<PAGE>
Registration Nos. 33-57730
811-2441
As filed with the Commission on April 21, 2000
______________________________________
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. 10 [X]
----
and/or
REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY ACT OF 1940
Amendment No. 82 [X]
--
AMERICAN GENERAL LIFE INSURANCE COMPANY
SEPARATE ACCOUNT D
(Exact Name of Registrant)
AMERICAN GENERAL LIFE INSURANCE COMPANY
(Name of Depositor)
2727-A Allen Parkway
Houston, Texas 77019-2191
(Address of Depositor's Principal Executive Officers) (Zip Code)
(713) 831-3633
(Depositor's Telephone Number, including Area Code)
Pauletta P. Cohn, Esq.
Deputy General Counsel
American General Life Companies
2929 Allen Parkway, Houston, Texas 77019
(Name and Address of Agent for Service)
<PAGE>
Approximate Date of Proposed Public Offering: Continuous
It is proposed that this filing will become effective (check appropriate box)
[ ] Immediately upon filing pursuant to paragraph (b) of Rule 485
[X] On May 1, 2000 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
If appropriate, check the following:
[_] This post-effective amendment designates a new effective date for a
previously filed post-effective amendment
Title of Securities Being Registered:
Units of interest in American General Life Insurance Company Separate
Account D under variable annuity contracts.
<PAGE>
WM ADVANTAGE
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
1-800-277-0914; 1-713-831-3505; HEARING IMPAIRED: 1-888-436-5257
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 AGL's Separate Account D ("Separate Account") for a variable
investment return under the Contracts based on one or more of the following
mutual fund series of the WM Variable Trust ("Trust"):
<TABLE>
<CAPTION>
PORTFOLIOS FUNDS
- ----------- -----
<S> <C>
. Strategic Growth Portfolio . Bond & Stock Fund
. Conservative Growth Portfolio . Growth & Income Fund
. Balanced Portfolio . Growth Fund of the Northwest
. Flexible Income Portfolio . Growth Fund
. Income Portfolio . Mid Cap Stock Fund
. Small Cap Stock Fund
. International Growth Fund
. Short Term Income Fund
. U.S. Government Securities Fund
. Income Fund
. Money Market Fund
</TABLE>
You may also use AGL's guaranteed interest option. This option currently has
three Guarantee Periods, each with its own guaranteed interest rate.
Effective May 1, 2000 we have introduced a new investment option, the Mid Cap
Stock Fund. In addition, the names of the Northwest Fund, Emerging Growth Fund,
and Short Term High Quality Bond Fund, have changed to the Growth Fund of the
Northwest, Small Cap Stock Fund, and Short Term Income Fund.
We have designed this Prospectus to provide 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 May 1, 2000. 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 52 of this Prospectus. You may obtain a free copy of
the Statement if you write or call AGL's Annuity Administration Department, in
our Home Office, which is located at 2727-A Allen Parkway, Houston, Texas 77019-
2191. The telephone number is 1-800-277-0914. You may also 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 this 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 a current prospectus of the WM
Variable Trust.
This Prospectus is dated May 1, 2000.
<PAGE>
CONTENTS
<TABLE>
<S> <C>
Definitions................................................................................ 4
Fee Table.................................................................................. 7
Synopsis of Contract Provisions............................................................ 10
Minimum Investment Requirements....................................................... 11
Purchase Payment Accumulation......................................................... 11
Fixed and Variable Annuity Payments................................................... 11
Changes in Allocations Among Divisions and Guarantee Periods.......................... 12
Surrenders and Withdrawals............................................................ 12
Cancellation Right.................................................................... 12
Death Proceeds........................................................................ 13
Limitations Imposed by Retirement Plans and Employers................................. 13
Communications to Us.................................................................. 13
Financial and Performance Information................................................. 13
Other Information..................................................................... 15
Selected Accumulation Unit Data (Unaudited)............................................... 15
Financial Information...................................................................... 17
AGL........................................................................................ 18
Separate Account D......................................................................... 18
The Series................................................................................. 18
Voting Privileges..................................................................... 20
The Fixed Account.......................................................................... 21
Guarantee Periods..................................................................... 21
Crediting Interest.................................................................... 22
New Guarantee Periods................................................................. 22
Contract Issuance and Purchase Payments.................................................... 22
Minimum Requirements.................................................................. 23
Payments.............................................................................. 24
Owner Account Value........................................................................ 24
Variable Account Value................................................................ 24
Fixed Account Value................................................................... 25
Transfer, Automatic Rebalancing, Surrender and Partial Withdrawal of Owner Account Value... 25
Transfers............................................................................. 25
Automatic Rebalancing................................................................. 27
Surrenders............................................................................ 27
Partial Withdrawals................................................................... 28
Annuity Period and Annuity Payment Options................................................. 29
Annuity Commencement Date............................................................. 29
Application of Owner Account Value.................................................... 29
Fixed and Variable Annuity Payments................................................... 29
Annuity Payment Options............................................................... 30
Election of Annuity Payment Option.................................................... 30
Available Annuity Payment Options..................................................... 31
Transfers............................................................................. 33
Death Proceeds............................................................................. 33
Death Proceeds Before the Annuity Commencement Date................................... 33
Death Proceeds After the Annuity Commencement Date.................................... 35
</TABLE>
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Proof of Death......................................................... 35
Charges Under the Contracts................................................. 36
Premium Taxes.......................................................... 36
Surrender Charge....................................................... 36
Transfer Charges....................................................... 38
Charge to the Separate Account ........................................ 38
Miscellaneous.......................................................... 39
Systematic Withdrawal Plan............................................. 39
One-Time Reinstatement Privilege....................................... 39
Reduction in Surrender Charges or Administrative Charges............... 39
Long-Term Care and Terminal Illness......................................... 39
Long-Term Care......................................................... 40
Terminal Illness....................................................... 40
Other Aspects of the Contracts.............................................. 40
Owners, Annuitants, and Beneficiaries; Assignments..................... 40
Reports................................................................ 41
Rights Reserved by Us.................................................. 41
Payment and Deferment.................................................. 42
Federal Income Tax Matters.................................................. 42
General................................................................ 42
Non-Qualified Contracts................................................ 43
Individual Retirement Annuities ("IRAs")............................... 45
Roth IRAs.............................................................. 47
Simplified Employee Pension Plans...................................... 47
Simple Retirement Accounts............................................. 47
Other Qualified Plans.................................................. 48
Private Employer Unfunded Deferred Compensation Plans.................. 49
Federal Income Tax Withholding and Reporting........................... 49
Taxes Payable by AGL and the Separate Account.......................... 50
Distribution Arrangements................................................... 50
Services Agreement.......................................................... 51
Legal Matters............................................................... 51
Year 2000 Considerations.................................................... 51
Other Information on File................................................... 51
Contents of Statement of Additional Information............................. 52
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 Separate Account D 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 ADMINISTRATION DEPARTMENT - our annuity service center in our Home
Office to which you should direct all purchase payments, requests, instructions
and other communications. Our Annuity Administration Department is located at
2727-A Allen Parkway, Houston, Texas 77019-2191. The mailing address is P.O.
Box 1401, Houston, Texas 77251-1401.
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.
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CONTRACT YEAR - each year beginning with the date of issue of the Contract.
DIVISION - one of the several different investment options into which Separate
Account D is divided. Each Division invests in shares of a Series.
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 Separate Account D.
GENERAL ACCOUNT - all assets of AGL other than those in Separate Account D or
any other legally segregated separate account established by AGL.
GUARANTEED INTEREST RATE - the rate of interest we credit during any Guarantee
Period, on an effective annual basis.
GUARANTEE PERIOD - the period for which we credit a Guaranteed Interest Rate.
HOME OFFICE - our office at the following address and phone number: American
General Life Insurance Company, Annuity Administration Department, 2727-A Allen
Parkway, Houston, Texas 77019-2191; Mailing address - P.O. Box 1401, Houston,
Texas 77251-1401; 1-800-277-0914 or 713-831-3505.
INVESTMENT COMPANY ACT OF 1940 ("1940 ACT") - a federal law governing the
operations of investment companies such as the Series and the Separate Account.
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 allowed by sections 401, 403, 408 or 408A of the Code.
SEPARATE ACCOUNT - the segregated asset account of AGL named Separate Account D,
which receives and 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 the Portfolios and
the Funds of the WM Variable Trust.
SURRENDER CHARGE - a charge for sales expenses that we may assess when you
surrender a Contract or receive payment of certain other amounts from a
Contract.
5
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VALUATION DATE - a day when the New York Stock Exchange is 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.
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. (See "Synopsis of Contract Provisions - Communications to Us.")
You must use special forms we or your sales representative provide to elect an
Annuity Option or exercise your one-time reinstatement.
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.
OWNER TRANSACTION CHARGES
- -------------------------
Front-End Sales Charge Imposed on Purchases.......................... 0%
Maximum Surrender Charge/1/........................................ 7.0%
(computed as a percentage of purchase payments surrendered)
Transfer Fee............................................................ $ 0/2/
ANNUAL CONTRACT FEE..................................................... $ 0
- -------------------
SEPARATE ACCOUNT ANNUAL EXPENSES (as a percentage of average daily Variable
- -------------------------------- Account Value)
Mortality and Expense Risk Charge................................. 1.10%
Administrative Expense Charge..................................... 0.30%
-----
Total Separate Account Annual Expenses.............................. 1.40%
=====
- ---------------------
/1/ This charge does not apply or is reduced under certain circumstances. See
"Surrender Charge."
/2/ This charge is $25 after the 12th transfer during each Contract Year before
the Annuity Commencement Date.
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PORTFOLIO AND UNDERLYING FUND EXPENSES
THE SERIES' ANNUAL EXPENSES
- ---------------------------
Annual Operating Expenses of the Portfolios and of the Funds
(as percentage of average net assets)
<TABLE>
<CAPTION>
Management Other Annual
---------- ----- ------
Portfolios Fees Expenses /1/ Expenses /1,2/
- ---------- ---- ------------ --------------
<S> <C> <C> <C>
Strategic Growth Portfolio 0.10% 0.33% 0.43%
Conservative Growth Portfolio 0.10% 0.26% 0.36%
Balanced Portfolio 0.10% 0.25% 0.35%
Flexible Income Portfolio 0.10% 0.31% 0.41%
Income Portfolio 0.10% 0.49% 0.59%
Funds
- -----
Bond & Stock Fund 0.63% 0.56% 1.19%
Growth & Income Fund 0.79% 0.26% 1.05%
Growth Fund of the Northwest 0.63% 0.65% 1.28%
Growth Fund 0.88% 0.27% 1.15%
Mid Cap Stock Fund/3/ 0.75% 0.32% 1.07%
Small Cap Stock Fund 0.88% 0.31% 1.19%
International Growth Fund 0.94% 0.46% 1.40%
Short Term Income Fund 0.50% 0.31% 0.81%
U.S. Government Securities Fund/4/ 0.50% 0.29% 0.79%
Income Fund/4/ 0.50% 0.28% 0.78%
Money Market Fund/4/ 0.45% 0.30% 0.75%
</TABLE>
- --------------------
/1/ The Other Expenses for the Portfolios and the Funds are based on 1999
operating experience.
/2/ The Annual Expenses of the Portfolios, combined with the Annual Expenses of
the underlying Funds are shown under "Annual Expenses of the Portfolios and
Underlying Funds Combined," immediately following.
/3/ Other Expenses are estimated for the current fiscal year for the Mid Cap
Stock Fund because the Fund had not commenced operations as of the date of this
Prospectus.
/4/ The Management Fees shown for the U.S. Government Securities Fund, Income
Fund and Money Market Fund reflect a reduction that was effective July 1, 1999.
ANNUAL EXPENSES OF THE PORTFOLIOS AND UNDERLYING FUNDS COMBINED
Each Portfolio will invest in Funds of the Trust and in the WM High Yield Fund
(a series of WM Trust I). You will indirectly bear certain expenses associated
with those Funds. The chart below shows estimated combined annual expenses for
each Portfolio and the Funds in which that Portfolio may invest. The expenses
are based upon estimated expenses of each Portfolio and underlying Fund for the
fiscal year ended December 31, 1999, restated to reflect current management
fees. Please refer to the Trust prospectus for more details.
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The estimates assume a constant allocation of each Portfolio's assets among the
Funds identical to such Portfolio's actual allocation at December 31, 1999.
COMBINED
--------
PORTFOLIOS ANNUAL EXPENSES
- ---------- ---------------
Strategic Growth Portfolio 1.54%
Conservative Growth Portfolio 1.46%
Balanced Portfolio 1.39%
Flexible Income Portfolio 1.07%
Income Portfolio 1.40%
Example The following expenses/1/ would apply to a $1,000 investment at the end
of the applicable time period, if you surrender your Contract (or if you
annuitize under circumstances where you owe a surrender charge)/2/, and if you
assume a 5% annual return on assets:
<TABLE>
<CAPTION>
If all amounts are invested
in one of the following Series 1 year 3 years 5 years/3/ 10 years/3/
- ------------------------------ ------ ------- ---------- ----------
<S> <C> <C> <C> <C>
Strategic Growth Portfolio $100 $145 $191 $326
Conservative Growth Portfolio $ 99 $143 $187 $319
Balanced Portfolio $ 98 $141 $183 $312
Flexible Income Portfolio $ 95 $131 $168 $281
Income Portfolio $ 98 $141 $184 $313
Bond & Stock Fund $ 96 $135 $174 $292
Growth & Income Fund $ 95 $130 $167 $279
Growth Fund of the Northwest $ 97 $137 $178 $301
Growth Fund $ 96 $133 $172 $289
Mid Cap Stock Fund $ 95 $131 N/A N/A
Small Cap Stock Fund $ 96 $135 $174 $292
International Growth Fund $ 98 $141 $184 $313
Short Term Income Fund $ 92 $123 $154 $254
U.S. Government Securities Fund $ 92 $123 $153 $252
Income Fund $ 92 $122 $153 $251
Money Market Fund $ 92 $121 $151 $248
</TABLE>
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Example The following expenses/1/ would apply to a $1,000 investment at the end
of the applicable time period, if you do not surrender your Contract (or if you
annuitize under circumstances where a surrender charge is not payable)/2/, and
if you assume a 5% annual return on assets:
<TABLE>
<CAPTION>
If all amounts are invested
in one of the following Series 1 year 3 years 5 years/3/ 10 years/3/
- ------------------------------- ------ -------- ---------- -----------
<S> <C> <C> <C> <C>
Strategic Growth Portfolio $30 $91 $155 $326
Conservative Growth Portfolio $29 $89 $151 $319
Balanced Portfolio $28 $87 $147 $312
Flexible Income Portfolio $25 $77 $132 $281
Income Portfolio $28 $87 $148 $313
Bond & Stock Fund $26 $81 $138 $292
Growth & Income Fund $25 $76 $131 $279
Growth Fund of the Northwest $27 $83 $142 $301
Growth Fund $26 $79 $136 $289
Mid Cap Stock Fund $25 $77 N/A N/A
Small Cap Stock Fund $26 $81 $138 $292
International Growth Fund $28 $87 $148 $313
Short Term Income Fund $22 $69 $118 $254
U.S. Government Securities Fund $22 $69 $117 $252
Income Fund $22 $68 $117 $251
Money Market Fund $22 $67 $115 $248
</TABLE>
/1/ The Examples use the current combined annual expenses for the Portfolios,
which invest in underlying Funds and use current expenses for the Funds (except
for the Mid Cap Stock Fund, for which expenses are estimated), which do not
invest in other Funds of the Trust.
/2/ See "Surrender Charge" for a description of the circumstances when you may
be required to pay the Surrender Charge upon annuitization.
/3/ "N/A" indicates that SEC rules require that the Mid Cap Stock Fund complete
the Examples for only the one and three year period.
THE EXAMPLES ARE 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
examples assume an estimated average Account Value of $40,000 for each of the
Divisions.
SYNOPSIS OF CONTRACT PROVISIONS
You should read this synopsis together with the other information in this
Prospectus.
The purpose of the Contracts is to provide retirement benefits through:
. the accumulation of purchase payments on a fixed or variable basis, and
. the application of such accumulations to provide Fixed or Variable Annuity
Payments.
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MINIMUM INVESTMENT REQUIREMENTS
Your initial purchase payment must be at least $2,000, if you are buying an
Individual Retirement Annuity, and $5,000, if you are buying any other kind of
Contract. (See "Federal Income Tax Matters" for a discussion of the various tax
aspects involved in purchasing Qualified and Non-Qualified Contracts.) The
amount of any subsequent purchase payment that you make must be at least $100.
We also accept $50 subsequent purchase payments for Individual Retirement
Annuities. If your Account Value falls below $500, we may cancel your Contract
and treat it as a full surrender. We also may transfer funds, without charge,
from a Division (other than the Money Market Fund Division) under your Contract
to the Money Market Fund Division, if the Account Value of that Division falls
below $500. (See "Contract Issuance and Purchase Payments.")
PURCHASE PAYMENT ACCUMULATION
We accumulate purchase payments on a variable or fixed basis until the Annuity
Commencement Date.
For variable accumulation, you may allocate part or all of your Account Value to
one or more of the 16 available Divisions of the Separate Account. Each
Division invests solely in shares of one of 16 corresponding Series. (See "The
Series.") The value of accumulated purchase payments allocated to a Division
increases or decreases, as the value of the investments in a Series' shares
increases or decreases, subject to reduction by charges and deductions. (See
"Variable Account Value.")
For fixed accumulation, you may allocate part or all of your Account Value to
one or more of the Guarantee Periods available in our Fixed Account at the time
you make your allocation. Each Guarantee Period is for a different period of
time and has a different Guaranteed Interest Rate. The value of accumulated
purchase payments increases at the Guaranteed Interest Rate applicable to that
Guarantee Period. (See "The Fixed Account.")
Over the lifetime of your Contract, you may allocate part or all of your Account
Value to no more than 18 Divisions and Guarantee Periods. This limit includes
those Divisions and Guarantee Periods from which you have either transferred or
withdrawn all of your Account Value previously allocated to such Divisions or
Guarantee Periods. For example, if you allocate 100% of your initial purchase
payment to the Money Market Fund Division, you have selected the Money Market
Fund Division as one of the 18 Divisions and Guarantee Periods available to you.
When you transfer all of your Account Value from the Money Market Fund Division,
it remains as one of the 18 Divisions and Guarantee Periods available to you,
even if you never again allocate any of your Account Value or a new purchase
payment to the Money Market Fund Division. We are currently in the process of
eliminating this restriction.
FIXED AND VARIABLE ANNUITY PAYMENTS
You may elect to receive Fixed or Variable Annuity Payments or a combination of
Payments beginning on the Annuity Commencement Date. Fixed Annuity Payments are
periodic payments from AGL in a fixed amount guaranteed by AGL. The amount of
the Payments will depend on the Annuity
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<PAGE>
Payment Option chosen, the age, and in some cases, the gender of the Annuitant,
and the total amount of Account Value applied to the fixed Annuity Payment
Option.
Variable Annuity Payments are similar to Fixed Annuity Payments, except that the
amount of each periodic payment from AGL will vary reflecting the net investment
return of the Division or Divisions you selected under your variable Annuity
Payment Option. The payment for a given month will exceed the previous month's
payment, if the net investment return for a given month exceeds the assumed
interest rate used in the Contract's annuity tables. The monthly payment will
be less than the previous payment, if the net investment return for a month is
less than the assumed interest rate. The assumed interest rate used in the
Contract's annuity tables is 3.5%. AGL may offer other forms of the Contract
with a lower assumed interest rate and reserves the right to discontinue the
offering of the higher interest rate form of Contract. (See "Annuity Period and
Annuity Payment Options.")
CHANGES IN ALLOCATIONS AMONG DIVISIONS AND GUARANTEE PERIODS
Before the Annuity Commencement Date, you may change your allocation of future
purchase payments to the various Divisions and Guarantee Periods, without
charge.
In addition, you may reallocate your Account Value among the Divisions and
Guarantee Periods before the Annuity Commencement Date. However, you are
limited in the amount that you may transfer out of a Guarantee Period. See
"Transfer, Automatic Rebalancing, Surrender and Partial Withdrawal of Owner
Account Value - Transfers," for these and other conditions of transfer.
After the Annuity Commencement Date, you may make transfers from a Division to
another Division or to a fixed Annuity Payment Option. However, you may not
make transfers from a fixed Annuity Payment Option. (See "Annuity Period and
Annuity Payment Options - Transfers.")
SURRENDERS AND WITHDRAWALS
You may make a total surrender of or partial withdrawal from your Contract at
any time before the Annuity Commencement Date by Written request to us. A
surrender or partial withdrawal may require you to pay a Surrender Charge, and
some surrenders and partial withdrawals may require you to pay tax penalties.
(See "Surrenders and Partial Withdrawals.")
CANCELLATION RIGHT
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. In some
states the Contract provides for a 20 or 30 day period.
We will refund to you, in most states, the sum of:
. your Account Value, and
. any premium taxes that have been deducted.
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Some states require us to refund the sum of your purchase payments only if it is
larger than the amount just described. In all other states, we refund the sum
of your purchase payments.
DEATH PROCEEDS
If the Annuitant or Owner dies before the Annuity Commencement Date, we will pay
a benefit to the Beneficiary. (See "Death Proceeds Before the Annuity
Commencement Date.")
LIMITATIONS IMPOSED BY RETIREMENT PLANS AND EMPLOYERS
An employer or trustee who is the Owner under a retirement plan may limit
certain rights you would otherwise have under a Contract. These limitations may
restrict total and partial withdrawals, the amount or timing of purchase
payments, the start of annuity payments, and the type of Annuity Payment Options
that you may select. You should familiarize yourself with the provisions of any
retirement plan in which a Contract is used. We are not responsible for
monitoring or assuring compliance with the provisions of any retirement plan.
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 the 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.
FINANCIAL AND PERFORMANCE INFORMATION
We include financial statements of AGL and the WM Advantage Divisions of
Separate Account D in the Statement of Additional Information (see "Contents of
Statement of Additional Information.") The Separate Account financial
statements include information only about the Divisions that invest in the
Portfolios and Funds of the Trust.
From time to time, the Separate Account may include in advertisements and other
sales materials several types of performance information for the Divisions.
This information may include "average annual total return," "total return," and
"cumulative total return." The Money Market Fund Division may also advertise
"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.
13
<PAGE>
Total Return and Yield Quotations. Average annual total return, 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. Total return figures are also
annualized, but do not, as described below, reflect deduction of any applicable
Surrender Charge. 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 Fund
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 Fund Division similarly, but include the increase due to
assumed compounding. The Money Market Fund 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,
. the Administrative Expense Charge, and
. the applicable Surrender Charge that may be charged at the end of the
period in question.
Yield, effective yield, total return, and cumulative total return figures do not
reflect deduction of any Surrender Charge that we may impose upon partial
withdrawal, and may be higher than if the charge were deducted.
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
Trust appears in the prospectus for the Trust.
AGL may also advertise or report to Owners its ratings as an insurance company
by the A. M. Best Company. Each year, A. M. Best reviews the financial status
of thousands of insurers, culminating in the assignment of Best's Ratings.
These ratings reflect A.M. Best's current opinion of the relative financial
strength and operating performance of an insurance company in comparison to the
norms of the life/health industry. Best's Ratings range from A++ to F.
14
<PAGE>
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 each calendar year since each
Division began operations.
On July 12, 1999, we lowered the Total Separate Account Expenses for the
Contracts to 1.40% from 1.50%. Accordingly, the Accumulation Unit Data shown in
the following table for the Contracts takes into account the lower Total
Separate Account Expenses of 1.40%.
15
<PAGE>
SELECTED ACCUMULATION UNIT DATA (UNAUDITED)
<TABLE>
<CAPTION>
Accumulation Strategic Growth Conservative Balanced Flexible Income Income
Unit Values Portfolio Growth Portfolio Portfolio Portfolio Portfolio
------------- ----------------- ---------------- --------- -------------- ---------
<S> <C> <C> <C> <C> <C>
(Beginning of Period)* $1 $1 $1 $1 $0.998895
at 12/31/99 $1.194860 $1.213525 $1.158809 $1.010341 $1.003857
</TABLE>
<TABLE>
<CAPTION>
Accumulation Units Strategic Growth Conservative Balanced Flexible Income Income
Outstanding Portfolio Growth Portfolio Portfolio Portfolio Portfolio
------------------ ---------------- ---------------- --------- --------------- ---------
<S> <C> <C> <C> <C> <C>
at 12/31/99 799,250.216 69,044,259.267 68,682,401.638 5,128,622.607 1,455,816.285
</TABLE>
<TABLE>
<CAPTION>
Accumulation Bond & Growth & Growth Fund of Small Cap
Unit Values Stock Fund Income Fund the Northwest Growth Fund Stock Fund
------------ ---------- ----------- -------------- ----------- ----------
<S> <C> <C> <C> <C> <C>
(Beginningof Period)* $1 $1 $1 $1 $1
at 12/31/93 N/A N/A N/A $1.108093 N/A
at 12/31/94 N/A $0.968879 N/A $1.121034 $1.037868
at 12/31/95 N/A $1.263773 N/A $1.516694 $1.339251
at 12/31/96 N/A $1.516522 N/A $1.735437 $1.451796
at 12/31/97 N/A $1.919847 N/A $1.901874 $1.610263
at 12/31/98 N/A $2.250315 N/A $2.979944 $1.712049
at 12/31/99 $1.022215 $2.619723 $1.159901 $5.789081 $2.887186
</TABLE>
<TABLE>
<CAPTION>
Accumulation Units Bond & Growth & Growth Fund of Small Cap
Outstanding Stock Fund Income Fund the Northwest Growth Fund Stock Fund
------------------ ---------- ----------- -------------- ----------- ----------
<S> <C> <C> <C> <C> <C>
at 12/31/93 N/A N/A N/A 20,576,053.109 N/A
at 12/31/94 N/A 25,711,520.731 N/A 55,968,698.496 19,161,715.815
at 12/31/95 N/A 36,675,025.766 N/A 65,732,670.354 34,379,287.120
at 12/31/96 N/A 41,176,555.767 N/A 66,849,400.755 38,477,387.014
at 12/31/97 N/A 62,313,547.982 N/A 63,454,068.969 28,042,281.808
at 12/31/98 N/A 50,682,086.178 N/A 52,178,693.516 25,013,652.144
at 12/31/99 70,425.604 25,348,468.094 179,652.963 35,066,032.294 17,012,747.426
</TABLE>
16
Footnote is on the next page.
<PAGE>
SELECTED ACCUMULATION UNIT DATA (UNAUDITED)
<TABLE>
<CAPTION>
Accumulation International Short Term U.S. Government Money Market
Unit Values Growth Fund Income Fund Securities Fund Income Fund Fund
------------- ----------- ----------- ------------ ----------- ------------
<S> <C> <C> <C> <C> <C>
(Beginning of Period)* $1 $1 $1 $1 $1
at 12/31/93 $1.119962 N/A $1.012669 $1.045867 $1.006053
at 12/31/94 $1.124150 $0.969705 $0.957302 $0.946638 $1.028063
at 12/31/95 $1.180567 $1.044070 $1.102324 $1.166536 $1.068122
at 12/31/96 $1.268100 $1.067037 $1.126013 $1.154101 $1.104596
at 12/31/97 $1.216333 $1.113184 $1.213519 $1.265975 $1.142761
at 12/31/98 $1.260539 $1.154514 $1.279826 $1.340028 $1.182587
at 12/31/99 $1.888059 $1.170880 $1.267822 $1.292245 $1.218797
</TABLE>
<TABLE>
<CAPTION>
Accumulation Units International Short Term U.S. Government Money Market
Outstanding Growth Fund Income Fund Securities Fund Income Fund Fund
- ------------------ -------------- -------------- -------------- ----------- ------------
<S> <C> <C> <C> <C> <C>
at 12/31/93 9,502,246.682 N/A 24,761,033.965 27,478,746.085 1,479,140.661
at 12/31/94 41,411,804.816 16,054,361.321 45,519,220.818 57,776,195.507 5,990,768.122
at 12/31/95 38,882,135.444 11,822,728.277 47,440,751.595 52,014,100.048 19,070,427.181
at 12/31/96 49,208,677.687 11,613,016.642 59,114,942.951 51,843,333.618 21,051,065.909
at 12/31/97 40,387,999.121 10,688,974.372 50,293,307.671 40,784,632.255 28,109,671.118
at 12/31/98 44,027,054.948 30,269,818.548 31,765,840.414 36,372,410.376 24,148,976.079
at 12/31/99 18,401,779.719 18,482,588.748 22,521,674.071 28,755,941.727 8,612,545.684
</TABLE>
- ----------------
* Purchase payments were first allocated to the U.S. Government Securities Fund
Division on May 6, 1993; to the International Growth Fund, Growth Fund, Income
Fund and Money Market Fund Divisions on May 7, 1993, to the Small Cap Stock
Fund, Growth & Income Fund and Short Term Income Fund Divisions on January 12,
1994; to the Strategic Growth Portfolio Division on July 17, 1999; to the Growth
Fund of the Northwest Division on July 20, 1999; to the Income Portfolio
Division on July 26, 1999; to the Balanced Portfolio Division on August 19,
1999; to the Conservative Growth Portfolio Division on August 20, 1999; to the
Bond & Stock Fund Division on September 15, 1999; to the Flexible Income
Portfolio Division on November 18, 1999.
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 WM Advantage Divisions of Separate Account D,
also appear in the Statement. They provide financial information about the WM
Advantage Divisions which (1) invest in the Funds of the Trust and (2) were
offered by the Contracts before January 1, 2000. (See "Contents of Statement of
Additional Information.")
17
<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. American General
Financial Group is the marketing name for American General Corporation and its
subsidiaries. The commitments under the Contracts are AGL's, and American
General Corporation has no legal obligation to back those commitments.
AGL is a member of the Insurance Marketplace Standards Association ("IMSA").
IMSA is a voluntary membership organization created by the life insurance
industry to promote ethical market conduct for individual life insurance and
annuity products. AGL's membership in IMSA applies only to AGL and not its
products.
SEPARATE ACCOUNT D
AGL established Separate Account D on November 19, 1973. The Separate Account
has 69 Divisions, 16 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.
We have added a Division available under the Contracts effective immediately.
You still may allocate your Account Value to the same Divisions that you could
before. The new Division is the Mid Cap Stock Fund Division.
Five of the Divisions - the "Portfolios" - are funded by Series that operate
differently from the other 11 Series. You should carefully read the information
described in "The Series" of this prospectus. You can also find more information
about the Portfolios in the WM Variable Trust prospectus.
THE SERIES
The Separate Account has 16 Divisions funding the variable benefits under the
Contracts. These Divisions invest in shares of 16 Series (the five Portfolios
and the 11 Funds) of the Trust.
The Trust offers shares of these Series, without sales charges, exclusively to
Separate Account D. The Trust may, in the future, also offer shares to variable
annuity and variable life insurance separate accounts of insurers that are not
affiliated with AGL.
18
<PAGE>
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 the Trust could cause the Contracts or other contracts 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 Trust, if a material irreconcilable conflict arises among
separate accounts. In such event, the Trust may have to liquidate portfolio
securities at a loss to pay for a separate account's redemption of Trust shares.
At the same time, the Trust's Board of Trustees and we will monitor events for
any material irreconcilable conflicts that may possibly arise and determine what
action, if any, 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.
The names of the Series of the Trust in which the available Divisions invest are
as follows:
. Strategic Growth Portfolio . Growth Fund
. Conservative Growth Portfolio . Mid Cap Stock Fund
. Balanced Portfolio . Small Cap Stock Fund
. Flexible Income Portfolio . International Growth Fund
. Income Portfolio . Short Term Income Fund
. Bond & Stock Fund . U.S. Government Securities Fund
. Growth & Income Fund . Income Fund
. Growth Fund of the Northwest . Money Market Fund
WM Advisors, Inc. is the investment adviser of each Series of the Trust. Janus
Capital Corporation is the sub-adviser of the Growth Fund, and Capital Guardian
Trust Company is the sub-adviser of the International Growth Fund. WM Funds
Distributor, Inc. is the distributor of shares of each Series of the Trust.
None of these companies is affiliated with AGL.
Before selecting any Division, you should carefully read the Trust prospectus,
which is attached at the end of this Prospectus. The Trust prospectus discusses
detailed information about the Series in which each Division invests, including
investment objectives and policies, charges and expenses. The Trust prospectus
also provides detailed information about the Trust's allocation of the assets of
each Portfolio among the other Series of the Trust and the WM High Yield Fund
(the "Underlying Funds"), and about the predetermined investment limits and the
diversification requirements of the Code that govern this allocation
("allocation limitations"). Each Portfolio will invest in different combinations
of the Underlying Funds. AGL understands that the effect of the Portfolios'
allocation limitations is that each Portfolio will allocate its assets to at
least five of the Underlying Funds. AGL also understands that the effect of the
Portfolios' voting procedures is that owners will have the privilege of voting
Portfolio
19
<PAGE>
shares and not Underlying Fund shares. (See "Voting Privileges.") Please refer
to the Trust prospectus for more details.
Lower-rated fixed income securities, such as those in which the Bond & Stock,
Growth & Income, Growth, Small Cap Stock, and Income Funds may invest up to 35%
of their total assets, are subject to greater risk of loss of income and
principal and generally subject to greater market fluctuations than investments
in lower yielding fixed income securities. You should carefully read about
these Funds in the Trust's prospectus and related statement of additional
information and consider your ability to assume the risks of making an
investment in the Divisions which invest in them.
You may obtain additional copies of a prospectus by contacting AGL's Annuity
Administration Department at the addresses and phone numbers on the first page
of this Prospectus. When making your request, please specify the Series in
which you are interested.
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.
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, including any shares we own
on our own behalf, in the same proportion as the shares for which we
receive instructions.
20
<PAGE>
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 months or years that the Owner selects
from among the Guarantee Periods that we offer at the time.
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.
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. If the
Owner elects to annuitize in this case, we will, under certain circumstances,
waive the Surrender Charge. (See "Annuity Payment Options" and "Surrender
Charge.")
If the Owner does not annuitize on the scheduled Annuity Commencement Date, we
will move the Annuity Commencement Date to the earlier of the end of the renewed
Guarantee Period or the latest possible Annuity Commencement Date. (See
"Annuity Commencement Date.")
The first day of the new Guarantee Period (or other reallocation) will be the
day after the end of the prior Guarantee Period. We will notify the Owner in
writing at least 30 days and not more than 60 days before the end of any
Guarantee Period.
21
<PAGE>
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 Fund
Division at the end of that Guarantee Period. However, we will transfer such
balance to another Division selected by the Owner, if we have received Written
instructions to transfer such balance to that Division.
CREDITING INTEREST
We declare the Guaranteed Interest Rate from time to time as market conditions
dictate. We tell an Owner the Guaranteed Interest Rate for a 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 from one Guarantee Period to
another Guarantee Period that is of the same length but that began on a
different date. The minimum Guaranteed Interest Rate is an effective annual
rate of 3.5%.
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 applicable
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.
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.
Each Guarantee Period has its own Guaranteed Interest Rate. Guarantee Periods
can have different Guaranteed Interest Rates. We have the right to change the
Guaranteed Interest Rate for future Guarantee Periods of various lengths. These
changes will not affect the Guaranteed Interest Rates being paid on Guarantee
Periods that have already started. Each allocation or transfer of an amount to
a Guarantee Period starts the running of a new Guarantee Period for the amount
allocated or transferred. That amount earns 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. Currently we make available one, three and five year Guarantee
Periods. However, we reserve the right to change the Guarantee Periods that we
make available at any time. We will always offer at least one Guarantee Period
if state law requires us to do so.
CONTRACT ISSUANCE AND PURCHASE PAYMENTS
We do not currently offer WM Advantage for sale to new Owners, although we may
resume new Contract sales in the future.
22
<PAGE>
The minimum initial purchase payment is $2,000 for an Individual Retirement
Annuity and $5,000 for any other Contract. The minimum subsequent purchase
payment is $50 for an Individual Retirement Annuity and $100 for any other
Contract. 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. Effective July 12, 1999, WM Funds Distributor, Inc.
replaced WM Fund Services, Inc. as distributor of the Contracts. AGL and WM
Funds Distributor, Inc. 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 information at our Home
Office.
We reserve the right to reject any application or purchase payment for any
reason.
MINIMUM REQUIREMENTS
If your Account Value in any Division falls below $500 we reserve the right to
transfer, without charge, the remaining balance in that Division to the Money
Market Fund 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 dollar cost averaging and
automatic rebalancing programs. (See "Transfers" and "Automatic Rebalancing.")
If your total Account Value falls below $500, 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 such cancellation.
23
<PAGE>
So long as the Account Value does not fall below $500, 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, by direct transfer from your checking,
savings or brokerage account, or by exchange from another insurance company.
You may obtain further information about how to make purchase payments by any of
these methods from your sales representative or from us at the addresses and
telephone numbers on the 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 Period 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.
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 deduct for certain charges under the Contract. We determine the
24
<PAGE>
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.
Fixed Account Value
As of any Valuation Date before the Annuity Commencement Date:
. Your Fixed Account Value is the sum of your Fixed Account Values in the
Guarantee Periods.
. Your Fixed Account Value in the Guarantee Periods 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
Periods, less (2) the amount of any transfers or withdrawals out of the
Guarantee Periods, 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 3.5%
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 the Guarantee Periods. Transfers will
be effective at the end of the Valuation Period in which we receive your
Written or telephone transfer request.
. Each transfer from a Division or Guarantee Period must be at least $500, or
if less, all of your Account Value in that Division or Guarantee Period.
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. If a transfer causes your Account Value in any Division or a Guarantee
Period to fall below $500, we reserve the right to transfer the remaining
balance in that Division or the Guarantee Period in the same proportions as
the transfer request.
. 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 from the Guarantee period (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.
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 Fund Division to one or more other variable
Divisions or Guarantee Periods. Each transferred amount must be at least $500.
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.
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 can make transfers by telephone if you have completed a Telephone Transfer
Authorization 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 exchanges is 1-800-277-0914.
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
We recently introduced Automatic Rebalancing for Owners of a WM Advantage
Contract.
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. The five Portfolios are not available for rebalancing.
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 of a Contract.
We will pay you the following upon full surrender:
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. your Account Value at the end of the Valuation Period in which we receive a
Written surrender request,
. minus any applicable Surrender Charge, and
. minus any applicable premium tax.
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
terminate. The Owner will, however have a right to reinvest the proceeds of the
Contract. (See "One-Time Reinstatement Privilege.")
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 from any Division or Guarantee Period must be for at
least $500 or, if less, all of your Account Value in that Division or Guarantee
Period. If your remaining Account Value in a Division or Guarantee Period would
be less than $500 as a result of the withdrawal (except for the Money Market
Fund Division), we reserve the right to transfer the remaining balance to the
Money Market Fund 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 $500 in a Division or Guarantee Period. The value of your
Accumulation Units and Fixed Account interests that we redeem will equal the
amount of the withdrawal request, plus any applicable Surrender Charge and
premium tax. You can also tell us to take Surrender Charges and 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 of $500 or more, 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.
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All collateral assignees of record must consent to any partial withdrawal.
ANNUITY PERIOD AND ANNUITY PAYMENT OPTIONS
ANNUITY COMMENCEMENT DATE
The Annuity Commencement Date may be any day of any month as early as the
Annuitant's 50th birthday, up to the Annuitant's 85th birthday or, if later, the
10th Contract Anniversary. 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. In some cases, we may
deduct a Surrender Charge from the amount we apply. (See "Surrender Charge.")
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 pay the Annuitant under Option 2, described below, with
payments guaranteed for 120 months. We pay the Annuitant under Option 3, for
some Qualified Contracts because of Code rules.
The Code imposes minimum distribution requirements on the Annuity Payment Option
you choose in connection with Qualified Contracts. (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.
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 $100; or
. where you elect a combination of Variable and Fixed Annuity Payments, the
initial payment must be at least $50 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
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Annuitant or other properly designated payee equal to your Account Value. We
will deduct any applicable Surrender Charge and premium tax.
You may elect the annuity option that will apply 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 the death proceeds become payable.
(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.
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
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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 provide 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 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.
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.")
The Code may treat the election of Option 4 or Option 5 in the same manner as a
surrender of the total Account Value. 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 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.
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TRANSFERS
After the Annuity Commencement Date, the Annuitant or other properly designated
payee may make one transfer every 180 days among the available Divisions of 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,
the surviving spouse may elect to continue the Contract as described later
in this Section).
If the deceased Annuitant or Owner had not reached age 85 on December 31, 1999,
the death proceeds, before deduction of any premium taxes and other applicable
taxes, will equal the greatest of:
. the sum of all net purchase payments made, reduced by all partial
withdrawals;
. 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 a Written request as to the
manner of payment;
. the Owner's Account Value on December 31, 1999, plus the sum of all net
purchase payments made after December 31, 1999, reduced by all subsequent
partial withdrawals made after December 31, 1999;
. the Owner's Account Value as of the fifth Contract Anniversary that occurred
before December 31, 1999, reduced by all subsequent partial withdrawals
(which means we look at this Account Value only if we issued your Contract
before December 31, 1994); or
. the "highest anniversary value" before the date of death, as defined below.
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If a state does not allow us to offer the third, fourth or fifth amount
described above, we will pay the greater of the first or second options. We pay
the greater of the first or second options if the deceased Annuitant or Owner
had reached age 85 on or before December 31, 1999.
The highest anniversary value before the date of death will be determined as
follows:
(a) First, we will calculate the Account Values at the end of each of the past
Contract Anniversaries that occurs between December 31, 1999 and the
deceased's 85th birthday;
(b) Second, we will increase each of these Account Values by the amount of net
purchase payments the Owner has made since the end of such Contract
Anniversaries; and
(c) Third, we will reduce the result by the amount of any withdrawals the Owner
has made since the end of such Contract Anniversaries.
The highest anniversary value will be an amount equal to the highest of such
values. Net purchase payments are purchase payments less applicable taxes
deducted at the time the purchase payments are made.
The death proceeds become payable to the Beneficiary when 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 sum
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.
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. 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.
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 dies. 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 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, and 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.
SURRENDER CHARGE
The Surrender Charge reimburses us for part of our expenses in distributing the
Contracts. We believe, however, that the amount of our expenses will exceed the
amount of revenues generated by the Surrender Charge. We will pay for extra
expenses out of our general surplus, which might include profits from the charge
for the assumption of mortality and expense risks.
Unless a withdrawal is exempt from the Surrender Charge (as discussed below),
the Surrender Charge is a percentage of the amount of each purchase payment that
you withdraw during the first six years after we receive that purchase payment.
The percentage declines depending on how many years have passed since we
originally credited the withdrawn purchase payment to your Account Value, as
follows:
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Surrender Charge as a
Year of Purchase Percentage of Purchase
Payment Withdrawal Payment Withdrawn
------------------ --------------------
1st 7%
2nd 6%
3rd 6%
4th 5%
5th 4%
6th 2%
Thereafter 0%
In computing the Surrender Charge, we deem withdrawals from your Account Value
to consist first of purchase payments, in order of contribution, followed by any
amounts in excess of purchase payments. The Surrender Charge will apply to the
following transactions, which we consider to be withdrawals:
. total surrender;
. partial withdrawal;
. commencement of an Annuity Payment Option; and
. termination due to insufficient Account Value.
The Surrender Charge will NOT apply to withdrawals in the following
circumstances:
. to the amount of withdrawals that exceeds the cumulative amount of your
purchase payments;
. to life contingent annuitization where the Annuity Commencement Date is
not within the first three Contract Years;
. within the 30-day window under the One-Time Reinstatement Privilege;
. if the Annuitant is confined to a long-term care facility or is subject
to a terminal illness (see "Long-Term Care and Terminal Illness");
. to the portion of your first withdrawal or total surrender in any Contract
Year that does not exceed 10% of the amount of your purchase payments that
(1) have not previously been withdrawn and (2) have been credited to the
Contract for at least one year. (If you make multiple withdrawals during a
Contract Year, we will recalculate the amount eligible for the free
withdrawal at the time of each withdrawal. After the first Contract Year,
you may make non-automatic and automatic withdrawals in the same Contract
Year subject to the 10% limitation. For withdrawals under a systematic
withdrawal plan, Purchase Payments credited for 30 days or more are eligible
for the 10% free withdrawal); and
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. to any amounts withdrawn that are in excess of the amount permitted by the
10% free withdrawal privilege, described above, if you are withdrawing the
amounts to obtain or retain favorable tax treatment. (For example, under
certain circumstances the income and estate tax benefits of a charitable
remainder trust may be available only if you withdraw assets from a Contract
funding the trust more rapidly than the 10% free withdrawal privilege
permits. This exception is subject to our approval.)
In the State of Washington, surrender charges may be reduced after the Annuitant
reaches age 63.
We do not consider a free withdrawal under any of the foregoing Surrender Charge
exceptions to be a withdrawal of purchase payments, except for purposes of
computing the 10% free withdrawal described in the preceding paragraph. The
Code may impose a penalty on distributions if the recipient is under age 59 1/2.
(See "Penalty Tax on Premature Distributions.")
TRANSFER CHARGES
We describe the charges assessed to pay 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
Effective July 12, 1999, we lowered the charge to the Separate Account. We now
deduct from Separate Account assets a daily charge at an annualized rate of
1.40% of the average daily net asset value of the Separate Account attributable
to the Contracts. (This charge was 1.50%). This charge (1) offsets
administrative expenses and (2) compensates us for assuming mortality and
expense risks under the Contracts. The 1.40% charge divides into .30% for
administrative expenses and 1.10% for the assumption of mortality and expense
risks.
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.
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.
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<PAGE>
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 $500. You may choose from
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,
including Surrender Charges and exceptions to Surrender Charges.
ONE-TIME REINSTATEMENT PRIVILEGE
If the Account Value is at least $500, you may elect to reinvest all of the
proceeds that you liquidated from the Contract within the previous 30 days. In
this case, we will credit the Surrender Charge back to the Contract. We will
reinvest the proceeds at the value we next compute following the date of receipt
of the proceeds. Unless you request otherwise, we will allocate the proceeds
among the Divisions and Guarantee Periods in the same proportions as before
surrender. We will compute any subsequent Surrender Charge as if we had issued
the Contract at the date of reinstatement for a purchase payment in the amount
of the net surrender proceeds. You may use this privilege only once.
This privilege is not available under Contracts purchased in Oregon.
REDUCTION IN SURRENDER CHARGES OR ADMINISTRATIVE CHARGES
We may reduce the Surrender Charges or administrative charges 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.
LONG-TERM CARE AND TERMINAL ILLNESS
THE RIDER WE DESCRIBE BELOW IS NOT AVAILABLE IN ALL STATES. YOU SHOULD ASK YOUR
SALES REPRESENTATIVE OR OUR HOME OFFICE TO TELL YOU IF IT APPLIES TO YOU. THERE
IS NO SEPARATE CHARGE FOR THIS RIDER.
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<PAGE>
LONG-TERM CARE
We describe long-term care in a special Contract rider. No Surrender Charge
will apply to a partial withdrawal or total surrender made during any period of
time that the Annuitant is confined continuously for 30 days or more (or within
30 days after discharge) in a hospital or state-licensed in-patient nursing
facility. You must give us Written proof of such confinement.
TERMINAL ILLNESS
The same rider provides that no Surrender Charge will apply to a partial
withdrawal or total surrender if you give us a physician's Written certification
that the Annuitant is terminally ill and not expected to live more than 12
months. We must waive or exercise our right to a second physician's opinion.
OTHER ASPECTS OF THE CONTRACTS
Only an officer of AGL can agree to change or waive the provisions of any
Contract. The Contracts are non-participating, which means they are not
entitled to share in any dividends, profits or surplus of AGL.
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.
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
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<PAGE>
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, therefore, 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;
. 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, to one or more
separate accounts, or to 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 laws that apply; 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.
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<PAGE>
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 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:
. 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 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.
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<PAGE>
The discussion does not address federal estate and gift tax, or social security
tax, or any state or local 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 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 such 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 through the use of an
exclusion ratio.
In the case of Fixed Annuity Payments, the excludible portion of each payment 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.
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<PAGE>
In the case of Variable Annuity Payments, the excludible portion of each payment
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 portion of purchase
payments made by or on behalf of the Owner that have not been excluded or
deducted from the individual's gross income, less amounts previously received
under the Contract that were not included in income.
Taxation of Partial Withdrawals and Total Surrenders. Partial withdrawals from a
Contract are includible in income to the extent that the Owner's Account Value
exceeds the investment in the Contract. In the event you surrender a Contract
in its entirety, the amount of your investment in the Contract is excludible
from income, and any amount you receive in excess of your 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. In the case of such a distribution,
there may be imposed a federal tax penalty equal to 10% of the amount treated as
taxable 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 of 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
at least annually over the life (or life expectancy) of the Annuitant or
the joint life (or joint life expectancies) of the Annuitant and the
Beneficiary, provided such payments are made for a minimum of 5 years and
the distribution method is not changed before the recipient reaches age
59 1/2 (except in the case of death or disability).
Premature distributions may result from an early Annuity Commencement Date, an
early surrender, partial withdrawal from or assignment of a Contract, or the
early death of an Annuitant, unless 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.")
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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 made to 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 for 1999 may fully deduct their IRA purchase payments. Those who
have adjusted gross income in excess of $41,000 for 1999 will not be able to
deduct purchase payments. For those with adjusted gross income in the range
between $31,000 and $41,000 in 1999, the deduction decreases to zero, based on
the amount of income. Beginning in 2000, that income range will increase, as
follows:
<TABLE>
- --------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
2000 2001 2002 2003 2004 2005 and
thereafter
- --------------------------------------------------------------------------------------------------
$32,000 $33,000 $34,000 $40,000 $45,000 $50,000
to to to to to to
$42,000 $43,000 $44,000 $50,000 $55,000 $60,000
- --------------------------------------------------------------------------------------------------
</TABLE>
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 in 1999, and in the case of
married individuals filing separately, with adjusted gross income between $0 and
$10,000 in 1999. (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>
- ----------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
2000 2001 2002 2003 2004 2005 2006 2007 and
thereafter
- ------------------------------------------------------------------------------------------------------------
$52,000 $53,000 $54,000 $60,000 $65,000 $70,000 $75,000 $ 80,000
to to to to to to to 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.
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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 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 5 years and the distribution method is not changed before the
recipient reaches age 59 1/2 (except in the case of death or disability);
. distributions for medical expenses in excess of 7.5% of the Annuitant's
adjusted gross income without regard to whether the Annuitant itemizes
deductions on his or her tax return;
. distributions for health insurance premiums to an unemployed individual
who has received unemployment compensation for at least 12 consecutive
weeks;
. 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
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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. 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
Eligible 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,
provided that total employer contributions do not exceed the lesser of 15% of an
employee's compensation or $30,000.
SIMPLE RETIREMENT ACCOUNTS
Eligible employers may establish an IRA plan known as a simple retirement
account ("SRA"), if they meet certain requirements. Under an SRA, the employer
contributes elective employee compensation deferrals up to a maximum of $7,000 a
year for 1999 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.
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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 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 5 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, if the alternate payee is the spouse or former spouse of the
employee;
. distributions for medical expenses in excess of 7.5% of the Annuitant's
adjusted gross income without regard to whether the Annuitant itemizes
deductions on his or her tax return; or
. distributions for health insurance premiums to an unemployed individual
who has received unemployment compensation for at least 12 consecutive
weeks.
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<PAGE>
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. To avoid current
taxation, these benefits must be subject to a substantial risk of forfeiture.
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.
Deferred compensation plans represent a contractual promise on the part of the
employer to pay current compensation at some future time. The Contract is owned
by the employer and is subject to the claims of the employer's creditors. The
individual has no right or interest in the Contract and is entitled only to
payment from the employer's general assets in accordance with plan provisions.
Purchase payments are not currently deductible by the employer until benefits
are included in the taxable income of the employee.
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, the
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 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
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<PAGE>
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.
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, (2) WM Funds Distributor, Inc. or (3)
other broker-dealer firms. However, some individuals may be representatives of
firms that are exempt from broker-dealer regulation. AGSI, WM Funds Distributor,
Inc. 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 a wholly-owned subsidiary of AGL. AGSI's principal business address is
2727 Allen Parkway, Houston, Texas 77019-2191.
AGL accepts new purchase payments on Contracts, but we currently do not issue
new Contracts. AGL compensates WM Funds Distributor, Inc. and other broker-
dealers that sell the Contracts according to one or more compensation schedules.
The schedules provide for a total Commission payment of 6% of purchase payments
that Owners make. AGL may also pay additional compensation of up to .1% of
purchase payments sold by broker-dealers who meet certain production goals.
AGL also has agreed to pay WM Funds Distributor, Inc. for its promotional
activities, such as solicitation of selling group agreements between broker-
dealers and AGL, agent appointments with AGL, printing and development of sales
literature to be used by AGL appointed agents and related marketing support, and
related special promotional campaigns. None of these distribution expenses
results in any additional charges under the Contracts that are not described
under "Charges under the Contracts."
50
<PAGE>
SERVICES AGREEMENT
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.
LEGAL MATTERS
We are not involved in any legal matter about the Separate Account that would be
considered material to the interests of Owners. Steven A. Glover, Senior
Counsel of AGLC has passed upon the legality of the Contracts described in this
Prospectus.
YEAR 2000 CONSIDERATIONS
As of March 10, 2000, all of our ultimate parent, American General Corporation's
("AGC") major technology systems, programs, and applications, including those
which rely on third parties, are operating smoothly following our transition
into 2000. We have experienced no interruptions to normal business operations,
including the processing of customer account data and transactions. We will
continue to monitor our technology systems, including critical third party
dependencies, as necessary to maintain our Year 2000 readiness. We do not expect
any future disruptions, if they occur, to have a material effect on the
company's results of operations, liquidity, or financial condition.
Through December 31, 1999, AGC incurred and expensed pretax costs of $98 million
related to Year 2000 readiness, including $18 million in 1999 and $65 million in
1998. In 1999, Year 2000 readiness expenses were included in division earnings.
The 1998 expenses were excluded from division earnings, consistent with the
manner in which we reviewed division results. In addition, we accelerated the
planned replacement of certain systems as part of our Year 2000 plans. The cost
of these replacement systems was immaterial. We do not anticipate incurring any
significant costs in the future to maintain Year 2000 readiness.
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 discussed 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 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:
51
<PAGE>
CONTENTS OF STATEMENT OF ADDITIONAL INFORMATION
<TABLE>
<CAPTION>
<S> <C>
General Information.................................................. 2
Regulation and Reserves.............................................. 3
Independent Auditors................................................. 4
Services............................................................. 4
Principal Underwriter................................................ 4
Annuity Payments..................................................... 5
Gender of Annuitant................................................ 5
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............................ 6
Total Return Calculations (without Surrender Charge)................ 7
Cumulative Total Return Calculations (without Surrender Charge)..... 7
Hypothetical Performance............................................ 8
Yield Calculations.................................................. 10
Money Market Fund Division Yield and Effective Yield Calculations... 11
Performance Comparisons............................................. 11
Effect of Tax-Deferred Accumulation.................................. 12
Financial Statements................................................. 13
Index to Financial Statements........................................ 14
</TABLE>
52
<PAGE>
(THIS DOCUMENT IS NOT PART OF A PROSPECTUS)
INDIVIDUAL RETIREMENT ANNUITY DISCLOSURE STATEMENT
INTRODUCTION
This Disclosure Statement is designed for owners of IRAs issued by American
General Life Insurance Company on or after May 1, 2000.
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) 277-0914 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
Page 1
<PAGE>
Simple Retirement Account or a plan which promises you a retirement benefit
which is based upon the number of years of service you have with the employer,
you are likely to be an active participant. Your Form W-2 for the year should
indicate your participation status.
You are an active participant for a year even if you are not yet vested in your
retirement benefit. Also, if you make required contributions or voluntary
employee contributions to a retirement plan, you are an active participant. In
certain plans, you may be an active participant even if you were only with the
employer for part of the year.
You are not considered an active participant if you are covered in a plan only
because of your service as 1) an Armed Forces Reservist for less than 90 days of
active service, or 2) a volunteer firefighter covered for firefighting service
by a government plan. Of course, if you are covered in any other plan, these
exceptions do not apply.
If you are married, (i) filed a separate tax return, and did not live with your
spouse at any time during the year, or (ii) filed a joint return and have a
joint AGI of less than $150,000, your spouse's active participation will not
affect your ability to make deductible contributions. If you are married and
file jointly, your deduction will be phased out between an AGI of $150,000 to
$160,000.
B. Adjusted Gross Income (AGI)
If you are an active participant, you must look at your Adjusted Gross Income
for the year (if you and your spouse file a joint tax return, you use your
combined AGI) to determine whether you can make a deductible IRA contribution.
Your tax return will show you how to calculate your AGI for this purpose. If you
are at or below a certain AGI level, called the Threshold Level, you are treated
as if you were not an active participant and can make a deductible contribution
under the same rules as a person who is not an active participant.
If you are single, the Threshold Level is $30,000. If you are married and file a
joint tax return, the Threshold Level is $50,000. If you are married but file a
separate tax return, the Threshold Level will be $0.
For taxable years beginning in 1999, the Threshold Levels for single individuals
and for married individuals filing jointly increase as follows:
<TABLE>
<CAPTION>
Threshold Level
---------------
For taxable years beginning in: Married
------------------------------ -------
Single (filing jointly)
------ ----------------
<S> <C> <C>
1999...................................... $31,000 $51,000
2000...................................... $32,000 $52,000
2001...................................... $33,000 $53,000
2002...................................... $34,000 $54,000
2003...................................... $40,000 $60,000
2004...................................... $45,000 $65,000
2005...................................... $50,000 $70,000
2006...................................... $50,000 $75,000
2007 and thereafter....................... $50,000 $80,000
</TABLE>
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 1999, she would calculate her deductible IRA
contribution as follows:
Her AGI is $36,619
Her Threshold Level is $31,000
Her Excess AGI is (AGI - Threshold Level) or ($36,619-$31,000)= $5,619
Her Maximum Allowable Deduction is $2,000
So, her IRA deduction limit is:
$10,000 - $5,619 x $2,000 = $876 (rounded to $880)
----------------
$10,000
Page 3
<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 2000 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 $52,000
Their Excess AGI is (AGI - Threshold Level) or ($55,255 - $52,000) =
$3,255
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 - 3,255 x $2,000 = $1,349 (rounded to $1,350)
---------------
$10,000
Example 3: If, in Example 2, Mr. Young did not earn any compensation, each
spouse could still contribute to an IRA and calculate their deductible
contribution to each IRA as in Example 2.
Example 4: In 1999, 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 taxable to you until
taken out of your IRA and distributed to you.
If you make a non-deductible contribution to an IRA, you must report the amount
of the non-deductible contribution to the IRS on Form 8606 as a part of your tax
return for the year.
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<PAGE>
You may make a $2,000 contribution (or up to $4,000 in the case of married
individuals filing a joint return) at any time during the year, if your
compensation for the year will be at least $2,000 (or up to $4,000 in the case
of married individuals filing a joint return), without having to know how much
will be deductible. When you fill out your return, you may then figure out how
much is deductible.
You may withdraw an IRA contribution made for a year any time before April 15 of
the following year. If you do so, you must also withdraw the earnings
attributable to that portion and report the earnings as income for the year for
which the contribution was made. If some portion of your contribution is not
deductible, you may decide either to withdraw the non-deductible amount, or to
leave it in the IRA and designate that portion as a non-deductible contribution
on your tax return.
IRA DISTRIBUTIONS
Generally, IRA distributions which are not rolled over (see "Rollover IRA
Rules," below) are included in your gross income in the year they are received.
Non-deductible IRA contributions, however, are made using income which has
already been taxed (that is, they are not deductible contributions). Thus, the
portion of the IRA distributions consisting of non-deductible contributions will
not be taxed again when received by you. If you make any non-deductible IRA
contributions, each distribution from your IRA(s) will consist of a non-taxable
portion (return of deductible contributions, if any, and account earnings).
Thus, you may not take a distribution which is entirely tax-free. The following
formula is used to determine the non-taxable portion of your distributions for a
taxable year:
Remaining
Non-Deductible Contributions x Total Distributions = Nontaxable Distributions
----------------------------
Year-End Total IRA Balances (for the year) (for the year)
To figure the year-end total IRA balance, you treat all of your IRAs as a single
IRA. This includes all regular IRAs (whether accounts or annuities), as well as
Simplified Employee Pension (SEP) IRAs, and Rollover IRAs. You also add back the
distributions taken during the year.
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<PAGE>
Example: An individual makes the following contributions to his or her
IRA(s).
Year Deductible Non-Deductible
---- ---------- --------------
1991...................................... $ 2,000
1992...................................... 1,800
1995...................................... 1,000 $ 1,000
1997...................................... 600 1,400
------- -------
$ 5,400 $ 2,400
Deductible Contributions:................................... $ 5,400
Non-Deductible Contributions:............................... 2,400
Earnings on IRAs:........................................... 1,200
-------
Total Account Balance of IRA(s) as of 12/31/99:............. $ 9,000
(before distributions in 1999).
In 1999, the individual takes a distribution of $3,000. The total account
balance in the IRAs on 12/31/99 before 1999 distributions is $9,000. The
non-taxable portion of the distributions for 1999 is figured as follows:
<TABLE>
<S> <C>
Total non-deductible contributions $2,400 x $3,000 = $800
------
Total account balance in the IRAs, before distributions $9,000
</TABLE>
Thus, $800 of the $3,000 distribution in 1999 will not be included in the
individual's taxable income. The remaining $2,200 will be taxable for 1999.
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
receipt 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. The rollover of one IRA to another may be made no more
than once during a one year period.
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.
Page 6
<PAGE>
PENALTIES FOR PREMATURE DISTRIBUTIONS
If you receive a distribution from your IRA before you reach age 59 1/2, an
additional tax of 10 percent will be imposed under Code (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
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 minimum 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.
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<PAGE>
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. This 6% excise tax is required to be paid each year that
the excess contribution remains in the IRA.
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
(WM Advantage, Form Nos. 93010 and 93011)
This Financial Disclosure is applicable to IRAs using a WM Advantage Variable
Annuity (contract form numbers 93010 and 93011) purchased from American General
Life Insurance Company on or after May 1, 2000. 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) A maximum charge of $25 for each transfer, in excess of 12 free
transfers annually, of contract value between divisions of the
Separate Account.
(b) To compensate for mortality and expense risks assumed under the
contract, variable divisions only will incur a daily charge at an
annualized rate of 1.10% 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.
(d) If the contract is surrendered, or if a withdrawal is made, there may
be a Surrender Charge. The Surrender Charge equals the sum of the
following:
7% of purchase payments for surrenders and withdrawals made
during the first contract year following receipt of the purchase
payment surrendered;
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<PAGE>
6% of purchase payments for surrenders and withdrawals made
during the second through third contract year following receipt
of the purchase payment surrendered;
5% of purchase payments for surrenders and withdrawals made
during the fourth contract year following receipt of the purchase
payment surrendered;
4% of purchase payments for surrenders and withdrawals made
during the fifth contract year following receipt of the purchase
payment surrendered;
2% of purchase payments for surrenders and withdrawals made
during the sixth contract year following receipt of the purchase
payment surrendered;
There will be no charge imposed for surrenders and withdrawals made
during the seventh and subsequent contract years following receipt of
the purchase payments surrendered.
Under certain circumstances described in the contract, portions of a
partial withdrawal may be exempt from the Surrender Charge.
(e) To compensate for administrative expenses, a daily charge will be
incurred at an annualized rate of .30% of the average Separate Account
Value of the contract during the Accumulation and the Payout Phase.
(f) Each variable division will be charged a fee for asset management and
other expenses deducted directly from the underlying fund during the
Accumulation and Payout Phase. Total fees will range between 0.35% and
1.40%.
Page 9
<PAGE>
(THIS DOCUMENT IS NOT PART OF A PROSPECTUS)
ROTH INDIVIDUAL RETIREMENT ANNUITY (IRA) DISCLOSURE STATEMENT
INTRODUCTION
This Disclosure Statement is designed for owners of Roth IRAs issued by American
General Life Insurance Company on or after May 1, 2000.
This Disclosure Statement is not part of your contract but contains general and
standardized information which must be furnished to each person who is issued a
Roth IRA. You must refer to your contract to determine your specific rights and
obligations thereunder.
Revocation. If you are purchasing a new or rollover Roth IRA, then if for any
- ----------
reason you, as a recipient of this Disclosure Statement, decide within 10 days
from the date your contract is delivered that you do not desire to retain your
Roth IRA, written notification to the Company must be mailed, together with your
contract, within that period. If such notice is mailed within 10 days, current
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 contract to:
American General Life Insurance Company
Annuity Administration Department
P. O. Box 1401
Houston, Texas 77251-1401
(Phone No. (800) 360-4268 and (713) 831-3505).
Deductibility. Contributions to your Roth IRA are not deductible on your
- -------------
personal income tax return. Your Roth IRA contributions are made with money that
has already been taxed.
Eligibility. You can contribute up to the amount of your earned income, but not
- -----------
more than $2,000 in any one year, even if you are age 70 1/2 or older. In
addition, non-working spouses can contribute to a Roth IRA, provided the working
spouse has at least as much earned income as both spouses will contribute to
their respective Roth IRAs.
Contribution Limits. Contributions to your Roth IRA are subject to the
- -------------------
limitations described in sections 408A and 219 of the Internal Revenue Code of
1986, as amended (the "Code"). In general, you may contribute up to $2,000 per
year to your Roth IRA. However, contributions to your Roth IRA must be
aggregated with contributions to traditional deductible or non-deductible IRAs
for purposes of the annual $2,000 limit. In addition, your contribution limit
may be lower than $2,000 if your adjusted gross income (AGI) exceeds a certain
amount. For married individuals filing a joint return with AGI between $150,000
and $160,000, single individuals with AGI between $95,000 and $110,000 and
married individuals filing separately with an AGI between $0 and $10,000, the
$2,000
Page 1-R
<PAGE>
annual contribution limit is gradually phased out. These limits apply without
regard to whether either spouse is an active participant, as that term is
defined in Code section 219.
Applying the Contribution Limits. If your AGI exceeds the contribution limits
- --------------------------------
described above, then you may determine the extent to which your contribution is
phased out by using the following formula:
(1) Start with your AGI.
(2) Subtract from the amount in (1):
a) $150,000 if filing a joint return
b) $0 if married filing a separate return
c) $95,000 if single, head of household or married filing a separate
return and you lived apart from your spouse during the entire year.
(3) Divide the result in (2) by $15,000 ($10,000 if filing a joint
return).
(4) Multiply your contribution limit (after reduction for any
contributions to traditional IRAs) by the result in (3).
(5) Subtract the result in (4) from your contribution limit before this
reduction. The result is your reduced contribution limit.
You may round your reduced contribution limit up to the nearest $10. If your
reduced contribution limit is more than $0, but less than $200, increase the
limit to $200.
Example. You are a single individual with taxable compensation of
-------
$113,000. You want to make the maximum allowable contribution to your Roth
IRA for 1999. Your AGI for 1999 is $100,000. You have not contributed to
any traditional IRA, so your contribution limit before the AGI reduction is
$2,000. Your reduced Roth IRA contribution is $1,350, figured as follows:
(1) Modified AGI = $100,000
(2) $100,000 - $95,000 = $5,000
(3) $5,000 / $15,000 = .3333
(4) $2,000 (contribution limit before adjustment) x .3333 = $667
(5) $2,000 - $667 = $1,333. This figure is reduced up to the nearest $10,
so your reduced Roth IRA contribution limit is $1,340.
Conversions or rollovers. Conversions or rollovers from a traditional IRA are
- ------------------------
only permitted for taxpayers whose AGI does not exceed $100,000 in the year of
the conversion or rollover. Neither conversions nor rollovers are permitted for
married individuals filing separate returns. Conversions or rollovers from
traditional IRAs to Roth IRAs are generally taxed entirely in the year of the
conversion or rollover. Conversions or rollovers to your Roth IRA are permitted
only from a traditional IRA or another Roth IRA. You may not convert or roll
over directly to a Roth IRA from a qualified plan described in section 401(a) or
401(k) of the Code, or from an annuity described in section 403(b) of the Code.
Page 2-R
<PAGE>
Taxation of Distributions. Distributions from your Roth IRA will be treated
- -------------------------
first as withdrawals of your regular contributions, then withdrawals of
conversion or rollover contributions, then finally any earnings. Therefore,
distributions will be non-taxable to the extent of your investment in your Roth
IRA. However, a distribution from your Roth IRA may be subject to a 10% penalty
tax, even if the distribution is not otherwise taxable, if it is a distribution
of a conversion or rollover amount within five years of the conversion or
rollover. Your Roth IRA is not subject to the minimum distribution rules before
death or to the incidental benefit rules, both of which are contained in section
401(a)(9).
Distributions from your Roth IRA which consist of earnings will be taxable
unless they are:
1. Made at least five years after you established your first Roth IRA (whether
the Roth IRA was established with regular contributions or conversion or
rollover contributions); and
---
2. Made after you attain age 59 1/2, or for qualifying first-time homebuyer
expenses (in accordance with section 72(t)(2)(F), or on account of your
death or disability (as defined in section 72(m)(7)).
Taxable distributions may also be subject to a 10% penalty tax unless you are
over age 59 1/2 or you meet one of several other exceptions to the penalty tax.
In general, the same exceptions to the 10% penalty tax that apply to traditional
IRAs also apply to Roth IRAs. See IRS publication 590 for a discussion of the
exceptions to the penalty tax.
Post-death distributions. Upon your death, distributions from your Roth IRA to
- ------------------------
your beneficiary generally must commence by the end of the next calendar year
and be paid over a period no longer than your beneficiary's life expectancy.
Alternatively, your beneficiary can take a complete distribution of the balance
of your Roth IRA account by the end of the fifth calendar year after your death.
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.
Excess contributions. You may be subject to a six percent excise tax on excess
- --------------------
contributions for every year that the excess contributions remain in the IRA if
(1) contributions to your other individual retirement arrangements have been
made in the same tax year, (2) your adjusted gross income exceeds the applicable
limits in Article II of the endorsement for the tax year, or (3) you and your
spouse's compensation does not exceed the amount contributed for both of you for
the tax year.
IRS Approval. This disclosure statement is intended to provide a general
- ------------
overview of the applicable tax laws relating to Roth Individual Retirement
Annuities. It is not intended to constitute a comprehensive explanation as to
the tax consequences of your Roth IRA. As with all significant transactions
such as the establishment or maintenance of, or withdrawal from a Roth IRA,
Page 3-R
<PAGE>
appropriate tax and legal counsel should be consulted. Further information may
also be acquired by contacting your IRS District Office or consulting IRS
Publication 590.
FINANCIAL DISCLOSURE
(WM Advantage, Form Nos. 93010 and 93011)
This Financial Disclosure is applicable to IRAs using a WM Advantage Variable
Annuity (contract form numbers 93010 and 93011) purchased from American General
Life Insurance Company on or after May 1, 2000. 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) A maximum charge of $25 for each transfer, in excess of 12 free
transfers annually, of contract value between divisions of the
Separate Account.
(b) To compensate for mortality and expense risks assumed under the
contract, variable divisions only will incur a daily charge at an
annualized rate of 1.10% 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.
(d) If the contract is surrendered, or if a withdrawal is made, there may
be a Surrender Charge. The Surrender Charge equals the sum of the
following:
7% of purchase payments for surrenders and withdrawals made
during the first contract year following receipt of the purchase
payment surrendered;
6% of purchase payments for surrenders and withdrawals made
during the second through third contract year following receipt
of the purchase payment surrendered;
5% of purchase payments for surrenders and withdrawals made
during the fourth contract year following receipt of the purchase
payment surrendered;
4% of purchase payments for surrenders and withdrawals made
during the fifth contract year following receipt of the purchase
payment surrendered;
Page 4-R
<PAGE>
2% of purchase payments for surrenders and withdrawals made
during the sixth contract year following receipt of the purchase
payment surrendered;
There will be no charge imposed for surrenders and withdrawals made
during the seventh and subsequent contract years following receipt of
the purchase payments surrendered.
Under certain circumstances described in the contract, portions of a partial
withdrawal may be exempt from the Surrender Charge.
(e) To compensate for administrative expenses, a daily charge will be
incurred at an annualized rate of .30% of the average Separate Account
Value of the contract during the Accumulation and the Payout Phase.
(f) Each variable division will be charged a fee for asset management and
other expenses deducted directly from the underlying fund during the
Accumulation and Payout Phase. Total fees will range between 0.35% and
1.40%.
Page 5-R
<PAGE>
AMERICAN GENERAL LIFE INSURANCE COMPANY
SEPARATE ACCOUNT D
WM ADVANTAGE
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
1-800-247-6584; 713-831-3505; Hearing impaired: 1-800-436-5257
STATEMENT OF ADDITIONAL INFORMATION
Dated May 1, 2000
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 May 1, 2000, concerning
flexible payment variable and fixed individual deferred annuity WM Advantage
Contracts. The Separate Account invests in 16 Series of the WM Variable Trust.
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 the Separate Account. Terms used in this Statement have the same
meanings as are defined in the Prospectus under the heading "Definitions."
1
<PAGE>
TABLE OF CONTENTS
<TABLE>
<S> <C>
General Information........................................................................ 2
Regulation and Reserves ................................................................... 3
Independent Auditors....................................................................... 4
Services................................................................................... 4
Principal Underwriter...................................................................... 4
Annuity Payments........................................................................... 5
Gender of Annuitant................................................................. 5
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............................................ 6
Total Return Calculations (without Surrender Charge)................................ 7
Cumulative Total Return Calculations (without Surrender Charge).................... 7
Hypothetical Performance............................................................ 8
Yield Calculations.................................................................. 10
Money Market Fund Division Yield and Effective Yield Calculations................... 11
Performance Comparisons............................................................. 11
Effect of Tax-Deferred Accumulation........................................................ 12
Financial Statements....................................................................... 13
Index to Financial Statements.............................................................. 14
</TABLE>
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.
2
<PAGE>
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,
. 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
3
<PAGE>
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.
INDEPENDENT AUDITORS
The 1999 consolidated financial statements of AGL and the financial statements
of the WM Advantage Divisions of Separate Account D included in this Statement
were audited by Ernst & Young LLP, independent auditors, as set forth in their
reports. We include these financial statements in this Statement in reliance
upon the reports of Ernst & Young LLP that appear later on in this Statement.
Ernst & Young LLP gives their reports 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 $63,794,324 in 1999 and
$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, to Separate Account E of American General
Life Insurance Company of New York, and to Separate Account USL VA-R and
Separate Account USL VL-R of The United States Life Insurance Company in the
City 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 has not received any
compensation for any of the past three years.
AGL offers the securities under the Contracts on a continuous basis.
4
<PAGE>
ANNUITY PAYMENTS
Gender of Annuitant
When annuity payments are based on life expectancy, the amount of each annuity
payment ordinarily will be higher if the Annuitant or other measuring life is a
male, as compared with a female, under an otherwise identical Contract. This is
because, statistically, females tend to have longer life expectancies than
males.
However, 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.
5
<PAGE>
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 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").
. 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 and the Administrative Expense
Charge. 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.
Seven of the Divisions recently commenced operations. Average Annual Total
Return Calculations calculated in the manner described above are not currently
available for these Divisions. We will show the Average Annual Total Return for
these seven Divisions when such returns become available. Average annual total
return quotations for the other eight Divisions for the periods indicated are
shown in the table below.
<TABLE>
<CAPTION>
Since Division
Investment Division/1/ One Year Five Years Inception/2/
- -------------------- -------- ---------- ----------
<S> <C> <C> <C>
Growth & Income Fund 11.03% 21.87% 17.39%
Growth Fund 89.00% 38.82% 30.42%
Small Cap Stock Fund 63.32% 22.57% 19.33%
International Growth Fund 44.93% 10.70% 10.03%
Short Term Income Fund (3.94)% 3.54% 2.42%
U.S. Government Securities Fund (6.34)% 5.49% 3.63%
Income Fund (8.98)% 6.15% 3.93%
Money Market Fund (2.35)% 3.12% 3.00%
</TABLE>
____________________________
/1/ On July 12, 1999, we lowered the Total Separate Account Expenses for the
Contracts to 1.40% from 1.50%. Accordingly, average annual total returns for the
Growth & Income Fund, Growth Fund, Small Cap Stock Fund, International Growth
Fund, Short Term Income Fund, U.S. Government Securities Fund, Income Fund and
Money Market Fund are shown with Total Separate Account Expenses of 1.50% for
all periods before July 12, 1999 and 1.40% beginning July 12, 1999.
/2/ The dates when the Divisions commenced operations are as follows: U.S.
Government Securities Fund Division, May 6, 1993; Growth Fund, International
Growth Fund, Income Fund, and Money Market Fund Divisions, May 7, 1993; Small
Cap Stock Fund, Growth & Income Fund, and Short Term Income Fund Divisions,
January 12, 1994.
6
<PAGE>
Total Return Calculations (without Surrender Charge)
Each Division may also advertise non-standardized total return. We calculate
non-standardized total return in the same manner and for the same time periods
as standardized average annual total return, which we describe immediately
above. However, in making the redeemable value calculation, we do not deduct any
applicable Surrender Charge that we may impose at the end of the period. This is
because we assume that the Contract will continue through the end of each
period. Deducting these charges would reduce the resulting performance results.
Total return quotations (without Surrender Charge) for the seven Divisions which
commenced operations after December 31, 1998 for the period ended December 31,
1999 are shown below.
Investment Division Since Division Inception*
- ------------------- -------------------------
Strategic Growth Portfolio 19.49%
Conservative Growth Portfolio 21.35%
Balanced Portfolio 15.88%
Flexible Income Portfolio 1.03%
Income Portfolio 0.50%
Bond & Stock Fund 2.22%
Growth Fund of the Northwest 15.99%
______________________
* The dates when the Divisions commenced operations are as follows: Strategic
Stock Portfolio Division, July 15, 1999; Growth Fund of the Northwest Division,
July 20, 1999; Income Portfolio Division, July 26, 1999; Balanced Portfolio
Division, August 19, 1999; Conservative Growth Portfolio Division, August 20,
1999; Bond & Stock Fund Division, September 15, 1999; Flexible Income Portfolio
Division, November 18, 1999.
Cumulative Total Return Calculations (without Surrender Charge)
Each Division may also advertise non-standardized 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 or any applicable
Surrender Charge. Cumulative total return quotations 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:
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.
7
<PAGE>
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 Funds for the periods
indicated.
Hypothetical Historical Average Annual Total Returns
(Through December 31, 1999)
<TABLE>
<CAPTION>
Since Series
Investment Division One Year Five Years/1/ Inception/2/
- ------------------- -------- ------------- ------------
<S> <C> <C> <C>
Strategic Growth Portfolio 40.48% N/A 27.46%
Conservative Growth Portfolio 32.00% N/A 20.96%
Balanced Portfolio 20.50% N/A 15.63%
Flexible Income Portfolio 1.62% N/A 6.07%
Income Portfolio (4.99)% N/A (0.06)%
Bond & Stock Fund (4.96)% N/A (1.66)%
Growth & Income Fund 11.03% 21.87% 17.39%
Growth Fund of the Northwest 33.09% N/A 23.73%
Growth Fund 89.00% 38.82% 30.42%
Small Cap Stock Fund 63.32% 22.57% 19.33%
International Growth Fund 44.93% 10.70% 10.03%
Short Term Income Fund (3.94)% 3.54% 2.42%
U.S. Government Securities Fund (6.34)% 5.49% 3.63%
Income Fund (8.98)% 6.15% 3.93%
Money Market Fund (2.35)% 3.12% 3.00%
</TABLE>
8
<PAGE>
Hypothetical Historical Total Returns
(Through December 31, 1999)
<TABLE>
<CAPTION>
Since Series
Investment Division One Year Five Years/1/ Inception/2/
- ------------------- -------- ------------- ------------
<S> <C> <C> <C>
Strategic Growth Portfolio 45.88% N/A 28.87%
Conservative Growth Portfolio 37.40% N/A 22.50%
Balanced Portfolio 25.90% N/A 17.28%
Flexible Income Portfolio 7.02% N/A 8.20%
Income Portfolio 0.41% N/A 3.09%
Bond & Stock Fund 0.44% N/A 1.57%
Growth & Income Fund 16.43% 22.04% 17.52%
Growth Fund of the Northwest 38.49% N/A 26.50%
Growth Fund 94.40% 38.91% 30.42%
Small Cap Stock Fund 68.72% 22.73% 19.45%
International Growth Fund 49.83% 10.94% 10.03%
Short Term Income Fund 1.46% 3.86% 2.68%
U.S. Government Securities Fund (0.94)% 5.78% 3.63%
Income Fund (3.58)% 6.43% 3.93%
Money Market Fund 3.05% 3.44% 3.00%
</TABLE>
Hypothetical Historical Cumulative Total Returns
(Through December 31, 1999)
<TABLE>
<CAPTION>
Since Series
Investment Division One Year Five Years/1/ Inception/2/
- ------------------- -------- ------------- ------------
<S> <C> <C> <C>
Strategic Growth Portfolio 45.88% N/A 92.43%
Conservative Growth Portfolio 37.40% N/A 68.83%
Balanced Portfolio 25.90% N/A 50.88%
Flexible Income Portfolio 7.02% N/A 19.99%
Income Portfolio 0.41% N/A 5.30%
Bond & Stock Fund 0.44% N/A 2.64%
Growth & Income Fund 16.43% 170.67% 162.22%
Growth Fund of the Northwest 38.49% N/A 48.22%
Growth Fund 94.40% 417.28% 485.64%
Small Cap Stock Fund 68.72% 178.43% 188.98%
International Growth Fund 49.83% 68.02% 88.91%
Short Term Income Fund 1.46% 20.82% 17.13%
U.S. Government Securities Fund (0.94)% 32.45% 26.79%
Income Fund (3.58)% 36.55% 29.25%
Money Market Fund 3.05% 18.42% 21.72%
</TABLE>
9
<PAGE>
Hypothetical Historical Growth of a $1,000 Investment in the Division
(Through December 31, 1999)
<TABLE>
<CAPTION>
Since Series
Investment Division One Year Five Years/1/ Inception/2/
- ------------------- -------- ------------- ------------
<S> <C> <C> <C>
Strategic Growth Portfolio $1,459 N/A $1,924
Conservative Growth Portfolio $1,374 N/A $1,688
Balanced Portfolio $1,259 N/A $1,509
Flexible Income Portfolio $1,070 N/A $1,200
Income Portfolio $1,004 N/A $1,053
Bond & Stock Fund $1,004 N/A $1,026
Growth & Income Fund $1,164 $2,707 $2,622
Growth Fund of the Northwest $1,385 N/A $1,482
Growth Fund $1,944 $5,173 $5,856
Small Cap Stock Fund $1,687 $2,784 $2,890
International Growth Fund $1,498 $1,680 $1,889
Short Term Income Fund $1,015 $1,208 $1,171
U.S. Government Securities Fund $991 $1,325 $1,268
Income Fund $964 $1,365 $1,293
Money Market Fund $1,031 $1,184 $1,217
</TABLE>
_________________________________
/1/ If "N/A" appears in the "Five Years" column, the Fund commenced operations
less than five years ago.
/2/ The inception dates for each Series corresponding to the Divisions are: U.S.
Government Securities Fund, May 6, 1993; Money Market, Income, Growth, and
International Growth Funds, May 7, 1993; Short Term Income Fund, Growth &
Income, and Small Cap Stock Funds, January 12, 1994; Strategic Growth,
Conservative Growth, and Balanced Portfolios, June 2, 1997; Flexible Income
Portfolio, September 8, 1997; Income Portfolio, April 22, 1998; Growth Fund of
the Northwest, April 29, 1998; Bond & Stock Fund, April 30, 1998.
Yield Calculations
We calculate the yields for the Short-Term Income Fund, U.S. Government
Securities Fund, and Income Fund Divisions by a standard method that the SEC
prescribes. The hypothetical yields for the Short Term Income, U.S. Government
Securities Fund, and Income Fund Divisions, based upon the one month period
ended December 31, 1999, were 3.58%, 5.20% and 5.61%, respectively. We calculate
the yield quotation by dividing
. the net investment income per Accumulation Unit earned during the
specified one month or 30-day period by the Accumulation Unit values on
the last day of the period, according to the following formula that
assumes a semi-annual reinvestment of income:
YIELD = 2[((a-b)/cd + 1)/6/ - 1]
a = net dividends and interest earned during the period by the Series
attributable to the Division
b = expenses accrued for the period (net of reimbursements)
10
<PAGE>
c = the average daily number of Accumulation Units outstanding during the
period
d = the Accumulation Unit value per unit on the last day of the period
The yield of each Division reflects the deduction of all recurring fees and
charges that apply to each Division. These fees and charges include the
Mortality and Expense Risk Charge and the Administrative Expense Charge. They do
not reflect the deduction of Surrender Charges or premium taxes.
Money Market Fund Division Yield and Effective Yield Calculations
We calculate the Money Market Fund Division's yield by 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
Fund Division's hypothetical historical yield for the seven day period ended
December 31, 1999, was 3.64%.
We determine the Money Market Fund 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 Fund Division's hypothetical historical effective
yield for the seven day period ended December 31, 1999, was 3.70%.
Yield and effective yield do not reflect the deduction of Surrender Charges or
premium taxes that we may impose when you redeem 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 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
11
<PAGE>
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.
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 Dean Witter Capital International Europe
Australasia 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, whose earnings are not taxed until withdrawn in connection
with a full surrender, partial withdrawal, or annualization, or
termination due to insufficient Account Value ("withdrawal of
earnings"), and
12
<PAGE>
. an investment whose earnings are taxed on a current basis ("Taxable
Investment"), based on an assumed tax rate of 28%, and the assumed
earning rates specified.
<TABLE>
<CAPTION>
5 Years 10 Years 20 Years
------- -------- --------
<S> <C> <C> <C>
(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
</TABLE>
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 1.10%,
. a Surrender Charge (applicable to withdrawal of earnings for the first
six Contract years) up to a maximum of 7%, and
. an Administrative Expense Charge of 0.30%.
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 a total of 69 Divisions. Prior to July 12, 1999, only
eight Divisions were available under the WM Advantage Contracts. On July 12,
1999, we began offering seven additional Divisions under the WM Advantage
Contracts. The December 31, 1999 financial statements for the WM Advantage
Divisions which are included in this Statement relate only to the fifteen
Divisions that were offered as of December 31, 1999.
Of the remaining 54 Divisions, one has been added to WM Advantage as of May 1,
2000, and 53 are available under other variable annuities we offer.
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.
13
<PAGE>
INDEX TO
FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
Page No.
--------
<S> <C>
I. WM Advantage 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-4
Consolidated Statements of Comprehensive Income....................................................... F-5
Consolidated Statements of Shareholder's Equity....................................................... F-6
Consolidated Statements of Cash Flows................................................................. F-7
Notes to Consolidated Financial Statements............................................................ F-8
</TABLE>
14
<PAGE>
[LETTERHEAD APPEARS HERE]
Report of Independent Auditors
Board of Directors
American General Life Insurance Company
and
Contract Owners
American General Life Insurance Company
WM Advantage Divisions
of Separate Account D
We have audited the accompanying statement of net assets of the WM Advantage
Divisions of American General Life Insurance Company (the "Company") Separate
Account D as of December 31, 1999, the related statement of operations for the
year then ended, and the statement of changes in net assets for each of the two
years in the period then ended. These financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these financial statements based on our audits.
We conducted our audits in accordance with auditing standards generally accepted
in the United States. 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, 1999, by
correspondence with the transfer agents. An audit also includes assessing the
accounting principles used and significant estimates made by management, as well
as evaluating the overall financial statement presentation. We believe that our
audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of the WM Advantage Divisions of
American General Life Insurance Company Separate Account D at December 31, 1999,
the results of its operations for the year then ended, and the changes in its
net assets for each of the two years in the period then ended, in conformity
with accounting principles generally accepted in the United States.
Houston, Texas
February 7, 2000
D-1
<PAGE>
American General Life Insurance Company
WM Advantage Divisions
SEPARATE ACCOUNT D
STATEMENT OF NET ASSETS
December 31, 1999
<TABLE>
<S> <C>
ASSETS:
Investment securities - at market (cost $473,039,780)........................ $ 622,570,106
Due from American General Life Insurance Company............................. 73,745
-----------------
NET ASSETS............................................................... $ 622,643,851
=================
CONTRACT OWNER RESERVES:
Reserves for redeemable annuity contracts.................................... $ 622,374,883
Reserves for annuity contracts on benefit.................................... 268,968
-----------------
TOTAL CONTRACT OWNER RESERVES............................................ $ 622,643,851
=================
STATEMENT OF OPERATIONS
Year Ended December 31, 1999
INVESTMENT INCOME:
Dividends from mutual funds.................................................. $ 8,579,682
EXPENSES:
Expense and mortality fees................................................... (7,868,051)
-----------------
NET INVESTMENT INCOME.................................................... 711,631
-----------------
REALIZED AND UNREALIZED GAIN ON INVESTMENTS:
Net realized gain on investments............................................. 79,047,085
Capital gain distributions from mutual funds................................. 39,265,937
Net unrealized gain on investments........................................... 70,847,229
-----------------
NET REALIZED AND UNREALIZED GAIN ON INVESTMENTS.......................... 189,160,251
-----------------
INCREASE IN NET ASSETS RESULTING FROM OPERATIONS......................... $ 189,871,882
=================
</TABLE>
See accompanying notes.
D-2
<PAGE>
American General Life Insurance Company
WM Advantage Divisions
SEPARATE ACCOUNT D
STATEMENT OF CHANGES IN NET ASSETS
<TABLE>
<CAPTION>
Year Ended Year Ended
December 31, December 31,
1999 1998
<S> <C> <C>
OPERATIONS:
Net investment income....................................................... $ 711,631 $ 7,446,534
Net realized gain on investments............................................ 79,047,085 18,188,333
Capital gain distributions from mutual funds................................ 39,265,937 36,894,856
Net unrealized gain on investments.......................................... 70,847,229 25,168,310
-------------- --------------
Increase in net assets resulting from operations........................ 189,871,882 87,698,033
-------------- --------------
PRINCIPAL TRANSACTIONS:
Contract purchase payments.................................................. 4,279,461 6,909,478
Mortality reserve transfers................................................. (630) 0
Payments to contract owners:
Annuity Benefits........................................................ (132,209) (88,543)
Terminations and withdrawals............................................ (92,387,582) (63,960,499)
-------------- --------------
Decrease in net assets resulting from principal transactions............ (88,240,960) (57,139,564)
-------------- --------------
TOTAL INCREASE IN NET ASSETS................................................ 101,630,922 30,558,469
NET ASSETS:
Beginning of year........................................................... 521,012,929 490,454,460
-------------- --------------
End of year................................................................. $ 622,643,851 $ 521,012,929
============== ==============
</TABLE>
See accompanying notes.
D-3
<PAGE>
NOTES TO FINANCIAL STATEMENTS
WM Advantage Divisions
SEPARATE ACCOUNT D
Note A - Organization
The WM Advantage Divisions (the "Divisions") of American General Life
Insurance Company Separate Account D (the "Separate Account") received their
first deposits in May 1993. The Separate Account was established by resolution
of the Board of Directors of American General Life Insurance Company (the
"Company") on November 19, 1973. The Separate Account is registered under the
Investment Company Act of 1940 as a unit investment trust and consists of
sixty-eight divisions. The Divisions available from the WM Variable Trust to WM
Advantage contract owners at December 31, 1999 are as follows:
<TABLE>
<S> <C> <C>
Strategic Growth Portfolio /(1)/ Money Market Fund Growth & Income Fund
Conservative Growth Portfolio /(1)/ Short Term High Quality Bond Fund Northwest Fund /(1)/
Balanced Portfolio /(1)/ U.S. Government Securities Fund Growth Fund
Flexible Income Portfolio /(1)/ Income Fund Emerging Growth Fund
Income Portfolio /(1)/ Bond & Stock Fund /(1)/ International Growth Fund
</TABLE>
(1) One of seven new divisions, which became available during July 1999.
The Trustees for the WM Variable Trust have informed the Company that
effective May 1, 2000, an additional fund is expected to be added to the Trust,
the Mid Cap Stock Fund. As a result, the Company expects to make a new
investment option available to WM Advantage contract owners, the Mid Cap Stock
Fund Division, effective May 1, 2000.
The Trustees have also advised the Company that the names of three existing
funds are expected to change as of May 1, 2000, as follows:
<TABLE>
<CAPTION>
Current Name New Name
------------ --------
<S> <C>
Short Term High Quality Bond Fund Short Term Income Fund
Emerging Growth Fund Small Cap Stock Fund
Northwest Fund Growth Fund of the Northwest
</TABLE>
The Company will change the current names of the corresponding Divisions to
reflect the new fund names, effective May 1, 2000.
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 WM Variable Trust
mutual funds are valued at the closing net asset value (market) per share as
determined by the fund on the day of measurement.
Security transactions and related investment income - Security transactions
are accounted for on the date the order to buy or sell is executed (trade date).
Dividend income and distributions of capital gains are recorded on the
ex-dividend date and reinvested upon receipt. Realized gains and losses from
security transactions are determined on the basis of identified cost.
Administrative expenses and mortality and expense risk charge - Deductions
for administrative expenses and mortality and expense risks assumed by the
Company are calculated daily, at an annual rate, on the daily net asset value of
the Divisions and are paid to the Company. The annual rate for the
administrative expense charge is 0.30%. During July 1999, the annual rate for
the mortality and expense risk charge was lowered from 1.20% to1.10%. A
surrender charge is applicable to certain withdrawal amounts pursuant to the
contract and is payable to the Company. A fee of $25 is charged for each
transfer in excess of twelve transfers during each contract
D-4
<PAGE>
year. The total surrender and transfer charges collected during the year ended
December 31, 1999 were $1,086,717 and $225, respectively.
D-5
<PAGE>
Note B - Summary of Significant Accounting Policies and Basis of Presentation -
Continued
Administrative expenses and mortality and expense risk charge - Continued
For investment advisory services, monthly fees are paid to WM Advisors,
Inc. and WM Shareholder Services, Inc. by each portfolio and underlying fund,
respectively, based upon a percentage of the average net assets of such
portfolio or underlying fund. While the management fee is a significant
component of each fund's annual operating costs, each fund pays other expenses,
such as legal and audit fees. For its services as administrator, WM Shareholder
Services, Inc. is also paid a monthly fee by each portfolio and underlying fund,
respectively, based upon a percentage of the average net assets of such
portfolio or underlying fund. WM Advisors, Inc. and WM Shareholders Services,
Inc. may, from time to time, agree to reimburse the funds for management fees
and other expenses above a certain limit.
Annuity reserves - Annuity reserves are computed for currently payable
contracts according to the 1983a Individual Annuity Mortality Table projected
under Scale G factors. The assumed interest rate is 3.5%. Charges to annuity
reserves for mortality and expense risk experience are reimbursed to the Company
if the reserves required are less than originally estimated. If additional
reserves are required, the Company reimburses the Separate Account.
Note C- Federal Income Taxes
The Company is taxed as a life insurance company under the Internal Revenue
Code and includes the operations of the Separate Account in determining its
federal income tax liability. Under existing federal income tax law, the
investment income and capital gains from 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 or
portfolios. The following is a summary of fund and portfolio shares owned as of
December 31, 1999.
<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>
Strategic Growth Portfolio........... 48,748.941 $ 19.59 $ 954,992 $ 774,215 $ 180,777
Conservative Growth Portfolio........ 4,899,256.929 17.10 83,777,293 77,216,851 6,560,442
Balanced Portfolio................... 5,333,822.177 14.92 79,580,627 75,335,038 4,245,589
Flexible Income Portfolio............ 436,901.637 11.86 5,181,653 5,172,959 8,694
Income Portfolio..................... 147,619.245 9.90 1,461,431 1,485,512 (24,081)
Money Market Fund.................... 10,495,763.960 1.00 10,495,764 10,495,764 0
Short Term High Quality Bond Fund.... 9,058,086.505 2.39 21,648,827 22,049,164 (400,337)
U.S. Government Securities Fund...... 2,968,762.401 9.62 28,559,494 29,685,899 (1,126,405)
Income Fund.......................... 3,974,413.198 9.35 37,160,763 38,968,817 (1,808,054)
Bond & Stock Fund.................... 6,856.196 10.50 71,990 68,887 3,103
Growth & Income Fund................. 3,576,404.675 18.58 66,449,599 57,886,450 8,563,149
Northwest Fund....................... 13,754.424 15.15 208,380 177,606 30,774
Growth Fund.......................... 5,269,132.120 38.54 203,072,352 92,877,362 110,194,990
Emerging Growth Fund................. 2,570,693.373 19.13 49,177,364 34,931,573 14,245,791
International Growth Fund............ 1,972,182.461 17.63 34,769,577 25,913,683 8,855,894
-------------- --------------- -------------
Total $ 622,570,106 $ 473,039,780 $ 149,530,326
============== =============== =============
</TABLE>
The aggregate cost of purchases and proceeds from sales of investments for
the year ended December 31, 1999 were $256,959,980 and $305,200,994,
respectively. The cost of total investments owned at December 31, 1999 was the
same for both financial reporting and federal income tax purposes. Gross
unrealized appreciation and gross unrealized depreciation as of December 31,
1999 were $152,889,203 and $3,358,877 respectively.
D-6
<PAGE>
SEPARATE ACCOUNT D - WM Advantage Divisions
NOTES TO FINANCIAL STATEMENTS - CONTINUED
Note E - Summary of Changes in Units
Summary of Changes in Units for the Year Ended December 31, 1999
CONTRACTS IN ACCUMULATION PERIOD:
<TABLE>
<CAPTION>
Strategic Conservative Flexible
Growth Growth Balanced Income Income
Portfolio Portfolio Portfolio Portfolio Portfolio
<S> <C> <C> <C> <C> <C>
Outstanding at beginning of period...... 0.000 0.000 0.000 0.000 0.000
Purchase payments ...................... 0.000 36,999.430 202,346.983 0.000 0.000
Terminations and withdrawals ........... 0.000 (2,773,688.385) (899,177.964) (75,983.973) (23,414.005)
Transfers to annuity ................... 0.000 0.000 0.000 0.000 0.000
Transfers between funds ................ 799,250.216 71,780,948.222 69,379,232.619 5,204,606.580 1,479,230.290
--------------- --------------- --------------- -------------- ---------------
Outstanding at end of period ........... 799,250.216 69,044,259.267 68,682,401.638 5,128,622.607 1,455,816.285
=============== =============== =============== ============== ===============
<CAPTION>
Money Short Term U.S. Government Bond &
Market High Quality Securities Income Stock
Fund Bond Fund Fund Fund Fund
<S> <C> <C> <C> <C> <C>
Outstanding at beginning of period...... 24,148,976.079 30,269,818.548 31,765,840.414 36,372,410.376 0.000
Purchase payments ...................... 186,799.234 264,715.253 370,466.894 208,262.171 0.000
Terminations and withdrawals ........... (8,906,379.846) (5,409,411.784) (6,095,116.040) (6,262,390.304) (378.322)
Transfers to annuity ................... 0.000 (31,126.040 (38,251.361 (21,095.802) 0.000
Transfers between funds ................ (6,816,849.783) (6,611,407.229) (3,481,265.836) (1,541,244.714) 70,803.926
--------------- --------------- --------------- -------------- ---------------
Outstanding at end of period ........... 8,612,545.684 18,482,588.748 22,521,674.071 28,755,941.727 70,425.604
=============== =============== =============== ============== ===============
<CAPTION>
Growth & Emerging International
Income Northwest Growth Growth Growth
Fund Fund Fund Fund Fund
<S> <C> <C> <C> <C> <C>
Outstanding at beginning of period ..... 50,682,086.178 0.000 52,178,693.516 25,013,652.144 44,027,054.948
Purchase payments ...................... 371,150.343 36,849.736 316,493.941 169,976.377 241,492.161
Terminations and withdrawals ........... (5,477,367.302) (73.007) (7,182,245.004) (2,591,773.673) (4,927,753.290)
Transfers to annuity ................... (27,938.349) 0.000 (46,930.162 0.000 (30,053.958)
Transfers between funds ................ (20,199,462.776) 142,876.234 (10,199,979.997) (5,579,107.422) (20,908,960.142)
--------------- --------------- --------------- -------------- ---------------
Outstanding at end of period ........... 25,348,468.094 179,652.963 35,066,032.294 17,012,747.426 18,401,779.719
=============== =============== =============== ============== ===============
CONTRACTS IN ANNUITY PERIOD:
<CAPTION>
Money Short Term U.S. Government Growth &
Market High Quality Securities Income Income
Fund Bond Fund Fund Fund Fund
<S> <C> <C> <C> <C> <C>
Outstanding at beginning of period...... 4,211.074 16,277.502 11,996.612 11,198.320 29,324.690
Transfers between funds ................ 0.000 0.000 0.000 0.000 0.000
Annuity benefits ....................... (1,727.727) (7,374.276) (4,655.598) (7,082.989) (9,749.672)
--------------- --------------- --------------- -------------- ---------------
Outstanding at end of period ........... 2,483.347 8,903.226 7,341.014 4,115.331 19,575.018
=============== =============== =============== ============== ===============
<CAPTION>
Emerging International
Growth Growth Growth
Fund Fund Fund
<S> <C> <C> <C>
Outstanding at beginning of period...... 25,785.032 13,325.197 24,198.150
Transfers between funds ................ 0.000 26,135.551 0.000
Annuity benefits ....................... (9,267.635) (17,273.935) (8,344.664)
--------------- --------------- ---------------
Outstanding at end of period ........... 16,517.397 22,186.813 15,853.486
=============== =============== ===============
</TABLE>
D-7
<PAGE>
Note E - Summary of Changes in Units - Continued
Summary of Changes in Units for the Year Ended December 31, 1998
CONTRACTS IN ACCUMULATION PERIOD:
<TABLE>
<CAPTION>
Money Short Term U.S. Government Growth &
Market High Quality Securities Income Income
Fund Bond Fund Fund Fund Fund
<S> <C> <C> <C> <C> <C>
Outstanding at beginning of period 28,109,671.118 10,688,974.372 50,293,307.671 40,784,632.255 52,313,547.982
Purchase payments ................ 531,309.751 436,380.376 517,747.821 587,627.735 789,732.495
Terminations and withdrawals ..... (6,859,165.078) (2,944,295.092) (4,976,244.041) (4,743,056.117) (5,789,664.694)
Transfers to annuity ............. 0.000 0.000 0.000 0.000 (102,950.449)
Transfers between funds .......... 2,367,160.288 22,088,758.892 (14,068,971.037) (256,793.497) 3,471,420.844
-------------- -------------- --------------- -------------- --------------
Outstanding at end of period ..... 24,148,976.079 30,269,818.548 31,765,840.414 36,372,410.376 50,682,086.178
============== ============== =============== ============== ==============
<CAPTION>
Emerging International Short Term
Growth Growth Growth Global Government
Fund Fund Fund Fund (a)
<S> <C> <C> <C> <C>
Outstanding at beginning of period 63,454,068.969 28,042,281.808 40,387,999.121 16,094,023.560
Purchase payments ................ 605,327.303 411,765.295 548,886.472 1,460.549
Terminations and withdrawals ..... (6,966,818.968) (3,047,603.552) (5,071,761.210) (91,046.220)
Transfers to annuity ............. 0.000 0.000 0.000 0.000
Transfers between funds .......... (4,913,883.788) (392,791.407) 8,161,930.565 (16,004,437.889)
-------------- -------------- --------------- --------------
Outstanding at end of period ..... 52,178,693.516 25,013,652.144 44,027,054.948 0.000
============== ============== =============== ==============
CONTRACTS IN ANNUITY PERIOD:
<CAPTION>
Money Short Term U.S. Government Growth &
Market High Quality Securities Income Income
Fund Bond Fund Fund Fund Fund
<S> <C> <C> <C> <C> <C>
Outstanding at beginning of period 5,945.943 5,336.618 16,815.186 18,879.632 39,415.440
Transfers between funds .......... 0.000 17,527.720 0.000 0.000 0.000
Annuity benefits ................. (1,734.869) (6,586.836) (4,818.574) (7,681.312) (10,090.750)
-------------- -------------- --------------- -------------- --------------
Outstanding at end of period ..... 4,211.074 16,277.502 11,996.612 11,198.320 29,324.690
============== ============== =============== ============== ==============
<CAPTION>
Emerging International Short Term
Growth Growth Growth Global Government
Fund Fund Fund Fund (a)
<S> <C> <C> <C> <C>
Outstanding at beginning of period 35,554.602 18,163.698 32,834.823 18,018.122
Transfers between funds .......... 0.000 0.000 0.000 (17,423.125)
Annuity benefits ................. (9,769.570) (4,838.501) (8,636.673) (594.997)
-------------- -------------- --------------- --------------
Outstanding at end of period ..... 25,785.032 13,325.197 24,198.150 0.000
============== ============== =============== ==============
</TABLE>
D-8
(a): On January 30, 1998, the Short Term Global Government Fund was merged into
the Short Term High Quality Bond Fund.
<PAGE>
SEPARATE ACCOUNT D - WM Advantage Divisions
NOTES TO FINANCIAL STATEMENTS - CONTINUED
Note F - Net Assets Represented By:
<TABLE>
<CAPTION>
December 31, 1999
CONTRACTS IN ACCUMULATION PERIOD: Units Unit Value Amount
<S> <C> <C> <C>
Strategic Growth Portfolio................................. 799,250.216 $ 1.194860 $ 954,992
Conservative Growth Portfolio.............................. 69,044,259.267 1.213525 83,786,935
Balanced Portfolio......................................... 68,682,401.638 1.158809 79,589,785
Flexible Income Portfolio.................................. 5,128,622.607 1.010341 5,181,658
Income Portfolio........................................... 1,455,816.285 1.003857 1,461,431
Money Market Fund.......................................... 8,612,545.684 1.218797 10,496,944
Short Term High Quality Bond Fund.......................... 18,482,588.748 1.170880 21,640,894
U.S. Government Securities Fund............................ 22,521,674.071 1.267822 28,553,474
Income Fund................................................ 28,755,941.727 1.292245 37,159,722
Bond & Stock Fund.......................................... 70,425.604 1.022215 71,990
Growth & Income Fund....................................... 25,348,468.094 2.619723 66,405,965
Northwest Fund............................................. 179,652.963 1.159901 208,380
Growth Fund................................................ 35,066,032.294 5.789081 203,000,101
Emerging Growth Fund....................................... 17,012,747.426 2.887186 49,118,966
International Growth Fund.................................. 18,401,779.719 1.888059 34,743,646
--------------
TOTAL RESERVES - ACCUMULATION PERIOD 622,374,883
--------------
CONTRACTS IN ANNUITY PERIOD:
Money Market Fund.......................................... 2,483.347 1.218797 3,027
Short Term High Quality Bond Fund.......................... 8,903.226 1.170880 10,425
U.S. Government Securities Fund............................ 7,341.014 1.267822 9,307
Income Fund................................................ 4,115.331 1.292245 5,318
Growth & Income Fund....................................... 19,575.018 2.619723 51,281
Growth Fund................................................ 16,517.397 5.789081 95,621
Emerging Growth Fund....................................... 22,186.813 2.887186 64,057
International Growth Fund.................................. 15,853.486 1.888059 29,932
--------------
TOTAL RESERVES - ANNUITY PERIOD 268,968
--------------
TOTAL CONTRACT OWNER RESERVES $ 622,643,851
==============
</TABLE>
D-10
<PAGE>
Note F - Net Assets Represented By: - Continued
<TABLE>
<CAPTION>
December 31, 1998
CONTRACTS IN ACCUMULATION PERIOD: Units Unit Value Amount
<S> <C> <C> <C>
Money Market Fund.......................................... 24,148,976.079 $ 1.182587 $ 28,558,265
Short Term High Quality Bond Fund.......................... 30,269,818.548 1.154514 34,946,929
U.S. Government Securities Fund............................ 31,765,840.414 1.279826 40,654,748
Income Fund................................................ 36,372,410.376 1.340028 48,740,048
Growth & Income Fund....................................... 50,682,086.178 2.250315 114,050,659
Growth Fund................................................ 52,178,693.516 2.979944 155,489,585
Emerging Growth Fund....................................... 25,013,652.144 1.712049 42,824,598
International Growth Fund.................................. 44,027,054.948 1.260539 55,497,820
--------------
TOTAL RESERVES - ACCUMULATION PERIOD 520,762,652
--------------
CONTRACTS IN ANNUITY PERIOD:
Money Market Fund.......................................... 4,211.074 1.182587 4,980
Short Term High Quality Bond Fund.......................... 16,277.502 1.154514 18,793
U.S. Government Securities Fund............................ 11,996.612 1.279826 15,354
Income Fund................................................ 11,198.320 1.340028 15,006
Growth & Income Fund....................................... 29,324.690 2.250315 65,990
Growth Fund................................................ 25,785.032 2.979944 76,838
Emerging Growth Fund....................................... 13,325.197 1.712049 22,813
International Growth Fund.................................. 24,198.150 1.260539 30,503
--------------
TOTAL RESERVES - ANNUITY PERIOD 250,277
--------------
TOTAL CONTRACT OWNER RESERVES $ 521,012,929
==============
</TABLE>
D-11
<PAGE>
SEPARATE ACCOUNT D - WM Advantage Divisions
NOTES TO FINANCIAL STATEMENTS - CONTINUED
Note G - Year 2000 Contingency (Unaudited)
Internal Systems. The Company's ultimate parent, American General
----------------
Corporation ("AGC"), has numerous technology and non-technology systems that are
managed on a decentralized basis. AGC's Year 2000 readiness efforts have been
performed by its key business units with centralized oversight. Each business
unit, including the Company, executed a plan to minimize the risk of a
significant negative impact on its operations.
While the specifics of the plans varied, the plans included 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; and (5) return the systems
to operations. As of December 31, 1999, these activities have been completed,
making the Company's critical systems Year 2000 ready.
The Company continued to test its systems throughout 1999 to maintain Year
2000 readiness. In addition, the Company implemented plans for the century
transition. These plans included a freeze on system modifications from November
1999 through January 2000, the creation of rapid response teams to address
problems and limiting vacations for certain business and technical personnel and
establishing Y2K Command Centers. In addition, AGC established Y2K Command
Centers in Houston and each of its locations across the country. Each Command
Center monitored all major business processing activities during the century
transition and reported progress to the Houston Command Center which coordinated
the company's nationwide Year 2000 effort. The Command Centers continued to
operate 24 hours a day until January 7, 2000.
On January 1, 2000, AGC announced that its Y2K Command Centers reported
that all major technology systems, programs, and applications were operating
smoothly following the transition into the 21st century. As of February 7, 2000,
the Company has experienced no interruptions to normal business operations,
including the processing of customer account data and transactions. The Company
will continue to monitor our technology systems and maintain quality customer
service throughout the transition period.
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 such parties' Year 2000 readiness.
The Company developed plans to assess and mitigate the risks associated
with the potential failure of third parties to achieve Year 2000 readiness.
These plans included 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, and, where feasible, the Company has taken reasonable
precautions to protect against the receipt of non-Year 2000 ready data. Where
necessary, critical third party dependencies have been included in The Company's
contingency plans.
Contingency Plans. The Company's contingency planning process was designed
-----------------
to reduce the risk of Year 2000-related business failures related to both
internal systems and third party relationships. The contingency plans included
the following activities: (1) evaluate the consequences of failure of critical
business processes with significant exposure to Year 2000 risk; (2) determine
the probability of a Year 2000-related failure for those critical processes that
have a high consequence of failure; (3) develop an action plan to complete
contingency plans for critical processes that rank high in consequence and
probability of failure; and (4) complete the applicable contingency plans. The
contingency plans were tested and updated throughout 1999.
D-12
<PAGE>
Note G - Year 2000 Contingency (Unaudited) - Continued
Risks and Uncertainties. Based on the Year 2000 readiness of internal
-----------------------
systems, century transition plans, plans to deal with third party relationships,
contingency plans and the reports from the AGC Y2K Command Centers described
above, the Company believes that it will experience at most isolated and minor
disruptions of business processes due to the Year 2000 transition. Such
disruptions are not expected to have a material effect on our 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 Year 2000
readiness is not achieved due to the Company's failure to maintain critical
systems as Year 2000 ready, failure of critical third parties to achieve Year
2000 readiness on a timely basis, failure of contingency plans to reduce Year
2000-related business failures, or other unforeseen circumstances in completing
its plans, 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, 1999, the Company has incurred, and anticipates
-----
that the Company will continue to incur, costs relative to achieving and
maintaining 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.
None of the costs associated with Year 2000 readiness are passed to divisions of
the Separate Account.
D-13
<PAGE>
[LETTERHEAD OF ERNST & YOUNG]
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, 1999 and 1998, 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, 1999. 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 auditing standards generally accepted
in the United States. Those standards require that we plan and perform the audit
to obtain reasonable assurance about whether the financial statements are free
of material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant estimates
made by management, as well as evaluating the overall financial statement
presentation. We believe that our audits provide a reasonable basis for our
opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the consolidated financial position of American General
Life Insurance Company and subsidiaries at December 31, 1999 and 1998, and the
consolidated results of their operations and their cash flows for each of the
three years in the period ended December 31, 1999, in conformity with accounting
principles generally accepted in the United States.
/s/ Ernst & Young LLP
------------------------------
Ernst & Young LLP
March 1,2000
F-1
<PAGE>
American General Life Insurance Company
Consolidated Balance Sheets
DECEMBER 31
1999 1998
-----------------------------
(In Thousands)
ASSETS
Investments:
Fixed maturity securities, at fair value
(amortized cost - $27,725,167 in 1999 and $27,029,409 $28,906,261
$27,425,605 in 1998)
Equity securities, at fair value (cost -
$198,640 in 1999 and $193,368 in 1998) 237,065 211,684
Mortgage loans on real estate 1,918,956 1,557,268
Policy loans 1,234,729 1,170,686
Investment real estate 125,563 119,520
Other long-term investments 129,155 86,194
Short-term investments 123,779 222,949
----------------------------
Total investments 30,798,656 32,274,562
Cash 45,983 117,675
Investment in Parent Company (cost - $8,597 in
1999 and 1998) 53,083 54,570
Indebtedness from affiliates 75,195 161,096
Accrued investment income 482,652 459,961
Accounts receivable 186,592 196,596
Deferred policy acquisition costs 1,956,653 1,087,718
Property and equipment 78,908 66,197
Other assets 250,299 206,318
Assets held in separate accounts 23,232,419 15,616,020
----------------------------
Total assets $57,160,440 $50,240,713
============================
See accompanying notes.
F-2
<PAGE>
American General Life Insurance Company
Consolidated Balance Sheets
DECEMBER 31
1999 1998
-----------------------------
(In Thousands)
LIABILITIES AND SHAREHOLDER'S EQUITY
Liabilities:
Future policy benefits $29,901,842 $29,353,022
Other policy claims and benefits payable 53,326 54,278
Other policyholders' funds 371,632 398,587
Federal income taxes 375,332 677,315
Indebtedness to affiliates 7,086 18,173
Other liabilities 372,416 554,783
Liabilities related to separate accounts 23,232,419 15,616,020
----------------------------
Total liabilities 54,314,053 46,672,178
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 1,371,687 1,368,089
Accumulated other comprehensive (loss) income (356,865) 679,107
Retained earnings 1,824,715 1,514,489
----------------------------
Total shareholder's equity 2,846,387 3,568,535
----------------------------
Total liabilities and shareholder's equity $57,160,440 $50,240,713
============================
See accompanying notes.
F-3
<PAGE>
American General Life Insurance Company
Consolidated Statements of Income
YEAR ENDED DECEMBER 31
1999 1998 1997
-------------------------------------------
(In Thousands)
Revenues:
Premiums and other considerations $ 540,029 $ 470,238 $ 428,721
Net investment income 2,348,196 2,316,933 2,198,623
Net realized investment gains 5,351 (33,785) 29,865
(losses)
Other 82,581 69,602 53,370
-----------------------------------------
Total revenues 2,976,157 2,822,988 2,710,579
Benefits and expenses:
Benefits 1,719,375 1,788,417 1,757,504
Operating costs and expenses 495,606 467,067 379,012
Interest expense 74 15 782
Litigation settlement - 97,096 -
-----------------------------------------
Total benefits and expenses 2,215,055 2,352,595 2,137,298
-----------------------------------------
Income before income tax expense 761,102 470,393 573,281
Income tax expense 263,196 153,719 198,724
------------------------------------------
Net income $ 497,906 $ 316,674 $ 374,557
==========================================
See accompanying notes.
F-4
<PAGE>
American General Life Insurance Company
Consolidated Statements of Comprehensive Income
YEAR ENDED DECEMBER 31
1999 1998 1997
----------------------------------------
(In Thousands)
Net income $ 497,906 $ 316,674 $ 374,557
Other comprehensive income:
Gross change in unrealized gains
(losses) on securities (pretax:
($1,581,500) $341,000; $318,700) (1,027,977) 222,245 207,124
Less: gains (losses) realized in 7,995 (29,336) (1,251)
net income
----------------------------------------
Change in net unrealized gains
(losses) on securities (pretax:
($1,593,800) $387,000; $320,600) (1,035,972) 251,581 208,375
----------------------------------------
Comprehensive (loss) income $ (538,066) $ 568,255 $ 582,932
========================================
See accompanying notes.
F-5
<PAGE>
American General Life Insurance Company
Consolidated Statements of Shareholder's Equity
YEAR ENDED DECEMBER 31
1999 1998 1997
-------------------------------------------
(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 1,368,089 1,184,743 933,342
Capital contribution from Parent
Company - 182,284 250,000
Other changes during year 3,598 1,062 1,401
-------------------------------------------
Balance at end of year 1,371,687 1,368,089 1,184,743
Accumulated other comprehensive
(loss) income:
Balance at beginning of year 679,107 427,526 219,151
Change in unrealized gains
(losses) on securities (1,035,972) 251,581 208,375
------------------------------------------
Balance at end of year (356,865) 679,107 427,526
Retained earnings:
Balance at beginning of year 1,514,489 1,442,495 1,469,618
Net income 497,906 316,674 374,557
Dividends paid (187,680) (244,680) (401,680)
------------------------------------------
Balance at end of year 1,824,715 1,514,489 1,442,495
-------------------------------------------
Total shareholder's equity $2,846,387 $3,568,535 $3,061,614
===========================================
See accompanying notes.
F-6
<PAGE>
American General Life Insurance Company
Consolidated Statements of Cash Flows
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31
1999 1998 1997
--------------------------------------------------------------------
<S> <C> <C> <C>
(In Thousands)
OPERATING ACTIVITIES
Net income $ 497,906 $ 316,674 $ 374,557
Adjustments to reconcile net income to net cash
(used in) provided by operating activities:
Change in accounts receivable 10,004 11,613 (37,752)
Change in future policy benefits and other
policy claims (2,422,221) (866,428) (1,143,736)
Amortization of policy acquisition costs 101,066 125,062 115,467
Policy acquisition costs deferred (307,854) (244,196) (219,339)
Change in other policyholders' funds (26,955) 273 21,639
Provision for deferred income tax expense 85,257 15,872 13,264
Depreciation 24,066 19,418 16,893
Amortization (30,894) (26,775) (28,276)
Change in indebtedness to/from affiliates 74,814 (51,116) (8,695)
Change in amounts payable to brokers (43,321) (894) 31,769
Net loss (gain) on sale of investments 45,379 37,016 (29,865)
Other, net (170,413) 57,307 30,409
--------------------------------------------------------------------
Net cash used in operating activities (2,163,166) (606,174) (863,665)
INVESTING ACTIVITIES
Purchases of investments and loans made (44,508,908) (28,231,615) (29,638,861)
Sales or maturities of investments and
receipts from repayment of loans 43,879,377 26,656,897 28,300,238
Sales and purchases of property, equipment,
and software, net (87,656) (105,907) (9,230)
--------------------------------------------------------------------
Net cash used in investing activities (717,187) (1,680,625) (1,347,853)
FINANCING ACTIVITIES
Policyholder account deposits 5,747,658 4,688,831 4,187,191
Policyholder account withdrawals (2,754,915) (2,322,307) (1,759,660)
Dividends paid (187,680) (244,680) (401,680)
Capital contribution from Parent - 182,284 250,000
Other 3,598 1,062 1,401
--------------------------------------------------------------------
Net cash provided by financing activities 2,808,661 2,305,190 2,277,252
--------------------------------------------------------------------
(Decrease) increase in cash (71,692) 18,391 65,734
Cash at beginning of year 117,675 99,284 33,550
--------------------------------------------------------------------
Cash at end of year $ 45,983 $ 117,675 $ 99,284
====================================================================
</TABLE>
Interest paid amounted to approximately $2,026,000, $420,000, and $1,004,000, in
1999, 1998, and 1997, respectively.
See accompanying notes.
F-7
<PAGE>
American General Life Insurance Company
Notes to Consolidated Financial Statements
December 31, 1999
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 life 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-8
<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,
1999.
Statutory financial statements differ from GAAP. Significant differences were as
follows (in thousands):
<TABLE>
<CAPTION>
1999 1998 1997
--------------------------------------------------------
Net income:
<S> <C> <C> <C>
Statutory net income (1999 balance is
unaudited) $ 350,294 $ 259,903 $ 327,813
Deferred policy acquisition costs and cost
of insurance purchased 200,285 116,597 103,872
Deferred income taxes (86,456) (53,358) (13,264)
Adjustments to policy reserves 23,110 52,445 (30,162)
Goodwill amortization (2,437) (2,033) (2,067)
Net realized gain on investments 2,246 41,488 20,139
Litigation settlement - (63,112) -
Other, net 10,864 (35,256) (31,774)
--------------------------------------------------------
GAAP net income $ 497,906 $ 316,674 $ 374,557
========================================================
Shareholders' equity:
Statutory capital and surplus (1999 balance
is unaudited) $1,753,570 $1,670,412 $1,636,327
Deferred policy acquisition costs and cost
of insurance purchased 1,975,667 1,109,831 835,031
Deferred income taxes (350,258) (698,350) (535,703)
Adjustments to policy reserves (202,150) (274,532) (319,680)
Acquisition-related goodwill 52,317 54,754 51,424
Asset valuation reserve ("AVR") 351,904 310,564 255,975
Interest maintenance reserve ("IMR") 53,226 27,323 9,596
Investment valuation differences (683,500) 1,487,658 1,272,339
Surplus from separate accounts (180,362) (174,447) (150,928)
Other, net 75,973 55,322 7,233
--------------------------------------------------------
Total GAAP shareholders' equity $2,846,387 $3,568,535 $3,061,614
========================================================
</TABLE>
F-9
<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. At
December 31, 1999 and 1998, insurance investment contracts of $25.9 million and
$24.1 million, respectively, were included in the Company's liabilities.
F-10
<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, 1999 and 1998. 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 1999, the Company maintained a trading portfolio of certain fixed
maturity securities. Trading securities are recorded at fair value. Unrealized
and realized gains (losses) are included in net investment income. The Company
held no trading securities at December 31, 1999, and trading securities did not
have a material effect on net investment income in 1999.
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-11
<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 and any amortization of premium or discount on
delinquent mortgage loans is recorded as income only when actual interest
payments are 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-12
<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, 1999, CIP
of $19.0 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-13
<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 insurance and 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, 1999.
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 $28 million, $63 million, and $25 million, during
1999, 1998, and 1997, 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. Benefits paid and future policy benefits
related to ceded insurance contracts are recorded as reinsurance receivables.
F-14
<PAGE>
American General Life Insurance Company
Notes to Consolidated Financial Statements (Continued)
1. ACCOUNTING POLICIES (CONTINUED)
1.11 PARTICIPATING POLICY CONTRACTS
Participating life insurance accounted for approximately 1% and 2% of life
insurance in force at December 31, 1999 and 1998, respectively.
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 $4.6 million in 1999.
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.
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.
F-15
<PAGE>
American General Life Insurance Company
Notes to Consolidated Financial Statements (Continued)
1. ACCOUNTING POLICIES (CONTINUED)
1.13 ACCOUNTING CHANGES
In 1998, the Financial Accounting Standards Board ("FASB") issued Statement of
Financial Accounting Standards ("SFAS") 133, Accounting for Derivative
Instruments and Hedging Activities, which requires all derivative instruments to
be recognized at fair value in the balance sheet. Changes in the fair value of a
derivative instrument will be reported as earnings or other comprehensive
income, depending upon the intended use of the derivative instrument. The
Company will adopt SFAS 133 on January 1, 2001. The Company does not expect
adoption to have a material impact on the Company's results of operations and
financial position.
2. INVESTMENTS
2.1 INVESTMENT INCOME
Investment income by type of investment was as follows:
1999 1998 1997
-------------------------------------------
(In Thousands)
Investment income:
Fixed maturities $2,118,794 $2,101,730 $1,966,528
Equity securities 17,227 1,813 1,067
Mortgage loans on real estate 134,878 148,447 157,035
Investment real estate 20,553 23,139 22,157
Policy loans 69,684 66,573 62,939
Other long-term investments 7,539 3,837 3,135
Short-term investments 24,874 15,492 8,626
Investment income from affiliates 8,695 10,536 11,094
-------------------------------------------
Gross investment income 2,402,244 2,371,567 2,232,581
Investment expenses 54,048 54,634 33,958
-------------------------------------------
Net investment income $2,348,196 $2,316,933 $2,198,623
===========================================
The carrying value of investments that produced no investment income during 1999
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:
1999 1998 1997
-------------------------------------------
(In Thousands)
Fixed maturities:
Gross gains $ 118,427 $ 20,109 $ 42,966
Gross losses (102,299) (62,657) (34,456)
-------------------------------------------
Total fixed maturities 16,128 (42,548) 8,510
Equity securities 793 645 1,971
Other investments (11,570) 8,118 19,384
-------------------------------------------
Net realized investment gains
(losses) 5,351 (33,785) 29,865
before tax
Income tax expense (benefit) 1,874 (11,826) 10,452
Net realized investment gains
(losses) $ 3,477 $(21,959) $ 19,413
after tax
===========================================
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, 1999 and 1998 were as follows:
GROSS GROSS
AMORTIZED UNREALIZED UNREALIZED FAIR
COST GAIN LOSS VALUE
--------------------------------------------------
(In Thousands)
DECEMBER 31, 1999
Fixed maturity securities:
Corporate securities:
Investment-grade $19,455,518 $134,003 $(704,194) $18,885,326
Below investment-grade 1,368,494 11,863 (114,260) 1,266,098
Mortgage-backed securities* 6,195,003 45,022 (74,746) 6,165,279
U.S. government obligations 276,621 15,217 (2,376) 289,462
Foreign governments 245,782 5,774 (1,767) 249,789
State and political 154,034 499 (10,836) 143,697
subdivisions
Redeemable preferred stocks 29,715 43 - 29,758
-------------------------------------------------
Total fixed maturity $27,725,167 $212,421 $(908,179) $27,029,409
securities
==================================================
Equity securities $ 198,640 $ 39,381 $ (956) $ 237,065
==================================================
Investment in Parent Company $ 8,597 $ 44,486 $ - $ 53,083
==================================================
* 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)
GROSS GROSS
AMORTIZED UNREALIZED UNREALIZED FAIR
COST GAIN LOSS VALUE
-------------------------------------------------
(In Thousands)
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 86,778 4,796 (187) 91,387
subdivisions
Redeemable preferred stocks 20,313 - (17) 20,296
-------------------------------------------------
Total fixed maturity $27,425,605 $1,556,487 $(75,831) $28,906,261
securities
=================================================
Equity securities $ 193,368 $ 19,426 $ (1,110) $ 211,684
=================================================
Investment in Parent Company $ 8,597 $ 45,973 $ - $ 54,570
=================================================
* 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:
1999 1998
-------------------------------
(In Thousands)
Gross unrealized gains $ 296,288 $1,621,883
Gross unrealized losses (909,135) (76,941)
DPAC and other fair value adjustments 200,353 (488,120)
Deferred federal income taxes 55,631 (377,718)
Net unrealized (losses) gains on securities $(356,863) $ 679,104
===============================
The contractual maturities of fixed maturity securities at December 31, 1999
were as follows:
1999 1998
--------------------------------------------------------
AMORTIZED MARKET AMORTIZED MARKET
COST VALUE COST VALUE
--------------------------------------------------------
(In thousands) (In thousands)
Fixed maturity
securities, excluding
mortgage-backed
securities:
Due in one year or $ 810,124 $ 813,683 $ 531,496 $ 536,264
less
Due after one year
through five years 5,380,557 5,394,918 5,550,665 5,812,581
Due after five years
through ten years 8,350,207 8,080,065 9,229,980 9,747,761
Due after ten years 6,988,799 6,575,461 5,754,220 6,156,950
Mortgage-backed 6,195,480 6,165,282 6,359,244 6,652,705
securities
--------------------------------------------------------
Total fixed maturity $27,725,167 $27,029,409 $27,425,605 $28,906,261
securities
========================================================
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 $12.3 billion,
$5.4 billion, and $14.8 billion during 1999, 1998, and 1997, 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, 1999 and 1998:
OUTSTANDING PERCENT OF PERCENT
AMOUNT TOTAL NONPERFORMING
----------------------------------------------
(In Millions)
DECEMBER 31, 1999
Geographic distribution:
South Atlantic $ 470 24.6% 0.2%
Pacific 363 18.9 7.8
West South Central 185 9.6 0.0
East South Central 144 7.5 0.0
East North Central 256 13.3 0.0
Mid-Atlantic 323 16.8 0.9
Mountain 107 5.6 13.8
West North Central 43 2.2 0.0
New England 44 2.3 0.0
Allowance for losses (16) (0.8) 0.0
-------------------------------
Total $1,919 100.0% 2.4%
===============================
Property type:
Retail $ 628 32.6% 2.5%
Office 746 38.9 4.2
Industrial 302 15.7 0.0
Apartments 189 9.9 0.0
Hotel/motel 46 2.4 0.0
Other 24 1.3 0.2
Allowance for losses (16) (0.8) 0.0
-------------------------------
Total $1,919 100.0% 2.4%
===============================
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)
OUTSTANDING PERCENT OF PERCENT
AMOUNT TOTAL NONPERFORMING
----------------------------------------------
(In Millions)
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%
===============================
Impaired mortgage loans on real estate and related interest income is not
material.
F-22
<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, 1999 DECEMBER 31, 1998
-----------------------------------------------------------------------------------------
CARRYING CARRYING
COST FAIR VALUE AMOUNT COST FAIR VALUE AMOUNT
-----------------------------------------------------------------------------------------
(In Thousands) (In Thousands)
Fixed maturities:
Bonds:
<S> <C> <C> <C> <C> <C> <C>
United States
government and
government agencies $ 276,621 $ 289,462 $ 289,462 $ 417,822 $ 486,965 $ 486,965
and authorities
States, municipalities,
and political 154,034 143,697 143,697 86,778 91,387 91,387
subdivisions
Foreign governments 245,782 249,789 249,789 331,699 353,887 353,887
Public utilities 1,468,758 1,465,129 1,465,129 1,777,172 1,895,326 1,895,326
Mortgage-backed 6,195,003 6,165,279 6,165,279 6,359,242 6,652,703 6,652,703
securities
All other corporate 19,355,254 18,686,295 18,686,295 18,432,579 19,405,697 19,405,697
bonds**
Redeemable preferred 29,715 29,758 29,758 20,313 20,296 20,296
stocks
---------------------------------------------------------------------------------------------
Total fixed maturities 27,725,167 27,029,409 27,029,409 27,425,605 28,906,261 28,906,261
Equity securities:
Common stocks:
Banks, trust, and
insurance companies - - - - - -
Industrial,
miscellaneous, and 180,849 219,089 219,089 176,321 211,684 211,684
other
Nonredeemable preferred
stocks 17,791 17,976 17,976 17,047 - -
---------------------------------------------------------------------------------------------
Total equity securities 198,640 237,065 237,065 193,368 211,684 211,684
Mortgage loans on real 1,918,956 1,829,212 1,918,956 1,557,268 1,607,599 1,557,268
estate*
Investment real estate 125,563 XXXXXXX 125,563 119,520 xxxxxxx 119,520
Policy loans 1,234,729 1,205,056 1,234,729 1,170,686 1,252,409 1,170,686
Other long-term investments 129,155 XXXXXXX 129,155 86,194 xxxxxxx 86,194
Short-term investments 123,779 XXXXXXX 123,779 222,949 xxxxxxx 222,949
---------------------------------------------------------------------------------------------
Total investments $31,455,989 $ XXXXXXX $ 30,798,656 $ 30,775,590 $ xxxxxxx $ 32,274,562
============================================================================================
</TABLE>
* Amount is net of allowance for losses of $16 million and $13 million at
December 31, 1999 and 1998, respectively.
** Includes derivative financial instruments with negative fair values of $4.7
million and $1.0 million and positive fair values of $2.3 million and $24.3
million at December 31, 1999 and 1998, respectively.
F-23
<PAGE>
American General Life Insurance Company
Notes to Consolidated Financial Statements (continued)
3. DEFERRED POLICY ACQUISITIONS 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:
1999 1998 1997
--------------------------------------
(In Thousands)
Balance at January 1 $1,087,718 $ 835,031 $1,042,783
Capitalization 307,854 244,196 219,339
Amortization (101,066) (125,062) (115,467)
Effect of realized and unrealized
gains (losses) on securities 662,147 133,553 (311,624)
--------------------------------------
Balance at December 31 $1,956,653 $1,087,718 $ 835,031
=======================================
4. OTHER ASSETS
Other assets consisted of the following:
DECEMBER 31
1999 1998
------------------------------
(In Thousands)
Goodwill $ 52,317 $ 54,754
American General Corporation CBO (Collateralized
Bond Obligation) 98-1 Ltd. - 9,740
Cost of insurance purchased ("CIP") 19,014 22,113
Computer software 117,571 78,775
Other 61,397 40,936
------------------------------
Total other assets $250,299 $206,318
==============================
F-24
<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, 1999, was as follows:
1999
------------
(In
Thousands)
Balance at January 1 $ 22,113
Acquisition of business -
Accretion of interest at 5.02% 926
Amortization (4,025)
---------
Balance at December 31 $ 19,014
=========
5. FEDERAL INCOME TAXES
5.1 TAX LIABILITIES
Income tax liabilities were as follows:
DECEMBER 31
1999 1998
-----------------------------
(In Thousands)
Current tax (receivable) payable $ 25,074 $ (21,035)
Deferred tax liabilities, applicable to:
Net income 405,889 320,632
Net unrealized investment gains (55,631) 377,718
-----------------------------
Total deferred tax liabilities 350,258 698,350
-----------------------------
Total current and deferred tax liabilities $375,332 $677,315
=============================
F-25
<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:
1999 1998
--------------------------
(In Thousands)
Deferred tax liabilities applicable to:
Deferred policy acquisition costs $ 601,678 $ 307,025
Basis differential of investments - 590,661
Other 171,763 150,189
---------------------------
Total deferred tax liabilities 773,441 1,047,875
Deferred tax assets applicable to:
Policy reserves (215,465) (212,459)
Basis differential of investments (158,421) -
Other (141,236) (137,066)
--------------------------
Total deferred tax assets before valuation
allowance (515,122) (349,525)
Valuation allowance 91,939 -
--------------------------
Total deferred tax assets, net of valuation
allowance (423,183) (349,525)
--------------------------
Net deferred tax liabilities $ 350,258 $ 698,350
==========================
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 $88.2 million at December 31, 1999. At current corporate rates, the
maximum amount of tax on such income is approximately $30.9 million. Deferred
income taxes on these accumulations are not required because no distributions
are expected.
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 income tax expense for the years were as follows:
1999 1998 1997
-------------------------------------
(In Thousands)
Current expense $176,725 $134,344 $185,460
Deferred expense (benefit):
Deferred policy acquisition cost 65,377 33,230 27,644
Policy reserves (22,654) 2,189 (27,496)
Basis differential of investments (4,729) 11,969 3,769
Litigation settlement 22,641 (33,983) -
Year 2000 - (9,653) -
Internally developed software 18,654 - -
Other, net 7,182 15,623 9,347
-------------------------------------
Total deferred expense 86,471 19,375 13,264
-------------------------------------
Income tax expense $263,196 $153,719 $198,724
=====================================
5.2 TAX EXPENSE
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.
1999 1998 1997
-------------------------------------
(In Thousands)
Income tax at statutory percentage
of GAAP pretax income $266,386 $164,638 $200,649
Tax-exempt investment income (16,423) (11,278) (9,493)
Goodwill 853 712 723
Other 12,380 (353) 6,845
-------------------------------------
Income tax expense $263,196 $153,719 $198,724
=====================================
F-27
<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 $126 million, $159 million, and $168
million in 1999, 1998, and 1997, 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 1992. The IRS is
currently examining tax returns for 1993 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, 1999 DECEMBER 31, 1998
------------------------------------------------------------
PAR VALUE BOOK VALUE PAR VALUE BOOK VALUE
------------------------------------------------------------
<S> <C> <C> <C> <C>
(In Thousands)
American General
Corporation, 9 3/8%, $ 4,725 $ 3,410 $ 4,725 $ 3,345
due 2008
American General
Corporation, Promissory
notes, due 2004 12,232 12,232 14,679 14,679
American General
Corporation, Restricted
Subordinated Note,
13 1/2%, due 2002 27,378 27,378 29,435 29,435
------------------------------------------------------------
Total notes receivable
from affiliates 44,335 43,020 48,839 47,459
Accounts receivable from
affiliates - 32,175 - 113,637
------------------------------------------------------------
Indebtedness from $44,335 $75,195 $48,839 $161,096
affiliates
============================================================
</TABLE>
F-28
<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 $55,318,000, $46,921,000, and $33,916,000 for such services in
1999, 1998, and 1997, respectively. Accounts payable for such services at
December 31, 1999 and 1998 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, to a number of American General Corporation's life
insurance subsidiaries. The Company received approximately $138,885,000,
$66,550,000, and $6,455,000 for such services and rent in 1999, 1998, and 1997,
respectively. Accounts receivable for rent and services at December 31, 1999 and
1998 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.
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. American
General Corporation follows the intrinsic value method of accounting for stock
options as prescribed by Accounting Principles Board Opinion No. 25, Accounting
for Stock Issued to Employees. Therefore, the 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-29
<PAGE>
American General Life Insurance Company
Notes to Consolidated Financial Statements (continued)
7. STOCK-BASED COMPENSATION (CONTINUED)
Under an alternative accounting method of accounting under Statement of
Financial Accounting Standards No. 123, Accounting for Stock-Based Compensation,
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>
1999 1998 1997
---------------------------------------------
(In Thousands)
<S> <C> <C> <C>
Net income as reported $497,906 $316,674 $374,557
Net income pro forma $495,331 $315,078 $373,328
</TABLE>
The average fair values of the options granted during 1999, 1998, and 1997 were
$17.06, $15.38, and $10.33, 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>
1999 1998 1997
-----------------------------------------------
<S> <C> <C> <C>
Dividend yield 2.5% 2.5% 3.0%
Expected volatility 24.4% 23.0% 22.0%
Risk-free interest rate 4.95% 5.76% 6.4%
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 71% and 26%, 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-30
<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 $59 million.
The components of pension expense and underlying assumptions were as follows:
<TABLE>
<CAPTION>
1999 1998 1997
-----------------------------------------------
(In Thousands)
<S> <C> <C> <C>
Service cost $ 3,575 $ 3,693 $ 1,891
Interest cost 7,440 6,289 2,929
Expected return on plan assets (12,670) (9,322) (5,469)
Amortization (820) (557) 195
Pension (income) expense $ (2,475) $ 103 $ (454)
===============================================
Discount rate on benefit obligation 7.75% 7.00% 7.25%
Rate of increase in compensation levels 4.25% 4.25% 4.00%
Expected long-term rate of return on
plan assets 10.35% 10.25% 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>
1999 1998
-------------------------------
(In Thousands)
<S> <C> <C>
Projected benefit obligation (PBO) $100,600 $ 96,554
Plan assets at fair value 145,863 120,898
-------------------------------
Plan assets at fair value in excess of PBO 45,263 24,344
Other unrecognized items, net (26,076) (10,176)
-------------------------------
Prepaid pension expense $ 19,187 $ 14,168
===============================
</TABLE>
F-31
<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>
1999 1998
-------------------------------
(In Thousands)
<S> <C> <C>
PBO at January 1 $ 96,554 $43,393
Service and interest costs 11,015 9,982
Benefits paid (4,919) (1,954)
Actuarial loss (12,036) 17,089
Amendments, transfers, and acquisitions 9,986 28,044
-------------------------------
PBO at December 31 $100,600 $96,554
===============================
</TABLE>
The change in the fair value of plan assets was as follows:
<TABLE>
<CAPTION>
1999 1998
-------------------------------
(In Thousands)
<S> <C> <C>
Fair value of plan assets at January 1 $120,898 $ 80,102
Actual return on plan assets 17,934 12,269
Benefits paid (4,919) (1,954)
Acquisitions and other 11,950 30,481
-------------------------------
Fair value of plan assets at December 31 $145,863 $120,898
===============================
</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, with retiree
contributions adjusted annually to limit employer contributions to predetermined
amounts. The Company has reserved the right to change or eliminate these
benefits at any time.
F-32
<PAGE>
American General Life Insurance Company
Notes to Consolidate 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 1999, 1998, and 1997 was $254,000, $60,000,
and $601,000, respectively. The accrued liability for postretirement benefits
was $18.8 million and $19.2 million at December 31, 1999 and 1998, 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-33
<PAGE>
American General Life Insurance Company
Notes to Consolidate 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
sheets 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-34
<PAGE>
American General Life Insurance Company
Notes to Consolidate 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>
1999 1998
-------------------------------
(Dollars in Millions)
<S> <C> <C>
Interest rate swap agreements to receive fixed rate:
Notional amount $ 160 $ 369
Average receive rate 6.73% 6.06%
Average pay rate 6.55% 5.48%
Currency swap agreements (receive U.S.
dollars/pay Canadian dollars):
Notional amount (in U.S. dollars) $ 124 $ 124
Average exchange rate 1.50 1.50
Currency swap agreements (receive U.S. dollars/pay
Australian dollars):
Notional amount (in U.S. dollars) $ 23 $ -
Average exchange rate 0.65 -
</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.
F-35
<PAGE>
American General Life Insurance Company
Notes to Consolidate Financial Statements (continued)
9. DERIVATIVE FINANCIAL INSTRUMENTS (CONTINUED)
9.3 CALL SWAPTIONS (CONTINUED)
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.
Swaptions at December 31 were as follows:
<TABLE>
<CAPTION>
1999 1998
-------------------------------
(Dollars in Billions)
<S> <C> <C>
Call swaptions:
Notional amount $3.78 $1.76
Average strike rate 4.52% 3.97%
Put swaptions:
Notional amount $2.14 $1.05
Average strike rate 8.60% 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-36
<PAGE>
American General Life Insurance Company
Notes to Consolidate 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.
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-37
<PAGE>
American General Life Insurance Company
Notes to Consolidate 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 $187 million, $244 million, and
$401 million, in dividends on common stock to AGC Life Insurance Company in
1999, 1998, and 1997, respectively. The Company also paid $680 thousand per year
in dividends on preferred stock to an affiliate, The Franklin Life Insurance
Company, in 1999, 1998, and 1997.
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, 1999,
approximately $2.6 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 $1.9 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-38
<PAGE>
American General Life Insurance Company
Notes to Consolidate 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.
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 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. All settlements
were finalized in 1999.
The Company is party to various other lawsuits and proceedings arising in the
ordinary course of business. Many of these lawsuits and proceedings, including
those filed by individuals who have excluded themselves from the market conduct
settlement, and lawsuits relating to policies not covered by the market conduct
settlements, 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-39
<PAGE>
American General Life Insurance Company
Notes to Consolidate 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, 1999 and 1998, the Company has accrued $8.6 million and
$6.0 million, respectively, for guaranty fund assessments, net of $3.4 million
and $3.7 million, respectively, of premium tax deductions. The Company has
recorded receivables of $4.4 million and $6.2 million at December 31, 1999 and
1998, respectively, for expected recoveries against the payment of future
premium taxes. Expenses incurred for guaranty fund assessments were $2.1
million, $3.6 million, and $2.1 million in 1999, 1998, and 1997, respectively.
F-40
<PAGE>
American General Life Insurance Company
Notes to Consolidate Financial Statements (continued)
13. REINSURANCE
Reinsurance transactions for the years ended December 31, 1999, 1998, and 1997
were as follows:
<TABLE>
<CAPTION>
PERCENTAGE
CEDED TO ASSUMED OF AMOUNT
GROSS OTHER FROM OTHER ASSUMED TO
AMOUNT COMPANIES COMPANIES NET AMOUNT NET
---------------------------------------------------------------------------
(In Thousands)
<S> <C> <C> <C> <C> <C>
DECEMBER 31, 1999
Life insurance in force $50,060,334 $17,056,734 $524,062 $33,527,662 1.56%
==============================================================
Premiums:
Life insurance and annuities $ 101,900 $ 49,530 $ 252 $ 52,622 0.48%
Accident and health insurance 977 84 - 893 0.00%
--------------------------------------------------------------
Total premiums $ 102,877 $ 49,614 $ 252 $ 53,515 0.47%
===============================================================
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%
============================================================
</TABLE>
Reinsurance recoverable on paid losses was approximately $8.0 million, $7.7
million, and $2.3 million at December 31, 1999, 1998, and 1997, respectively.
Reinsurance recoverable on unpaid losses was approximately $10.5 million, $2.5
million, and $3.2 million at December 31, 1999, 1998, and 1997, respectively.
F-41
<PAGE>
American General Life Insurance Company
Notes to Consolidate Financial Statements (continued)
14. YEAR 2000 CONTINGENCY (UNAUDITED)
Currently, all of our major technology systems, programs, and applications,
including those which rely on third parties, are operating smoothly following
our transition into 2000. We have experienced no interruptions to normal
business operations, including the processing of customer account data and
transactions. We will continue to monitor our technology systems, including
critical third-party dependencies, as necessary to maintain our Year 2000
readiness. We do not expect any future disruptions, if they occur, to have a
material effect on the Company's results of operations, liquidity, or financial
condition.
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.
F-42
<PAGE>
American General Life Insurance Company
Notes to Consolidate Financial Statements (continued)
15. DIVISION OPERATIONS
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
----------------------------------------------------------------------------------------
1999 1998 1997 1999 1998 1997 1999 1998 1997
----------------------------------------------------------------------------------------
In Millions
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Retirement Services $2,088 $1,987 $1,859 $ 567 $ 469 $ 398 $ 374 $ 315 $ 261
Life Insurance 883 870 822 191 162 147 123 107 97
---------------------------------------------------------------------------------------
Total divisions 2,971 2,857 2,681 758 631 545 497 422 358
Goodwill
amortization - - - (2) (2) (2) (2) (2) (2)
RG (L) 5 (34) 30 5 (34) 30 3 (22) 19
Nonrecurring items - - - - (125)(a) - - (81)(a) -
----------------------------------------------------------------------------------------
Total consolidated $2,976 $2,823 $2,711 $ 761 $ 470 $ 573 $ 498 $ 317 $ 375
=======================================================================================
</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.
Division balance sheet information was as follows:
<TABLE>
<CAPTION>
ASSETS LIABILITIES
--------------------------------------------------------
December 31
--------------------------------------------------------
In millions 1999 1998 1999 1998
--------------------------------------------------------
<S> <C> <C> <C> <C>
Retirement Services $47,323 $41,347 $45,359 $38,841
Life Insurance 9,837 8,894 8,955 7,831
--------------------------------------------------------
Total consolidated $57,160 $50,241 $54,314 $46,672
========================================================
</TABLE>
F-43
<PAGE>
PART C
OTHER INFORMATION
-----------------
Item 24. Financial Statements and Exhibits
(a) Financial Statements
PART A: None
PART B:
Financial Statements of the WM Advantage (formerly Sierra Advantage)
Divisions of American General Life Insurance Company Separate
Account D:
Report of Ernst & Young LLP, independent auditors
Statement of Net Assets as of December 31, 1999
Statement of Operations for the year ended December 31, 1999
Statement of Changes in Net Assets for the years ended
December 31, 1999 and 1998
Notes to Audited Financial Statements
Consolidated Financial Statements of American General Life Insurance
Company:
Report of Ernst & Young LLP, independent auditors
Consolidated Balance Sheets as of December 31, 1999 and 1998
Consolidated Statements of Income for the years ended
December 31, 1999, 1998 and 1997
Consolidated Statements of Comprehensive Income for the
years ended December 31, 1999, 1998 and 1997
Consolidated Statements of Shareholder's Equity for the
years ended December 31, 1999, 1998 and 1997
Consolidated Statements of Cash Flows for the years
ended December 31, 1999, 1998 and 1997
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 March 24, 1993 between American
General Securities Incorporated and American General Life
Insurance Company./4/
(ii)(A) Form of Master Marketing and Distribution Agreement, by and among
American General Life Insurance Company, American General
Securities Incorporated and Sierra Investment Services
Corporation./12/
(B) Master Marketing and Distribution Agreement by and among American
General Life Insurance Company, American General Securities
Incorporated, and WM Funds Distributor, Inc., dated July 12,
1999. (Filed herewith)
(iii)(A) Participation Agreement among American General Life Insurance
Company, American General Securities Incorporated, The Sierra
Variable Trust and Composite Funds Distributor, Inc./13/
(B) Participation Agreement among American General Life Insurance
Company, American General Securities Incorporated, WM Variable
Trust, and WM Funds Distributor, Inc., dated July 12, 1999.
(Filed herewith)
(b) Selling/Master General Agent Agreement among American General
Life Insurance Company, American General Securities Incorporated
and Sierra Investment Services Corporation/5/
(c)(i) Trust Participation Agreement/5/
(ii) Form of First Amendment to the Trust Participation Agreement by
and among American General Life Insurance Company, American
General Securities Incorporated, The Sierra Variable Trust and
Sierra Investment Services Corporation/12/
(d)(i) Agreement respecting certain indemnification given by Sierra
Investment Advisors Corporation and Sierra Investment Services
Corporation to American General Life Insurance Company and
American General Securities Incorporated/5/
(ii) Indemnification Agreement by and among American General Life
Insurance Company, American General Securities Incorporated, WM
Advisors, Inc., and WM Funds Distributor, Inc., dated July 12,
1999. (Filed herewith)
(e) Form of Selling Group Agreement, by and among American General
Life Insurance Company, Sierra Investment Services Corporation,
and selling group members./12/
4 (a) Specimen form of Combination Fixed and Variable Annuity
Contract/4/
C-2
<PAGE>
(b) Form of Waiver of Surrender Charge Rider/6/
(c) Form of Qualified Contract Endorsement/6/
(d)(i)(A) Specimen form of Individual Retirement Annuity Disclosure
Statement and Financial Disclosure/7/
(B) Specimen form of Roth Individual Retirement Annuity Disclosure
and Financial Disclosure/7/
(ii) Specimen form of Individual Retirement Annuity Endorsement/4/
(iii) Specimen form of IRA Instruction Form/6/
(e) Form of Amendment to Combination Fixed and Variable Annuity
Contract/6/
5 (a)(i) Specimen form of Application/8/
(ii) Specimen form of Application, revised October, 1993/5/
(iii) Specimen form of Application , revised April 1, 1998/15/
(iv) Specimen form of Application, revised July 1, 1998/15/
(v) Specimen form of SNAP Annuity Ticket application/6/
(vi) Specimen form of Application, revised April, 1995/11/
(b)(i) Election of Annuity Payment Option/Change Form/5/
(ii) Specimen form of Absolute Assignment to Effect Section 1035(a)
Exchange and Rollover of a Life Insurance Policy or Annuity
Contract/6/
(c)(i) (A) Contract Service Request, including telephone transfer
authorization/5/
(B) Contract Service Request, including telephone transfer
authorization, revised January, 1996/11/
(C) Contract Service Request, including telephone transfer
authorization, revised March 1, 1998/15/
(D) Contract Service Request, including telephone transfer
authorization, revised July 1, 1998/15/
(E) Contract Service Request, including telephone transfer
authorization, revised May 1, 1999/16/
C-3
<PAGE>
(F) Contract Service Request, including telephone transfer
authorization revised May 1, 2000 (Filed herewith)
(ii) Form of Authorization Limited to Execution of Transaction
Requests for Contract/4/
(iii) Form of Transaction Request Form/6/
6 (a) Amended and Restated Articles of Incorporation of American
General Life Insurance Company, effective December 31, 1991/2/
(b) Bylaws of American General Life Insurance Company, adopted
January 22, 1992/9/
7 None
8 Form of Sierra Asset Management Program Agreement and Disclosure
Statement/10/
9 Opinion and consent of Counsel/4/
10 Consent of Independent Auditors (Filed herein)
11 None
12 None
13 (a) Computations of Average Annual Total Returns for the Periods
Ended December 31, 1994/6/
(b) Computations of Cumulative Total Returns (Without Surrender
Charge) for the Periods Ended December 31, 1994/6/
(c) Computations of Aggregate Cumulative Total Returns for the
Periods Ended December 31, 1994/6/
(d) Computations of 30 Day Yield for the U.S. Government, Short Term
High Quality Bond, Corporate Income and Short Term Global
Government Divisions for the Period Ended December 31, 1994/6/
(e) Computation of 7 Day Yield for the Global Money Division for the
Period Ended December 31, 1994/6/
14 Financial Data Schedule (See Exhibit 27 below)
15 (a) Power of Attorney with respect to Registration Statements and
Amendments thereto signed by the following persons in their
capacities as directors and, where applicable, officers of
American General Life Insurance Company: Messrs. Devlin, Rashid,
and Luther/6/
C-4
<PAGE>
(b) Power of Attorney with respect to Registration Statements and
Amendments thereto signed by Robert S. Cauthen, Jr. in his capacity as
a director and officer of American General Life Insurance Company/6/
(c) Power of Attorney with respect to Registration Statements and
Amendments thereto signed by James R. Tuerff in his capacity as a
director of American General Life Insurance Company, filed as part of
Post-Effective Amendment No. 1 to this Form N-4 Registration Statement
on October 18, 1993/5/
(d) Power of Attorney with respect to Registration Statements and
Amendments thereto signed by Peter V. Tuters in his capacity as a
director or officer of American General Life Insurance Company/6/
(e) Power of Attorney with respect to Registration Statements and
Amendments thereto signed the following persons in their capacities as
directors and, where applicable, officers of American General Life
Insurance Company: Messrs. Kelley, Pulliam, and Young/6/
(f) Power of Attorney with respect to Registration Statements and
Amendments thereto signed by the following persons in their capacities
as directors and, where applicable, officers of American General Life
Insurance Company: Messrs. Atnip and Newton/11/
(g) Power of Attorney with respect to Registration Statements and
Amendments thereto signed by the following persons in their capacities
as directors and where applicable, officers of American General Life
Insurance Company: Messrs. Martin and Herbert/12/
(h) Power of Attorney with respect to Registration Statements and
Amendments thereto signed by the following persons in their capacities
as directors and, where applicable, officers of American General Life
Insurance Company: Messrs. Fravel and LaGrasse/12/
(i) Power of Attorney with respect to Registration Statements and
Amendments thereto signed by the following persons in their capacities
as directors and where applicable, officer of American General Life
Insurance Company: Messrs. D'Agostino, Imhoff and Polkinghorn/14/
(j) 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. Ridlehuber, Imhoff and Reddick/16/
(k) Power of Attorney with respect to Registration Statements and
Amendments thereto signed by Thomas M. Zurek in his capacity as a
director or officer of American General Life Insurance Company (Filed
herein)
16 Statement concerning applicable SEC Exemptive Order/8/
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<PAGE>
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
S-6 Registration Statement (File No. 2-49805), filed on December 6, 1973.
/2/ Incorporated herein by reference to the initial filing of Separate Account
D's Form N-4 Registration Statement (File No. 33-43390), filed on October
16, 1991.
/3/ Incorporated herein by reference to Pre-Effective Amendment No. 1 to
Separate Account D's Form N-4 Registration Statement (File No. 33-43390),
filed on December 31, 1991.
/4/ Previously filed in Pre-Effective Amendment No. 1 to this Form N-4
Registration Statement (File No. 33-57730), filed on March 29, 1993.
/5/ Previously filed in Post-Effective Amendment No. 1 to this Form N-4
Registration Statement (File No. 33-57730), filed on October 18, 1993.
/6/ Previously filed in Post-Effective Amendment No. 3 to this Form N-4
Registration Statement (File No. 33-57730), filed on April 28, 1995.
/7/ Filed as part of Part A of this Amendment.
/8/ Previously filed as part of the initial filing of this Form N-4
Registration Statement (File No. 33-57730), filed on February 1, 1993.
/9/ Incorporated herein by reference to Post-Effective Amendment No. 1 to
Separate Account D's Registration Statement (File No. 33-43390), filed on
April 30, 1992.
/10/ Previously filed in Post-Effective Amendment No. 2 to this Form N-4
Registration Statement ( File No. 33-57730), filed on April 29, 1994.
/11/ Previously filed in Post-Effective Amendment No. 4 to this Form N-4
Registration Statement (File No. 33-57730), filed on April 29, 1996.
/12/ Previously filed in Post-Effective Amendment No. 6 to this Form N-4
Registration Statement (File No. 33-57730), filed on April 29, 1997.
/13/ Incorporated herein by reference to Post-Effective Amendment No. 1 to
Separate Account D's Registration Statement (File No. 333-25549), filed on
April 1, 1998.
/14/ Incorporated herein by reference to Pre-Effective Amendment No. 1 to
Separate Account D's Registration Statement (File No. 333-40637), filed on
February 12, 1998.
/15/ Previously filed in Post-Effective Amendment No. 7 to this Form N-4
Registration Statement (File No. 33-57730), filed on April 1, 1998.
/16/ Previously filed in Post-Effective Amendment No. 8 to this Form N-4
Registration Statement (File No. 33-57730), filed on April 27, 1999.
C-6
<PAGE>
Item 25. Directors and Officers of the Depositor
The directors, executive officers, and, to the extent responsible for
variable annuity operations, other officers of the depositor are listed below.
Name and Principal Positions and Offices
Business Address with the Depositor
---------------- ------------------
Donald W. Britton Director and
2929 Allen Parkway Vice Chairman
Houston, Texas 77019
David A. Fravel Director and
2929 Allen Parkway Executive Vice President
Houston, Texas 77019
David L. Herzog Director, Executive Vice President
2929 Allen Parkway and Chief Financial Officer
Houston, Texas 77019
Royce G. Imhoff, II Director, Senior
2727-A Allen Parkway Vice President and
Houston, Texas 77019 Chief Marketing Officer
John V. LaGrasse Director and
2929 Allen Parkway Executive Vice President-
Houston, Texas 77019 Chief Systems Officer
Rodney O. Martin, Jr. Director and Senior
2929 Allen Parkway Chairman
Houston, Texas 77019
Paul Mistretta Executive Vice President
2929 Allen Parkway
Houston, Texas 77019
Brian D. Murphy Executive Vice President
2727-A Allen Parkway
Houston, Texas 77019
Gary D. Reddick Executive Vice President
2929 Allen Parkway
Houston, Texas 77019
Ronald H. Ridlehuber President and
2727-A Allen Parkway Chief Executive Officer
Houston, Texas 77019
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<PAGE>
Thomas M. Zurek Director,
2929 Allen Parkway Executive Vice President,
Houston, Texas 77019 General Counsel and Secretary
Robert M. Beuerlein Senior Vice President
2727-A Allen Parkway and Chief Actuary
Houston, Texas 77019
Robert F. Herbert, Jr. Senior Vice President,
2727-A Allen Parkway Treasurer and Controller
Houston, Texas 77019
F. Paul Kovach, Jr. Senior Vice President-
2727 Allen Parkway Broker Dealers
Houston, Texas 77019
Simon J. Leech Senior Vice President-
2727-A Allen Parkway Houston Service Center
Houston, Texas 77019
Don M. Ward Senior Vice President-
2727 Allen Parkway Variable Products-Marketing
Houston, Texas 77019
Farideh Farrokhi Vice President-
2727-A Allen Parkway Variable Products Accounting
Houston, Texas 77019
Rosalia S. Nolan Vice President-
2727-A Allen Parkway Policy Administration
Houston, Texas 77019
Larry M. Robinson Vice President-
2727-A Allen Parkway Variable Products-Marketing
Houston, Texas 77019
Pauletta P. Cohn Assistant Secretary
2929 Allen Parkway
Houston, Texas 77019
Joyce R. Bilski Administrative Officer
2727-A Allen Parkway
Houston, Texas 77019
Timothy M. Donovan Administrative Officer
2727-A Allen Parkway
Houston, Texas 77019
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<PAGE>
Karen Harper Administrative Officer
2727-A Allen Parkway
Houston, Texas 77019
Laura Milazzo Administrative Officer
2727-A Allen Parkway
Houston, Texas 77019
Patricia L. Myles Administrative Officer
2727-A Allen Parkway
Houston, Texas 77019
Linda Price Administrative Officer
2727-A Allen Parkway
Houston, Texas 77019
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 29, 2000. All subsidiaries listed are corporations, 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 Property Insurance Company/16/......................... Tennessee
American General Property Insurance Company of Florida............... Florida
American General Life and Accident Insurance Company/6/................ Tennessee
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
Parkway 1999 Trust/17/............................................. Maryland
PESCO Plus, Inc/14/................................................ Delaware
American General Gateway Services, L.L.C/15/....................... Delaware
The Variable Annuity Marketing Company............................. Texas
American General Financial Advisors, Inc........................... Texas
VALIC Retirement Services Company.................................. Texas
VALIC Trust Company................................................ Texas
American General Assignment Corporation of New York................ New York
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/13/.................... Bermuda
</TABLE>
C-9
<PAGE>
<TABLE>
<S> <C>
Western National Corporation.................................................... Delaware
WNL Holding Corp.............................................................. Delaware
American General Annuity Insurance Company.................................. Texas
American General Assignment Corporation..................................... Texas
American General Distributors, Inc.......................................... Delaware
A.G. Investment Advisory Services, Inc...................................... Delaware
American General Financial Institutions Group, Inc.......................... Delaware
WNL Insurance Services, Inc................................................. Delaware
American General International, Inc.............................................. Delaware
American General Enterprise Services, Inc........................................ Delaware
American General Corporation*.................................................... Delaware
American General Delaware Management Corporation/1/.............................. Delaware
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/8/......................................... Indiana
American General Finance Group, Inc........................................... Delaware
American General Financial Services, Inc./9/................................ Delaware
The National Life and Accident Insurance Company.......................... Texas
Merit Life Insurance Co....................................................... Indiana
Yosemite Insurance Company.................................................... Indiana
American General Finance, Inc................................................... Alabama
A.G. Financial Service Center, Inc.............................................. Utah
American General Bank, FSB...................................................... 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/10/.............................. Delaware
American General Investment Management, L.P./10/................................ Delaware
American General Investment Management Corporation/10/........................... Delaware
American General Realty Advisors, Inc............................................ Delaware
American General Realty Investment Corporation................................... Texas
AGLL Corporation/11/............................................................ Delaware
American General Land Holding Company........................................... Delaware
AG Land Associates, LLC/11/................................................... California
GDI Holding, Inc.*/12/.......................................................... 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
</TABLE>
C-10
<PAGE>
<TABLE>
<S> <C>
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
North Central Administrators, Inc..................................................... Minnesota
North Central Life Insurance Company.................................................. Minnesota
North Central Caribbean Life, Ltd................................................... Nevis
The Old Line Life Insurance Company of America........................................ Wisconsin
The United States Life Insurance Company in the City of New York...................... New York
American General Bancassurance Services, Inc.......................................... Illinois
USMRP, Ltd.......................................................................... Turks & Caicos
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.
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.
C-11
<PAGE>
/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 Pensions S.A. de C.V., a 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-service NASD broker-dealer. AGSI, in turn,
owns 100% of the stock of the following insurance agencies:
American General Insurance Agency, Inc. (Missouri)
American General Insurance Agency of Hawaii, Inc. (Hawaii)
American General Insurance Agency of Massachusetts, Inc. (Massachusetts)
In addition, the following agencies are indirectly related to AGSI, but not
owned or controlled by AGSI:
American General Insurance Agency of Ohio, Inc. (Ohio)
American General Insurance Agency of Texas, Inc. (Texas)
American General Insurance Agency of Oklahoma, Inc. (Oklahoma)
Insurance Masters Agency, Inc. (Texas)
The foregoing indirectly related 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/ American General Finance Corporation is the parent of an additional 42
wholly-owned subsidiaries incorporated in 25 states for the purpose of
conducting its consumer finance operations, in addition to those noted in
footnote 9 below.
/9/ American General Financial Services, Inc., is the direct or indirect parent
of an additional 8 wholly-owned subsidiaries incorporated in 5 states and
Puerto Rico for the purpose of conducting its consumer finance operations.
/10/ American General Investment Management, L.P., a Delaware limited
partnership, is jointly owned by AGIHC and AGIMC. AGIHC holds a 99% limited
partnership interest, and AGIMC owns a 1% general partnership interest.
/11/ 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.
/12/ AGRI owns a 75% interest in GDI Holding, Inc.
C-12
<PAGE>
/13/ 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.
/14/ VALIC holds 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 10% of the outstanding common
shares.
/15/ VALIC holds 90% of the outstanding common shares of American General
Gateway Services, L.L.C. Gateway Investment Services, Inc., a California
corporation and an unaffiliated third party, holds the remaining 10% of the
outstanding common shares.
/16/ AGPIC is jointly owned by AGCL and AGLA. AGCL owns 51.85% and AGLA owns
48.15% of the issued and outstanding shares of AGPIC.
/17/ Parkway 1999 Trust was formed as a Maryland business trust to function as
an investment subsidiary. VALIC owns 100% of its common equity.
Company abbreviations as used in Item 26:
<TABLE>
<CAPTION>
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
AGAIC American General Annuity Insurance Company.............. TX
ASGN-NY American General Assignment Corporation of New York..... NY
AGAC American General Assurance Company...................... IL
AGAS American General Annuity Service Corporation............ TX
AGBS American General Distributors, Inc...................... DE
AGB American General Bank, FSB.............................. UT
AGC American General Corporation............................ TX
AGCL AGC Life Insurance Company.............................. MO
AGDMC American General Delaware Management Corporation........ DE
AGES American General Enterprise Services, Inc............... 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 A.G. Financial Service Center, Inc...................... UT
AGFnC American General Financial Center, Inc.................. IN
AGFS American General Financial Services, Inc................ DE
AGFA American General Financial Advisors, Inc................ TX
</TABLE>
C-13
<PAGE>
AGFIG American General Financial Institutions Group, 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 A.G. Investment Advisory Services, Inc.......................... DE
AGIAT American General Insurance Agency of Texas, Inc................. TX
AGII American General International, Inc............................. DE
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
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
HBDC HBC Development Corporation..................................... VA
KC Knickerbocker Corporation....................................... TX
ML Merit Life Insurance Co......................................... IN
NLA The National Life and Accident Insurance Company................ TX
NCA North Central Administrators, Inc............................... MN
NCL North Central Life Insurance Company............................ MN
NCCL North Central Caribbean Life, Ltd............................... TC
OLL The Old Line Life Insurance Company of America.................. WI
PKWY Parkway 1999 Trust.............................................. MD
PAV Pavilions Corporation........................................... DE
PCSC Pebble Creek Service Corporation................................ FL
PIFLA American General Property Insurance Company of Florida.......... FL
PPI PESCO Plus, Inc................................................. DE
RMST HSA Residential Mortgage Services of Texas, Inc................. DE
SRHP SR/HP/CM Corporation............................................ TX
TAG Life Templeton American General Life of Bermuda, Ltd................. BA
TI Thrift, Incorporated............................................ IN
C-14
<PAGE>
UAS American General Bancassurance Services, Inc................... IL
UC USLIFE Corporation............................................. DE
UCLA USLIFE Credit Life Insurance Company of Arizona................ AZ
URC USLIFE Realty Corporation...................................... TX
USC USLIFE Systems Corporation..................................... DE
USL The United States Life Insurance Company in the City of New
New York....................................................... NY
USMRP USMRP, Ltd..................................................... T&C
VALIC The Variable Annuity Life Insurance Company.................... TX
VAMCO The Variable Annuity Marketing 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 April 13, 2000 there were 6975 owners of the Contracts, of which 2885 were
qualified Contracts and 4090 were non-qualified Contracts.
Item 28. Indemnification
Article VII, section 1, of the Company's By-Laws provides, in part, that the
Company shall have power to indemnify any person who was or is a party or is
threatened to be made a party to any proceeding (other than an action by or in
the right of the Company) by reason of the fact that such person is or was
serving at the request of the Company, against expenses, judgments, fines,
settlements, and other amounts actually and reasonably incurred in connection
with such proceeding if such person acted in good faith and in a manner such
person reasonably believed to be in the best interest of the Company and, in the
case of a criminal proceeding, had no reasonable cause to believe the conduct of
such person was unlawful.
Article VII, section 1 (in part), section 2, and section 3, provide that the
Company shall have power to indemnify any person who was or is a party or is
threatened to be made a party to any threatened, pending, or completed action by
or in the right of the Company to procure a judgment in its favor by reason of
the fact that such person is or was acting on behalf of the Company, against
expenses actually and reasonably incurred by such person in connection with the
defense or settlement of such action if such person acted in good faith, in a
manner such person believed to be in the best interests of the Company, and with
such care, including reasonable inquiry, as an ordinarily prudent person in a
like position would use under similar circumstances.
No indemnification shall be made under Article VII, section 1: (a) in respect of
any claim, issue, or matter as to which such person shall have been adjudged to
be liable to the Company, unless and only to the extent that the court in which
such action was brought shall determine upon application that, in
C-15
<PAGE>
view of all the circumstances of the case, such person is fairly and reasonably
entitled to indemnity for the expenses which such court shall determine; (b) of
amounts paid in settling or otherwise disposing of a threatened or pending
action with or without court approval; or (c) of expense incurred in defending a
threatened or pending action which is settled or otherwise disposed of without
court approval.
Article VII, section 3, provides that, with certain exceptions, any
indemnification under Article VII shall be made by the Company only if
authorized in the specific case, upon a determination that indemnification of
the person is proper in the circumstances because the person has met the
applicable standard of conduct set forth in section 1 of Article VII by; (a) a
majority vote of a quorum consisting of directors who are not parties to such
proceeding; (b) approval of the shareholders, with the shares owned by the
person to be indemnified not being entitled to vote thereon; or (c) the court in
which such proceeding is or was pending upon application made by the Company or
the indemnified person or the attorney or other persons rendering services in
connection with the defense, whether or not such application by the attorney or
indemnified person is opposed by the Company.
Article VII, section 7, provides that for purposes of Article VII, those persons
subject to indemnification include any person who is or was a director, officer,
or employee of the Company, or is or was serving at the request of the Company
as a director, officer, or employee of another foreign or domestic corporation
which was a predecessor corporation of the Company or of another enterprise at
the request of such predecessor corporation.
Section 12 of the Trust Participation Agreement that is incorporated by
reference in Exhibit 3(c)(i) of this Registration Statement as amended by Form
of First Amendment to the Trust Participation Agreement that is filed as Exhibit
3(c)(ii) to this Registration Statement are hereby incorporated by reference in
response to this item. Section 12.1 thereof provides that the Company will
indemnify The Sierra Variable Trust (the "Trust") and Sierra Investment Services
Corporation (the "Distributor") and their directors, trustees, officers and
controlling persons from losses and costs due to any misstatements or omissions
of material facts for which the Company is responsible in this Registration
Statement or otherwise or due to the Company's failure to meet its obligations
under the Trust Participation Agreement. Section 12.2 thereof provides that the
Distributor will indemnify the Trust, the Company, American General Securities
Incorporated ("AGSI") and their officers, trustees, employees and controlling
persons from losses and costs due to any misstatements or omissions of material
facts for which the Distributor or its affiliates are responsible in this
Registration Statement or otherwise or as a result of any failure by the Trust
or the Distributor to meet its obligations under the Trust Participation
Agreement.
Section 6 of the Master Marketing and Distribution Agreement that is filed as
Exhibit 3(a)(ii) to this Registration Statement is hereby incorporated by
reference in response to this item. Paragraph 5.1 thereof provides that the
Company and AGSI will indemnify the Distributor and any other broker-dealer
affiliated with the Distributor and contracted to sell the Contracts, and their
officers, directors and controlling persons from losses and costs due to any
misstatements or omissions of material facts for which the Company or AGSI is
responsible in this Registration Statement or due to any negligent, illegal or
fraudulent acts of the Company or AGSI. Paragraph 5.2 provides that the
Distributor will indemnify the Company and AGSI, and their officers, directors
and controlling persons from losses and costs due to any misstatements or
omissions of material facts for which the Distributor or its
C-16
<PAGE>
affiliates are responsible in this Registration Statement, or as a result of any
negligent, illegal or fraudulent acts or omissions by the Distributor.
The Agreement filed as Exhibit 3(d) to this Registration Statement is hereby
incorporated by reference in response to this item. Pursuant to that Agreement,
the Distributor and Sierra Investment Advisors Corporation ("SIAC") agree to
indemnify the Company and AGSI with respect to liabilities arising out of the
negligence or bad faith of the Distributor, SIAC or any sub-investment adviser
to the Trust in performing their obligations to the Trust, including the
obligations of SIAC and the sub-investment advisers to operate the Trust in
compliance with Sub-Chapter M and Section 817(h) of the Internal Revenue Code of
1986, as amended. The Distributor and the Adviser also agree to indemnify the
Company and AGSI for 50% of any other liabilities or costs that they incur as a
result of any failure of the Trust to comply with Sub-Chapter M or Section
817(h) that does not result from such negligence or bad faith.
The Distribution Agreement filed as Exhibit 3(a)(i) to this Registration
Statement is hereby incorporated by reference in response to this item. Under
part EIGHTH of that agreement, the Company agrees to indemnify AGSI from
liabilities and costs that it may incur as a result of any misstatements or
omissions of material facts in this Registration Statement or otherwise for
which the Company is responsible; and AGSI agrees to indemnify the Company
against costs and liabilities that the Company may incur as a result of any act
of an employee of AGSI.
Insofar as indemnification for liability arising under the Securities Act of
1933 may be permitted to directors, officers and controlling persons of the
Registrant pursuant to the foregoing provisions, or otherwise, the Registrant
has been advised that in the opinion of the Securities and Exchange Commission
such indemnification is against public policy as expressed in the Act and is,
therefore, unenforceable. In the event that a claim for indemnification against
such liabilities (other than the payment by the Registrant of expenses incurred
or paid by a director, officer or controlling person of the Registrant in the
successful defense of any action, suit or proceeding) is asserted by such
director, officer or controlling person in connection with the securities being
registered, the Registrant will, unless in the opinion of its counsel the matter
has been settled by controlling precedent, submit to a court of appropriate
jurisdiction the question whether such indemnification by it is against public
policy as expressed in the Act and will be governed by the final adjudication of
such issue.
Item 29. Principal Underwriters
(a) Registrant's principal underwriter, American General Securities
Incorporated, also acts as principal underwriter for American General
Life Insurance Company Separate Account A, American General Life
Insurance Company Separate Account VL-R, American General Life
Insurance Company of New York Separate Account E, and The United States
Life Insurance Company in the City of New York Separate Account USL
VA-R.
C-17
<PAGE>
(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, Chairman,
American General Securities President and Chief Executive Officer
Incorporated
2727 Allen Parkway
Houston, Texas 77019
Donald W. Britton Director
American General Life
Companies
2929 Allen Parkway
Houston, Texas 77019
Royce G. Imhoff, II Director
American General Life
Insurance Company
2727-A Allen Parkway
Houston, Texas 77019
Alice T. Kane Director
American General Retirement
Services
125 Maiden Lane
New York, New York 10038
Rodney O. Martin, Jr. Director and Vice Chairman
American General Life
Companies
2929 Allen Parkway
Houston, Texas 77019
John A. Kalbaugh Vice President - Chief Marketing
American General Securities Officer
Incorporated
2727 Allen Parkway
Houston, Texas 77019
C-18
<PAGE>
Robert M. Roth Vice President -
American General Securities Administration and Compliance,
Incorporated Treasurer and Secretary
2727 Allen Parkway
Houston, Texas 77019
Don M. Ward Vice President
American General Life
Companies
2727 Allen Parkway
Houston, Texas 77019
Julie A. Cotton Assistant Secretary
American General Life
Companies
2727 Allen Parkway
Houston, Texas 77019
Robert F. Herbert, Jr. Assistant Treasurer
American General Life
Companies
2727-A Allen Parkway
Houston, Texas 77019
D. Lynne Walters Assistant Tax Officer
American General Corporation
2929 Allen Parkway
Houston, Texas 77019
(c) American General Securities Incorporated is the principal underwriter
for Separate Account D. The licensed agents who sell the Flexible
Payment Variable and Fixed Individual Deferred Annuity Contracts are
compensated for such sales by commissions paid by AGL. These
commissions do not result in any charge to Separate Account D or to
Contract Owners, Annuitants or Beneficiaries, as those terms are
defined in Flexible Payment Variable and Fixed Individual Deferred
Annuity Contracts, in addition to the charges described in the
prospectuses for such Contracts.
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
None
C-19
<PAGE>
Item 32. Undertakings
The Registrant undertakes: A) to file a post-effective amendment to this
Registration Statement as frequently as is necessary to ensure that the audited
financial statements in the Registration Statement are never more than 16 months
old for so long as payments under the Contracts may be accepted; B) to include
either (1) as part of any application to purchase a Contract offered by these
prospectuses, a space that an applicant can check to request a Statement of
Additional Information ("Statement"), or (2) a toll-free number or a post card
or similar written communication affixed to or included in the applicable
prospectus that the applicant can remove to send for a Statement ; C) to deliver
any Statement financial statements required to be made available under this Form
promptly upon written or oral request.
Representation Regarding Reasonableness of Aggregate Fees and Charges Deducted
Under Contracts Pursuant Section 26(C)(2)(A) Investment Company Act 1940
AGL represents that the fees and charges deducted under the Contracts, in the
aggregate, are reasonable in relation to the services rendered, the expenses
expected to be incurred, and the risks assumed by AGL.
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 Registration Statement, which amendment or amendments may make such changes
and additions to this 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
Registration Statement to be signed on its behalf, in the City of Houston, and
State of Texas on this 20 day of April, 2000.
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: /s/ JULIE COTTON HEARNE
-------------------------------
Julie Cotton Hearne
Assistant Secretary
<PAGE>
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement has been signed by the following officers and directors
of American General Life Insurance Company in the capacities and on the dates
indicated.
Signature Title Date
- --------- ----- ----
/s/ RONALD H. RIDLEHUBER President and CEO April 20, 2000
- ------------------------
Ronald H. Ridlehuber
/s/ ROBERT F. HERBERT, JR. Senior Vice President, April 20, 2000
- ---------------------------
Robert F. Herbert, Jr. Treasurer and Controller
/s/ DONALD W. BRITTON Director April 20, 2000
- ---------------------
Donald W. Britton
/s/ DAVID A. FRAVEL Director April 20, 2000
- -------------------
David A. Fravel
/s/ DAVID L. HERZOG Director and April 20, 2000
- -------------------
David L. Herzog Chief Financial Officer
/s/ ROYCE G. IMHOFF, II Director April 20, 2000
- -----------------------
Royce G. Imhoff, II
/s/ JOHN V. LAGRASSE Director April 20, 2000
- --------------------
John V. LaGrasse
/s/ RODNEY O. MARTIN, JR. Director April 20, 2000
- -------------------------
Rodney O. Martin, Jr.
/s/ THOMAS M. ZUREK Director April 20, 2000
- -------------------
Thomas M. Zurek
<PAGE>
EXHIBIT INDEX
Exhibit 3(a)(ii)(B) Master Marketing and Distribution Agreement by and among
American General Life Insurance Company, American General
Securities Incorporated, and WM Funds Distributor, Inc.,
dated July 12, 1999
Exhibit 3(a)(iii)(B) Participation Agreement among American General Life
Insurance Company, American General Securities
Incorporated, WM Variable Trust, and WM Funds
Distributor, Inc., dated July 12, 1999
Exhibit 3(d)(ii) Indemnification Agreement by and among American General
Life Insurance Company, American General Securities
Incorporated, WM Advisors, Inc., and WM Funds
Distributor, Inc., dated July 12, 1999
Exhibit 5(c)(i)(F) Contract Service Request, including telephone transfer
authorization revised May 1, 2000
Exhibit 10 Consent of Independent Auditors
<PAGE>
Exhibit 3(a)(ii)(B)
MASTER MARKETING AND DISTRIBUTION AGREEMENT
BY AND AMONG
AMERICAN GENERAL LIFE INSURANCE COMPANY,
AMERICAN GENERAL SECURITIES INCORPORATED,
AND WM FUNDS DISTRIBUTOR, INC.
<PAGE>
TABLE OF CONTENTS
-----------------
<TABLE>
<CAPTION>
Description Page
- ----------- ----
<S> <C>
SECTION 1. AVAILABLE CONTRACTS........................................ 1
1.1. Availability......................... ....................... 1
1.2. Modification of Contracts............ ....................... 1
1.3. Suspension or Restriction of Sales... ....................... 2
1.4. Reinsurance of Contracts............. ....................... 2
SECTION 2. CONTRACT DISTRIBUTION...................................... 2
2.1. Exclusive Appointment........................................ 2
2.2. Best Efforts................................................. 2
2.3. Selling Groups............................................... 3
2.4. Suitability Determinations................................... 3
2.5. Sales Persons/Associated Agencies............................ 3
2.6. Insurance Agent Licensing.................................... 3
2.7. Selection of Selling Group Members........................... 4
2.8. Supervision by Selling Group Members......................... 4
2.9. Marketing Materials.......................................... 4
2.10. Marketing Services........................................... 5
2.11. Non-Marketing Materials...................................... 6
2.12. Information About AGL and DISTRIBUTOR........................ 7
2.13. Complaints................................................... 7
2.14. Limitations on Authority..................................... 8
2.15. Independent Contractor....................................... 9
SECTION 3. ADMINISTRATION............................................. 9
3.1. Contract Administration...................................... 9
3.2. Performance Standards........................................ 9
SECTION 4. REPRESENTATIONS AND WARRANTIES............................. 9
4.1. By AGL....................................................... 9
4.2. By AGSI...................................................... 11
4.3. By DISTRIBUTOR............................................... 12
SECTION 5. COMPENSATION: COSTS AND EXPENSES.......................... 12
5.1. Compensation................................................. 12
5.2. Each Party to Bear Own Costs................................. 13
SECTION 6. INDEMNIFICATION............................................ 13
6.1. Indemnification by AGL and AGSI.............................. 13
6.2. Indemnification by DISTRIBUTOR............................... 14
</TABLE>
-i-
<PAGE>
<TABLE>
<S> <C>
6.3. Limitation on Liability......................................... 16
6.4. Injunctive Relief............................................... 16
SECTION 7. TERM AND TERMINATION......................................... 16
7.1. Term............................................................ 16
7.2. Events of Termination........................................... 16
7.3. Remedy of Events of Default..................................... 18
7.4. Parties to Cooperate Respecting Termination..................... 18
SECTION 8. ASSIGNMENT................................................... 18
SECTION 9. CONTRACT LAPSE, TERMINATION, SURRENDER, ETC.................. 18
9.1. Responsibilities of Distributor................................. 18
9.2. Responsibilities of AGL and AGSI................................ 19
SECTION 10. CONFIDENTIALITY............................................. 19
SECTION 11. ARBITRATION OF DISPUTES..................................... 19
11.1. Arbitration Binding............................................ 19
11.2. Initiation of Arbitration...................................... 19
11.3. Selection of Arbitrators....................................... 19
11.4. Impartiality................................................... 20
11.5. Hearing Date and Time.......................................... 20
SECTION 12. TRADEMARKS.................................................. 20
12.1. DISTRIBUTOR Trademarks......................................... 21
12.2. AGL Trademarks................................................. 21
12.3. Grant of License............................................... 21
12.4. Prior Approval................................................. 21
12.5. Sample Materials............................................... 21
12.6. Trademarks Valid and Enforceable............................... 22
SECTION 13. BONDING AND INSURANCE....................................... 22
SECTION 14. NOTICES..................................................... 22
14.1. Manner of Notices.............................................. 22
14.2. Notice of Regulatory Proceedings............................... 23
SECTION 15. MISCELLANEOUS............................................... 23
15.1. Amendment...................................................... 23
15.2. Governing Law.................................................. 23
15.3. Survival of Provisions......................................... 23
15.4. Severability................................................... 23
</TABLE>
-ii-
<PAGE>
<TABLE>
<S> <C>
15.5. Waiver......................................................24
15.6. Force Majeure...............................................24
15.7. Parties to Cooperate........................................24
15.8. Entire Agreement............................................24
</TABLE>
-iii-
<PAGE>
MASTER MARKETING AND DISTRIBUTION AGREEMENT
-------------------------------------------
This Master Marketing and Distribution Agreement (the "Agreement") is made
on this 12th day of July, 1999, by and among AMERICAN GENERAL LIFE INSURANCE
COMPANY, a Texas insurance company ("AGL"), on behalf of itself and each of its
separate accounts listed on Schedule A hereto, as the same may be amended from
time to time (each, an "Account"), AMERICAN GENERAL SECURITIES INCORPORATED, a
Texas corporation ("AGSI"), and WM FUNDS DISTRIBUTOR, INC., a Washington
corporation ("DISTRIBUTOR") (each, a "Party," collectively, the "Parties").
RECITALS
--------
WHEREAS, The Parties are jointly engaged in distribution of variable
annuity contracts described in Schedule A attached hereto ("Contract"), which
are issued by AGL and are funded through AGL's Separate Account D ("Separate
Account D");
WHEREAS, AGL and DISTRIBUTOR (including certain affiliates of DISTRIBUTOR)
may in the future jointly develop other annuity and/or life insurance contracts
(collectively referred to, together with the Contract and any certificates under
any group contract, as the "Contracts") to be issued through one or more
separate accounts established by AGL for such purposes (collectively referred
to, together with Separate Account D, as the "Accounts");
WHEREAS, AGL has appointed AGSI the principal underwriter of the WM
Strategic Asset Manager and WM Advantage Variable Annuity Contracts and has
appointed AGSI the principal underwriter of all Contracts described in Schedule
A;
WHEREAS, AGL and AGSI have previously retained DISTRIBUTOR, on an exclusive
basis, to market and distribute the Contracts and DISTRIBUTOR desires to provide
such services;
NOW, THEREFORE, in consideration of the mutual covenants herein contained,
and of the mutual expectations of benefit occurring from the activities herein
contemplated, the Parties hereto agree as follows:
SECTION 1. AVAILABLE CONTRACTS
-------------------------------
1.1. Availability. AGL shall make the Contracts available to Distributor
------------
for distribution pursuant to the terms and conditions of this Agreement, as the
Parties may amend from time to time by mutual agreement.
1.2. Modification of Contracts. AGL, in its sole discretion, may modify or
-------------------------
delete the terms of any Contract, to the extent permitted by the Contracts and
applicable law. DISTRIBUTOR may, from time to time, propose modifications to
the terms of any Contract, and AGL agrees to
<PAGE>
consider any such proposed modification in good faith, provided, however, that
any implementation of such proposed modification shall remain in AGL's sole
discretion.
1.3. Suspension or Restriction of Sales. AGL, in its sole discretion, may
----------------------------------
suspend or restrict the sale of any Contract in any state or other jurisdiction
upon 30 days' prior written notice to DISTRIBUTOR or upon such shorter notice
period as may be required by applicable law, without incurring any liability or
obligation to DISTRIBUTOR. Upon such notice, DISTRIBUTOR agrees to immediately
cease, and shall instruct all Selling Group Members (as defined below) to
immediately cease, all solicitation activity with respect to the Contracts in
those states or other jurisdictions where AGL has suspended or restricted the
sale of Contracts. In addition, notwithstanding any provision herein to the
contrary, AGL may refuse to sell any Contract to any applicant for any reason.
1.4. Reinsurance of Contracts. AGL may reinsure any of the Contracts with
------------------------
a reinsurer of its choice at any time, to the extent permitted by applicable
law.
SECTION 2. CONTRACT DISTRIBUTION
---------------------------------
2.1. Exclusive Appointment.
---------------------
(a) AGL, as the issuer of the Contracts, and AGSI, as the principal
underwriter of the Contracts, hereby appoint DISTRIBUTOR the exclusive
distributor, during the term of this Agreement, for the marketing and
distribution of the Contracts.
(b) The foregoing appointment shall be limited to those states and other
jurisdictions in which the Contracts may lawfully be offered and sold and in
which DISTRIBUTOR and any Associated Agency (as defined below) are properly
licensed as provided in Section 2.5 below, registered or otherwise qualified to
offer and sell the Contracts under the applicable federal securities laws and
the applicable insurance and other laws and regulations of each such state or
other jurisdiction. AGL shall periodically provide DISTRIBUTOR with notice
pursuant to Section 14 hereof of all states and other jurisdictions in which the
Contracts may lawfully be offered and sold.
(c) As exclusive distributor for the Contracts, DISTRIBUTOR, along with
AGL, shall enter into agreements ("selling group agreements") with other persons
("Selling Group Members"), pursuant to which such Selling Group Members will
offer, sell, and service Contracts in those states and other jurisdictions where
they and their Associated Agencies (as defined below) are properly licensed,
registered or otherwise qualified to offer and sell the Contracts under the
applicable insurance and other laws of each such state or other jurisdiction.
2.2. Best Efforts. DISTRIBUTOR shall use its best efforts to recruit
------------
Selling Group Members to offer, sell, and service Contracts.
-2-
<PAGE>
2.3. Selling Groups. Each Selling Group Member shall be registered with
--------------
the Securities and Exchange Commission ("SEC") as a broker-dealer under the
Securities Exchange Act of 1934 ("1934 Act") and shall be a member in good
standing of the National Association of Securities Dealers, Inc. ("NASD"),
unless the Selling Group Member is exempt from the broker-dealer registration
requirements of the 1934 Act. In addition, each Selling Group Member, if
applicable, and Associated Agency (as defined below) shall have received an
appropriate appointment or license by or through AGL and, unless exempt, a level
of qualification with the NASD appropriate to enable it to offer and sell
Contracts. Each Selling Group Member shall enter into a selling group agreement
the form of which shall be as agreed to by the Parties from time to time. The
Parties shall not enter into any selling group agreement unless and until AGL
has given written approval of the Selling Group Member, which approval shall be
provided within ten calendar days after DISTRIBUTOR has given notice of its
intent to enter into the agreement.
2.4. Suitability Determinations. The Parties wish to ensure that the
--------------------------
Contracts, the applications for which will be solicited by Selling Group Members
and their respective registered sales representatives (Selling Group Members and
registered sales representatives may be referred to collectively as "Sales
Persons"; if the context so warrants, registered sales representatives may be
referred to as "Sales Persons") will be issued to persons for whom the Contracts
will be suitable. Each Selling Group Member shall take reasonable steps to
ensure that neither it nor any other Sales Person makes recommendations to an
applicant to purchase any of the Contracts, or to select any investment option
thereunder, in the absence of reasonable grounds to believe that the purchase of
the Contracts or selection of that option is suitable for such applicant in
compliance with federal securities law requirements governing suitability
obligations. While not limited to the following, a determination of suitability
shall be based on information furnished to Sales Persons after reasonable
inquiry of such applicant concerning the applicant's insurance and investment
objectives and financial situation and needs, including the likelihood that the
applicant will make sufficient premium payments to derive the benefits thereof,
and tax status. The responsibility of Sales Persons to take such reasonable
steps and make such determinations of suitability shall be a requirement of each
selling group agreement entered into by the Parties.
2.5. Sales Persons/Associated Agencies. DISTRIBUTOR and AGL shall enter
---------------------------------
into a separate selling agreement whereby each Selling Group Member will
represent that such Selling Group Member and its Sales Persons are duly
registered and qualified pursuant to the 1934 Act, NASD regulations, and any
other securities regulatory requirements. DISTRIBUTOR shall assist in ensuring
that any insurance agency associated with DISTRIBUTOR and to whom it may assign
certain rights or obligations under this Agreement pursuant to Section 8 of this
Agreement is and remains properly licensed under the applicable insurance laws
and regulations of each state or jurisdiction in which the Associated Agency is
engaged in the offer or sale of the Contracts.
2.6. Insurance Agent Licensing.
-------------------------
(a) Neither DISTRIBUTOR nor any of its Sales Persons shall engage in any
activities with respect to the offer or sale of Contracts that would require
insurance agent licensing in the state
-3-
<PAGE>
or jurisdiction where such activities are performed, unless and until such Sales
Persons are properly licensed to perform such services in the particular state
or other jurisdiction.
(b) DISTRIBUTOR shall immediately notify AGL if its license is revoked,
suspended, or terminated or if the license of any of its Sales Persons has been
revoked, suspended, or terminated.
(c) AGL agrees to take all actions necessary to effect the appointment of
the Sales Persons of Selling Group Members and their Associated Agency(ies) as
insurance agents of AGL, and to effect renewals thereof, all as required for the
business of this Agreement.
(d) DISTRIBUTOR shall, from time to time, advise AGL of the Sales Persons
of DISTRIBUTOR that DISTRIBUTOR wishes AGL to appoint as AGL insurance agents.
AGL shall forward all approved agent appointment forms that it receives in a
timely manner to the appropriate state insurance departments.
(e) DISTRIBUTOR and AGL shall cooperate in making arrangements with each
Selling Group Member in order to help to keep costs associated with the
appointment of Sales Persons at reasonable levels.
(f) Notwithstanding the foregoing, AGL, in its sole discretion, may
refuse to appoint or renew the appointment of any Sales Person, or may revoke
such appointment for any reason. AGL shall consult with DISTRIBUTOR prior to
refusing to appoint, renew appointment, or revoking an appointment, as to the
reasons for such decision. Neither AGL nor AGSI shall incur any obligation to
compensate or reimburse any expenses of DISTRIBUTOR as a result of any such
refusal to appoint or renew an appointment of a Sales Person.
2.7. Selection of Selling Group Members. DISTRIBUTOR shall exercise care
----------------------------------
and diligence in selecting and recommending to AGL broker-dealers to serve as
Selling Group Members and in the marketing and distribution of the Contracts.
2.8. Supervision by Selling Group Members. Selling Group Members shall be
------------------------------------
responsible for the supervision of the Sales Persons in their solicitation of
applications for the Contracts and all of their activities relating to this
Agreement and that are provided for under the Selling Group Agreement.
2.9. Marketing Materials.
-------------------
(a) DISTRIBUTOR, at its sole cost, shall be responsible for developing
(with the assistance of AGL), printing and distributing all marketing materials
to be used in connection with the offer and sale of the Contracts, except for
(i) any prospectus for the Contracts (for which responsibility is described in
Section 2.9(b), below), including any related statement of additional
information ("SAI"), and any amendments or supplements to the foregoing
(collectively, as the context requires, "Contract Prospectus") and (ii) any
annual or semi-annual reports for an Account
-4-
<PAGE>
("Account Reports"), the preparation of which shall be the sole responsibility
of AGL. As used herein, "marketing materials" shall mean any "advertisement" or
"sales literature," as those terms are defined in Section 35(a) of the NASD's
Rules of Fair Practice, as amended from time to time, including, without
limitation, any so-called "dealer-only" materials.
(b) The responsibility for (i) printing and distributing Contract
Prospectuses (including any related SAI) and Account Reports used as marketing
materials and (ii) the costs of printing and distributing such Contract
Prospectuses and Account Reports is set forth in the Participation Agreement by
and among AGL, DISTRIBUTOR, and other parties thereto ("Participation
Agreement").
(c) AGL and DISTRIBUTOR shall submit by telecopy or overnight delivery
definitive copies of all marketing materials to the other for its approval,
which approval shall be provided within at least ten (10) business days of
receipt or such period to which the Parties may agree from time to time.
(d) DISTRIBUTOR shall, to the extent required, file in a timely manner
all marketing materials with the NASD, the SEC, and any other regulatory body
(other than state insurance regulatory bodies), as appropriate, and shall obtain
any necessary approval of these regulatory bodies of such marketing materials.
AGL shall, to the extent required, file in a timely manner all marketing
materials with the various state insurance regulatory bodies, as appropriate,
and shall obtain any necessary approval of these regulatory bodies of such
marketing materials.
(e) Notwithstanding the foregoing, AGL acknowledges that Selling Group
Members, at their own cost, may from time to time develop, print, and distribute
marketing materials that are not jointly developed by AGL and DISTRIBUTOR
("supplemental marketing materials"). In no event shall DISTRIBUTOR utilize, or
give its consent to Selling Group Members to utilize, any supplemental marketing
materials unless AGL has provided its written approval of such materials prior
to their intended first use. The responsibility of Selling Group Members to
obtain AGL's prior written approval of supplemental marketing materials shall be
a requirement of each selling group agreement entered into by the Parties.
2.10. Marketing Services. In connection with the offer and sale of
------------------
Contracts, DISTRIBUTOR agrees to:
(a) develop a marketing plan for the introduction and continuing sale of
the Contracts through Selling Group Members;
(b) provide AGL on an ongoing basis with information concerning the
marketability of the Contracts and the usefulness of the marketing materials
jointly prepared by AGL and DISTRIBUTOR or any other documents prepared by AGL,
and advise AGL with regard to the desirability of revising or redesigning the
same;
-5-
<PAGE>
(c) provide AGL on an ongoing basis with comparative data regarding
products offered by other life insurance companies and mutual fund groups;
(d) initiate and maintain contact with existing and potential Selling
Group Members for purposes of advising AGL on the desirability of developing and
implementing new Contract features;
(e) receive written and oral inquiries from Selling Group Members with
respect to the Contracts and coordinate responses to the same with AGL;
(f) distribute to Selling Group Members copies of all marketing materials
described herein that are approved or prepared by AGL pursuant to this
Agreement;
(g) maintain a toll-free number and support and service unit to render
assistance to Selling Group members in connection with the offer and sale of
Contracts;
(h) provide such other marketing services and support as AGL may
reasonably request from time to time.
2.11. Non-Marketing Materials.
-----------------------
(a) AGL, at its sole cost, shall be responsible for preparing, printing
in quantity and delivering to Selling Group Members: (i) all Contract forms,
applications and related materials, (ii) all documents pertaining to the
processing of premium payments, refunds and other monies, and (iii) all
documents pertaining to transactions, claims, and other features available under
the Contracts, including, but not limited to, full or partial surrenders,
exchanges, transfers, loans, systematic purchases, death claims, changes in
premium allocations, and changes in beneficiary.
(b) AGL, at its sole cost, shall be responsible for preparing, printing,
and distributing all correspondence with Contract owners, except for
correspondence prepared, printed, and distributed by DISTRIBUTOR pursuant to
AGL's prior approval.
(c) The responsibility for printing and distributing Contract
Prospectuses to existing Contract owners shall be set forth in the Participation
Agreement.
(d) AGL, at its sole cost, shall be responsible for preparing, printing,
distributing to existing Contract owners, and, to the extent required, filing
with any appropriate regulatory body, in a timely manner, or causing the same to
be done: (i) all Contract owner account statements, (ii) Account Reports, (iii)
voting cards, as appropriate, and (iv) all reports, forms, and other information
necessary to comply with applicable federal and state tax law.
(e) AGL shall provide to DISTRIBUTOR or its designated agent at least one
complete copy of all SEC registration statements, Contract Prospectuses, Account
Reports, any preliminary and final voting instruction solicitation material,
applications for exemptions, requests for no-action
-6-
<PAGE>
letters, and all amendments to any of the above, that relate to the Account or
the Contracts, contemporaneously with the filing of such document with the SEC
or other regulatory authorities.
(f) AGL, as agent for AGL and Selling Group Members shall, upon or prior
to the completion of such Contract transaction for which a confirmation is
legally required, send a written confirmation to the Contract owners for each
such transaction, in a form and manner which complies with the requirements of
the 1934 Act, state laws and regulations, and the disclosure requirements of the
NASD. Such confirmations shall be furnished to all Contract owners in accordance
with applicable securities laws, shall reflect the facts of the transaction,
and, if applicable, shall show that they are being sent by AGL on behalf of AGSI
and Selling Group Members.
2.12. Information About AGL and DISTRIBUTOR.
-------------------------------------
(a) Neither AGL nor any of its affiliates will give any information or
make any representations or statements on behalf of or concerning DISTRIBUTOR or
its affiliates in connection with the sale of the Contracts other than the
information or representations provided by or on behalf of DISTRIBUTOR and its
affiliates that are contained (i) in the registration statement, including the
Contract Prospectus contained therein, as such registration statement and
Prospectus may be amended from time to time; (ii) in Account Reports or voting
instruction solicitation materials for each Account; or (iii) in marketing
materials prepared by DISTRIBUTOR, except with the express written permission of
DISTRIBUTOR. As used herein, the term "affiliate" shall have the same meaning as
defined in Section 2(a)(3) of the Investment Company Act of 1940 ("1940 Act").
(b) Neither DISTRIBUTOR nor any of its affiliates will give any
information or make any representations or statements on behalf of or concerning
AGL, AGSI, or their respective affiliates in connection with the sale of the
Contracts other than the information or representations provided by or on behalf
of AGL, AGSI, or their respective affiliates that are contained in (i) the
registration statement, including the Contract Prospectus contained therein, as
such registration statement and Prospectus may be amended from time to time;
(ii) in Account Reports or voting instruction solicitation materials for each
Account; or (iii) in marketing material, except with the express written
permission of AGL.
2.13. Complaints.
----------
Complaints are written or verbal communications from a customer and/or
regulatory authority expressing any grievance with AGL, AGSI, or DISTRIBUTOR,
and/or their respective affiliates, agents and representatives, to the extent
that such complaints arise in connection with the Contracts or their respective
services or practices relating to the Contracts. A communication from a
customer is a complaint if, in connection with a Contract, the customer claims:
(i) he or she has not received the expected benefits or service; (ii) AGL, AGSI,
or DISTRIBUTOR has made a mistake or has acted or failed to act in a way
prejudicial to the customer; or (iii) he or she is
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<PAGE>
displeased with AGL, AGSI, or DISTRIBUTOR and/or their respective affiliates,
agents or representatives.
AGL, AGSI, and DISTRIBUTOR each shall consult with the other parties hereto
in connection with any insurance regulatory investigation or proceeding or
judicial proceeding arising in connection with the Contracts marketed under this
Agreement. In addition, AGL, AGSI and DISTRIBUTOR each shall consult with the
other parties hereto in connection with any securities regulatory investigation
or proceeding or judicial proceeding, to the extent that such investigation or
proceeding is in connection with the Contracts marketed under this Agreement.
Without limiting the foregoing, (i) each party shall notify the other parties of
any written customer complaint requiring joint resolution by the parties ("Joint
Customer Complaint") or notice of any regulatory investigation or proceeding or
judicial proceeding received by such party with respect to any other party, or
in connection with any Contract marketed under this Agreement or any activity in
connection with any such Contract, within 24 hours of receipt of such Joint
Customer Complaint; and (ii) each party ("Notifying Party") shall notify the
other parties within 30 days of the end of each calendar quarter of any written
customer complaint not requiring joint resolution of the parties which is
resolved by Notifying Party in such calendar quarter; provided, however, that no
such resolution may bind any other party to this Agreement without such party's
written consent.
In the case of a customer complaint, AGL, AGSI, and DISTRIBUTOR will
consult with the other parties hereto in connection with investigating such
complaint and any response by a party to this Agreement to such complaint will
be sent to the other parties to this Agreement for approval not less than five
business days prior to its being sent to the customer or regulatory authority,
except that if a more prompt response is required, the proposed response shall
be communicated by telephone or facsimile.
2.14. Limitations on Authority. DISTRIBUTOR and its Sales Persons shall
------------------------
have no authority to, and shall not:
(a) alter or substitute AGL's Contract applications or forms in any
manner;
(b) guarantee the issuance of any Contract or the reinstatement of any
lapsed Contract (in the case of life insurance Contracts), or the reinvestment
of any Contract (in the case of annuity Contracts);
(c) add, alter, waive or discharge any Contract provision, including,
without limitation, any forfeiture provision, or represent that such can be done
by AGL;
(d) make any settlement of any claim or claims binding on, or otherwise
bind AGL or any of its affiliates in any way without its written consent;
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<PAGE>
(e) extend the time of making any premium payments, or pay or allow any
inducement not specified in the Contracts to any Contract owner or applicant, or
rebate any portion of a premium payment, in any manner whatsoever;
(f) incur any indebtedness or liability on behalf of or expend or
contract for the expenditure of funds by AGL;
(g) enter into legal proceedings in connection with any matter pertaining
to the business of AGL without the prior written consent of AGL, unless
DISTRIBUTOR or any Sales Person, as the case may be, is named in such
proceedings;
(h) give or offer to give, on behalf of AGL, any tax or legal advice
related to the purchase of a Contract; or
(i) exercise any authority on behalf of AGL other than that expressly
conferred on DISTRIBUTOR or any Sales Person by this Agreement.
2.15. Independent Contractor. DISTRIBUTOR shall at all times function as,
----------------------
and be deemed to be, an independent contractor. Nothing contained herein shall
be construed as creating the relationship of employer and employees between or
among AGL, AGSI, and DISTRIBUTOR (or any Sales Person or Associated Agency
thereof).
SECTION 3. ADMINISTRATION
--------------------------
3.1. Contract Administration. Each Party agrees to perform the
-----------------------
administrative duties assigned to such Party under Schedule B attached hereto
and incorporated by reference herein, as the Parties may amend from time to time
by mutual agreement. DISTRIBUTOR acknowledges that AGL may subcontract its
rights and responsibilities enumerated in Schedule B to one or more third party
vendors. Although such duties may be delegated, AGL agrees that it is legally
liable for the performance of the same.
3.2. Performance Standards. Each Party agrees to meet or exceed the
---------------------
standards for performing the various administrative duties set out in Schedule B
attached hereto and incorporated by reference herein, as the Parties may amend
from time to time by mutual agreement.
SECTION 4. REPRESENTATIONS AND WARRANTIES
------------------------------------------
4.1. By AGL.
------
AGL represents and warrants that:
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(a) it is an insurance company duly organized, validly existing and in good
standing under the laws of the State of Texas and has full corporate power,
authority and legal right to execute, deliver and perform its duties and comply
with its obligations under this Agreement,
(b) it has legally and validly established and maintains each Account as a
segregated asset account under the Texas Insurance Code and the regulations
thereunder,
(c) the Contracts comply in all material respects with all other applicable
federal and state laws and regulations,
(d) interests in each Account pursuant to the Contracts will be registered
under the 1933 Act to the extent required by the 1933 Act,
(e) the Contracts will be duly authorized for issuance and sold in
compliance with all applicable federal and state laws, including, without
limitation, the 1933 Act, the 1934 Act, the 1940 Act, Texas law, and the laws of
any other state in which the Contracts are offered and sold,
(f) each Account is and will remain registered under the 1940 Act, to the
extent required by the 1940 Act, and each Account does and will comply in all
material respects with the requirements of the 1940 Act and the rules
thereunder, to the extent required,
(g) each Account's 1933 Act registration statement relating to the
Contracts, together with any amendments thereto, will at all times comply in all
material respects with the requirements of the 1933 Act and the rules
thereunder,
(h) AGL will amend the registration statement for its Contracts under the
1933 Act and for its Accounts under the 1940 Act from time to time as required
in order to effect the continuous offering of its Contracts or as may otherwise
be required by applicable law, and
(i) each Contract Prospectus will at all times comply with in all material
respects with the requirements of the 1933 Act and rules thereunder, but
excluding information contained or omitted in reliance upon and in conformity
with information furnished to AGL or AGSI by or on behalf of DISTRIBUTOR.
AGL further represents that:
(a) the Contracts currently are and will be treated as annuity,
endowment, or life insurance contracts under applicable provisions of the
Internal Revenue Code of 1986, as amended ("Code"), that it will use its best
efforts to maintain such treatment, and that it will notify DISTRIBUTOR
immediately upon having a reasonable basis for believing that any of the
Contracts have ceased to be so treated or that they might not be so treated in
the future, and
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<PAGE>
(b) that each Account is a "segregated asset account," that interests
in the account are offered exclusively through the purchase of or transfer into
a "variable contract," within the meaning of such terms under Section 817 of the
Code and the regulations thereunder, that it will use its best efforts to
continue to meet such definitional requirements, and that it will notify
DISTRIBUTOR immediately upon having a reasonable basis for believing that such
requirements have ceased to be met or that they might not be met in the future.
4.2. By AGSI.
-------
AGSI represents and warrants that:
(a) it is a corporation duly organized, validly existing, and in good
standing under the laws of the State of Texas and has full power, authority, and
legal right to execute, deliver, and perform its duties and comply with its
obligations under this Agreement,
(b) it is a member in good standing of the NASD and that it has obtained
all approvals necessary to offer the Contracts and otherwise enter into and
carry out all transactions contemplated by this Agreement, has obtained or will
obtain all approvals, licenses, authorizations, orders or consents, and shall be
duly registered or otherwise qualified under the securities laws of any state or
other jurisdiction where offers or sales of the Contracts may be made,
(c) it is bonded as required by all applicable laws and regulations and
that it will carry out its sales and underwriting obligations hereunder in
continued compliance with the Conduct Rules of the NASD and federal and state
securities laws and regulations and state insurance laws and regulations,
(d) it is duly registered with the SEC as a broker-dealer under the 1934
Act, and that the activities of DISTRIBUTOR and Sales Persons in connection with
the offer and sale of Contracts shall be in compliance with applicable federal
and state securities laws and regulations in all material respects,
(e) in its capacity as principal underwriter of the Contracts, it has
performed due diligence in order to discharge its obligations to all Selling
Group Members, and further that the Contracts are the subject of a bona fide
offering and that after a reasonable examination of the contracts, it has
determined that the representations contained in the Contract prospectuses are
true and correct,
(f) it shall at all times provide appropriate supervision for those home
office employees of AGL who are registered representatives of AGSI and who are
required by AGL to execute duties on behalf of AGL which are related to the
Contracts, and
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<PAGE>
(g) it shall take all actions necessary to obtain and maintain all
regulatory approval required to underwrite the Contracts for sale in all states
and jurisdiction in which the Contracts may be sold.
4.3. By DISTRIBUTOR.
--------------
DISTRIBUTOR represents and warrants that:
(a) it is a corporation duly organized, validly existing, and in good
standing under the laws of the State of Washington and has fully power,
authority, and legal right to execute, deliver, and perform its duties and
comply with its obligations under this Agreement,
(b) it is a member in good standing of the NASD and that it has obtained
all approvals necessary to offer the Contracts and otherwise enter into and
carry out all transactions contemplated by this Agreement, has obtained or will
obtain all approvals, licenses, authorizations, orders or consents, and shall be
duly registered or otherwise qualified under the securities and insurance laws
of any state or other jurisdiction where offers or sales of the Contracts may be
made,
(c) it is bonded as required by all applicable laws and regulations and
that it will carry out its sales and underwriting obligations hereunder in
continued compliance with the Conduct Rules of the NASD and federal and state
securities laws and regulations and state insurance laws and regulations,
(d) it is duly registered with the SEC as a broker-dealer under the 1934
Act, and that the activities of DISTRIBUTOR shall be in compliance with
applicable federal and state securities laws and regulations in all material
respects,
(e) neither it nor its Associated Agencies shall make any representations
concerning the Contracts, except those contained in or reasonably derived from
the Contract Prospectus, registration statements, annual or semi-annual reports
of each Account, or in other written materials prepared by or on behalf of AGL,
and
(f) to the extent that DISTRIBUTOR assigns rights or obligations under
this Agreement to an Associated Agency pursuant to Section 8 hereof, DISTRIBUTOR
represents and warrants that such Associated Agency will have and maintain all
governmental approvals, licenses, authorizations, orders or consents that are
necessary for it to be assigned such rights and perform any such obligations. In
addition, the representations and warranties made by DISTRIBUTOR in this Section
4.3 shall be read to apply to the Associated Agency where the context so
requires.
SECTION 5. COMPENSATION: COSTS AND EXPENSES
---------------------------------------------
5.1. Compensation.
------------
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<PAGE>
AGL agrees to compensate DISTRIBUTOR for its services hereunder in
accordance with Schedule C attached hereto and incorporated herein by reference,
as the Parties may amend from time to time by mutual agreement.
5.2. Each Party to Bear Own Costs. Except as otherwise expressly provided,
----------------------------
each Party to this Agreement shall bear all expenses of fulfilling its duties
and obligations hereunder. To the extent one Party initially bears any costs or
expenses that are the responsibility of another Party, that other Party shall
reimburse the Party that initially bore such expenses promptly upon request.
SECTION 6. INDEMNIFICATION
---------------------------
6.1. Indemnification by AGL and AGSI.
-------------------------------
(a) Except as limited by and in accordance with the provisions of Sections
6.1(c) and 6.1(d) below, AGL and AGSI shall indemnify and hold harmless
DISTRIBUTOR against any loss, claim, damage or liability (including amounts paid
in settlement with the written consent of AGL and AGSI), or litigation
(including reasonable counsel fees and other costs of investigating or defending
any alleged loss, claim, damage, or liability) to which DISTRIBUTOR may become
subject under any statute, regulation, at common law or otherwise, insofar as
such losses, claims, damages, or liabilities are related to the sale of the
Contracts and:
(i) arise out of or are based upon any untrue statements or alleged
untrue statements of any material fact contained in the Contract, the
registration statement relating to the Contracts, the Contract Prospectus,
or in any published marketing materials or communications with any Contract
owner (or any amendment or supplement to any of the foregoing), or arise
out of or are based upon the omission or the alleged omission to make
therein statements necessary to make the statements therein not misleading,
provided that this agreement to indemnify shall not apply to any
Indemnified Party, as defined below, if such statement or omission or such
alleged statement or omission was made in reliance upon and in conformity
with information furnished to AGL or AGSI by or on behalf of DISTRIBUTOR or
any Associated Agency of DISTRIBUTOR for use in the foregoing materials; or
(ii) arise out of the failure of AGL, AGSI, or any of their
respective affiliates, officers, directors, or employees, to comply with
any applicable securities or other laws and regulations in connection with
its rendering of Contract issue, recordkeeping, confirmation or other
services under this Agreement; or
(iii) arise out of AGL's or AGSI's negligence or misconduct, or that
of their respective affiliates, officers, directors, or employees in the
performance of its duties hereunder; or
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<PAGE>
(iv) arise as a result of any failure by AGL or AGSI to substantially
provide the services and furnish the materials under the terms of this
Agreement; or
(v) arise out of or result from any material breach of any
representation or warranty made by AGL or AGSI in this Agreement or arise
out of or result from any other material breach of this Agreement by AGL or
AGSI.
(b) The indemnities in this Section 6.1 shall, upon the same terms and
conditions, extend to and inure to the benefit of each director, officer, or
Sales Person of DISTRIBUTOR and any person controlling DISTRIBUTOR with the
meaning of Section 15 of the 1933 Act or Section 20 of the 1934 Act (each an
"Indemnified Party").
(c) Neither AGL nor AGSI shall be liable under this indemnification
provision with respect to any losses, claims, damages, liabilities or litigation
incurred or assessed against an Indemnified Party as such may arise form such
Indemnified Party's willful misfeasance, bad faith, or gross negligence in the
performance of such Indemnified Party's duties or by reason of such Indemnified
Party's reckless disregard of obligations or duties under this Agreement.
(d) Neither AGL or AGSI shall be liable under this indemnification
provision with respect to any claim made against an Indemnified Party unless
such Indemnified Party shall have notified AGL and AGSI, if appropriate, in
writing within a reasonable time after the summons or other first legal process
giving information of the nature of the claim shall have been served upon such
Indemnified Party (or after such Indemnified Party shall have received notice of
such service on any designated agent), but failure to notify AGL and AGSI of any
such claim shall not relieve AGL and AGSI from any liability which it may have
to the Indemnified Party against whom such action is brought otherwise than on
account of this indemnification provision. In case any such action is brought
against an Indemnified Party, AGL and AGSI shall be entitled to assume the
defense thereof, with counsel satisfactory to the party named in the action.
After notice from AGL and AGSI to such party of AGL's and AGSI's election to
assume the defense thereof, the Indemnified Party shall bear the fees and
expenses of any additional counsel retained by it, and AGL will not be liable to
such party under this Agreement for any legal or other expenses subsequently
incurred by such party independently in connection with the defense thereof
other than reasonable costs of investigation.
6.2. Indemnification by DISTRIBUTOR.
------------------------------
(a) Except as limited by and in accordance with the provisions of Sections
6.2(c) and 6.2(d) below, DISTRIBUTOR shall indemnify and hold harmless AGL and
AGSI against any loss, claim, damage or liability (including amounts paid in
settlement with the written consent of AGL and AGSI), or litigation (including
reasonable counsel fees and other costs of investigating or defending any
alleged loss, claim, damage, or liability) to which AGL or AGSI may become
subject under any statute, regulation, at common law or otherwise, insofar as
such losses, claims, damages, or liabilities are related to the sale of the
Contracts and:
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<PAGE>
(i) arise out of or are based upon any untrue statements or alleged
untrue statements of any material fact contained in the Contract, the
registration statement relating to the Contracts, the Contract Prospectus,
or in any published marketing materials or communications with any Contract
owner (or any amendment or supplement to any of the foregoing), or arise
out of or are based upon the omission or the alleged omission to make
therein statements necessary to make the statements therein not misleading,
if such statement or omission or such alleged statement or omission was
made in reliance upon and in conformity with information furnished to AGL
or AGSI by or on behalf of DISTRIBUTOR or any Associated Agency thereof for
use in the foregoing materials; or
(ii) arise out of the failure of DISTRIBUTOR or any Associated Agency
of DISTRIBUTOR, including affiliates, officers, directors, or employees of
the foregoing, to comply with any applicable securities or other laws and
regulations in connection with its rendering of Contract marketing and
distribution under this Agreement; or
(iii) arise out of the negligence or misconduct of DISTRIBUTOR or any
Associated Agency of DISTRIBUTOR, or that of any affiliate, officer,
director, or employee of the foregoing, in the performance of its duties
hereunder; or
(iv) arise as a result of any failure by DISTRIBUTOR to substantially
provide the services and furnish the materials under the terms of this
Agreement; or
(v) arise out of or result from any material breach of any
representation or warranty made by DISTRIBUTOR in this Agreement or arise
out of or result from any other material breach of this Agreement by
DISTRIBUTOR.
(b) The indemnities in this Section 6.2 shall, upon the same terms and
conditions, extend to and inure to the benefit of each director, officer, and
affiliate of AGL or AGSI and any person controlling AGL or AGSI within the
meaning of Section 15 of the 1993 Act or Section 20 of the 1934 Act (each an
"Indemnified Party").
(c) DISTRIBUTOR shall not be liable under this indemnification provision
with respect to any losses, claims, damages, liabilities or litigation incurred
or assessed against an Indemnified Party as such may arise from such Indemnified
Party's willful misfeasance, bad faith, or gross negligence in the performance
of such Indemnified Party's duties or by reason of such Indemnified Party's
reckless disregard of obligations or duties under this Agreement.
(d) DISTRIBUTOR shall not be liable under this indemnification provision
with respect to any claim made against an Indemnified Party unless such
Indemnified Party shall have notified DISTRIBUTOR in writing within a reasonable
time after the summons or other first legal process giving information of the
nature of the claim shall have been served upon such Indemnified Party (or after
such Indemnified Party shall have received notice of such service on any
designated agent),
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<PAGE>
but failure to notify DISTRIBUTOR of any such claim shall not relieve
DISTRIBUTOR from any liability which it may have to the Indemnified Party
against whom such action is brought otherwise than on account of this
indemnification provision. In case any such action is brought against an
Indemnified Party, DISTRIBUTOR shall be entitled to assume the defense thereof,
with counsel satisfactory to the party named in the action. After notice from
DISTRIBUTOR to such party of DISTRIBUTOR's election to assume the defense
thereof, the Indemnified Party shall bear the fees and expenses of any
additional counsel retained by it, and DISTRIBUTOR will not be liable to such
party under this Agreement for any legal or other expenses subsequently incurred
by such party independently in connection with the defense thereof other than
reasonable costs of investigation.
6.3. Limitation on Liability. In no event shall any Party under this
-----------------------
Agreement be liable for lost profits or for exemplary, special, punitive or
consequential damages alleged to have been sustained by the other Party, as
opposed to a third party.
6.4. Injunctive Relief. The Parties each agree that monetary damages may
-----------------
be an inadequate remedy in the event of a breach by any Party of any of the
covenants in this Agreement, and that any such breach by a Party may cause the
other Parties great and irreparable injury and damage. Accordingly, the Parties
agree that the non-breaching Parties shall be entitled, without waiving any
additional rights or remedies otherwise available to it at law or in equity or
by statute, to injunctive and other equitable relief in the event of a breach or
intended or threatened breach by any other Party of any of said covenants.
SECTION 7. TERM AND TERMINATION
--------------------------------
7.1. Term. This Agreement shall be effective as of the date first above
----
written and shall, unless earlier terminated pursuant to Section 7.2 or 7.3,
remain in full force and effect thereafter with respect to all Contracts of each
particular form type until no Contracts of that particular form type remain
outstanding.
7.2. Events of Termination.
---------------------
(a) This Agreement shall terminate at any Party's option, without penalty:
(i) with or without cause, on not less than 180 days' written notice
to the other Parties;
(ii) upon the mutual written consent of the Parties;
(iii) upon written notice of one Party to the other Parties in the
event of bankruptcy or insolvency of such party to which notice is given;
or
(iv) in the event of an assignment of this Agreement, subject to the
provisions of Section 8.
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<PAGE>
(b) This Agreement shall terminate at the option of DISTRIBUTOR, subject
to Section 7.3., in the event of:
(i) fraud, misrepresentations, conversion or unlawful withholding of
funds by AGL or AGSI;
(ii) the dissolution or disqualification of AGL or AGSI to do
business under any applicable state or federal law where AGL or AGSI's
ability to perform is materially impaired; however, such termination shall
extend only to the jurisdiction(s) where AGL or AGSI is prohibited from
doing business;
(iii) the suspension or revocation of any material license or permit
held by AGL or AGSI by the appropriate governmental agency or authority;
however, such termination shall extend only to the jurisdiction(s) where
AGL or AGSI is prohibited from doing business;
(iv) the sale (without the prior written consent of DISTRIBUTOR,
which consent shall not be unreasonably withheld) of the AGL or AGSI
business relating to the Contracts, which sale is to an unaffiliated person
or entity, whether by merger, consolidation, or sale of substantially all
of AGL or AGSI's assets, during the term of, and any extension of, this
Agreement; or
(v) upon the institution of formal proceedings against AGL or AGSI
by the NASD, SEC, or any other regulatory body regarding AGL or AGSI's
duties under this Agreement, the sale of the Contracts, or the operation of
any Account, provided that such proceedings result in a finding of material
wrongdoing by AGL or AGSI.
(c) This Agreement shall terminate at the option of AGL or AGSI, subject
to Section 7.3, in the event of:
(i) fraud, misrepresentation, conversion or unlawful withholding of
funds by DISTRIBUTOR;
(ii) the dissolution or disqualification of DISTRIBUTOR to do
business under any applicable state or federal law where DISTRIBUTOR's
ability to perform is materially impaired; however, such termination shall
extend only to the jurisdiction(s) where DISTRIBUTOR is prohibited from
dong business;
(iii) the suspension or revocation of any material license or permit
held by DISTRIBUTOR by the appropriate governmental agency or authority;
however, such termination shall extend only to the jurisdiction(s) where
DISTRIBUTOR is prohibited from doing business;
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<PAGE>
(iv) the sale (without the prior written consent of AGL, which consent
shall not be unreasonably withheld) of DISTRIBUTOR's business to an
unaffiliated person or entity, whether by merger, consolidation, or sale of
substantially all of DISTRIBUTOR'S assets during the term of, and any
extension of, this Agreement; or
(v) upon the institution of formal disciplinary proceedings against
DISTRIBUTOR by the NASD, SEC, or any other regulatory body, regarding
DISTRIBUTOR's duties under this Agreement or the sale of the Contracts,
provided that such proceedings result in a finding of material wrongdoing
by DISTRIBUTOR.
7.3. Remedy of Events of Default. If any Party breaches this Agreement or
---------------------------
is in default in the performance of any of its duties and obligations hereunder
(the "defaulting Party"), including, without limitation, a breach in any
representation of warranty made by the defaulting Party, the non-defaulting
Parties may give written notice thereof to the defaulting Party, and if such
breach is not remedied within 30 days after such written notice is given, then
the non-defaulting Parties may terminate this Agreement by giving 30 days'
written notice of such termination of the defaulting Party.
7.4. Parties to Cooperate Respecting Termination. The Parties agree to
-------------------------------------------
cooperate and give reasonable assistance to each other in effecting an orderly
transition following termination.
SECTION 8. ASSIGNMENT
----------------------
This Agreement is not assignable by DISTRIBUTOR and shall terminate
automatically in the event of a purported assignment; provided, however, that
DISTRIBUTOR may, with the prior written consent of AGL (which shall not be
unreasonably withheld), assign its rights or obligations under this Agreement to
a company affiliated with DISTRIBUTOR.
SECTION 9. CONTRACT LAPSE, TERMINATION, SURRENDER, ETC.
--------------------------------------------------------
9.1. Responsibilities of Distributor. During the term of this Agreement
-------------------------------
and for five (5) years following the termination of this Agreement, neither
DISTRIBUTOR nor any of its Associated Agencies or Sales Persons, or any
affiliate, director, officer or employee of the foregoing, shall induce or
cause, or attempt to induce or cause, directly or indirectly, any Contract owner
(a) to lapse, terminate, surrender, exchange, or cancel his or her Contract, (b)
to cease or discontinue making premium payments thereunder, or (c) to direct
cash value or premium payments thereunder to any other financial product without
the prior written consent of AGL, unless such act is in response to an enactment
of federal or state legislation, order or decision of any court or regulatory
authority, or a change in circumstances that makes the Contracts or insurance
contracts of that type (e.g., annuity contracts or life insurance contracts) an
unsuitable investment for existing Contract owners.
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<PAGE>
9.2. Responsibilities of AGL and AGSI. During the term of this Agreement
--------------------------------
and for five (5) years following the termination of this Agreement, neither AGL
nor AGSI, or any affiliate, director, officer, employee or agent of the
foregoing, shall induce or cause, or attempt to induce or cause, directly or
indirectly, any Contract owner (a) to lapse, terminate, surrender, exchange, or
cancel his or her Contract, (b) to cease or discontinue making premium payments
thereunder, or (c) to direct cash value or premium payments thereunder to any
other financial product without the prior written consent of DISTRIBUTOR, unless
such act is in response to an enactment of federal or state legislation, order
or decision of any court or regulatory authority, or a change in circumstances
that makes the Contracts or insurance contracts of that type (e.g., annuity
contracts or life insurance contracts) an unsuitable investment for existing
Contract owners.
SECTION 10. CONFIDENTIALITY
----------------------------
Each Party to this Agreement shall keep confidential any information about
each other Party, or its operations obtained pursuant to this Agreement or the
transactions contemplated herein and shall disclose such information only if
such Party has authorized such disclosure, or if such disclosure is required by
federal or state regulatory bodies. If any Party hereto receives a request from
such regulatory body requiring such disclosure, that Party shall immediately
notify the other Parties of the request.
SECTION 11. ARBITRATION OF DISPUTES
------------------------------------
11.1. Arbitration Binding. Any controversy or claim arising out of or
-------------------
relating to this Agreement, or the breach hereof, shall be settled by
arbitration under the rules of the NASD in effect at that time. If the NASD
refuses jurisdiction, or the Parties mutually agree in writing, the arbitration
procedure described herein shall be used. In either event, the decision of the
arbitrator(s) shall be final and judgment upon the award rendered may be entered
in any court having jurisdiction thereof.
11.2. Initiation of Arbitration. To initiate arbitration, the Party seeking
-------------------------
arbitration ("Claimant") shall notify the Party(ies) (each, a "Respondent") in
writing of its desire to arbitrate, stating the nature of its dispute and the
remedy sought. The Respondent(s) shall respond to the notification in writing
within 10 days of its receipt.
11.3. Selection of Arbitrators.
------------------------
(a) The arbitration hearing shall be before a panel of three arbitrators,
each of whom must be (i) a present or former officer of a life insurance or
reinsurance company and/or (ii) an officer and principal of a registered broker-
dealer. The panel must contain at least one representative from each of (i) and
(ii). An arbitrator may not be a present or former affiliate, director,
officer, employee, attorney, or consultant of AGL, AGSI, and DISTRIBUTOR (or any
Associated Agency or Sales Person thereof).
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<PAGE>
(b) Claimant and Respondent shall each name five (5) candidates to serve
as an arbitrator. Claimant and Respondent shall each choose one candidate from
the other Party's list, and these two candidates shall serve as the first two
arbitrators. Claimant and Respondent shall each present their initial lists of
five (5) candidates by written notification to the other Party within 25 days of
the date of the mailing of the notification initiating the arbitration. Any
subsequent additions to the list that are required shall be presented within 10
days of the date the naming Party receives notice that a candidate that has been
chosen declines to serve.
(c) The two arbitrators shall then select the third arbitrator from the
eight (8) candidates remaining on the lists of the Claimant and Respondent
within 14 days of the acceptance of their positions as arbitrators. If the two
arbitrators cannot agree on the choice of a third, then this choice shall be
referred back to the Parties. Claimant and Respondent shall take turns striking
the name of one of the remaining candidates from the initial (8) candidates
until only one candidate remains. If the candidate so chosen shall decline to
serve as the third arbitrator, the candidate whose name was stricken last shall
be nominated as the third arbitrator. This process shall continue until a
candidate has been chosen and accepted. This candidate shall serve as the third
arbitrator. The first turn at striking the name of a candidate shall belong to
the Respondent. Once chosen, the arbitrators are empowered to decide all
substantive and procedural issues by a majority of votes.
11.4. Impartiality. The Parties agree that each of the three arbitrators
------------
should be impartial regarding the dispute. Therefore, at no time will any Party
contact or otherwise communicate with any person who is to be or who has been
designated as a candidate to serve as an arbitrator concerning the dispute,
except upon the basis of jointly drafted communications provided by the Parties
to inform those candidates actually chosen as arbitrators of the nature and
facts of the dispute. Likewise, any written or oral arguments provided to the
arbitrators concerning the dispute shall be coordinated with the other
Party(ies) and shall be provided simultaneously to the other Party(ies) or shall
take place in the presence of the other Party(ies). Further, at no time shall
any arbitrator be informed that the arbitrator has been named or chosen by one
Party or another.
11.5. Hearing Date and Time. The arbitration hearing shall be held on a
---------------------
date fixed by the arbitrators. In no event shall this date be later than six
(6) months after the appointment of the third arbitrator. As soon as possible,
the arbitrators shall establish pre-arbitration procedures as warranted by the
facts and issues of the particular case. At least 10 days prior to the
arbitration hearing, each Party shall provide the other Party(ies) and the
arbitrators with a detailed statement of the facts and arguments that it will
present at the arbitration hearing. The arbitrators may consider any relevant
evidence; they shall give the evidence such weight as they deem it entitled to
after consideration of any objections raised concerning it. The Claimant shall
have the burden of proving its case by a preponderance of the evidence. Each
Party may examine any witnesses who testify at the arbitration hearing. Each
Party shall bear its own costs of arbitration, except that the arbitrators shall
apportion their own reasonable fees and expenses between or among the Parties,
as they deem appropriate.
SECTION 12. TRADEMARKS
-----------------------
-20-
<PAGE>
12.1. DISTRIBUTOR Trademarks. DISTRIBUTOR may file for a service mark in
-----------------------
order to establish ownership to all right, title and interest in and to the
name, trademark and service mark "WM Advantage" and will file for a service mark
in order to establish ownership of all right, title, and interest in the name,
trademark and service mark "WM Strategic Asset Manager" and such other
tradenames, trademarks and service marks identified in Schedule D hereto, as the
Parties hereto may amend from time to time (the "DISTRIBUTOR licensed marks" or
the "licensor's licensed marks"). DISTRIBUTOR hereby grants to AGL (including
its affiliates) a non-exclusive license to use the DISTRIBUTOR licensed marks in
connection with AGL's performance of the services contemplated under this
Agreement, subject to the terms and conditions set forth in this Section 12.
12.2. AGL Trademarks. AGL owns all right, title and interest in and to the
--------------
tradename, trademarks and service mark "American General Life Insurance
Company," and such other tradenames, trademarks and service marks identified in
Schedule D hereto, as the Parties hereto may amend from time to time (the "AGL
licensed marks" or the "licensor's licensed marks"). AGL hereby grants to
DISTRIBUTOR (including its affiliates) a non-exclusive license to use the AGL
licensed marks in connection with DISTRIBUTOR's performance of the services
contemplated by this Agreement, subject to the terms and conditions set forth in
this Section 12.
12.3. Grant of License. The grant of license by DISTRIBUTOR and AGL (each,
----------------
a "licensor") to the other and affiliates thereof (the "licensees") shall
terminate automatically when the Contracts (or any particular form of Contract)
cease to be outstanding or by either Party at its election upon termination of
this Agreement. Upon automatic termination, each licensee shall cease to use a
licensor's licensed marks. Upon AGL's elective termination of this license,
DISTRIBUTOR (including its affiliates) shall likewise cease any activity that
suggests that it has any right under the AGL licensed marks or that it has any
association with AGL or any affiliate of AGL in connection with any such
Contracts. Similarly, upon DISTRIBUTOR's elective termination of this license,
AGL (including its affiliates) shall cease to issue as soon as reasonably
practicable, any new Contracts bearing any of the DISTRIBUTOR licensed marks and
shall likewise cease any activity which suggests that it has any right under any
of the DISTRIBUTOR licensed marks or that it has any association with
DISTRIBUTOR or any affiliate of DISTRIBUTOR, except that AGL shall have the
right to continue to administer any outstanding Contracts bearing any of the
DISTRIBUTOR licensed marks and in connection therewith to use the DISTRIBUTOR
licensed marks.
12.4. Prior Approval. Notwithstanding any provision in this Agreement to
--------------
the contrary, a licensee shall obtain the prior written approval of the licensor
for the public release by such licensee of any materials bearing the licensor's
licensed marks. The licensor's approval shall not be unreasonably withheld.
12.5. Sample Materials. During the term of this grant of license, a
----------------
licensor may request that a licensee submit samples of any materials bearing any
of the licensor's licensed marks that were previously approved by the licensor
but, due to changed circumstances, the licensor may wish to reconsider, or that
were not previously approved in the manner set forth above. If, on the
reconsideration or on initial review, respectively, any such samples fail to
meet with the written
-21-
<PAGE>
approval of the licensor, then the licensee shall immediately cease distributing
such disapproved materials. The licensor's approval shall not be unreasonably
withheld. The licensee shall obtain the prior written approval of the licensor
for the use of any new materials developed to replace the disapproved materials,
in the manner set forth above.
12.6. Trademarks Valid and Enforceable. Each licensee hereunder: (a)
--------------------------------
acknowledges and stipulates that the licensor's licensed marks are valid and
enforceable trademarks and/or service marks and that such licensee does not own
the licensor's licensed marks and claims no rights therein other than as a
licensee under this Agreement; (b) agrees never to contend otherwise in legal
proceedings or in other circumstances; and (c) acknowledges and agrees that the
use of the licensor's licensed marks pursuant to this grant of license shall
inure to the benefit of the licensor.
SECTION 13. BONDING AND INSURANCE
----------------------------------
Each Party shall maintain sufficient fidelity bond coverage (including
coverage for larceny and embezzlement) and errors and omissions insurance
coverage as may be required by applicable law or as such Party seems necessary
in light of its obligations under this Agreement. DISTRIBUTOR shall maintain
errors and omissions coverage from a reputable insurance company in an amount
and form acceptable to AGL at all times during the term of this Agreement.
SECTION 14. NOTICES
--------------------
14.1. Manner of Notices. Unless otherwise provided in this Agreement, any
-----------------
notice required or permitted to be sent under this Agreement shall be given to
the following persons at the following addresses and facsimile numbers, or such
other persons, addresses or facsimile numbers as the Party receiving such
notices or communications may subsequently direct in writing:
American General Life Insurance Company
2929 Allen Parkway
Houston, Texas 77019
Attn: Pauletta P. Cohn
Telecopier: (713) 831-1106
American General Securities Incorporated
2727 Allen Parkway, Suite 290
Houston, Texas 77019
Attn: F. Paul Kovach, Jr.
Telecopier: (713) 831-3366
WM Funds Distributor, Inc.
1201 Third Avenue, 22nd Floor
Seattle, Washington 98101-3000
Attn: William G. Papesh
-22-
<PAGE>
Telecopier: (206) 490-2340
14.2. Notice of Regulatory Proceedings.
--------------------------------
(a) AGL and AGSI shall immediately notify DISTRIBUTOR of: (i) the
issuance by any court or regulatory body of any stop order, cease and desist
order, or other similar order with respect to any Contract or to any Account's
registration statement under the 1933 Act relating to the Contracts or any
Contract Prospectus, (ii) any request by the SEC or other regulatory body for
any amendment to such registration statement or Contract Prospectus, (iii) the
initiation of any proceeding for that purpose or for any other purpose relating
to the offering of any Contract, or the registration or offering of the
Account's interests pursuant to the Contracts, or (iv) any other action or
circumstances that may prevent or otherwise materially affect the lawful offer
or sale of said interests in any state or jurisdiction, including, without
limitation, any circumstances in which said interests are not registered and, in
all material respects, issued and sold in accordance with applicable state and
federal law. AGL and AGSI shall make every reasonable effort to prevent the
issuance of any such stop order, cease and desist order or similar order and, if
any such order is issued, to obtain the lifting thereof at the earliest possible
time.
(b) After DISTRIBUTOR becomes aware of any of the following, DISTRIBUTOR
shall immediately notify AGL of: (1) the issuance by any court or regulatory
body of any order having a material effect with respect to DISTRIBUTOR's ability
to perform its obligations hereunder, (ii) the initiation of any proceeding for
any purpose relating to the sale of the Contracts, and (iii) any other actions
or circumstances that may prevent the lawful offer or sale of any of the
Contracts in any state or jurisdiction. DISTRIBUTOR shall also immediately
notify AGL if any of its Sales Persons or Associated Agencies is or becomes
subject to any proceedings or is sanctioned or suspended (i) by the SEC or NASD,
(ii) by any court for securities law violations, or (iii) by any state
regulatory authority.
SECTION 15. MISCELLANEOUS
--------------------------
15.1. Amendment. This Agreement may be amended at any time by a writing
---------
executed by the parties.
15.2. Governing Law. This Agreement shall be interpreted in accordance with
-------------
and governed by the laws of the State of Texas.
15.3. Survival of Provisions. Upon termination of this Agreement, the
----------------------
following provisions shall survive: Sections 2.4, 2.5, 2.6, 2.11, 2.12, 2.13,
2.14, 3, 4, 5, 6, 8, 9, 10, 11, 12, 14 and 15.
15.4. Severability. Should any provision of this Agreement be held or made
------------
invalid by a court decision, statute, rule, or otherwise, the remainder of this
Agreement shall not be affected thereby.
-23-
<PAGE>
15.5. Waiver. Any failure or delay by any Party to enforce at any time any
------
of the provisions of this Agreement, or to exercise any right or option which is
herein provided, or to require at any time the performance of any of the
provisions hereof, shall in no way be construed to be a waiver of such provision
of this Agreement. If any Party waives the breach of any provision of this
Agreement by another Party, the waiving Party still has the right to require
performance of that provision and its conduct shall not be construed to waive
succeeding breaches of that provision or any breaches of any other provision.
15.6. Force Majeure. No Party shall be liable for damages due to delay or
-------------
failure to perform any obligation under this Agreement where such delay or
failure results directly or indirectly from circumstances beyond the control and
without the fault or negligence of such Party.
15.7. Parties to Cooperate.
--------------------
(a) The Parties shall cooperate fully in any insurance or securities
regulatory examination, investigation, or proceeding or any judicial proceeding
with respect to AGL, AGSI, DISTRIBUTOR, and their respective affiliates, agents
and representatives to the extent that such examination, investigation, or
proceeding arises in connection with Contracts distributed under this Agreement.
The Parties shall furnish applicable federal and state regulatory authorities
with any information or reports in connection with its services under this
Agreement that authorities may request in order to ascertain whether AGL's
operations are being conducted in a manner consistent with any applicable law or
regulations.
(b) DISTRIBUTOR shall execute such papers and do such acts and things as
shall from time to time be reasonably requested by AGL for the purpose of
qualifying and maintaining qualification of the Contracts for sale under the
applicable laws of any state, and maintaining the registration of the Contracts
under the 1933 Act and any Account under the 1940 Act.
15.8. Entire Agreement. This Agreement shall be the sole and only agreement
----------------
among the Parties regarding the marketing and distribution of Contracts, and its
supersedes all prior and contemporaneous agreements. The Parties may be parties
to other agreements, the terms and conditions of which may pertain to their
respective duties and obligations under this Agreement. To the extent anything
in those other agreements contradicts the terms of this Agreement, this
Agreement shall control. This Agreement may not be amended, supplemented, or
modified, except as expressly permitted herein, without the written agreement of
the Parties.
-24-
<PAGE>
IN WITNESS WHEREOF, the Parties hereto have executed this Agreement as of
the day and year first written above.
AMERICAN GENERAL LIFE INSURANCE COMPANY
on behalf of itself and each Account
named in Schedule A hereto,
as amended from time to time
/s/ DON WARD
- -------------------------
By: Don Ward
Title: Senior Vice President
AMERICAN GENERAL SECURITIES INCORPORATED
/s/ F. PAUL KOVACH
- -------------------------
By: F. Paul Kovach
Title: President
WM FUNDS DISTRIBUTOR, INC.
/s/ WILLIAM G. PAPESH
- -------------------------
By: William G. Papesh
Title: President
-25-
<PAGE>
SCHEDULE A
----------
Names of Separate Accounts
- --------------------------
American General Life Insurance Company Separate Account D
Available Contracts (identified by form number)
- -----------------------------------------------
Registration Form and Numbers: Form N-4
Nos. 811-2441
33-57730 (WM Advantage Variable Annuity)
333-25549 (WM Strategic Asset Manager
Variable Annuity)
1. WM Advantage Variable Annuity
Contract form numbers: 93010
93011
2. WM Strategic Asset Manager Variable Annuity
Contract form numbers: 97010
97011
A-1
<PAGE>
SCHEDULE B
----------
AGL Administrative Responsibilities
1. Contract Maintenance
--------------------
(a) File and obtain state approvals for the Contracts being issued, and
any amendments thereof.
(b) Notify DISTRIBUTOR of the effective date for each state in which the
Contracts become available for issue.
(c) Customize and support state specific requirements where
administratively feasible.
2. Contract Servicing
------------------
(a) Issue and maintain master records for Contracts applied for and
accepted.
(b) Provide maintenance support for all Contract features:
(i) Purchase Payments (new issues, 1035 Exchanges, EFT, additions);
(ii) Withdrawals (systematic, partial, full, cancellations, and death
claims);
(iii) Exchanges among Divisions, change of allocations;
(iv) Title Changes (beneficiary, ownership, name, assignments);
(v) Dollar-Cost Averaging;
(vi) Automatic Rebalancing;
(vii) Annuitization.
3. Customer Correspondence
-----------------------
(a) Generate and provide various customer correspondence documents:
(i) Contract (with appropriate riders and endorsements);
(ii) Confirmations of financial transactions;
B-1
<PAGE>
(iii) For Contracts issued prior to July 1, 1996, semi-annual
statements of account activity and balances;
(iv) For Contracts issues after June 30, 1996, quarterly statements
of account activity and balances;
(v) Billing forms, in a manner agreed to between Owner and AGL.
4. Customer Service Functions
--------------------------
(a) Provide a telephone staff or other medium to respond to customer
inquiries.
(b) Prepare and update service forms necessary to support the Contract.
(c) Respond to written inquiries from Contract owners.
(d) Coordinate complaint resolution (formal and informal).
5. Compliance
----------
(a) Coordinate the printing and mailing of the following documents:
(i) Separate Account semiannual and annual reports;
(ii) Evergreen prospectus.
(b) Coordinate proxy solicitations as outlined in the Participation
Agreement.
(c) Prepare updates and regulatory filings as warranted.
(d) Generate tax reporting for Contract owners as warranted by account
activity.
(e) Maintain appropriate books and records.
6. Financial
---------
(a) Calculate unit values on business days of the separate account.
(b) Place trades with corresponding Trust funds and settle such trades as
defined in the Participation Agreement.
(c) Prepare Separate Account semiannual and annual reports.
B-2
<PAGE>
7. Licensing/Contracting and Compensation
--------------------------------------
(a) Establish the initial record and perform ongoing maintenance for
representatives appointed to sell the product.
(b) Maintain copies of all approved Selling Group Agreements.
(c) Arrange for payment of appointment fees.
(d) Pay compensation based on arrangements of marketing and Selling Group
Agreements.
8. Reporting
---------
(a) Provide sales or other reports as mutually agreed upon by AGL and
DISTRIBUTOR by Selling Group Member.
9. Communications
--------------
(a) Provide review and feedback/approval for all marketing pieces
associated with the Contract.
DISTRIBUTOR Administrative Responsibilities
1. Distribution
------------
(a) Solicit and obtain Selling Group Agreements.
(b) Assist in selecting Selling Group Members.
2. Marketing Support
-----------------
(a) Provide wholesaling support to prospective and current Selling Group
Members.
(b) Draft and distribute approved marketing and product literature as well
as all forms associated with the Contract (applications, service
forms, etc.).
(c) Provide sales reporting data to wholesalers.
(d) Provide training on Contract features and procedures to Selling Group
members.
(e) Provide hypothetical data and illustrations for Fund performance.
B-3
<PAGE>
SCHEDULE C
- ----------
Contracts: WM Advantage Variable Annuity
Effective Date of this Schedule: May 1, 1997
This Schedule governs the compensation to be paid by AGL in connection with
the Contracts issued in accordance with the Agreement. The defined terms used
herein shall have the same meaning as in the Agreement to which this Schedule C
is attached or as in the Contracts, whichever is applicable.
1. DISTRIBUTION FEE TO DISTRIBUTOR.
-------------------------------
AGL shall pay or cause to be paid to DISTRIBUTOR, each semi-monthly period,
a Distribution Fee ("Fee") equal to 0.50% of purchase payments received by AGL,
under the Contracts ("Purchase Payments") during such period that are
attributable to all Contracts issued by AGL, less any commission reductions and
chargebacks described in Section 3. All Purchase Payments upon which the Fee may
be based must be received by AGL in accordance with the Selling Group Agreements
and such other requirements that AGL and DISTRIBUTOR may, from time to time,
establish. The Fee shall constitute the sole and exclusive payment by AGL to
DISTRIBUTOR with respect to the Contracts distributed pursuant to this Agreement
and all services rendered under or in contemplation of this Agreement.
2. COMPENSATION TO SELLING GROUP MEMBERS.
-------------------------------------
AGL shall remit, or cause to be remitted, Sales commissions in the amount
of 5.50% of all Purchase Payments, as compensation to the appropriate Selling
Group Members who have submitted applications for Contracts that AGL has
approved for issuance ("Sales Commissions").
Commissions shall be paid semi-monthly (unless otherwise agreed). As used
in the above schedules, the term "commission" refers to an amount equal to a
fixed percentage of Purchase Payments received by AGL during each semi-monthly
period that are attributable to Contracts solicited by Sales Persons. All
Purchase Payments upon which the commission may be based must be received by AGL
in accordance with the Selling Group Agreement and such other requirements that
AGL and DISTRIBUTOR may, from time to time, establish.
3. COMMISSION REDUCTIONS AND CHARGEBACKS.
-------------------------------------
Notwithstanding the foregoing, the following commission reductions shall
apply to all DISTRIBUTOR Fees and Selling Group Member Sales Commissions, except
as otherwise noted, under the circumstances described below.
a. Reduction for Purchase Payments at Age 81 and Later. A 50% commission
---------------------------------------------------
reduction shall apply with respect to Purchase Payments made on or
after the
C-1
<PAGE>
Annuitant's eighty-first birthday (regardless of whether the Contract
has a Contingent Annuitant).
b. Chargebacks for Withdrawals. The following commission chargebacks
---------------------------
shall apply with respect to full or partial withdrawals (excluding
withdrawals made pursuant to the Systematic Withdrawal Program that
are within the 10% Free Withdrawal Privilege);
. 100% of original commissions paid with respect to the amount of
Purchase Payments up to the amount of the full or partial
withdrawal of a Purchase Payment made during the first six months
following its receipt; and
. 50% of original commissions paid with respect to the amount of
Purchase Payments up to the amount of the full or partial
withdrawal of a Purchase Payment made during the next six months
following its receipt.
c. Chargeback for Annuitization In First Two Years. A commission
-----------------------------------------------
chargeback of 50% of original commissions paid will be assessed if the
Contract is annuitized in the first two Contract Years.
The foregoing chargebacks shall not apply in the event of the death of the
Annuitant or Owner during the periods specified above.
4. NO COMPENSATION PAYABLE.
-----------------------
Notwithstanding the foregoing, no compensation shall be payable with
respect to a Purchase Payment, and any compensation already paid by AGL
hereunder shall either be promptly returned by check payable to AGL on request
or will be deducted by AGL from future payments due under this Schedule C, under
each of the following conditions:
(a) If AGL, in its sole discretion, determines not to issue the Contract
applied for or rescinds the Contract;
(b) if the Contract owner returns the Contract pursuant to the "Free Look"
provision of the Contract;
(c) if a Purchase Payment is received within 60 days following a prior
partial withdrawal, and such Purchase Payment is reasonably believed to be a
reinvestment of the prior partial withdrawal;
(d) if AGL refunds the Purchase Payment as a result of a complaint or
grievance;
C-2
<PAGE>
(e) if AGL or AGSI determines that any Sales Person signing an application
or any person or entity receiving compensation for soliciting purchases of the
Contracts is not duly licensed to sell the Contracts in the state or
jurisdiction of such attempted sale and registered or otherwise qualified under
the 1934 Act and rules thereunder and any applicable state laws and rules
governing broker-dealers and their related persons.
In addition, if AGL determines that any Contract applied for is a
replacement of any insurance or annuity product issued by AGL or any of its
affiliates, AGL reserves the right not to pay any compensation and to require
the return of any compensation already paid.
5. PRODUCTION BONUS.
----------------
AGL shall pay or cause to be paid a production bonus ("Bonus"), based on
the average consideration received for each contract. A determination as to
whether DISTRIBUTOR qualifies for the Bonus is to be made on an annual basis and
the Bonus will be paid annually. Qualification for the Bonus is determined and
the amount of the Bonus is calculated as follows:
a. For WM Advantage contracts issued during the twelve month period
ending and in force on May 31st divide the total collected
considerations less withdrawals for this period by the number of
contracts.
b. Use the average consideration as determined in (a) above, to determine
the applicable rate as shown in the following table:
Average Consideration Applicable Rate
--------------------- ---------------
Less than $22,500 .000%
$22,500 - $24,000 .025%
$25,000 - $27,499 .050%
$27,500 - $29,999 .075%
$30,000 and above .100%
c. Multiply the total collected consideration less withdrawals as
determined in (a) above by the applicable rate to determine the amount
of Bonus payable.
6. MISCELLANEOUS.
-------------
The Parties agree that AGL will directly pay Sales Commissions to the
appropriate Selling Group Member.
C-3
<PAGE>
SCHEDULE C(1)
- -------------
Contracts: WM Strategic Asset Manager Variable Annuity
Effective Date of this Schedule: October 1, 1999
This Schedule governs the compensation to be paid by AGL in connection with
the Contracts issued in accordance with the Agreement. The defined terms used
herein shall have the same meaning as in the Agreement to which this Schedule
C(1) is attached or as in the Contracts, whichever is applicable.
1. DISTRIBUTION FEE TO DISTRIBUTOR.
-------------------------------
AGL shall pay or cause to be paid to DISTRIBUTOR, each semi-monthly period,
a Distribution Fee ("Fee") for all purchase payments received by AGL, under the
Contracts ("Purchase Payments") during such period that are attributable to all
Contracts issued by AGL, less any commission reductions and chargebacks
described in Section 3. The amount of the Fee that is payable with respect to
Purchase Payments made under a Contract sold by a Selling Group Member is
determined, as set forth below, in accordance with the Sales Commission Schedule
in effect for the Selling Group Member with respect to such Contract.
Sales Commission Schedule Distribution Fee
- ------------------------- ----------------
Schedules 1 and 3 0.75% of Purchase Payments received by AGL during
such period less any chargebacks described in
Section 3.
Schedule 2 0.45% of Purchase Payments received by AGL during
such period less any chargebacks described in
Section 3.
All Purchase Payments upon which the Fee may be based must be received by AGL in
accordance with the Selling Group Agreements and such other requirements that
AGL and DISTRIBUTOR may, from time to time, establish. The Fee shall constitute
the sole and exclusive payment by AGL to DISTRIBUTOR with respect to the
Contracts distributed pursuant to this Agreement and all services rendered under
or in contemplation of this Agreement.
2. COMPENSATION TO SELLING GROUP MEMBERS.
-------------------------------------
AGL shall remit, or cause to be remitted, the amounts set out in the
schedules below as compensation to the appropriate Selling Group Members who
have submitted applications for Contracts that AGL has approved for issuance
("Sales Commissions"). The Parties agree that more than one schedule may be in
effect at a time with respect to a Selling Group Member.
Sales Commission Schedules
--------------------------
Schedule 1: 6.25% commission, 0% trail commission
C(1)-1
<PAGE>
Schedule 2: 5.50% commission, plus 0.25% trail commission commencing at
the end of the twelfth/(1)/ Contract month after receipt of
the Purchase Payment.
Schedule 3: 3.50% commission plus 0.50% trail commission commencing at
the end of the third Contract month after receipt of the
Purchase Payment.
/(1)/ Any additional Purchase Payments credited to Contracts issued in 1997 will
be included in trail calculations beginning three months after receipt of such
premiums. All other trail provisions match the general trail provisions
specified in this document.
Commissions except trail commissions shall be paid semi-monthly (unless
otherwise agreed). As used in the above Schedules, the term "commission" refers
to an amount equal to a fixed percentage of Purchase Payments received by AGL
during each semi-monthly period that are attributable to Contracts solicited by
Sales Persons. All Purchase Payments upon which the commission may be based
must be received by AGL in accordance with the Selling Group Agreement and such
other requirements that AGL and DISTRIBUTOR may, from time to time, establish.
As used in the above Schedules, the term "trail commission" refers to an
amount equal to an annual percentage of that portion of Contract Account Value
attributable to Purchase Payments eligible for a trail commission. Trail
commissions shall be computed by multiplying 0.0625% (in the case of 0.25% trail
commission) or 0.125% (in the case of a 0.50% trail commission) and such portion
of Contract Account Value at the end of the relevant three month period
following receipt of the Purchase Payment. Trail commissions shall be paid at
the end of the calendar quarter immediately following the computation of the
trail commission. Trail commissions shall begin as of the date specified in the
above Schedules, and shall continue until annuitization, surrender, or death
which requires distribution of the Contract Account Value.
3. COMMISSION REDUCTIONS AND CHARGEBACKS.
-------------------------------------
Notwithstanding the foregoing, the following reductions shall apply to all
DISTRIBUTOR Fees and Selling Group Member Sales Commissions, except as otherwise
noted, under the circumstances described below.
a. Chargebacks for Withdrawals. The following commission chargebacks
---------------------------
shall apply with respect to full or partial withdrawals (excluding
withdrawals made pursuant to the Systematic Withdrawal Program that
are within the Free Withdrawal Privilege):
. 50% of original commissions paid with respect to the amount of
Purchase Payments up to the amount of the full or partial
withdrawal of a Purchase Payment made during the first twelve
months following its receipt.
b. Chargeback for Annuitization In First Two Years. A commission
-----------------------------------------------
chargeback of 50% of original commissions paid will be assessed if the
Contract is annuitized in the
C(1)-2
<PAGE>
first two Contract Years. Such commission chargeback is not applicable
to trail commissions.
The foregoing chargebacks shall not apply in the event of the death of the
Annuitant or Owner during the periods specified above.
4. NO COMPENSATION PAYABLE.
-----------------------
Notwithstanding the foregoing, no compensation shall be payable with
respect to a Purchase Payment, and any compensation already paid by AGL
hereunder shall either be promptly returned by check payable to AGL on request
or will be deducted by AGL from future payments due under this Schedule C(1),
under each of the following conditions:
(a) if AGL, in its sole discretion, determines not to issue the Contract
applied for or rescinds the Contract;
(b) if the Contract Owner returns the Contract pursuant to the "Free Look"
provision of the Contract;
(c) if a Purchase Payment is received within 60 days following a prior
partial withdrawal, and such Purchase Payment is reasonably believed to be a
reinvestment of the prior partial withdrawal;
(d) if AGL refunds the Purchase Payment as a result of a complaint or
grievance;
(e) if AGL or AGSI determines that any Sales Person signing an application
or any person or entity receiving compensation for soliciting purchases of the
Contracts is not duly licensed to sell the Contracts in the state or
jurisdiction of such attempted sale and registered or otherwise qualified under
the 1934 Act and rules thereunder and any applicable state laws and rules
governing broker-dealers and their related persons.
In addition, if AGL determines that any Contract applied for is a
replacement of any insurance or annuity product issued by AGL or any of its
affiliates, AGL reserves the right not to pay any compensation and to require
the return of any compensation already paid.
5. MISCELLANEOUS.
-------------
The Parties agree that AGL will directly pay Sales Commissions to the
appropriate Selling Group Member.
C(1)-3
<PAGE>
SCHEDULE D
----------
(As of July 12, 1999)
DISTRIBUTOR TRADEMARKS
- ----------------------
The product names: "WM Advantage" and "WM Strategic Asset Manager"
AGL TRADEMARKS
- --------------
The name "American General Corporation"
The name "American General Life Insurance Company"
The name "American General Financial Group"
The name "American General Life Companies"
The American General logo
D-1
<PAGE>
Exhibit 3 (a)(iii)(B)
PARTICIPATION AGREEMENT
AMONG
AMERICAN GENERAL LIFE INSURANCE COMPANY,
AMERICAN GENERAL SECURITIES INCORPORATED,
WM VARIABLE TRUST
AND
WM FUNDS DISTRIBUTOR, INC.
DATED AS OF
July 12, 1999
<PAGE>
TABLE OF CONTENTS
<TABLE>
<S> <C>
Section 1. Introduction............................................. 2
1.1 Availability of Separate Account Divisions.............. 2
1.2 Broker-Dealer Registration.............................. 3
Section 2. Processing Transactions.................................. 3
2.1 Timely Pricing and Orders............................... 3
2.2 Timely Payments......................................... 4
2.3 Redemption in Kind...................................... 4
2.4 Applicable Price........................................ 4
Section 3. Costs and Expenses....................................... 5
3.1 General................................................. 5
3.2 Registration............................................ 5
3.3 Other (Non-Sales-Related)............................... 5
3.4 Sales-Related........................................... 6
3.5 Parties to Cooperate.................................... 7
Section 4. Legal Compliance......................................... 7
4.1 Tax Laws................................................ 7
4.2 Insurance and Certain Other Laws........................ 9
4.3 Securities Laws......................................... 11
4.4 Notice of Certain Proceedings and Other Circumstances... 12
4.5 AGL to Provide Documents................................ 13
4.6 Trust to Provide Documents.............................. 13
Section 5. Mixed and Shared Funding................................. 13
5.1 General................................................. 13
5.2 Disinterested Trustees.................................. 14
5.3 Monitoring for Material Irreconcilable Conflicts........ 14
5.4 Conflict Remedies....................................... 15
5.5 Notice to AGL........................................... 17
5.6 Information Requested by Board of Trustees.............. 18
5.7 Compliance with SEC Rules............................... 18
5.8 Requirements for Other Insurance Companies.............. 19
Section 6. Termination.............................................. 19
6.1 Events of Termination................................... 19
6.2 Funds to Remain Available............................... 21
6.3 Survival of Warranties and Indemnifications............. 21
6.4 Continuance of Agreement for Certain Purposes........... 22
</TABLE>
-i-
<PAGE>
<TABLE>
<S> <C>
Section 7. Parties to Cooperate Respecting Termination.............. 22
Section 8. Assignment............................................... 22
Section 9. Notices.................................................. 23
Section 10. Voting Procedures....................................... 23
Section 11. Foreign Tax Credits..................................... 24
Section 12. Indemnification......................................... 24
12.1 Indemnification of Trust and Distributor by AGL......... 24
12.2 Indemnification of AGL and AGSI by Distributor.......... 28
12.3 Effect of Notice........................................ 31
Section 13. Applicable Law.......................................... 31
Section 14. Execution in Counterparts............................... 32
Section 15. Severability............................................ 33
Section 16. Rights Cumulative....................................... 33
Section 17. Restrictions on Sales of Trust Shares................... 33
Section 18. Scope of Liability...................................... 34
Section 19. Headings................................................ 34
</TABLE>
-ii-
<PAGE>
PARTICIPATION AGREEMENT
THIS AGREEMENT, made and entered into as of the 12th day of July, 1999
("Agreement"), by and among American General Life Insurance Company, a Texas
life insurance company ("AGL") (on behalf of itself and its "Separate Account,"
defined below), American General Securities Incorporated, a Texas corporation
("AGSI"), the principal underwriter with respect to the Contracts referred to
below, WM Variable Trust, a Massachusetts business trust (the "Trust"), and WM
Funds Distributor, Inc., a Washington corporation (the "Distributor"), the
Trust's principal underwriter (collectively, the "Parties"),
WITNESSETH THAT:
WHEREAS the Distributor and the Trust desire that shares of the investment
funds of the Trust set forth in Exhibit A to the Agreement (the "Funds";
---------
reference herein to the "Trust" includes reference to each Fund to the extent
the context requires) be made available by the Distributor to serve as
underlying investment media for those combination fixed and variable annuity
contracts of AGL that are the subject of AGL's Form N-4 registration statements
filed with the Securities and Exchange Commission (the "SEC"), File Nos. 33-
57730 and 333-25549 (the "Contracts").
<PAGE>
NOW, THEREFORE, in consideration of the mutual benefits and promises
contained herein, the Trust and the Distributor will make shares in the Funds
available to AGL for this purpose at net asset value and with no sales charges,
all subject to the following provisions:
Section 1. Introduction
------------------------
1.1 Availability of Separate Account Divisions.
------------------------------------------
AGL represents that American General Life Insurance Company Separate
Account D (the "Separate Account") is and will continue to be available to serve
as an investment vehicle for its Contracts. The Contracts provide for the
allocation of net amounts received by AGL to separate series (the "Divisions";
reference herein to the "Separate Account" includes reference to each Division
to the extent the context requires) of the Separate Account for investment in
the shares of corresponding Funds of the Trust that are made available through
the Separate Account to act as underlying investment media. The Trust may from
time to time add additional Funds, which will become subject to this Agreement,
if they are made available as investment media for the Contracts. The investment
funds of the Trust which are subject to this Agreement are set forth in Exhibit
-------
A to the Agreement. Exhibit A shall be amended from time to time as necessary
- - ---------
to identify all investment funds offered under this Agreement. AGL will not
unreasonably deny any request by the Distributor to create new Divisions
corresponding to such new Funds.
-2-
<PAGE>
1.2 Broker-Dealer Registration.
--------------------------
The Distributor and AGSI each represents and warrants that it is registered
as a broker dealer with the SEC under the Securities Exchange Act of 1934, as
amended, and is a member in good standing of the National Association of
Securities Dealers, Inc. (the "NASD").
Section 2. Processing Transactions
-----------------------------------
2.1 Timely Pricing and Orders.
-------------------------
The Trust or its designated agent will provide closing net asset value,
dividend and capital gain information for each Fund to AGL at the close of
trading on each day (a "Business Day") on which (a) the New York Stock Exchange
is open for regular trading, (b) the Trust calculates its net asset value and
(c) AGL is open for business. The Trust or its designated agent will use its
best efforts to provide this information by 5:00 p.m., Houston time. AGL will
use these data to calculate unit values, which in turn will be used to process
transactions that receive that same Business Day's Separate Account unit value.
The Separate Account processing will be done the same evening, and corresponding
orders with respect to Trust shares will be placed the morning of the following
Business Day. AGL will use its best efforts to place such orders with the Trust
by 9:00 a.m., Houston time.
-3-
<PAGE>
2.2 Timely Payments.
---------------
AGL will transmit orders for purchases and redemptions of Trust shares to
the Distributor, and will wire payment for net purchases to a custodial account
designated by the Trust on the same day as the order for Trust shares is placed,
to the extent practicable. Payment for net redemptions will be wired by the
Trust to an account designated by AGL on the same day as the order is placed, to
the extent practicable, and in any event be made within six calendar days after
the date the order is placed in order to enable AGL to pay redemption proceeds
within the time specified in Section 22(e) of the Investment Company Act of
1940, as amended (the "1940 Act").
2.3 Redemption in Kind.
------------------
The Trust reserves the right to pay any portion of a redemption in kind of
portfolio securities, if the Trust's board of trustees (the "Board of Trustees")
determines that it would be detrimental to the best interests of shareholders to
make a redemption wholly in cash.
2.4 Applicable Price.
----------------
The Parties agree that orders resulting from purchase payments, surrenders,
partial withdrawals, routine withdrawals of charges, or other transactions under
Contracts will be executed at the net asset values as determined as of the close
of regular trading on the New York Stock Exchange on the Business Day that AGL
processes such transactions, which will be the Business Day prior to the
Distributor's receipt of such orders. All other purchases and redemptions will
be effected at the net asset values next computed after receipt by the Trust of
the order therefor, and such orders will be irrevocable. AGL hereby elects to
reinvest all dividends
-4-
<PAGE>
and capital gains distributions in additional shares of the corresponding Fund
at the record-date net asset values until AGL otherwise notifies the Trust in
writing, it being agreed by the Parties that the record date and the payment
date with respect to any dividend or distribution will be the same Business Day.
Section 3. Costs and Expenses
------------------------------
3.1 General.
-------
Except as otherwise specifically provided herein, each Party will bear all
expenses incident to its performance under this Agreement.
3.2 Registration.
------------
The Trust will pay the cost of its registering as a management investment
company under the 1940 Act and registering its shares under the Securities Act
of 1933, as amended (the "1933 Act"), and keeping such registrations current and
effective. AGL will pay the cost of registering the Separate Account as a unit
investment trust under the 1940 Act and registering units of interest under the
Contracts under the 1933 Act and keeping such registrations current and
effective.
3.3 Other (Non-Sales-Related).
-------------------------
As among the Parties, the Trust will bear the costs of preparing, filing
with the SEC and setting for printing the Trust's prospectus, statement of
additional information and any supplements thereto (collectively, the "Trust
Prospectus"), periodic reports to shareholders, Trust
-5-
<PAGE>
proxy material and other shareholder communications. AGL will bear the costs of
preparing, filing with the SEC and setting for printing, the Separate Account's
prospectus, statement of additional information and any supplements thereto
(collectively, the "Separate Account Prospectus"), periodic reports to owners,
annuitants or participants under the Contracts (collectively, "Participants"),
voting instruction solicitation material, and other Participant communications.
As among the Parties, the Trust and AGL each will bear the costs of printing and
delivering to existing Participants the documents as to which it bears the cost
of preparation as set forth above in this Section 3.3, it being understood that
reasonable cost allocations will be made in cases where any such Trust and AGL
documents are printed or mailed on a combined or coordinated basis.
3.4 Sales-Related.
-------------
Except as may otherwise be agreed to by the Parties relating to an initial
period of time after the Contracts are first offered for sale, the Distributor
or, where required by applicable federal or state law, its designee, will bear
the cost of preparing, printing and distributing all Trust and Separate Account
sales literature and advertising and filing it with the SEC and NASD, printing
and delivering to offerees Trust and Separate Account Prospectuses, Trust and
Separate Account periodic reports and Trust and AGL sales literature, and
placing any advertisements. AGL will bear the cost of filing any Trust or AGL
sales materials with, and obtaining approval from, any state insurance
regulatory authorities, to the extent required.
-6-
<PAGE>
3.5 Parties to Cooperate.
--------------------
The Trust, AGL, AGSI and the Distributor each agrees to cooperate with the
others, as applicable, in arranging to print, mail and/or deliver combined or
coordinated prospectuses or other materials of the Trust and Separate Account.
Section 4. Legal Compliance
----------------------------
4.1 Tax Laws.
--------
(a) The Trust represents that it will make every effort to qualify and to
maintain qualification of each Fund as a regulated investment company ("RIC")
under Subchapter M of the Internal Revenue Code of 1986, as amended (the
"Code"), and the Trust or the Distributor will notify AGL immediately upon
having a reasonable basis for believing that a Fund has ceased to so qualify or
that it might not so qualify in the future.
(b) AGL represents that it believes, in good faith, that the Contracts
will be treated as annuity contracts under applicable provisions of the Code and
that it will make every effort to maintain such treatment; AGL will notify the
Trust and the Distributor immediately upon having a reasonable basis for
believing that any of the Contracts have ceased to be so treated or that they
might not be so treated in the future.
(c) The Trust represents that it will make every effort to comply and to
maintain each Fund's compliance with the diversification requirements set forth
in Section 817(h) of the Code
-7-
<PAGE>
and Section 1.817- 5(b) of the regulations under the Code, and the Trust or the
Distributor will notify AGL immediately upon having a reasonable basis for
believing that a Fund has ceased to so comply or that a Fund might not so comply
in the future.
(d) AGL represents that it believes, in good faith, that the Separate
Account is a "segregated asset account" and that interests in the Separate
Account are offered exclusively through the purchase of or transfer into a
"variable contract," within the meaning of such terms under Section 817(h) of
the Code and the regulations thereunder. AGL will make every effort to continue
to meet such definitional requirements, and it will notify the Trust and the
Distributor immediately upon having a reasonable basis for believing that such
requirements have ceased to be met or that they might not be met in the future.
(e) The Trust represents that, under the terms of its investment advisory
agreements with WM Advisors, Inc. (the "Adviser"), the Adviser is and will be
responsible for managing the Trust in compliance with the Trust's investment
objectives, policies and restrictions as set forth in the Trust Prospectus. The
Trust represents that these objectives, policies and restrictions do and will
include operating as a RIC in compliance with Subchapter M of the Code and
Section 817(h) of the Code and regulations thereunder. The Trust has adopted
and will maintain procedures for ensuring that the Trust is managed in
compliance with Subchapter M and Section 817(h) and regulations thereunder. On
request, the Trust shall also provide AGL with such materials, cooperation and
assistance as may be reasonably necessary for AGL or any person designated by
AGL to review from time to time the procedures and practices of the Adviser,
each
-8-
<PAGE>
sub-adviser or other provider of services to the Trust for ensuring that the
Trust is managed in compliance with Subchapter M and Section 817(h) and
regulations thereunder.
(f) Whenever any matter (a "Matter") comes to the attention of the Trust
that causes it to believe that any of its Funds was not a RIC in compliance with
Subchapter M of the Code and/or was not in compliance with Section 817(h) of the
Code and the regulations thereunder as of the last day of a calendar quarter,
the Trust shall furnish a report of such Matter immediately to AGL. The Trust
will then take such action as is necessary or appropriate to cure any
noncompliance during a grace period of 30 calendar days after the end of the
calendar quarter covered by the report. If the Trust does not so cure the
noncompliance regarding each affected Fund's status as a RIC, the Trust will
pursue those efforts necessary to enable each affected Fund to qualify once
again for treatment as a RIC in compliance with Subchapter M, including
cooperation in good faith with AGL. If the Trust does not so cure the
noncompliance regarding a Fund's status under Section 817(h), the Trust will
cooperate in good faith with AGL's efforts to obtain a ruling and closing
agreement, as provided in Revenue Procedure 92-95 issued by the Internal Revenue
Service (or any applicable ruling or procedure subsequently issued by the
Internal Revenue Service), that the affected Fund satisfies Section 817(h) for
the period or periods covered by the Actionable Report.
4.2 Insurance and Certain Other Laws.
--------------------------------
(a) The Trust will use its best efforts to comply with any applicable
state insurance laws or regulations, to the extent specifically requested in
writing by AGL.
-9-
<PAGE>
(b) AGL represents and warrants that (i) it is an insurance company duly
organized, validly existing and in good standing under the laws of the State of
Texas and has full corporate power, authority and legal right to execute,
deliver and perform its duties and comply with its obligations under this
Agreement, (ii) it has legally and validly established and maintains the
Separate Account as a segregated asset account under Article 3.75 of the Texas
Insurance Code, and (iii) the Contracts comply in all material respects with all
other applicable federal and state laws and regulations.
(c) AGL and AGSI represent and warrant that AGSI is a business corporation
duly organized, validly existing, and in good standing under the laws of the
State of Texas and has full corporate power, authority and legal right to
execute, deliver, and perform its duties and comply with its obligations under
this Agreement.
(d) The Distributor represents and warrants that it is a business
corporation duly organized, validly existing, and in good standing under the
laws of the State of Washington and has full corporate power, authority and
legal right to execute, deliver, and perform its duties and comply with its
obligations under this Agreement.
(e) The Distributor and the Trust represent and warrant that the Trust is
a business trust duly organized, validly existing, and in good standing under
the laws of the Commonwealth of Massachusetts and has full power, authority, and
legal right to execute, deliver, and perform its duties and comply with its
obligations under this Agreement.
-10-
<PAGE>
4.3 Securities Laws.
---------------
(a) AGL represents and warrants that (i) it has registered the Separate
Account as a unit investment trust in accordance with the provisions of the 1940
Act to serve as a segregated investment account for its variable annuity
contracts, including the Contracts, (ii) the Separate Account does and will
comply in all material respects with the requirements of the 1940 Act and the
rules thereunder, (iii) the Separate Account's 1933 Act registration statement
relating to the Contracts, together with any amendments thereto, will at all
times comply in all material respects with the requirements of the 1933 Act and
the rules thereunder, and (iv) the Separate Account Prospectus will at all times
comply in all material respects with the requirements of the 1933 Act and the
rules thereunder.
(b) The Trust and the Distributor represent and warrant that (i) Trust
shares sold pursuant to this Agreement will be registered under the 1933 Act to
the extent required by the 1933 Act and duly authorized for issuance and sold in
compliance with Massachusetts law, (ii) the Trust is and will remain registered
under the 1940 Act to the extent required by the 1940 Act, and (iii) the Trust
will amend the registration statement for its shares under the 1933 Act and
itself under the 1940 Act from time to time as required in order to effect the
continuous offering of its shares.
(c) The Trust represents and warrants that (i) the Trust does and will
comply in all material respects with the requirements of the 1940 Act and the
rules thereunder, including the exemptive order issued by the Commission as
Release No. IC-22047, which the Trust further
-11-
<PAGE>
represents and warrants is applicable to the Trust, (ii) its 1933 Act
registration statement, together with any amendments thereto, will at all times
comply in all material respects with the requirements of the 1933 Act and rules
thereunder, and (iii) the Trust Prospectus will at all times comply in all
material respects with the requirements of the 1933 Act and the rules
thereunder.
(d) The Trust will register and qualify its shares for sale in accordance
with the laws of any state or other jurisdiction only if and to the extent
reasonably deemed advisable by the Trust, AGL or any other life insurance
company utilizing the Trust.
4.4 Notice of Certain Proceedings and Other Circumstances.
-----------------------------------------------------
The Distributor or the Trust shall immediately notify AGL of (i) the
issuance by any court or regulatory body of any stop order, cease and desist
order, or other similar order with respect to the Trust's registration statement
under the 1933 Act or the Trust Prospectus, (ii) any request by the SEC for any
amendment to such registration statement or Trust Prospectus, (iii) the
initiation of any proceedings for that purpose or for any other purpose relating
to the registration or offering of the Trust's shares, or (iv) any other action
or circumstances that may prevent the lawful offer or sale of Trust shares in
any state or jurisdiction, including, without limitation, any circumstances in
which (x) the Trust's shares are not registered and, in all material respects,
issued and sold in accordance with applicable state and federal law or (y) such
law precludes the use of such shares as an underlying investment medium of the
Contracts issued or to be issued by AGL. The Distributor and the Trust will
make every reasonable effort to prevent the issuance of any stop
-12-
<PAGE>
order, cease and desist order or similar order and, if any such order is issued,
to obtain the lifting thereof at the earliest possible time.
4.5 AGL to Provide Documents.
------------------------
AGL will provide to the Trust one complete copy of all SEC registration
statements, Separate Account Prospectuses, reports, any preliminary and final
voting instruction solicitation material, applications for exemptions, requests
for no-action letters, and all amendments to any of the above, that relate to
the Separate Account or the Contracts, contemporaneously with the filing of such
document with the SEC or other regulatory authorities.
4.6 Trust to Provide Documents.
--------------------------
The Trust will provide to AGL one complete copy of all SEC registration
statements, Trust Prospectuses, reports, any preliminary and final proxy
material, applications for exemptions, requests for no-action letters, and all
amendments to any of the above, that relate to the Trust or its shares,
contemporaneously with the filing of such document with the SEC or other
regulatory authorities.
Section 5. Mixed and Shared Funding
------------------------------------
5.1 General.
-------
The Trust may apply for an order exempting it from certain provisions of
the 1940 Act and rules thereunder so that, subject to compliance with Section 17
of this Agreement, the Trust may
-13-
<PAGE>
be available for investment by certain other entities, including, without
limitation, separate accounts funding variable life insurance policies, separate
accounts of insurance companies unaffiliated with AGL and trustees of qualified
pension and retirement plans ("Mixed and Shared Funding"). The Parties recognize
that the SEC has imposed terms and conditions for such orders that are
substantially identical to many of the provisions of this Section 5. If the
Trust implements Mixed and Shared Funding, pursuant to such an exemptive order
or otherwise, Sections 5.2 through 5.8 below shall apply, but not otherwise.
5.2 Disinterested Trustees.
----------------------
The Trust agrees that the Board of Trustees shall at all times consist of
trustees a majority of whom (the "Disinterested Trustees") are not interested
persons of the Adviser or the Distributor within the meaning of Section 2(a)(19)
of the 1940 Act.
5.3 Monitoring for Material Irreconcilable Conflicts.
------------------------------------------------
The Trust agrees that the Board of Trustees will monitor for the existence
of any material irreconcilable conflict between the interests of the
Participants of all separate accounts of life insurance companies utilizing the
Trust, including the Separate Account. AGL agrees to inform the Board of
Trustees of the Trust of the existence of or any potential for any such material
irreconcilable conflict of which it is aware. The concept of a "material
irreconcilable conflict" is not defined by the 1940 Act or the rules thereunder,
but the Parties recognize that such a conflict may arise for a variety of
reasons, including, without limitation:
(a) an action by any state insurance or other regulatory authority;
-14-
<PAGE>
(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 Fund are being managed;
(e) a difference in voting instructions given by variable annuity contract
and variable life insurance contract participants or by participants
of different life insurance companies utilizing the Trust; or
(f) a decision by a life insurance company utilizing the Trust to
disregard the voting instructions of participants.
Consistent with the SEC's requirements in connection with exemptive
proceedings of the type referred to in Section 5.1 hereof, AGL will assist the
Board of Trustees in carrying out its responsibilities by providing the Board of
Trustees with all information reasonably necessary for the Board of Trustees to
consider any issue raised, including information as to a decision by AGL to
disregard voting instructions of Participants.
5.4 Conflict Remedies.
-----------------
(a) It is agreed that if it is determined by a majority of the members of
the Board of Trustees or a majority of the Disinterested Trustees that a
material irreconcilable conflict exists, AGL and the other life insurance
companies utilizing the Trust will, at their own expense and to the extent
reasonably practicable (as determined by a majority of the Disinterested
Trustees), take
-15-
<PAGE>
whatever steps are necessary to remedy or eliminate the material irreconcilable
conflict, which steps may include, but are not limited to:
(i) withdrawing the assets allocable to some or all of the separate
accounts from the Trust or any Fund and reinvesting such assets in a
different investment medium, including another Fund of the Trust, or
submitting the question whether such segregation should be implemented
to a vote of all affected participants and, as appropriate,
segregating the assets of any particular group (e.g., annuity contract
owners or participants, life insurance contract owners or all contract
owners and participants of one or more life insurance companies
utilizing the Trust) that votes in favor of such segregation, or
offering to the affected contract owners or participants the option of
making such a change; and
(ii) establishing a new registered investment company of the type
defined as a "Management Company" in Section 4(3) of the 1940 Act or a
new separate account that is operated as a Management Company.
(b) If the material irreconcilable conflict arises because of AGL's
decision to disregard Participant voting instructions and that decision
represents a minority position or would preclude a majority vote, AGL may be
required, at the Trust's election, to withdraw the Separate Account's investment
in the Trust. No charge or penalty will be imposed as a result of such
withdrawal. Any such withdrawal must take place within six months after the
Trust gives notice to AGL that this provision is being implemented, and until
such withdrawal the Distributor and Trust shall continue to accept and implement
orders by AGL for the purchase and redemption of shares of the Trust.
-16-
<PAGE>
(c) If a material irreconcilable conflict arises because a particular
state insurance regulator's decision applicable to AGL conflicts with the
majority of other state regulators, then AGL will withdraw the Separate
Account's investment in the Trust within six months after the Trust's Board of
Trustees informs AGL that it has determined that such decision has created a
material irreconcilable conflict, and until such withdrawal the Distributor and
Trust shall continue to accept and implement orders by AGL for the purchase and
redemption of shares of the Trust.
(d) AGL agrees that any remedial action taken by it in resolving any
material irreconcilable conflict will be carried out at its expense and with a
view only to the interests of Participants.
(e) For purposes hereof, a majority of the Disinterested Trustees will
determine whether or not any proposed action adequately remedies any material
irreconcilable conflict. In no event, however, will the Trust or the Distributor
be required to establish a new funding medium for any of the Contracts. AGL will
not be required by the terms hereof to establish a new funding medium for any of
the Contracts if an offer to do so has been declined by vote of a majority of
Participants materially adversely affected by the material irreconcilable
conflict.
5.5 Notice to AGL.
-------------
-17-
<PAGE>
The Trust will promptly make known in writing to AGL the Board of Trustees'
determination of the existence of a material irreconcilable conflict, a
description of the facts that give rise to such conflict and the implications of
such conflict.
5.6 Information Requested by Board of Trustees.
------------------------------------------
AGL and the Trust will at least annually submit to the Board of Trustees of
the Trust such reports, materials or data as the Board of Trustees may
reasonably request so that the Board of Trustees may fully carry out the
obligations imposed upon them by the provisions hereof, and said reports,
materials and data will be submitted at any reasonable time deemed appropriate
by the Board of Trustees. All reports received by the Board of Trustees of
potential or existing conflicts, and all Board of Trustees actions with regard
to determining the existence of a conflict, notifying life insurance companies
utilizing the Trust of a conflict, and determining whether any proposed action
adequately remedies a conflict, will be properly recorded in the minutes of the
Board of Trustees or other appropriate records, and such minutes or other
records will be made available to the SEC upon request.
5.7 Compliance with SEC Rules.
-------------------------
If, at any time during which the Trust is serving an investment medium for
variable life insurance policies, 1940 Act Rules 6e-3(T) or, if applicable, 6e-2
are amended or Rule 6e-3 is adopted to provide exemptive relief with respect to
mixed and shared funding, the Parties agree that they will comply with the terms
and conditions thereof and that the terms of this Section 5
-18-
<PAGE>
shall be deemed modified if and only to the extent required in order also to
comply with the terms and conditions of such exemptive relief that is afforded
by any of said rules that are applicable.
5.8 Requirements for Other Insurance Companies.
------------------------------------------
The Trust will require that each insurance company utilizing the Trust
enter into an agreement with the Trust that contains in substance the same
provisions as are set forth in Sections 2.3, 4.1 (b), 4.1 (d), 4.4, 4.3 (a),
4.5, 5, 10 and 18 of this Agreement. This provision is not intended to limit in
any way the obligations of the Trust and Distributor under Section 17 of this
Agreement.
Section 6. Termination
-----------------------
6.1 Events of Termination.
---------------------
Subject to Section 6.4 below, this Agreement will terminate as to a Fund:
(a) at the option of AGL, the Distributor or the Trust upon (i) at least
six months' advance written notice to the other Parties, and (ii) the approval
by (x) a majority of the Disinterested Trustees or (y) a majority vote of the
shares of the affected Fund that are held in the corresponding Divisions of the
Separate Account (pursuant to the procedures set forth in Section 10 of this
Agreement for voting Trust shares in accordance with Participant instructions);
provided, however, that the approvals described in clauses (x) and (y) above
shall not be required if (1) the aggregate account value under the Contracts is
less than $300 million at the date the notice of termination is delivered, (2)
the aggregate month-end account value under the Contracts
-19-
<PAGE>
has averaged less than $300 million for the 24 full calendar months immediately
preceding the date the notice of termination is delivered and (3) the notice of
termination is delivered no earlier than the end of the 60th full calendar month
following the date the first Contract is issued; or
(b) at the option of the Trust upon institution of formal proceedings
against AGL by the SEC, any state insurance regulator or any other regulatory
body regarding AGL's duties under this Agreement or related to the sale of the
Contracts, the operation of the Separate Account, or the purchase of the Trust
shares, if, in each case, the Trust reasonably determines that such proceedings,
or the facts on which such proceedings may be based, have a material likelihood
of imposing material adverse consequences on the Fund to be terminated; or
(c) at the option of AGL upon institution of formal proceedings against
the Trust, the Adviser or any sub-adviser to the Trust, or the Distributor by
the NASD, the SEC, or any state securities or insurance department or any other
regulatory body, if, in each case, AGL reasonably determines that such
proceedings, or the facts on which such proceedings may be based, have a
material likelihood of imposing material adverse consequences on AGL, AGSI or
the Division corresponding to the Fund to be terminated; or
(d) at the option of any Party in the event that (i) the Fund's shares are
not registered and, in all material respects, issued and sold in accordance with
applicable state and federal law or (ii) such law precludes the use of such
shares as an underlying investment medium of the Contracts issued or to be
issued by AGL; or
-20-
<PAGE>
(e) upon termination of the corresponding Division's investment in the
Fund pursuant to Section 5 hereof; or
(f) at the option of AGL if the Fund ceases to qualify as a RIC under
Subchapter M of the Code or under successor or similar provisions, or if AGL
reasonably believes that the Fund may fail to so qualify; or
(g) at the option of AGL if the Fund fails to comply with Section 817(h)
of the Code or with successor or similar provisions, or if AGL reasonably
believes that the Fund may fail to so comply.
6.2 Funds to Remain Available.
-------------------------
Except (i) as necessary to implement Participant initiated transactions,
(ii) as required by state insurance laws or regulations, (iii) as required
pursuant to Section 5 of this Agreement, or (iv) with respect to any Fund as to
which this Agreement has terminated, AGL shall not (x) redeem Trust shares
attributable to the Contracts (as opposed to Trust shares attributable to AGL's
assets held in the Separate Account), (y) prevent Participants from allocating
payments to or transferring amounts from a Fund that was otherwise available
under the Contracts, or (z) apply for an order of the Securities and Exchange
Commission pursuant to Section 26(b) of the 1940 Act.
6.3 Survival of Warranties and Indemnifications.
-------------------------------------------
-21-
<PAGE>
All warranties and indemnifications will survive the termination of this
Agreement.
6.4 Continuance of Agreement for Certain Purposes.
---------------------------------------------
If any Party terminates this Agreement with respect to any Fund pursuant to
Sections 6.1 (b), 6.1 (c), 6.1 (d), 6.1 (f), or 6.1 (g) hereof, this Agreement
shall nevertheless continue in effect as to any shares of that Fund that are
outstanding as of the date of such termination (the "Initial Termination Date").
This continuation shall extend to the earlier of the date as of which the
Separate Account owns no shares of the affected Fund or a date (the "Final
Termination Date") six months following the Initial Termination Date, except
that AGL may, by written notice to the other Parties, shorten said six month
period in the case of a termination pursuant to Sections 6.1 (d), 6.1 (f) or 6.1
(g).
Section 7. Parties to Cooperate Respecting Termination
--------------------------------------------------------
The Parties agree to cooperate and give reasonable assistance to one
another in taking all necessary and appropriate steps for the purpose of
ensuring that the Separate Account owns no shares of a Fund after the Final
Termination Date with respect thereto, or, in the case of a termination pursuant
to Section 6. 1 (a), the termination date specified in the notice of
termination.
Section 8. Assignment
----------------------
This Agreement may not be assigned, except with the written consent of each
other Party.
-22-
<PAGE>
Section 9. Notices
-------------------
Notices and communications required or permitted by Section 2 hereof will
be given by means mutually acceptable to the Parties concerned. Each other
notice or communication required or permitted by this Agreement will be given to
the following persons at the following addresses and facsimile numbers, or such
other persons, addresses or facsimile numbers as the Party receiving such
notices or communications may subsequently direct in writing:
American General Life
Insurance Company
2929 Allen Parkway
Houston, Texas 77019
Attn: Pauletta P. Cohn
FAX: 713-831-1106
American General Securities
Incorporated
2727 Allen Parkway
Houston, Texas 77019
Attn: F. Paul Kovach
FAX: 713-831-3366
WM Variable Trust
1201 Third Avenue, 22nd Floor
Seattle, WA 98101-3000
Attn: William G. Papesh
FAX: 206-461-2340
WM Funds Distributor, Inc.
1631 Broadway
Sacramento, California 95818
Attn: Sandra Cavanaugh
FAX: 916-448-3226
Section 10. Voting Procedures
------------------------------
-23-
<PAGE>
Subject to the cost allocation procedures set forth in Section 3 hereof,
AGL will distribute all proxy material furnished by the Trust to Participants
and will vote Trust shares in accordance with instructions received from
Participants. AGL, will vote Trust shares that are (a) not attributable to
Participants or (b) attributable to Participants, but for which no instructions
have been received, in the same proportion as Trust shares for which said
instructions have been received from Participants. AGL agrees that it will
disregard Participant voting instructions only to the extent it would be
permitted to do so pursuant to Rule 6e-3(T)(b)(15)(iii) under the 1940 Act if
the Contracts were variable life insurance policies subject to that rule. Other
participating life insurance companies utilizing the Trust will be responsible
for calculating voting privileges in a manner consistent with that of AGL, as
prescribed by this Section 10.
Section 11. Foreign Tax Credits
--------------------------------
The Trust agrees to consult in advance with AGL concerning any decision to
elect or not to elect pursuant to Section 853 of the Code to pass through the
benefit of any foreign tax credits to its shareholders.
Section 12. Indemnification
----------------------------
12. Indemnification of Trust and Distributor by AGL.
-----------------------------------------------
(a) Except to the extent provided in Sections 12.1(b) and 12.1(c), below,
AGL agrees to indemnify and hold harmless the Trust and the Distributor, each of
their trustees, directors and
-24-
<PAGE>
officers, and each person, if any, who controls the Trust or the Distributor
within the meaning of Section 15 of the 1933 Act (collectively, the "Indemnified
Parties" for purposes of this Section 12.1) against any and all losses, claims,
damages, liabilities (including amounts paid in settlement with the written
consent of AGL) or actions in respect thereof (including, to the extent
reasonable, legal and other expenses), to which the Indemnified Parties may
become subject under any statute, regulation, at common law or otherwise,
insofar as such losses, claims, damages, liabilities or actions are related to
the sale or acquisition of the Trust's shares and:
(i) arise out of or are based upon any untrue statement or alleged
untrue statement of any material fact contained in the Separate
Account's 1933 Act registration statement, the Separate Account
Prospectus, the Contracts or, to the extent prepared by AGL or AGSI,
sales literature or advertising 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 AGL or AGSI by or
on behalf of the Trust, the Distributor or the Adviser for use in the
Separate Account's 1933 Act registration statement, the Separate
Account Prospectus, the Contracts, or sales literature or advertising
(or any amendment or supplement to any of the foregoing); or
-25-
<PAGE>
(ii) arise out of or as a result of any other statements or
representations (other than statements or representations contained in
the Trust's 1933 Act registration statement, Trust Prospectus, sales
literature or advertising of the Trust, or any amendment or supplement
to any of the foregoing, not supplied for use therein by or on behalf
of AGL or AGSI) or wrongful conduct of AGL or AGSI or persons under
their control (including, without limitation, their employees and
"Associated Persons," as that term is defined in paragraph (m) of
Article I of the NASD's By-Laws), in connection with the sale or
distribution of the Contracts or Trust shares; or
(iii) arise out of or are based upon any untrue statement or alleged
untrue statement of any material fact contained in the Trust's 1933
Act registration statement, Trust Prospectus, sales literature or
advertising of the Trust, or any amendment or supplement to any of the
foregoing, 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 Trust by or on behalf of AGL or AGSI for use in the Trust's 1933
Act registration statement, Trust Prospectus, sales literature or
advertising of the Trust, or any amendment or supplement to any of the
foregoing; or
-26-
<PAGE>
(iv) arise as a result of any failure by AGL or AGSI to perform the
obligations, provide the services and furnish the materials required
of them under the terms of this Agreement.
(b) AGL shall not be liable under this indemnification provision with
respect to any losses, claims, damages, liabilities or actions to which an
Indemnified Party would otherwise be subject by reason of willful misfeasance,
bad faith, or gross negligence in the performance by that Indemnified Party of
its duties or by reason of its reckless disregard of obligations or duties under
this Agreement or to the Distributor or to the Trust.
(c) AGL shall not be liable under this indemnification provision with
respect to any action against an Indemnified Party unless the Trust or the
Distributor shall have notified AGL in writing within a reasonable time after
the summons or other first legal process giving information of the nature of the
action shall have been served upon such Indemnified Party (or after such
Indemnified Party shall have received notice of such service on any designated
agent), but failure to notify AGL of any such action shall not relieve AGL from
any liability which it may have to the Indemnified Party against whom such
action is brought otherwise than on account of this indemnification provision.
In case any such action is brought against an Indemnified Party, AGL shall be
entitled to participate, at its own expense, in the defense of such action. AGL
also shall be entitled to assume the defense thereof, with counsel approved by
the Indemnified Party named in the action, which approval shall not be
unreasonably withheld. After notice from AGL to such Indemnified Party of AGL's
election to assume the defense thereof, the Indemnified Party
-27-
<PAGE>
will cooperate fully with AGL and shall bear the fees and expenses of any
additional counsel retained by it, and AGL will not be liable to such
Indemnified Party under this Agreement for any legal or other expenses
subsequently incurred by such Indemnified Party independently in connection with
the defense thereof, other than reasonable costs of investigation.
12. Indemnification of AGL and AGSI by Distributor.
----------------------------------------------
(a) Except to the extent provided in Sections 12.2(b) and 12.2(c) hereof,
the Distributor agrees to indemnify and hold harmless AGL, AGSI, and the Trust,
each of their trustees, directors and officers, and each person, if any, who
controls AGL, AGSI or the Trust within the meaning of Section 15 of the 1933 Act
(collectively, the "Indemnified Parties" for purposes of this Section 12.2)
against any and all losses, claims, damages, liabilities (including amounts paid
in settlement with the written consent of the Distributor) or actions in respect
thereof (including, to the extent reasonable, 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 actions are
related to the sale or acquisition of the Trust's shares and:
(i) arise out of or are based upon any untrue statement or alleged
untrue statement of any material fact contained in the Trust's 1933
Act registration statement, Trust Prospectus, sales literature or
advertising of the Trust or, to the extent not prepared by AGL or
AGSI, sales literature or advertising 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
-28-
<PAGE>
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 Distributor
or Trust by or on behalf of AGL or AGSI for use in the Trust's 1933
Act registration statement, Trust Prospectus, or in sales literature
or advertising (or any amendment or supplement to any of the
foregoing); or
(ii) arise out of or as a result of any other statements or
representations (other than statements or representations contained in
the Separate Account's 1933 Act registration statement, Separate
Account Prospectus, sales literature or advertising for the Contracts,
or any amendment or supplement to any of the foregoing, not supplied
for use therein by or on behalf of the Distributor, Trust or Adviser)
or wrongful conduct of the Trust or Distributor or persons under their
control (including, without limitation, their employees and Associated
Persons), in connection with the sale or distribution of the Contracts
or Trust shares; or
(iii) arise out of or are based upon any untrue statement or alleged
untrue statement of any material fact contained in the Separate
Account's 1933 Act registration statement, Separate Account
Prospectus, sales literature or advertising covering the Contracts, or
any amendment or supplement to any of the foregoing, or the omission
or alleged omission to state therein a material fact required to be
-29-
<PAGE>
stated therein or necessary to make the statements therein not
misleading, if such statement or omission was made in reliance upon
and in conformity with information furnished to AGL or AGSI by or on
behalf of the Trust, the Adviser or the Distributor for use in the
Separate Account's 1933 Act registration statement, Separate Account
Prospectus, sales literature or advertising covering the Contracts, or
any amendment or supplement to any of the foregoing; or
(iv) arise as a result of any failure by the Trust or the Distributor
to perform the obligations, provide the services and furnish the
materials required of them under the terms of this Agreement;
(b) The Distributor shall not be liable under this indemnification
provision with respect to any losses, claims, damages, liabilities or actions to
which an Indemnified Party would otherwise be subject by reason of willful
misfeasance, bad faith, or gross negligence in the performance by that
Indemnified Party of its duties or by reason of its reckless disregard of
obligations and duties under this Agreement or to AGL, AGSI or the Separate
Account.
(c) The Distributor shall not be liable under this indemnification
provision with respect to any action against an Indemnified Party unless AGL or
AGSI shall have notified the Distributor in writing within a reasonable time
after the summons or other first legal process giving information of the nature
of the action shall have been served upon such Indemnified Party (or after such
Indemnified Party shall have received notice of such service on any designated
agent),
-30-
<PAGE>
but failure to notify the Distributor of any such action shall not relieve the
Distributor from any liability which it may have to the Indemnified Party
against whom such action is brought otherwise than on account of this
indemnification provision. In case any such action is brought against an
Indemnified Party, the Distributor will be entitled to participate, at its own
expense, in the defense of such action. The Distributor also shall be entitled
to assume the defense thereof, with counsel approved by the Indemnified Party
named in the action, which approval shall not be unreasonably withheld. After
notice from the Distributor to such Indemnified Party of the Distributor's
election to assume the defense thereof, the Indemnified Party will cooperate
fully with the Distributor and shall bear the fees and expenses of any
additional counsel retained by it, and the Distributor will not be liable to
such Indemnified Party under this Agreement for any legal or other expenses
subsequently incurred by such Indemnified Party independently in connection with
the defense thereof, other than reasonable costs of investigation.
2. Effect of Notice.
----------------
Any notice given by the indemnifying Party to an Indemnified Party referred
to in Section 12.1 or 12.2 above of participation in or control of any action by
the indemnifying Party will in no event be deemed to be an admission by the
indemnifying Party of liability, culpability or responsibility, and the
indemnifying Party will remain free to contest liability with respect to the
claim among the Parties or otherwise.
Section 13. Applicable Law
----------------------------
-31-
<PAGE>
This Agreement will be construed and the provisions hereof interpreted
under and in accordance with Massachusetts law, without regard for that state's
principles of conflict of laws.
Section 14. Execution in Counterparts
--------------------------------------
This Agreement may be executed simultaneously in two or more counterparts,
each of which taken together will constitute one and the same instrument.
-32-
<PAGE>
Section 15. Severability
-------------------------
If any provision of this Agreement is held or made invalid by a court
decision, statute, rule or otherwise, the remainder of this Agreement will not
be affected thereby.
Section 16. Rights Cumulative
------------------------------
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, that the Parties are entitled to under federal and state
laws.
Section 17. Restrictions on Sales of Trust Shares
--------------------------------------------------
AGL agrees that the Trust is permitted (subject to the other terms of this
Agreement) to make its shares available to separate accounts of other life
insurance companies. Without AGL's express written consent, neither the Trust
nor the Distributor, nor any of their related persons and entities, will enter
into any arrangement for utilization of the Trust by any other life insurance
company under which the terms granted to that insurance company or its related
persons and entities are more favorable than those granted to AGL and its
related persons and entities hereunder. Other than as set forth above in this
Section 17, neither the Trust nor the Distributor will offer or issue Trust
shares to any person or entity, other than the Separate Account, without AGL's
specific written consent, which shall not be unreasonably withheld.
-33-
<PAGE>
Section 18. Scope of Liability
-------------------------------
It is understood and expressly agreed that the obligations and liabilities
of the Trust hereunder will not be binding upon any of the trustees,
shareholders, nominees, officers, agents or employees of the Trust, as provided
in the Declaration of Trust. The execution and delivery of this Agreement have
been authorized by the Board of Trustees and this Agreement has been signed by
an authorized officer of the Trust, acting as such, and neither such
authorization by the Board of Trustees nor such execution and delivery by such
officer will be deemed to have been made by any of the Trustees individually or
to impose any liability on any of them personally, but will bind only the assets
and property of the Trust, as provided in its Declaration of Trust.
Section 19. Headings
---------------------
The Table of Contents and headings used in this Agreement are for purposes
of reference only and shall not limit or define the meaning of the provisions of
this Agreement.
-34-
<PAGE>
IN WITNESS WHEREOF, the Parties have caused this Agreement to be executed
in their names and on their behalf by and through their duly authorized officers
signing below.
AMERICAN GENERAL LIFE INSURANCE COMPANY
By:/s/ DON WARD
---------------------------------------------
Title: SVP
AMERICAN GENERAL SECURITIES INCORPORATED
By: /s/ F. PAUL KOVACH
---------------------------------------------
Title: President
WM VARIABLE TRUST
By: /s/ WILLIAM G. PAPESH
--------------------------------------------
Title: President
WM FUNDS DISTRIBUTOR, INC.
By: /s/ WILLIAM G. PAPESH
--------------------------------------------
Title: President
<PAGE>
EXHIBIT A
---------
INVESTMENT FUNDS OF THE TRUST
AS OF July 12, 1999
. Money Market Fund
. Short-Term High Quality Bond Fund
. U.S. Government Securities Fund
. Income Fund
. Bond & Stock Fund
. Growth & Income Fund
. Growth Fund
. Northwest Fund
. Emerging Growth Fund
. International Growth Fund
. Strategic Growth Portfolio
. Conservative Growth Portfolio
. Balanced Portfolio
. Flexible Income Portfolio
. Income Portfolio
<PAGE>
Exhibit 3(d)(ii)
INDEMNIFICATION AGREEMENT
THIS AGREEMENT, made and entered into as of the 12th day of July, 1999
("Agreement"), by and among American General Life Insurance Company, a Texas
life insurance company ("AGL"), American General Securities Incorporated, a
Texas corporation ("AGSI"), WM Advisors, Inc., a Washington corporation ("WMA"),
and WM Funds Distributor, Inc., a Washington corporation ("WMFD"),
WITNESSETH THAT:
WHEREAS, AGL proposes to issue variable annuity contracts (the "Contracts")
that will be funded through one or more divisions of American General Life
Insurance Company Separate Account D ("Separate Account D"), each of which
divisions will invest in one of the separate investment portfolios of WM
Variable Trust (the "Trust") that have been or may in the future be established
(collectively, the "Funds"); and
WHEREAS, AGSI will be the principal underwriter with respect to the
Contracts, and CFD will be the principal underwriter with respect to the Trust's
shares of beneficial interest; and
WHEREAS, WMA will be the investment manager of the Trust, and together with
the Trust has entered and may enter into sub-adviser agreements with certain
parties (the "Sub-Advisers") that will serve as Sub-Advisers to one or more of
the Funds;
<PAGE>
NOW, THEREFORE, in consideration of the mutual promises and agreements set
forth herein, and for other good and valuable consideration, the receipt and
sufficiency of which is hereby acknowledged, the undersigned parties agree as
follows:
Section 1. Indemnification of AGL and AGSI by WMFD and WMA
-----------------------------------------------------------
1.1 For Negligence.
--------------
WMFD and WMA, jointly and severally, agree to indemnify and hold
harmless AGL and AGSI, each director or officer of AGL and AGSI, and each
person, if any, who controls AGL or AGSI within the meaning of Section 15
of the Securities Act of 1933 (collectively, the "Indemnified Parties")
from and against any and all losses, claims, damages, liabilities
(including amounts paid in settlement thereof with, except as set forth in
paragraph 1.2 below, the written consent of WMFD or WMA) or actions in
respect thereof (including, to the extent reasonable, legal and other
expenses) to which the Indemnified Parties may become subject directly or
indirectly under any statute, at common law or otherwise, insofar as such
losses, claims, damages, liabilities or actions directly or indirectly
result from or arise out of the bad faith, willfulness, recklessness, or
negligence of WMFD, WMA, any Sub-Adviser, or any of their officers,
employees or agents in discharging their responsibilities to the Trust,
including, without limitation, the obligations of WMA and each Sub-Adviser
to operate the Funds as regulated investment companies in compliance with
(i) Subchapter M of the Internal Revenue Code of 1986, as amended (the
"Code") and regulations thereunder and (ii) Section 817(h) of the Code and
regulations thereunder, including, without limitation,
-2-
<PAGE>
any income taxes and related penalties, rescission charges, liability under
state law to Contract owners or participants asserting liability against
AGL or AGSI pursuant to the Contracts, the costs of any ruling and closing
agreement, or other settlement with the Internal Revenue Service, and the
cost of any substitution by AGL of shares of another investment company or
portfolio for those of any adversely affected Fund as a funding medium for
Separate Account D that AGL deems necessary or appropriate as a result of
the noncompliance.
1.2 Consent Not Required.
--------------------
The written consents of WMFD or WMA referred to in paragraphs 1.1
above and 1.3 below shall not be required with respect to amounts paid in
connection with any ruling and closing agreement or other settlement with
the Internal Revenue Service.
1.3 Without Negligence.
------------------
WMFD and WMA, jointly and severally, agree to indemnify and hold
harmless the Indemnified Parties from and against 50% of all losses,
claims, damages, liabilities (including amounts paid in settlement thereof
with, except as set forth in paragraph 1.2 above, the written consent of
WMFD or WMA) or actions in respect thereto (including, to the extent
reasonable, legal and other expenses) to which the Indemnified Parties may
become subject, directly or indirectly, under any statute, at common law or
otherwise, insofar as such losses, claims, damages, liabilities or actions
(i) are not recoverable by AGL or AGSI from WMFD and WMA pursuant to
paragraph 1.1 above and (ii) directly or indirectly result
-3-
<PAGE>
from or arise out of the failure of any Fund to operate as a regulated
investment company under Subchapter M or Section 817(h) of the Code, and
regulations thereunder, including, without limitation, any income taxes and
related penalties, rescission charges, liability under state law to
Contract owners or participants asserting liability against AGL or AGSI
pursuant to the Contracts, the costs of any ruling and closing agreement or
other settlement with the Internal Revenue Service, and the cost of any
substitution by AGL of shares of another investment company or portfolio
for those of any adversely affected Fund as a funding medium for Separate
Account D that AGL deems necessary or appropriate as a result of the
noncompliance.
1.4 Notice and Defense.
------------------
Neither WMFD nor WMA shall be liable under paragraphs 1.1 or 1.3 above
unless AGL or AGSI shall have notified WMFD or WMA in writing within a
reasonable time after the summons or other first legal process giving
information of the nature of any claim for which indemnity may be sought
shall have been served upon an Indemnified Party (or after such Indemnified
Party shall have received notice of such service on any designated agent),
or within a reasonable time after such Indemnified Party otherwise becomes
aware that it may wish to claim indemnification under paragraphs 1.1 or
1.3, but failure to notify WMFD or WMA of any such claim shall not relieve
WMFD or WMA from any liability that it may have to the Indemnified Party
against whom such action is brought otherwise than on account of this
Section 1. In case any action as to which indemnity may be sought pursuant
to this Section 1 is brought against an Indemnified Party, WMFD and WMA
will be entitled to
-4-
<PAGE>
participate, at their own expense, in the defense thereof. Also, in a case
where indemnification may be sought pursuant to paragraph 1.1 above, WMFD
and WMA shall be entitled to assume the defense thereof (which shall
include, without limitation, the conduct of any ruling request and closing
agreement or other settlement proceeding with the Internal Revenue
Service), with counsel approved by AGL, which approval shall not be
unreasonably withheld. After notice from WMFD or WMA to the Indemnified
Party of its election to assume the defense thereof, the Indemnified Party
will cooperate fully with WMFD and WMA and shall bear the fees and expenses
or any additional counsel retained by the Indemnified Party, and WMFD and
WMA will not be liable to such Indemnified Party under this Agreement for
any legal or other expenses subsequently incurred by such Indemnified Party
independently in connection with the defense thereof, other than reasonable
costs of investigation.
1.5 Effect of Notice.
----------------
Any notice given by WMFD or WMA to an Indemnified Party of
participation in or control of any defense by WMFD or WMA will in no event
be deemed to be an admission by WMFD or WMA of culpability or
responsibility, and WMFD or WMA will remain free to contest liability with
respect to the claim among the parties or otherwise.
Section 2. Representations
---------------------------
2.1 Of AGL and AGSI.
---------------
-5-
<PAGE>
AGL and AGSI each represents that it is a business corporation duly
organized, validly existing, and in good standing under the laws of the
State of Texas and has full corporate power, authority and legal right to
execute, deliver, and perform its duties and comply with its obligations
under this Agreement.
2.2 Of WMFD and WMA.
---------------
Each of WMFD and WMA represents and warrants that it is a business
corporation duly organized, validly existing, and in good standing under
the laws of the State of Washington and has full corporate power, authority
and legal right to execute, deliver, and perform its duties and comply with
its obligations under this Agreement.
2.3 Of WMA.
------
WMA represents that (a) under the terms of its investment advisory
agreements with the Trust and any sub-investment advisory agreement with
any Sub-Advisers, WMA and the applicable Sub-Adviser will be responsible
for managing the Funds in compliance with the Trust's investment
objectives, policies and restrictions as set forth in the Trust's
registration statement under the Securities Act of 1933 and (b) that those
objectives, policies and restrictions will include operating as a regulated
investment company under Subchapter M or Section 817(h) of the Code, and
regulations thereunder.
Section 3. Choice of Laws
--------------------------
-6-
<PAGE>
This Agreement will be construed and the provisions hereof interpreted
under and in accordance with California law, without regard for that state's
principles of conflict of laws; provided, however, that if such laws or any of
the provisions of this Agreement conflict with applicable provisions of the
federal securities laws, the latter will control.
Section 4. Counterparts
------------------------
This Agreement may be executed simultaneously in two or more counterparts,
each of which taken together will constitute one and the same instrument.
Section 5. Severability
------------------------
If any provision of this Agreement is held or made invalid by a court
decision, statute, rule or otherwise, the remainder of this Agreement will not
be affected thereby.
Section 6. Rights Cumulative
-----------------------------
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, that the parties are entitled to under federal and state
laws.
Section 7. Binding Obligations
-------------------------------
The obligations of Section 1 of this Agreement shall be binding on WMA and
WMFD notwithstanding any provision in any other agreement or instrument that
limits their liability to Trust shareholders generally.
-7-
<PAGE>
IN WITNESS WHEREOF, the undersigned have caused this Agreement to be
executed on their behalf by the persons indicated, who are thereunto duly
authorized.
AMERICAN GENERAL LIFE INSURANCE COMPANY
By: /s/ DON WARD
------------------------------------------
Title: SVP
---------------------------------------
AMERICAN GENERAL SECURITIES INCORPORATED
By: /s/ F. PAUL KOVACH
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Title: President
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WM ADVISORS, INC.
By: /s/ WILLIAM G. PAPESH
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Title: President
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WM FUNDS DISTRIBUTOR, INC.
By: /s/ WILLIAM G. PAPESH
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Title: President
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EXHIBIT 5(c)(i)(F)
Complete and return to:
Annuity Administration AMERICAN GENERAL LIFE INSURANCE COMPANY ("AGL")
P.O. Box 1401 SEPARATE ACCOUNT D
Houston, TX 77251-1401 --------------------------------------------
(800) 277-0914 A Subsidiary of American General Corporation
Fax: (713) 831-3701 --------------------------------------------
Hearing Impaired: Houston, Texas
(888) 436-5257
WM ADVANTAGE SERVICE REQUEST
[WM Advantage logo]
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[X] CONTRACT 1. CONTRACT #: ____________________________________ ANNUITANT:____________________________________________
IDENTIFICATION
CONTRACT OWNER(S): _____________________________________________________________________________________
(COMPLETE SECTIONS 1 & 14
FOR ALL REQUESTS.) ADDRESS: _______________________________________________________________________________________________
INDICATE CHANGE OR REQUEST [ ] CHECK HERE
DESIRED BELOW. IF CHANGE OF ___________________________________________________________________________________________
ADDRESS
S.S.NO. OR TAX I.D. NO.:_______________________________ PHONE NUMBER: ( )______________________________
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[ ]NAME 2. [ ] Annuitant* [ ] Beneficiary* [ ] Owner(s)* *Does not change Annuitant, Beneficiary, or Ownership
CHANGE designations.
FROM: __________________________________________________________________________________________________
(FIRST, MIDDLE, LAST)
TO: ____________________________________________________________________________________________________
(FIRST, MIDDLE, LAST)
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Reason: [ ] Marriage [ ] Divorce [ ] Correction [ ] Other (Attach certified copy of court order.)
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[ ]AUTOMATIC 3. ____ By initialing here, I authorize American General Life to collect $ _______ (min. $100), starting
ADDITIONAL month/day ______ by initiating electronic debit entries against my bank account with the following
PREMIUM PAYMENT frequency:
OPTION [ ] Monthly [ ] Quarterly [ ] Semiannually [ ] Annually (Attach voided check to Service Request.)
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[ ]DOLLAR COST 4. Dollar cost average [ ] $_______ OR [ ] _______% (whole % only) taken from the Money Market (53)
AVERAGING Frequency: [ ] Monthly [ ] Quarterly [ ] Semiannually [ ] Annually
Duration: [ ] 12 months [ ] 24 months [ ] 36 months
(THE MINIMUM TRANSFER Begin Date: ___/___/_____ (Date must be at least 30 days after issue date and must be between the 1st and
AMOUNT IS $500) the 28th of the month.) If no begin date is elected, dollar cost averaging will start the beginning of
the next interval from the date of receipt of this form.
Allocate to the following divisions as indicated. (Use dollars or whole percentages.)
Strategic Growth Portfolio (186) ____ Growth & Income Fund (56) ____
Conservative Growth Portfolio (187) ____ Growth Fund of the Northwest (185) ____
Balanced Portfolio (188) ____ Growth Fund (52) ____
Flexible Income Portfolio (189) ____ Mid Cap Stock Fund (55) ____
Income Portfolio (190) ____ Small Cap Stock Fund (59) ____
Bond and Stock Fund (184) ____ International Growth Fund (50) ____
Short Term Income Fund (58) ____
U.S. Government Securities Fund (54) ____
Income Fund (57) ____
Money Market Fund (53) ____
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[ ]TELEPHONE 5. I (or if joint owners, either of us acting independently) hereby authorize American General Life
TRANSFER Insurance Company ("AGL") to act on telephone instructions to transfer values among the Variable
AUTHORIZATION Divisions and Fixed Accounts and to change allocations for future purchase payments given by:
(Initial appropriate box(es) below.)
[ ] Contract Owner(s)
[ ] Agent/Registered Representative who is both appointed to represent AGL and with the firm authorized
to service my contract.
AGL and any person designated by this authorization will not be responsible for any claim, loss, or
expense based upon telephone transfer instructions received and acted on in good faith, including losses
due to telephone instruction communication errors. AGL's liability for erroneous transfers, unless
clearly contrary to instructions received, will be limited to correction of the allocations on a current
basis. If an error, objection, or other claim arises due to a telephone transfer transaction, I will
notify AGL in writing within five working days from receipt of confirmation of the transaction from AGL.
I understand that this authorization is subject to the terms and provisions of my WM ADVANTAGE contract
and its related prospectus. This authorization will remain in effect until my written notice of its
revocation is received by AGL at its main office.
[ ] CHECK HERE TO DECLINE TELEPHONE TRANSFER PRIVILEGE.
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[ ]TRANSFER OF 6. Indicate gross dollar or percentage amount.
ACCUMULATED ____ from Div. ____ to Div. ____ ____ from Div. ____ to Div. ____ ____ from Div. ____ to Div. ____
VALUES
A MINIMUM OF $500 MUST ____ from Div. ____ to Div. ____ ____ from Div. ____ to Div. ____ ____ from Div. ____ to Div. ____
BE MAINTAINED IN EACH
DIVISION. ____ from Div. ____ to Div. ____ ____ from Div. ____ to Div. ____ ____ from Div. ____ to Div. ____
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L 8394 REV 0400 PAGE 1 OF 2
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[ ]CHANGE 7. _______ Division to _______% _______ Division to _______% _______ Division to _______%
ALLOCATION OF
FUTURE PURCHASE _______ Division to _______% _______ Division to _______% _______ Division to _______%
PAYMENTS
USE WHOLE PERCENTAGES. _______ Division to _______% _______ Division to _______% _______ Division to _______%
TOTAL MUST EQUAL 100%.
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[ ]AUTOMATIC 8. [ ] Add [ ] Change to percentages indicated below.
REBALANCING [ ] Quarterly [ ] Semiannually [ ] Annually (based on contract anniversary)
USE WHOLE PERCENTAGES. WM Variable Trust -- The available variable divisions are funded by the following Series.
TOTAL MUST EQUAL 100%. Bond and Stock Fund (184) ____ Mid Cap Stock Fund (55) ____
MUST HAVE MINIMUM Growth & Income Fund (56) ____ Small Cap Stock Fund (59) ____
CONTRACT VALUE OF Growth Fund of the Northwest (185) ____ International Growth Fund (50) ____
$25,000 TO INITIATE. Growth Fund (52) ____ Short Term Income Fund (58) ____
U.S Government Securities Fund (54) ____
Income Fund (57) ____
Money Market Fund (53) ____
[ ] Stop Automatic Rebalancing.
NOTE: Automatic rebalancing does not change allocation of future payments and is only available between
above listed divisions.
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[ ]REQUEST FOR 9. Amounts requested are to be: [ ] Net OR [ ] Gross of applicable charges.
PARTIAL
WITHDRAWAL $ or %_____ Div. No._____ $ or %_____ Div. No._____ $ or %_____ Div. No._____
(ALSO COMPLETE SECS. 12,
13 & 14.) $ or %_____ Div. No._____ $ or %_____ Div. No._____ $ or %_____ Div. No._____
MINIMUM WITHDRAWAL
IS $500. $ or %_____ Div. No._____ $ or %_____ Div. No._____ $ or %_____ Div. No._____
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[ ]SYSTEMATIC 10. Specified Dollar Amount $ ______________________
WITHDRAWAL
(ALSO COMPLETE SECS. 12, Frequency: [ ] Monthly [ ] Quarterly [ ] Semiannually [ ] Annually
13 & 14.)
MINIMUM WITHDRAWAL Begin Date: ___/___/_____ (Date must be at least 30 days after issue date and must be between the 5th and
IS $500. the 24th of the month.)
Unless specified below, withdrawals will be taken from the divisions as they are currently allocated in
your contract.
$ or %_____ Div. No._____ $ or %_____ Div. No._____ $ or %_____ Div. No._____
$ or %_____ Div. No._____ $ or %_____ Div. No._____ $ or %_____ Div. No._____
$ or %_____ Div. No._____ $ or %_____ Div. No._____ $ or %_____ Div. No._____
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[ ]REQUEST FOR 11. [ ] Contract is attached.
FULL SURRENDER [ ] I hereby declare that the contract specified above has been lost, destroyed, or misplaced and
(ALSO COMPLETE SECS. 12, request that the value of the contract be paid. I agree to indemnify and hold harmless AGL against
13 & 14.) any claims which may be asserted on my behalf and on the behalf of my heirs, assignees, legal
representatives, or any other person claiming rights derived through me against AGL on the basis of
the contract.
NOTE: If no method is indicated, check(s) will be mailed to the owner at the address of record.
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[ ]METHOD OF 12. Check one: [ ] Mail check to owner. [ ] Mail check to alternate address. [ ] Deposit funds directly
DISTRIBUTION 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.
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[ ]NOTICE OF 13. 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. If no
election is made we are REQUIRED to withhold Federal Income Tax.
[ ] I do NOT want income tax withheld from this distribution.
[ ] I do want 10% OR [ ] ________% income tax withheld from this distribution.
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[X]AFFIRMATION/ 14. CERTIFICATION: Under penalties of perjury, I certify that: (1) the number shown on this form is my
SIGNATURE correct Social Security (or taxpayer identification) number; and (2) I am not subject to backup
(COMPLETE THIS SECTION withholding under 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 certification required to avoid backup withholding.
X
______________________________________________________________________ __________________________
SIGNATURE(S) OF OWNER(S) DATE
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L 8394 REV 0400 PAGE 2 of 2
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Exhibit 10
CONSENT OF INDEPENDENT AUDITORS
We consent to the reference made to our firm under the caption "Independent
Auditors" and to the use of our report dated February 7, 2000, with respect to
the financial statements of the WM Advantage Divisions of American General Life
Insurance Company Separate Account D, and of our report dated March 1, 2000,
with respect to the financial statements of American General Life Insurance
Company included in this Post-Effective Amendment No. 10 to the Registration
Statement (Form N-4, Nos. 33-57730 and 811-2441) of American General Life
Insurance Company Separate Account D.
/s/ ERNST & YOUNG LLP
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Houston, Texas
April 20, 2000
