comply with all provisions of the 1940 Act requiring
voting by shareholders, and in particular the Fund will either provide for
annual meetings (except insofar as the Securities and Exchange Commission may
interpret Section 16 not to require such meetings) or comply with Section 16(c)
of the 1940 Act (although the Fund is not one of the trusts described in Section
16(c) of that Act) as well as with Sections 16(a) and, if and when applicable,
16(b). Further, the Fund will act in accordance with the Securities and
Exchange Commission's interpretation of the requirements of Section 16(a) with
respect to periodic elections of directors and with whatever rules the
Commission may promulgate with respect thereto.
ARTICLE IV. SALES MATERIAL AND INFORMATION
4.1. The Company shall furnish, or shall cause to be furnished, to the
Fund or its designee, each piece of sales literature or other promotional
material prepared by the Company, AGSI or any person contracting with the
Company or AGSI in which the Fund or the Adviser is named, at least ten Business
Days prior to its use. No such material shall be used if the Fund, the Adviser,
or their designee reasonably objects to such use within ten Business Days after
receipt of such material.
4.2. Neither the Company, AGSI nor any person contracting with the Company
or AGSI shall give any information or make any representations or statements on
behalf of the Fund or concerning the Fund in connection with the sale of the
Contracts other than the information or representations contained in the
registration statement or the Fund Prospectus, as such registration statement or
Fund Prospectus may be amended or supplemented from time to time, or in reports
or proxy statements for the Fund, or in sales literature or other promotional
material approved by the Fund or its designee, except with the permission of the
Fund.
4.3. The Fund or its designee shall furnish, or shall cause to be
furnished, to the Company or its designee, each piece of sales literature or
other promotional material prepared by the Fund in which the Company or its
Account(s) are named at least ten Business Days prior to its use. No such
material shall be used if the Company or its designee reasonably objects to such
use within ten Business Days after receipt of such material.
4.4. Neither the Fund nor the Adviser shall give any information or make
any representations on behalf of the Company or concerning the Company, each
Account, or the Contracts, other than the information or representations
contained in a registration statement or prospectus for the Contracts, as such
registration statement and prospectus may be amended or supplemented from time
to time, or in published reports or solicitations for voting instructions for
each Account which are in the public domain or approved by the Company for
distribution to Participants, or in sales literature or other promotional
material approved by the Company or its designee, except with the permission of
the Company.
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4.5. The Fund will provide to the Company at least one complete copy of
all registration statements, prospectuses, statements of additional information,
reports, proxy statements, sales literature and other promotional materials,
applications for exemptions, requests for no-action letters, and all amendments
to any of the above, that relate to the Fund or its shares, contemporaneously
with the filing of such document with the SEC or other regulatory authorities.
4.6. The Company will provide to the Fund at least one complete copy of
all registration statements, prospectuses, statements of additional information,
reports, solicitations for voting instructions, sales literature and other
promotional materials, applications for exemptions, requests for no action
letters, and all amendments to any of the above, that relate to the investment
in an Account or Contract contemporaneously with the filing of such document
with the SEC or other regulatory authorities.
4.7. For purposes of this Article IV, the phrase "sales literature or
other promotional material" includes, but is not limited to, any of the
following: advertisements (such as material published, or designed for use in, a
newspaper, magazine, or other periodical, radio, television, telephone or tape
recording, videotape display, signs or billboards, motion pictures, or other
public media), sales literature (i.e., any written communication distributed or
made generally available to customers or the public, including brochures,
circulars, research reports, market letters, form letters, seminar texts,
reprints or excerpts of any other advertisement, sales literature, or published
article), educational or training materials or other communications distributed
or made generally available to some or all agents or employees, and registration
statements, prospectuses, statements of additional information, shareholder
reports, and proxy materials.
ARTICLE V. DIVERSIFICATION
5.1. The Adviser represents, as to the Portfolios for which it acts as
investment adviser, that it will use its best efforts at all times to comply
with Section 817(h) of the Code and Treasury Regulation 1.817-5, relating to the
diversification requirements for variable annuity, endowment, or life insurance
contracts and any amendments or other modifications to such Section or
Regulations. In the event a Portfolio ceases to so qualify, the Adviser will
take all reasonable steps (a) to notify the Company of such breach and (b) to
adequately diversify the Portfolio so as to achieve compliance within the grace
period afforded by Regulation 1.817-5.
ARTICLE VI. POTENTIAL CONFLICTS
6.1. The parties acknowledge that the Fund intends to file an application
with the SEC to request an order granting relief from various provisions of the
1940 Act and the rules thereunder to the extent necessary to permit the Fund
shares to be sold to and held by variable contract separate accounts of both
affiliated and unaffiliated Participating Insurance Companies and Qualified
Plans. It is anticipated that the Exemptive Order, when and if issued, shall
require the Fund and each Participating Insurance Company to comply with
conditions and undertakings substantially as provided in this Article VI. If
the Exemptive Order imposes conditions materially different from those provided
for in this Article VI, the conditions and undertakings imposed by the Exemptive
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Order shall govern this Agreement and the parties hereto agree to amend this
Agreement consistent with the Exemptive Order.
6.2. The Board will monitor the Fund for the existence of any material
irreconcilable conflict between the interests of the contract owners of all
separate accounts investing in the Fund. An irreconcilable material conflict
may arise for a variety of reasons, including: (a) an action by any state
insurance regulatory authority; (b) a change in applicable federal or state
insurance, tax, or securities laws or regulations, or a public ruling, private
letter ruling, no-action or interpretative letter, or any similar action by
insurance, tax, or securities regulatory authorities; (c) an administrative or
judicial decision in any relevant proceeding; (d) the manner in which the
investments of any Portfolio are being managed; (e) a difference in voting
instructions given by variable annuity contract owners and variable life
insurance contract owners; (f) a decision by a Participating Insurance Company
to disregard the voting instructions of Contract owners or (g) if applicable, a
decision by a Qualified Plan to disregard the voting instructions of plan
participants. The Board shall promptly inform the Company if it determines that
an irreconcilable material conflict exists and the implications thereof.
6.3. The Company will report any potential or existing material
irreconcilable conflicts of which it is aware to the Board. The Company will
assist the Board in carrying out its responsibilities under the Shared Funding
Exemptive Order, by providing the Board with all information reasonably
necessary for the Board to consider any issues raised. This includes, but is
not limited to, an obligation by the Company to inform the Board whenever
contract owner voting instructions are disregarded. These responsibilities of
the Company shall be carried out with a view only to the interests of the
Contract owners.
6.4. If a majority of the Board or majority of its disinterested Members,
determines that a material irreconcilable conflict exists affecting Company,
Company, at its expense and to the extent reasonably practicable (as determined
by a majority of the Board's disinterested Members), will take any steps
necessary to remedy or eliminate the irreconcilable material conflict,
including: (a) withdrawing the assets allocable to some or all of the Separate
Accounts from the Fund or any portfolio thereof and reinvesting those assets in
a different investment medium, which may include another Portfolio of the Fund,
or another investment company; (b) submitting the question as to whether such
segregation should be implemented to a vote of all affected Contract owners and
as appropriate, segregating the assets of any appropriate group (i.e. variable
annuity or variable life insurance Contract owners of one or more Participating
Insurance Companies) that votes in favor of such segregation, or offering to the
affected Contract owners the option of making such a change; and (c)
establishing a new registered management investment company (or series thereof)
or managed separate account. If a material irreconcilable conflict arises
because of Company's decision to disregard Contract owner voting instructions
and that decision represents a minority position or would preclude a majority
vote, Company may be required, at the election of the Fund, to withdraw the
Separate Account's investment in the Fund and no charge or penalty will be
imposed as a result of such withdrawal. The responsibility to take such
remedial action shall be carried out with a view only to the interests of the
Contract owners.
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<PAGE>
6.5. If a material irreconcilable conflict arises because of a decision by
the Company to disregard contract owner voting instructions and that decision
represents a minority position or would preclude a majority vote, the Company
may be required, at the Fund's election, to withdraw the affected Account's
investment in the Fund and terminate this Agreement with respect to such Account
(at the Company's expense); provided, however that such withdrawal and
termination shall be limited to the extent required by the foregoing material
irreconcilable conflict as determined by a majority of the disinterested members
of the Board. No charge or penalty will be imposed as a result of such
withdrawal. The Company agrees that it bears the responsibility to take
remedial action in the event of a Board determination of an irreconcilable
material conflict and the cost of such remedial action, and these
responsibilities will be carried out with a view only to the interests of
Contract owners.
6.6. For purposes of Sections 6.4 and 6.5 of this Agreement, a majority of
the disinterested members of the Board shall determine whether any proposed
action adequately remedies any irreconcilable material conflict, but in no event
will the Fund be required to establish a new funding medium for the Contracts.
The Company shall not be required by Section 6.4 or 6.5 to establish a new
funding medium for the Contracts if an offer to do so has been declined by vote
of a majority of Contract owners materially adversely affected by the
irreconcilable material conflict.
6.7. If and to the extent that Rule 6e-2 and Rule 6e-3(T) are amended, or
Rule 6e-3 is adopted, to provide exemptive relief from any provision of the 1940
Act or the rules promulgated thereunder with respect to mixed or shared funding
(as defined in the Shared Funding Exemptive Order) on terms and conditions
materially different from those contained in the Shared Funding Exemptive Order,
then the Fund and/or the Participating Insurance Companies, as appropriate,
shall take such steps as may be necessary to comply with Rules 6e-2 and 6e-3(T),
as amended, and Rule 6e-3, as adopted, to the extent such rules are applicable.
6.8 The Company and the Adviser shall at least annually submit to the
Board of the Fund such reports, materials or data as the Board may reasonably
request so that the Board may fully carry out the obligations imposed upon them
by the provisions hereof, and said reports, materials and data shall be
submitted more frequently if deemed appropriate by the Board. All reports
received by the Board of potential or existing conflicts, and all Board action
with regard to determining the existence of a conflict, notifying Participating
Insurance Companies of a conflict, and determining whether any proposed action
adequately remedies a conflict, shall be properly recorded in the minutes of the
Board or other appropriate records, and such minutes or other records shall be
made available to the SEC upon request.
ARTICLE VII. INDEMNIFICATION
7.1. Indemnification By The Company and AGSI
7.1(a) The Company and AGSI agree to indemnify and hold harmless the Fund
and each member of the Board and officers, and the Adviser and each director and
officer of the Adviser, and each person, if any, who controls the Fund or the
Adviser within the meaning of Section 15 of the 1933 Act (collectively, the
"Indemnified Parties" and individually, "Indemnified Party," for purposes
15
<PAGE>
of this Section 7.1) against any and all losses, claims, damages, liabilities
(including amounts paid in settlement with the written consent of the Company or
AGSI) or litigation (including legal and other expenses), to which the
Indemnified Parties may become subject under any statute or regulation, at
common law or otherwise, insofar as such losses, claims, damages, liabilities or
expenses (or actions in respect thereof) or settlements are related to the sale
or acquisition of the Fund's shares or the Contracts and:
(i) arise out of or are based upon any untrue statements or alleged untrue
statements of any material fact contained in the registration statement or
prospectus for the Contracts or contained in the Contracts or sales
literature for the Contracts (or any amendment or supplement to any of the
foregoing), or arise out of or are based upon the omission or the alleged
omission to state therein a material fact required to be stated therein or
necessary to make the statements therein not misleading, provided that this
agreement to indemnify shall not apply as to any Indemnified Party if such
statement or omission or such alleged statement or omission was made in
reliance upon and in conformity with information furnished to the Company
by or on behalf of the Fund for use in the registration statement or
prospectus for the Contracts or in the Contracts or sales literature (or
any amendment or supplement) or otherwise for use in connection with the
sale of the Contracts or Fund shares; or
(ii) arise out of or as a result of statements or representations (other
than statements or representations contained in the registration statement,
prospectus or sales literature of the Fund not supplied by the Company or
AGSI, or persons under its control and other than statements or
representations authorized by the Fund or the Adviser) or wrongful conduct
of the Company or AGSI or persons under its control, with respect to the
sale or distribution of the Contracts or Fund shares; or
(iii) arise out of or as a result of any untrue statement or alleged
untrue statement of a material fact contained in a registration statement,
prospectus, or sales literature of the Fund or any amendment thereof or
supplement thereto or the omission or alleged omission to state therein a
material fact required to be stated therein or necessary to make the
statements therein not misleading if such a statement or omission was made
in reliance upon and in conformity with information furnished to the Fund
by or on behalf of the Company or AGSI; or
(iv) arise as a result of any failure by the Company or AGSI to provide
the services and furnish the materials under the terms of this Agreement;
or
(v) arise out of or result from any material breach of any representation
and/or warranty made by the Company or AGSI in this Agreement or arise out
of or result from any other material breach of this Agreement by the
Company or AGSI, as limited by and in accordance with the provisions of
Sections 7.1(b) and 7.1(c) hereof.
7.1(b). Neither the Company nor AGSI shall be liable under this
indemnification provision with respect to any losses, claims, damages,
liabilities or litigation incurred or assessed against an Indemnified Party as
such may arise from such Indemnified Party's willful misfeasance, bad faith,
16
<PAGE>
or gross negligence in the performance of such Indemnified Party's duties or by
reason of such Indemnified Party's reckless disregard of obligations or duties
under this Agreement.
7.1(c). Neither the Company nor AGSI shall be liable under this
indemnification provision with respect to any claim made against an Indemnified
Party unless such Indemnified Party shall have notified the Company or AGSI in
writing within a reasonable time after the summons or other first legal process
giving information of the nature of the claim shall have been served upon such
Indemnified Party (or after such Indemnified Party shall have received notice of
such service on any designated agent), but failure to notify the Company or AGSI
of any such claim shall not relieve the Company or AGSI from any liability which
it may have to the Indemnified Party against whom such action is brought
otherwise than on account of this indemnification provision. In case any such
action is brought against the Indemnified Parties, the Company or AGSI shall be
entitled to participate, at its own expense, in the defense of such action. The
Company or AGSI also shall be entitled to assume the defense thereof, with
counsel satisfactory to the party named in the action. After notice from the
Company or AGSI to such Party of the Company's or AGSI's election to assume the
defense thereof, the Indemnified Party shall bear the fees and expenses under
this Agreement for any legal or other expenses subsequently incurred by such
Party independently in connection with the defense thereof other than reasonable
costs of investigation.
7.1(d). The Indemnified Parties will promptly notify the Company or AGSI
of the commencement of any litigation or proceedings against them in connection
with the issuance or sale of the Fund shares or the Contracts or the operation
of the Fund.
7.2. Indemnification by the Adviser
7.2(a). The Adviser agrees, with respect to each Portfolio that it manages,
to indemnify and hold harmless the Company and each of its directors and
officers and each person, if any, who controls the Company within the meaning of
Section 15 of the 1933 Act (collectively, the "Indemnified Parties" and
individually, "Indemnified Party," for purposes of this Section 7.2) against any
and all losses, claims, damages, liabilities (including amounts paid in
settlement with the written consent of the Adviser) or litigation (including
legal and other expenses) to which the Indemnified Parties may become subject
under any statute, at common law or otherwise, insofar as such losses, claims,
damages, liabilities or expenses (or actions in respect thereof) or settlements,
result from the gross negligence, bad faith, willful misconduct of the Adviser
or any director, officer, employee or agent thereof, or are related to the
operation of the Adviser or the Fund and:
(i) arise out of or are based upon any untrue statement or alleged untrue
statement of any material fact contained in the registration statement or
prospectus or sales literature of the Fund (or any amendment or supplement
to any of the foregoing), or arise out of or are based upon the omission or
the alleged omission to state therein a material fact required to be stated
therein or necessary to make the statements therein not misleading,
provided that this agreement to indemnify shall not apply as to any
Indemnified Party if such statement or omission or such alleged statement
or omission was made in reliance upon and in conformity with information
furnished to the Adviser or the Fund or the Underwriter by or on behalf of
the Company for use in the registration statement or prospectus for the
Fund or in sales
17
<PAGE>
literature (or any amendment or supplement) or otherwise for use in
connection with the sale of the Contracts or Portfolio shares; or
(ii) arise out of or as a result of statements or representations (other
than statements or representations contained in the registration statement,
prospectus or sales literature for the Contracts not supplied by the
Adviser or persons under its control and other than statements or
representations authorized by the Company) or unlawful conduct of the
Adviser or persons under its control, with respect to the sale or
distribution of the Contracts or Portfolio shares; or
(iii) arise out of or as a result of any untrue statement or alleged
untrue statement of a material fact contained in a registration statement,
prospectus, or sales literature covering the Contracts, or any amendment
thereof or supplement thereto, or the omission or alleged omission to state
therein a material fact required to be stated therein or necessary to make
the statement or statements therein not misleading, if such statement or
omission was made in reliance upon information furnished to the Company by
or on behalf of the Adviser; or
(iv) arise as a result of any failure by the Adviser to provide the
services and furnish the materials under the terms of this Agreement; or
(v) arise out of or result from any material breach of any representation
and/or warranty made by the Adviser in this Agreement or arise out of or
result from any other material breach of this Agreement by the Fund or the
Adviser; including without limitation any failure by the Fund or the
Adviser to comply with the conditions of Article V hereof.
7.2(b). The Adviser shall not be liable under this indemnification
provision with respect to any losses, claims, damages, liabilities or litigation
incurred or assessed against an Indemnified Party as may arise from such
Indemnified Party's willful misfeasance, bad faith, or gross negligence in the
performance of such Indemnified Party's duties or by reason of such Indemnified
Party's reckless disregard of obligations and duties under this Agreement.
7.2(c). The Adviser shall not be liable under this indemnification
provision with respect to any claim made against an Indemnified Party unless
such Indemnified Party shall have notified the Adviser in writing within a
reasonable time after the summons or other first legal process giving
information of the nature of the claim shall have been served upon such
Indemnified Party (or after such Indemnified Party shall have received notice of
such service on any designated agent), but failure to notify the Adviser of any
such claim shall not relieve the Adviser from any liability which it may have to
the Indemnified Party against whom such action is brought otherwise than on
account of this indemnification provision. In case any such action is brought
against the Indemnified Parties, the Adviser will be entitled to participate, at
its own expense, in the defense thereof. The Adviser also shall be entitled to
assume the defense thereof, with counsel satisfactory to the party named in the
action. After notice from the Adviser to such Party of the Adviser's election
to assume the defense thereof, the Indemnified Party shall bear the fees and
expenses of any additional counsel retained by it, and the Adviser will not be
liable to such Party under this Agreement for any legal or
18
<PAGE>
other expenses subsequently incurred by such Party independently in connection
with the defense thereof other than reasonable costs of investigation.
7.2(d). The Company and AGSI agree promptly to notify the Adviser of the
commencement of any litigation or proceedings against it or any of its officers,
trustees or directors in connection with this Agreement, the issuance or sale of
the Contracts with respect to the operation of each Account, or the sale or
acquisition of shares of the Fund.
ARTICLE VIII. APPLICABLE LAW
8.1. This Agreement shall be construed and the provisions hereof
interpreted under and in accordance with the laws of the State of Maryland.
8.2. This Agreement shall be subject to the provisions of the 1933, 1934
and 1940 Acts, and the rules and regulations and rulings thereunder, including
such exemptions from those statutes, rules and regulations as the SEC may grant
(including, but not limited to, the Shared Funding Exemptive Order) and the
terms hereof shall be interpreted and construed in accordance therewith.
ARTICLE IX. TERMINATION
9.1. This Agreement shall continue in full force and effect until the first
to occur of:
(a) termination by any party for any reason upon 180 days advance written
notice delivered to the other parties; or
(b) termination by the Company or AGSI by written notice to the Fund and
the Adviser with respect to any Portfolio based upon the Company's
determination that shares of such Portfolio are not reasonably available to
meet the requirements of the Contracts. Reasonable advance notice of
election to terminate shall be furnished by the Company, said termination
to be effective ten (10) days after receipt of notice unless the Fund makes
available a sufficient number of shares to reasonably meet the requirements
of the Account within said ten (10) day period; or
(c) termination by the Company or AGSI by written notice to the Fund and
the Adviser with respect to any Portfolio in the event any of the
Portfolio's shares are not registered, issued or sold in accordance with
applicable state and/or federal law or such law precludes the use of such
shares as the underlying investment medium of the Contracts issued or to be
issued by the Company. The terminating party shall give prompt notice to
the other parties of its decision to terminate; or
(d) termination by the Company or AGSI by written notice to the Fund and
the Adviser with respect to any Portfolio in the event that such Portfolio
ceases to qualify as a Regulated Investment Company under Subchapter M of
the Code or under any
19
<PAGE>
successor or similar provision, or if the Company or AGSI reasonably
believes that the Fund may fail to so qualify; or
(e) termination by the Company or AGSI by written notice to the Fund and
the Adviser with respect to any Portfolio in the event that such Portfolio
fails to meet the diversification requirements specified in Article V
hereof; or
(f) termination by either the Fund or the Adviser by written notice to the
Company if the Adviser or the Fund shall determine, in its sole judgment
exercised in good faith, that the Company, AGSI and/or their affiliated
companies has suffered a material adverse change in its business,
operations, financial condition or prospects since the date of this
Agreement or is the subject of material adverse publicity, provided that
the Fund or the Adviser will give the Company sixty (60) days' advance
written notice of such determination of its intent to terminate this
Agreement, and provided further that after consideration of the actions
taken by the Company or AGSI and any other changes in circumstances since
the giving of such notice, the determination of the Fund or the Adviser
shall continue to apply on the 60th day since giving of such notice, then
such 60th day shall be the effective date of termination; or
(g) termination by the Company or AGSI by written notice to the Fund and
the Adviser, if the Company or AGSI shall determine, in its sole judgment
exercised in good faith, that either the Fund or the Adviser (with respect
to the appropriate Portfolio) has suffered a material adverse change in its
business, operations, financial condition or prospects since the date of
this Agreement or is the subject of material adverse publicity; provided
that the Company will give the Fund or the Adviser sixty (60) days' advance
written notice of such determination of its intent to terminate this
Agreement, and provided further that after consideration of the actions
taken by the Company and any other changes in circumstances since the
giving of such notice, the determination of the Company or AGSI shall
continue to apply on the 60th day since giving of such notice, then such
60th day shall be the effective date of termination; or
(h) termination by the Fund or the Adviser by written notice to the
Company, if the Company gives the Fund and the Adviser the written notice
specified in Section 2.4 hereof and at the time such notice was given there
was no notice of termination outstanding under any other provision of this
Agreement; provided, however any termination under this Section 9.1(h)
shall be effective sixty (60) days after the notice specified in Section
2.4 was given; or
(i) termination by any party upon the other party's breach of any
representation in Article II or any material provision of this Agreement,
which breach has not been cured to the satisfaction of the terminating
party within ten (10) days after written notice of such breach is delivered
to the Fund or the Company, as the case may be; or
20
<PAGE>
(j) termination by the Fund or the Adviser by written notice to the Company
in the event an Account or Contract is not registered or sold in accordance
with applicable federal or state law or regulation, or the Company fails to
provide pass-through voting privileges as specified in Section 3.4.
9.2. EFFECT OF TERMINATION. Notwithstanding any termination of this
Agreement, the Fund shall at the option of the Company, continue to make
available additional shares of the Fund pursuant to the terms and conditions of
this Agreement, for all Contracts in effect on the effective date of termination
of this Agreement (hereinafter referred to as "Existing Contracts") unless such
further sale of Fund shares is proscribed by law, regulation or applicable
regulatory body, or unless the Fund determines that liquidation of the Fund
following termination of this Agreement is in the best interests of the Fund and
its shareholders. Specifically, without limitation, the owners of the Existing
Contracts shall be permitted to direct reallocation of investments in the Fund,
redemption of investments in the Fund and/or investment in the Fund upon the
making of additional purchase payments under the Existing Contracts. The
Company agrees however: (i) to immediately terminate the availability of shares
of the Fund to Contracts other than Existing Contracts and (ii) as soon as
reasonably practicable to request and diligently pursue approval from the SEC to
replace shares of the Fund with other investments for Contracts and, if and when
granted such approval, thereafter to so replace the shares of the Fund as soon
as reasonably practicable. Furthermore, the parties agree that this Section 9.2
shall not apply to any terminations under Article VI and the effect of such
Article VI terminations shall be governed by Article VI of this Agreement.
9.3. The Company shall not redeem Fund shares attributable to the
Contracts (as distinct from Fund shares attributable to the Company's assets
held in the Account) except (i) as necessary to implement Contract Owner
initiated or approved transactions, or (ii) as required by state and/or federal
laws or regulations or judicial or other legal precedent of general application
(hereinafter referred to as a "Legally Required Redemption") or (iii) as
permitted by an order of the SEC pursuant to Section 26(b) of the 1940 Act.
Upon request, the Company will promptly furnish to the Fund the opinion of
counsel for the Company (which counsel shall be reasonably satisfactory to the
Fund and the Adviser) to the effect that any redemption pursuant to clause (ii)
above is a Legally Required Redemption. Furthermore, except in cases where
permitted under the terms of the Contracts, the Company shall not prevent
Contract Owners from allocating payments to a Portfolio that was otherwise
available under the Contracts without first giving the Fund or the appropriate
Adviser 90 days prior written notice of its intention to do so.
ARTICLE X. Notices
Any notice shall be sufficiently given when sent by registered or certified
mail to the other party at the address of such party set forth below or at such
other address as such party may from time to time specify in writing to the
other party.
If to the Fund:
Navellier Variable Insurance Series Fund, Inc.
One East Liberty, Third Floor
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<PAGE>
Reno, Nevada, 89501
Attention: Dennis A. Holtorf
If to Adviser:
Navellier & Associates, Inc.
One East Liberty, Third Floor
Reno, Nevada 89501
Attention: Louis Navellier
If to the Company:
American General Life Insurance Company
2727-A Allen Parkway
Houston, Texas 77019
Attention: Steven A. Glover
If to AGSI:
American General Securities Incorporated
2727 Allen Parkway
Houston, Texas 77019
Attention: F. Paul Kovach, Jr.
ARTICLE XI. FOREIGN TAX CREDITS
The Fund and the Adviser agree to consult with the Company concerning
whether any Portfolio of the Fund qualifies to provide a foreign tax credit
pursuant to Section 853 of the Code.
ARTICLE XII. MISCELLANEOUS
12.1. All persons dealing with the Fund must look solely to the property
of the Fund for the enforcement of any claims against the Fund as neither the
Board, officers, agents or shareholders assume any personal liability for
obligations entered into on behalf of the Fund.
12.2. Subject to the requirements of legal process and regulatory
authority, each party hereto shall treat as confidential the names and addresses
of the owners of the Contracts and all information reasonably identified as
confidential in writing by any other party hereto and, except as permitted by
this Agreement, shall not disclose, disseminate or utilize such names and
addresses and other confidential information until such time as it may come into
the public domain without the express written consent of the affected party.
22
<PAGE>
12.3. The captions in this Agreement are included for convenience of
reference only and in no way define or delineate any of the provisions hereof or
otherwise affect their construction or effect.
12.4. This Agreement may be executed simultaneously in two or more
counterparts, each of which taken together shall constitute one and the same
instrument.
12.5. If any provision of this Agreement shall be held or made invalid by
a court decision, statute, rule or otherwise, the remainder of this Agreement
shall not be affected thereby.
12.6. Each party hereto shall cooperate with each other party and all
appropriate governmental authorities (including without limitation the SEC, the
NASD and state insurance regulators) and shall permit such authorities
reasonable access to its books and records in connection with any investigation
or inquiry relating to this Agreement or the transactions contemplated hereby.
12.7. The rights, remedies and obligations contained in this Agreement are
cumulative and are in addition to any and all rights, remedies and obligations
at law or in equity, which the parties hereto are entitled to under state and
federal laws.
12.8. This Agreement or any of the rights and obligations hereunder may
not be assigned by any party without the prior written consent of all parties
hereto; provided, however, that the Adviser may assign this Agreement or any
rights or obligations hereunder to any affiliate of or company under common
control with the Adviser, if such assignee is duly licensed and registered to
perform the obligations of the Adviser under this Agreement.
12.9 The Company shall furnish, or shall cause to be furnished, to the
Fund or its designee copies of the following reports upon request from the Fund:
(a) the Company's annual statement (prepared under statutory accounting
principles) and annual report (prepared under generally accepted accounting
principles ("GAAP"), if any), as soon as practical and in any event within
90 days after the end of each fiscal year;
(b) the Company's June 30th quarterly statements (statutory) (and GAAP, if
any), as soon as practical and in any event within 45 days after the end of
each semi-annual period:
(c) any financial statement, proxy statement, notice or report of the
Company sent to stockholders and/or policyholders, as soon as practical
after the delivery thereof to stockholders;
(d) any registration statement (without exhibits) and financial reports of
the Company filed with the SEC or any state insurance regulator, as soon as
practical after the filing thereof;
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<PAGE>
(e) any other public report submitted to the Company by independent
accountants in connection with any annual, interim or special audit made by
them of the books of the Company, as soon as practical after the receipt
thereof.
12.10. It is agreed by the parties hereto that Article VII and Sections
12.1, 12.6 and 12.7 shall survive any termination of this Agreement.
IN WITNESS WHEREOF, each of the parties hereto has caused this Agreement to
be executed in its name and on its behalf by its duly authorized representative
hereto as of the date specified above.
AMERICAN GENERAL LIFE INSURANCE COMPANY on behalf of itself and each
of its Accounts named in Schedule B hereto, as amended from time to time.
By: /S/ RODNEY O. MARTIN
Name: Rodney O. Martin, Jr.
Title: President and Chief Executive Officer
AMERICAN GENERAL SECURITIES INCORPORATED
24
<PAGE>
By: /S/ F. PAUL KOVACH
Name: F. Paul Kovach, Jr.
Title: President
NAVELLIER VARIABLE INSURANCE SERIES FUND, INC.
By: /S/ LOUIS NAVELLIER
Name: Louis Navellier
Title: President
NAVELLIER & ASSOCIATES, INC.
By: /S/ LOUIS NAVELLIER
Name: Louis Navellier
Title: President
25
<PAGE>
SCHEDULE A
PORTFOLIOS OF
NAVELLIER VARIABLE INSURANCE SERIES FUND, INC.
AVAILABLE FOR
PURCHASE BY AMERICAN GENERAL LIFE
INSURANCE COMPANY UNDER THIS AGREEMENT
1. Navellier Growth Portfolio
26
<PAGE>
SCHEDULE B
SEPARATE ACCOUNTS AND CONTRACTS
<TABLE>
<S> <C>
NAME OF SEPARATE ACCOUNT AND FORM NUMBERS AND NAMES OF CONTRACT FUNDED BY
DATE ESTABLISHED BY BOARD OF DIRECTORS SEPARATE ACCOUNT
- -------------------------------------- ----------------
American General Life Insurance Company Form No:
Separate Account D 97505
Established: November 19, 1973
Name of Contract:
Select Reserve(SM) Flexible Payment Variable and
Fixed Deferred Annuity
</TABLE>
27
<PAGE>
SCHEDULE C
PROXY VOTING PROCEDURES
The following is a list of procedures and corresponding responsibilities for the
handling of proxies and voting instructions relating to the Fund. The defined
terms herein shall have the meanings assigned in the Participation Agreement
except that the term "Company" shall also include the department or third party
assigned by the Company to perform the steps delineated below.
1. The proxy proposals are given to the Company by the Fund as early as
possible before the date set by the Fund for the shareholder meeting to
enable the Company to consider and prepare for the solicitation of voting
instructions from owners of the Contracts and to facilitate the
establishment of tabulation procedures. At this time the Fund will inform
the Company of the Record, Mailing and Meeting dates. This will be done
verbally approximately two months before meeting.
2. Promptly after the Record Date, the Company will perform a "tape run", or
other activity, which will generate the names, addresses and number of
units which are attributed to each contract owner/policyholder (the
"Customer") as of the Record Date. Allowance should be made for account
adjustments made after this date that could affect the status of the
Customers' accounts as of the Record Date.
Note: The number of proxy statements is determined by the activities
described in this Step #2. The Company will use its best efforts to call
in the number of Customers to the Fund , as soon as possible, but no later
than two weeks after the Record Date.
3. The Fund's Annual Report must be sent to each Customer by the Company
either before or together with the Customers' receipt of a proxy statement
or other voting instructions and solicitation material. The Fund will
provide at least one copy of the last Annual Report to the Company pursuant
to the terms of Section 3.3 of the Agreement to which this Schedule
relates.
4. The text and format for the Voting Instruction Cards ("Cards" or "Card") is
provided to the Company by the Fund. The Company, at its expense, shall
produce and personalize the Voting Instruction Cards. The Fund or its
affiliate must approve the Card before it is printed. Allow approximately
2-4 business days for printing information on the Cards. Information
commonly found on the Cards includes:
a. name (legal name as found on account registration)
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<PAGE>
b. address
c. fund or account number
d. coding to state number of units
e. individual Card number for use in tracking and verification of votes
(already on Cards as printed by the Fund).
(This and related steps may occur later in the chronological process due to
possible uncertainties relating to the proposals.)
5. During this time, the Fund will develop, produce and pay for the Notice of
Proxy and the Proxy Statement (one document). Printed and folded notices
and statements will be sent to Company for insertion into envelopes
(envelopes and return envelopes are provided and paid for by the Company).
Contents of envelope sent to Customers by the Company will include:
a. Voting Instruction Card(s)
b. One proxy notice and statement (one document)
c. return envelope (postage pre-paid by Company) addressed to the Company
or its tabulation agent
d. "urge buckslip" - optional, but recommended. (This is a small, single
sheet of paper that requests Customers to vote as quickly as possible
and that their vote is important. One copy will be supplied by the
Fund.)
e. cover letter - optional, supplied by Company and reviewed and
approved in advance by the Fund.
6. The above contents should be received by the Company approximately 3-5
business days before mail date. Individual in charge at Company reviews
and approves the contents of the mailing package to ensure correctness and
completeness. Copy of this approval sent to the Fund.
7. Package mailed by the Company.
* The Fund must allow at least a 15-day solicitation time to the Company as
the shareowner. (A 5-week period is recommended.) Solicitation time is
calculated as calendar days from (but not including,) the meeting,
counting backwards.
8. Collection and tabulation of Cards begins. Tabulation usually takes place
in another department or another vendor depending on process used. An
often used procedure is to sort Cards on arrival by proposal into vote
categories of all yes, no, or mixed replies, and to begin data entry.
Note: Postmarks are not generally needed. A need for postmark information
would be due to an insurance company's internal procedure and has not been
required by the Fund in the past.
29
<PAGE>
9. Signatures on Card checked against legal name on account registration which
was printed on the Card.
Note: For example, if the account registration is under "John A. Smith,
Trustee," then that is the exact legal name to be printed on the Card and
is the signature needed on the Card.
10. If Cards are mutilated, or for any reason are illegible or are not signed
properly, they are sent back to Customer with an explanatory letter and a
new Card and return envelope. The mutilated or illegible Card is
disregarded and considered to be not received for purposes of vote
tabulation. Any Cards that have been "kicked out" (e.g. mutilated,
illegible) of the procedure are "hand verified," i.e., examined as to why
they did not complete the system. Any questions on those Cards are usually
remedied individually.
11. There are various control procedures used to ensure proper tabulation of
votes and accuracy of that tabulation. The most prevalent is to sort the
Cards as they first arrive into categories depending upon their vote; an
estimate of how the vote is progressing may then be calculated. If the
initial estimates and the actual vote do not coincide, then an internal
audit of that vote should occur. This may entail a recount.
12. The actual tabulation of votes is done in units which is then converted to
shares. (It is very important that the Fund receives the tabulations stated
in terms of a percentage and the number of shares.) The Fund must review
and approve tabulation format.
13. Final tabulation in shares is verbally given by the Company to the Fund on
the morning of the meeting not later than 10:00 a.m. Eastern time. The
Fund may request an earlier deadline if reasonable and if required to
calculate the vote in time for the meeting.
14. A Certification of Mailing and Authorization to Vote Shares will be
required from the Company as well as an original copy of the final vote.
The Fund will provide a standard form for each Certification.
15. The Company will be required to box and archive the Cards received from the
Customers. In the event that any vote is challenged or if otherwise
necessary for legal, regulatory, or accounting purposes, the Fund will be
permitted reasonable access to such Cards.
16. All approvals and "signing-off' may be done orally, but must always be
followed up in writing.
30
<PAGE>
EXHIBIT 3(b)(v)(B)
<PAGE>
PARTICIPATION AGREEMENT
AMONG
AMERICAN GENERAL LIFE INSURANCE COMPANY
AMERICAN GENERAL SECURITIES INCORPORATED
THE OFFITBANK VARIABLE INSURANCE FUND, INC.
OFFITBANK
AND
OFFIT FUNDS DISTRIBUTOR, INC.
DATED AS OF
FEBRUARY 26, 1998
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
----
<S> <C> <C>
ARTICLE I. Fund Shares 4
ARTICLE II Representations and Warranties 6
ARTICLE III. Prospectuses, Reports to Shareholders
and Proxy Statements, Voting 8
ARTICLE IV. Sales Material and Information 12
ARTICLE V [Reserved] 13
ARTICLE VI. Diversification 13
ARTICLE VII. Potential Conflicts 13
ARTICLE VIII. Indemnification 15
ARTICLE IX. Applicable Law 20
ARTICLE X. Termination 20
ARTICLE XI. Notices 22
ARTICLE XII. Foreign Tax Credits 23
ARTICLE XIII. Miscellaneous 23
SCHEDULE A Portfolios of The OFFITBANK Variable Insurance 27
Fund, Inc. Available for Purchase by American
General Life Insurance Company
SCHEDULE B Separate Accounts and Contracts 28
SCHEDULE C Proxy Voting Procedures 29
</TABLE>
2
<PAGE>
THIS AGREEMENT, made and entered into as of the 26th day of February,
1998 by and among AMERICAN GENERAL LIFE INSURANCE COMPANY (hereinafter the
"Company"), a Texas insurance company, on its own behalf and on behalf of each
separate account of the Company set forth on Schedule B hereto as may be amended
from time to time (each such account hereinafter referred to as the "Account");
AMERICAN GENERAL SECURITIES INCORPORATED (hereinafter "AGSI"), a Texas
corporation; THE OFFITBANK VARIABLE INSURANCE FUND, INC. (hereinafter the
"Fund"), a Maryland corporation; OFFITBANK (hereinafter the "Adviser") a New
York chartered trust company; and OFFIT FUNDS DISTRIBUTOR, INC. (hereinafter
"OFDI"), a Delaware Corporation.
WHEREAS, the Fund engages in business as an open-end management investment
company and is available to act as (i) the investment vehicle for separate
accounts established by insurance companies for individual and group life
insurance policies and annuity contracts with variable accumulation and/or pay-
out provisions (hereinafter referred to individually and/or collectively as
"Variable Insurance Products") and (ii) the investment vehicle for certain
qualified pension and retirement plans (hereinafter "Qualified Plans"); and
WHEREAS, insurance companies desiring to utilize the Fund as an investment
vehicle under their Variable Insurance Products are required to enter into a
participation agreement with the Fund and the Adviser (the "Participating
Insurance Companies"); and
WHEREAS, shares of the Fund are divided into several series of shares, each
representing the interest in a particular managed portfolio of securities and
other assets, any one or more of which may be made available for Variable
Insurance Products of Participating Insurance Companies; and
WHEREAS, the Fund intends to offer shares of the series set forth on
Schedule A (each such series hereinafter referred to as a "Portfolio"), as may
be amended from time to time by mutual agreement of the parties hereto, under
this Agreement to the Accounts of the Company; and
WHEREAS, the Fund has obtained an order from the Securities and Exchange
Commission, dated February 15, 1995, (File No. 812-9306), granting Participating
Insurance Companies and Variable Insurance Product separate accounts exemptions
from the provisions of Sections 9(a), 13(a), 15(a), and 15(b) of the Investment
Company Act of 1940, as amended (hereinafter the "1940 Act"), and Rules 6e-
2(b)(15) and 6e-3(T)(b)(15) thereunder, to the extent necessary to permit shares
of the Fund to be sold to and held by Variable Insurance Product separate
accounts of both affiliated and unaffiliated life insurance companies and
Qualified Plans (hereinafter the "Shared Funding Exemptive Order"); and
WHEREAS, the Fund is registered as an open-end management investment
company under the 1940 Act and its shares are registered under the Securities
Act of 1933, as amended (hereinafter the "1933 Act"); and
WHEREAS, the Adviser is duly registered as an investment adviser under the
Investment
3
<PAGE>
Advisers Act of 1940, as amended, and any applicable state securities laws; and
WHEREAS, the Adviser manages certain Portfolios of the Fund; and
WHEREAS, OFDI is registered as a broker/dealer under the Securities
Exchange Act of 1934, as amended (hereinafter the "1934 Act"), is a member in
good standing of the National Association of Securities Dealers, Inc.
(hereinafter "NASD") and serves as principal underwriter of the shares of the
Fund; and
WHEREAS, the Company has registered or will register certain Variable
Insurance Products under the 1933 Act; and
WHEREAS, each Account is a duly organized, validly existing segregated
asset account, established by resolution or under authority of the Board of
Directors of the Company, on the date shown for such Account on Schedule B
hereto, to set aside and invest assets attributable to the aforesaid Variable
Insurance Product; and
WHEREAS, the Company has registered or will register each Account as a unit
investment trust under the 1940 Act; and
WHEREAS, to the extent permitted by applicable insurance laws and
regulations, the Company intends to purchase shares in the Portfolios on behalf
of each Account to fund certain of the aforesaid Variable Insurance Products and
OFDI is authorized to sell such shares to each such Account at net asset value;
and
WHEREAS, AGSI serves as both the distributor and the principal underwriter
of the Variable Insurance Products that are set forth on Schedule B;
NOW, THEREFORE, in consideration of their mutual promises, the Company, AGSI,
the Fund, the Adviser and OFDI agree as follows:
ARTICLE I. FUND SHARES
1.1. The Fund agrees to make available for purchase by the Company shares
of the Portfolios set forth on Schedule A and shall execute orders placed for
each Account on a daily basis at the net asset value next computed after receipt
by the Fund or its designee of such order. For purposes of this Section 1.1,
the Company shall be the designee of the Fund for receipt of such orders from
each Account and receipt by such designee shall constitute receipt by the Fund;
provided that the Fund receives notice of such order as soon as reasonably
practical (normally by 10:00 a.m. Eastern time) on the next following Business
Day. Notwithstanding the foregoing, the Company shall use its best efforts to
provide the Fund with notice of such orders by 10:15 a.m. Eastern time on the
next following Business Day. "Business Day" shall mean any day on which the New
York Stock Exchange is open for trading and on which the Fund calculates the net
asset value pursuant to the rules of the SEC, as set forth in the Fund's
Prospectus and Statement of Additional Information.
4
<PAGE>
Notwithstanding the foregoing, the Board of Directors of the Fund (hereinafter
the "Board") may refuse to permit the Fund to sell shares of any Portfolio to
any person, or suspend or terminate the offering of shares of any Portfolio, if
such action is required by law or by regulatory authorities having jurisdiction
or is, in the sole discretion of the Board acting in good faith and in light of
their fiduciary duties under federal and any applicable state laws, necessary in
the best interests of the shareholders of such Portfolio.
1.2. The Fund agrees that shares of the Fund will be sold only to
Participating Insurance Companies and their Variable Insurance Products and to
certain Qualified Plans. No shares of any Portfolio will be sold to the general
public.
1.3. The Fund will not make its shares available for purchase by any
insurance company or separate account unless an agreement containing provisions
substantially the same as Sections 2.4, 2.9, 3.4 and Article VII of this
Agreement is in effect to govern such sales.
1.4. The Fund agrees to redeem for cash, on the Company's request, any
full or fractional shares of the Fund held by the Company, executing such
requests on a daily basis at the net asset value next computed after receipt by
the Fund or its designee of the request for redemption. For purposes of this
Section 1.4, the Company shall be the designee of the Fund for receipt of
requests for redemption from each Account and receipt by such designee shall
constitute receipt by the Fund; provided that the Fund receives notice of such
request for redemption on the next following Business Day in accordance with the
timing rules described in Section 1.1.
1.5. The Company agrees that purchases and redemptions of Portfolio shares
offered by the then current prospectus of the Fund shall be made in accordance
with the provisions of such prospectus. The Accounts of the Company, under
which amounts may be invested in the Fund, are listed on Schedule B attached
hereto and incorporated herein by reference, as such Schedule B may be amended
from time to time by mutual written agreement of all of the parties hereto. The
Company will give the Fund and the Adviser sixty (60) days written notice of its
intention to make available in the future, as a funding vehicle under the
Contracts, any other investment company.
1.6. The Company will place separate orders to purchase or redeem shares
of each Portfolio. Each order shall describe the net amount of shares and
dollar amount of each Portfolio to be purchased or redeemed. In the event of
net purchases, the Company shall pay for Portfolio shares on the next Business
Day after an order to purchase Portfolio shares is made in accordance with the
provisions of Section 1.1 hereof. Payment shall be in federal funds transmitted
by wire. In the event of net redemptions, the Portfolio shall pay the redemption
proceeds in federal funds transmitted by wire on the next Business Day after an
order to redeem a Portfolio's shares is made in accordance with the provision of
Section 1.4 hereof. Notwithstanding the foregoing, if the payment of redemption
proceeds on the next Business Day would require the Portfolio to dispose of
securities or otherwise incur substantial additional costs, and if the Portfolio
has determined to settle redemption transactions for all shareholders on a
delayed basis, proceeds shall be wired to the Company within seven (7) days and
the Portfolio shall notify in writing the person designated by the Company as
the recipient for such notice of such delay by 3:00 p.m. Eastern time on the
same Business Day that the Company transmits the redemption order to the
Portfolio.
5
<PAGE>
1.7. Issuance and transfer of the Fund's shares will be by book entry
only. Stock certificates will not be issued to the Company or any Account.
Shares ordered from the Fund will be recorded in an appropriate title for each
Account or the appropriate subaccount of each Account.
1.8. The Fund shall make the dividends or capital gain distributions
payable on the Fund's shares available to the Company as soon as reasonably
practical after the dividends or capital gains are calculated (normally by 6:30
p.m. Eastern time) and shall use its best efforts to furnish same day notice by
7:00 p.m. Eastern time (by wire or telephone, followed by written confirmation)
to the Company of any dividends or capital gain distributions payable on the
Fund's shares. The Company hereby elects to receive all such dividends and
capital gain distributions as are payable on the Portfolio shares in additional
shares of that Portfolio. The Company reserves the right to revoke this
election and to receive all such dividends and capital gain distributions in
cash. The Fund shall notify the Company of the number of shares so issued as
payment of such dividends and distributions.
1.9. The Fund shall make the net asset value per share for each Portfolio
available to the Company on a daily basis as soon as reasonably practical after
the net asset value per share is calculated (normally by 6:30 p.m. Eastern time)
and shall use its best efforts to make such net asset value per share available
by 7:00 p.m. Eastern time. In the event that the Fund is unable to meet the
7:00 p.m. time stated immediately above, then the Fund shall provide the Company
with additional time to notify the Fund of purchase or redemption orders
pursuant to Sections 1.1 and 1.4, respectively, above. Such additional time
shall be equal to the additional time that the Fund takes to make the net asset
values available to the Company; provided, however, that notification must be
made by 10:15 a.m. Eastern time on the Business Day such order is to be executed
regardless of when the net asset value is made available.
1.10. If the Fund provides materially incorrect share net asset value
information through no fault of the Company, the Company shall be entitled to an
adjustment with respect to the Fund shares purchased or redeemed to reflect the
correct net asset value per share. The determination of the materiality of any
net asset value pricing error shall be based on the SEC's recommended guidelines
regarding such errors. The correction of any such errors shall be made at the
Company level and shall be made pursuant to the SEC's recommended guidelines.
Any material error in the calculation or reporting of net asset value per share,
dividend or capital gain information shall be reported promptly upon discovery
to the Company.
ARTICLE II. REPRESENTATIONS AND WARRANTIES
2.1. The Company represents and warrants that the interests of the
Accounts (the "Contracts") are or will be registered and will maintain the
registration under the 1933 Act and the regulations thereunder to the extent
required by the 1933 Act; that the Contracts will be issued in compliance in all
material respects with all applicable federal and state laws and regulations.
The Company further represents and warrants that it is an insurance company duly
organized and in good standing under applicable law and that it has legally and
validly established each Account prior to
6
<PAGE>
any issuance or sale thereof as a segregated asset account under the Texas
Insurance Law and the regulations thereunder and has registered or, prior to any
issuance or sale of the Contracts, will register and will maintain the
registration of each Account as a unit investment trust in accordance with and
to the extent required by the provisions of the 1940 Act and the regulations
thereunder to serve as a segregated investment account for the Contracts. The
Company shall amend its registration statement for its contracts under the 1933
Act and the 1940 Act from time to time as required in order to effect the
continuous offering of its Contracts.
2.2. The Fund represents and warrants that Fund shares sold pursuant to
this Agreement shall be registered under the 1933 Act and the regulations
thereunder to the extent required by the 1933 Act, duly authorized for issuance
in accordance with the laws of the State of Maryland and sold in compliance with
all applicable federal and state securities laws and regulations and that the
Fund is and shall remain registered under the 1940 Act and the regulations
thereunder to the extent required by the 1940 Act. The Fund shall amend the
registration statement for its shares under the 1933 Act and the 1940 Act from
time to time as required in order to effect the continuous offering of its
shares. The Fund shall register and qualify the shares for sale in accordance
with the laws of the various states only if and to the extent deemed advisable
by the Fund.
2.3. The Fund and the Adviser represent that the Fund is currently
qualified as a Regulated Investment Company under Subchapter M of the Internal
Revenue Code of 1986, as amended (the "Code"), and that the Fund and the Adviser
(with respect to those Portfolios for which such Adviser acts as investment
adviser) will make every effort to maintain such qualification (under Subchapter
M or any successor or similar provision) and that the Fund or the appropriate
Adviser will notify the Company immediately upon having a reasonable basis for
believing that a Portfolio has ceased to so qualify or that a Portfolio might
not so qualify in the future.
2.4. The Company represents that each Account is and will continue to be a
"segregated account" under applicable provisions of the Code and that each
Contract is and will be treated as a "variable contract" under applicable
provisions of the Code and that it will make every effort to maintain such
treatments and that it will notify the Fund immediately upon having a reasonable
basis for believing that the Account or Contract has ceased to be so treated or
that they might not be so treated in the future.
2.5. The Fund represents that to the extent that it decides to finance
distribution expenses pursuant to Rule 12b-1 under the 1940 Act, the Fund
undertakes to have a board of directors, a majority of whom are not interested
persons of the Fund, formulate and approve any plan under Rule 12b-1 to finance
distribution expenses.
2.6. The Fund makes no representation as to whether any aspect of its
operations (including, but not limited to, fees and expenses and investment
policies) complies with the insurance laws or regulations of the various states.
2.7. The Fund and the Adviser represent that the Fund is lawfully
organized and validly existing under the laws of the State of Maryland and that
the Fund does and will comply in all
7
<PAGE>
material respects with the 1940 Act.
2.8. The Adviser and AGSI each represents and warrants that it is and
shall remain duly registered in all material respects under all applicable
federal and state securities laws and that it will perform its obligations for
the Fund and the Company in compliance in all material respects with the laws
and regulations of its state of domicile and any applicable state and federal
securities laws and regulations.
2.9. The Company represents and warrants that all of its trustees,
officers, employees, investment Adviser, and other individuals/entities dealing
with the money and/or securities of the Fund are covered by a blanket fidelity
bond or similar coverage, in an amount equal to the greater of $5 million or any
amount required by applicable federal or state law or regulation. The aforesaid
includes coverage for larceny and embezzlement is issued by a reputable bonding
company. The Company agrees to make all reasonable efforts to see that this
bond or another bond containing these provisions is always in effect, and agrees
to notify the Fund and OFDI in the event that such coverage no longer applies.
ARTICLE III. PROSPECTUSES, REPORTS TO SHAREHOLDERS AND PROXY STATEMENTS, VOTING
3.1(a) The Fund or its designee shall provide the Company with as many
printed copies of the Fund's current prospectus, including the profile
prospectus, (the "Fund Prospectus") as the Company may reasonably request. If
requested by the Company, in lieu of providing printed copies of the Fund
Prospectus, the Fund shall provide camera-ready film or computer diskettes
containing the Fund Prospectus and such other assistance as is reasonably
necessary in order for the Company once each year (or more frequently if the
Fund Prospectus is amended during the year) to have the prospectus for the
Contracts (the "Contract Prospectus") and the Fund Prospectus printed together
in one document or separately. The Company may elect to print the Fund
Prospectus in combination with other fund companies' prospectuses. For purposes
hereof, any combined prospectus including the Fund Prospectus along with the
Contract Prospectus or prospectus of other fund companies shall be referred to
as a "Combined Prospectus." For purposes hereof, the term "Fund Portion of the
Combined Prospectus" shall refer to the percentage of the number of Fund
Prospectus pages in the Combined Prospectus in relation to the total number of
pages of the Combined Prospectus.
3.1(b) The Fund shall provide the Company with as many printed copies of
the Fund's current statement of additional information (the "Fund SAI") as the
Company may reasonably request. If requested by the Company in lieu of
providing printed copies of the Fund SAI, the Fund shall provide camera-ready
film or computer diskettes containing the Fund SAI, and such other assistance as
is reasonably necessary in order for the Company once each year (or more
frequently if the Fund SAI is amended during the year) to have the statement of
additional information for the Contracts (the "Contract SAI") and the Fund SAI
printed together or separately. The Company may also elect to print the Fund
SAI in combination with other fund companies' statements of additional
information. For purposes hereof, any combined statement of additional
information including the Fund SAI along with the Contract SAI or statement of
additional information of other fund companies shall be referred to as a
"Combined SAI." For purposes hereof, the term "Fund Portion of the Combined
SAI" shall refer to the percentage of the number of Fund SAI pages in the
8
<PAGE>
Combined SAI in relation to the total number of pages of the Combined SAI.
3.1(c) The Fund shall provide the Company with as many printed copies of
the Fund's annual report and semi-annual report (collectively, the "Fund
Reports") as the Company may reasonably request. If requested by the Company in
lieu of providing printed copies of the Fund Reports, the Fund shall provide
camera-ready film or computer diskettes containing the Fund's Reports, and such
other assistance as is reasonably necessary in order for the Company once each
year to have the annual report and semi-annual report for the Contracts
(collectively, the "Contract Reports") and the Fund Reports printed together or
separately. The Company may also elect to print the Fund Reports in combination
with other fund companies' annual reports and semi-annual reports. For purposes
hereof, any combined annual reports and semi-annual reports including the Fund
Reports along with the Contract Reports or annual reports and semi-annual
reports of other fund companies shall be referred to as "Combined Reports."
For purposes hereof, the term "Fund Portion of the Combined Reports" shall refer
to the percentage of the number of Fund Reports pages in the Combined Reports in
relation to the total number or pages of the Combined Reports.
3.2 Expenses
3.2(a) Expenses Borne by Company. Except as otherwise provided in this
Section 3.2., all expenses of preparing, setting in type and printing and
distributing (i) Contract Prospectuses, Fund Prospectuses, and Combined
Prospectuses; (ii) Fund SAIs, Contract SAIs, and Combined SAIs; (iii) Fund
Reports, Contract Reports, and Combined Reports, and (iv) Contract proxy
material that the Company may require in sufficient quantity to be sent to
Contract owners, annuitants, or participants under Contracts (collectively, the
"Participants"), shall be the expense of the Company.
3.2(b) Expenses Borne by Fund
Fund Prospectuses
With respect to existing Participants, the Fund shall pay the cost of
setting in type, printing and distributing Fund Prospectuses made available by
the Company to such existing Participants in order to update disclosure as
required by the 1933 Act and/or the 1940 Act. With respect to existing
Participants, in the event the Company elects to prepare a Combined Prospectus,
the Fund shall pay the cost of setting in type, printing and distributing the
Fund Portion of the Combined Prospectus made available by the Company to its
existing Participants in order to update disclosure as required by the 1933 Act
and/or the 1940 Act. In such event, the Fund shall bear the cost of typesetting
to provide the Fund Prospectus to the Company in the format in which the Fund is
accustomed to formatting prospectus. Notwithstanding the foregoing, in no event
shall the Fund pay for any such costs that exceed by more than five (5) percent
what the Fund would have paid to print such documents. The Fund shall not pay
any costs of typesetting, printing and distributing the Fund Prospectus (or
Combined Prospectus, if applicable) to prospective Participants.
Fund SAIs, Fund Reports and Proxy Material
With respect to existing Participants, the Fund shall pay the cost of
setting in type and
9
<PAGE>
printing Fund SAIs, Fund Reports and Fund proxy material made available by the
Company to its existing Participants. With respect to existing Participants, in
the event the Company elects to prepare a Combined SAI or Combined Reports, the
Fund shall pay the cost of setting in type and printing the Fund Portion of the
Combined SAI or Combined Reports, respectively, made available by the Company to
its existing Participants. In such event, the Fund shall bear the cost of
typesetting to provide the Fund SAI or Fund Reports to the Company in the format
in which the Fund is accustomed to formatting statements of additional
information and annual and semi-annual reports. Notwithstanding the foregoing,
in no event shall the Fund pay for any such costs that exceed by more than five
(5) percent what the Fund would have paid to print such documents. The Fund
shall pay one half the cost of distributing Fund SAIs, Fund Reports and Fund
proxy statements and proxy-related material to such existing Participants. The
Fund shall pay the cost of distributing the Fund Portion of the Combined SAIs
and the Fund Portion of the Combined Reports to existing Participants. The Fund
shall not pay any costs of distributing Fund SAIs, Combined SAIs, Fund Reports,
Combined Reports or proxy statements or proxy-related material to prospective
Participants.
The Company agrees to provide the Fund or its designee with such
information as may be reasonably requested by the Fund to assure that the Fund's
expenses do not include the cost of typesetting, printing or distributing any of
the foregoing documents other than those actually distributed to existing
Participants.
The Fund shall pay no fee or other compensation to the Company under this
Agreement, except that if the Fund or any Portfolio adopts and implements a plan
pursuant to Rule 12b-1 to finance distribution expenses, then OFDI may make
payments to the Company or toAGSI if and in amounts agreed to by OFDI in
writing.
All expenses, including expenses to be borne by the Fund pursuant to
Section 3.2 hereof, incident to performance by the Fund under this Agreement
shall be paid by the Fund. The Fund shall see to it that all its shares are
registered and authorized for issuance in accordance with applicable federal law
and, if and to the extent deemed available by the Fund, in accordance with
applicable state laws prior to their sale. The Fund shall bear the expenses for
the cost of registration and qualification of the Fund's shares.
3.2(c) Expenses Borne by AGSI.
Fund Prospectuses
With respect to prospective Participants, AGSI shall pay one half of the
cost of setting in type, printing and distributing Fund Prospectuses made
available by the Company as sales literature to such prospective Participants.
With respect to prospective Participants, in the event the Company elects to
prepare a Combined Prospectus, AGSI shall pay one half of the cost of printing
and distributing the Combined Prospectus made available by the Company to its
prospective Participants as sales literature. In such event, AGSI shall bear
the cost of typesetting to provide the Fund Prospectus to the Company in the
format in which the Fund is accustomed to formatting prospectuses.
Notwithstanding the foregoing, in no event shall AGSI pay for any such costs
that
10
<PAGE>
exceed by more than five (5) percent what AGSI would have paid to print such
documents.
Fund SAIs, Fund Reports and Proxy Material.
With respect to prospective Participants, AGSI shall pay one half of the
cost of setting in type and printing Fund SAIs, Fund Reports and Fund proxy
material made available by the Company to its prospective Participants as sales
literature. In the event the Company elects to prepare a Combined SAI or
Combined Reports, AGSI shall pay one half of the cost of printing the Combined
SAI or Combined Reports, respectively, made available by the Company to its
prospective Participants as sales literature. In such event, AGSI shall bear
the cost of typesetting to provide the Fund SAI and Fund Reports to the Company
in the format in which the Fund is accustomed to formatting statements of
additional information and annual and semi-annual reports. Notwithstanding the
foregoing, in no event shall AGSI pay for any such costs that exceed by more
than five (5) percent what AGSI would have paid to print such documents. AGSI
shall pay one half the cost of distributing Fund SAIs, Combined SAIs, Fund
Reports, Combined Reports, and Fund proxy material to such prospective
Participants as sales literature.
3.2(d) If the Company chooses to receive camera-ready film or computer
diskettes in lieu of receiving printed copies of the Fund Prospectus, Fund SAI
or Fund Reports, the Fund or its designee will be responsible for providing the
Fund Prospectus, Fund SAI or Fund Reports in the format in which it is
accustomed to formatting such documents, and, notwithstanding anything in
Sections 3.2(b) or 3.2(c), the Company shall bear the expense of adjusting or
changing the format to conform with any of its prospectuses or reports.
3.3. The Fund SAI shall be obtainable from the Fund, the Company or such
other person as the Fund may designate.
3.4. If and to the extent required by law the Company shall distribute all
proxy material furnished by the Fund to Participants to whom voting privileges
are required to be extended and shall:
(i) solicit voting instructions from Participants;
(ii) vote the Fund shares in accordance with instructions received
from Participants; and
(iii) vote Fund shares for which no instructions have been received in
the same proportion as Fund shares of such Portfolio for which
instructions have been received,
so long as and to the extent that the SEC continues to interpret the 1940 Act to
require pass-through voting privileges for variable contract owners. The
Company reserves the right to vote Fund shares held in any segregated asset
account in its own right, to the extent permitted by law. The Fund and the
Company shall follow the procedures, and shall have the corresponding
responsibilities, for the handling of proxy and voting instruction
solicitations, as set forth in Schedule C attached hereto and
11
<PAGE>
incorporated herein by reference. Participating Insurance Companies shall be
responsible for ensuring that each of their separate accounts participating in
the Fund calculates voting privileges in a manner consistent with the standards
set forth on Schedule C, which standards will also be provided to the other
Participating Insurance Companies.
3.5. The Fund will comply with all provisions of the 1940 Act requiring
voting by shareholders, and in particular the Fund will either provide for
annual meetings (except insofar as the Securities and Exchange Commission may
interpret Section 16 not to require such meetings) or comply with Section 16(c)
of the 1940 Act (although the Fund is not one of the trusts described in Section
16(c) of that Act) as well as with Sections 16(a) and, if and when applicable,
16(b). Further, the Fund will act in accordance with the Securities and
Exchange Commission's interpretation of the requirements of Section 16(a) with
respect to periodic elections of directors and with whatever rules the
Commission may promulgate with respect thereto.
ARTICLE IV. SALES MATERIAL AND INFORMATION
4.1. The Company shall furnish, or shall cause to be furnished, to the
Fund or its designee, each piece of sales literature or other promotional
material prepared by the Company, AGSI or any person contracting with the
Company or AGSI in which the Fund or the Adviser is named, at least ten Business
Days prior to its use. No such material shall be used if the Fund, the Adviser,
or their designee reasonably objects to such use within ten Business Days after
receipt of such material.
4.2. Neither the Company, AGSI nor any person contracting with the Company
or AGSI shall give any information or make any representations or statements on
behalf of the Fund or concerning the Fund in connection with the sale of the
Contracts other than the information or representations contained in the
registration statement or the Fund Prospectus, as such registration statement or
Fund Prospectus may be amended or supplemented from time to time, or in reports
or proxy statements for the Fund, or in sales literature or other promotional
material approved by the Fund or its designee, except with the permission of the
Fund.
4.3. The Fund or its designee shall furnish, or shall cause to be
furnished, to the Company or its designee, each piece of sales literature or
other promotional material prepared by the Fund in which the Company or its
Account(s) are named at least ten Business Days prior to its use. No such
material shall be used if the Company or its designee reasonably objects to such
use within ten Business Days after receipt of such material.
4.4. Neither the Fund nor the Adviser shall give any information or make
any representations on behalf of the Company or concerning the Company, each
Account, or the Contracts, other than the information or representations
contained in a registration statement or prospectus for the Contracts, as such
registration statement and prospectus may be amended or supplemented from time
to time, or in published reports or solicitations for voting instructions for
each Account which are in the public domain or approved by the Company for
distribution to Participants, or in sales literature or other promotional
material approved by the Company or its designee, except with the permission of
the Company.
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4.5. The Fund will provide to the Company at least one complete copy of
all registration statements, prospectuses, statements of additional information,
reports, proxy statements, sales literature and other promotional materials,
applications for exemptions, requests for no-action letters, and all amendments
to any of the above, that relate to the Fund or its shares, contemporaneously
with the filing of such document with the SEC or other regulatory authorities.
4.6. The Company will provide to the Fund at least one complete copy of
all registration statements, prospectuses, statements of additional information,
reports, solicitations for voting instructions, sales literature and other
promotional materials, applications for exemptions, requests for no action
letters, and all amendments to any of the above, that relate to the investment
in an Account or Contract contemporaneously with the filing of such document
with the SEC or other regulatory authorities.
4.7. For purposes of this Article IV, the phrase "sales literature or
other promotional material" includes, but is not limited to, any of the
following: advertisements (such as material published, or designed for use in, a
newspaper, magazine, or other periodical, radio, television, telephone or tape
recording, videotape display, signs or billboards, motion pictures, or other
public media), sales literature (i.e., any written communication distributed or
made generally available to customers or the public, including brochures,
circulars, research reports, market letters, form letters, seminar texts,
reprints or excerpts of any other advertisement, sales literature, or published
article), educational or training materials or other communications distributed
or made generally available to some or all agents or employees, and registration
statements, prospectuses, statements of additional information, shareholder
reports, and proxy materials.
ARTICLE V. [RESERVED]
ARTICLE VI. DIVERSIFICATION
6.1. The Adviser represents, as to the Portfolios for which it acts as
investment adviser, that it will use its best efforts at all times to comply
with Section 817(h) of the Code and Treasury Regulation 1.817-5, relating to the
diversification requirements for variable annuity, endowment, or life insurance
contracts and any amendments or other modifications to such Section or
Regulations. In the event a Portfolio ceases to so qualify, the Adviser will
take all reasonable steps (a) to notify the Company of such breach and (b) to
adequately diversify the Portfolio so as to achieve compliance within the grace
period afforded by Regulation 817-5.
ARTICLE VII. POTENTIAL CONFLICTS
7.1. The Board will monitor the Fund for the existence of any material
irreconcilable conflict between the interests of the contract owners of all
separate accounts investing in the Fund. An irreconcilable material conflict
may arise for a variety of reasons, including: (a) an action by any state
insurance regulatory authority; (b) a change in applicable federal or state
insurance, tax, or securities laws or regulations, or a public ruling, private
letter ruling, no-action or interpretative letter, or any similar action by
insurance, tax, or securities regulatory authorities; (c) an
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administrative or judicial decision in any relevant proceeding; (d) the manner
in which the investments of any Portfolio are being managed; (e) a difference in
voting instructions given by variable annuity contract owners and variable life
insurance contract owners; or (f) a decision by a Participating Insurance
Company to disregard the voting instructions of Contract owners. The Board shall
promptly inform the Company if it determines that an irreconcilable material
conflict exists and the implications thereof.
7.2. The Company will report any potential or existing material
irreconcilable conflicts of which it is aware to the Board. The Company will
assist the Board in carrying out its responsibilities under the Shared Funding
Exemptive Order, by providing the Board with all information reasonably
necessary for the Board to consider any issues raised. This includes, but is
not limited to, an obligation by the Company to inform the Board whenever
contract owner voting instructions are disregarded.
7.3. If it is determined by a majority of the Board, or a majority of its
disinterested directors, that a material irreconcilable conflict exists, the
Company and other Participating Insurance Companies shall, at their expense and
to the extent reasonably practicable (as determined by a majority of the
disinterested directors), take whatever steps are necessary to remedy or
eliminate the irreconcilable material conflict, up to and including: (1)
withdrawing the assets allocable to some or all of the Separate Accounts from
the Fund or any Portfolio and reinvesting such assets in a different investment
medium, including (but not limited to) another Portfolio of the Fund, or
submitting the question whether such segregation should be implemented to a vote
of all affected Contract owners and, as appropriate, segregating the assets of
any appropriate group (i.e., annuity contract owners, life insurance policy
owners, or variable Contract owners of one or more Participating Insurance
Companies) that votes in favor of such segregation, or offering to the affected
Contract owners the option of making such a change; and (2) establishing a new
registered management investment company or managed separate account. No charge
or penalty will be imposed as a result of such withdrawal. The Company agrees
that it bears the responsibility to take remedial action in the event of a Board
determination of an irreconcilable material conflict and the cost of such
remedial action, and these responsibilities will be carried out with a view only
to the interests of Contract owners.
7.4. If a material irreconcilable conflict arises because of a decision by
the Company to disregard contract owner voting instructions and that decision
represents a minority position or would preclude a majority vote, the Company
may be required, at the Fund's election, to withdraw the affected Account's
investment in the Fund and terminate this Agreement with respect to such Account
(at the Company's expense); provided, however that such withdrawal and
termination shall be limited to the extent required by the foregoing material
irreconcilable conflict as determined by a majority of the disinterested members
of the Board. No charge or penalty will be imposed as a result of such
withdrawal. The Company agrees that it bears the responsibility to take
remedial action in the event of a Board determination of an irreconcilable
material conflict and the cost of such remedial action, and these
responsibilities will be carried out with a view only to the interests of
Contract owners.
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7.5. For purposes of Sections 7.3 and 7.4 of this Agreement, a majority of
the disinterested members of the Board shall determine whether any proposed
action adequately remedies any irreconcilable material conflict, but in no event
will the Fund be required to establish a new funding medium for the Contracts.
The Company shall not be required by Section 7.3 or 7.4 to establish a new
funding medium for the Contracts if an offer to do so has been declined by vote
of a majority of Contract owners materially adversely affected by the
irreconcilable material conflict.
7.6. If and to the extent that Rule 6e-2 and Rule 6e-3(T) are amended, or
Rule 6e-3 is adopted, to provide exemptive relief from any provision of the 1940
Act or the rules promulgated thereunder with respect to mixed or shared funding
(as defined in the Shared Funding Exemptive Order) on terms and conditions
materially different from those contained in the Shared Funding Exemptive Order,
then the Fund and/or the Participating Insurance Companies, as appropriate,
shall take such steps as may be necessary to comply with Rules 6e-2 and 6e-3(T),
as amended, and Rule 6e-3, as adopted, to the extent such rules are applicable.
7.7 The Company and the Adviser shall at least annually submit to the
Board of the Fund such reports, materials or data as the Board may reasonably
request so that the Board may fully carry out the obligations imposed upon them
by the provisions hereof, and said reports, materials and data shall be
submitted more frequently if deemed appropriate by the Board. All reports
received by the Board of potential or existing conflicts, and all Board action
with regard to determining the existence of a conflict, notifying Participating
Insurance Companies of a conflict, and determining whether any proposed action
adequately remedies a conflict, shall be properly recorded in the minutes of the
Board or other appropriate records, and such minutes or other records shall be
made available to the SEC upon request.
ARTICLE VIII. INDEMNIFICATION
8.1. Indemnification By The Company and AGSI
8.1(a) The Company and AGSI agree to indemnify and hold harmless the Fund
and each member of the Board and officers, the Adviser and OFDI and each
director and officer of the Adviser and OFDI, and each person, if any, who
controls the Fund, Adviser or OFDI within the meaning of Section 15 of the 1933
Act (collectively, the "Indemnified Parties" and individually, "Indemnified
Party," for purposes of this Section 8.1) against any and all losses, claims,
damages, liabilities (including amounts paid in settlement with the written
consent of the Company or AGSI) or litigation (including legal and other
expenses), to which the Indemnified Parties may become subject under any statute
or regulation, at common law or otherwise, insofar as such losses, claims,
damages, liabilities or expenses (or actions in respect thereof) or settlements
are related to the sale or acquisition of the Fund's shares or the Contracts
and:
(i) arise out of or are based upon any untrue statements or alleged untrue
statements of any material fact contained in the registration statement or
prospectus for the Contracts or contained in the Contracts or sales
literature for the Contracts (or any amendment or supplement to any of the
foregoing), or arise out of or are based upon the omission or the alleged
omission to state therein a material fact required to be stated therein or
necessary to
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make the statements therein not misleading, provided that this agreement to
indemnify shall not apply as to any Indemnified Party if such statement or
omission or such alleged statement or omission was made in reliance upon
and in conformity with information furnished to the Company by or on behalf
of the Fund for use in the registration statement or prospectus for the
Contracts or in the Contracts or sales literature (or any amendment or
supplement) or otherwise for use in connection with the sale of the
Contracts or Fund shares; or
(ii) arise out of or as a result of statements or representations (other
than statements or representations contained in the registration statement,
prospectus or sales literature of the Fund not supplied by the Company or
AGSI, or persons under its control and other than statements or
representations authorized by the Fund or the Adviser) or unlawful conduct
of the Company or AGSI or persons under its control, with respect to the
sale or distribution of the Contracts or Fund shares; or
(iii) arise out of or as a result of any untrue statement or alleged
untrue statement of a material fact contained in a registration statement,
prospectus, or sales literature of the Fund or any amendment thereof or
supplement thereto or the omission or alleged omission to state therein a
material fact required to be stated therein or necessary to make the
statements therein not misleading if such a statement or omission was made
in reliance upon and in conformity with information furnished to the Fund
by or on behalf of the Company or AGSI;
(iv) arise as a result of any failure by the Company or AGSI to provide
the services and furnish the materials under the terms of this Agreement;
or
(v) arise out of or result from any material breach of any representation
and/or warranty made by the Company or AGSI in this Agreement or arise out
of or result from any other material breach of this Agreement by the
Company or AGSI, as limited by and in accordance with the provisions of
Sections 8.1(b) and 8.1(c) hereof.
8.1(b). Neither the Company nor AGSI shall be liable under this
indemnification provision with respect to any losses, claims, damages,
liabilities or litigation incurred or assessed against an Indemnified Party as
such may arise from such Indemnified Party's willful misfeasance, bad faith, or
gross negligence in the performance of such Indemnified Party's duties or by
reason of such Indemnified Party's reckless disregard of obligations or duties
under this Agreement.
8.1(c). Neither the Company nor AGSI shall be liable under this
indemnification provision with respect to any claim made against an Indemnified
Party unless such Indemnified Party shall have notified the Company or AGSI in
writing within a reasonable time after the summons or other first legal process
giving information of the nature of the claim shall have been served upon such
Indemnified Party (or after such Indemnified Party shall have received notice of
such service on any designated agent), but failure to notify the Company or AGSI
of any such claim shall not relieve the Company or AGSI from any liability which
it may have to the Indemnified Party against whom such action is brought
otherwise than on account of this indemnification provision. In case any such
action is brought against the Indemnified Parties, the Company or AGSI shall be
entitled to participate, at its own expense, in the defense of such action. The
Company or AGSI also shall be
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entitled to assume the defense thereof, with counsel satisfactory to the party
named in the action. After notice from the Company or AGSI to such Party of the
Company's or AGSI's election to assume the defense thereof, the Indemnified
Party shall bear the fees and expenses under this Agreement for any legal or
other expenses subsequently incurred by such Party independently in connection
with the defense thereof other than reasonable costs of investigation.
8.1(d). The Indemnified Parties will promptly notify the Company or AGSI
of the commencement of any litigation or proceedings against them in connection
with the issuance or sale of the Fund shares or the Contracts or the operation
of the Fund.
8.2. Indemnification by the Adviser
8.2(a). The Adviser agrees, with respect to each Portfolio that it manages,
to indemnify and hold harmless the Company and each of its directors and
officers and each person, if any, who controls the Company within the meaning of
Section 15 of the 1933 Act (collectively, the "Indemnified Parties" and
individually, "Indemnified Party," for purposes of this Section 8.2) against any
and all losses, claims, damages, liabilities (including amounts paid in
settlement with the written consent of the Adviser) or litigation (including
legal and other expenses) to which the Indemnified Parties may become subject
under any statute, at common law or otherwise, insofar as such losses, claims,
damages, liabilities or expenses (or actions in respect thereof) or settlements,
result from the gross negligence, bad faith, willful misconduct of the Adviser
or any director, officer, employee or agent thereof, are related to the
operation of the Adviser or the Fund and:
(i) arise out of or are based upon any untrue statement or alleged untrue
statement of any material fact contained in the registration statement or
prospectus or sales literature of the Fund (or any amendment or supplement
to any of the foregoing), or arise out of or are based upon the omission or
the alleged omission to state therein a material fact required to be stated
therein or necessary to make the statements therein not misleading,
provided that this agreement to indemnify shall not apply as to any
Indemnified Party if such statement or omission or such alleged statement
or omission was made in reliance upon and in conformity with information
furnished to the Adviser or the Fund or OFDI by or on behalf of the Company
for use in the registration statement or prospectus for the Fund or in
sales literature (or any amendment or supplement) or otherwise for use in
connection with the sale of the Contracts or Portfolio shares; or
(ii) arise out of or as a result of statements or representations (other
than statements or representations contained in the registration statement,
prospectus or sales literature for the Contracts not supplied by the
Adviser or persons under its control and other than statements or
representations authorized by the Company) or unlawful conduct of the
Adviser or persons under its control, with respect to the sale or
distribution of the Contracts or Portfolio shares; or
(iii) arise out of or as a result of any untrue statement or alleged
untrue statement of a material fact contained in a registration statement,
prospectus, or sales literature covering the Contracts, or any amendment
thereof or supplement thereto, or the omission or alleged
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omission to state therein a material fact required to be stated therein or
necessary to make the statement or statements therein not misleading, if
such statement or omission was made in reliance upon and in conformity with
information furnished to the Company by or on behalf of the Adviser; or
(iv) arise as a result of any failure by the Adviser to provide the
services and furnish the materials under the terms of this Agreement; or
(v) arise out of or result from any material breach of any representation
and/or warranty made by the Adviser in this Agreement or arise out of or
result from any other material breach of this Agreement by the Fund or the
Adviser; including without limitation any failure by the Fund or the
Adviser to comply with the conditions of Article VI hereof.
8.2(b).The Adviser shall not be liable under this indemnification provision
with respect to any losses, claims, damages, liabilities or litigation incurred
or assessed against an Indemnified Party as may arise from such Indemnified
Party's willful misfeasance, bad faith, or gross negligence in the performance
of such Indemnified Party's duties or by reason of such Indemnified Party's
reckless disregard of obligations and duties under this Agreement.
8.2(c). The Adviser shall not be liable under this indemnification
provision with respect to any claim made against an Indemnified Party unless
such Indemnified Party shall have notified the Adviser in writing within a
reasonable time after the summons or other first legal process giving
information of the nature of the claim shall have been served upon such
Indemnified Party (or after such Indemnified Party shall have received notice of
such service on any designated agent), but failure to notify the Adviser of any
such claim shall not relieve the Adviser from any liability which it may have to
the Indemnified Party against whom such action is brought otherwise than on
account of this indemnification provision. In case any such action is brought
against the Indemnified Parties, the Adviser will be entitled to participate, at
its own expense, in the defense thereof. The Adviser also shall be entitled to
assume the defense thereof, with counsel satisfactory to the party named in the
action. After notice from the Adviser to such Party of the Adviser's election
to assume the defense thereof, the Indemnified Party shall bear the fees and
expenses of any additional counsel retained by it, and the Adviser will not be
liable to such Party under this Agreement for any legal or other expenses
subsequently incurred by such Party independently in connection with the defense
thereof other than reasonable costs of investigation.
8.2(d). The Company and AGSI agree promptly to notify the Adviser of the
commencement of any litigation or proceedings against it or any of its officers,
trustees or directors in connection with this Agreement, the issuance or sale of
the Contracts with respect to the operation of each Account, or the sale or
acquisition of shares of the Fund.
8.3. Indemnification by OFDI
8.3(a). OFDI agrees to indemnify and hold harmless the Company and each of
its directors and officers and each person, if any, who controls the Company
within the meaning of Section 15 of the 1933 Act (collectively, the "Indemnified
Parties" and individually, "Indemnified Party," for
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purposes of this Section 8.3) against any and all losses, claims, damages,
liabilities (including amounts paid in settlement with the written consent of
OFDI) or litigation (including legal and other expenses) to which the
Indemnified Parties may become subject under any statute, at common law or
otherwise, insofar as such losses, claims, damages, liabilities or expenses (or
actions in respect thereof) or settlements, result from the gross negligence,
bad faith, willful misconduct of OFDI or any director, officer, employee or
agent thereof, are related to the operation of OFDI or the Fund and:
(i) arise out of or are based upon any untrue statement or alleged untrue
statement of any material fact contained in the registration statement or
prospectus or sales literature of the Fund (or any amendment or supplement
to any of the foregoing), or arise out of or are based upon the omission or
the alleged omission to state therein a material fact required to be stated
therein or necessary to make the statements therein not misleading,
provided that this agreement to indemnify shall not apply as to any
Indemnified Party if such statement or omission or such alleged statement
or omission was made in reliance upon and in conformity with information
furnished to the Fund or OFDI by or on behalf of the Company for use in the
registration statement or prospectus for the Fund or in sales literature
(or any amendment or supplement) or otherwise for use in connection with
the sale of the Contracts or Portfolio shares; or
(ii) arise out of or as a result of statements or representations (other
than statements or representations contained in the registration statement,
prospectus or sales literature for the Contracts not supplied by OFDI or
persons under its control and other than statements or representations
authorized by the Company) or unlawful conduct of OFDI or persons under its
control, with respect to the sale or distribution of the Contracts or
Portfolio shares; or
(iii) arise out of or as a result of any untrue statement or alleged
untrue statement of a material fact contained in a registration statement,
prospectus, or sales literature covering the Contracts, or any amendment
thereof or supplement thereto, or the omission or alleged omission to state
therein a material fact required to be stated therein or necessary to make
the statement or statements therein not misleading, if such statement or
omission was made in reliance upon and in conformity with information
furnished to the Company by or on behalf of OFDI; or
(iv) arise as a result of any failure by OFDI to provide the services and
furnish the materials under the terms of this Agreement; or
(v) arise out of or result from any material breach of any representation
and/or warranty made by OFDI in this Agreement or arise out of or result
from any other material breach of this Agreement by the Adviser.
8.3(b). OFDI shall not be liable under this indemnification provision with
respect to any losses, claims, damages, liabilities or litigation incurred or
assessed against an Indemnified Party as may arise from such Indemnified Party's
willful misfeasance, bad faith, or gross negligence in the performance of such
Indemnified Party's duties or by reason of such Indemnified Party's reckless
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disregard of obligations and duties under this Agreement.
8.3(c). OFDI shall not be liable under this indemnification provision with
respect to any claim made against an Indemnified Party unless such Indemnified
Party shall have notified OFDI in writing within a reasonable time after the
summons or other first legal process giving information of the nature of the
claim shall have been served upon such Indemnified Party (or after such
Indemnified Party shall have received notice of such service on any designated
agent), but failure to notify OFDI of any such claim shall not relieve OFDI from
any liability which it may have to the Indemnified Party against whom such
action is brought otherwise than on account of this indemnification provision.
In case any such action is brought against the Indemnified Parties, OFDI will be
entitled to participate, at its own expense, in the defense thereof. OFDI also
shall be entitled to assume the defense thereof, with counsel satisfactory to
the party named in the action. After notice from OFDI to such Party of OFDI's
election to assume the defense thereof, the Indemnified Party shall bear the
fees and expenses of any additional counsel retained by it, and OFDI will not be
liable to such Party under this Agreement for any legal or other expenses
subsequently incurred by such Party independently in connection with the defense
thereof other than reasonable costs of investigation.
8.3(d). The Company and AGSI agree promptly to notify OFDI of the
commencement of any litigation or proceedings against it or any of its officers,
trustees or directors in connection with this Agreement, the issuance or sale of
the Contracts with respect to the operation of each Account, or the sale or
acquisition of shares of the Fund.
ARTICLE IX. APPLICABLE LAW
9.1. This Agreement shall be construed and the provisions hereof
interpreted under and in accordance with the laws of the State of New York.
9.2. This Agreement shall be subject to the provisions of the 1933, 1934
and 1940 Acts, and the rules and regulations and rulings thereunder, including
such exemptions from those statutes, rules and regulations as the SEC may grant
(including, but not limited to, the Shared Funding Exemptive Order) and the
terms hereof shall be interpreted and construed in accordance therewith.
ARTICLE X. TERMINATION
10.1. This Agreement shall continue in full force and effect until the
first to occur of:
(a) termination by any party for any reason upon six-months advance
written notice delivered to the other parties; or
(b) termination by the Company or AGSI by written notice to the Fund
and the
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Adviser with respect to any Portfolio based upon the Company's
determination that shares of such Portfolio are not reasonably available to
meet the requirements of the Contracts. Reasonable advance notice of
election to terminate shall be furnished by the Company, said termination
to be effective ten (10) days after receipt of notice unless the Fund makes
available a sufficient number of shares to reasonably meet the requirements
of the Account within said ten (10) day period; or
(c) termination by the Company or AGSI by written notice to the Fund
and the Adviser with respect to any Portfolio in the event any of the
Portfolio's shares are not registered, issued or sold in accordance with
applicable state and/or federal law or such law precludes the use of such
shares as the underlying investment medium of the Contracts issued or to be
issued by the Company. The terminating party shall give prompt notice to
the other parties of its decision to terminate; or
(d) termination by the Company or AGSI by written notice to the Fund
and the Adviser with respect to any Portfolio in the event that such
Portfolio ceases to qualify as a Regulated Investment Company under
Subchapter M of the Code or under any successor or similar provision, or if
the Company or AGSI reasonably believes that the Fund may fail to so
qualify; or
(e) termination by the Company or AGSI by written notice to the Fund
and the Adviser with respect to any Portfolio in the event that such
Portfolio fails to meet the diversification requirements specified in
Article VI hereof; or
(f) termination by either the Fund or the Adviser by written notice to
the Company if the Adviser or the Fund shall determine, in its sole
judgment exercised in good faith, that the Company, AGSI and/or their
affiliated companies has suffered a material adverse change in its
business, operations, financial condition or prospects since the date of
this Agreement or is the subject of material adverse publicity, provided
that the Fund or the Adviser will give the Company sixty (60) days' advance
written notice of such determination of its intent to terminate this
Agreement, and provided further that after consideration of the actions
taken by the Company or AGSI and any other changes in circumstances since
the giving of such notice, the determination of the Fund or the Adviser
shall continue to apply on the 60th day since giving of such notice, then
such 60th day shall be the effective date of termination; or
(g) termination by the Company or AGSI by written notice to the Fund
and the Adviser, if the Company or AGSI shall determine, in its sole
judgment exercised in good faith, that either the Fund or the Adviser (with
respect to the appropriate Portfolio) has suffered a material adverse
change in its
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business, operations, financial condition or prospects since the date of
this Agreement or is the subject of material adverse publicity; provided
that the Company will give the Fund or the Adviser sixty (60) days' advance
written notice of such determination of its intent to terminate this
Agreement, and provided further that after consideration of the actions
taken by the Company and any other changes in circumstances since the
giving of such notice, the determination of the Company or AGSI shall
continue to apply on the 60th day since giving of such notice, then such
60th day shall be the effective date of termination; or
(h) termination by the Fund or the Adviser by written notice to the
Company, if the Company gives the Fund and the Adviser the written notice
specified in Section 2.4 hereof and at the time such notice was given there
was no notice of termination outstanding under any other provision of this
Agreement; provided, however any termination under this Section 10.1(h)
shall be effective sixty (60) days after the notice specified in Section
2.4 was given; or
(i) termination by any party upon the other party's breach of any
representation in Section 2 or any material provision of this Agreement,
which breach has not been cured to the satisfaction of the terminating
party within ten (10) days after written notice of such breach is delivered
to the Fund or the Company, as the case may be;
(j) termination by the Fund or the Adviser by written notice to the
Company in the event an Account or Contract is not registered or sold in
accordance with applicable federal or state law or regulation, or the
Company fails to provide pass-through voting privileges as specified in
Section 3.4; or
(k) termination by OFDI by written notice delivered to the other
parties in the event OFDI is terminated as distributor to the Fund.
10.2. EFFECT OF TERMINATION. Notwithstanding any termination of this
Agreement, the Fund shall at the option of the Company, continue to make
available additional shares of the Fund pursuant to the terms and conditions of
this Agreement, for all Contracts in effect on the effective date of termination
of this Agreement (hereinafter referred to as "Existing Contracts") unless such
further sale of Fund shares is proscribed by law, regulation or applicable
regulatory body, or unless the Fund determines that liquidation of the Fund
following termination of this Agreement is in the best interests of the Fund and
its shareholders. Specifically, without limitation, the owners of the Existing
Contracts shall be permitted to direct reallocation of investments in the Fund,
redemption of investments in the Fund and/or investment in the Fund upon the
making of additional purchase payments under the Existing Contracts. The
parties agree that this Section 10.2 shall not apply to any terminations under
Article VII and the effect of such Article VII terminations shall be governed by
Article VII of this Agreement.
22
<PAGE>
10.3. The Company shall not redeem Fund shares attributable to the
Contracts (as distinct from Fund shares attributable to the Company's assets
held in the Account) except (i) as necessary to implement Contract Owner
initiated or approved transactions, or (ii) as required by state and/or federal
laws or regulations or judicial or other legal precedent of general application
(hereinafter referred to as a "Legally Required Redemption") or (iii) as
permitted by an order of the SEC pursuant to Section 26(b) of the 1940 Act.
Upon request, the Company will promptly furnish to the Fund the opinion of
counsel for the Company (which counsel shall be reasonably satisfactory to the
Fund and the Adviser) to the effect that any redemption pursuant to clause (ii)
above is a Legally Required Redemption. Furthermore, except in cases where
permitted under the terms of the Contracts, the Company shall not prevent
Contract Owners from allocating payments to a Portfolio that was otherwise
available under the Contracts without first giving the Fund or the appropriate
Adviser 90 days prior written notice of its intention to do so.
ARTICLE XI. NOTICES
Any notice shall be sufficiently given when sent by registered or certified
mail to the other party at the address of such party set forth below or at such
other address as such party may from time to time specify in writing to the
other party.
If to the Fund:
The OFFITBANK Variable Insurance Fund, Inc.
___________________________________________
___________________________________________
Attention:_________________________________
If to Adviser:
OFFITBANK
520 Madison Avenue
New York, NY 10022-4213
Attention: Stephen B. Wells
If to OFDI:
OFFIT Funds Distributor, Inc.
3435 Stelzer Road
Columbus, OH 43219
Attention: George O. Martinez
23
<PAGE>
If to the Company:
American General Life Insurance Company
2727-A Allen Parkway
Houston, Texas 77019
Attention: Steven A. Glover
If to AGSI:
American General Securities Incorporated
2727 Allen Parkway
Houston, Texas 77019
Attention: F. Paul Kovach, Jr.
ARTICLE XII. FOREIGN TAX CREDITS
The Fund and the Adviser agree to consult with the Company concerning
whether any Portfolio of the Fund qualifies to provide a foreign tax credit
pursuant to Section 853 of the Code.
ARTICLE XIII. MISCELLANEOUS
13.1. All persons dealing with the Fund must look solely to the property
of the Fund for the enforcement of any claims against the Fund as neither the
Board, officers, agents or shareholders assume any personal liability for
obligations entered into on behalf of the Fund.
13.2. Subject to the requirements of legal process and regulatory
authority, each party hereto shall treat as confidential the names and addresses
of the owners of the Contracts and all information reasonably identified as
confidential in writing by any other party hereto and, except as permitted by
this Agreement, shall not disclose, disseminate or utilize such names and
addresses and other confidential information until such time as it may come into
the public domain without the express written consent of the affected party.
13.3. The captions in this Agreement are included for convenience of
reference only and in no way define or delineate any of the provisions hereof or
otherwise affect their construction or effect.
13.4. This Agreement may be executed simultaneously in two or more
counterparts, each of which taken together shall constitute one and the same
instrument.
13.5. If any provision of this Agreement shall be held or made invalid by
a court decision, statute, rule or otherwise, the remainder of this Agreement
shall not be affected thereby.
13.6. Each party hereto shall cooperate with each other party and all
appropriate
24
<PAGE>
governmental authorities (including without limitation the SEC, the NASD and
state insurance regulators) and shall permit such authorities reasonable access
to its books and records in connection with any investigation or inquiry
relating to this Agreement or the transactions contemplated hereby.
13.7. The rights, remedies and obligations contained in this Agreement are
cumulative and are in addition to any and all rights, remedies and obligations
at law or in equity, which the parties hereto are entitled to under state and
federal laws.
13.8. This Agreement or any of the rights and obligations hereunder may
not be assigned by any party without the prior written consent of all parties
hereto; provided, however, that the Adviser may assign this Agreement or any
rights or obligations hereunder to any affiliate of or company under common
control with the Adviser, if such assignee is duly licensed and registered to
perform the obligations of the Adviser under this Agreement.
13.9 The Company shall furnish, or shall cause to be furnished, to the
Fund or its designee copies of the following reports:
(a) the Company's annual statement (prepared under statutory
accounting principles) and annual report (prepared under
generally accepted accounting principles ("GAAP"), if any), as
soon as practical and in any event within 90 days after the end
of each fiscal year;
(b) the Company's June 30th quarterly statements (statutory) (and
GAAP, if any), as soon as practical and in any event within 45
days after the end of each semi-annual period:
(c) any financial statement, proxy statement, notice or report of the
Company sent to stockholders and/or policyholders, as soon as
practical after the delivery thereof to stockholders;
(d) any registration statement (without exhibits) and financial
reports of the Company filed with the SEC or any state insurance
regulator, as soon as practical after the filing thereof; and
(e) any other public report submitted to the Company by independent
accountants in connection with any annual, interim or special
audit made by them of the books of the Company, as soon as
practical after the receipt thereof.
25
<PAGE>
IN WITNESS WHEREOF, each of the parties hereto has caused this Agreement to
be executed in its name and on its behalf by its duly authorized representative
hereto as of the date specified above.
AMERICAN GENERAL LIFE INSURANCE COMPANY on behalf of itself and each
of its Accounts named in Schedule B hereto, as amended from time to
time.
By: /S/ RODNEY O. MARTIN
------------------------------------------
Name: Rodney O. Martin, Jr.
Title: President and Chief Executive Officer
AMERICAN GENERAL SECURITIES INCORPORATED
By: /S/ F. PAUL KOVACH
------------------------------------------
Name: F. Paul Kovach, Jr.
Title: President
THE OFFITBANK VARIABLE INSURANCE FUND, INC.
By: /S/ STEPHEN BRENT WELLS
------------------------------------------
Name: Stephen Brent Wells
Title: Managing Director
OFFITBANK
By: /S/ STEPHEN BRENT WELLS
------------------------------------------
Name: Stephen Brent Wells
Title: Managing Director
OFFIT FUNDS DISTRIBUTOR, INC.
By: /S/ GEORGE O. MARTINEZ
------------------------------------------
Name: George O. Martinez
Title: Senior Vice President
26
<PAGE>
SCHEDULE A
PORTFOLIOS OF
THE OFFITBANK VARIABLE INSURANCE FUND, INC.
AVAILABLE FOR PURCHASE BY
AMERICAN GENERAL LIFE INSURANCE COMPANY
UNDER THIS AGREEMENT
OFFITBANK VIF-Emerging Markets Fund
OFFITBANK VIF-High Yield Fund
OFFITBANK VIF-Total Return Fund
OFFITBANK VIF-U.S. Government Securities
27
<PAGE>
SCHEDULE B
SEPARATE ACCOUNTS AND CONTRACTS
<TABLE>
<S> <C>
NAME OF SEPARATE ACCOUNT AND FORM NUMBERS AND NAMES OF CONTRACT FUNDED BY
DATE ESTABLISHED BY BOARD OF DIRECTORS SEPARATE ACCOUNT
American General Life Insurance Company Form No:
Separate Account D 97505
Established: November 19, 1973
Name of Contract:
Flexible Payment Variable and Fixed
Individual Deferred Annuity
</TABLE>
28
<PAGE>
SCHEDULE C
PROXY VOTING PROCEDURES
The following is a list of procedures and corresponding responsibilities for the
handling of proxies and voting instructions relating to the Fund. The defined
terms herein shall have the meanings assigned in the Participation Agreement
except that the term "Company" shall also include the department or third party
assigned by the Company to perform the steps delineated below.
1. The proxy proposals are given to the Company by the Fund as early as
possible before the date set by the Fund for the shareholder meeting to
enable the Company to consider and prepare for the solicitation of voting
instructions from owners of the Contracts and to facilitate the
establishment of tabulation procedures. At this time the Fund will inform
the Company of the Record, Mailing and Meeting dates. This will be done
verbally approximately two months before meeting.
2. Promptly after the Record Date, the Company will perform a "tape run", or
other activity, which will generate the names, addresses and number of
units which are attributed to each contract owner/policyholder (the
"Customer") as of the Record Date. Allowance should be made for account
adjustments made after this date that could affect the status of the
Customers' accounts as of the Record Date.
Note: The number of proxy statements is determined by the activities
described in this Step #2. The Company will use its best efforts to call
in the number of Customers to the Fund, as soon as possible, but no later
than two weeks after the Record Date.
3. The Fund's Annual Report must be sent to each Customer by the Company
either before or together with the Customers' receipt of a proxy statement
or other voting instructions and solicitation material. The Fund will
provide at least one copy of the last Annual Report to the Company pursuant
to the terms of Section 3.3 of the Agreement to which this Schedule
relates.
4. The text and format for the Voting Instruction Cards ("Cards" or "Card") is
provided to the Company by the Fund. The Company, at its expense, shall
produce and personalize the Voting Instruction Cards. The Fund or its
affiliate must approve the Card before it is printed. Allow approximately
2-4 business days for printing information on the Cards. Information
commonly found on the Cards includes:
a. name (legal name as found on account registration)
b. address
c. fund or account number
d. coding to state number of units
e. individual Card number for use in tracking and verification of votes
(already on Cards as printed by the Fund).
29
<PAGE>
(This and related steps may occur later in the chronological process due to
possible uncertainties relating to the proposals.)
5. During this time, the Fund will develop, produce and pay for the Notice of
Proxy and the Proxy Statement (one document). Printed and folded notices
and statements will be sent to Company for insertion into envelopes
(envelopes and return envelopes are provided and paid for by the Company).
Contents of envelope sent to Customers by the Company will include:
a. Voting Instruction Card(s)
b. One proxy notice and statement (one document)
c. return envelope (postage pre-paid by Company) addressed to the Company
or its tabulation agent
d. "urge buckslip" - optional, but recommended. (This is a small, single
sheet of paper that requests Customers to vote as quickly as possible
and that their vote is important. One copy will be supplied by the
Fund.)
e. cover letter - optional, supplied by Company and reviewed and approved
in advance by the Fund.
6. The above contents should be received by the Company approximately 3-5
business days before mail date. Individual in charge at Company reviews and
approves the contents of the mailing package to ensure correctness and
completeness. Copy of this approval sent to the Fund.
7. Package mailed by the Company.
* The Fund must allow at least a 15-day solicitation time to the Company
as the shareowner. (A 5-week period is recommended.) Solicitation
time is calculated as calendar days from (but not including,) the
meeting, counting backwards.
8. Collection and tabulation of Cards begins. Tabulation usually takes place
in another department or another vendor depending on process used. An
often used procedure is to sort Cards on arrival by proposal into vote
categories of all yes, no, or mixed replies, and to begin data entry.
Note: Postmarks are not generally needed. A need for postmark information
would be due to an insurance company's internal procedure and has not been
required by the Fund in the past.
9. Signatures on Card checked against legal name on account registration which
was printed on the Card.
Note: For example, if the account registration is under "John A. Smith,
Trustee," then that is the exact legal name to be printed on the Card and
is the signature needed on the Card.
10. If Cards are mutilated, or for any reason are illegible or are not signed
properly, they are sent
30
<PAGE>
back to Customer with an explanatory letter and a new Card and return
envelope. The mutilated or illegible Card is disregarded and considered to
be not received for purposes of vote tabulation. Any Cards that have been
"kicked out" (e.g. mutilated, illegible) of the procedure are "hand
verified," i.e., examined as to why they did not complete the system. Any
questions on those Cards are usually remedied individually.
11. There are various control procedures used to ensure proper tabulation of
votes and accuracy of that tabulation. The most prevalent is to sort the
Cards as they first arrive into categories depending upon their vote; an
estimate of how the vote is progressing may then be calculated. If the
initial estimates and the actual vote do not coincide, then an internal
audit of that vote should occur. This may entail a recount.
12. The actual tabulation of votes is done in units which is then converted to
shares. (It is very important that the Fund receives the tabulations stated
in terms of a percentage and the number of shares.) The Fund must review
and approve tabulation format.
13. Final tabulation in shares is verbally given by the Company to the Fund on
the morning of the meeting not later than 10:00 a.m. Eastern time. The
Fund may request an earlier deadline if reasonable and if required to
calculate the vote in time for the meeting.
14. A Certification of Mailing and Authorization to Vote Shares will be
required from the Company as well as an original copy of the final vote.
The Fund will provide a standard form for each Certification.
15. The Company will be required to box and archive the Cards received from the
Customers. In the event that any vote is challenged or if otherwise
necessary for legal, regulatory, or accounting purposes, the Fund will be
permitted reasonable access to such Cards.
16. All approvals and "signing-off" may be done orally, but must always be
followed up in writing.
31
<PAGE>
EXHIBIT 3(b)(vi)(B)(i)
<PAGE>
PARTICIPATION AGREEMENT
AMONG
AMERICAN GENERAL LIFE INSURANCE COMPANY,
AMERICAN GENERAL SECURITIES INCORPORATED,
ROYCE CAPITAL FUND
AND
ROYCE & ASSOCIATES, INC.
DATED AS OF
FEBRUARY 26, 1998
<PAGE>
TABLE OF CONTENTS
Page
----
ARTICLE I. Fund Shares 4
ARTICLE II. Representations and Warranties 7
ARTICLE III. Prospectuses, Reports to Shareholders
and Proxy Statements, Voting 8
ARTICLE IV. Sales Material and Information 12
ARTICLE V. [Reserved] 14
ARTICLE VI. Diversification 14
ARTICLE VII. Potential Conflicts 14
ARTICLE VIII. Indemnification 16
ARTICLE IX. Applicable Law 19
ARTICLE X. Termination 20
ARTICLE XI. Notices 22
ARTICLE XII. Foreign Tax Credits 23
ARTICLE XIII. Miscellaneous 23
SCHEDULE A Portfolios of Royce Capital Fund 26
Available for Purchase by American General
Life Insurance Company
SCHEDULE B Separate Accounts and Contracts 27
SCHEDULE C Proxy Voting Procedures 28
<PAGE>
THIS AGREEMENT, made and entered into as of the 26th day of February,
1998 by and among AMERICAN GENERAL LIFE INSURANCE COMPANY (hereinafter the
"Company"), a Texas insurance company, on its own behalf and on behalf of each
separate account of the Company set forth on Schedule B hereto as may be amended
from time to time (each such account hereinafter referred to as the "Account"),
AMERICAN GENERAL SECURITIES INCORPORATED ("AGSI"), a Texas corporation, ROYCE
CAPITAL FUND (hereinafter the "Fund"), a Delaware business trust, and ROYCE &
ASSOCIATES, INC., a New York corporation (the "Adviser").
WHEREAS, the Fund engages in business as an open-end management investment
company and is available to act as (i) the investment vehicle for separate
accounts established by insurance companies for individual and group life
insurance policies and annuity contracts with variable accumulation and/or pay-
out provisions (hereinafter referred to individually and/or collectively as
"Variable Insurance Products") and (ii) the investment vehicle for certain
qualified pension and retirement plans (hereinafter "Qualified Plans"); and
WHEREAS, insurance companies desiring to utilize the Fund as an investment
vehicle under their Variable Insurance Products are required to enter into a
participation agreement with the Fund and the Adviser (the "Participating
Insurance Companies"); and
WHEREAS, shares of the Fund are divided into several series of shares, each
representing the interest in a particular managed portfolio of securities and
other assets, any one or more of which may be made available for Variable
Insurance Products of Participating Insurance Companies; and
WHEREAS, the Fund intends to offer shares of the series set forth on
Schedule A (each such series hereinafter referred to as a "Portfolio"), as may
be amended from time to time by mutual agreement of the parties hereto, under
this Agreement to the Accounts of the Company; and
WHEREAS, the Fund has obtained an order from the Securities and Exchange
Commission, dated July 24, 1996 (File No. 812-9988), granting Participating
Insurance Companies and Variable Insurance Product separate accounts exemptions
from the provisions of Sections 9(a), 13(a), 15(a), and 15(b) of the Investment
Company Act of 1940, as amended (hereinafter the "1940 Act"), and Rules
6e-2(b)(15) and 6e-3(T)(b)(15) thereunder, to the extent necessary to permit
shares of the Fund to be sold to and held by Variable Annuity Product separate
accounts of both affiliated and unaffiliated life insurance companies and
Qualified Plans (hereinafter the "Shared Funding Exemptive Order"); and
WHEREAS, the Fund is registered as an open-end management investment
company under the 1940 Act and its shares are registered under the Securities
Act of 1933, as amended (hereinafter the "1933 Act"); and
3
<PAGE>
WHEREAS, the Adviser is duly registered as an investment adviser under the
Investment Advisers Act of 1940, as amended, and any applicable state securities
laws; and
WHEREAS, the Adviser manages certain Portfolios of the Fund; and
WHEREAS, _________________________________________ (the "Underwriter") is
registered as a broker/dealer under the Securities Exchange Act of 1934, as
amended (hereinafter the "1934 Act"), is a member in good standing of the
National Association of Securities Dealers, Inc. (hereinafter "NASD") and serves
as principal underwriter of the shares of the Fund; and
WHEREAS, the Company has registered or will register certain Variable
Insurance Products under the 1933 Act; and
WHEREAS, each Account is a duly organized, validly existing segregated
asset account, established by resolution or under authority of the Board of
Directors of the Company, on the date shown for such Account on Schedule B
hereto, to set aside and invest assets attributable to the aforesaid Variable
Insurance Product; and
WHEREAS, the Company has registered or will register each Account as a unit
investment trust under the 1940 Act; and
WHEREAS, to the extent permitted by applicable insurance laws and
regulations, the Company intends to purchase shares in the Portfolios on behalf
of each Account to fund certain of the aforesaid Variable Insurance Products and
the Underwriter is authorized to sell such shares to each such Account at net
asset value; and
WHEREAS, AGSI serves as both the distributor and the principal underwriter
of the Variable Insurance Products that are set forth on Schedule B;
NOW, THEREFORE, in consideration of their mutual promises, the Company, AGSI,
the Fund and the Adviser agree as follows:
ARTICLE I. FUND SHARES
1.1. The Fund agrees to make available for purchase by the Company shares
of the Portfolios set forth on Schedule A and shall execute orders placed for
each Account on a daily basis at the net asset value next computed after receipt
by the Fund or its designee of such order. For purposes of this Section 1.1,
the Company shall be the designee of the Fund for receipt of such orders from
each Account and receipt by such designee of orders prior to the close of
regular trading on the New York Stock Exchange (generally 4:00 p.m. Eastern
time) shall constitute receipt by the Fund; provided that the Fund receives
notice of such order as soon as is reasonably practical (normally by 10:00 a.m.
Eastern time) on the next following Business Day. Notwithstanding the
4
<PAGE>
foregoing, the Company shall use its best efforts to provide the Fund with
notice of such orders by 10:15 a.m. Eastern time on the next following Business
Day. "Business Day" shall mean any day on which the New York Stock Exchange is
open for trading and on which the Fund calculates the net asset value pursuant
to the rules of the SEC, as set forth in the Fund's Prospectus and Statement of
Additional Information. Notwithstanding the foregoing, the Board of Trustees of
the Fund (hereinafter the "Board") may refuse to permit the Fund to sell shares
of any Portfolio to any person, or suspend or terminate the offering of shares
of any Portfolio, if such action is required by law or by regulatory authorities
having jurisdiction or is, in the sole discretion of the Board acting in good
faith and in light of their fiduciary duties under federal and any applicable
state laws, necessary in the best interests of the shareholders of such
Portfolio.
1.2. The Fund agrees that shares of the Fund will be sold only to
Participating Insurance Companies and their Variable Insurance Products and to
certain Qualified Plans. No shares of any Portfolio will be sold to the general
public.
1.3. The Fund will not make its shares available for purchase by any
insurance company or separate account unless an agreement containing provisions
substantially the same as Sections 2.4, 2.9, 3.4 and Article VII of this
Agreement is in effect to govern such sales.
1.4. The Fund agrees to redeem for cash, on the Company's request, any full
or fractional shares of the Fund held by the Company, executing such requests on
a daily basis at the net asset value next computed after receipt by the Fund or
its designee of the request for redemption. For purposes of this Section 1.4,
the Company shall be the designee of the Fund for receipt of requests for
redemption from each Account and receipt by such designee shall constitute
receipt by the Fund; provided that the Fund receives notice of such request for
redemption on the next following Business Day in accordance with the timing
rules described in Section 1.1.
1.5. The Company agrees that purchases and redemptions of Portfolio shares
offered by the then current prospectus of the Fund shall be made in accordance
with the provisions of such prospectus. The Accounts of the Company, under
which amounts may be invested in the Fund, are listed on Schedule B attached
hereto and incorporated herein by reference, as such Schedule B may be amended
from time to time by mutual written agreement of all of the parties hereto. The
Company will give the Fund and the Adviser sixty (60) days written notice of its
intention to make available in the future, as a funding vehicle under the
Contracts, any other investment company.
1.6. The Company will place separate orders to purchase or redeem shares of
each Portfolio. Each order shall describe the net amount of shares and dollar
amount of each Portfolio to be purchased or redeemed. In the event of net
purchases, the Company shall pay for Portfolio shares on the next Business Day
after an order to purchase Portfolio shares is made in accordance with the
provisions of Section 1.1 hereof. Payment shall be in federal funds transmitted
by wire. In the event of net redemptions, the Portfolio shall use its best
efforts to pay the redemption proceeds in federal funds transmitted by wire on
the next Business Day, in any event redemption proceeds shall be wired to the
Company within three Business Days or such longer period permitted by the
5
<PAGE>
1940 Act, after an order to redeem a Portfolio's shares is made in accordance
with the provision of Section 1.4 hereof. Notwithstanding the foregoing, if the
payment of redemption proceeds on the next Business Day would require the
Portfolio to dispose of securities or otherwise incur substantial additional
costs, and if the Portfolio has determined to settle redemption transactions for
all shareholders on a delayed basis, it reserves the right to suspend the right
of redemption or postpone the date of payment or satisfaction upon redemption
consistent with Section 22(e) of the 1940 Act and the Portfolio shall notify in
writing the person designated by the Company as the recipient for such notice of
such delay promptly.
1.7. Issuance and transfer of the Fund's shares will be by book entry only.
Stock certificates will not be issued to the Company or any Account. Shares
ordered from the Fund will be recorded in an appropriate title for each Account
or the appropriate subaccount of each Account.
1.8. The Fund shall make the dividends or capital gain distributions per
share payable on the Fund's shares available to the Company as soon as
reasonably practical after the dividends or capital gains are declared (normally
by 6:30 p.m. Eastern time) and shall use its best efforts to furnish same day
notice by 7:00 p.m. Eastern time (by wire or telephone, followed by written
confirmation) to the Company of any dividends or capital gain distributions per
share payable on the Fund's shares. The Company hereby elects to receive all
such dividends and capital gain distributions as are payable on the Portfolio
shares in additional shares of that Portfolio. The Company reserves the right
to revoke this election and to receive all such dividends and capital gain
distributions in cash. The Fund shall notify the Company of the number of
shares so issued as payment of such dividends and distributions.
1.9. The Fund shall make the net asset value per share for each Portfolio
available to the Company on a daily basis as soon as reasonably practical after
the net asset value per share is calculated (normally by 6:30 p.m. Eastern time)
and shall use its best efforts to make such net asset value per share available
by 7:00 p.m. Eastern time. In the event that the Fund is unable to meet the
7:00 p.m. time stated immediately above, then the Fund shall provide the Company
with additional time to notify the Fund of purchase or redemption orders
pursuant to Sections 1.1 and 1.4, respectively, above. Such additional time
shall be equal to the additional time that the Fund takes to make the net asset
values available to the Company; provided, however, that notification must be
made by 10:15 a.m. Eastern time on the Business Day such order is to be executed
regardless of when the net asset value is made available.
1.10. If the Fund provides materially incorrect share net asset value
information through no fault of the Company, the Company, on behalf of the
Accounts, shall be entitled to an adjustment with respect to the Fund shares
purchased or redeemed to reflect the correct net asset value per share. The
determination of the materiality of any net asset value pricing error shall be
based on the SEC's recommended guidelines regarding such errors. The correction
of any such errors shall be made at the Company level and shall be made pursuant
to the SEC's recommended guidelines. Any material error in the calculation or
reporting of net asset value per share, dividend or capital gain information
shall be reported promptly upon discovery to the Company.
6
<PAGE>
ARTICLE II. REPRESENTATIONS AND WARRANTIES
2.1. The Company represents and warrants that the interests of the Accounts
(the "Contracts") are or will be registered and will maintain the registration
under the 1933 Act and the regulations thereunder to the extent required by the
1933 Act; that the Contracts will be issued in compliance in all material
respects with all applicable federal and state laws and regulations. The
Company further represents and warrants that it is an insurance company duly
organized and in good standing under applicable law and that it has legally and
validly established each Account prior to any issuance or sale thereof as a
segregated asset account under the Texas Insurance Law and the regulations
thereunder and has registered or, prior to any issuance or sale of the
Contracts, will register and will maintain the registration of each Account as a
unit investment trust in accordance with and to the extent required by the
provisions of the 1940 Act and the regulations thereunder to serve as a
segregated investment account for the Contracts. The Company shall amend its
registration statement for its contracts under the 1933 Act and the 1940 Act
from time to time as required in order to effect the continuous offering of its
Contracts.
2.2. The Fund represents and warrants that Fund shares sold pursuant to
this Agreement shall be registered under the 1933 Act and the regulations
thereunder to the extent required by the 1933 Act, duly authorized for issuance
in accordance with the laws of the State of Delaware and sold in compliance with
all applicable federal and state securities laws and regulations and that the
Fund is and shall remain registered under the 1940 Act and the regulations
thereunder to the extent required by the 1940 Act. The Fund shall amend the
registration statement for its shares under the 1933 Act and the 1940 Act from
time to time as required in order to effect the continuous offering of its
shares. The Fund shall register and qualify the shares for sale in accordance
with the laws of the various states only if and to the extent deemed advisable
by the Fund.
2.3 The Fund and the Adviser represent that the Fund is currently
qualified as a Regulated Investment Company under Subchapter M of the Internal
Revenue Code of 1986, as amended (the "Code"), and that the Fund and the Adviser
(with respect to those Portfolios for which such Adviser acts as investment
adviser) will make every effort to maintain such qualification (under Subchapter
M or any successor or similar provision) and that the Fund or the appropriate
Adviser will notify the Company immediately upon having a reasonable basis for
believing that a Portfolio has ceased to so qualify or that a Portfolio might
not so qualify in the future.
2.4. The Company represents that each Account is and will continue to be a
"segregated account" under applicable provisions of the Code and that each
Contract is and will be treated as a "variable contract" under applicable
provisions of the Code and that it will make every effort to maintain such
treatments and that it will notify the Fund immediately upon having a reasonable
basis for believing that the Account or Contract has ceased to be so treated or
that they might not be so treated in the future.
7
<PAGE>
2.5. The Fund represents that to the extent that it decides to finance
distribution expenses pursuant to Rule 12b-1 under the 1940 Act, the Fund
undertakes to have a board of directors, a majority of whom are not interested
persons of the Fund, formulate and approve any plan under Rule 12b-1 to finance
distribution expenses.
2.6. The Fund makes no representation as to whether any aspect of its
operations (including, but not limited to, fees and expenses and investment
policies) complies with the insurance laws or regulations of the various states.
2.7. The Fund and the Adviser represent that the Fund is lawfully organized
and validly existing under the laws of Delaware and that the Fund does and will
comply in all material respects with the 1940 Act.
2.8. The Adviser and AGSI each represents and warrants that it is and shall
remain duly registered in all material respects under all applicable federal and
state securities laws and that it will perform its obligations for the Fund and
the Company in compliance in all material respects with the laws and regulations
of its state of domicile and any applicable state and federal securities laws
and regulations.
2.9. The Company represents and warrants that all of its trustees,
officers, employees, investment Adviser, and other individuals/entities dealing
with the money and/or securities of the Fund are covered by a blanket fidelity
bond or similar coverage, in an amount equal to the greater of $5 million or any
amount required by applicable federal or state law or regulation. The aforesaid
includes coverage for larceny and embezzlement is issued by a reputable bonding
company. The Company agrees to make all reasonable efforts to see that this
bond or another bond containing these provisions is always in effect, and agrees
to notify the Fund and the Underwriter in the event that such coverage no longer
applies.
ARTICLE III. PROSPECTUSES, REPORTS TO SHAREHOLDERS AND PROXY STATEMENTS; VOTING
3.1(a) The Fund or its designee shall provide the Company with as many
printed copies of the Fund's current prospectus, including the profile
prospectus, (the "Fund Prospectus") as the Company may reasonably request. If
requested by the Company, in lieu of providing printed copies of the Fund
Prospectus, the Fund shall provide camera-ready film or computer diskettes
containing the Fund Prospectus and such other assistance as is reasonably
necessary in order for the Company once each year (or more frequently if the
Fund Prospectus is amended during the year) to have the prospectus for the
Contracts (the "Contract Prospectus") and the Fund Prospectus printed together
in one document or separately. The Company may elect to print the Fund
Prospectus in combination with other fund companies' prospectuses. For purposes
hereof, any combined prospectus including the Fund Prospectus along with the
Contract Prospectus or prospectus of other fund companies shall be referred to
as a "Combined Prospectus." For purposes hereof, the term "Fund Portion of the
Combined Prospectus" shall refer to the percentage of the number of Fund
Prospectus pages in the
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Combined Prospectus in relation to the total number of pages of the Combined
Prospectus.
3.1(b) The Fund shall provide the Company with as many printed copies of
the Fund's current statement of additional information (the "Fund SAI") as the
Company may reasonably request. If requested by the Company in lieu of
providing printed copies of the Fund SAI, the Fund shall provide camera-ready
film or computer diskettes containing the Fund SAI, and such other assistance as
is reasonably necessary in order for the Company once each year (or more
frequently if the Fund SAI is amended during the year) to have the statement of
additional information for the Contracts (the "Contract SAI") and the Fund SAI
printed together or separately. The Company may also elect to print the Fund
SAI in combination with other fund companies' statements of additional
information. For purposes hereof, any combined statement of additional
information including the Fund SAI along with the Contract SAI or statement of
additional information of other fund companies shall be referred to as a
"Combined SAI." For purposes hereof, the term "Fund Portion of the Combined
SAI" shall refer to the percentage of the number of Fund SAI pages in the
Combined SAI in relation to the total number of pages of the Combined SAI.
3.1(c) The Fund shall provide the Company with as many printed copies of
the Fund's annual report and semi-annual report (collectively, the "Fund
Reports") as the Company may reasonably request. If requested by the Company in
lieu of providing printed copies of the Fund Reports, the Fund shall provide
camera-ready film or computer diskettes containing the Fund's Reports, and such
other assistance as is reasonably necessary in order for the Company once each
year to have the annual report and semi-annual report for the Contracts
(collectively, the "Contract Reports") and the Fund Reports printed together or
separately. The Company may also elect to print the Fund Reports in combination
with other fund companies' annual reports and semi-annual reports. For purposes
hereof, any combined annual reports and semi-annual reports including the Fund
Reports along with the Contract Reports or annual reports and semi-annual
reports of other fund companies shall be referred to as "Combined Reports."
For purposes hereof, the term "Fund Portion of the Combined Reports" shall refer
to the percentage of the number of Fund Reports pages in the Combined Reports in
relation to the total number or pages of the Combined Reports.
3.2 Expenses
3.2(a) Expenses Borne by Company. Except as otherwise provided in this
Section 3.2., all expenses of preparing, setting in type and printing and
distributing (i) Contract Prospectuses, Fund Prospectuses, and Combined
Prospectuses; (ii) Fund SAIs, Contract SAIs, and Combined SAIs; (iii) Fund
Reports, Contract Reports, and Combined Reports, and (iv) Contract proxy
material that the Company may require in sufficient quantity to be sent to
Contract owners, annuitants, or participants under Contracts (collectively, the
"Participants"), shall be the expense of the Company.
3.2(b) Expenses Borne by Fund
Fund Prospectuses
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With respect to existing Participants, the Fund shall pay the cost of
setting in type, printing and distributing Fund Prospectuses made available by
the Company to such existing Participants in order to update disclosure as
required by the 1933 Act and/or the 1940 Act. With respect to existing
Participants, in the event the Company elects to prepare a Combined Prospectus,
the Fund shall pay the cost of setting in type, printing and distributing the
Fund Portion of the Combined Prospectus made available by the Company to its
existing Participants in order to update disclosure as required by the 1933 Act
and/or the 1940 Act. In such event, the Fund shall bear the cost of typesetting
to provide the Fund Prospectus to the Company in the format in which the Fund is
accustomed to formatting prospectus. Notwithstanding the foregoing, in no event
shall the Fund pay for any such costs that exceed by more than five (5) percent
what the Fund would have paid to print such documents. The Fund shall not pay
any costs of typesetting, printing and distributing the Fund Prospectus (or
Combined Prospectus, if applicable) to prospective Participants.
Fund SAIs, Fund Reports and Proxy Material
With respect to existing Participants, the Fund shall pay the cost of
setting in type and printing Fund SAIs, Fund Reports and Fund proxy material
made available by the Company to its existing Participants. With respect to
existing Participants, in the event the Company elects to prepare a Combined SAI
or Combined Reports, the Fund shall pay the cost of setting in type and printing
the Fund Portion of the Combined SAI or Combined Reports, respectively, made
available by the Company to its existing Participants. In such event, the Fund
shall bear the cost of typesetting to provide the Fund SAI or Fund Reports to
the Company in the format in which the Fund is accustomed to formatting
statements of additional information and annual and semi-annual reports.
Notwithstanding the foregoing, in no event shall the Fund pay for any such costs
that exceed by more than five (5) percent what the Fund would have paid to print
such documents. The Fund shall pay one half the cost of distributing Fund SAIs,
Fund Reports and Fund proxy statements and proxy-related material to such
existing Participants. The Fund shall pay the cost of distributing the Fund
Portion of the Combined SAIs and the Fund Portion of the Combined Reports to
existing Participants. The Fund shall not pay any costs of distributing Fund
SAIs, Combined SAIs, Fund Reports, Combined Reports or proxy statements or
proxy-related material to prospective Participants.
The Company agrees to provide the Fund or its designee with such
information as may be reasonably requested by the Fund to assure that the Fund's
expenses do not include the cost of typesetting, printing or distributing any of
the foregoing documents other than those actually distributed to existing
Participants.
The Fund shall pay no fee or other compensation to the Company under this
Agreement, except that if the Fund or any Portfolio adopts and implements a plan
pursuant to Rule 12b-1 to finance distribution expenses, then the Underwriter
may make payments to the Company or to AGSI if and in amounts agreed to by the
Underwriter in writing.
All expenses, including expenses to be borne by the Fund pursuant to
Section 3.2 hereof,
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incident to performance by the Fund under this Agreement shall be paid by the
Fund. The Fund shall see to it that all its shares are registered and authorized
for issuance in accordance with applicable federal law and, if and to the extent
deemed available by the Fund, in accordance with applicable state laws prior to
their sale. The Fund shall bear the expenses for the cost of registration and
qualification of the Fund's shares.
3.2(c) Expenses Borne by AGSI.
Fund Prospectuses
With respect to prospective Participants, AGSI shall pay one half of the
cost of setting in type, printing and distributing Fund Prospectuses made
available by the Company as sales literature to such prospective Participants.
With respect to prospective Participants, in the event the Company elects to
prepare a Combined Prospectus, AGSI shall pay one half of the cost of printing
and distributing the Combined Prospectus made available by the Company to its
prospective Participants as sales literature. In such event, AGSI shall bear
the cost of typesetting to provide the Fund Prospectus to the Company in the
format in which the Fund is accustomed to formatting prospectuses.
Notwithstanding the foregoing, in no event shall AGSI pay for any such costs
that exceed by more than five (5) percent what AGSI would have paid to print
such documents.
Fund SAIs, Fund Reports and Proxy Material.
With respect to prospective Participants, AGSI shall pay one half of the
cost of setting in type and printing Fund SAIs, Fund Reports and Fund proxy
material made available by the Company to its prospective Participants as sales
literature. In the event the Company elects to prepare a Combined SAI or
Combined Reports, AGSI shall pay one half of the cost of printing the Combined
SAI or Combined Reports, respectively, made available by the Company to its
prospective Participants as sales literature. In such event, AGSI shall bear
the cost of typesetting to provide the Fund SAI and Fund Reports to the Company
in the format in which the Fund is accustomed to formatting statements of
additional information and annual and semi-annual reports. Notwithstanding the
foregoing, in no event shall AGSI pay for any such costs that exceed by more
than five (5) percent what AGSI would have paid to print such documents. AGSI
shall pay one half the cost of distributing Fund SAIs, Combined SAIs, Fund
Reports, Combined Reports, and Fund proxy material to such prospective
Participants as sales literature.
3.2(d) If the Company chooses to receive camera-ready film or computer
diskettes in lieu of receiving printed copies of the Fund Prospectus, Fund SAI
or Fund Reports, the Fund or its designee will be responsible for providing the
Fund Prospectus, Fund SAI or Fund Reports in the format in which it is
accustomed to formatting such documents, and, notwithstanding anything in
Sections 3.2(b) or 3.2(c), the Company shall bear the expense of adjusting or
changing the format to conform with any of its prospectuses or reports.
3.3. The Fund SAI shall be obtainable from the Fund, the Company or such
other person
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as the Fund may designate.
3.4. If and to the extent required by law the Company shall distribute all
proxy material furnished by the Fund to Participants to whom voting privileges
are required to be extended and shall:
(i) solicit voting instructions from Participants;
(ii) vote the Fund shares in accordance with instructions received from
Participants; and
(iii) vote Fund shares for which no instructions have been received in the
same proportion as Fund shares of such Portfolio for which
instructions have been received, so long as and to the extent that
the SEC continues to interpret the 1940 Act to require pass-through
voting privileges for variable contract owners. The Company reserves
the right to vote Fund shares held in any segregated asset account
in its own right, to the extent permitted by law. The Fund and the
Company shall follow the procedures, and shall have the
corresponding responsibilities, for the handling of proxy and voting
instruction solicitations, as set forth in Schedule C attached
hereto and incorporated herein by reference. Participating Insurance
Companies shall be responsible for ensuring that each of their
separate accounts participating in the Fund calculates voting
privileges in a manner consistent with the standards set forth on
Schedule C, which standards will also be provided to the other
Participating Insurance Companies.
3.5. The Fund will comply with all provisions of the 1940 Act requiring
voting by shareholders, and in particular the Fund will either provide for
annual meetings (except insofar as the Securities and Exchange Commission may
interpret Section 16 not to require such meetings) or comply with Section 16(c)
of the 1940 Act (although the Fund is not one of the trusts described in Section
16(c) of that Act) as well as with Sections 16(a) and, if and when applicable,
16(b). Further, the Fund will act in accordance with the Securities and
Exchange Commission's interpretation of the requirements of Section 16(a) with
respect to periodic elections of directors and with whatever rules the
Commission may promulgate with respect thereto.
ARTICLE IV. SALES MATERIAL AND INFORMATION
4.1. The Company shall furnish, or shall cause to be furnished, to the Fund
or its designee, each piece of sales literature or other promotional material
prepared by the Company, AGSI or any person contracting with the Company or AGSI
in which the Fund or the Adviser is named, at least ten Business Days prior to
its use. No such material shall be used if the Fund, the Adviser, or their
designee reasonably objects to such use within ten Business Days after receipt
of such material.
4.2. Neither the Company, AGSI nor any person contracting with the Company
or AGSI shall give any information or make any representations or statements on
behalf of the Fund or
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<PAGE>
concerning the Fund in connection with the sale of the Contracts other than the
information or representations contained in the registration statement or the
Fund Prospectus, as such registration statement or Fund Prospectus may be
amended or supplemented from time to time, or in reports or proxy statements for
the Fund, or in sales literature or other promotional material approved by the
Fund or its designee, except with the permission of the Fund.
4.3. The Fund or its designee shall furnish, or shall cause to be
furnished, to the Company or its designee, each piece of sales literature or
other promotional material prepared by the Fund in which the Company or its
Account(s) are named at least ten Business Days prior to its use. No such
material shall be used if the Company or its designee reasonably objects to such
use within ten Business Days after receipt of such material.
4.4. Neither the Fund nor the Adviser shall give any information or make
any representations on behalf of the Company or concerning the Company, each
Account, or the Contracts, other than the information or representations
contained in a registration statement or prospectus for the Contracts, as such
registration statement and prospectus may be amended or supplemented from time
to time, or in published reports or solicitations for voting instructions for
each Account which are in the public domain or approved by the Company for
distribution to Participants, or in sales literature or other promotional
material approved by the Company or its designee, except with the permission of
the Company.
4.5. The Fund will provide to the Company at least one complete copy of all
registration statements, prospectuses, statements of additional information,
reports, proxy statements, sales literature and other promotional materials,
applications for exemptions, requests for no-action letters, and all amendments
to any of the above, that relate to the Fund or its shares, contemporaneously
with the filing of such document with the SEC or other regulatory authorities.
4.6. The Company will provide to the Fund at least one complete copy of all
registration statements, prospectuses, statements of additional information,
reports, solicitations for voting instructions, sales literature and other
promotional materials, applications for exemptions, requests for no action
letters, and all amendments to any of the above, that relate to the investment
in an Account or Contract contemporaneously with the filing of such document
with the SEC or other regulatory authorities.
4.7. For purposes of this Article IV, the phrase "sales literature or other
promotional material" includes, but is not limited to, any of the following:
advertisements (such as material published, or designed for use in, a newspaper,
magazine, or other periodical, radio, television, telephone or tape recording,
videotape display, signs or billboards, motion pictures, or other public media),
sales literature (i.e., any written communication distributed or made generally
available to customers or the public, including brochures, circulars, research
reports, market letters, form letters, seminar texts, reprints or excerpts of
any other advertisement, sales literature, or published article), educational or
training materials or other communications distributed or made generally
available to some or all agents or employees, and registration statements,
prospectuses, statements of
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additional information, shareholder reports, and proxy materials.
ARTICLE V. [RESERVED]
ARTICLE VI. DIVERSIFICATION
6.1. The Adviser represents, as to the Portfolios for which it acts as
investment adviser, that it will use its best efforts at all times to comply
with Section 817(h) of the Code and Treasury Regulation 1.817-5, relating to the
diversification requirements for variable annuity, endowment, or life insurance
contracts and any amendments or other modifications to such Section or
Regulations. In the event a Portfolio ceases to so qualify, the Adviser will
take all reasonable steps (a) to notify the Company of such breach and (b) to
adequately diversify the Portfolio so as to achieve compliance within the grace
period afforded by Regulation 817-5.
ARTICLE VII. POTENTIAL CONFLICTS
7.1. The Board will monitor the Fund for the existence of any material
irreconcilable conflict between the interests of the contract owners of all
separate accounts investing in the Fund. An irreconcilable material conflict
may arise for a variety of reasons, including: (a) an action by any state
insurance regulatory authority; (b) a change in applicable federal or state
insurance, tax, or securities laws or regulations, or a public ruling, private
letter ruling, no-action or interpretative letter, or any similar action by
insurance, tax, or securities regulatory authorities; (c) an administrative or
judicial decision in any relevant proceeding; (d) the manner in which the
investments of any Portfolio are being managed; (e) a difference in voting
instructions given by variable annuity contract owners and variable life
insurance contract owners; or (f) a decision by a Participating Insurance
Company to disregard the voting instructions of Contract owners. The Board
shall promptly inform the Company if it determines that an irreconcilable
material conflict exists and the implications thereof.
7.2. The Company will report any potential or existing material
irreconcilable conflicts of which it is aware to the Board. The Company will
assist the Board in carrying out its responsibilities under the Shared Funding
Exemptive Order, by providing the Board with all information reasonably
necessary for the Board to consider any issues raised. This includes, but is
not limited to, an obligation by the Company to inform the Board whenever
contract owner voting instructions are disregarded.
7.3. If it is determined by a majority of the Board, or a majority of its
disinterested
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directors, that a material irreconcilable conflict exists, the Company and other
Participating Insurance Companies shall, at their expense and to the extent
reasonably practicable (as determined by a majority of the disinterested
trustees), take whatever steps are necessary to remedy or eliminate the
irreconcilable material conflict, up to and including: (1) withdrawing the
assets allocable to some or all of the Separate Accounts from the Fund or any
Portfolio and reinvesting such assets in a different investment medium,
including (but not limited to) another Portfolio of the Fund, or submitting the
question whether such segregation should be implemented to a vote of all
affected Contract owners and, as appropriate, segregating the assets of any
appropriate group (i.e., annuity contract owners, life insurance policy owners,
or variable Contract owners of one or more Participating Insurance Companies)
that votes in favor of such segregation, or offering to the affected Contract
owners the option of making such a change; and (2) establishing a new registered
management investment company or managed separate account. No charge or penalty
will be imposed as a result of such withdrawal. The Company agrees that it bears
the responsibility to take remedial action in the event of a Board determination
of an irreconcilable material conflict and the cost of such remedial action, and
these responsibilities will be carried out with a view only to the interests of
Contract owners.
7.4. If a material irreconcilable conflict arises because of a decision by
the Company to disregard contract owner voting instructions and that decision
represents a minority position or would preclude a majority vote, the Company
may be required, at the Fund's election, to withdraw the affected Account's
investment in the Fund and terminate this Agreement with respect to such Account
(at the Company's expense); provided, however that such withdrawal and
termination shall be limited to the extent required by the foregoing material
irreconcilable conflict as determined by a majority of the disinterested members
of the Board. No charge or penalty will be imposed as a result of such
withdrawal. The Company agrees that it bears the responsibility to take
remedial action in the event of a Board determination of an irreconcilable
material conflict and the cost of such remedial action, and these
responsibilities will be carried out with a view only to the interests of
Contract owners.
7.5. For purposes of Sections 7.3 and 7.4 of this Agreement, a majority of
the disinterested members of the Board shall determine whether any proposed
action adequately remedies any irreconcilable material conflict, but in no event
will the Fund be required to establish a new funding medium for the Contracts.
The Company shall not be required by Section 7.3 or 7.4 to establish a new
funding medium for the Contracts if an offer to do so has been declined by vote
of a majority of Contract owners materially adversely affected by the
irreconcilable material conflict.
7.6. If and to the extent that Rule 6e-2 and Rule 6e-3(T) are amended, or
Rule 6e-3 is adopted, to provide exemptive relief from any provision of the 1940
Act or the rules promulgated thereunder with respect to mixed or shared funding
(as defined in the Shared Funding Exemptive Order) on terms and conditions
materially different from those contained in the Shared Funding Exemptive Order,
then the Fund and/or the Participating Insurance Companies, as appropriate,
shall take such steps as may be necessary to comply with Rules 6e-2 and 6e-3(T),
as amended, and Rule 6e-3, as adopted, to the extent such rules are applicable.
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7.7 The Company and the Adviser shall at least annually submit to the
Board of the Fund such reports, materials or data as the Board may reasonably
request so that the Board may fully carry out the obligations imposed upon them
by the provisions hereof, and said reports, materials and data shall be
submitted more frequently if deemed appropriate by the Board. All reports
received by the Board of potential or existing conflicts, and all Board action
with regard to determining the existence of a conflict, notifying Participating
Insurance Companies of a conflict, and determining whether any proposed action
adequately remedies a conflict, shall be properly recorded in the minutes of the
Board or other appropriate records, and such minutes or other records shall be
made available to the SEC upon request.
ARTICLE VIII. INDEMNIFICATION
8.1. Indemnification By The Company and AGSI
8.1(a) The Company and AGSI agree to indemnify and hold harmless the
Fund and each member of the Board and officers, and the Adviser and each
director and officer of the Adviser, and each person, if any, who controls the
Fund or the Adviser within the meaning of Section 15 of the 1933 Act
(collectively, the "Indemnified Parties" and individually, "Indemnified Party,"
for purposes of this Section 8.1) against any and all losses, claims, damages,
liabilities (including amounts paid in settlement with the written consent of
the Company or AGSI) or litigation (including legal and other expenses), to
which the Indemnified Parties may become subject under any statute or
regulation, at common law or otherwise, insofar as such losses, claims, damages,
liabilities or expenses (or actions in respect thereof) or settlements are
related to the sale or acquisition of the Fund's shares or the Contracts and:
(i) arise out of or are based upon any untrue statements or alleged untrue
statements of any material fact contained in the registration
statement or prospectus for the Contracts or contained in the
Contracts or sales literature for the Contracts (or any amendment or
supplement to any of the foregoing), or arise out of or are based upon
the omission or the alleged omission to state therein a material fact
required to be stated therein or necessary to make the statements
therein not misleading, provided that this agreement to indemnify
shall not apply as to any Indemnified Party if such statement or
omission or such alleged statement or omission was made in reliance
upon and in conformity with information furnished to the Company by or
on behalf of the Fund for use in the registration statement or
prospectus for the Contracts or in the Contracts or sales literature
(or any amendment or supplement) or otherwise for use in connection
with the sale of the Contracts or Fund shares; or
(ii) arise out of or as a result of any statements or representations
(other than statements or representations contained in the
registration statement, prospectus or sales literature of the Fund not
supplied by the Company or AGSI, or persons under its control and
other than statements or representations authorized by the Fund or the
Adviser) or unlawful conduct of the Company or AGSI or persons under
its control,
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with respect to the sale or distribution of the Contracts or Fund
shares; or
(iii) arise out of or as a result of any untrue statement or alleged untrue
statement of a material fact contained in a registration statement,
prospectus, or sales literature of the Fund or any amendment thereof
or supplement thereto or the omission or alleged omission to state
therein a material fact required to be stated therein or necessary to
make the statements therein not misleading if such a statement or
omission was made in reliance upon and in conformity with information
furnished to the Fund by or on behalf of the Company or AGSI; or
(iv) arise as a result of any failure by the Company or AGSI to provide the
services and furnish the materials under the terms of this Agreement;
or
(v) arise out of or result from any material breach of any representation
and/or warranty made by the Company or AGSI in this Agreement or arise
out of or result from any other material breach of this Agreement by
the Company or AGSI, as limited by and in accordance with the
provisions of Sections 8.1(b) and 8.1(c) hereof.
8.1(b). Neither the Company nor AGSI shall be liable under this
indemnification provision with respect to any losses, claims, damages,
liabilities or litigation incurred or assessed against an Indemnified Party as
such may arise from such Indemnified Party's willful misfeasance, bad faith, or
gross negligence in the performance of such Indemnified Party's duties or by
reason of such Indemnified Party's reckless disregard of obligations or duties
under this Agreement.
8.1(c). Neither the Company nor AGSI shall be liable under this
indemnification provision with respect to any claim made against an Indemnified
Party unless such Indemnified Party shall have notified the Company or AGSI in
writing within a reasonable time after the summons or other first legal process
giving information of the nature of the claim shall have been served upon such
Indemnified Party (or after such Indemnified Party shall have received notice of
such service on any designated agent), but failure to notify the Company or AGSI
of any such claim shall not relieve the Company or AGSI from any liability which
it may have to the Indemnified Party against whom such action is brought
otherwise than on account of this indemnification provision. In case any such
action is brought against the Indemnified Parties, the Company or AGSI shall be
entitled to participate, at its own expense, in the defense of such action. The
Company or AGSI also shall be entitled to assume the defense thereof, with
counsel satisfactory to the party named in the action. After notice from the
Company or AGSI to such Party of the Company's or AGSI's election to assume the
defense thereof, the Indemnified Party shall bear the fees and expenses under
this Agreement for any legal or other expenses subsequently incurred by such
Party independently in connection with the defense thereof other than reasonable
costs of investigation.
8.1(d). The Indemnified Parties will promptly notify the Company or AGSI
of the commencement of any litigation or proceedings against them in connection
with the issuance or sale of the Fund shares or the Contracts or the operation
of the Fund.
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8.2 Indemnification by the Adviser
8.2(a). The Adviser agrees, with respect to each Portfolio that it
manages, to indemnify and hold harmless the Company and each of its directors
and officers and each person, if any, who controls the Company within the
meaning of Section 15 of the 1933 Act (collectively, the "Indemnified Parties"
and individually, "Indemnified Party," for purposes of this Section 8.2) against
any and all losses, claims, damages, liabilities (including amounts paid in
settlement with the written consent of the Adviser) or litigation (including
legal and other expenses) to which the Indemnified Parties may become subject
under any statute, at common law or otherwise, insofar as such losses, claims,
damages, liabilities or expenses (or actions in respect thereof) or settlements,
result from the gross negligence, bad faith, willful misconduct of the Adviser
or any director, officer, employee or agent thereof, are related to the
operation of the Adviser or the Fund and:
(i) arise out of or are based upon any untrue statement or alleged untrue
statement of any material fact contained in the registration statement
or prospectus or sales literature of the Fund (or any amendment or
supplement to any of the foregoing), or arise out of or are based upon
the omission or the alleged omission to state therein a material fact
required to be stated therein or necessary to make the statements
therein not misleading, provided that this agreement to indemnify shall
not apply as to any Indemnified Party if such statement or omission or
such alleged statement or omission was made in reliance upon and in
conformity with information furnished to the Adviser or the Fund or the
Underwriter by or on behalf of the Company for use in the registration
statement or prospectus for the Fund or in sales literature (or any
amendment or supplement) or otherwise for use in connection with the
sale of the Contracts or Portfolio shares; or
(ii) arise out of or as a result of any statements or representations (other
than statements or representations contained in the registration
statement, prospectus or sales literature for the Contracts not
supplied by the Adviser or persons under its control and other than
statements or representations authorized by the Company) or unlawful
conduct of the Adviser or persons under its control, with respect to
the sale or distribution of the Contracts or Portfolio shares; or
(iii) arise out of or as a result of any untrue statement or alleged untrue
statement of a material fact contained in a registration statement,
prospectus, or sales literature covering the Contracts, or any
amendment thereof or supplement thereto, or the omission or alleged
omission to state therein a material fact required to be stated therein
or necessary to make the statement or statements therein not
misleading, if such statement or omission was made in reliance upon
information furnished to the Company by or on behalf of the Adviser; or
(iv) arise as a result of any failure by the Adviser to provide the services
and furnish the materials under the terms of this Agreement; or
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(v) arise out of or result from any material breach of any representation
and/or warranty made by the Adviser in this Agreement or arise out of
or result from any other material breach of this Agreement by the Fund
or the Adviser; including without limitation any failure by the Fund or
the Adviser to comply with the conditions of Article VI hereof.
8.2(b). The Adviser shall not be liable under this indemnification
provision with respect to any losses, claims, damages, liabilities or litigation
incurred or assessed against an Indemnified Party as may arise from such
Indemnified Party's willful misfeasance, bad faith, or gross negligence in the
performance of such Indemnified Party's duties or by reason of such Indemnified
Party's reckless disregard of obligations and duties under this Agreement.
8.2(c). The Adviser shall not be liable under this indemnification
provision with respect to any claim made against an Indemnified Party unless
such Indemnified Party shall have notified the Adviser in writing within a
reasonable time after the summons or other first legal process giving
information of the nature of the claim shall have been served upon such
Indemnified Party (or after such Indemnified Party shall have received notice of
such service on any designated agent), but failure to notify the Adviser of any
such claim shall not relieve the Adviser from any liability which it may have to
the Indemnified Party against whom such action is brought otherwise than on
account of this indemnification provision. In case any such action is brought
against the Indemnified Parties, the Adviser will be entitled to participate, at
its own expense, in the defense thereof. The Adviser also shall be entitled to
assume the defense thereof, with counsel satisfactory to the party named in the
action. After notice from the Adviser to such Party of the Adviser's election
to assume the defense thereof, the Indemnified Party shall bear the fees and
expenses of any additional counsel retained by it, and the Adviser will not be
liable to such Party under this Agreement for any legal or other expenses
subsequently incurred by such Party independently in connection with the defense
thereof other than reasonable costs of investigation.
8.2(d). The Company and AGSI agree promptly to notify the Adviser of the
commencement of any litigation or proceedings against it or any of its officers,
trustees or directors in connection with this Agreement, the issuance or sale of
the Contracts with respect to the operation of each Account, or the sale or
acquisition of shares of the Fund.
8.2(e). It is understood that these indemnities shall have no effect on
any other agreement or arrangement between the Fund and/or its series and the
Adviser.
ARTICLE IX. APPLICABLE LAW
9.1. This Agreement shall be construed and the provisions hereof
interpreted under and in accordance with the laws of the State of New York.
9.2. This Agreement shall be subject to the provisions of the 1933, 1934
and 1940 Acts,
19
<PAGE>
and the rules and regulations and rulings thereunder, including such exemptions
from those statutes, rules and regulations as the SEC may grant (including, but
not limited to, the Shared Funding Exemptive Order) and the terms hereof shall
be interpreted and construed in accordance therewith.
ARTICLE X. TERMINATION
10.1. This Agreement shall continue in full force and effect until the
first to occur of:
(a) termination by any party for any reason upon six-months advance
written notice delivered to the other parties; or
(b) termination by the Company or AGSI by written notice to the Fund
and the Adviser with respect to any Portfolio based upon the
Company's determination that shares of such Portfolio are not
reasonably available to meet the requirements of the Contracts.
Reasonable advance notice of election to terminate shall be
furnished by the Company, said termination to be effective ten
(10) days after receipt of notice unless the Fund makes available
a sufficient number of shares to reasonably meet the requirements
of the Account within said ten (10) day period; or
(c) termination by the Company or AGSI by written notice to the Fund
and the Adviser with respect to any Portfolio in the event any of
the Portfolio's shares are not registered, issued or sold in
accordance with applicable state and/or federal law or such law
precludes the use of such shares as the underlying investment
medium of the Contracts issued or to be issued by the Company. The
terminating party shall give prompt notice to the other parties of
its decision to terminate; or
(d) termination by the Company or AGSI by written notice to the Fund
and the Adviser with respect to any Portfolio in the event that
such Portfolio ceases to qualify as a Regulated Investment Company
under Subchapter M of the Code or under any successor or similar
provision, or if the Company or AGSI reasonably believes that the
Fund may fail to so qualify; or
(e) termination by the Company or AGSI by written notice to the Fund
and the Adviser with respect to any Portfolio in the event that
such Portfolio fails to meet the diversification requirements
specified in Article VI hereof; or
(f) termination by either the Fund or the Adviser by written notice to
the Company if the Adviser or the Fund shall determine, in its
sole judgment exercised in good faith, that the Company, AGSI
and/or their affiliated
20
<PAGE>
companies has suffered a material adverse change in its business,
operations, financial condition or prospects since the date of
this Agreement or is the subject of material adverse publicity,
provided that the Fund or the Adviser will give the Company sixty
(60) days' advance written notice of such determination of its
intent to terminate this Agreement, and provided further that
after consideration of the actions taken by the Company or AGSI
and any other changes in circumstances since the giving of such
notice, the determination of the Fund or the Adviser shall
continue to apply on the 60th day since giving of such notice,
then such 60th day shall be the effective date of termination; or
(g) termination by the Company or AGSI by written notice to the Fund
and the Adviser, if the Company or AGSI shall determine, in its
sole judgment exercised in good faith, that either the Fund or the
Adviser (with respect to the appropriate Portfolio) has suffered a
material adverse change in its business, operations, financial
condition or prospects since the date of this Agreement or is the
subject of material adverse publicity; provided that the Company
will give the Fund or the Adviser sixty (60) days' advance written
notice of such determination of its intent to terminate this
Agreement, and provided further that after consideration of the
actions taken by the Company and any other changes in
circumstances since the giving of such notice, the determination
of the Company or AGSI shall continue to apply on the 60th day
since giving of such notice, then such 60th day shall be the
effective date of termination; or
(h) termination by the Fund or the Adviser by written notice to the
Company, if the Company gives the Fund and the Adviser the written
notice specified in Section 2.4 hereof and at the time such notice
was given there was no notice of termination outstanding under any
other provision of this Agreement; provided, however any
termination under this Section 10.1(h) shall be effective sixty
(60) days after the notice specified in Section 2.4 was given; or
(i) termination by any party upon the other party's breach of any
representation in Section 2 or any material provision of this
Agreement, which breach has not been cured to the satisfaction of
the terminating party within ten (10) days after written notice of
such breach is delivered to the Fund or the Company, as the case
may be; or
(j) termination by the Fund or the Adviser by written notice to the
Company in the event an Account or Contract is not registered or
sold in accordance with applicable federal or state law or
regulation, or the Company fails to provide pass-through voting
privileges as specified in Section 3.4.
21
<PAGE>
10.2. EFFECT OF TERMINATION. Notwithstanding any termination of this
Agreement, the Fund shall at the option of the Company, continue to make
available additional shares of the Fund pursuant to the terms and conditions of
this Agreement, for all Contracts in effect on the effective date of termination
of this Agreement (hereinafter referred to as "Existing Contracts") unless such
further sale of Fund shares is proscribed by law, regulation or applicable
regulatory body, or unless the Fund determines that liquidation of the Fund
following termination of this Agreement is in the best interests of the Fund and
its shareholders. Specifically, without limitation, the owners of the Existing
Contracts shall be permitted to direct reallocation of investments in the Fund,
redemption of investments in the Fund and/or investment in the Fund upon the
making of additional purchase payments under the Existing Contracts. The
parties agree that this Section 10.2 shall not apply to any terminations under
Article VII and the effect of such Article VII terminations shall be governed by
Article VII of this Agreement.
10.3. The Company shall not redeem Fund shares attributable to the
Contracts (as distinct from Fund shares attributable to the Company's assets
held in the Account) except (i) as necessary to implement Contract Owner
initiated or approved transactions, or (ii) as required by state and/or federal
laws or regulations or judicial or other legal precedent of general application
(hereinafter referred to as a "Legally Required Redemption") or (iii) as
permitted by an order of the SEC pursuant to Section 26(b) of the 1940 Act.
Upon request, the Company will promptly furnish to the Fund the opinion of
counsel for the Company (which counsel shall be reasonably satisfactory to the
Fund and the Adviser) to the effect that any redemption pursuant to clause (ii)
above is a Legally Required Redemption. Furthermore, except in cases where
permitted under the terms of the Contracts, the Company shall not prevent
Contract Owners from allocating payments to a Portfolio that was otherwise
available under the Contracts without first giving the Fund or the appropriate
Adviser 90 days prior written notice of its intention to do so.
10.4. Notwithstanding any termination of this Agreement pursuant to
Article X hereof, all rights and obligations arising under Article VIII of this
Agreement shall survive.
ARTICLE XI. NOTICES
Any notice shall be sufficiently given when sent by registered or certified
mail to the other party at the address of such party set forth below or at such
other address as such party may from time to time specify in writing to the
other party.
If to the Fund:
Royce Capital Fund
1414 Avenue of the Americas
New York, New York 10019
Attention: John D. Diederich
22
<PAGE>
If to Adviser:
Royce & Associates, Inc,.
1414 Avenue of the Americas
New York, New York 10019
Attention: Howard J. Kashner, Esq.
If to the Company:
American General Life Insurance Company
2727-A Allen Parkway
Houston, Texas 77019
Attention: Steven A. Glover
If to AGSI:
American General Securities Incorporated
2727 Allen Parkway
Houston, Texas 77019
Attention: F. Paul Kovach, Jr.
ARTICLE XII. FOREIGN TAX CREDITS
The Fund and the Adviser agree to consult with the Company concerning
whether any Portfolio of the Fund qualifies to provide a foreign tax credit
pursuant to Section 853 of the Code.
ARTICLE XIII. MISCELLANEOUS
13.1. All persons dealing with the Fund must look solely to the property
of the Fund for the enforcement of any claims against the Fund as neither the
Board, officers, agents or shareholders assume any personal liability for
obligations entered into on behalf of the Fund.
13.2. Subject to the requirements of legal process and regulatory
authority, each party hereto shall treat as confidential the names and addresses
of the owners of the Contracts and all information reasonably identified as
confidential in writing by any other party hereto and, except as
23
<PAGE>
permitted by this Agreement, shall not disclose, disseminate or utilize such
names and addresses and other confidential information until such time as it may
come into the public domain without the express written consent of the affected
party.
13.3. The captions in this Agreement are included for convenience of
reference only and in no way define or delineate any of the provisions hereof or
otherwise affect their construction or effect.
13.4. This Agreement may be executed simultaneously in two or more
counterparts, each of which taken together shall constitute one and the same
instrument.
13.5. If any provision of this Agreement shall be held or made invalid by
a court decision, statute, rule or otherwise, the remainder of this Agreement
shall not be affected thereby.
13.6. Each party hereto shall cooperate with each other party and all
appropriate governmental authorities (including without limitation the SEC, the
NASD and state insurance regulators) and shall permit such authorities
reasonable access to its books and records in connection with any investigation
or inquiry relating to this Agreement or the transactions contemplated hereby.
13.7. The rights, remedies and obligations contained in this Agreement are
cumulative and are in addition to any and all rights, remedies and obligations
at law or in equity, which the parties hereto are entitled to under state and
federal laws.
13.8. This Agreement or any of the rights and obligations hereunder may
not be assigned by any party without the prior written consent of all parties
hereto; provided, however, that the Adviser may assign this Agreement or any
rights or obligations hereunder to any affiliate of or company under common
control with the Adviser, if such assignee is duly licensed and registered to
perform the obligations of the Adviser under this Agreement.
13.9 The Company shall furnish, or shall cause to be furnished, to the Fund
or its designee copies of the following reports:
(a) the Company's annual statement (prepared under statutory
accounting principles) and annual report (prepared under generally
accepted accounting principles ("GAAP"), if any), as soon as
practical and in any event within 90 days after the end of each
fiscal year;
(b) the Company's June 30th quarterly statements (statutory) (and
GAAP, if any), as soon as practical and in any event within 45
days after the end of each semi-annual period:
(c) any financial statement, proxy statement, notice or report of the
Company sent to stockholders and/or policyholders, as soon as
practical after the delivery thereof to stockholders;
24
<PAGE>
(d) any registration statement (without exhibits) and financial
reports of the Company filed with the SEC or any state insurance
regulator, as soon as practical after the filing thereof;
(e) any other public report submitted to the Company by independent
accountants in connection with any annual, interim or special
audit made by them of the books of the Company, as soon as
practical after the receipt thereof.
IN WITNESS WHEREOF, each of the parties hereto has caused this Agreement to be
executed in its name and on its behalf by its duly authorized representative
hereto as of the date specified above.
AMERICAN GENERAL LIFE INSURANCE COMPANY on behalf of itself and each of its
Accounts named in Schedule B hereto, as amended from time to time.
By: /S/ RODNEY O. MARTIN
---------------------------------------------
Name: Rodney O. Martin, Jr.
Title: President and Chief Executive Officer
AMERICAN GENERAL SECURITIES INCORPORATED
By: /S/ F. PAUL KOVACH
---------------------------------------------
Name: F. Paul Kovach, Jr.
Title: President
ROYCE CAPITAL FUND
By: /S/ JOHN D. DIEDERICH
-----------------------------------------
Name: John D. Diederich
Title: Vice President
ROYCE & ASSOCIATES, INC.
By: /S DAN O'BYRNE
-----------------------------------------
Name: Dan O'Byrne
Title: Vice President
25
<PAGE>
SCHEDULE A
PORTFOLIOS OF ROYCE CAPITAL FUND
AVAILABLE FOR
PURCHASE BY AMERICAN GENERAL LIFE
INSURANCE COMPANY UNDER THIS AGREEMENT
Royce Premier Portfolio
Royce Total Return Portfolio
26
<PAGE>
SCHEDULE B
SEPARATE ACCOUNTS AND CONTRACTS
<TABLE>
<CAPTION>
<S> <C>
NAME OF SEPARATE ACCOUNT AND FORM NUMBERS AND NAMES OF CONTRACT FUNDED BY
DATE ESTABLISHED BY BOARD OF DIRECTORS SEPARATE ACCOUNT
American General Life Insurance Company
Separate Account D Form No:
Established: November 19, 1973 97505
Name of Contract:
Flexible Payment Variable
and Fixed Individual
Deferred Annuity
</TABLE>
27
<PAGE>
SCHEDULE C
PROXY VOTING PROCEDURES
The following is a list of procedures and corresponding responsibilities for the
handling of proxies and voting instructions relating to the Fund. The defined
terms herein shall have the meanings assigned in the Participation Agreement
except that the term "Company" shall also include the department or third party
assigned by the Company to perform the steps delineated below.
1. The proxy proposals are given to the Company by the Fund as early as
possible before the date set by the Fund for the shareholder meeting to
enable the Company to consider and prepare for the solicitation of voting
instructions from owners of the Contracts and to facilitate the
establishment of tabulation procedures. At this time the Fund will inform
the Company of the Record, Mailing and Meeting dates. This will be done
verbally approximately two months before meeting.
2. Promptly after the Record Date, the Company will perform a "tape run", or
other activity, which will generate the names, addresses and number of
units which are attributed to each contract owner/policyholder (the
"Customer") as of the Record Date. Allowance should be made for account
adjustments made after this date that could affect the status of the
Customers' accounts as of the Record Date.
Note: The number of proxy statements is determined by the activities
described in this Step #2. The Company will use its best efforts to call
in the number of Customers to the Fund , as soon as possible, but no later
than two weeks after the Record Date.
3. The text and format for the Voting Instruction Cards ("Cards" or "Card") is
provided to the Company by the Fund. The Company, at its expense, shall
produce and personalize the Voting Instruction Cards. The Fund or its
affiliate must approve the Card before it is printed. Allow approximately
2-4 business days for printing information on the Cards. Information
commonly found on the Cards includes:
a. name (legal name as found on account registration)
b. address
c. fund or account number
d. coding to state number of units
e. individual Card number for use in tracking and verification of votes
(already on Cards as printed by the Fund).
(This and related steps may occur later in the chronological process due to
possible uncertainties relating to the proposals.)
4. During this time, the Fund will develop, produce and pay for the Notice of
Proxy and the Proxy Statement (one document). Printed and folded notices
and statements will be sent to
28
<PAGE>
Company for insertion into envelopes (envelopes and return envelopes are
provided and paid for by the Company). Contents of envelope sent to
Customers by the Company will include:
a. Voting Instruction Card(s)
b. One proxy notice and statement (one document)
c. return envelope (postage pre-paid by Company) addressed to the Company
or its tabulation agent
d. "urge buckslip" - optional, but recommended. (This is a small, single
sheet of paper that requests Customers to vote as quickly as possible
and that their vote is important. One copy will be supplied by the
Fund.)
e. cover letter - optional, supplied by Company and reviewed and approved
in advance by the Fund.
5. The above contents should be received by the Company approximately 3-5
business days before mail date. Individual in charge at Company reviews and
approves the contents of the mailing package to ensure correctness and
completeness. Copy of this approval sent to the Fund.
6. Package mailed by the Company.
* The Fund must allow at least a 15-day solicitation time to the Company
as the shareowner. (A 5-week period is recommended.) Solicitation time
is calculated as calendar days from (but not including,) the meeting,
counting backwards.
7. Collection and tabulation of Cards begins. Tabulation usually takes place
in another department or another vendor depending on process used. An
often used procedure is to sort Cards on arrival by proposal into vote
categories of all yes, no, or mixed replies, and to begin data entry.
Note: Postmarks are not generally needed. A need for postmark information
would be due to an insurance company's internal procedure and has not been
required by the Fund in the past.
8 Signatures on Card checked against legal name on account registration which
was printed on the Card.
Note: For example, if the account registration is under "John A. Smith,
Trustee," then that is the exact legal name to be printed on the Card and
is the signature needed on the Card.
9. If Cards are mutilated, or for any reason are illegible or are not signed
properly, they are sent back to Customer with an explanatory letter and a
new Card and return envelope. The mutilated or illegible Card is
disregarded and considered to be not received for purposes of vote
tabulation. Any Cards that have been "kicked out" (e.g. mutilated,
illegible) of the procedure are "hand verified," i.e., examined as to why
they did not complete the system. Any questions on those Cards are usually
remedied individually.
29
<PAGE>
10. There are various control procedures used to ensure proper tabulation of
votes and accuracy of that tabulation. The most prevalent is to sort the
Cards as they first arrive into categories depending upon their vote; an
estimate of how the vote is progressing may then be calculated. If the
initial estimates and the actual vote do not coincide, then an internal
audit of that vote should occur. This may entail a recount.
11. The actual tabulation of votes is done in units which is then converted to
shares. (It is very important that the Fund receives the tabulations stated
in terms of a percentage and the number of shares.) The Fund must review
and approve tabulation format.
12. Final tabulation in shares is verbally given by the Company to the Fund on
the morning of the meeting not later than 10:00 a.m. Eastern time. The
Fund may request an earlier deadline if reasonable and if required to
calculate the vote in time for the meeting.
13. A Certification of Mailing and Authorization to Vote Shares will be
required from the Company as well as an original copy of the final vote.
The Fund will provide a standard form for each Certification.
14. The Company will be required to box and archive the Cards received from the
Customers. In the event that any vote is challenged or if otherwise
necessary for legal, regulatory, or accounting purposes, the Fund will be
permitted reasonable access to such Cards.
15. All approvals and "signing-off' may be done orally, but must always be
followed up in writing.
30
<PAGE>
EXHIBIT 3(b)(vi)(B)(ii)
<PAGE>
FIRST AMENDMENT
TO
PARTICIPATION AGREEMENT
AMONG
AMERICAN GENERAL LIFE INSURANCE COMPANY,
AMERICAN GENERAL SECURITIES INCORPORATED,
ROYCE CAPITAL FUND AND
ROYCE & ASSOCIATES, INC.
THIS FIRST AMENDMENT TO PARTICIPATION AGREEMENT ("Amendment") dated as of August
, 1998, amends the Participation Agreement dated as of February 26, 1998 (the
"Agreement"), among AMERICAN GENERAL LIFE INSURANCE COMPANY (the "Company"), on
its own behalf and on behalf of each separate account of the Company set forth
on Schedule B of the Agreement (the "Account"), AMERICAN GENERAL SECURITIES
INCORPORATED ("AGSI"), ROYCE CAPITAL FUND (the "Fund"), and ROYCE & ASSOCIATES,
INC. (the "Adviser"), collectively, the "Parties." All capitalized terms not
otherwise defined in this Amendment, shall have the same meaning as ascribed in
the Agreement.
WHEREAS, the Company will offer a new Variable Insurance Products comprised of a
variable life insurance product which is not covered under the Agreement, but
for which the Fund will act as an investment vehicle for the Company's Accounts;
and
WHEREAS, the Parties now desire to amend the Agreement to reflect the new
Variable Insurance Product for which the Fund will act as an investment vehicle
for the Accounts, and to otherwise amend the agreement in the manner set forth
herein;
NOW, THEREFORE, in consideration of their mutual promises, the Parties agree as
follows:
1. The fifth (5th) recital of the agreement is hereby deleted in its entirety
and replaced therefor with the following new recital:
WHEREAS, the Fund has obtained an order from the Securities and Exchange
Commission, dated July 24, 1996 (File No. 812-9988), granting Participating
Insurance Companies and Variable Insurance Product separate accounts
exemptions from the provisions of Sections 9(a), 13(a), 15(a), and 15(b) of
the Investment Company Act of 1940, as amended (hereinafter the "1940 Act"),
and Rules 6e-2(b)(15) and 6e-3(T)(b)(15) thereunder, to the extent necessary
to permit shares of the Fund to be sold to and held by Variable Insurance
Product separate accounts of both affiliated and unaffiliated life insurance
companies and Qualified Plans (hereinafter the "Shared Funding Exemptive
Order"); and
1 of 2
<PAGE>
2. The ninth (9th) recital of the Agreement is hereby deleted in its entirety.
3. Schedule B to the Agreement, a revised copy of which is attached hereto, is
hereby amended to add the Legacy Plus(SM) Contract.
4. Except as amended hereby, the Agreement is hereby ratified and confirmed in
all respects.
IN WITNESS WHEREOF, the Parties hereto has caused this Agreement to be executed
in its name and on its behalf by its duly authorized representative hereto as of
the date specified above.
AMERICAN GENERAL LIFE INSURANCE COMPANY, on behalf of itself and each of its
Accounts named in Schedule B hereto, as amended from time to time.
By: /S/ DON M. WARD
---------------------------------------
Don M. Ward
Senior Vice President - Variable Markets
AMERICAN GENERAL SECURITIES INCORPORATED
By: /S/ F. PAUL KOVACH
---------------------------------------
F. Paul Kovach, Jr.
President
ROYCE CAPITAL FUNDS
By: /S/ JOHN D. DIEDERICH
---------------------------------------
John D. Diederich
Vice President
ROYCE & ASSOCIATES, INC.
By: /S/ DANIEL A. O'BYRNE
---------------------------------------
Daniel A. O'Byrne
Vice President
2 of 2
<PAGE>
SCHEDULE B
SEPARATE ACCOUNTS AND CONTRACTS
<TABLE>
<CAPTION>
<S> <C>
NAME OF SEPARATE ACCOUNT AND REGISTRATION NUMBERS AND NAMES OF CONTRACTS FUNDED
DATE ESTABLISHED BY BOARD OF DIRECTORS BY SEPARATE ACCOUNT
Form Nos.: Name of Contract:
American General Life Insurance Company
Separate Account D 97505 Select Reserve(SM) Flexible Payment
Established: November 19, 1973 Variable and Fixed
Individual Deferred Annuity
American General Life Insurance Company
Separate Account VL-R 98615 Legacy Plus(SM) Variable Life Insurance
Established: May 6, 1997 Policies
</TABLE>
<PAGE>
EXHIBIT 3(b)(vii)(B)
<PAGE>
PARTICIPATION AGREEMENT
AMONG
AMERICAN GENERAL LIFE INSURANCE COMPANY
AMERICAN GENERAL SECURITIES INCORPORATED
WRIGHT MANAGED BLUE CHIP SERIES TRUST
AND
WRIGHT INVESTORS SERVICE, INC.
DATED AS OF
FEBRUARY 26, 1998
<PAGE>
TABLE OF CONTENTS
Page
----
ARTICLE I. Fund Shares 4
ARTICLE II Representations and Warranties 6
ARTICLE III. Prospectuses, Reports to Shareholders
and Proxy Statements, Voting 8
ARTICLE IV. Sales Material and Information 12
ARTICLE V [Reserved] 13
ARTICLE VI. Diversification 13
ARTICLE VII. Potential Conflicts 13
ARTICLE VIII. Indemnification 15
ARTICLE IX. Applicable Law 19
ARTICLE X. Termination 19
ARTICLE XI. Notices 21
ARTICLE XII. Foreign Tax Credits 21
ARTICLE XIII. Miscellaneous 22
SCHEDULE A Portfolios of Wright Managed Blue Chip Series
Trust Available for Purchase by American
General Life Insurance Company 25
SCHEDULE B Separate Accounts and Contracts 26
SCHEDULE C Proxy Voting Procedures 27
<PAGE>
THIS AGREEMENT, made and entered into as of the 26th day of February,
1998 by and among AMERICAN GENERAL LIFE INSURANCE COMPANY (hereinafter the
"Company"), a Texas insurance company, on its own behalf and on behalf of each
separate account of the Company set forth on Schedule B hereto as may be amended
from time to time (each such account hereinafter referred to as the "Account");
AMERICAN GENERAL SECURITIES INCORPORATED ("AGSI"), a Texas corporation; WRIGHT
MANAGED BLUE CHIP SERIES TRUST (hereinafter the "Fund"), a Massaaachusetts
business trust; and WRIGHT INVESTORS SERVICE, INC. (the "Adviser"), a
Connecticut corporation..
WHEREAS, the Fund engages in business as an open-end management investment
company and is available to act as (i) the investment vehicle for separate
accounts established by insurance companies for individual and group life
insurance policies and annuity contracts with variable accumulation and/or pay-
out provisions (hereinafter referred to individually and/or collectively as
"Variable Insurance Products") and (ii) the investment vehicle for certain
qualified pension and retirement plans (hereinafter "Qualified Plans"); and
WHEREAS, insurance companies desiring to utilize the Fund as an investment
vehicle under their Variable Insurance Products are required to enter into a
participation agreement with the Fund and the Adviser (the "Participating
Insurance Companies"); and
WHEREAS, shares of the Fund are divided into several series of shares, each
representing the interest in a particular managed portfolio of securities and
other assets, any one or more of which may be made available for Variable
Insurance Products of Participating Insurance Companies; and
WHEREAS, the Fund intends to offer shares of the series set forth on
Schedule A (each such series hereinafter referred to as a "Portfolio"), as may
be amended from time to time by mutual agreement of the parties hereto, under
this Agreement to the Accounts of the Company; and
WHEREAS, the Fund has obtained an order from the Securities and Exchange
Commission, dated ______________________________________ (File No.________),
granting Participating Insurance Companies and Variable Insurance Product
separate accounts exemptions from the provisions of Sections 9(a), 13(a), 15(a),
and 15(b) of the Investment Company Act of 1940, as amended (hereinafter the
"1940 Act"), and Rules 6e-2(b)(15) and 6e-3(T)(b)(15) thereunder, to the extent
necessary to permit shares of the Fund to be sold to and held by Variable
Insurance Product separate accounts of both affiliated and unaffiliated life
insurance companies and Qualified Plans (hereinafter the "Shared Funding
Exemptive Order"); and
WHEREAS, the Fund is registered as an open-end management investment
company under the 1940 Act and its shares are registered under the Securities
Act of 1933, as amended (hereinafter the "1933 Act"); and
WHEREAS, the Adviser is duly registered as an investment adviser under the
Investment Advisers Act of 1940, as amended, and any applicable state securities
laws; and
3
<PAGE>
WHEREAS, the Adviser manages certain Portfolios of the Fund; and
WHEREAS, WRIGHT INVESTORS SERVICES DISTRIBUTORS, INC. (the "Underwriter")
is registered as a broker/dealer under the Securities Exchange Act of 1934, as
amended (hereinafter the "1934 Act"), is a member in good standing of the
National Association of Securities Dealers, Inc. (hereinafter "NASD") and serves
as principal underwriter of the shares of the Fund; and
WHEREAS, the Company has registered or will register certain Variable
Insurance Products under the 1933 Act; and
WHEREAS, each Account is a duly organized, validly existing segregated
asset account, established by resolution or under authority of the Board of
Directors of the Company, on the date shown for such Account on Schedule B
hereto, to set aside and invest assets attributable to the aforesaid Variable
Insurance Product; and
WHEREAS, the Company has registered or will register each Account as a unit
investment trust under the 1940 Act; and
WHEREAS, to the extent permitted by applicable insurance laws and
regulations, the Company intends to purchase shares in the Portfolios on behalf
of each Account to fund certain of the aforesaid Variable Insurance Products and
the Underwriter is authorized to sell such shares to each such Account at net
asset value; and
WHEREAS, AGSI serves as both the distributor and the principal underwriter
of the Variable Insurance Products that are set forth on Schedule B;
NOW, THEREFORE, in consideration of their mutual promises, the Company, AGSI,
the Fund and the Adviser agree as follows:
ARTICLE I. FUND SHARES
1.1. The Fund agrees to make available for purchase by the Company shares
of the Portfolios set forth on Schedule A and shall execute orders placed for
each Account on a daily basis at the net asset value next computed after receipt
by the Fund or its designee of such order. For purposes of this Section 1.1,
the Company shall be the designee of the Fund for receipt of such orders from
each Account and receipt by such designee shall constitute receipt by the Fund;
provided that the Fund receives notice of such order as soon as reasonably
practical (normally by 10:00 a.m. Eastern time) on the next following Business
Day. Notwithstanding the foregoing, the Company shall use its best efforts to
provide the Fund with notice of such orders by 10:15 a.m. Eastern time on the
next following Business Day. "Business Day" shall mean any day on which the New
York Stock Exchange is open for trading and on which the Fund calculates the net
asset value pursuant to the rules of the SEC, as set forth in the Fund's
Prospectus and Statement of Additional Information.
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Notwithstanding the foregoing, the Board of Trustees of the Fund (hereinafter
the "Board") may refuse to permit the Fund to sell shares of any Portfolio to
any person, or suspend or terminate the offering of shares of any Portfolio, if
such action is required by law or by regulatory authorities having jurisdiction
or is, in the sole discretion of the Board acting in good faith and in light of
their fiduciary duties under federal and any applicable state laws, necessary in
the best interests of the shareholders of such Portfolio.
1.2. The Fund agrees that shares of the Fund will be sold only to
Participating Insurance Companies and their Variable Insurance Products and to
certain Qualified Plans. No shares of any Portfolio will be sold to the general
public.
1.3. The Fund will not make its shares available for purchase by any
insurance company or separate account unless an agreement containing provisions
substantially the same as Sections 2.4, 2.9, 3.4 and Article VII of this
Agreement is in effect to govern such sales.
1.4. The Fund agrees to redeem for cash, on the Company's request, any
full or fractional shares of the Fund held by the Company, executing such
requests on a daily basis at the net asset value next computed after receipt by
the Fund or its designee of the request for redemption. For purposes of this
Section 1.4, the Company shall be the designee of the Fund for receipt of
requests for redemption from each Account and receipt by such designee shall
constitute receipt by the Fund; provided that the Fund receives notice of such
request for redemption on the next following Business Day in accordance with the
timing rules described in Section 1.1.
1.5. The Company agrees that purchases and redemptions of Portfolio shares
offered by the then current prospectus of the Fund shall be made in accordance
with the provisions of such prospectus. The Accounts of the Company, under
which amounts may be invested in the Fund, are listed on Schedule B attached
hereto and incorporated herein by reference, as such Schedule B may be amended
from time to time by mutual written agreement of all of the parties hereto. The
Company will give the Fund and the Adviser ninety (90) days written notice of
its intention to make available in the future, as a funding vehicle under the
Contracts, any other investment company.
1.6. The Company will place separate orders to purchase or redeem shares
of each Portfolio. Each order shall describe the net amount of shares and
dollar amount of each Portfolio to be purchased or redeemed. In the event of
net purchases, the Company shall pay for Portfolio shares on the next Business
Day after an order to purchase Portfolio shares is made in accordance with the
provisions of Section 1.1 hereof. Payment shall be in federal funds transmitted
by wire. In the event of net redemptions, the Portfolio shall pay the redemption
proceeds in federal funds transmitted by wire on the next Business Day after an
order to redeem a Portfolio's shares is made in accordance with the provision of
Section 1.4 hereof. Notwithstanding the foregoing, if the payment of redemption
proceeds on the next Business Day would require the Portfolio to dispose of
securities or otherwise incur substantial additional costs, and if the Portfolio
has determined to settle redemption transactions for all shareholders on a
delayed basis, proceeds shall be wired to the Company within seven (7) days and
the Portfolio shall notify in writing the person designated by the Company as
the recipient for such notice of such delay by 3:00 p.m. Eastern time on the
same Business Day that the Company transmits the redemption order to the
Portfolio.
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1.7. Issuance and transfer of the Fund's shares will be by book entry
only. Stock certificates will not be issued to the Company or any Account.
Shares ordered from the Fund will be recorded in an appropriate title for each
Account or the appropriate subaccount of each Account.
1.8. The Fund shall make the dividends or capital gain distributions
payable on the Fund's shares available to the Company as soon as reasonably
practical after the dividends or capital gains are calculated (normally by 6:30
p.m. Eastern time) and shall use its best efforts to furnish same day notice by
7:00 p.m. Eastern time (by wire or telephone, followed by written confirmation)
to the Company of any dividends or capital gain distributions payable on the
Fund's shares. The Company hereby elects to receive all such dividends and
capital gain distributions as are payable on the Portfolio shares in additional
shares of that Portfolio. The Company reserves the right to revoke this
election and to receive all such dividends and capital gain distributions in
cash. The Fund shall notify the Company of the number of shares so issued as
payment of such dividends and distributions.
1.9. The Fund shall make the net asset value per share for each Portfolio
available to the Company on a daily basis as soon as reasonably practical after
the net asset value per share is calculated (normally by 6:30 p.m. Eastern time)
and shall use its best efforts to make such net asset value per share available
by 7:00 p.m. Eastern time. In the event that the Fund is unable to meet the
7:00 p.m. time stated immediately above, then the Fund shall provide the Company
with additional time to notify the Fund of purchase or redemption orders
pursuant to Sections 1.1 and 1.4, respectively, above. Such additional time
shall be equal to the additional time that the Fund takes to make the net asset
values available to the Company; provided, however, that notification must be
made by 10:15 a.m. Eastern time on the Business Day such order is to be executed
regardless of when the net asset value is made available.
1.10. If the Fund provides materially incorrect share net asset value
information through no fault of the Company, the Company shall be entitled to an
adjustment with respect to the Fund shares purchased or redeemed to reflect the
correct net asset value per share. The determination of the materiality of any
net asset value pricing error shall be based on the SEC's recommended guidelines
regarding such errors. The correction of any such errors shall be made at the
Company level and shall be made pursuant to the SEC's recommended guidelines.
Any material error in the calculation or reporting of net asset value per share,
dividend or capital gain information shall be reported promptly upon discovery
to the Company.
ARTICLE II. REPRESENTATIONS AND WARRANTIES
2.1. The Company represents and warrants that the interests of the
Accounts (the "Contracts") are or will be registered and will maintain the
registration under the 1933 Act and the regulations thereunder to the extent
required by the 1933 Act; that the Contracts will be issued in compliance in all
material respects with all applicable federal and state laws and regulations.
The Company further represents and warrants that it is an insurance company duly
organized and in good standing under applicable law and that it has legally and
validly established each Account prior to any issuance or sale thereof as a
segregated asset account under the Texas Insurance Law and the
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regulations thereunder and has registered or, prior to any issuance or sale of
the Contracts, will register and will maintain the registration of each Account
as a unit investment trust in accordance with and to the extent required by the
provisions of the 1940 Act and the regulations thereunder to serve as a
segregated investment account for the Contracts. The Company shall amend its
registration statement for its contracts under the 1933 Act and the 1940 Act
from time to time as required in order to effect the continuous offering of its
Contracts.
2.2. The Fund represents and warrants that Fund shares sold pursuant to
this Agreement shall be registered under the 1933 Act and the regulations
thereunder to the extent required by the 1933 Act, duly authorized for issuance
in accordance with the laws of the Commonwealth of Massachusetts and sold in
compliance with all applicable federal and state securities laws and regulations
and that the Fund is and shall remain registered under the 1940 Act and the
regulations thereunder to the extent required by the 1940 Act. The Fund shall
amend the registration statement for its shares under the 1933 Act and the 1940
Act from time to time as required in order to effect the continuous offering of
its shares. The Fund shall register and qualify the shares for sale in
accordance with the laws of the various states only if and to the extent deemed
advisable by the Fund.
2.3 The Fund and the Adviser represent that each Portfolio of the Fund is
currently qualified as a Regulated Investment Company under Subchapter M of the
Internal Revenue Code of 1986, as amended (the "Code"), and that the Fund and
the Adviser (with respect to those Portfolios for which such Adviser acts as
investment adviser) will make every effort to maintain such qualification (under
Subchapter M or any successor or similar provision) and that the Fund or the
appropriate Adviser will notify the Company immediately upon having a reasonable
basis for believing that a Portfolio has ceased to so qualify or that a
Portfolio might not so qualify in the future.
2.4. The Company represents that each Account is and will continue to be a
"segregated account" under applicable provisions of the Code and that each
Contract is and will be treated as a "variable contract" under applicable
provisions of the Code and that it will make every effort to maintain such
treatments and that it will notify the Fund immediately upon having a reasonable
basis for believing that the Account or Contract has ceased to be so treated or
that they might not be so treated in the future.
2.5. The Fund represents that to the extent that it decides to finance
distribution expenses pursuant to Rule 12b-1 under the 1940 Act, the Fund
undertakes to have a board of trustees, a majority of whom are not interested
persons of the Fund, formulate and approve any plan under Rule 12b-1 to finance
distribution expenses.
2.6. The Fund makes no representation as to whether any aspect of its
operations (including, but not limited to, fees and expenses and investment
policies) complies with the insurance laws or regulations of the various states.
2.7. The Fund and the Adviser represent that the Fund is lawfully
organized and validly existing under the laws of the Commonwealth of
Massachusetts and that the Fund does and will comply in all material respects
with the 1940 Act.
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2.8. The Adviser and AGSI each represents and warrants that it is and
shall remain duly registered in all material respects under all applicable
federal and state securities laws and that it will perform its respective
obligations for the Fund and the Company in compliance in all material respects
with the laws and regulations of its state of domicile and any applicable state
and federal securities laws and regulations.
2.9. The Company represents and warrants that all of its trustees,
officers, employees, investment Adviser, and other individuals/entities dealing
with the money and/or securities of the Fund are covered by a blanket fidelity
bond or similar coverage, in an amount equal to the greater of $5 million or any
amount required by applicable federal or state law or regulation. The aforesaid
includes coverage for larceny and embezzlement is issued by a reputable bonding
company. The Company agrees to make all reasonable efforts to see that this
bond or another bond containing these provisions is always in effect, and agrees
to notify the Fund and the Underwriter in the event that such coverage no longer
applies.
ARTICLE III. PROSPECTUSES, REPORTS TO SHAREHOLDERS AND PROXY
STATEMENTS, VOTING
3.1(a) The Fund or its designee shall provide the Company with as many
printed copies of the Fund's current prospectus, including the profile
prospectus, (the "Fund Prospectus") as the Company may reasonably request. If
requested by the Company, in lieu of providing printed copies of the Fund
Prospectus, the Fund shall provide camera-ready film or computer diskettes
containing the Fund Prospectus and such other assistance as is reasonably
necessary in order for the Company once each year (or more frequently if the
Fund Prospectus is amended during the year) to have the prospectus for the
Contracts (the "Contract Prospectus") and the Fund Prospectus printed together
in one document or separately. The Company may elect to print the Fund
Prospectus in combination with other fund companies' prospectuses. For purposes
hereof, any combined prospectus including the Fund Prospectus along with the
Contract Prospectus or prospectus of other fund companies shall be referred to
as a "Combined Prospectus." For purposes hereof, the term "Fund Portion
of the Combined Prospectus" shall refer to the percentage of the number of Fund
Prospectus pages in the Combined Prospectus in relation to the total number of
pages of the Combined Prospectus.
3.1(b) The Fund shall provide the Company with as many printed copies of
the Fund's current statement of additional information (the "Fund SAI") as the
Company may reasonably request. If requested by the Company in lieu of
providing printed copies of the Fund SAI, the Fund shall provide camera-ready
film or computer diskettes containing the Fund SAI, and such other assistance as
is reasonably necessary in order for the Company once each year (or more
frequently if the Fund SAI is amended during the year) to have the statement of
additional information for the Contracts (the "Contract SAI") and the Fund SAI
printed together or separately. The Company may also elect to print the Fund
SAI in combination with other fund companies' statements of additional
information. For purposes hereof, any combined statement of additional
information including the Fund SAI along with the Contract SAI or statement of
additional information of other fund companies shall be referred to as a
"Combined SAI." For purposes hereof, the term "Fund Portion
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<PAGE>
of the Combined SAI" shall refer to the percentage of the number of Fund SAI
pages in the Combined SAI in relation to the total number of pages of the
Combined SAI.
3.1(c) The Fund shall provide the Company with as many printed copies of
the Fund's annual report and semi-annual report (collectively, the "Fund
Reports") as the Company may reasonably request. If requested by the Company in
lieu of providing printed copies of the Fund Reports, the Fund shall provide
camera-ready film or computer diskettes containing the Fund's Reports, and such
other assistance as is reasonably necessary in order for the Company once each
year to have the annual report and semi-annual report for the Contracts
(collectively, the "Contract Reports") and the Fund Reports printed together or
separately. The Company may also elect to print the Fund Reports in combination
with other fund companies' annual reports and semi-annual reports. For purposes
hereof, any combined annual reports and semi-annual reports including the Fund
Reports along with the Contract Reports or annual reports and semi-annual
reports of other fund companies shall be referred to as "Combined Reports."
For purposes hereof, the term "Fund Portion of the Combined Reports" shall refer
to the percentage of the number of Fund Reports pages in the Combined Reports in
relation to the total number or pages of the Combined Reports.
3.2 Expenses
3.2(a) Expenses Borne by Company. Except as otherwise provided in this
Section 3.2., all expenses of preparing, setting in type and printing and
distributing (i) Contract Prospectuses, Fund Prospectuses, and Combined
Prospectuses; (ii) Fund SAIs, Contract SAIs, and Combined SAIs; (iii) Fund
Reports, Contract Reports, and Combined Reports, and (iv) Contract proxy
material that the Company may require in sufficient quantity to be sent to
Contract owners, annuitants, or participants under Contracts (collectively, the
"Participants"), shall be the expense of the Company.
3.2(b) Expenses Borne by Fund
Fund Prospectuses
With respect to existing Participants, the Fund shall pay the cost of
setting in type, printing and distributing Fund Prospectuses made available by
the Company to such existing Participants in order to update disclosure as
required by the 1933 Act and/or the 1940 Act. With respect to existing
Participants, in the event the Company elects to prepare a Combined Prospectus,
the Fund shall pay the cost of setting in type, printing and distributing the
Fund Portion of the Combined Prospectus made available by the Company to its
existing Participants in order to update disclosure as required by the 1933 Act
and/or the 1940 Act. In such event, the Fund shall bear the cost of typesetting
to provide the Fund Prospectus to the Company in the format in which the Fund is
accustomed to formatting prospectus. Notwithstanding the foregoing, in no event
shall the Fund pay for any such costs that exceed by more than five (5) percent
what the Fund would have paid to print such documents. The Fund shall not pay
any costs of typesetting, printing and distributing the Fund Prospectus (or
Combined Prospectus, if applicable) to prospective Participants.
Fund SAIs, Fund Reports and Proxy Material
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With respect to Participants existing as of the date hereof, the Fund shall
pay the cost of setting in type and printing Fund SAIs, Fund Reports and Fund
proxy material made available by the Company to its existing Participants. With
respect to existing Participants, in the event the Company elects to prepare a
Combined SAI or Combined Reports, the Fund shall pay the cost of setting in type
and printing the Fund Portion of the Combined SAI or Combined Reports,
respectively, made available by the Company to its existing Participants. In
such event, the Fund shall bear the cost of typesetting to provide the Fund SAI
or Fund Reports to the Company in the format in which the Fund is accustomed to
formatting statements of additional information and annual and semi-annual
reports. Notwithstanding the foregoing, in no event shall the Fund pay for any
such costs that exceed by more than five (5) percent what the Fund would have
paid to print such documents. The Fund shall pay one half the cost of
distributing Fund SAIs, Fund Reports and Fund proxy statements and proxy-
related material to such existing Participants. The Fund shall pay the cost of
distributing the Fund Portion of the Combined SAIs and the Fund Portion of the
Combined Reports to existing Participants. The Fund shall not pay any costs of
distributing Fund SAIs, Combined SAIs, Fund Reports, Combined Reports or proxy
statements or proxy-related material to prospective Participants.
The Company agrees to provide the Fund or its designee with such
information as may be reasonably requested by the Fund to assure that the Fund's
expenses do not include the cost of typesetting, printing or distributing any of
the foregoing documents other than those actually distributed to existing
Participants.
The Fund shall pay no fee or other compensation to the Company under this
Agreement, except that if the Fund or any Portfolio adopts and implements a plan
pursuant to Rule 12b-1 to finance distribution expenses, then the Underwriter
may make payments to the Company or to AGSI if and in amounts agreed to by the
Underwriter in writing.
All expenses, including expenses to be borne by the Fund pursuant to
Section 3.2 hereof, incident to performance by the Fund under this Agreement
shall be paid by the Fund. The Fund shall see to it that all its shares are
registered and authorized for issuance in accordance with applicable federal law
and, if and to the extent deemed available by the Fund, in accordance with
applicable state laws prior to their sale. The Fund shall bear the expenses for
the cost of registration and qualification of the Fund's shares.
3.2(c) Expenses Borne by AGSI.
Fund Prospectuses
With respect to prospective Participants, AGSI shall pay one half of the
cost of setting in type, printing and distributing Fund Prospectuses made
available by the Company as sales literature to such prospective Participants.
With respect to prospective Participants, in the event the Company elects to
prepare a Combined Prospectus, AGSI shall pay one half of the cost of printing
and distributing the Combined Prospectus made available by the Company to its
prospective Participants as sales literature. In such event, AGSI shall bear
the cost of typesetting to provide the Fund Prospectus to the Company in the
format in which the Fund is accustomed to formatting
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prospectuses. Notwithstanding the foregoing, in no event shall AGSI pay for any
such costs that exceed by more than five (5) percent what AGSI would have paid
to print such documents.
Fund SAIs, Fund Reports and Proxy Material.
With respect to prospective Participants, AGSI shall pay one half of the
cost of setting in type and printing Fund SAIs, Fund Reports and Fund proxy
material made available by the Company to its prospective Participants as sales
literature. In the event the Company elects to prepare a Combined SAI or
Combined Reports, AGSI shall pay one half of the cost of printing the Combined
SAI or Combined Reports, respectively, made available by the Company to its
prospective Participants as sales literature. In such event, AGSI shall bear
the cost of typesetting to provide the Fund SAI and Fund Reports to the Company
in the format in which the Fund is accustomed to formatting statements of
additional information and annual and semi-annual reports. Notwithstanding the
foregoing, in no event shall AGSI pay for any such costs that exceed by more
than five (5) percent what AGSI would have paid to print such documents. AGSI
shall pay one half the cost of distributing Fund SAIs, Combined SAIs, Fund
Reports, Combined Reports, and Fund proxy material to such prospective
Participants as sales literature.
3.2(d) If the Company chooses to receive camera-ready film or computer
diskettes in lieu of receiving printed copies of the Fund Prospectus, Fund SAI
or Fund Reports, the Fund or its designee will be responsible for providing the
Fund Prospectus, Fund SAI or Fund Reports in the format in which it is
accustomed to formatting such documents, and, notwithstanding anything in
Sections 3.2(b) or 3.2(c), the Company shall bear the expense of adjusting or
changing the format to conform with any of its prospectuses or reports.
3.3. The Fund SAI shall be obtainable from the Fund, the Company or such
other person as the Fund may designate.
3.4. If and to the extent required by law the Company shall distribute all
proxy material furnished by the Fund to Participants to whom voting privileges
are required to be extended and shall:
(i) solicit voting instructions from Participants;
(ii) vote the Fund shares in accordance with instructions received
from Participants; and
(iii) vote Fund shares for which no instructions have been received in
the same proportion as Fund shares of such Portfolio for which
instructions have been received,
so long as and to the extent that the SEC continues to interpret the 1940 Act to
require pass-through voting privileges for variable contract owners. The
Company reserves the right to vote Fund shares held in any segregated asset
account in its own right, to the extent permitted by law. The Fund and the
Company shall follow the procedures, and shall have the corresponding
responsibilities, for the
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handling of proxy and voting instruction solicitations, as set forth in Schedule
C attached hereto and incorporated herein by reference. Participating Insurance
Companies shall be responsible for ensuring that each of their separate accounts
participating in the Fund calculates voting privileges in a manner consistent
with the standards set forth on Schedule C, which standards will also be
provided to the other Participating Insurance Companies.
3.5. The Fund will comply with all provisions of the 1940 Act requiring
voting by shareholders, and in particular the Fund will either provide for
annual meetings (except insofar as the Securities and Exchange Commission may
interpret Section 16 not to require such meetings) or comply with Section 16(c)
of the 1940 Act (although the Fund is not one of the trusts described in Section
16(c) of that Act) as well as with Sections 16(a) and, if and when applicable,
16(b). Further, the Fund will act in accordance with the Securities and
Exchange Commission's interpretation of the requirements of Section 16(a) with
respect to periodic elections of Trustees and with whatever rules the Commission
may promulgate with respect thereto.
ARTICLE IV. SALES MATERIAL AND INFORMATION
4.1. The Company shall furnish, or shall cause to be furnished, to the
Fund or its designee, each piece of sales literature or other promotional
material prepared by the Company, AGSI or any person contracting with the
Company or AGSI in which the Fund or the Adviser is named, at least ten Business
Days prior to its use. No such material shall be used if the Fund, the Adviser,
or their designee reasonably objects to such use within ten Business Days after
receipt of such material.
4.2. Neither the Company, AGSI nor any person contracting with the Company
or AGSI shall give any information or make any representations or statements on
behalf of the Fund or concerning the Fund in connection with the sale of the
Contracts other than the information or representations contained in the
registration statement or the Fund Prospectus, as such registration statement or
Fund Prospectus may be amended or supplemented from time to time, or in reports
or proxy statements for the Fund, or in sales literature or other promotional
material approved by the Fund or its designee, except with the permission of the
Fund.
4.3. The Fund or its designee shall furnish, or shall cause to be
furnished, to the Company or its designee, each piece of sales literature or
other promotional material prepared by the Fund in which the Company or its
Account(s) are named at least ten Business Days prior to its use. No such
material shall be used if the Company or its designee reasonably objects to such
use within ten Business Days after receipt of such material.
4.4. Neither the Fund nor the Adviser shall give any information or make
any representations on behalf of the Company or concerning the Company, each
Account, or the Contracts, other than the information or representations
contained in a registration statement or prospectus for the Contracts, as such
registration statement and prospectus may be amended or supplemented from time
to time, or in published reports or solicitations for voting instructions for
each Account which are in the public domain or approved by the Company for
distribution to Participants, or in sales literature or other promotional
material approved by the Company or its designee, except with the permission of
the Company.
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4.5. The Fund will provide to the Company at least one complete copy of
all registration statements, prospectuses, statements of additional information,
reports, proxy statements, sales literature and other promotional materials,
applications for exemptions, requests for no-action letters, and all amendments
to any of the above, that relate to the Fund or its shares, contemporaneously
with the filing of such document with the SEC or other regulatory authorities.
4.6. The Company will provide to the Fund at least one complete copy of
all registration statements, prospectuses, statements of additional information,
reports, solicitations for voting instructions, sales literature and other
promotional materials, applications for exemptions, requests for no action
letters, and all amendments to any of the above, that relate to the investment
in an Account or Contract contemporaneously with the filing of such document
with the SEC or other regulatory authorities.
4.7. For purposes of this Article IV, the phrase "sales literature or
other promotional material" includes, but is not limited to, any of the
following: advertisements (such as material published, or designed for use in, a
newspaper, magazine, or other periodical, radio, television, telephone or tape
recording, videotape display, signs or billboards, motion pictures, or other
public media), sales literature (i.e., any written communication distributed or
made generally available to customers or the public, including brochures,
circulars, research reports, market letters, form letters, seminar texts,
reprints or excerpts of any other advertisement, sales literature, or published
article), educational or training materials or other communications distributed
or made generally available to some or all agents or employees, and registration
statements, prospectuses, statements of additional information, shareholder
reports, and proxy materials.
ARTICLE V. [RESERVED]
ARTICLE VI. DIVERSIFICATION
6.1. The Adviser represents, as to the Portfolios for which it acts as
investment adviser, that it will use its best efforts at all times to comply
with Section 817(h) of the Code and Treasury Regulation 1.817-5, relating to the
diversification requirements for variable annuity, endowment, or life insurance
contracts and any amendments or other modifications to such Section or
Regulations. In the event a Portfolio ceases to so qualify, the Adviser will
take all reasonable steps (a) to notify the Company of such breach and (b) to
adequately diversify the Portfolio so as to achieve compliance within the grace
period afforded by Regulation 817-5.
ARTICLE VII. POTENTIAL CONFLICTS
7.1. The Board will monitor the Fund for the existence of any material
irreconcilable conflict between the interests of the contract owners of all
separate accounts investing in the Fund. An irreconcilable material conflict
may arise for a variety of reasons, including: (a) an action by any state
insurance regulatory authority; (b) a change in applicable federal or state
insurance, tax, or
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securities laws or regulations, or a public ruling, private letter ruling, no-
action or interpretative letter, or any similar action by insurance, tax, or
securities regulatory authorities; (c) an administrative or judicial decision in
any relevant proceeding; (d) the manner in which the investments of any
Portfolio are being managed; (e) a difference in voting instructions given by
variable annuity contract owners and variable life insurance contract owners; or
(f) a decision by a Participating Insurance Company to disregard the voting
instructions of Contract owners. The Board shall promptly inform the Company if
it determines that an irreconcilable material conflict exists and the
implications thereof.
7.2. The Company will report any potential or existing material
irreconcilable conflicts of which it is aware to the Board. The Company will
assist the Board in carrying out its responsibilities under the Shared Funding
Exemptive Order, by providing the Board with all information reasonably
necessary for the Board to consider any issues raised. This includes, but is
not limited to, an obligation by the Company to inform the Board whenever
contract owner voting instructions are disregarded.
7.3. If it is determined by a majority of the Board, or a majority of its
disinterested Trustees, that a material irreconcilable conflict exists, the
Company and other Participating Insurance Companies shall, at their expense and
to the extent reasonably practicable (as determined by a majority of the
disinterested Trustees), take whatever steps are necessary to remedy or
eliminate the irreconcilable material conflict, up to and including: (1)
withdrawing the assets allocable to some or all of the Separate Accounts from
the Fund or any Portfolio and reinvesting such assets in a different investment
medium, including (but not limited to) another Portfolio of the Fund, or
submitting the question whether such segregation should be implemented to a vote
of all affected Contract owners and, as appropriate, segregating the assets of
any appropriate group (i.e., annuity contract owners, life insurance policy
owners, or variable Contract owners of one or more Participating Insurance
Companies) that votes in favor of such segregation, or offering to the affected
Contract owners the option of making such a change; and (2) establishing a new
registered management investment company or managed separate account. No charge
or penalty will be imposed as a result of such withdrawal. The Company agrees
that it bears the responsibility to take remedial action in the event of a Board
determination of an irreconcilable material conflict and the cost of such
remedial action, and these responsibilities will be carried out with a view only
to the interests of Contract owners.
7.4. If a material irreconcilable conflict arises because of a decision by
the Company to disregard contract owner voting instructions and that decision
represents a minority position or would preclude a majority vote, the Company
may be required, at the Fund's election, to withdraw the affected Account's
investment in the Fund and terminate this Agreement with respect to such Account
(at the Company's expense); provided, however that such withdrawal and
termination shall be limited to the extent required by the foregoing material
irreconcilable conflict as determined by a majority of the disinterested members
of the Board. No charge or penalty will be imposed as a result of such
withdrawal. The Company agrees that it bears the responsibility to take
remedial action in the event of a Board determination of an irreconcilable
material conflict and the cost of such remedial action, and these
responsibilities will be carried out with a view only to the interests
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of Contract owners.
7.5. For purposes of Sections 7.3 and 7.4 of this Agreement, a majority of
the disinterested members of the Board shall determine whether any proposed
action adequately remedies any irreconcilable material conflict, but in no event
will the Fund be required to establish a new funding medium for the Contracts.
The Company shall not be required by Section 7.3 or 7.4 to establish a new
funding medium for the Contracts if an offer to do so has been declined by vote
of a majority of Contract owners materially adversely affected by the
irreconcilable material conflict.
7.6. If and to the extent that Rule 6e-2 and Rule 6e-3(T) are amended, or
Rule 6e-3 is adopted, to provide exemptive relief from any provision of the 1940
Act or the rules promulgated thereunder with respect to mixed or shared funding
(as defined in the Shared Funding Exemptive Order) on terms and conditions
materially different from those contained in the Shared Funding Exemptive Order,
then the Fund and/or the Participating Insurance Companies, as appropriate,
shall take such steps as may be necessary to comply with Rules 6e-2 and 6e-3(T),
as amended, and Rule 6e-3, as adopted, to the extent such rules are applicable.
7.7 The Company and the Adviser shall at least annually submit to the
Board of the Fund such reports, materials or data as the Board may reasonably
request so that the Board may fully carry out the obligations imposed upon them
by the provisions hereof, and said reports, materials and data shall be
submitted more frequently if deemed appropriate by the Board. All reports
received by the Board of potential or existing conflicts, and all Board action
with regard to determining the existence of a conflict, notifying Participating
Insurance Companies of a conflict, and determining whether any proposed action
adequately remedies a conflict, shall be properly recorded in the minutes of the
Board or other appropriate records, and such minutes or other records shall be
made available to the SEC upon request.
ARTICLE VIII. INDEMNIFICATION
8.1. Indemnification By The Company and AGSI
8.1(a) The Company and AGSI agree to indemnify and hold harmless the Fund
and each member of the Board and officers, and the Adviser and each director and
officer of the Adviser, and each person, if any, who controls the Fund or the
Adviser within the meaning of Section 15 of the 1933 Act (collectively, the
"Indemnified Parties" and individually, "Indemnified Party," for purposes of
this Section 8.1) against any and all losses, claims, damages, liabilities
(including amounts paid in settlement with the written consent of the Company or
AGSI) or litigation (including legal and other expenses), to which the
Indemnified Parties may become subject under any statute or regulation, at
common law or otherwise, insofar as such losses, claims, damages, liabilities or
expenses (or actions in respect thereof) or settlements are related to the sale
or acquisition of the Fund's shares or the Contracts and:
(i) arise out of or are based upon any untrue statements or alleged untrue
statements of any material fact contained in the registration statement or
prospectus for the Contracts or contained in the Contracts or sales
literature for the Contracts (or any amendment or
15
<PAGE>
supplement to any of the foregoing), or arise out of or are based upon the
omission or the alleged omission to state therein a material fact required
to be stated therein or necessary to make the statements therein not
misleading, provided that this agreement to indemnify shall not apply as to
any Indemnified Party if such statement or omission or such alleged
statement or omission was made in reliance upon and in conformity with
information furnished to the Company by or on behalf of the Fund for use in
the registration statement or prospectus for the Contracts or in the
Contracts or sales literature (or any amendment or supplement) or otherwise
for use in connection with the sale of the Contracts or Fund shares; or
(ii) arise out of or as a result of statements or representations (other
than statements or representations contained in the registration statement,
prospectus or sales literature of the Fund not supplied by the Company or
AGSI, or persons under its control and other than statements or
representations authorized by the Fund or the Adviser) or unlawful conduct
of the Company or AGSI or persons under its control, with respect to the
sale or distribution of the Contracts or Fund shares; or
(iii) arise out of or as a result of any untrue statement or alleged
untrue statement of a material fact contained in a registration statement,
prospectus, or sales literature of the Fund or any amendment thereof or
supplement thereto or the omission or alleged omission to state therein a
material fact required to be stated therein or necessary to make the
statements therein not misleading if such a statement or omission was made
in reliance upon and in conformity with information furnished to the Fund
by or on behalf of the Company or AGSI;
(iv) arise as a result of any failure by the Company or AGSI to provide
the services and furnish the materials under the terms of this Agreement;
or
(v) arise out of or result from any material breach of any representation
and/or warranty made by the Company or AGSI in this Agreement or arise out
of or result from any other material breach of this Agreement by the
Company or AGSI, as limited by and in accordance with the provisions of
Sections 8.1(b) and 8.1(c) hereof.
8.1(b). Neither the Company nor AGSI shall be liable under this
indemnification provision with respect to any losses, claims, damages,
liabilities or litigation incurred or assessed against an Indemnified Party as
such may arise from such Indemnified Party's willful misfeasance, bad faith, or
gross negligence in the performance of such Indemnified Party's duties or by
reason of such Indemnified Party's reckless disregard of obligations or duties
under this Agreement.
8.1(c). Neither the Company nor AGSI shall be liable under this
indemnification provision with respect to any claim made against an Indemnified
Party unless such Indemnified Party shall have notified the Company or AGSI in
writing within a reasonable time after the summons or other first legal process
giving information of the nature of the claim shall have been served upon such
Indemnified Party (or after such Indemnified Party shall have received notice of
such service on any designated agent), but failure to notify the Company or AGSI
of any such claim shall not relieve the Company or AGSI from any liability which
it may have to the Indemnified Party against whom such action is brought
otherwise than on account of this indemnification provision. In case any such
16
<PAGE>
action is brought against any or all of the Indemnified Parties, the Company or
AGSI shall be entitled to participate, at its own expense, in the defense of
such action. The Company or AGSI also shall be entitled to assume the defense
thereof, with counsel satisfactory to the party named in the action. After
notice from the Company or AGSI to such Party of the Company's or AGSI's
election to assume the defense thereof, the Indemnified Party shall bear the
fees and expenses of any additional counsel retained by it, and the Company and
AGSI shall not be liable to such Party under this Agreement for any legal or
other expenses subsequently incurred by such Party independently in connection
with the defense thereof other than reasonable costs of investigation.
8.1(d). The Indemnified Parties will promptly notify the Company or AGSI
of the commencement of any litigation or proceedings against them in connection
with the issuance or sale of the Fund shares or the Contracts or the operation
of the Fund.
8.2. Indemnification by the Adviser
8.2(a). The Adviser agrees, with respect to each Portfolio that it manages,
to indemnify and hold harmless the Company and each of its Trustees and officers
and each person, if any, who controls the Company within the meaning of Section
15 of the 1933 Act (collectively, the "Indemnified Parties" and individually,
"Indemnified Party," for purposes of this Section 8.2) against any and all
losses, claims, damages, liabilities (including amounts paid in settlement with
the written consent of the Adviser) or litigation (including legal and other
expenses) to which the Indemnified Parties may become subject under any statute,
at common law or otherwise, insofar as such losses, claims, damages, liabilities
or expenses (or actions in respect thereof) or settlements, result from the
gross negligence, bad faith, willful misconduct of the Adviser or any director,
officer, employee or agent thereof, are related to the operation of the Adviser
or the Fund and:
(i) arise out of or are based upon any untrue statement or alleged untrue
statement of any material fact contained in the registration statement or
prospectus or sales literature of the Fund (or any amendment or supplement
to any of the foregoing), or arise out of or are based upon the omission or
the alleged omission to state therein a material fact required to be stated
therein or necessary to make the statements therein not misleading,
provided that this agreement to indemnify shall not apply as to any
Indemnified Party if such statement or omission or such alleged statement
or omission was made in reliance upon and in conformity with information
furnished to the Adviser or the Fund or the Underwriter by or on behalf of
the Company for use in the registration statement or prospectus for the
Fund or in sales literature (or any amendment or supplement) or otherwise
for use in connection with the sale of the Contracts or Portfolio shares;
or
(ii) arise out of or as a result of statements or representations (other
than statements or representations contained in the registration statement,
prospectus or sales literature for the Contracts not supplied by the
Adviser or persons under its control and other than statements or
representations authorized by the Company) or unlawful conduct of the
Adviser or persons under its control, with respect to the sale or
distribution of the Contracts or Portfolio shares; or
17
<PAGE>
(iii) arise out of or as a result of any untrue statement or alleged
untrue statement of a material fact contained in a registration statement,
prospectus, or sales literature covering the Contracts, or any amendment
thereof or supplement thereto, or the omission or alleged omission to state
therein a material fact required to be stated therein or necessary to make
the statement or statements therein not misleading, if such statement or
omission was made in reliance upon information furnished to the Company by
or on behalf of the Adviser; or
(iv) arise as a result of any failure by the Adviser to provide the
services and furnish the materials under the terms of this Agreement; or
(v) arise out of or result from any material breach of any representation
and/or warranty made by the Adviser in this Agreement or arise out of or
result from any other material breach of this Agreement by the Fund or the
Adviser; including without limitation any failure by the Fund or the
Adviser to comply with the conditions of Article VI hereof.
8.2(b). The Adviser shall not be liable under this indemnification
provision with respect to any losses, claims, damages, liabilities or litigation
incurred or assessed against an Indemnified Party as may arise from such
Indemnified Party's willful misfeasance, bad faith, or gross negligence in the
performance of such Indemnified Party's duties or by reason of such Indemnified
Party's reckless disregard of obligations and duties under this Agreement.
8.2(c). The Adviser shall not be liable under this indemnification
provision with respect to any claim made against an Indemnified Party unless
such Indemnified Party shall have notified the Adviser in writing within a
reasonable time after the summons or other first legal process giving
information of the nature of the claim shall have been served upon such
Indemnified Party (or after such Indemnified Party shall have received notice of
such service on any designated agent), but failure to notify the Adviser of any
such claim shall not relieve the Adviser from any liability which it may have to
the Indemnified Party against whom such action is brought otherwise than on
account of this indemnification provision. In case any such action is brought
against any or all of the Indemnified Parties, the Adviser will be entitled to
participate, at its own expense, in the defense thereof. The Adviser also shall
be entitled to assume the defense thereof, with counsel satisfactory to the
party named in the action. After notice from the Adviser to such Party of the
Adviser's election to assume the defense thereof, the Indemnified Party shall
bear the fees and expenses of any additional counsel retained by it, and the
Adviser will not be liable to such Party under this Agreement for any legal or
other expenses subsequently incurred by such Party independently in connection
with the defense thereof other than reasonable costs of investigation.
8.2(d). The Company and AGSI agree promptly to notify the Adviser of the
commencement of any litigation or proceedings against it or any of its officers,
trustees or directors in connection with this Agreement, the issuance or sale of
the Contracts with respect to the operation of each Account, or the sale or
acquisition of shares of the Fund.
ARTICLE IX. APPLICABLE LAW
9.1. This Agreement shall be construed and the provisions hereof
interpreted under and in
18
<PAGE>
accordance with the laws of the State of Connecticut.
9.2. This Agreement shall be subject to the provisions of the 1933, 1934
and 1940 Acts, and the rules and regulations and rulings thereunder, including
such exemptions from those statutes, rules and regulations as the SEC may grant
(including, but not limited to, the Shared Funding Exemptive Order) and the
terms hereof shall be interpreted and construed in accordance therewith.
ARTICLE X. TERMINATION
10.1. This Agreement shall continue in full force and effect until the
first to occur of:
(a) termination by any party for any reason upon six-months advance
written notice delivered to the other parties; or
(b) termination by the Company or AGSI by written notice to the Fund
and the Adviser with respect to any Portfolio based upon the Company's
determination that shares of such Portfolio are not reasonably available
to meet the requirements of the Contracts. Reasonable advance notice of
election to terminate shall be furnished by the Company, said termination
to be effective ten (10) days after receipt of notice unless the Fund makes
available a sufficient number of shares to reasonably meet the requirements
of the Account within said ten (10) day period; or
(c) termination by the Company or AGSI by written notice to the Fund
and the Adviser with respect to any Portfolio in the event any of the
Portfolio's shares are not registered, issued or sold in accordance with
applicable state and/or federal law or such law precludes the use of such
shares as the underlying investment medium of the Contracts issued or to be
issued by the Company. The terminating party shall give prompt notice to
the other parties of its decision to terminate; or
(d) termination by the Company or AGSI by written notice to the Fund
and the Adviser with respect to any Portfolio in the event that such
Portfolio ceases to qualify as a Regulated Investment Company under
Subchapter M of the Code or under any successor or similar provision, or if
the Company or AGSI reasonably believes that the Fund may fail to so
qualify; or
(e) termination by the Company or AGSI by written notice to the Fund
and the Adviser with respect to any Portfolio in the event that such
Portfolio fails to meet the diversification requirements specified in
Article VI hereof; or
(f) termination by either the Fund or the Adviser by written notice to
the Company if the Adviser or the Fund shall determine, in its sole
judgment exercised in good faith, that the Company, AGSI and/or their
affiliated
19
<PAGE>
companies has suffered a material adverse change in its business,
operations, financial condition or prospects since the date of this
Agreement or is the subject of material adverse publicity, provided that
the Fund or the Adviser will give the Company sixty (60) days' advance
written notice of such determination of its intent to terminate this
Agreement, and provided further that after consideration of the actions
taken by the Company or AGSI and any other changes in circumstances since
the giving of such notice, the determination of the Fund or the Adviser
shall continue to apply on the 60th day since giving of such notice, then
such 60th day shall be the effective date of termination; or
(g) termination by the Company or AGSI by written notice to the Fund
and the Adviser, if the Company or AGSI shall determine, in its sole
judgment exercised in good faith, that either the Fund or the Adviser (with
respect to the appropriate Portfolio) has suffered a material adverse
change in its business, operations, financial condition or prospects since
the date of this Agreement or is the subject of material adverse publicity;
provided that the Company will give the Fund or the Adviser sixty (60)
days' advance written notice of such determination of its intent to
terminate this Agreement, and provided further that after consideration of
the actions taken by the Company and any other changes in circumstances
since the giving of such notice, the determination of the Company or AGSI
shall continue to apply on the 60th day since giving of such notice, then
such 60th day shall be the effective date of termination; or
(h) termination by the Fund or the Adviser by written notice to the
Company, if the Company gives the Fund and the Adviser the written notice
specified in Section 2.4 hereof and at the time such notice was given there
was no notice of termination outstanding under any other provision of this
Agreement; provided, however any termination under this Section 10.1(h)
shall be effective sixty (60) days after the notice specified in Section
2.4 was given; or
(i) termination by any party upon the other party's breach of any
representation in Section 2 or any material provision of this Agreement,
which breach has not been cured to the satisfaction of the terminating
party within ten (10) days after written notice of such breach is delivered
to the Fund or the Company, as the case may be; or
(j) termination by the Fund or the Adviser by written notice to the
Company in the event an Account or Contract is not registered or sold in
accordance with applicable federal or state law or regulation, or the
Company fails to provide pass-through voting privileges as specified in
Section 3.4.
10.2. EFFECT OF TERMINATION. Notwithstanding any termination of this
Agreement, the Fund
20
<PAGE>
shall at the option of the Company, continue to make available additional shares
of the Fund pursuant to the terms and conditions of this Agreement, for all
Contracts in effect on the effective date of termination of this Agreement
(hereinafter referred to as "Existing Contracts") unless such further sale of
Fund shares is proscribed by law, regulation or applicable regulatory body, or
unless the Fund determines that liquidation of the Fund following termination of
this Agreement is in the best interests of the Fund and its shareholders.
Specifically, without limitation, the owners of the Existing Contracts shall be
permitted to direct reallocation of investments in the Fund, redemption of
investments in the Fund and/or investment in the Fund upon the making of
additional purchase payments under the Existing Contracts. The parties agree
that this Section 10.2 shall not apply to any terminations under Article VII and
the effect of such Article VII terminations shall be governed by Article VII of
this Agreement.
10.3. The Company shall not redeem Fund shares attributable to the
Contracts (as distinct from Fund shares attributable to the Company's assets
held in the Account) except (i) as necessary to implement Contract Owner
initiated or approved transactions, or (ii) as required by state and/or federal
laws or regulations or judicial or other legal precedent of general application
(hereinafter referred to as a "Legally Required Redemption") or (iii) as
permitted by an order of the SEC pursuant to Section 26(b) of the 1940 Act.
Upon request, the Company will promptly furnish to the Fund the opinion of
counsel for the Company (which counsel shall be reasonably satisfactory to the
Fund and the Adviser) to the effect that any redemption pursuant to clause (ii)
above is a Legally Required Redemption. Furthermore, except in cases where
permitted under the terms of the Contracts, the Company shall not prevent
Contract Owners from allocating payments to a Portfolio that was otherwise
available under the Contracts without first giving the Fund or the appropriate
Adviser 90 days prior written notice of its intention to do so.
ARTICLE XI. NOTICES
Any notice shall be sufficiently given when sent by registered or certified
mail to the other party at the address of such party set forth below or at such
other address as such party may from time to time specify in writing to the
other party.
If to the Fund:
Wright Managed Blue Chip Series Trust
24 Federal Street
Boston, MA 02110
Attention: Peter M. Donovan
If to Adviser:
Wright Investors Service, Inc.
1000 Lafayette Blvd.
Bridgeport, CT 06604
Attention: Peter M. Donovan
21
<PAGE>
If to the Company:
American General Life Insurance Company
2727-A Allen Parkway
Houston, Texas 77019
Attention: Steven A. Glover
If to AGSI:
American General Securities Incorporated
2727 Allen Parkway
Houston, Texas 77019
Attention: F. Paul Kovach, Jr.
ARTICLE XII. FOREIGN TAX CREDITS
The Fund and the Adviser agree to consult with the Company concerning
whether any Portfolio of the Fund qualifies to provide a foreign tax credit
pursuant to Section 853 of the Code.
ARTICLE XIII. MISCELLANEOUS
13.1. All persons dealing with the Fund must look solely to the property
of the Fund for the enforcement of any claims against the Fund as neither the
Board, nor its officers, agents or shareholders assume any personal liability
for obligations entered into on behalf of the Fund.
13.2. Subject to the requirements of legal process and regulatory
authority, each party hereto shall treat as confidential the names and addresses
of the owners of the Contracts and all information reasonably identified as
confidential in writing by any other party hereto and, except as permitted by
this Agreement, shall not disclose, disseminate or utilize such names and
addresses and other confidential information until such time as it may come into
the public domain without the express written consent of the affected party.
13.3. The captions in this Agreement are included for convenience of
reference only and in no way define or delineate any of the provisions hereof or
otherwise affect their construction or effect.
13.4. This Agreement may be executed simultaneously in two or more
counterparts, each
22
<PAGE>
of which taken together shall constitute one and the same instrument.
13.5. If any provision of this Agreement shall be held or made invalid by
a court decision, statute, rule or otherwise, the remainder of this Agreement
shall not be affected thereby.
13.6. Each party hereto shall cooperate with each other party and all
appropriate governmental authorities (including without limitation the SEC, the
NASD and state insurance regulators) and shall permit such authorities
reasonable access to its books and records in connection with any investigation
or inquiry relating to this Agreement or the transactions contemplated hereby.
13.7. The rights, remedies and obligations contained in this Agreement are
cumulative and are in addition to any and all rights, remedies and obligations
at law or in equity, which the parties hereto are entitled to under state and
federal laws.
13.8. This Agreement or any of the rights and obligations hereunder may
not be assigned by any party without the prior written consent of all parties
hereto; provided, however, that the Adviser may assign this Agreement or any
rights or obligations hereunder to any affiliate of or company under common
control with the Adviser, if such assignee is duly licensed and registered to
perform the obligations of the Adviser under this Agreement.
13.9 The Company shall furnish, or shall cause to be furnished, to the
Fund or its designee copies of the following reports:
(a) the Company's annual statement (prepared under statutory
accounting principles) and annual report (prepared under
generally accepted accounting principles ("GAAP"), if any), as
soon as practical and in any event within 90 days after the end
of each fiscal year;
(b) the Company's June 30th quarterly statements (statutory) (and
GAAP, if any), as soon as practical and in any event within 60
days after the end of each semi-annual period:
(c) any financial statement, proxy statement, notice or report of the
Company sent to stockholders and/or policyholders, as soon as
practical after the delivery thereof to stockholders;
(d) any registration statement (without exhibits) and financial
reports of the Company filed with the SEC or any state insurance
regulator, as soon as practical after the filing thereof; and
(e) any other public report submitted to the Company by independent
accountants in connection with any annual, interim or special
audit made by them of the books of the Company, as soon as
practical after the receipt thereof.
13.10 It is agreed by the Parties hereto that Article VIII and Sections
13.1 and 13.2 shall
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<PAGE>
survive any termination of this Agreement.
24
<PAGE>
IN WITNESS WHEREOF, each of the parties hereto has caused this Agreement to
be executed in its name and on its behalf by its duly authorized representative
hereto as of the date specified above.
AMERICAN GENERAL LIFE INSURANCE COMPANY on behalf of itself and each
of its Accounts named in Schedule B hereto, as amended from time to
time.
By: /S/ RODNEY O. MARTIN
---------------------------------------------
Name: Rodney O. Martin, Jr.
Title: President and Chief Executive Officer
AMERICAN GENERAL SECURITIES INCORPORATED
By: /S/ F. PAUL KOVACH
---------------------------------------------
Name: F. Paul Kovach, Jr.
Title: President
THE WINTRHOP CORPORATION
By: /S/ PETER M. DONOVAN
---------------------------------------------
Name:
Title:
WRIGHT MANAGED BLUE CHIP SERIES TRUST
By: /S/ PETER M. DONOVAN
---------------------------------------------
Name:
Title:
WRIGHT INVESTORS SERVICE, INC.
By /S/ PETER M. DONOVAN
---------------------------------------------
Name:
Title:
25
<PAGE>
SCHEDULE A
PORTFOLIOS OF
WRIGHT MANAGED BLUE CHIP SERIES TRUST
AVAILABLE FOR PURCHASE BY
AMERICAN GENERAL LIFE INSURANCE COMPANY
UNDER THIS AGREEMENT
Wright International Blue Chip Portfolio
Wright Selected Blue Chip Portfolio
26
<PAGE>
SCHEDULE B
SEPARATE ACCOUNTS AND CONTRACTS
<TABLE>
<S> <C>
NAME OF SEPARATE ACCOUNT AND FORM NUMBERS AND NAMES OF CONTRACT FUNDED BY
DATE ESTABLISHED BY BOARD OF DIRECTORS SEPARATE
American General Life Insurance Company ACCOUNT
Separate Account D Form No:
Established: November 19, 1973 97505
Name of Contract:
Flexible Payment Variable and Fixed
Individual Deferred Annuity
</TABLE>
27
<PAGE>
SCHEDULE C
PROXY VOTING PROCEDURES
The following is a list of procedures and corresponding responsibilities for the
handling of proxies and voting instructions relating to the Fund. The defined
terms herein shall have the meanings assigned in the Participation Agreement
except that the term "Company" shall also include the department or third party
assigned by the Company to perform the steps delineated below.
1. The proxy proposals are given to the Company by the Fund as early as
possible before the date set by the Fund for the shareholder meeting to
enable the Company to consider and prepare for the solicitation of voting
instructions from owners of the Contracts and to facilitate the
establishment of tabulation procedures. At this time the Fund will inform
the Company of the Record, Mailing and Meeting dates. This will be done
verbally approximately two months before meeting.
2. Promptly after the Record Date, the Company will perform a "tape run", or
other activity, which will generate the names, addresses and number of
units which are attributed to each contract owner/policyholder (the
"Customer") as of the Record Date. Allowance should be made for account
adjustments made after this date that could affect the status of the
Customers' accounts as of the Record Date.
Note: The number of proxy statements is determined by the activities
described in this Step #2. The Company will use its best efforts to call
in the number of Customers to the Fund, as soon as possible, but no later
than two weeks after the Record Date.
3. The Fund's Annual Report must be sent to each Customer by the Company
either before or together with the Customers' receipt of a proxy statement
or other voting instructions and solicitation material. The Fund will
provide at least one copy of the last Annual Report to the Company pursuant
to the terms of Section 3.3 of the Agreement to which this Schedule
relates.
4. The text and format for the Voting Instruction Cards ("Cards" or "Card") is
provided to the Company by the Fund. The Company, at its expense, shall
produce and personalize the Voting Instruction Cards. The Fund or its
affiliate must approve the Card before it is printed. Allow approximately
2-4 business days for printing information on the Cards. Information
commonly found on the Cards includes:
a. name (legal name as found on account registration)
b. address
c. fund or account number
d. coding to state number of units
e. individual Card number for use in tracking and verification of votes
(already on Cards as printed by the Fund).
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<PAGE>
(This and related steps may occur later in the chronological process due to
possible uncertainties relating to the proposals.)
5. During this time, the Fund will develop, produce and pay for the Notice of
Proxy and the Proxy Statement (one document). Printed and folded notices
and statements will be sent to Company for insertion into envelopes
(envelopes and return envelopes are provided and paid for by the Company).
Contents of envelope sent to Customers by the Company will include:
a. Voting Instruction Card(s)
b. One proxy notice and statement (one document)
c. return envelope (postage pre-paid by Company) addressed to the Company
or its tabulation agent
d. "urge buckslip" - optional, but recommended. (This is a small, single
sheet of paper that requests Customers to vote as quickly as possible
and that their vote is important. One copy will be supplied by the
Fund.)
e. cover letter - optional, supplied by Company and reviewed and approved
in advance by the Fund.
6. The above contents should be received by the Company approximately 3-5
business days before mail date. Individual in charge at Company reviews and
approves the contents of the mailing package to ensure correctness and
completeness. Copy of this approval sent to the Fund.
7. Package mailed by the Company.
* The Fund must allow at least a 15-day solicitation time to the Company
as the shareowner. (A 5-week period is recommended.) Solicitation
time is calculated as calendar days from (but not including,) the
meeting, counting backwards.
8. Collection and tabulation of Cards begins. Tabulation usually takes place
in another department or another vendor depending on process used. An
often used procedure is to sort Cards on arrival by proposal into vote
categories of all yes, no, or mixed replies, and to begin data entry.
Note: Postmarks are not generally needed. A need for postmark information
would be due to an insurance company's internal procedure and has not been
required by the Fund in the past.
9. Signatures on Card checked against legal name on account registration which
was printed on the Card.
Note: For example, if the account registration is under "John A. Smith,
Trustee," then that is the exact legal name to be printed on the Card and
is the signature needed on the Card.
10. If Cards are mutilated, or for any reason are illegible or are not signed
properly, they are sent
29
<PAGE>
back to Customer with an explanatory letter and a new Card and return
envelope. The mutilated or illegible Card is disregarded and considered to
be not received for purposes of vote tabulation. Any Cards that have been
"kicked out" (e.g. mutilated, illegible) of the procedure are "hand
verified," i.e., examined as to why they did not complete the system. Any
questions on those Cards are usually remedied individually.
11. There are various control procedures used to ensure proper tabulation of
votes and accuracy of that tabulation. The most prevalent is to sort the
Cards as they first arrive into categories depending upon their vote; an
estimate of how the vote is progressing may then be calculated. If the
initial estimates and the actual vote do not coincide, then an internal
audit of that vote should occur. This may entail a recount.
12. The actual tabulation of votes is done in units which is then converted to
shares. (It is very important that the Fund receives the tabulations stated
in terms of a percentage and the number of shares.) The Fund must review
and approve tabulation format.
13. Final tabulation in shares is verbally given by the Company to the Fund on
the morning of the meeting not later than 10:00 a.m. Eastern time. The
Fund may request an earlier deadline if reasonable and if required to
calculate the vote in time for the meeting.
14. A Certification of Mailing and Authorization to Vote Shares will be
required from the Company as well as an original copy of the final vote.
The Fund will provide a standard form for each Certification.
15. The Company will be required to box and archive the Cards received from the
Customers. In the event that any vote is challenged or if otherwise
necessary for legal, regulatory, or accounting purposes, the Fund will be
permitted reasonable access to such Cards.
16. All approvals and "signing-off' may be done orally, but must always be
followed up in writing.
30
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EXHIBIT 10
<PAGE>
CONSENT OF INDEPENDENT AUDITORS
We consent to the reference made to our firm under the caption "Independent
Auditors" and to the use of our report dated February 10, 1999, as to the Select
Reserve Divisions of American General Life Insurance Company Separate Account D,
and February 16, 1999, as to American General Life Insurance Company, in Post-
Effective Amendment No. 3 to the Registration Statement (Form N-4 No. 333-40637
and 811-2441) of American General Life Insurance Company Separate Account D.
/s/ ERNST & YOUNG LLP
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ERNST & YOUNG LLP
Houston, Texas
March 26, 1999
