<PAGE> 1
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON SEPTEMBER 29, 1998
REGISTRATION NOS. 33-86464/811-8862
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM N-4
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<TABLE>
<S> <C>
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933
Pre-Effective Amendment No. [ ]
Post Effective Amendment No. 6 [X]
and/or
REGISTRATION STATEMENT UNDER THE INVESTMENT
COMPANY ACT OF 1940
Amendment No. 9 [X]
</TABLE>
---------------------
AGA SEPARATE ACCOUNT A
(EXACT NAME OF REGISTRANT)
AMERICAN GENERAL ANNUITY INSURANCE COMPANY
(NAME OF DEPOSITOR)
2929 ALLEN PARKWAY, HOUSTON, TEXAS 77019
(ADDRESS OF DEPOSITOR'S PRINCIPAL EXECUTIVE OFFICES) (ZIP CODE)
(713) 526-5251
(DEPOSITOR'S TELEPHONE NUMBER, INCLUDING AREA CODE)
---------------------
NORI L. GABERT, ESQ.
AMERICAN GENERAL ANNUITY INSURANCE COMPANY
2929 ALLEN PARKWAY, HOUSTON, TEXAS 77019
(NAME AND ADDRESS OF AGENT FOR SERVICE)
PLEASE SEND COPIES OF
ALL COMMUNICATIONS TO:
JUDITH A. HASENAUER, ESQ.
BLAZZARD, GRODD & HASENAUER, P.C.
P.O. BOX 5108
WESTPORT, CT 06881
---------------------
It is proposed that this filing will become effective:
___ immediately upon filing pursuant to paragraph (b) of Rule 485
[X] on October 28, 1998 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
TITLE OF SECURITIES BEING REGISTERED: Individual
Variable Annuity Contracts
SEQUENTIAL NUMBER SYSTEM: PAGE ___ OF ___ PAGES
EXHIBIT INDEX ON SEQUENTIAL PAGE NUMBER ___
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<PAGE> 2
CROSS REFERENCE SHEET
(REQUIRED BY RULE 495)
<TABLE>
<CAPTION>
ITEM NO. LOCATION
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<C> <S> <C>
PART A
Item 1. Cover Page.............................. Cover Page
Item 2. Definitions............................. Definitions
Item 3. Synopsis................................ Highlights
Item 4. Condensed Financial Information......... Condensed Financial Information
Item 5. General Description of Registrant,
Depositor, and Portfolio Companies.... The Company; The Separate Account;
Investment Options
Item 6. Deductions and Expenses................. Charges and Deductions
Item 7. General Description of Variable Annuity
Contracts............................. The Contracts
Item 8. Annuity Period.......................... Annuity Provisions
Item 9. Death Benefit........................... Proceeds Payable on Death
Item 10. Purchases and Contract Value............ Purchase Payments and Contract Value
Item 11. Redemptions............................. Withdrawals
Item 12. Taxes................................... Federal Tax Status
Item 13. Legal Proceedings....................... Legal Proceedings
Item 14. Table of Contents of the Statement of
Additional Information................ Table of Contents of the Statement of
Additional Information
PART B
Item 15. Cover Page.............................. Cover Page
Item 16. Table of Contents....................... Table of Contents
Item 17. General Information and History......... The Company
Item 18. Services................................ Not Applicable
Item 19. Purchase of Securities Being Offered.... Not Applicable
Item 20. Underwriters............................ Distributor
Item 21. Calculation of Performance Data......... Performance Information
Item 22. Annuity Payments........................ Annuity Provisions
Item 23. Financial Statements.................... Financial Statements
</TABLE>
PART C
Information required to be included in Part C is set forth under the
appropriate Item so numbered in Part C to this Registration Statement.
<PAGE> 3
AGA SEPARATE ACCOUNT A
(FORMERLY, WNL SEPARATE ACCOUNT A)
AMERICAN GENERAL ANNUITY INSURANCE COMPANY
(FORMERLY, WESTERN NATIONAL LIFE INSURANCE COMPANY)
SUPPLEMENT DATED OCTOBER 28, 1998
The Prospectus to which this supplement is attached is hereby amended in the
following manner:
The Portfolios listed below are currently not available to Owners:
- AIM V.I. Diversified Income Fund;
- AIM V.I. Capital Appreciation Fund;
- Oppenheimer High Income Fund;
- Oppenheimer Growth Fund;
- Oppenheimer Small Cap Growth Fund;
- Oppenheimer Growth & Income Fund;
- Mutual Discovery Investments Fund;
- Templeton Developing Markets Fund; and
- Templeton International Fund.
<PAGE> 4
ELITEPLUS BONUS
VARIABLE ANNUITY
PROSPECTUS
OCTOBER 28, 1998
AMERICAN GENERAL ANNUITY INSURANCE COMPANY
AGA SEPARATE ACCOUNT A
<PAGE> 5
Prospectus inside front cover
<PAGE> 6
AMERICAN GENERAL ANNUITY INSURANCE COMPANY
(FORMERLY, WESTERN NATIONAL LIFE INSURANCE COMPANY)
Executive Office: Annuity Service Office:
2929 Allen Parkway 205 E. 10th Avenue
Houston, TX 77019 Amarillo, TX 79101
1-800-424-4990
INDIVIDUAL FIXED AND VARIABLE DEFERRED ANNUITY CONTRACTS
WITH FLEXIBLE PURCHASE PAYMENTS
ISSUED BY
AGA SEPARATE ACCOUNT A
(FORMERLY, WNL SEPARATE ACCOUNT A)
AND
AMERICAN GENERAL ANNUITY INSURANCE COMPANY
(FORMERLY, WESTERN NATIONAL LIFE INSURANCE COMPANY)
The Individual Fixed and Variable Deferred Annuity Contracts with Flexible
Purchase Payments (the "Contracts") described in this Prospectus provide for
accumulation of Contract Values on a fixed or variable basis and payment of
annuity payments on a fixed and variable basis. The Contracts are designed for
use by individuals in retirement plans on a Qualified or Non-Qualified basis.
(See "Definitions.")
Purchase Payments for the Contracts will be allocated to a segregated
investment account of American General Annuity Insurance Company (the
"Company"), which account has been designated AGA Separate Account A (the
"Separate Account"), or to the Company's General Account. Under certain
circumstances, however, Purchase Payments initially may be allocated to the
State Street Global Advisors Money Market Sub-Account of the Separate Account.
(See "Highlights.") The Separate Account invests in shares of AGA Series Trust
(formerly, WNL Series Trust); AIM Variable Insurance Funds, Inc.; Oppenheimer
Variable Account Funds; and Templeton Variable Products Series Fund. (See
"Investment Options.") AGA Series Trust is a series fund with seven Portfolios
currently available: Credit Suisse Growth and Income Portfolio, Credit Suisse
International Equity Portfolio, EliteValue Portfolio, State Street Global
Advisors Growth Equity Portfolio, State Street Global Advisors Money Market
Portfolio, Salomon Brothers U.S. Government Securities Portfolio, and Van Kampen
American Capital Emerging Growth Portfolio. Prior to May 1, 1998, the Credit
Suisse Growth and Income Portfolio was known as the BEA Growth and Income
Portfolio, the EliteValue Portfolio was known as the EliteValue Asset Allocation
Portfolio, the State Street Global Advisors Growth Equity Portfolio was known as
the Global Advisors Growth Equity Portfolio and the State Street Global Advisors
Money Market Portfolio was known as the Global Advisors Money Market Portfolio.
AIM Variable Insurance Funds, Inc. is a series fund with the following
Portfolios available: AIM V.I. Diversified Income Fund and AIM V.I. Capital
Appreciation Fund. Oppenheimer Variable Account Funds is a series fund with the
following Portfolios available: Oppenheimer High Income Fund, Oppenheimer Growth
Fund, Oppenheimer Small Cap Growth Fund and Oppenheimer Growth & Income Fund.
Class 2 shares of the following portfolios of Templeton Variable Products Series
Fund are available: Mutual Discovery Investments Fund, Templeton Developing
Markets Fund and Templeton International Fund.
The Contracts are not deposits or obligations of, or guaranteed or endorsed
by any bank, and are not federally insured by the Federal Deposit Insurance
Corporation, the Federal Reserve Board, or any other agency. Investment in the
Contracts is subject to risk that may cause the value of the Owner's investment
to fluctuate, and when the Contracts are surrendered, the value may be higher or
lower than the Purchase Payments.
This Prospectus concisely sets forth the information for a prospective
investor. Additional information about the Contracts is contained in the
Statement of Additional Information dated October 28, 1998 (the "SAI") which is
available at no charge. The SAI has been filed with the Securities and Exchange
Commission (the "SEC") and is incorporated herein by reference. The SEC
maintains a Web site (http://www.sec.gov) that contains the SAI, material
incorporated by reference, and other information regarding registrants that file
electronically with the SEC. The Table of Contents of the SAI can be found on
Page 39 of this Prospectus. For a free copy of the SAI, call 1-800-424-4990 or
write to the Company's Annuity Service Office at the address listed above.
INQUIRIES:
Any inquiries can be made by telephone or in writing to the Annuity Service
Office listed above.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SEC, NOR HAS
THE SEC PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY
REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
This Prospectus and the SAI are dated October 28, 1998.
This Prospectus should be kept for future reference.
<PAGE> 7
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
DEFINITIONS................................................. 1
HIGHLIGHTS.................................................. 3
FEE TABLES.................................................. 5
CONDENSED FINANCIAL INFORMATION............................. 11
THE COMPANY................................................. 13
THE SEPARATE ACCOUNT........................................ 13
INVESTMENT OPTIONS.......................................... 13
AGA Series Trust.......................................... 13
AIM Variable Insurance Funds, Inc......................... 14
Oppenheimer Variable Account Funds........................ 14
Templeton Variable Products Series Fund................... 14
Voting Rights............................................. 15
Substitution of Securities................................ 15
CHARGES AND DEDUCTIONS...................................... 15
Deduction for Contingent Deferred Sales Charge (Sales
Load).................................................. 15
Reduction or Elimination of the Contingent Deferred Sales
Charge................................................. 16
Deduction for Mortality and Expense Risk Charge........... 16
Deduction for Enhanced Death Benefit Charge............... 17
Deduction for Annual Step-Up Death Benefit Charge......... 17
Deduction for Administrative Charge....................... 17
Deduction for Contract Maintenance Charge................. 17
Deduction for Premium and Other Taxes..................... 17
Deduction for Expenses of the Investment Options.......... 18
THE CONTRACTS............................................... 18
Owner..................................................... 18
Joint Owners.............................................. 18
Annuitant................................................. 18
Assignment................................................ 19
PURCHASE PAYMENTS AND CONTRACT VALUE........................ 19
Purchase Payments......................................... 19
Allocation of Purchase Payments........................... 19
Bonus..................................................... 20
Dollar Cost Averaging..................................... 20
Contract Value............................................ 20
Accumulation Units........................................ 20
Accumulation Unit Value................................... 21
TRANSFERS................................................... 21
Transfers Prior to the Annuity Date....................... 21
Transfers During the Annuity Period....................... 22
Sweep Account Program..................................... 23
ASSET ALLOCATION PROGRAMS................................... 23
Asset Allocation -- Portfolio Rebalancing................. 23
Asset Allocation -- Financial Intermediaries.............. 23
WITHDRAWALS................................................. 24
Systematic Withdrawal Option.............................. 25
Texas Optional Retirement Program......................... 25
Suspension or Deferral of Payments........................ 25
PROCEEDS PAYABLE ON DEATH................................... 26
Death of Owner During the Accumulation Period............. 26
</TABLE>
i
<PAGE> 8
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Death Benefit Amount During the Accumulation Period
(Standard Death Benefit)............................... 26
Enhanced Death Benefit Amount During the Accumulation
Period................................................. 26
Annual Step-Up Death Benefit Amount During the
Accumulation Period.................................... 27
Death Benefit Options During the Accumulation Period...... 27
Death of Owner During the Annuity Period.................. 28
Death of Annuitant........................................ 28
Payment of Death Benefit.................................. 28
Beneficiary............................................... 28
Change of Beneficiary..................................... 28
ANNUITY PROVISIONS.......................................... 29
General................................................... 29
Annuity Date.............................................. 29
Selection or Change of an Annuity Option.................. 29
Frequency and Amount of Annuity Payments.................. 29
Annuity................................................... 29
Fixed Annuity............................................. 29
Variable Annuity.......................................... 30
Annuity Options........................................... 30
DISTRIBUTOR................................................. 30
ADMINISTRATION OF THE CONTRACTS............................. 30
PERFORMANCE INFORMATION..................................... 31
Money Market Sub-Account.................................. 31
Other Sub-Accounts........................................ 31
FEDERAL TAX STATUS.......................................... 32
General................................................... 32
Diversification........................................... 33
Multiple Contracts........................................ 34
Contracts Owned by Other than Natural Persons............. 34
Tax Treatment of Assignments.............................. 34
Income Tax Withholding.................................... 34
Tax Treatment of Withdrawals -- Non-Qualified Contracts... 34
Qualified Plans........................................... 35
Tax Treatment of Withdrawals -- Qualified Contracts....... 37
Tax-Sheltered Annuities -- Withdrawal Limitations......... 37
Section 457 -- Deferred Compensation Plans................ 38
YEAR 2000 RISKS............................................. 38
FINANCIAL STATEMENTS........................................ 38
LEGAL PROCEEDINGS........................................... 38
TABLE OF CONTENTS OF THE SAI................................ 39
</TABLE>
ii
<PAGE> 9
DEFINITIONS
ACCUMULATION PERIOD: The period during which Purchase Payments may be made
prior to the Annuity Date.
ACCUMULATION UNIT: A unit of measure used to determine the value of the
Owner's interest in a Sub-Account of the Separate Account during the
Accumulation Period.
ADJUSTED CONTRACT VALUE: The Contract Value less any applicable premium tax
and Contract Maintenance Charge. This amount is applied to the applicable
Annuity Tables to determine Annuity Payments.
ADMINISTRATIVE CHARGE: A deduction from the Separate Account which equals,
on an annual basis, .15% of the average daily net asset value of the Separate
Account.
AGE: The age of any Owner or Annuitant on his/her last birthday.
ANNUITANT: The natural person on whose life Annuity Payments are based. On
or after the Annuity Date, the Annuitant shall also include any Joint Annuitant.
ANNUITY DATE: The date on which Annuity Payments begin.
ANNUITY OPTIONS: Options available for Annuity Payments.
ANNUITY PAYMENTS: The series of payments made to the Owner or any named
payee after the Annuity Date under the Annuity Option selected.
ANNUITY PERIOD: The period of time beginning with the Annuity Date during
which the Annuity Payments are made.
ANNUITY SERVICE OFFICE: The office indicated on the Cover Page of this
Prospectus to which notices and requests must be sent.
ANNUITY UNIT: A unit of measure used to calculate Variable Annuity payments
during the Annuity Period.
BENEFICIARY: The person(s) or entity(ies) who/that will receive the death
benefit.
BONUS: An additional amount paid by the Company, equal to 1% of the initial
Purchase Payment and, as of June 1, 1998, subject to state regulatory approval,
an amount equal to 1% of certain subsequent Purchase Payments. The Bonus will be
paid for subsequent Purchase Payments of at least $5,000 for Non-Qualified
Contracts or $2,000 for Qualified Contracts. The Bonus will not be paid for
subsequent Purchase Payments made prior to June 1, 1998. A Bonus is recapturable
by the Company under certain circumstances. See the discussion of the Bonus in
this Prospectus for more information.
COMPANY: American General Annuity Insurance Company (formerly, Western
National Life Insurance Company).
CONTRACT ANNIVERSARY: An anniversary of the Issue Date.
CONTRACT VALUE: The sum of the Owner's interest in the General Account and
the Sub-Accounts of the Separate Account during the Accumulation Period.
CONTRACT YEAR: The first Contract Year is the annual period which begins on
the Issue Date. Subsequent Contract Years begin on each Contract Anniversary.
FIXED ANNUITY: A series of payments made during the Annuity Period that are
guaranteed as to dollar amount by the Company.
GENERAL ACCOUNT: The Company's general investment account which contains
all the assets of the Company with the exception of the Separate Account and
other segregated asset accounts.
1
<PAGE> 10
INVESTMENT OPTION: An investment entity into which assets of the Separate
Account will be invested.
ISSUE DATE: The date on which the Contract became effective.
MORTALITY AND EXPENSE RISK CHARGE: An amount deducted by the Company from
the Separate Account each Valuation Period which is equal, on an annual basis,
to 1.25% of the average daily net asset value of the Separate Account.
NON-QUALIFIED CONTRACTS: Contracts issued under non-qualified plans which
do not receive favorable tax treatment under Sections 401, 403(b), 408 or 457 of
the Internal Revenue Code of 1986, as amended (the "Code").
OWNER: The person or entity entitled to the ownership rights stated in the
Contract.
PORTFOLIO: A segment of an Investment Option which constitutes a separate
and distinct class of shares.
PURCHASE PAYMENT: A payment made by or on behalf of an Owner with respect
to the Contract.
QUALIFIED CONTRACTS: Contracts issued under Qualified Plans which receive
favorable tax treatment under Sections 401, 403(b), 408 or 457 of the Code.
SEPARATE ACCOUNT: The Company's Separate Account designated as AGA Separate
Account A.
SUB-ACCOUNT: Separate Account assets are divided into Sub-Accounts. Assets
of each Sub-Account will be invested in shares of an Investment Option or a
Portfolio of an Investment Option.
VALUATION DATE: Each day on which the Company and the New York Stock
Exchange ("NYSE") are open for business. There may be dates when the New York
Stock Exchange is open for business and the Company is closed. The day after
Thanksgiving is the only such date. On such date, Owners will not have access to
their accounts and therefore, no transactions will be processed for the Separate
Account on such date. The Company will be closed each day that the New York
Stock Exchange is closed for business.
VALUATION PERIOD: The period of time beginning at the close of business of
the NYSE on each Valuation Date and ending at the close of business for the next
succeeding Valuation Date.
VARIABLE ANNUITY: An annuity with payments which vary as to dollar amount
in relation to the investment performance of specified Sub-Accounts of the
Separate Account.
WRITTEN REQUEST: A request in writing, in a form satisfactory to the
Company, which is received by the Annuity Service Office, at the office listed
above.
2
<PAGE> 11
HIGHLIGHTS
Purchase Payments for the Contracts will be allocated to a segregated
investment account of American General Annuity Insurance Company (the
"Company"), which account has been designated AGA Separate Account A (the
"Separate Account"), or to the Company's General Account. Under certain
circumstances, however, Purchase Payments may initially be allocated to the
State Street Global Advisors Money Market Sub-Account of the Separate Account
(see below). The Separate Account invests in shares of the Investment Options.
Owners bear the investment risk for all amounts allocated to the Separate
Account.
The Contract may be returned to the Company for any reason within 10
calendar days after its receipt by the Owner (or, if the Contract is issued in
California, 30 calendar days after the date of receipt if the Owner is 60 years
old as of the Issue Date, or 20 calendar days of the date of receipt with
respect to the circumstances described in (c) below). (See "Right to Examine.")
It may be returned to the Company at its Annuity Service Office, or to the agent
through whom it was purchased. When the Contract is received by the Company at
its Annuity Service Office, it will be voided as if it had never been in force.
Upon its return, the Company will refund the Contract Value, less the Bonus (see
"Bonus" on page 20) next computed after receipt of the Contract by the Company
at its Annuity Service Office, except in the following circumstances: (a) when
the Contract is purchased pursuant to an Individual Retirement Annuity; (b) in
those states which require the Company to refund Purchase Payments, less
withdrawals; or (c) in the case of Contracts which are deemed by certain states
to be replacing an existing annuity or insurance contract and which require the
Company to refund Purchase Payments, less withdrawals. With respect to the
circumstances described in (a), (b), and (c) above, the Company will refund the
greater of Purchase Payments, less any withdrawals, or the Contract Value, less
the Bonus, and will allocate initial Purchase Payments to the State Street
Global Advisors Money Market Sub-Account until the expiration of 15 days from
the Issue Date (or 25 days in the case of Contracts described under (c) above).
Upon the expiration of the 15-day period (or 25-day period with respect to
Contracts described under (c) above), the Sub-Account value of the State Street
Global Advisors Money Market Sub-Account will be allocated to the Separate
Account and the General Account in accordance with the election made by the
Owner in the Application.
Each Valuation Period, the Company deducts a Mortality and Expense Risk
Charge from the Separate Account which is equal, on an annual basis, to 1.25% of
the average daily net asset value of the Separate Account. This charge
compensates the Company for assuming the mortality and expense risks under the
Contracts. (See "Charges and Deductions -- Deduction for Mortality and Expense
Risk Charge.")
An Owner may choose between the Standard Death Benefit, the Enhanced Death
Benefit or, for Contracts issued on or after June 1, 1998, the Annual Step-Up
Death Benefit.
If the Owner selects the Enhanced Death Benefit, each Valuation Period
prior to the 75th birthday of the Owner, or oldest Joint Owner, the Company
deducts an Enhanced Death Benefit Charge from the Separate Account which is
equal, on an annual basis, to .05% of the average daily net asset value of the
Separate Account. This charge compensates the Company for assuming the mortality
risks for the Enhanced Death Benefit. (See "Charges and Deductions -- Deduction
for Enhanced Death Benefit Charge.")
If the Owner selects the Annual Step-Up Death Benefit, each Valuation
Period prior to the 75th birthday of the Owner, or Oldest Joint Owner, the
Company deducts an Annual Step-Up Death Benefit charge from the Separate Account
which is equal, on an annual basis, to .10% of the average daily net asset value
of the Separate Account. This charge compensates the Company for assuming the
mortality risks for the Annual Step-Up Death Benefit. (See "Charges and
Deduction -- Deduction for Annual Step-Up Death Benefit.") This benefit may not
be available in your state. (Check with your registered representative regarding
availability.)
Each Valuation Period, the Company deducts an Administrative Charge from
the Separate Account which is equal, on an annual basis, to .15% of the average
daily net asset value of the Separate Account. This charge compensates the
Company for costs associated with the administration of the Contracts and the
Separate Account. (See "Charges and Deductions -- Deduction for Administrative
Charge.")
3
<PAGE> 12
On each Contract Anniversary, the Company deducts a Contract Maintenance
Charge of $30 from the Contract Value by subtracting values from the General
Account and/or by canceling Accumulation Units from each applicable Sub-Account.
However, during the Accumulation Period, if the Contract Value on the Contract
Anniversary is at least $40,000, then no Contract Maintenance Charge is
deducted. If a total withdrawal is made on other than a Contract Anniversary and
the Contract Value for the Valuation Period during which the total withdrawal is
made is less than $40,000, the full Contract Maintenance Charge will be deducted
at the time of the total withdrawal. During the Annuity Period, the Contract
Maintenance Charge will be deducted pro rata from Annuity Payments regardless of
Contract size and will result in a reduction of each Annuity Payment. (See
"Charges and Deductions -- Deduction for Contract Maintenance Charge.")
Premium taxes will be charged against the Contract. Some states assess
premium taxes when Purchase Payments are made. Other states assess premium taxes
upon annuitization. It is the Company's current practice to deduct for premium
taxes when they become due and payable to the states. (See "Charges and
Deductions -- Deduction for Premium and Other Taxes.")
The Company will, at the time of the initial Purchase Payment and, as of
June 1, 1998 (subject to state regulatory approval), for certain subsequent
Purchase Payments, add an additional amount as a bonus (the "Bonus"), equal to
1% of such Purchase Payment made under the Contract. A Bonus will be paid for
subsequent Purchase Payments of at least $5,000 for Non-Qualified Contracts or
$2,000 for Qualified Contracts. The Bonus will not be paid for subsequent
Purchase Payments made prior to June 1, 1998. Such additional amount will be
allocated to the Sub-Accounts of the Separate Account and/or the General Account
in the same manner as the Purchase Payment. If the Owner makes a withdrawal
prior to the seventh Contract year after any applicable Purchase Payment in
excess of (a) 10% of the Contract Value each Contract Year or (b) the amount
permitted under the Systematic Withdrawal Option (see "Withdrawals -- Systematic
Withdrawal Option"), an amount equal to the Bonus allocable to such Purchase
Payment withdrawn will be deducted by the Company from the Contract Value. (See
"Purchase Payments and Contract Value -- Bonus.")
There is a 10% federal income tax penalty that may be applied to the income
portion of any distribution from the Contracts. However, under certain
circumstances, the penalty is not imposed. (See "Federal Tax Status -- Tax
Treatment of Withdrawals -- Non-Qualified Contracts" and "Tax Treatment of
Withdrawals -- Qualified Contracts.") For a further discussion of the taxation
of the Contracts, see "Federal Tax Status."
For Contracts purchased in connection with 403(b) plans, withdrawals of
amounts attributable to contributions made pursuant to a salary reduction
agreement (as defined in Section 403(b)(11) of the Internal Revenue Code) are
limited to circumstances only when the Owner: (a) attains age 59 1/2; (b)
separates from service; (c) dies; (d) becomes disabled (within the meaning of
Section 72(m)(7) of the Internal Revenue Code); or (e) in the case of hardship.
Withdrawals for hardship are restricted to the portion of the Owner's Contract
Value which represents contributions made by the Owner and does not include any
investment results. The limitations on withdrawals became effective on January
1, 1989, and apply only to: (a) salary reduction contributions made after
December 31, 1988; (b) income attributable to such contributions; and (c) income
attributable to amounts held as of December 31, 1988. The limitations on
withdrawals do not affect rollovers or transfers between certain Qualified
Plans. Tax penalties may also apply. (See "Federal Tax Status -- Tax Treatment
of Withdrawals -- Qualified Contracts.") Owners should consult their own tax
counsel or other tax adviser regarding any distributions. (See "Federal Tax
Status -- Tax-Sheltered Annuities -- Withdrawal Limitations.")
See "Federal Tax Status -- Diversification" for a discussion of owner
control of the underlying investments in a Variable Annuity contract.
Because of certain exemptive and exclusionary provisions, interests in the
General Account are not registered under the Securities Act of 1933 and the
General Account is not registered as an investment company under the Investment
Company Act of 1940, as amended. Accordingly, neither the General Account nor
any interests therein are subject to the provisions of these acts, and the
Company has been advised that the staff of the SEC has not reviewed the
disclosures in the Prospectus relating to the General Account.
4
<PAGE> 13
Disclosures regarding the General Account may, however, be subject to certain
generally applicable provisions of the federal securities laws relating to the
accuracy and completeness of statements made in prospectuses.
AGA SEPARATE ACCOUNT A FEE TABLE
CONTRACT OWNER TRANSACTION EXPENSES
<TABLE>
<CAPTION>
LENGTH OF TIME CHARGE
FROM PURCHASE PAYMENT (AS A PERCENTAGE OF
CONTINGENT DEFERRED SALES CHARGE (NUMBER OF YEARS) AMOUNT WITHDRAWN)
(SEE NOTE 2 BELOW) --------------------- -------------------
<S> <C> <C>
1 5%
2 5%
3 5%
4 4%
5 3%
6 2%
7 1%
8 or more 0%
Transfer Fee (see Note 3
below)......................... None
Contract Maintenance Charge (see
Note 4 below).................. $30 per Contract per Contract Year
</TABLE>
SEPARATE ACCOUNT ANNUAL EXPENSES
(AS A PERCENTAGE OF AVERAGE ACCOUNT VALUE)
<TABLE>
<S> <C>
Mortality and Expense Risk Charge........................... 1.25%
Administrative Charge....................................... .15%
----
Total Separate Account Annual Expenses...................... 1.40%
</TABLE>
OPTIONAL SEPARATE ACCOUNT ANNUAL EXPENSES
(AS A PERCENTAGE OF AVERAGE ACCOUNT VALUE)
<TABLE>
<S> <C>
Enhanced Death Benefit Charge (see Note 5 below)............ .05%
Annual Step-Up Death Benefit Charge (see Note 5 below)...... .10%
</TABLE>
INVESTMENT OPTION ANNUAL EXPENSES
(AS A PERCENTAGE OF THE AVERAGE DAILY NET ASSETS OF A PORTFOLIO)
AGA SERIES TRUST
<TABLE>
<CAPTION>
OTHER EXPENSES TOTAL ANNUAL
MANAGEMENT (AFTER EXPENSE PORTFOLIOS
FEES* REIMBURSEMENT)** EXPENSES
---------- ---------------- ------------
<S> <C> <C> <C>
Credit Suisse Growth and Income Portfolio.............. .75% .12% .87%
Credit Suisse International Equity Portfolio........... .90% .12% 1.02%
EliteValue Portfolio................................... .65% .12% .77%
State Street Global Advisors Growth Equity Portfolio... .61% .12% .73%
State Street Global Advisors Money Market Portfolio.... .45% .12% .57%
Salomon Brothers U.S. Government Securities
Portfolio............................................ .475% .12% .595%
Van Kampen American Capital Emerging Growth
Portfolio............................................ .75% .12% .87%
</TABLE>
- ---------------
* AGA Investment Advisory Services, Inc., the Trust's investment adviser
("Adviser"), agreed to waive that portion of its management fees which is in
excess of the amount payable by the Adviser to each Sub-Adviser pursuant to
the respective sub-advisory agreements for each Portfolio until May 1, 1998.
Thereafter, the fees shown in the table above will be charged. (See the Trust
prospectus for more information on advisory and sub-advisory fees.) The
examples below are calculated based upon the deduction of the full management
fees.
5
<PAGE> 14
** The Company has undertaken to reimburse each Portfolio for all operating
expenses, excluding management fees, that exceed .12% of each Portfolio's
average daily net assets until May 1, 1999. Had the Company not reimbursed
such expenses for the year ended December 31, 1997, the ratio of other
expenses as a percentage of average net assets of each Portfolio would have
been: 2.51% for the Credit Suisse Growth and Income Portfolio; 4.16% for the
Credit Suisse International Equity Portfolio; 2.11% for the EliteValue
Portfolio; 2.68% for the State Street Global Advisors Growth Equity
Portfolio; 3.72% for the State Street Global Advisors Money Market Portfolio;
4.36% for the Salomon Brothers U.S. Government Securities Portfolio; and
4.90% for the Van Kampen American Capital Emerging Growth Portfolio. The
examples below are calculated based upon such reimbursement of expenses.
AIM VARIABLE INSURANCE FUNDS, INC.
<TABLE>
<CAPTION>
TOTAL ANNUAL
MANAGEMENT FEES OTHER EXPENSES EXPENSES
--------------- -------------- ------------
<S> <C> <C> <C>
AIM V.I. Diversified Income Fund*.................. .60% .20% .80%
AIM V.I. Capital Appreciation Fund*................ .63% .05% .68%
</TABLE>
- ---------------
* A I M Advisors, Inc. ("AIM") may from time to time voluntarily waive or reduce
its respective fees. Effective May 1, 1998, the Funds reimburse AIM in an
amount up to .25% of the average net asset value of each Fund, for expenses
incurred in providing, or assuring that participating insurance companies
provide, certain administrative services. Currently, the fee only applies to
the average net asset value of each Fund in excess of the net asset value of
each Fund as calculated on April 30, 1998.
OPPENHEIMER VARIABLE ACCOUNT FUNDS
<TABLE>
<CAPTION>
TOTAL ANNUAL
MANAGEMENT FEES OTHER EXPENSES EXPENSES
--------------- -------------- ------------
<S> <C> <C> <C>
Oppenheimer High Income Fund....................... .75% .07% .82%
Oppenheimer Growth Fund............................ .73% .02% .75%
Oppenheimer Small Cap Growth Fund*................. .75% .08% .83%
Oppenheimer Growth & Income fund................... .75% .08% .83%
</TABLE>
- ---------------
* Because the Small Cap Growth Fund did not commence operations until May 1,
1998, figures (other than management fees) are estimates for 1998 based on
historical expenses of other small capitalization growth funds.
TEMPLETON VARIABLE PRODUCTS SERIES FUND, CLASS 2 SHARES
<TABLE>
<CAPTION>
TOTAL FUND
OPERATING
MANAGEMENT 12B-1 OTHER EXPENSES (AFTER
FEES FEES EXPENSES REIMBURSEMENT)
---------- ----- -------------- ---------------
<S> <C> <C> <C> <C>
Mutual Discovery Investments Fund*............ .40% .25% .60% 1.25%
Templeton Developing Markets Fund**........... 1.25% .25% .33% 1.83%
Templeton International Fund***............... .69% .25% .19% 1.13%
</TABLE>
- ---------------
* The investment manager has agreed in advance to waive management fees and
make certain payments to reduce Fund expenses as necessary so that Total
Fund Operating Expenses do not exceed 1.25% of the Fund's Class 2 net assets
through 1998. The investment manager may end this arrangement at a later
date. Estimated Management Fees, Rule 12b-1 Fees, Other Expenses and Total
Fund Operating Expenses before any waivers would be .80%, .25%, .60% and
1.65%, respectively.
** Class 2 shares of the Fund has a distribution plan or "Rule 12b-1 plan".
Because Class 2 shares were not offered until May 1, 1997, figures (other
than 12b-1 fees) are estimates for 1998 based on the historical expenses of
the Fund's Class 1 shares for the fiscal year ended December 31, 1997.
*** Class 2 shares of the Fund has a distribution plan or "Rule 12b-1 plan".
Because Class 2 shares were not offered until May 1, 1997, figures (other
than 12b-1 fees) are estimates for 1998 based on the historical expenses of
the Fund's Class 1 shares for the fiscal year ended December 31, 1997.
Management Fees
6
<PAGE> 15
and Total Fund Operating Expenses have been restated to reflect the management
fee schedule approved by shareholders and effective May 1, 1997. Actual
Management Fees and Total Fund Operating Expenses before May 1, 1997 were lower.
EXAMPLES
CALCULATED WITHOUT ENHANCED DEATH BENEFIT CHARGE OR ANNUAL STEP-UP
BENEFIT CHARGE
A Contract Owner would pay the following expenses on a $1,000 investment,
assuming a 5% annual return on assets: (a) if the Contract is surrendered at the
end of each time period or (b) if the Contract is not surrendered or if the
Contract is annuitized.
<TABLE>
<CAPTION>
TIME PERIODS
-------------------------------------------
1 YEAR 3 YEARS 5 YEARS 10 YEARS
------ ------- ------- --------
<S> <C> <C> <C> <C> <C>
Credit Suisse Growth and Income Sub-Account............... a) $75 $125 $161 $278
b) 25 76 131 278
Credit Suisse International Equity Sub-Account............ a) 76 130 168 293
b) 26 81 138 293
Elite Value Sub-Account................................... a) 67 104 122 199
b) 17 54 92 199
State Street Global Advisors Growth Equity a) 73 121 153 263
Sub-Account............................................. b) 23 72 123 263
State Street Global Advisors Money Market a) 72 117 145 247
Sub-Account............................................. b) 22 67 115 247
Salomon Brothers a) 75 125 161 278
U.S. Government Securities Sub-Account.................. b) 25 76 131 278
Van Kampen American Capital a) 72 117 147 250
Emerging Growth Sub-Account............................. b) 22 68 117 250
AIM V.I. Diversified Income Sub-Account................... a) 74 123 -- --
b) 24 74 -- --
AIM V.I. Capital Appreciation Sub-Account................. a) 73 120 -- --
b) 23 71 -- --
Oppenheimer High Income Sub-Account....................... a) 74 124 -- --
b) 24 75 -- --
Oppenheimer Growth Sub-Account............................ a) 74 122 -- --
b) 24 73 -- --
Oppenheimer Small Cap Growth Sub-Account.................. a) 74 124 -- --
b) 24 75 -- --
Oppenheimer Growth & Income Sub-Account................... a) 74 124 -- --
b) 24 75 -- --
Mutual Discovery Investments Sub-Account.................. a) 79 136 -- --
b) 29 88 -- --
Templeton Developing Markets Sub-Account.................. a) 84 152 -- --
b) 34 105 -- --
Templeton International Sub-Account....................... a) 77 133 -- --
b) 27 84 -- --
</TABLE>
7
<PAGE> 16
CALCULATED WITH ENHANCED DEATH BENEFIT CHARGE
(SEE "CHARGES AND DEDUCTIONS -- DEDUCTION FOR ENHANCED DEATH BENEFIT CHARGE.")
A Contract Owner would pay the following expenses on a $1,000 investment,
assuming a 5% annual return on assets: (a) if the Contract is surrendered at the
end of each time period or (b) if the Contract is not surrendered or if the
Contract is annuitized.
<TABLE>
<CAPTION>
TIME PERIODS
-------------------------------------------
1 YEAR 3 YEARS 5 YEARS 10 YEARS
------ ------- ------- --------
<S> <C> <C> <C> <C> <C>
Credit Suisse Growth and Income Sub-Account............... a) $75 $127 $163 $283
b) 25 78 133 283
Credit Suisse International Equity Sub-Account............ a) 77 131 171 298
b) 27 82 141 298
Elite Value Sub-Account................................... a) 68 105 125 205
b) 18 55 95 205
State Street Global Advisors Growth Equity a) 74 123 156 269
Sub-Account............................................. b) 24 74 126 269
State Street Global Advisors Money Market a) 72 118 148 252
Sub-Account............................................. b) 22 69 118 252
Salomon Brothers a) 75 127 163 283
U.S. Government Securities Sub-Account.................. b) 25 78 133 283
Van Kampen American Capital a) 73 119 149 255
Emerging Growth Sub-Account............................. b) 23 70 119 255
AIM V.I. Diversified Income Sub-Account................... a) 75 125 -- --
b) 25 76 -- --
AIM V.I. Capital Appreciation Sub-Account................. a) 73 121 -- --
b) 23 72 -- --
Oppenheimer High Income Sub-Account....................... a) 75 125 -- --
b) 25 76 -- --
Oppenheimer Growth Sub-Account............................ a) 74 123 -- --
b) 24 74 -- --
Oppenheimer Small Cap Growth Sub-Account.................. a) 75 126 -- --
b) 25 77 -- --
Oppenheimer Growth & Income Sub-Account................... a) 75 126 -- --
b) 25 77 -- --
Mutual Discovery Investments Sub-Account.................. a) 79 137 -- --
b) 29 89 -- --
Templeton Developing Markets Sub-Account.................. a) 85 154 -- --
b) 35 106 -- --
Templeton International Sub-Account....................... a) 78 134 -- --
b) 28 86 -- --
</TABLE>
8
<PAGE> 17
CALCULATED WITH ANNUAL STEP-UP DEATH BENEFIT CHARGE
(SEE "CHARGES AND DEDUCTIONS -- DEDUCTION FOR ANNUAL STEP-UP DEATH BENEFIT
CHARGE.")
A Contract Owner would pay the following expenses on a $1,000 investment,
assuming a 5% annual return on assets: (a) if the Contract is surrendered at the
end of each time period or (b) if the Contract is not surrendered or if the
Contract is annuitized.
<TABLE>
<CAPTION>
TIME PERIODS
-------------------------------------------
1 YEAR 3 YEARS 5 YEARS 10 YEARS
------ ------- ------- --------
<S> <C> <C> <C> <C> <C>
Credit Suisse Growth and Income Sub-Account............... a) $76 $128 $166 $288
b) 26 79 136 288
Credit Suisse International Equity Sub-Account............ a) 77 132 173 302
b) 27 84 143 302
EliteValue Sub-Account.................................... a) 68 106 127 210
b) 18 57 97 210
State Street Global Advisors Growth Equity a) 74 124 159 274
Sub-Account............................................. b) 24 75 129 274
State Street Global Advisors Money Market a) 73 119 150 257
Sub-Account............................................. b) 23 70 120 257
Salomon Brothers a) 76 128 166 288
U.S. Government Securities Sub-Account.................. b) 26 79 136 288
Van Kampen American Capital a) 73 120 152 260
Emerging Growth Sub-Account............................. b) 23 71 122 260
AIM V.I. Diversified Income Sub-Account................... a) 75 126 -- --
b) 25 77 -- --
AIM V.I. Capital Appreciation Sub-Account................. a) 74 123 -- --
b) 24 74 -- --
Oppenheimer High Income Sub-Account....................... a) 75 127 -- --
b) 25 78 -- --
Oppenheimer Growth Sub-Account............................ a) 75 125 -- --
b) 25 76 -- --
Oppenheimer Small Cap Growth Sub-Account.................. a) 75 127 -- --
b) 25 78 -- --
Oppenheimer Growth & Income Sub-Account................... a) 75 127 -- --
b) 25 78 -- --
Mutual Discovery Investments Sub-Account.................. a) 80 139 -- --
b) 30 91 -- --
Templeton Developing Markets Sub-Account.................. a) 85 155 -- --
b) 35 108 -- --
Templeton International Sub-Account....................... a) 78 135 -- --
b) 28 87 -- --
</TABLE>
NOTES TO FEE TABLE AND EXAMPLES
1. The purpose of the Fee Table is to assist Owners in understanding the various
costs and expenses that an Owner will incur directly or indirectly. For
additional information, see "Charges and Deductions" in this Prospectus and
the Prospectuses for the Investment Options. The Fee Table reflects expenses
of the Separate Account as well as the Investment Options.
2. After the first Contract Anniversary, a withdrawal of up to 10% of the
Contract Value, determined as of the immediately preceding Contract
Anniversary, may be withdrawn once each Contract Year on a non-cumulative
basis without the imposition of the Contingent Deferred Sales Charge. The
Systematic Withdrawal Option may be selected in lieu of the 10% free
withdrawal amount. (See "Withdrawals -- Systematic Withdrawal Option.")
9
<PAGE> 18
3. Currently, no transfer fee is imposed on transfers. The Company reserves the
right to impose such a fee in the future which will not exceed the lesser of
$25 or 2% of the amount transferred.
4. During the Accumulation Period, if the Contract Value on the Contract
Anniversary is at least $40,000, then no Contract Maintenance Charge is
deducted. If a total withdrawal is made on other than a Contract Anniversary
and the Contract Value for the Valuation Period during which the total
withdrawal is made is less than $40,000, the full Contract Maintenance Charge
will be deducted at the time of the total withdrawal. During the Annuity
Period, the full charge will be deducted regardless of Contract size.
5. An Owner may elect one of the following death benefits: the Standard Death
Benefit, the Enhanced Death Benefit or, for Contracts issued on or after June
1, 1998, the Annual Step-Up Death Benefit. There are three sets of Examples
above. One set has been calculated for the Standard Death Benefit, another
with the Enhanced Death Benefit Charge and a third with the Annual Step-Up
Death Benefit Charge. In certain states, the Annual Step-Up Death Benefit may
not be available.
6. Premium taxes are not reflected. Premium taxes may apply. (See "Charges and
Deductions -- Deduction for Premium and Other Taxes.")
7. The examples should not be considered a representation of past or future
expenses. Actual expenses may be more or less than those shown.
This space is intentionally left blank.
10
<PAGE> 19
CONDENSED FINANCIAL INFORMATION
ACCUMULATION UNIT VALUES
The following schedule includes Accumulation Unit Values for the periods
indicated. This data has been extracted from the Separate Account's Financial
Statements. The Separate Account's Financial Statements have been audited by
Ernst & Young L.L.P., independent certified public accountants, whose report
thereon is included in the SAI. This information should be read in conjunction
with the Separate Account's Financial Statements and related notes thereto,
which are included in the SAI. Two sets of unit values are presented, one with
the Enhanced Death Benefit Charge of .15%, (which was the charge for the
Enhanced Death Benefit as of December 31, 1995, 1996 and 1997) and one without
the Enhanced Death Benefit Charge. There are no unit values presented for
Contracts with the Annual Step-Up Death Benefit Charge because the Annual Step-
Up Death Benefit first became available under the Contracts on June 1, 1998.
<TABLE>
<CAPTION>
WITHOUT ENHANCED DEATH WITH ENHANCED DEATH
BENEFIT CHARGE BENEFIT CHARGE
---------------------- -------------------
<S> <C> <C>
CREDIT SUISSE GROWTH AND INCOME SUB-ACCOUNT
FOR PERIOD ENDED 12/31/95
Unit value at beginning of period (10/20/95)......... $ 10.00 Not Applicable
Unit value at end of period.......................... $ 10.62 Not Applicable
Number of units outstanding at end of period......... 461.8 Not Applicable
FOR YEAR ENDED 12/31/96
Unit value at beginning of period.................... $ 10.62 $ 10.62
Unit value at end of period.......................... $ 11.92 $ 11.90
Number of units outstanding at end of period......... 48,634.3 11,709.8
FOR YEAR ENDED 12/31/97
Unit value at beginning of period.................... $ 11.92 $ 11.90
Unit value at end of period.......................... $ 14.38 $ 14.33
Number of units outstanding at end of period......... 262,116.1 44,598.0
CREDIT SUISSE INTERNATIONAL EQUITY SUB-ACCOUNT
FOR PERIOD ENDED 12/31/95
Unit value at beginning of period (10/20/95)......... $ 10.00 Not Applicable
Unit value at end of period.......................... $ 10.36 Not Applicable
Number of units outstanding at end of period......... 430.6 Not Applicable
FOR YEAR ENDED 12/31/96
Unit value at beginning of period.................... $ 10.36 $ 10.36
Unit value at end of period.......................... $ 11.90 $ 11.88
Number of units outstanding at end of period......... 17,186.2 8,510.2
FOR YEAR ENDED 12/31/97
Unit value at beginning of period.................... $ 11.90 $ 11.88
Unit value at end of period.......................... $ 12.24 $ 12.20
Number of units outstanding at end of period......... 126,400.0 19,510.4
ELITEVALUE SUB-ACCOUNT
FOR PERIOD ENDED 12/31/96
Unit value at beginning of period (1/2/96)........... $ 10.00 $ 10.00
Unit value at end of period.......................... $ 12.45 $ 12.43
Number of units outstanding at end of period......... 69,575.7 13,965.2
FOR YEAR ENDED 12/31/97
Unit value at beginning of period.................... $ 12.45 $ 12.43
Unit value at end of period.......................... $ 14.87 $ 14.82
Number of units outstanding at end of period......... 461,930.1 72,104.8
STATE STREET GLOBAL ADVISORS GROWTH EQUITY SUB-ACCOUNT
FOR PERIOD ENDED 12/31/95
Unit value at beginning of period (10/20/95)......... $ 10.00 Not Applicable
Unit value at end of period.......................... $ 10.33 Not Applicable
</TABLE>
11
<PAGE> 20
<TABLE>
<CAPTION>
WITHOUT ENHANCED DEATH WITH ENHANCED DEATH
BENEFIT CHARGE BENEFIT CHARGE
---------------------- -------------------
<S> <C> <C>
Number of units outstanding at end of period......... 124.2 Not Applicable
FOR YEAR ENDED 12/31/96
Unit value at beginning of period.................... $ 10.33 $ 10.33
Unit value at end of period.......................... $ 12.35 $ 12.33
Number of units outstanding at end of period......... 68,154.9 5,232.7
FOR YEAR ENDED 12/31/97
Unit value at beginning of period.................... $ 12.35 $ 12.33
Unit value at end of period.......................... $ 16.04 $ 15.99
Number of units outstanding at end of period......... 231,208.0 19,281.5
STATE STREET GLOBAL ADVISORS MONEY MARKET SUB-ACCOUNT
FOR PERIOD ENDED 12/31/95
Unit value at beginning of period (10/10/95)......... $ 10.00 $ 10.00
Unit value at end of period.......................... $ 10.09 $ 10.08
Number of units outstanding at end of period......... 2,464.4 24.9
FOR YEAR ENDED 12/31/96
Unit value at beginning of period.................... $ 10.09 $ 10.08
Unit value at end of period.......................... $ 10.46 $ 10.44
Number of units outstanding at end of period......... 109,837.9 3,403.7
FOR YEAR ENDED 12/31/97
Unit value at beginning of period.................... $ 10.46 $ 10.44
Unit value at end of period.......................... $ 10.88 $ 10.84
Number of units outstanding at end of period......... 444,954.0 13,476.5
SALOMON BROTHERS U.S. GOVERNMENT SECURITIES SUB-ACCOUNT
FOR PERIOD ENDED 12/31/96
Unit value at beginning of period (2/6/96)........... $ 10.00 $ 10.00
Unit value at end of period.......................... $ 10.16 $ 10.14
Number of units outstanding at end of period......... 15,638.1 11,806.1
FOR YEAR ENDED 12/31/97
Unit value at beginning of period.................... $ 10.16 $ 10.14
Unit value at end of period.......................... $ 10.91 $ 10.87
Number of units outstanding at end of period......... 126,832.5 32,205.2
VAN KAMPEN AMERICAN CAPITAL EMERGING GROWTH SUB-ACCOUNT
FOR PERIOD ENDED 12/31/96
Unit value at beginning of period (1/2/96)........... $ 10.00 $ 10.00
Unit value at end of period.......................... $ 11.70 $ 11.68
Number of units outstanding at end of period......... 107,870.9 2,072.6
FOR YEAR ENDED 12/31/97
Unit value at beginning of period.................... $ 11.70 $ 11.68
Unit value at end of period.......................... $ 13.90 $ 13.85
Number of units outstanding at end of period......... 303,011.2 41,160.9
</TABLE>
There are no unit values shown for Sub-Accounts investing in the Portfolios
of AIM Variable Insurance Funds, Inc., Oppenheimer Variable Account Funds and
Templeton Variable Products Series Fund because the Sub-Accounts were not
available as of December 31, 1997.
12
<PAGE> 21
THE COMPANY
American General Annuity Insurance Company, which had $11.7 billion in
assets as of December 31, 1997, develops, markets, and issues annuity products
through niche distribution channels. It is a wholly owned subsidiary of Western
National Corporation. Effective February 25, 1998, Western National Corporation
became a wholly-owned subsidiary of AGC Life Insurance Company, a subsidiary of
American General Corporation. The Company markets single-premium deferred
annuities to the savings and retirement markets, flexible-premium deferred
annuities to the tax-qualified retirement market, and single-premium immediate
annuities to the structured settlement and retirement markets. The Company
primarily distributes its annuity products through financial institutions,
general agents, and specialty brokers.
The Company, which was incorporated in Texas in 1944, is licensed to do
business in 47 states, Puerto Rico and the District of Columbia. Effective
February 25, 1998, the Company changed its name from Western National Life
Insurance Company to American General Annuity Insurance Company. The Company's
executive offices are located at 2929 Allen Parkway, Houston, Texas 77019. Its
telephone number is 713-526-5251.
THE SEPARATE ACCOUNT
The Board of Directors of the Company adopted a resolution on November 9,
1994, to establish a segregated asset account pursuant to Texas insurance law.
This segregated asset account has been designated AGA Separate Account A (the
"Separate Account"). Prior to May 1, 1998, the Separate Account was known as WNL
Separate Account A. The Company has caused the Separate Account to be registered
with the SEC as a unit investment trust pursuant to the provisions of the
Investment Company Act of 1940.
The assets of the Separate Account are the property of the Company.
However, the assets of the Separate Account, equal to the reserves and other
contract liabilities with respect to the Separate Account, are not chargeable
with liabilities arising out of any other business the Company may conduct.
Income, gains, and losses, whether or not realized, are, in accordance with the
Contracts, credited to or charged against the Separate Account without regard to
other income, gains, or losses of the Company. The Company's obligations arising
under the Contracts are general obligations.
The Separate Account meets the definition of a "separate account" under
federal securities laws.
The Separate Account is divided into Sub-Accounts. Each Sub-Account invests
in one Portfolio of an Investment Option. There is no assurance that the
investment objectives of any of the Portfolios will be met. Owners bear the
complete investment risk for Purchase Payments allocated to a Sub-Account.
Contract Values will fluctuate in accordance with the investment performance of
the Sub-Accounts to which Purchase Payments are allocated, and in accordance
with the imposition of the fees and charges assessed under the Contracts.
INVESTMENT OPTIONS
Purchasers should read the Prospectuses for the Investment Options, which
are attached to this Prospectus, carefully before investing. Additional
Prospectuses and the SAIs can be obtained by calling or writing the Company at
its Annuity Service Office.
Shares of the Investment Options may be offered in connection with certain
variable annuity contracts and variable life insurance policies of various life
insurance companies which may or may not be affiliated with the Company. Shares
of certain Investment Options may also be sold directly to qualified plans. The
Investment Options do not believe that offering their shares in this manner will
be disadvantageous to Owners.
AGA SERIES TRUST
AGA Series Trust (formerly, WNL Series Trust) (the "Trust") has been
established to act as one of the funding vehicles for the Contracts offered. The
Trust is managed by AGA Investment Advisory Services, Inc.
13
<PAGE> 22
(formerly, WNL Investment Advisory Services, Inc.) (the "Adviser"), an affiliate
of the Company. The Adviser has retained Sub-Advisers for each Portfolio to make
investment decisions and place orders. The Sub-Advisers for the Portfolios are:
BEA Associates, a subsidiary of Credit Suisse, for the Credit Suisse Growth and
Income Portfolio; Credit Suisse Asset Management Ltd. for the Credit Suisse
International Equity Portfolio; OpCap Advisors for the EliteValue Portfolio;
State Street Global Advisors for the State Street Global Advisors Growth Equity
Portfolio and the State Street Global Advisors Money Market Portfolio; Salomon
Brothers Asset Management Inc for the Salomon Brothers U.S. Government
Securities Portfolio; and Van Kampen Asset Management, Inc. for the Van Kampen
American Capital Emerging Growth Portfolio.
The following Portfolios are available under the Contracts:
<TABLE>
<S> <C>
Credit Suisse Growth and
Income Portfolio (formerly, the BEA Growth and Income Portfolio)
Credit Suisse International
Equity Portfolio
EliteValue Portfolio (an asset
allocation portfolio) (formerly, the EliteValue Asset Allocation Portfolio)
State Street Global Advisors
Growth Equity Portfolio (formerly, the Global Advisors Growth Equity Portfolio)
State Street Global Advisors
Money Market Portfolio (formerly, the Global Advisors Money Market Portfolio)
Salomon Brothers U.S.
Government Securities
Portfolio
Van Kampen American Capital
Emerging Growth Portfolio
</TABLE>
AIM VARIABLE INSURANCE FUNDS, INC.
AIM Variable Insurance Funds, Inc. is a mutual fund with thirteen
investment Portfolios. A I M Advisors, Inc. serves as the investment adviser to
the Portfolios. The following two Portfolios are available under the Contracts:
AIM V.I. Diversified Income Fund
AIM V.I. Capital Appreciation Fund
OPPENHEIMER VARIABLE ACCOUNT FUNDS
Oppenheimer Variable Account Funds is a mutual fund consisting of ten
separate Portfolios. OppenheimerFunds, Inc. is the investment manager of the
Portfolios. The following four Portfolios are available under the Contracts:
Oppenheimer High Income Fund
Oppenheimer Growth Fund
Oppenheimer Small Cap Growth Fund
Oppenheimer Growth & Income Fund
TEMPLETON VARIABLE PRODUCTS SERIES FUND
Templeton Variable Products Series Fund is a mutual fund with nine separate
investment portfolios. Templeton Variable Products Series Fund has two classes
of shares: Class 1 and Class 2. Only Class 2 shares are available in connection
with the Contracts offered by this Prospectus. Franklin Mutual Advisers, Inc. is
the investment manager of the Mutual Discovery Investments Fund, Templeton Asset
Management Ltd. is the investment manager of the Templeton Developing Markets
Fund and Templeton Investment Counsel, Inc. is
14
<PAGE> 23
the investment manager of the Templeton International Fund. The following three
Portfolios are available in connection with the Contracts:
Mutual Discovery Investments Fund (capital appreciation)
Templeton Developing Markets Fund
Templeton International Fund
VOTING RIGHTS
In accordance with its view of present applicable law, the Company will
vote the shares of the Investment Options held in the Separate Account at
special meetings of the shareholders in accordance with instructions received
from persons having the voting interest in the Separate Account. The Company
will vote shares for which it has not received instructions, as well as shares
attributable to it, in the same proportion as it votes shares for which it has
received instructions.
The number of shares which a person has a right to vote will be determined
as of a date to be chosen by the Company not more than 60 days prior to a
shareholder meeting of an Investment Option. Voting instructions will be
solicited by written communication at least 10 days prior to the meeting.
SUBSTITUTION OF SECURITIES
If the shares of an Investment Option (or any Portfolio within an
Investment Option or any other Investment Option or Portfolio) are no longer
available for investment by the Separate Account or, if in the judgment of the
Company's Board of Directors, further investment in the shares should become
inappropriate in view of the purpose of the Contracts, the Company may limit
further purchase of such shares or may substitute shares of another Investment
Option or Portfolio for shares already purchased under the Contracts. No
substitution of securities may take place without prior approval of the SEC and
under the requirements it may impose.
CHARGES AND DEDUCTIONS
Various charges and deductions are made from the Contract Value and the
Separate Account. These charges and deductions are:
DEDUCTION FOR CONTINGENT DEFERRED SALES CHARGE (SALES LOAD)
The Contracts do not provide for a front-end sales charge. However, if all
or a portion of the Contract Withdrawal Value (see "Withdrawals") is withdrawn,
a Contingent Deferred Sales Charge (sales load) will be calculated at the time
of each withdrawal and will be deducted from the Contract Value. This charge
reimburses the Company for expenses incurred in connection with the promotion,
sale, and distribution of the Contracts. The Contingent Deferred Sales Charge is
based upon the length of time from when each Purchase Payment was made as
follows:
<TABLE>
<CAPTION>
CHARGE
LENGTH OF TIME FROM (AS A PERCENTAGE OF
PURCHASE PAYMENT AMOUNT
(NUMBER OF YEARS) WITHDRAWN)
------------------- -------------------
<S> <C> <C>
1............................................... 5%
2............................................... 5%
3............................................... 5%
4............................................... 4%
5............................................... 3%
6............................................... 2%
7............................................... 1%
8 or more.......................................... 0%
</TABLE>
15
<PAGE> 24
After the first Contract Anniversary, a withdrawal of up to 10% of the
Contract Value, determined as of the immediately preceding Contract Anniversary,
may be withdrawn once each Contract Year on a non-cumulative basis without the
imposition of the Contingent Deferred Sales Charge (the "Free Withdrawal
Amount"). The Systematic Withdrawal Option may be selected in lieu of the Free
Withdrawal Amount. (See "Withdrawals -- Systematic Withdrawal Option.")
REDUCTION OR ELIMINATION OF THE CONTINGENT DEFERRED SALES CHARGE
The amount of the Contingent Deferred Sales Charge may be reduced or
eliminated when sales of the Contracts are made to individuals or to a group of
individuals in a manner that results in savings of sales expenses. The
entitlement to a reduction of the Contingent Deferred Sales Charge will be
determined by the Company after examination of all the relevant factors, such
as:
1. The size and type of group to which sales are to be made will be
considered. Generally, the sales expenses for a larger group are less than
for a smaller group because of the ability to implement large numbers of
Contracts with fewer sales contacts;
2. The total amount of Purchase Payments to be received will be
considered. Per Contract sales expenses are likely to be less on larger
Purchase Payments than on smaller ones;
3. Any prior or existing relationship with the Company will be
considered. Per Contract sales expenses are likely to be less when there is
a prior existing relationship because of the likelihood of implementing the
Contract with fewer sales contacts; and
4. There may be other circumstances, of which the Company is not
presently aware, which could result in reduced sales expenses.
If, after consideration of the foregoing factors, the Company determines
that there will be a reduction in sales expenses, the Company may provide for a
reduction or elimination of the Contingent Deferred Sales Charge.
The Contingent Deferred Sales Charge may be eliminated when the Contracts
are issued to an officer, director, or employee of the Company or any of its
affiliates. In no event will reductions or elimination of the Contingent
Deferred Sales Charge be permitted where reductions or elimination will be
unfairly discriminatory to any person.
DEDUCTION FOR MORTALITY AND EXPENSE RISK CHARGE
Each Valuation Period, the Company deducts a Mortality and Expense Risk
Charge from the Separate Account which is equal, on an annual basis, to 1.25% of
the average daily net asset value of the Separate Account. The mortality risks
assumed by the Company arise from its contractual obligation to make Annuity
Payments after the Annuity Date (determined in accordance with the Annuity
Option chosen by the Owner), regardless of how long all Annuitants live. This
assures that neither an Annuitant's own longevity, nor an improvement in life
expectancy greater than that anticipated in the mortality tables, will have any
adverse effect on the Annuity Payments the Annuitant will receive under the
Contract. Further, the Company bears a mortality risk in that it guarantees the
annuity purchase rates for the Annuity Options under the Contract, whether for a
Fixed Annuity or a Variable Annuity. Also, the Company bears a mortality risk
with respect to the death benefit and with respect to the waiver of the
Contingent Deferred Sales Charge if Purchase Payments have been held in the
Contract less than seven years. The expense risk assumed by the Company is that
all actual expenses involved in administering the Contracts, including Contract
maintenance costs, administrative costs, mailing costs, data processing costs,
legal fees, accounting fees, filing fees, and the costs of other services, may
exceed the amount recovered from the Contract Maintenance Charge and the
Administrative Charge.
The Mortality and Expense Risk Charge is guaranteed by the Company and
cannot be increased.
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DEDUCTION FOR ENHANCED DEATH BENEFIT CHARGE
If the Owner selects the Enhanced Death Benefit, each Valuation Period
prior to the 75th birthday of the Owner or oldest Joint Owner, the Company
deducts an Enhanced Death Benefit Charge from the Separate Account which is
equal, on an annual basis, to .05% of the average daily net asset value of the
Separate Account. This charge compensates the Company for assuming the mortality
risks for the Enhanced Death Benefit. (See "Proceeds Payable on
Death -- Enhanced Death Benefit Amount During the Accumulation Period.")
DEDUCTION FOR ANNUAL STEP-UP DEATH BENEFIT CHARGE
For Contracts issued on or after June 1, 1998, an Owner may select the
Annual Step-Up Death Benefit in states where it is available (check with your
registered representative regarding availability). If the Owner selects the
Annual Step-Up Death Benefit, each Valuation Period prior to the 75th birthday
of the Owner or the oldest Joint Owner, the Company deducts an Annual Step-Up
Death Benefit Charge from the Separate Account which is equal, on an annual
basis, to .10% of the average daily net asset value of the Separate Account.
This charge compensates the Company for assuming the mortality risks for the
Annual Step-Up Death Benefit. (See "Proceeds Payable on Death -- Annual Step-Up
Death Benefit Amount During the Accumulation Period.")
DEDUCTION FOR ADMINISTRATIVE CHARGE
Each Valuation Period, the Company deducts an Administrative Charge from
the Separate Account which is equal, on an annual basis, to .15% of the average
daily net asset value of the Separate Account. This charge, together with the
Contract Maintenance Charge (see below), is to reimburse the Company for the
expenses it incurs in the establishment and maintenance of the Contracts and the
Separate Account. These expenses include, but are not limited to: preparation of
the Contracts, confirmations, annual reports and statements: maintenance of
Owner records; maintenance of Separate Account records; administrative personnel
costs; mailing costs; data processing costs; legal fees; accounting fees; filing
fees; the costs of other services necessary for Owner servicing; and all
accounting, valuation, regulatory, and reporting requirements.
DEDUCTION FOR CONTRACT MAINTENANCE CHARGE
On each Contract Anniversary, the Company deducts a Contract Maintenance
Charge from the Contract Value by subtracting values from the General Account
and/or by canceling Accumulation Units from each applicable Sub-Account to
reimburse it for expenses relating to maintenance of the Contracts. The Contract
Maintenance Charge is currently $30 each Contract Year. However, during the
Accumulation Period, if the Contract Value on the Contract Anniversary is at
least $40,000, then no Contract Maintenance Charge is deducted. If a total
withdrawal is made on other than a Contract Anniversary and the Contract Value
for the Valuation Period during which the total withdrawal is made is less than
$40,000, the full Contract Maintenance Charge will be deducted at the time of
the total withdrawal. During the Annuity Period, the Contract Maintenance Charge
will be deducted pro rata from Annuity Payments, regardless of Contract size and
will result in a reduction of each Annuity Payment. The Contract Maintenance
Charge will be deducted from the General Account and the Sub-Accounts in the
Separate Account in the same proportion that the amount of the Contract Value in
the General Account and each Sub-Account bears to the total Contract Value.
DEDUCTION FOR PREMIUM AND OTHER TAXES
Any taxes, including any premium taxes, paid to any governmental entity
relating to the Contracts, may be deducted from the Purchase Payments or
Contract Value when incurred. The Company will, in its sole discretion,
determine when taxes have resulted from: the investment experience of the
Separate Account, receipt by the Company of the Purchase Payments, or
commencement of Annuity Payments. The Company may, at its sole discretion, pay
taxes when due and deduct that amount from the Contract Value at a later date.
Payment at an earlier date does not waive any right the Company may have to
deduct amounts at a later
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date. The Company's current practice is to deduct for premium taxes when they
become due and payable to the states. Premium taxes generally range from 0% to
4%. While the Company is not currently maintaining a provision for federal
income taxes with respect to the Separate Account, the Company has reserved the
right to establish a provision for income taxes if it determines, in its sole
discretion, that it will incur a tax as a result of the operation of the
Separate Account. The Company will deduct for any income taxes incurred by it as
a result of the operation of the Separate Account, whether or not there was a
provision for taxes and whether or not it was sufficient.
The Company will deduct any withholding taxes required by applicable law.
DEDUCTION FOR EXPENSES OF THE INVESTMENT OPTIONS
There are other deductions from, and expenses (including management fees
paid to the investment advisers and other expenses) paid out of, the assets of
the Investment Options which are described in the Prospectuses for the
Investment Options.
THE CONTRACTS
OWNER
The Owner has all rights and may receive all benefits under the Contract.
The Owner is the person designated as such on the Issue Date, unless changed.
The Company will not issue a Contract to any Owner older than 85 years.
The Owner may change owners at any time prior to the Annuity Date by
Written Request. A change of Owner will automatically revoke any prior
designation of Owner. The change will become effective as of the date the
Written Request is signed. A new designation of Owner will not apply to any
payment made or action taken by the Company prior to the time it was received.
An Owner may make inquiries regarding his or her Contract by telephone or
in writing to the Annuity Service Office listed on the cover page of this
Prospectus.
For Non-Qualified Contracts, in accordance with Code Section 72(u), a
deferred annuity contract held by a corporation or other entity that is not a
natural person is not treated as an annuity contract for tax purposes. Income on
the Contract is treated as ordinary income received by the Owner during the
taxable year. However, for purposes of Internal Revenue Code (the "Code")
Section 72(u), an annuity contract held by a trust or other entity as agent for
a natural person is considered held by a natural person and treated as an
annuity contract for tax purposes. Tax advice should be sought prior to
purchasing a Contract which is to be owned by a trust or other non-natural
person.
JOINT OWNERS
The Contract can be owned by Joint Owners. If Joint Owners are named, any
Joint Owner must be the spouse of the other Owner. Upon the death of either
Owner, the surviving Joint Owner will be the primary Beneficiary. Any other
Beneficiary designation will be treated as a contingent Beneficiary unless
otherwise indicated in a Written Request. Unless otherwise specified, if there
are Joint Owners, both signatures will be required for all Owner transactions
except telephone transfers. If the telephone transfer option is elected and
there are Joint Owners, either Joint Owner can give telephone instructions.
ANNUITANT
The Annuitant is the person on whose life Annuity Payments are based. The
Annuitant is the person designated by the Owner at the Issue Date, unless
changed prior to the Annuity Date. The Annuitant may not be changed in a
Contract which is owned by a non-natural person. Any change of Annuitant is
subject to the Company's underwriting rules then in effect.
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ASSIGNMENT
A Written Request specifying the terms of an assignment of the Contract
must be provided to the Annuity Service Office. Until a Written Request is
received, the Company will not be required to take notice of or be responsible
for any transfer of interest in the Contract by assignment, agreement, or
otherwise.
The Company will not be responsible for the validity or tax consequences of
any assignment. Any assignment made after the death benefit has become payable
will be valid only with the Company's consent.
If the Contract is assigned, the Owner's rights may only be exercised with
the consent of the assignee of record.
If the Contract is issued pursuant to a retirement plan which receives
favorable tax treatment under the provisions of Sections 401, 403(b), 408, or
457 of the Code, it may not be assigned, pledged, or otherwise transferred
except as may be allowed under applicable law.
PURCHASE PAYMENTS AND CONTRACT VALUE
PURCHASE PAYMENTS
The initial Purchase Payment is due on the Issue Date. The minimum initial
Purchase Payment for Non-Qualified Contracts is $5,000 and for Qualified
Contracts is $2,000 ($50 for Contracts issued in connection with Section 403(b)
plans). The minimum subsequent Purchase Payment for Non-Qualified Contracts is
$1,000, or if the automatic premium check option is elected, $50. The minimum
subsequent Purchase Payment for Qualified Contracts is $50. Subject to the
maximum and minimum Purchase Payments discussed herein, the Owner may make
subsequent Purchase Payments and may increase or decrease or change the
frequency of such payments. The maximum total Purchase Payments the Company will
accept without Company approval is $500,000 for issue Ages up to 75. The maximum
total Purchase Payments the Company will accept without Company approval for
issue Ages 75 and older is $250,000. The Company reserves the right to reject
any application or Purchase Payment.
All Purchase Payments and sums payable to the Company under the Contract
are payable only at the Company's lock box at State Street Bank and Trust
Company at the following addresses: via mail: American General Annuity Insurance
Company, P.O. Box 5429, Boston, MA 02206-5429; via overnight delivery: State
Street Bank and Trust Company, Attn: Lock Box A3W, 1776 Heritage Drive, North
Quincy, MA 02171.
ALLOCATION OF PURCHASE PAYMENTS
Purchase Payments are allocated to the General Account and/or the
Sub-Accounts of the Separate Account in accordance with the selection made by
the Owner. The allocation of the initial Purchase Payment is made in accordance
with the selection made by the Owner at the Issue Date. However, the Company
will, under certain circumstances, allocate initial Purchase Payments to the
State Street Global Advisors Money Market Sub-Account until the expiration of
the Right to Examine Contract period. (See "Highlights.") Unless otherwise
changed by the Owner, subsequent Purchase Payments are allocated in the same
manner as the initial Purchase Payment. Allocation of the Purchase Payments is
subject to the terms and conditions imposed by the Company. There are currently
no limitations on the number of Sub-Accounts that can be selected by an Owner.
Allocations must be in whole percentages.
For initial Purchase Payments, if the forms required to issue the Contract
are in good order, the Company will apply the Purchase Payment to the Separate
Account and credit the Contract with Accumulation Units and/or to the General
Account and credit the Contract with dollars within two business days of
receipt.
In addition to the underwriting requirements of the Company, good order
means that the Company has received federal funds (monies credited to a bank's
account with its regional Federal Reserve Bank). If the forms required to issue
a Contract are not in good order, the Company will attempt to get them in good
order or the Company will return the forms and the Purchase Payment within five
business days. The Company will not retain the Purchase Payment for more than
five business days while processing incomplete forms, unless it
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has been so authorized by the purchaser. For subsequent Purchase Payments, the
Company will apply Purchase Payments to the Separate Account and credit the
Contract with Accumulation Units as of the end of the Valuation Period during
which the Purchase Payment was received in good order.
BONUS
The Company will, at the time of the initial Purchase Payment and, as of
June 1, 1998, (subject to state regulatory approval) for certain subsequent
Purchase Payments, add an additional amount, as a Bonus, equal to 1% of such
Purchase Payment made under the Contract. The Bonus will be paid for subsequent
Purchase Payments of at least $5,000 for Non-Qualified Contracts or $2,000 for
Qualified Contracts. The Bonus will not be paid for subsequent Purchase Payments
made prior to June 1, 1998. The Bonus will not be paid for subsequent Purchase
Payments for Contracts issued in New Jersey. The Bonus will be allocated to the
Sub-Accounts of the Separate Account and/or the General Account in the same
manner as the Purchase Payment to which it is attributable. The Company reserves
the right to limit its payment of such Bonus to $5,000.
If the Owner makes a withdrawal prior to the seventh Contract Year after
any applicable Purchase Payment that exceeds the Free Withdrawal Amount or is in
excess of the amount permitted under the Systematic Withdrawal Option, an amount
equal to the Bonus allocated to the Purchase Payments(s) withdrawn will be
deducted by the Company from the Contract Value. (This deduction is not
applicable in New Jersey.) The deduction will be pro rata from the Sub-Accounts
and/or the General Account in the proportion that the amount of Contract Value
in the Sub-Accounts and General Account bears to the total Contract Value. The
Company will not recapture any investment earnings on the Bonus. Investment
earnings are deemed to be withdrawn on a first-in, first-out basis. Owners do
not have a vested interest in the principal amount of a Bonus until seven
Contract Years from the date of the Bonus payment have elapsed; until that time,
the additional amount belongs to the Company.
For purposes of distributions under the Contract, a Bonus payment and any
investment earnings thereon will be treated as taxable income and not as part of
the cost basis of the Contract. (See "Federal Tax Status -- General.")
DOLLAR COST AVERAGING
Dollar Cost Averaging is a program which, if elected, permits an Owner to
systematically transfer amounts on a monthly, quarterly, semi-annual, or annual
basis from the State Street Global Advisors Money Market Sub-Account or the
General Account to one or more Sub-Accounts. By allocating amounts on a
regularly scheduled basis, as opposed to allocating the total amount at one
particular time, an Owner may be less susceptible to the effect of market
fluctuations. The minimum amount which may be transferred is $250 per transfer.
The amount may be specified as a percentage of Contract Values in the source
Sub-Account(s) (in whole percentages) or by dollar amount.
If selected, Dollar Cost Averaging must be for at least 12 months. There is
no current charge for Dollar Cost Averaging. The standard date of the month for
transfers is the date the Owner's request for an enrollment in the program is
received and processed by the Company, and subsequent monthly, quarterly,
semi-annual, or annual anniversaries of that date. The Owner may specify a
different future date. If the Company imposes a transfer fee, transfers made
pursuant to the Dollar Cost Averaging program will not be taken into account in
determining any transfer fee.
CONTRACT VALUE
The Contract Value is the sum of the Owner's interest in the General
Account and the Sub-Accounts of the Separate Account during the Accumulation
Period.
ACCUMULATION UNITS
Accumulation Units will be used to account for all amounts allocated to or
withdrawn from the Sub-Accounts of the Separate Account as a result of Purchase
Payments, withdrawals, transfers, or fees and charges. The Company will
determine the number of Accumulation Units of a Sub-Account purchased or
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canceled. This will be done by dividing the amount allocated to (or the amount
withdrawn from) the Sub-Account by the dollar value of one Accumulation Unit of
the Sub-Account as of the end of the Valuation Period during which the request
for the transaction is received at the Annuity Service Office.
ACCUMULATION UNIT VALUE
The Accumulation Unit Value for each Sub-Account was arbitrarily set
initially at $10. The investment performance of the Investment Options, as well
as the deduction of the charges discussed in this Prospectus, affect
Accumulation Unit Values (see below). Subsequent Accumulation Unit Values for
each Sub-Account are determined by multiplying the Accumulation Unit Value for
the immediately preceding Valuation Period by the Net Investment Factor for the
Sub-Account for the current period.
The Net Investment Factor for each Sub-Account is determined by dividing A
by B and subtracting C where:
A is (i) the net asset value per share of the Investment Option or
Portfolio of an Investment Option held by the Sub-Account for the
current Valuation Period; plus
(ii) any dividend per share declared on behalf of such Investment
Option or Portfolio that has an ex-dividend date within the current
Valuation Period; less
(iii) the cumulative per share charge or credit for taxes reserved
which is determined by the Company to have resulted from the operation
or maintenance of the Sub-Account.
B is the net asset value per share of the Investment Option or Portfolio of
an Investment Option held by the Sub-Account for the immediately
preceding Valuation Period, plus or minus the cumulative per share
charge or credit for taxes reserved for the immediately preceding
Valuation Date.
C is the factor representing the cumulative per share unpaid charges for
the Mortality and Expense Risk Charge, for the Administrative Charge,
for the Enhanced Death Benefit Charge, if any and for the Annual
Step-Up Death Benefit Charge, if any.
The Accumulation Unit Value may increase or decrease from Valuation Period
to Valuation Period.
TRANSFERS
TRANSFERS PRIOR TO THE ANNUITY DATE
Subject to any limitations imposed by the Company on the number of
transfers that can be made during the Accumulation Period, the Owner may
transfer all or part of the Owner's Contract Value by Written Request without
the imposition of any fee or charge if there have been no more than the number
of free transfers. Currently, there are no restrictions on the number of
transfers that can be made each Contract Year. However, if the Company does
limit the number of transfers in the future, Owners are guaranteed four
transfers per year without a transfer fee during the Accumulation Period. All
transfers are subject to the following:
1. Currently, the Company does not impose a transfer fee. The Company
reserves the right to charge a fee for transfers in the future which will
not exceed the lesser of $25 or 2% of the amount transferred (which will be
deducted from the amount that is transferred). If more than the number of
free transfers have been made in a Contract Year, the Company will deduct a
transfer fee for each subsequent transfer permitted.
2. The minimum amount which can be transferred is $250 (from (i) one
or multiple Sub-Accounts or (ii) the General Account) or the Owner's entire
interest in the Sub-Account or the General Account, if less. The minimum
amount which must remain in a Sub-Account after a transfer is $500 per Sub-
Account, or $0 if the entire amount in the Sub-Account is transferred. The
minimum amount which must remain in the General Account after a transfer is
$500, or $0 if the entire amount in the General Account is transferred.
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3. The maximum amount which can be transferred from the General
Account to the Separate Account is 20% of the Owner's Contract Value in the
General Account as of the last Contract Anniversary, except pursuant to a
Dollar Cost Averaging Program. If the Sweep Account option has been
elected, any funds transferred pursuant to that program will not be
included in this limitation. (See "Sweep Account Program," below.)
4. Transfers from any Sub-Account to the General Account may not be
made for the six-month period following any transfer from the General
Account into one or more of the Sub-Accounts.
5. The Company reserves the right, at any time and without prior
notice to any party, to terminate, suspend, or modify the transfer
privilege described above.
Owners can elect to make transfers by telephone. To do so, Owners must
complete a Written Request. The Company will use reasonable procedures to
confirm that instructions communicated by telephone are genuine. If it does not,
the Company may be liable for any losses due to unauthorized or fraudulent
instructions. The Company may tape record all telephone instructions. The
Company will not be liable for any loss, liability, cost, or expense incurred by
the Owner for acting in accordance with such telephone instructions believed to
be genuine. The telephone transfer privilege may be discontinued at any time by
the Company.
If there are Joint Owners, unless the Company is informed to the contrary,
telephone instructions will be accepted from either of the Joint Owners.
Neither the Separate Account nor the Investment Options are designed for
professional market timing organizations or other entities using programmed and
frequent transfers. A pattern of exchanges that coincides with a "market timing"
strategy may be disruptive to a Portfolio. The Company reserves the right to
restrict the transfer privilege or reject any specific Purchase Payment
allocation request for any person whose transactions seem to follow a timing
pattern. Although not contractually obligated to do so, the Company may, in its
sole discretion, provide prior or contemporaneous notice of restrictions on the
transfer privilege to Owners.
TRANSFERS DURING THE ANNUITY PERIOD
During the Annuity Period, the Owner may make transfers by Written Request,
as follows:
1. The Owner may make transfers of Contract Values between
Sub-Accounts, subject to any limitations imposed by the Company on the
number of transfers that can be made during the Annuity Period. Currently,
there are no restrictions on the number of transfers that can be made.
However, if the Company does limit the number of transfers in the future,
Owners are guaranteed four transfers per year free of any transfer fee
during the Annuity Period. Currently, the Company does not impose a
transfer fee. The Company reserves the right to charge a fee for transfers
in the future which will not exceed the lesser of $25 or 2% of the amount
transferred (which will be deducted from the amount which is transferred).
2. The Owner may, once each Contract Year, make a transfer from one or
more Sub-Accounts to the General Account. The Owner may not make a transfer
from the General Account to the Separate Account.
3. Transfers between Sub-Accounts will be made by converting the
number of Annuity Units being transferred to the number of Annuity Units of
the Sub-Account to which the transfer is made, so that the next Annuity
Payment, if it were made at that time, would be the same amount that it
would have been without the transfer. Thereafter, Annuity Payments will
reflect changes in the value of the new Annuity Units.
The amount transferred to the General Account from a Sub-Account will
be based on the annuity reserves for the Owner in that Sub-Account.
Transfers to the General Account will be made by converting the Annuity
Units being transferred to purchase fixed Annuity Payments under the
Annuity Option in effect and based on the Age of the Annuitant at the time
of the transfer.
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4. The minimum amount which can be transferred is $250 from one or
multiple Sub-Accounts, or the Owner's entire interest in the Sub-Account,
if less. The minimum amount which must remain in a Sub-Account after a
transfer is $500 per Sub-Account, or $0 if the entire amount in the
Sub-Account is transferred.
5. The Company reserves the right, at any time and without prior
notice to any party, to terminate, suspend, or modify the transfer
privilege described above.
Owners can elect to make transfers by telephone. To do so, Owners must
complete a Written Request. The Company will use reasonable procedures to
confirm that instructions communicated by telephone are genuine. If it does not,
the Company may be liable for any losses due to unauthorized or fraudulent
instructions. The Company may tape record all telephone instructions. The
Company will not be liable for any loss, liability, cost, or expense incurred by
the Owner for acting in accordance with such telephone instructions believed to
be genuine. The telephone transfer privilege may be discontinued at any time by
the Company.
If there are Joint Owners, unless the Company is informed to the contrary,
telephone instructions will be accepted from either of the Joint Owners.
SWEEP ACCOUNT PROGRAM
During the Accumulation Period, an Owner may elect to participate in the
Sweep Account Program which permits the Owner to transfer ("sweep") the income
from the General Account to the Sub-Accounts, on a quarterly basis, as long as
the General Account balance is at least $25,000. The transfer will be made on
quarterly anniversaries of the Issue Date of the Contract unless the Owner
specifies a different date.
ASSET ALLOCATION PROGRAMS
ASSET ALLOCATION -- PORTFOLIO REBALANCING
From time to time, the Company may make available a program (Portfolio
Rebalancing) which provides for periodic pre-authorized automatic transfers
among the Sub-Accounts pursuant to written allocation instructions from the
Owner. Such transfers are made to maintain a particular percentage allocation
among the Portfolios as selected by the Owner. The minimum allocation is 1% per
selection.
An Owner may elect that rebalancing occur on a monthly, quarterly,
semi-annual, or annual basis, and currently, all Portfolios are available
investment options under the Program. The General Account is not an available
investment option under the Program.
ASSET ALLOCATION -- FINANCIAL INTERMEDIARIES
In addition, the Company may make available another Asset Allocation
program whereby certain financial intermediaries will make their services
available to Owners to provide advice for the selection of the Sub-Accounts and
the General Account under the Contracts. The Company has recognized the value to
Owners of having available (on a continuous basis) advice for the selection of
the Sub-Accounts and the General Account. An Owner participating in such a
program authorizes the financial intermediary to make transfers of his or her
Contract Values among the Sub-Accounts and/or the General Account. The Company
has not, and will not, make any independent investigation of such financial
intermediaries, their services, or the costs, if any, for such services. The
financial intermediaries will be required to comply with the Company's
administrative systems and rules, including the prohibition against market
timers. A Written Request will be required to participate in such Asset
Allocation programs.
An Owner may enter into an advisory agreement with such financial
intermediaries. If such an agreement is entered into, an Owner will need to
complete certain administrative forms. Compensation, if any, for the services of
the financial intermediaries is a matter between the intermediaries and the
Owners.
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The selection of financial intermediaries or other advisers is solely the
responsibility of the Owner. Any compensation due any financial intermediary or
other adviser, as a result of investment advice he or she may have rendered an
Owner in connection with the Contracts, is solely the Owner's responsibility.
The Company has not made any independent investigation of the financial
intermediaries offering any asset allocation programs or of the programs they
offer. The Company does not endorse the financial intermediaries offering "Asset
Allocation Programs."
The above Asset Allocation programs are only available during the
Accumulation Period. Currently, there is no minimum Contract Value required for
participants in such a program. However, the Company reserves the right to
require a minimum Contract Value for Asset Allocation programs. The Company does
not currently charge for enrollment in the programs, but reserves the right to
do so. Owners can terminate their participation in any program by Written
Request. If the Company imposes a transfer fee, transfers made pursuant to an
Asset Allocation program will not be taken into account in determining any
transfer fee. The Company reserves the right to modify, suspend, or terminate
either of the Asset Allocation programs at any time.
WITHDRAWALS
During the Accumulation Period, the Owner may, upon a Written Request, make
a total or partial withdrawal of the Contract Withdrawal Value. The Contract
Withdrawal Value is:
1. The Contract Value as of the end of the Valuation Period during
which a Written Request for a withdrawal is received; less
2. Any applicable taxes not previously deducted; less
3. Any applicable Contingent Deferred Sales Charge; less
4. The Contract Maintenance Charge, if any.
A withdrawal will result in the cancellation of Accumulation Units from
each applicable Sub-Account or a reduction in the Owner's General Account
Contract Value in the ratio that the Owner's interest in the Sub-Account and/or
General Account bears to the total Contract Value. The Owner must specify by
Written Request in advance which Sub-Account Units are to be canceled, if other
than the above method is desired.
The Company will pay the amount of any withdrawal from the Separate Account
within seven days of receipt of a request in good order unless the Suspension or
Deferral of Payments provision is in effect.
Each partial withdrawal must be for at least $500. The minimum Contract
Value which must remain in the Contract after a partial withdrawal is $5,000 for
Non-Qualified Contracts and $2,000 for Qualified Contracts.
Certain tax withdrawal penalties and restrictions may apply to withdrawals
from the Contracts. (See "Federal Tax Status.") For Contracts purchased in
connection with 403(b) plans, the Code limits the withdrawal of amounts
attributable to contributions made pursuant to a salary reduction agreement (as
defined in Section 403(b)(11) of the Code) to circumstances only when the Owner:
(a) attains age 59 1/2; (b) separates from service; (c) dies; (d) becomes
disabled (within the meaning of Section 72(m)(7) of the Code); or (e) incurs a
qualifying hardship. However, withdrawals for hardship are restricted to the
portion of the Owner's Contract Value which represents contributions made by the
Owner and does not include any investment results. The limitations on
withdrawals became effective on January 1, 1989, and apply only to salary
reduction contributions made after December 31, 1988, to income attributable to
such contributions and to income attributable to amounts held as of December 31,
1988. The limitations on withdrawals do not affect rollovers or transfers
between certain Qualified Plans. Owners should consult their own tax counsel or
other tax adviser regarding any distributions.
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SYSTEMATIC WITHDRAWAL OPTION
The Company offers a systematic withdrawal option which enables an Owner to
pre-authorize a periodic exercise of the contractual withdrawal rights described
above. The total permitted systematic withdrawals in a Contract Year are limited
to not more than 10% of the Contract Value as of the immediately preceding
Contract Anniversary or, if during the first Contract Year, the Issue Date. The
systematic withdrawal option can be exercised at any time including during the
first Contract Year. The exercise of the systematic withdrawal option in any
Contract Year replaces the Free Withdrawal Amount which is allowable once per
Contract Year after the first Contract Anniversary without incurring a
Contingent Deferred Sales Charge.
Systematic withdrawals for Non-Qualified Contracts where the Owner is under
age 59 1/2 may be subject to income tax and certain tax penalties. Other
restrictions may also apply to systematic withdrawals from the Contracts. (See
"Federal Tax Status -- Tax Treatment of Withdrawals -- Qualified Contracts" and
"Tax Treatment of Withdrawals -- Non-Qualified Contracts.") Owners entering into
such a program instruct the Company to withdraw an amount specified as a
percentage of Contract Value, or in dollars on a monthly, quarterly, or
semi-annual basis. The minimum withdrawal amount is $100 per payment. The
standard date of the month for withdrawals is the date the Owner's request for
enrollment in the program is received and processed by the Company, and
subsequent monthly (or the payment schedule selected) anniversaries of that
date. The Owner may specify a different future date.
TEXAS OPTIONAL RETIREMENT PROGRAM
A Contract issued to a participant in the Texas Optional Retirement Program
("ORP") will contain an ORP endorsement that will amend the Contract as follows:
(a) if for any reason a second year of ORP participation is not begun, the total
amount of the State of Texas' first-year contribution will be returned to the
appropriate institution of higher education upon its request and (b) no benefits
will be payable, through surrender of the Contract or otherwise, until the
participant dies, accepts retirement, terminates employment in all Texas
institutions of higher education, or attains the age of 70 1/2. The value of the
Contract may, however, be transferred to other contracts or carriers during the
period of ORP participation. A participant in the ORP is required to obtain a
certificate of termination from the participant's employer before the value of a
Contract can be withdrawn.
SUSPENSION OR DEFERRAL OF PAYMENTS
The Company reserves the right to suspend or postpone payments for a
withdrawal or transfer for any period when:
1. The New York Stock Exchange (the "NYSE") is closed (other than
customary weekend and holiday closings);
2. Trading on the NYSE is restricted;
3. An emergency exists as a result of which disposal of securities
held in the Separate Account is not reasonably practicable or it is not
reasonably practicable to determine the value of the Separate Account's net
assets; or
4. During any other period when the SEC, by order, so permits for the
protection of Owners; provided that applicable rules and regulations of the
SEC will govern as to whether the conditions described in (2) and (3)
exist.
The Company reserves the right to defer payment for a withdrawal or
transfer from the General Account for the period permitted by law, but not for
more than six months after written election is received by the Company.
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PROCEEDS PAYABLE ON DEATH
DEATH OF OWNER DURING THE ACCUMULATION PERIOD
Upon the death of the Owner or Joint Owner during the Accumulation Period,
the death benefit will be paid to the Beneficiary(ies) designated by the Owner.
Upon the death of a Joint Owner, the surviving Joint Owner, if any, will be
treated as the primary Beneficiary. Any other Beneficiary designation on record
at the time of death will be treated as a contingent Beneficiary.
A Beneficiary may request that the death benefit be paid under one of the
Death Benefit Options below. If the Beneficiary is the spouse of the Owner, he
or she may elect to continue the Contract at the then-current Contract Value in
his or her own name and exercise all the Owner's rights under the Contract.
DEATH BENEFIT AMOUNT DURING THE ACCUMULATION PERIOD (STANDARD DEATH BENEFIT)
For a death occurring prior to the 80th birthday of the Owner, or the
oldest Joint Owner, the death benefit during the Accumulation Period will be the
greatest of:
1. The Purchase Payments, less any withdrawals, including any
previously deducted Contingent Deferred Sales Charge; or
2. The Contract Value determined as of the end of the Valuation Period
during which the Company receives, at its Annuity Service Office, both due
proof of death and an election of the payment method; or
3. The highest Step-up Value prior to the date of death. The Step-up
Value is equal to the Contract Value on each seventh Contract Anniversary,
plus any Purchase Payments made after such Contract Anniversary, less any
withdrawals and Contingent Deferred Sales Charge deducted after such
Contract Anniversary.
For a death occurring on or after the 80th birthday of the Owner, or the
oldest Joint Owner, the death benefit during the Accumulation Period will be the
Contract Value determined as of the end of the Valuation Period during which the
Company receives, at its Annuity Service Office, both due proof of death and an
election of the payment method.
ENHANCED DEATH BENEFIT AMOUNT DURING THE ACCUMULATION PERIOD
If the Owner selects the Enhanced Death Benefit, for a death occurring
prior to the 75th birthday of the Owner, or the oldest Joint Owner, the death
benefit will be the greatest of:
1. The Purchase Payments, less any withdrawals and previously deducted
Contingent Deferred Sales Charge; or
2. The Contract Value determined as of the end of the Valuation Period
during which the Company receives, at its Annuity Service Office, both due
proof of death and an election of the payment method; or
3. The highest Step-up Value prior to the date of death. The Step-up
Value is equal to the Contract Value on each seventh Contract Anniversary,
plus any Purchase Payments made after such Contract Anniversary, less any
withdrawals and Contingent Deferred Sales Charge deducted after such
Contract Anniversary; or
4. The total amount of Purchase Payments compounded up to the date of
death at 3% interest, minus the total withdrawals and previously deducted
Contingent Deferred Sales Charges compounded up to the date of death at 3%
interest, not to exceed 200% of Purchase Payments, less withdrawals and
previously deducted Contingent Deferred Sales Charges.
For a death occurring on or after the 75th birthday and before the 80th
birthday of the Owner, or the oldest Joint Owner, the death benefit during the
Accumulation Period will be the greatest of 1, 2, or 3 above.
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For death occurring on or after the 80th birthday of the Owner, or the
oldest Joint Owner, the death benefit during the Accumulation Period will be the
Contract Value determined as of the Valuation Period during which the Company
receives at its Annuity Service Office both due proof of death and an election
of the payment method.
ANNUAL STEP-UP DEATH BENEFIT AMOUNT DURING THE ACCUMULATION PERIOD
For Contracts issued on or after June 1, 1998, an Owner may select the
Annual Step-Up Death Benefit. If the Owner selects the Annual Step-Up Death
Benefit, for a death occurring prior to the 75th birthday of the Owner, or the
oldest Joint Owner, the death benefit amount during the Accumulation Period will
be the greatest of:
1. The Purchase Payments, less any withdrawals and previously deducted
Contingent Deferred Sales Charge; or
2. The Contract Value determined as of the end of the Valuation Period
during which the Company receives at its Annuity Service Office both due
proof of death and an election of the payment method; or
3. The highest Step-Up Value prior to the date of death. The Step-Up
Value is equal to the Contract Value on any Contract Anniversary plus any
Purchase Payments made after such Contract Anniversary less any withdrawals
and Contingent Deferred Sales Charge deducted after such Contract
Anniversary.
For a death occurring on or after the 75th birthday of the Owner, or the
oldest Joint Owner, the death benefit during the Accumulation Period will be the
standard death benefit described above.
In certain states, the Annual Step-Up Death Benefit may not be available.
(Check with your registered representative regarding availability.) Owners
should refer to their Contract and any endorsement for the applicable death
benefit provision.
DEATH BENEFIT OPTIONS DURING THE ACCUMULATION PERIOD
A non-spousal Beneficiary must elect the death benefit to be paid under one
of the following options in the event of the death of the Owner during the
Accumulation Period:
Option 1 -- lump sum payment of the death benefit; or
Option 2 -- payment of the entire death benefit within five years of the
date of the death of the Owner; or
Option 3 -- payment of the death benefit under an Annuity Option over the
lifetime of the Beneficiary or over a period not extending
beyond the life expectancy of the Beneficiary, with
distribution beginning within one year of the date of death of
the Owner or any Joint Owner.
Any portion of the death benefit not applied under Option 3, within one
year of the date of the Owner's death, must be distributed within five years of
the date of death.
A spousal Beneficiary may elect to continue the Contract in his or her own
name at the then-current Contract Value, elect a lump sum payment of the death
benefit, or apply the death benefit to an Annuity Option.
If a lump sum payment is requested, the amount will be paid within seven
days of receipt of proof of death and the election, unless the Suspension or
Deferral of Payments provision is in effect.
Payment to the Beneficiary, other than in a lump sum, may only be elected
during the 60-day period beginning with the date of receipt of proof of death.
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DEATH OF OWNER DURING THE ANNUITY PERIOD
If the Owner or a Joint Owner, who is not the Annuitant, dies during the
Annuity Period, any remaining payments under the Annuity Option elected will
continue at least as rapidly as under the method of distribution in effect at
such Owner's death. Upon the death of the Owner during the Annuity Period, the
Beneficiary becomes the Owner.
DEATH OF ANNUITANT
Upon the death of the Annuitant, who is not the Owner, during the
Accumulation Period, the Owner may designate a new Annuitant, subject to the
Company's underwriting rules then in effect. If no designation is made within 30
days of the death of the Annuitant, the Owner will become the Annuitant. If the
Owner is a non-natural person, the death of the Annuitant will be treated as the
death of the Owner and a new Annuitant may not be designated.
Upon the death of the Annuitant during the Annuity Period, the death
benefit, if any, will be as specified in the Annuity Option elected. Death
benefits will be paid at least as rapidly as under the method of distribution in
effect at the Annuitant's death.
PAYMENT OF DEATH BENEFIT
The Company will require due proof of death before any death benefit is
paid. Due proof of death will be:
1. A certified death certificate;
2. A certified decree of a court of competent jurisdiction as to the
finding of death; or
3. Any other proof satisfactory to the Company.
All death benefits will be paid in accordance with applicable law or
regulations governing death benefit payments.
BENEFICIARY
The Beneficiary designation in effect on the Issue Date will remain in
effect until changed. The Beneficiary is entitled to receive the benefits to be
paid at the death of the Owner. Unless the Owner provides otherwise, the death
benefit will be paid in equal shares to the survivor(s) as follows:
1. To the primary Beneficiary(ies) who survive the Owner's and/or the
Annuitant's death, as applicable; or if there are none,
2. To the contingent Beneficiary(ies) who survive the Owner's and/or
the Annuitant's death, as applicable; or if there are none,
3. To the estate of the Owner.
CHANGE OF BENEFICIARY
Subject to the rights of any irrevocable Beneficiary(ies), the Owner may
change the primary Beneficiary(ies) or contingent Beneficiary(ies). Any change
must be made by Written Request. The change will take effect as of the date the
Written Request is signed. The Company will not be liable for any payment made
or action taken before it records the change.
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ANNUITY PROVISIONS
GENERAL
On the Annuity Date, the Adjusted Contract Value will be applied under the
Annuity Option selected by the Owner. Annuity Payments may be made on a fixed or
variable basis, or both.
ANNUITY DATE
The Annuity Date is selected by the Owner on the Issue Date. The Annuity
Date must be the first day of a calendar month and must be at least five years
after the Issue Date. The Annuity Date may not be later than that required under
state law.
Prior to the Annuity Date, the Owner, subject to the above, may change the
Annuity Date by Written Request. Any change must be requested at least 15 days
prior to the new Annuity Date.
SELECTION OR CHANGE OF AN ANNUITY OPTION
An Annuity Option is selected by the Owner at the time the Contract is
issued. If no Annuity Option is selected, Option B, with 120 monthly payments
guaranteed, will automatically be applied. Prior to the Annuity Date, the Owner
can change the Annuity Option selected by Written Request. Any change must be
requested at least 15 days prior to the Annuity Date.
FREQUENCY AND AMOUNT OF ANNUITY PAYMENTS
Annuity Payments are paid in monthly, quarterly, semi-annual, or annual
installments. The Adjusted Contract Value is applied to the Annuity Table for
the Annuity Option selected. If the Adjusted Contract Value to be applied under
an Annuity Option is less than $2,000, the Company reserves the right to make a
lump sum payment in lieu of Annuity Payments. If the Annuity Payment would be or
become less than $200 where only a Fixed Annuity or a Variable Annuity is
selected, or if the Annuity Payment would be or become less than $100 on each
basis when a combination of Fixed and Variable Annuities is selected, the
Company will reduce the frequency of payments to an interval which will result
in each payment being at least $200, or $100 on each basis if a combination of
Fixed and Variable Annuities is selected.
ANNUITY
If the Owner selects a Fixed Annuity, the Adjusted Contract Value is
allocated to the General Account and the Annuity is paid as a Fixed Annuity. If
the Owner selects a Variable Annuity, the Adjusted Contract Value will be
allocated to the Sub-Account(s) of the Separate Account in accordance with the
selection made by the Owner, and the Annuity will be paid as a Variable Annuity.
The Owner can also select a combination of a Fixed and Variable Annuity and the
Adjusted Contract Value will be allocated accordingly. Unless the Owner
specifies otherwise, the payee of the Annuity Payments shall be the Annuitant
and any Joint Annuitant.
The Adjusted Contract Value will be applied to the applicable Annuity Table
contained in the Contract based upon the Annuity Option selected by the Owner.
FIXED ANNUITY
The Owner may elect to have the Adjusted Contract Value applied to provide
a Fixed Annuity. The dollar amount of each Fixed Annuity payment will be
determined in accordance with Annuity Tables contained in the Contract, which
are based on the minimum guaranteed interest rate of 3% per year. After the
initial Fixed Annuity payment, the payments will not change regardless of
investment, mortality, or expense experience.
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VARIABLE ANNUITY
Variable Annuity payments reflect the investment performance of the
Separate Account in accordance with the allocation of the Adjusted Contract
Value to the Sub-Accounts during the Annuity Period. Variable Annuity payments
are not guaranteed as to dollar amount. See the SAI regarding how Annuity
Payments and Annuity Units are calculated.
ANNUITY OPTIONS
The following Annuity Options or any other Annuity Option acceptable to the
Company may be selected:
Option A (Life Annuity) -- Monthly Annuity Payments during the life of
the Annuitant.
Option B (Life Annuity with Periods Certain of 60, 120, 180, or 240
Months) -- Monthly Annuity Payments during the lifetime of the Annuitant
and in any event for 60, 120, 180, or 240 months certain as selected.
Option C (Joint and Survivor Annuity) -- Monthly Annuity Payments
payable during the joint lifetime of the Annuitant and a Joint Annuitant
and then during the lifetime of the survivor at the percentage (100%, 75%,
66 2/3%, or 50%) selected.
Annuity Options A, B, and C are available on a Fixed Annuity basis, a
Variable Annuity basis, or a combination of both. Election of a Fixed Annuity or
a Variable Annuity must be made no later than 15 days prior to the Annuity Date.
If no election is made with respect to whether the Annuity Option will be on a
Fixed Annuity basis, Variable Annuity basis, or a combination of both, the
Annuity Option will be paid to reflect the allocation of the Contract Value on
the Annuity Date between the Separate Account and the General Account, if any.
DISTRIBUTOR
AGA Brokerage Services, Inc. (formerly, WNL Brokerage Services, Inc.) ("AGA
Brokerage"), 2929 Allen Parkway, Houston, Texas 77019, is the distributor and
underwriter of the Contracts. AGA Brokerage is registered as a broker-dealer
with the SEC and is a member of the National Association of Securities Dealers,
Inc. AGA Brokerage and the Company are owned by the same corporation.
Commissions will be paid to broker-dealers who sell the Contracts.
Broker-dealers will be paid commissions, up to an amount currently equal to 7%
of Purchase Payments, for promotional or distribution expenses associated with
the marketing of the Contracts. Under certain circumstances the Company, in its
sole discretion, may increase the commissions paid up to an amount equal to 10%
of Purchase Payments.
ADMINISTRATION OF THE CONTRACTS
While the Company has primary responsibility for all administration of the
Contracts, it has retained the services of Financial Administrative Services,
Inc. ("FAS"), pursuant to an Insurance Service Agreement. Such administrative
services include issuance of the Contracts and maintenance of Owners' records,
for the Contracts issued prior to June 1, 1998. FAS serves as the administrator
to various insurance companies. The Company has assumed responsibility for
administration of all Contracts issued on or after June 1, 1998. The Company
intends to take over administration of the Contracts issued prior to June 1,
1998 in November, 1998.
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PERFORMANCE INFORMATION
MONEY MARKET SUB-ACCOUNT
From time to time, the Company may advertise the "yield" and "effective
yield" of the State Street Global Advisors Money Market Sub-Account ("Money
Market Sub-Account") of the Separate Account. Both yield figures are based on
historical earnings and are not intended to indicate future performance. The
"yield" of the Money Market Sub-Account refers to the income generated by
Contract Values in the Money Market Sub-Account over a seven-day period (which
period will be stated in the advertisement). This income is "annualized." That
is, the amount of income generated by the investment during that week is assumed
to be generated each week over a 52-week period and is shown as a percentage of
the Contract Value in the Money Market Sub-Account. The "effective yield" is
calculated similarly. However, when annualized, the income earned by Contract
Value is assumed to be reinvested. This results in the "effective yield" being
slightly higher than the "yield" because of the compounding effect of the
assumed reinvestment. The yield figure will reflect the deduction of any
asset-based charges and any applicable Contract Maintenance Charge.
OTHER SUB-ACCOUNTS
From time to time, the Company may advertise performance data for the
various other Sub-Accounts under the Contract. Such data will show the
percentage change in the value of an Accumulation Unit based on the performance
of an Investment Option over a period of time, usually a calendar year,
determined by dividing the increase (decrease) in value for that Unit by the
Accumulation Unit value at the beginning of the period. This percentage figure
will reflect the deduction of any asset-based charges and any applicable
Contract Maintenance Charge under the Contracts. It will not reflect the
deduction of the Contingent Deferred Sales Charge, which if applied would reduce
any percentage increase or make greater any percentage decrease.
Any advertisement will also include average annual total return figures
calculated as described in the SAI. The total return figures reflect the
deduction of all charges and deductions under the Contracts and the fees and
expenses of the Portfolios. The Company may also advertise performance
information computed on a different basis.
The Company may make available yield information with respect to some of
the Sub-Accounts. Such yield information will be calculated as described in the
SAI. The yield information will reflect the deduction of all charges and
deductions under the Contracts and the fees and expenses of the Portfolios.
The Company may also show historical Accumulation Unit values in certain
advertisements containing illustrations. These illustrations will be based on
actual Accumulation Unit values.
In addition, the Company may distribute sales literature which compares the
percentage change in Accumulation Unit values for any of the Sub-Accounts
against established market indexes such as the Standard & Poor's 500 Composite
Stock Price Index, the Dow Jones Industrial Average, or other management
investment companies which have investment objectives similar to the underlying
Portfolio being compared. The Standard & Poor's 500 Composite Stock Price Index
is an unmanaged, unweighted average of 500 stocks, the majority of which are
listed on the NYSE. The Dow Jones Industrial Average is an unmanaged, weighted
average of 30 blue chip industrial corporations listed on the NYSE. Both the
Standard & Poor's 500 Composite Stock Price Index and the Dow Jones Industrial
Average assume quarterly reinvestment of dividends.
In addition, the Company may, as appropriate, compare each Sub-Account's
performance to that of other types of investments such as certificates of
deposit, savings accounts, and U.S. Treasuries, or to certain interest rate and
inflation indexes, such as the Consumer Price Index, which is published by the
U.S. Department of Labor and measures the average change in prices over time of
a fixed "market basket" of certain specified goods and services. Similar
comparisons of Sub-Account performance may also be made with appropriate indexes
measuring the performance of a defined group of securities widely recognized by
investors as representing a particular segment of the securities markets. For
example, Sub-Account performance may be
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compared with Donoghue Money Market Institutional Averages (money market rates),
Lehman Brothers Corporate Bond Index (corporate bond interest rates), or Lehman
Brothers Government Bond Index (long-term U.S. government obligation interest
rates).
The Company may also distribute sales literature which compares the
performance of the Accumulation Unit values of the Contracts issued through the
Separate Account with the unit values of variable annuities issued through the
separate accounts of other insurance companies. Such information will be derived
from the Lipper Variable Insurance Products Performance Analysis Service, the
VARDS Report, or from Morningstar.
The Lipper Variable Insurance Products Performance Analysis Service is
published by Lipper Analytical Services, Inc., a publisher of statistical data
which currently tracks the performance of over 8,400 investment companies. The
rankings compiled by Lipper may or may not reflect the deduction of asset-based
insurance charges. The Company's sales literature utilizing these rankings will
indicate whether or not such charges have been deducted. Where the charges have
not been deducted, the sales literature will indicate that if the charges had
been deducted, the ranking might have been lower.
The VARDS Report is a monthly variable annuity industry analysis compiled
by Variable Annuity Research & Data Service and published by Financial Planning
Resources, Inc. The VARDS Report rankings may or may not reflect the deduction
of asset-based insurance charges. Where the charges have not been deducted, the
sales literature will indicate that if the charges had been deducted, the
rankings might have been lower.
Morningstar rates a variable annuity sub-account against its peers with
similar investment objectives. Morningstar does not rate any sub-account that
has less than three years of performance data. The Morningstar rankings may or
may not reflect the deduction of charges. Where the charges have not been
deducted, the sales literature will indicate that if the charges had been
deducted, the rankings might have been lower.
FEDERAL TAX STATUS
GENERAL
NOTE: THE FOLLOWING DESCRIPTION IS BASED UPON THE COMPANY'S UNDERSTANDING OF
CURRENT FEDERAL INCOME TAX LAW APPLICABLE TO ANNUITIES IN GENERAL. THE
COMPANY CANNOT PREDICT THE PROBABILITY THAT ANY CHANGES IN SUCH LAWS WILL
BE MADE. PURCHASERS ARE CAUTIONED TO SEEK COMPETENT TAX ADVICE REGARDING
THE POSSIBILITY OF SUCH CHANGES. THE COMPANY DOES NOT GUARANTEE THE TAX
STATUS OF THE CONTRACTS. PURCHASERS BEAR THE COMPLETE RISK THAT THE
CONTRACTS MAY NOT BE TREATED AS "ANNUITY CONTRACTS" UNDER FEDERAL INCOME
TAX LAWS. IT SHOULD BE FURTHER UNDERSTOOD THAT THE FOLLOWING DISCUSSION IS
NOT EXHAUSTIVE AND THAT SPECIAL RULES NOT DESCRIBED IN THIS PROSPECTUS MAY
BE APPLICABLE IN CERTAIN SITUATIONS. MOREOVER, NO ATTEMPT HAS BEEN MADE TO
CONSIDER ANY APPLICABLE STATE OR OTHER TAX LAWS.
Section 72 of the Code governs taxation of annuities in general. An Owner
is not taxed on increases in the value of a Contract until distribution occurs,
either in the form of a lump sum payment or as Annuity Payments under the
Annuity Option selected. For a lump sum payment received as a total withdrawal
(total surrender), the recipient is taxed on the portion of the payment that
exceeds the cost basis of the Contract. For Non-Qualified Contracts, this cost
basis is generally the Purchase Payments, while for Qualified Contracts there
may be no cost basis. The taxable portion of the lump sum payment is taxed at
ordinary income tax rates.
For annuity payments, a portion of each payment in excess of an exclusion
amount is includible in taxable income. The exclusion amount for payments based
on a Fixed Annuity Option is determined by multiplying the payment by the ratio
that the cost basis of the Contract (adjusted for any period certain or refund
feature) bears to the expected return under the Contract. The exclusion amount
for payments based on a Variable Annuity Option is determined by dividing the
cost basis of the Contract (adjusted for any period certain or refund guarantee)
by the number of years over which the annuity is expected to be paid. Payments
received
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after the investment in the Contract has been recovered (i.e., when the total of
the excludible amounts equals the investment in the Contract) are fully taxable.
The taxable portion is taxed at ordinary income tax rates. For certain types of
Qualified Plans, there may be no cost basis in the Contract within the meaning
of Section 72 of the Code. Owners, Annuitants, and Beneficiaries under the
Contracts should seek competent financial advice about the tax consequences of
any distributions.
The Company is taxed as a life insurance company under the Code. For
federal income tax purposes, the Separate Account is not a separate entity from
the Company, and its operations form a part of the Company.
DIVERSIFICATION
Section 817(h) of the Code imposes certain diversification standards on the
underlying assets of variable annuity contracts. The Code provides that a
variable annuity contract will not be treated as an annuity contract for any
period (and any subsequent period) for which the investments are not, in
accordance with regulations prescribed by the U.S. Treasury Department
("Treasury Department"), adequately diversified. Disqualification of the
Contract as an annuity contract would result in imposition of federal income tax
to the Owner with respect to earnings allocable to the Contract prior to the
receipt of payments under the Contract. The Code contains a safe harbor
provision which provides that annuity contracts such as the Contracts meet the
diversification requirements if, as of the end of each quarter, the underlying
assets meet the diversification standards for a regulated investment company,
and no more than 55% of the total assets consist of cash, cash items, U.S.
government securities, and securities of other regulated investment companies.
On March 2, 1989, the Treasury Department issued Regulations (Treas. Reg.
1.817-5), which established diversification requirements for the investment
portfolios underlying variable contracts such as the Contracts. The Regulations
amplify the diversification requirements for variable contracts set forth in the
Code and provide an alternative to the safe harbor provision described above.
Under the Regulations, an investment portfolio will be deemed adequately
diversified if: (a) no more than 55% of the value of the total assets of the
portfolio is represented by any one investment; (b) no more than 70% of the
value of the total assets of the portfolio is represented by any two
investments; (c) no more than 80% of the value of the total assets of the
portfolio is represented by any three investments; and (d) no more than 90% of
the value of the total assets of the portfolio is represented by any four
investments.
The Code provides that, for purposes of determining whether or not the
diversification standards imposed on the underlying assets of variable contracts
by Section 817(h) of the Code have been met, "each United States government
agency or instrumentality shall be treated as a separate issuer."
The Company intends that all Portfolios of the Investment Options
underlying the Contracts will be managed by the Advisers for the Investment
Options in such a manner as to comply with these diversification requirements.
The Treasury Department has indicated that the diversification Regulations
do not provide guidance regarding the circumstances in which Owner control of
the investments of the Separate Account will cause the Owner to be treated as
the owner of the assets of the Separate Account, thereby resulting in the loss
of favorable tax treatment for the Contract. At this time, it cannot be
determined whether additional guidance will be provided and what standards may
be contained in such guidance.
The amount of Owner control which may be exercised under the Contract is
different, in some respects, from the situations addressed in published rulings
issued by the Internal Revenue Service in which it was held that the policy
owner was not the owner of the assets of the Separate Account. It is unknown
whether these differences, such as the Owner's ability to transfer among
investment choices or the number and type of investment choices available, would
cause the Owner to be considered as the owner of the assets of the Separate
Account, resulting in the imposition of federal income tax to the Owner with
respect to earnings allocable to the Contract, prior to receipt of payments
under the Contract.
In the event any forthcoming guidance or ruling is considered to set forth
a new position, such guidance or ruling will generally be applied only
prospectively. However, if such ruling or guidance was not considered
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to set forth a new position, it may be applied retroactively, resulting in the
Owner being retroactively determined to be the Owner of the assets of the
Separate Account.
Due to the uncertainty in this area, the Company reserves the right to
modify the Contract in an attempt to maintain favorable tax treatment.
MULTIPLE CONTRACTS
The Code provides that multiple non-qualified annuity contracts, which are
issued within a calendar year to the same contract owner by one company or its
affiliates, are treated as one annuity contract for purposes of determining the
tax consequences of any distribution. Such treatment may result in adverse tax
consequences, including more rapid taxation of the distributed amounts from such
combination of contracts. Owners should consult a tax adviser prior to
purchasing more than one non-qualified annuity contract in any calendar year.
CONTRACTS OWNED BY OTHER THAN NATURAL PERSONS
Under Section 72(u) of the Code, the investment earnings on premiums for
the Contracts will be taxed currently to the Owner, if the Owner is a
non-natural person (e.g., a corporation or certain other entities). Such
Contracts generally will not be treated as annuities for federal income tax
purposes. However, this treatment is not applied to Contracts held by a trust or
other entity, as an agent for a natural person, nor to Contracts held by certain
Qualified Plans. Purchasers should consult their own tax counsel or other tax
adviser before purchasing a Contract to be owned by a non-natural person.
TAX TREATMENT OF ASSIGNMENTS
An assignment or pledge of a Contract may be a taxable event. Owners should
therefore consult a competent tax adviser should they wish to assign or pledge
their Contracts.
INCOME TAX WITHHOLDING
All distributions, or the portion thereof which is includible in the gross
income of the Owner, are subject to federal income tax withholding. Generally,
amounts are withheld from periodic payments at the same rate as wages and at the
rate of 10% from non-periodic payments. However, the Owner, in most cases, may
elect not to have taxes withheld or to have withholding done at a different
rate.
Effective January 1, 1993, certain distributions from retirement plans
qualified under Section 401 or Section 403(b) of the Code, which are not
directly rolled over to another eligible retirement plan or individual
retirement account or individual retirement annuity, are subject to a mandatory
20% withholding for federal income tax. The 20% withholding requirement
generally does not apply to: (a) a series of substantially equal payments made
at least annually for the life or life expectancy of the participant or joint
and last survivor expectancy of the participant and a designated beneficiary, or
distributions for a specified period of 10 years or more; or (b) distributions
which are required minimum distributions; or (c) the portion of the
distributions not includible in gross income (i.e., returns of after-tax
contributions). Participants under such plans should consult their own tax
counsel or other tax adviser regarding withholding requirements.
TAX TREATMENT OF WITHDRAWALS -- NON-QUALIFIED CONTRACTS
Section 72 of the Code governs treatment of distributions from annuity
contracts. It provides that if the contract value exceeds the aggregate purchase
payments made, any amount withdrawn will be treated as coming first from the
earnings and then, only after the income portion is exhausted, as coming from
the principal. Withdrawn earnings are includible in gross income. It further
provides that a 10% penalty will apply to the income portion of any
distribution. However, the penalty is not imposed on amounts received: (a) after
the taxpayer reaches age 59 1/2; (b) after the death of the Owner; (c) if the
taxpayer is totally disabled (for this purpose disability is as defined in
Section 72(m)(7) of the Code); (d) in a series of substantially equal periodic
payments made not less frequently than annually for the life (or life
expectancy) of the taxpayer, or
34
<PAGE> 43
for the joint lives (or joint life expectancies) of the taxpayer and his or her
Beneficiary; (e) under an immediate annuity; or (f) which are allocable to
purchase payments made prior to August 14, 1982.
The above information does not apply to Qualified Contracts. However,
separate tax withdrawal penalties and restrictions may apply to such Qualified
Contracts. (See "Tax Treatment of Withdrawals -- Qualified Contracts," below.)
QUALIFIED PLANS
The Contracts offered by this Prospectus are designed to be suitable for
use under various types of qualified plans. Taxation of participants in each
qualified plan varies with the type of plan and terms and conditions of each
specific plan. Owners, Annuitants, and Beneficiaries are cautioned that benefits
under a Qualified Plan may be subject to the terms and conditions of the plan,
regardless of the terms and conditions of the Contracts issued pursuant to the
plan. Some retirement plans are subject to distribution and other requirements
that are not incorporated into the Company's administrative procedures. Owners,
participants, and Beneficiaries are responsible for determining that
contributions, distributions, and other transactions, with respect to the
Contracts, comply with applicable law. Following are general descriptions of the
types of qualified plans with which the Contracts may be used. Such descriptions
are not exhaustive and are for general informational purposes only. The tax
rules regarding qualified plans are very complex and will have differing
applications, depending on individual facts and circumstances. Each purchaser
should obtain competent tax advice prior to purchasing a Contract issued under a
Qualified Plan.
Contracts issued pursuant to Qualified Plans include special provisions
restricting Contract provisions that may otherwise be available as described in
this Prospectus. Generally, Contracts issued pursuant to Qualified Plans are not
transferable except upon surrender or annuitization. Various penalty and excise
taxes may apply to contributions or distributions made in violation of
applicable limitations. Furthermore, certain withdrawal penalties and
restrictions may apply to surrenders from Qualified Contracts. (See "Tax
Treatment of Withdrawals -- Qualified Contracts," below.)
On July 6, 1983, the Supreme Court decided, in Arizona Governing Committee
v. Norris, that optional annuity benefits provided under an employer's deferred
compensation plan could not, under Title VII of the Civil Rights Act of 1964,
vary between men and women. The Contracts sold by the Company, in connection
with certain Qualified Plans, will utilize annuity tables which do not
differentiate on the basis of sex. Such annuity tables will also be available
for use in connection with certain non-qualified deferred compensation plans.
A. KEOGH PLANS
Section 401 of the Code permits self-employed individuals to establish
Qualified Plans for themselves and their employees, commonly referred to as
"H.R. 10" or "Keogh" plans. Contributions made to the plan for the benefit of
the employees will not be included in the gross income of the employees until
distributed from the plan. The tax consequences to participants may vary
depending upon the particular plan design. However, the Code places limitations
and restrictions on all plans, including on such items as: amount of allowable
contributions; form, manner, and timing of distributions; transferability of
benefits; vesting and non-forfeitability of interests; nondiscrimination in
eligibility and participation; and the tax treatment of distributions,
withdrawals, and surrenders. (See "Tax Treatment of Withdrawals -- Qualified
Contracts," below.) Purchasers of Contracts for use with a Keogh plan should
obtain competent tax advice as to the tax treatment and suitability of such an
investment.
B. TAX-SHELTERED ANNUITIES
Section 403(b) of the Code permits the purchase of "tax-sheltered
annuities" by public schools and certain charitable, educational, and scientific
organizations described in Section 501(c)(3) of the Code. These qualifying
employers may make contributions to the Contracts for the benefit of their
employees. Such contributions are not includible in the gross income of the
employees until the employees receive distributions from the Contracts. The
amount of contributions to the tax-sheltered annuity is limited to certain
maximums
35
<PAGE> 44
imposed by the Code. Furthermore, the Code sets forth additional restrictions
governing such items as transferability, distributions, nondiscrimination, and
withdrawals. (See "Tax Treatment of Withdrawals -- Qualified Contracts" and
"Tax-Sheltered Annuities -- Withdrawal Limitations," below.) Any employee should
obtain competent tax advice as to the tax treatment and suitability of such an
investment.
C. INDIVIDUAL RETIREMENT ANNUITIES
Non-Roth IRAs
Section 408(b) of the Code permits eligible individuals to contribute to an
individual retirement program known as an Individual Retirement Annuity ("IRA").
Under applicable limitations, certain amounts may be contributed to an IRA which
will be deductible from the individual's gross income. These IRAs are subject to
limitations on eligibility, contributions, transferability, and distributions.
(See "Tax Treatment of Withdrawals -- Qualified Contracts," below.) Under
certain conditions, distributions from other IRAs and other Qualified Plans may
be rolled over or transferred on a tax-deferred basis into an IRA. Sales of
Contracts for use with IRAs are subject to special requirements imposed by the
Code, including the requirement that certain informational disclosures be given
to persons desiring to establish an IRA. Purchasers of Contracts to be qualified
as an IRA should obtain competent tax advice as to the tax treatment and
suitability of such an investment.
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 a
maximum of $2,000 per year. Lower maximum limitations apply to individuals with
adjusted gross incomes 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 IRA and non-Roth IRAs.
Qualified distributions from Roth IRAs are free from federal income tax. A
qualified distribution requires that an individual has held the Roth IRA for at
least five years and, in addition, that the distribution is made either after
the individual reaches age 59 1/2, on the individual's death or disability, or
as a qualified first-time home purchase, subject to a $10,000 lifetime maximum,
for the individual, a spouse, child, grandchild, or ancestor. Any distribution
which is not a qualified distribution is taxable to the extent of earnings in
the distribution. Distributions are treated as made from contributions first and
therefore no distributions are taxable until distributions exceed the amount of
contributions to the Roth IRA. The 10% penalty tax and the regular IRA
exceptions to the 10% penalty tax apply to taxable distributions from a Roth
IRA.
Amounts may be rolled over from one Roth IRA to another Roth IRA.
Furthermore, 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. However, for rollovers in 1998, the
individual may pay that tax ratably over the four taxable year periods beginning
with tax year 1998.
Purchasers of Contracts to be qualified as a Roth IRA should obtain
competent tax advice as to the tax treatment and suitability of such an
investment.
D. CORPORATE PENSION AND PROFIT SHARING PLANS
Sections 401(a) and 401(k) of the Code permit corporate employers to
establish various types of retirement plans for employees. These retirement
plans may permit the purchase of the Contracts to provide benefits under the
Plan. Contributions to the Plan for the benefit of employees will not be
includible in the gross income of the employees until distributed from the Plan.
The tax consequences to participants may vary, depending upon the particular
plan design. However, the Code places limitations and restrictions on all plans,
including on such items as: amount of allowable contributions; form, manner, and
timing of distributions;
36
<PAGE> 45
transferability of benefits; vesting and non-forfeitability of interests;
nondiscrimination in eligibility and participation; and the tax treatment of
distributions, withdrawals, and surrenders. (See "Tax Treatment of
Withdrawals -- Qualified Contracts," below.) Purchasers of Contracts for use
with Corporate Pension or Profit Sharing Plans should obtain competent tax
advice as to the tax treatment and suitability of such an investment.
TAX TREATMENT OF WITHDRAWALS -- QUALIFIED CONTRACTS
In the case of a withdrawal under a Qualified Contract, a ratable portion
of the amount received is taxable, generally based on the ratio of the
individual's cost basis to the individual's total accrued benefit under the
retirement plan. Special tax rules may be available for certain distributions
from a Qualified Contract. Section 72(t) of the Code imposes a 10% penalty tax
on the taxable portion of any distribution from qualified retirement plans,
including Contracts issued and qualified under Code Sections 401 (Keogh and
Corporate Pension and Profit Sharing Plans), 403(b) (Tax-Sheltered Annuities),
and 408 and 408A (Individual Retirement Annuities). To the extent amounts are
not includible in gross income because they have been rolled over to an IRA or
another eligible qualified plan, no tax penalty will be imposed. The tax penalty
will not apply to the following distributions: (a) if distribution is made on or
after the date on which the Owner or Annuitant (as applicable) reaches age
59 1/2; (b) distributions following the death or disability of the Owner or
Annuitant (as applicable) (for this purpose disability is as defined in Section
72(m)(7) of the Code); (c) after separation from service, distributions that are
part of substantially equal periodic payments made not less frequently than
annually for the life (or life expectancy) of the Owner or Annuitant (as
applicable), or the joint lives (or joint life expectancies) of such Owner or
Annuitant (as applicable) and his or her designated Beneficiary; (d)
distributions to an Owner or Annuitant (as applicable) who has separated from
service after he has attained age 55; (e) distributions made to the Owner or
Annuitant (as applicable) to the extent such distributions do not exceed the
amount allowable as a deduction under Code Section 213 to the Owner or Annuitant
(as applicable) for amounts paid during the taxable year for medical care; (f)
distributions made to an alternate payee, pursuant to a qualified domestic
relations order; (g) distributions from an Individual Retirement Annuity for the
purchase of medical insurance (as described in Section 213(d)(1)(D) of the Code)
for the Contract Owner or Annuitant (as applicable) and his or her spouse and
dependents if the Contract Owner or Annuitant (as applicable) has received
unemployment compensation for at least 12 weeks (this exception will no longer
apply after the Contract Owner or Annuitant (as applicable) has been re-
employed for at least 60 days); (h) distributions from an Individual Retirement
Annuity made to the Owner or Annuitant (as applicable) to the extent such
distributions do not exceed the qualified higher education expenses (as defined
in Section 72(t)(7) of the Code) of the Owner or Annuitant (as applicable) for
the taxable year; and (i) distributions from an Individual Retirement Annuity
made to the Owner or Annuitant (as applicable) which are qualified first-time
home buyer distributions (as defined in Section 72(t)(8) of the Code). The
exceptions stated in (d) and (f) above do not apply in the case of an Individual
Retirement Annuity. The exception stated in (c) above applies to an Individual
Retirement Annuity without the requirement that there be a separation from
service.
Generally, distributions from a qualified plan must commence no later than
April 1 of the calendar year following the later of: (a) the year in which the
employee attains age 70 1/2 , or (b) the calendar year in which the employee
retires. The date set forth in (b) above does not apply to an Individual
Retirement Annuity. Required distributions must be over a period not exceeding
the life expectancy of the individual or the joint lives or life expectancies of
the individual and his or her designated beneficiary. If the required minimum
distributions are not made, a 50% penalty tax is imposed as to the amount not
distributed.
TAX-SHELTERED ANNUITIES -- WITHDRAWAL LIMITATIONS
The Code limits the withdrawal of amounts attributable to contributions
made pursuant to a salary reduction agreement (as defined in Section 403(b)(11)
of the Code) to circumstances only when the Owner: (a) attains age 59 1/2; (b)
separates from service; (c) dies; (d) becomes disabled (within the meaning of
Section 72(m)(7) of the Code); or (e) in the case of hardship. However,
withdrawals for hardship are restricted to the portion of the Owner's Contract
Value which represents contributions made by the Owner
37
<PAGE> 46
and does not include any investment results. The limitations on withdrawals
became effective on January 1, 1989, and apply only to salary reduction
contributions made after December 31, 1988, to income attributable to such
contributions and to income attributable to amounts held as of December 31,
1988. The limitations on withdrawals do not affect rollovers or transfers
between certain Qualified Plans. Owners should consult their own tax counsel or
other tax adviser regarding any distributions.
SECTION 457 -- DEFERRED COMPENSATION PLANS
Under Section 457 of the Code, governmental and certain other tax-exempt
employers may establish deferred compensation plans for the benefit of their
employees who may invest in annuity contracts. The Code, as in the case of
Qualified Plans, establishes limitations and restrictions on eligibility,
contributions, and distributions. Under these plans, contributions made for the
benefit of the employees will not be includible in the employee's gross income
until distributed from the plan. Under a Section 457 plan, all the plan assets
remain solely the property of the employer, subject only to the claims of the
employer's general creditors until such time as made available to the
participant or beneficiary. However, for plans established after August 20,
1996, it is required that plan assets be held in trust for the benefit of plan
participants and are not subject to the claims of the general creditors of the
employer. Furthermore, this requirement must be met for all plans no later than
January 1, 1999.
YEAR 2000 RISKS
The Company is in the process of modifying its systems to achieve Year 2000
readiness. This endeavor is directed and managed by the Company and monitored by
the parent company, American General Corporation. The Company has developed
clearly defined and documented plans that have been implemented to minimize the
risk of significant negative impact on its operations.
These plans include the following activities: (1) perform an inventory of
the Company's information technology and non-information technology systems; (2)
assess which items in the inventory may expose the Company to business
interruptions due to Year 2000 issues; (3) test systems for Year 2000 readiness;
(4) reprogram or replace systems that are not Year 2000 ready; and (5) return
the systems to operation. The Company expects to complete the forgoing
activities for all critical business systems relevant to the Separate Account by
December 1998.
In addition, the Company has business relationships with various third
parties, each of which must also be Year 2000 ready. Therefore, the Company's
plans also include assessing and attempting to mitigate the risks associated
with the potential failure of third parties to achieve Year 2000 readiness. Due
to the various stages of the third parties' Year 2000 readiness, the Company's
efforts in this regard will extend through 1999.
Through June 30, 1998 the Company has incurred and expensed $81,722
(pretax) related to Year 2000 readiness, including $40,369 incurred during the
first six months of 1998. The Company currently anticipates that it will incur
future costs of $1.2 million (pretax) for additional staff, third party vendors,
and other expenses to achieve Year 2000 readiness.
Due to the magnitude and complexity of this project, risks and
uncertainties exist. If conversion of the Company's systems is not completed on
a timely basis (due to non-performance by significant third-party vendors or
other unforeseen circumstances), or if significant third parties fail to achieve
Year 2000 readiness on a timely basis, the Year 2000 issue could have a material
adverse impact on the operations of the Company and the Separate Account.
FINANCIAL STATEMENTS
Financial Statements of the Company and the Separate Account have been
included in the SAI.
LEGAL PROCEEDINGS
There are no material pending legal proceedings to which the Separate
Account, the Distributor, or the Company is a party.
38
<PAGE> 47
TABLE OF CONTENTS
OF THE STATEMENT OF ADDITIONAL INFORMATION
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Company..................................................... 3
Independent Auditors........................................ 3
Legal Opinions.............................................. 3
Distributor................................................. 3
Yield Calculation for the State Street Global Advisors Money
Market Sub-Account........................................ 3
Performance Information..................................... 4
Annuity Provisions.......................................... 6
Annuity Unit................................................ 7
Financial Statements........................................ 7
</TABLE>
39
<PAGE> 48
This space is intentionally left blank.
<PAGE> 49
STATEMENT OF ADDITIONAL INFORMATION
INDIVIDUAL FIXED AND VARIABLE DEFERRED ANNUITY CONTRACTS
WITH FLEXIBLE PURCHASE PAYMENTS
ISSUED BY
AGA SEPARATE ACCOUNT A
AND
AMERICAN GENERAL ANNUITY INSURANCE COMPANY
THIS IS NOT A PROSPECTUS. THIS STATEMENT OF ADDITIONAL INFORMATION (THE
"SAI") SHOULD BE READ IN CONJUNCTION WITH THE PROSPECTUS DATED OCTOBER 28, 1998,
FOR THE INDIVIDUAL FIXED AND VARIABLE DEFERRED ANNUITY CONTRACTS WITH FLEXIBLE
PURCHASE PAYMENTS WHICH ARE REFERRED TO HEREIN.
THE PROSPECTUS CONCISELY SETS FORTH INFORMATION FOR A PROSPECTIVE INVESTOR.
FOR A COPY OF THE PROSPECTUS, CALL 1-800-424-4990, OR WRITE THE COMPANY AT 250
E. 10TH AVENUE, AMARILLO, TEXAS 79101. THIS SAI IS DATED OCTOBER 28, 1998.
1
<PAGE> 50
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Company..................................................... 3
Independent Auditors........................................ 3
Legal Opinions.............................................. 3
Distributor................................................. 3
Yield Calculation For The State Street Global Advisors Money
Market Sub-Account........................................ 3
Performance Information..................................... 4
Annuity Provisions.......................................... 6
Annuity Unit................................................ 7
Financial Statements........................................ 7
</TABLE>
2
<PAGE> 51
COMPANY
Information regarding American General Annuity Insurance Company (the
"Company") and its ownership is contained in the Prospectus. Effective February
25, 1998, the Company changed its name from Western National Life Insurance
Company to its present name.
The Company contributed the initial capital to the AGA Separate Account A
(the "Separate Account"). As of December 31, 1997, the initial capital
contributed by the Company represented approximately 31% of the total assets of
the Separate Account. The Company currently intends to remove these assets from
the Separate Account on a pro rata basis in proportion to money invested in the
Separate Account by Owners.
INDEPENDENT AUDITORS
The balance sheet of the Company as of December 31, 1997 and the related
statements of operations, shareholders' equity and cash flows for the year then
ended and the statement of assets and liabilities of the Separate Account as of
December 31, 1997, and the related statement of operations for the year ended
December 31, 1997, and the statement of changes in net assets for the year ended
December 31, 1997, all of which are included in the SAI, have been included
herein in reliance on the reports of Ernst & Young LLP, independent auditors
given on the authority of that firm as experts in accounting and auditing.
The balance sheet of the Company as of December 31, 1996 and the related
statements of operations, shareholders' equity and cash flows for each of the
two years in the period ended December 31, 1996, and the statement of changes in
net assets of the Separate Account for the year ended December 31, 1996, all of
which are included in the SAI, have been included herein in reliance on the
reports of PricewaterhouseCoopers LLP, independent accountants, given on the
authority of that firm as experts in accounting and auditing.
LEGAL OPINIONS
Blazzard, Grodd & Hasenauer, P.C., Westport, Connecticut has provided
advice on certain matters relating to the federal securities and income tax laws
in connection with the Contracts.
DISTRIBUTOR
AGA Brokerage Services, Inc. ("AGA Brokerage"), (formerly known as WNL
Brokerage Services, Inc.) acts as the distributor. AGA Brokerage is an affiliate
of the Company. The offering is on a continuous basis.
YIELD CALCULATION FOR
THE STATE STREET GLOBAL ADVISORS MONEY MARKET SUB-ACCOUNT
The State Street Global Advisors Money Market Sub-Account of the Separate
Account will calculate its current yield based upon the seven days ended on the
date of calculation. For the seven calendar days ending December 31, 1997, the
annualized effective yield for the State Street Global Advisors Money Market
Sub-Account was 3.86% and the yield was 3.79%.
The current yield of the State Street Global Advisors Money Market
Sub-Account is computed by determining the net change (exclusive of capital
changes) in the value of a hypothetical pre-existing Owner account having a
balance of one Accumulation Unit of the Sub-Account at the beginning of the
period, subtracting the Mortality and Expense Risk Charge, the Administrative
Charge, and the Contract Maintenance Charge, dividing the difference by the
value of the account at the beginning of the same period to obtain the base
period return, and multiplying the result by (365/7). The calculation does not
take into account any applicable Enhanced Death Benefit Charge or Annual Step-Up
Death Benefit Charge.
For the seven calendar days ended December 31, 1997, the annualized
effective yield and yield for the State Street Global Advisors Money Market
Sub-Account calculated with the applicable Enhanced Death
3
<PAGE> 52
Benefit Charge was 3.70% and 3.64%, respectively. There is no yield information
for the State Street Global Advisors Money Market Sub-Account calculated with
the applicable Annual Step-Up Death Benefit Charge because the Annual Step-Up
Death Benefit was not available until June 1, 1998.
The State Street Global Advisors Money Market Sub-Account computes its
effective compound yield according to the method prescribed by the Securities
and Exchange Commission (the "SEC"). The effective yield reflects the
reinvestment of net income earned daily on State Street Global Advisors Money
Market Sub-Account assets.
Net investment income for yield quotation purposes will not include either
realized capital gains and losses or unrealized appreciation and depreciation,
whether reinvested or not.
The yields quoted should not be considered a representation of the yield of
the State Street Global Advisors Money Market Sub-Account in the future since
the yield is not fixed. Actual yields will depend not only on the type, quality,
and maturities of the investments held by the State Street Global Advisors Money
Market Sub-Account and changes in the interest rates on such investments, but
also on changes in the State Street Global Advisors Money Market Sub-Account's
expenses during the period.
Yield information may be useful in reviewing the performance of the State
Street Global Advisors Money Market Sub-Account and for providing a basis for
comparison with other investment alternatives. However, the State Street Global
Advisors Money Market Sub-Account's yield fluctuates, unlike bank deposits or
other investments which typically pay a fixed yield for a stated period of time.
PERFORMANCE INFORMATION
From time to time, the Company may advertise performance data as described
in the Prospectus. Any such advertisement will include three sets of total
return figures for the time periods indicated in the advertisement. One set of
such total return figures will reflect the deduction of a 1.25% Mortality and
Expense Risk Charge, a .15% Administrative Charge, the investment advisory fee
and expenses for the underlying Portfolio being advertised, and any applicable
Contract Maintenance Charge. A second set of such total return figures will
reflect the same deductions mentioned plus the deduction of a .05% Enhanced
Death Benefit Charge. A third set of such total return figures will reflect the
same deductions mentioned plus the deduction of .10% Annual Step-Up Death
Benefit Charge.
The hypothetical value of a Contract purchased for the time periods
described in the advertisement will be determined by using the actual
Accumulation Unit values for an initial $1,000 purchase payment, and deducting
any applicable Contract Maintenance Charge to arrive at the ending hypothetical
value. The average annual total return is then determined by computing the fixed
interest rate that a $1,000 purchase payment would have to earn annually,
compounded annually, to grow to the hypothetical value at the end of the time
periods described. The formula used in these calculations is:
<TABLE>
<S> <C> <C> <C>
P (1 + T)(n) = ERV
Where: P = A hypothetical initial payment of $1,000
T = Average annual total return
n = Number of years
ERV = Ending redeemable value at the end of the time periods used
(or fractional portion thereof) of a hypothetical $1,000
payment made at the beginning of the time periods used.
</TABLE>
In addition to total return data, the Company may include yield information
in its advertisements. Each Sub-Account (other than the State Street Global
Advisors Money Market Sub-Account) for which the Company will advertise yield,
will show a yield quotation based on a 30-day (or one-month) period ended on the
date of the most recent balance sheet of the Separate Account included in the
registration statement,
4
<PAGE> 53
computed by dividing the net investment income per Accumulation Unit earned
during the period by the maximum offering price per Unit on the last day of the
period, according to the following formula:
<TABLE>
<S> <C> <C> <C> <C> <C> <C> <C> <C>
[( ) ]
a - b
Yield = 2 ----- +1 (6) -1
cd
</TABLE>
<TABLE>
<S> <C> <C> <C>
Where:
a = Net investment income earned during the period by the
Portfolio attributable to shares owned by the Sub-Account.
b = Expenses accrued for the period (net of reimbursements).
c = The average daily number of Accumulation Units outstanding
during the period.
d = The maximum offering price per Accumulation Unit on the last
day of the period.
</TABLE>
The Company may also advertise performance data which will be computed on a
different basis.
Investment operations for the Sub-Accounts which invest in Portfolios of
the AGA Series Trust (the "Trust") depicted in the chart below commenced on the
following dates:
<TABLE>
<CAPTION>
PORTFOLIO INCEPTION DATE
--------- --------------
<S> <C>
Credit Suisse Growth and Income Portfolio................... 10/20/95
Credit Suisse International Equity Portfolio................ 10/20/95
EliteValue Portfolio........................................ 01/02/96
State Street Global Advisors Growth Equity Portfolio........ 10/20/95
State Street Global Advisors Money Market Portfolio......... 10/10/95
Salomon Brothers U.S. Government Securities Portfolio....... 02/06/96
Van Kampen American Capital Emerging Growth Portfolio....... 01/02/96
</TABLE>
Chart 1 below shows performance figures which reflect the deduction of all
charges and deductions (except the Enhanced Death Benefit Charge or Annual
Step-Up Death Benefit Charge) under the Contracts (see "Charges and Deductions"
in the Prospectus) and also reflect the actual fees and expenses paid by the
underlying Portfolios. Chart 2 below is identical to Chart 1 except that it also
reflects the deduction of the Enhanced Death Benefit Charge, where applicable.
NOTE: The figures below present investment performance information for the
periods ended June 30, 1998. While these numbers represent the returns as of
that date, they do not represent performance information of the portfolios since
that date. Performance information for periods after June 30, 1998 may be
significantly different (lower) than the numbers shown below.
AVERAGE TOTAL RETURN FOR THE PERIOD ENDED JUNE 30, 1998
Chart 1
<TABLE>
<CAPTION>
FROM
SUB-ACCOUNT ONE YEAR INCEPTION
----------- -------- ----------
<S> <C> <C>
Credit Suisse Growth and Income Portfolio................... 14.49% 17.52%
Credit Suisse International Equity Portfolio................ (11.46)% 8.58%
EliteValue Portfolio........................................ 13.47% 21.39%
State Street Global Advisors Money Market Portfolio......... (1.06)% 2.15%
State Street Global Advisors Growth Equity Portfolio........ 23.80% 25.00%
Van Kampen American Capital Emerging Growth Portfolio....... 28.59% 22.57%
Salomon Brothers U.S. Government Securities Portfolio....... 2.50% 3.17%
</TABLE>
5
<PAGE> 54
Chart 2
<TABLE>
<CAPTION>
FROM
SUB-ACCOUNT ONE YEAR INCEPTION
----------- -------- ---------
<S> <C> <C>
Credit Suisse Growth & Income Portfolio..................... 14.34% 17.37%
Credit Suisse International Equity Portfolio................ (11.61)% 8.43%
EliteValue Portfolio........................................ 13.32% 21.24%
State Street Global Advisors Money Market Portfolio......... (1.21)% 2.00%
State Street Global Advisors Growth Equity Portfolio........ 23.65% 24.85%
Van Kampen American Capital Emerging Growth Portfolio....... 28.44% 22.42%
Salomon Brothers U.S. Government Securities Portfolio....... 2.35% 3.02%
</TABLE>
Owners should note that the investment results of each Sub-Account will
fluctuate over time, and any presentation of the Sub-Account's total return or
yield for any period should not be considered a representation of what an
investment may earn or what an Owner's total return or yield may be in any
future period.
ANNUITY PROVISIONS
A Variable Annuity is an annuity with payments which: (a) are not
predetermined as to dollar amount and (b) will vary in amount with the net
investment results of the applicable Sub-Accounts of the Separate Account.
Annuity Payments also depend upon the Age of the Annuitant and any Joint
Annuitant and the assumed interest factor utilized. The Annuity Table used will
depend upon the Annuity Option chosen. The dollar amount of Annuity Payments
after the first is determined as follows:
1. The dollar amount of the first Variable Annuity Payment is divided
by the value of an Annuity Unit for each applicable Sub-Account as of the
Annuity Date. This sets the number of Annuity Units for each monthly
payment for the applicable Sub-Account. The number of Annuity Units remains
fixed during the Annuity Period.
2. The fixed number of Annuity Units per payment in each Sub-Account
is multiplied by the Annuity Unit Value for that Sub-Account for the last
Valuation Period of the month preceding the month for which the payment is
due. This result is the dollar amount of the payment for each applicable
Sub-Account.
6
<PAGE> 55
The total dollar amount of each Variable Annuity Payment is the sum of all
Sub-Account Variable Annuity Payments reduced by the applicable portion of the
Contract Maintenance Charge.
The dollar amount of the first Variable Annuity payment is determined in
accordance with the description above.
ANNUITY UNIT
The value of any Annuity Unit for each Sub-Account of the Separate Account
was set initially at $10. The Sub-Account Annuity Unit value at the end of any
subsequent Valuation Period is determined as follows:
1. The Net Investment Factor for the current Valuation Period is
multiplied by the value of the Annuity Unit for the Sub-Account for the
immediately preceding Valuation Period.
2. The result in (1) is then divided by the Assumed Investment Rate
Factor, which equals 1.00, plus the Assumed Investment Rate for the number
of days since the preceding Valuation Date. The Assumed Investment Rate is
equal on an annual rate to 3%.
The value of an Annuity Unit may increase or decrease from Valuation Period
to Valuation Period.
FINANCIAL STATEMENTS
The financial statements of the Company included herein should be
considered only as bearing upon the ability of the Company to meet its
obligations under the Contracts.
7
<PAGE> 56
FINANCIAL STATEMENTS
AMERICAN GENERAL ANNUITY INSURANCE COMPANY
AGA SEPARATE ACCOUNT A
YEARS ENDED DECEMBER 31, 1997 AND 1996
<PAGE> 57
AMERICAN GENERAL ANNUITY INSURANCE COMPANY
AGA SEPARATE ACCOUNT A
FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 1997 AND 1996
CONTENTS
<TABLE>
<S> <C>
Report of Independent Auditors.............................. F-2
Report of Independent Accountants........................... F-3
Audited Financial Statements................................ F-4
Statement of Assets and Liabilities......................... F-4
Statement of Operations..................................... F-6
Statement of Changes in Net Assets.......................... F-8
Notes to Financial Statements............................... F-12
</TABLE>
F-1
<PAGE> 58
REPORT OF INDEPENDENT AUDITORS
Board of Directors and Stockholders
American General Annuity Insurance Company
We have audited the accompanying statement of assets and liabilities of AGA
Separate Account A (the "Company"), formerly known as WNL Separate Account A, as
of December 31, 1997, and the related statements of operations and changes in
net assets for the year ended December 31, 1997. These financial statements are
the responsibility of the Company's management. Our responsibility is to express
an opinion on these financial statements based on our audit.
We conducted our audit in accordance with generally accepted auditing
standards. Those standards require that we plan and perform our 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 shares owned as of December 31, 1997, by correspondence with AGA
Series Trust, formerly known as WNL Series Trust. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audit provides a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of AGA Separate Account A as of
December 31, 1997, the results of its operations, and the changes in its net
assets for the year ended December 31, 1997 in conformity with generally
accepted accounting principles.
ERNST & YOUNG, LLP
Houston, Texas
May 12, 1998
F-2
<PAGE> 59
REPORT OF INDEPENDENT ACCOUNTANTS
Board of Directors and Stockholders
American General Annuity Insurance Company
We have audited the accompanying statement of changes in net assets and
liabilities of AGA Separate Account A, formerly known as WNL Separate Account A,
for the year ended December 31, 1996. This financial statement is the
responsibility of the Company's management. Our responsibility is to express an
opinion on this financial statement based on our audit.
We conducted our audit in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statement is free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statement. Our procedures included
confirmation of securities owned as of December 31, 1996, by correspondence with
AGA Series Trust, formerly known as WNL Series Trust. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audit provides a reasonable basis for our opinion.
In our opinion, the financial statement referred to above presents fairly,
in all material respects, the change in net assets of AGA Separate Account A for
the year ended December 31, 1996, in conformity with generally accepted
accounting principles.
COOPERS & LYBRAND L.L.P.
Houston, Texas
February 20, 1997
F-3
<PAGE> 60
AMERICAN GENERAL ANNUITY INSURANCE COMPANY
AGA SEPARATE ACCOUNT A
STATEMENT OF ASSETS AND LIABILITIES
DECEMBER 31, 1997
<TABLE>
<CAPTION>
GLOBAL GLOBAL CREDIT SUISSE
ADVISORS ADVISORS BEA GROWTH INTERNATIONAL
MONEY MARKET GROWTH EQUITY AND INCOME EQUITY
PORTFOLIO PORTFOLIO PORTFOLIO PORTFOLIO
------------ ------------- ---------- -------------
<S> <C> <C> <C> <C>
ASSETS
Investments:
Net asset value per share.................. $ 1.00 $ 14.07 $ 12.72 $ 10.35
========== ========== ========== ==========
Number of shares........................... 5,100,264 520,790 580,614 416,640
========== ========== ========== ==========
Identified cost............................ $5,100,264 $6,388,545 $6,696,262 $4,483,037
========== ========== ========== ==========
Market value............................... $5,100,264 $7,327,014 $7,387,997 $4,310,325
========== ========== ========== ==========
Net assets................................... $5,100,264 $7,327,014 $7,387,997 $4,310,325
========== ========== ========== ==========
Net assets attributable to:
Contract owners............................ $4,987,695 $4,016,674 $4,408,639 $1,784,958
American General Annuity Insurance Company
(Note 7)................................ 112,569 3,310,340 2,979,358 2,525,367
---------- ---------- ---------- ----------
$5,100,264 $7,327,014 $7,387,997 $4,310,325
========== ========== ========== ==========
Accumulation units of contract owners:
Standard benefit units..................... 444,954.0 231,208.0 262,116.1 126,400.0
Enhanced benefit units..................... 13,476.5 19,281.5 44,598.0 19,510.4
Accumulation value per unit:
Standard benefit units..................... $ 10.88 $ 16.04 $ 14.38 $ 12.24
Enhanced benefit units..................... $ 10.84 $ 15.99 $ 14.33 $ 12.20
</TABLE>
See accompanying notes.
F-4
<PAGE> 61
AMERICAN GENERAL ANNUITY INSURANCE COMPANY
AGA SEPARATE ACCOUNT A
STATEMENT OF ASSETS AND LIABILITIES -- (CONTINUED)
DECEMBER 31, 1997
<TABLE>
<CAPTION>
VAN KAMPEN
AMERICAN SALOMON
CAPITAL BROTHERS ELITE VALUE
EMERGING U.S. GOVERNMENT ASSET
GROWTH SECURITIES ALLOCATION
PORTFOLIO PORTFOLIO PORTFOLIO
---------- --------------- -----------
<S> <C> <C> <C>
ASSETS
Investments:
Net asset value per share......................... $ 13.87 $ 10.07 $ 14.38
========== ========== ==========
Number of shares.................................. 396,522 395,899 658,676
========== ========== ==========
Identified cost................................... $4,916,092 $3,968,605 $8,759,846
========== ========== ==========
Market value...................................... $5,498,597 $3,985,899 $9,470,619
========== ========== ==========
Net assets.......................................... $5,498,597 $3,985,899 $9,470,619
========== ========== ==========
Net assets attributable to:
Contract owners................................... $4,781,451 $1,734,114 $7,936,388
American General Annuity Insurance Company (Note
7)............................................. 717,146 2,251,785 1,534,231
---------- ---------- ----------
$5,498,597 $3,985,899 $9,470,619
========== ========== ==========
Accumulation units of contract owners:
Standard benefit units............................ 303,011.2 126,832.5 461,930.1
Enhanced benefit units............................ 41,160.9 32,205.2 72,104.8
Accumulation value per unit:
Standard benefit units............................ $ 13.90 $ 10.91 $ 14.87
Enhanced benefit units............................ $ 13.85 $ 10.87 $ 14.82
</TABLE>
See accompanying notes.
F-5
<PAGE> 62
AMERICAN GENERAL ANNUITY INSURANCE COMPANY
AGA SEPARATE ACCOUNT A
STATEMENT OF OPERATIONS
YEAR ENDED DECEMBER 31, 1997
<TABLE>
<CAPTION>
GLOBAL ADVISORS GLOBAL ADVISORS BEA GROWTH CREDIT SUISSE
MONEY MARKET GROWTH EQUITY AND INCOME INTERNATIONAL
PORTFOLIO PORTFOLIO PORTFOLIO EQUITY PORTFOLIO
--------------- --------------- ---------- ----------------
<S> <C> <C> <C> <C>
Investment income:
Income:
Dividends......................... $159,789 $ 69,791 $138,994 $ 125,860
Expenses:
Mortality and expense risk and
administrative fees............. 40,568 32,350 31,908 14,538
-------- ---------- -------- ---------
Net investment income.................. 119,221 37,441 107,086 111,322
Realized and unrealized gain (loss) on
investments:
Net realized gain on sale of Trust
shares............................ -- 130,354 100,916 13,670
Net unrealized gain (loss) on Trust
shares............................ -- 531,795 480,921 (288,014)
Capital gain distributions from the
Trust............................. -- 636,692 237,747 174,638
-------- ---------- -------- ---------
Net realized and unrealized gain (loss)
on investments....................... -- 1,298,841 819,584 (99,706)
-------- ---------- -------- ---------
Increase in net assets resulting from
operations........................... $119,221 $1,336,282 $926,670 $ 11,616
======== ========== ======== =========
</TABLE>
See accompanying notes.
F-6
<PAGE> 63
AMERICAN GENERAL ANNUITY INSURANCE COMPANY
AGA SEPARATE ACCOUNT A
STATEMENT OF OPERATIONS -- (CONTINUED)
YEAR ENDED DECEMBER 31, 1997
<TABLE>
<CAPTION>
VAN KAMPEN
AMERICAN SALOMON
CAPITAL BROTHERS
EMERGING BLACKROCK U.S. GOVERNMENT ELITE VALUE
GROWTH MANAGED BOND SECURITIES ASSET ALLOCATION
PORTFOLIO PORTFOLIO PORTFOLIO PORTFOLIO
---------- ------------ --------------- ----------------
<S> <C> <C> <C> <C>
Investment income:
Income:
Dividends........................ $ 7,882 $199,788 $160,062 $ 86,761
Expenses:
Mortality and expense risk and
administrative fees............ 41,734 7,886 6,091 58,704
-------- -------- -------- --------
Net investment income (loss).......... (33,852) 191,902 153,971 28,057
Realized and unrealized gain (loss) on
investments:
Net realized gain on sale of Trust
shares........................... 20,833 49,882 3,525 205,487
Net unrealized gain on Trust
shares........................... 581,783 62,853 58,319 403,870
Capital gain distributions from the
Trust............................ -- 28,519 -- 213,790
-------- -------- -------- --------
Net realized and unrealized gain on
investments......................... 602,616 141,254 61,844 823,147
-------- -------- -------- --------
Increase in net assets resulting from
operations.......................... $568,764 $333,156 $215,815 $851,204
======== ======== ======== ========
</TABLE>
See accompanying notes.
F-7
<PAGE> 64
AMERICAN GENERAL ANNUITY INSURANCE COMPANY
AGA SEPARATE ACCOUNT A
STATEMENT OF CHANGES IN NET ASSETS
YEAR ENDED DECEMBER 31, 1997
<TABLE>
<CAPTION>
GLOBAL ADVISORS GLOBAL ADVISORS BEA GROWTH CREDIT SUISSE
MONEY MARKET GROWTH EQUITY AND INCOME INTERNATIONAL
PORTFOLIO PORTFOLIO PORTFOLIO EQUITY PORTFOLIO
--------------- --------------- ---------- ----------------
<S> <C> <C> <C> <C>
Increase in net assets from operations:
Net investment income................ $ 119,221 $ 37,441 $ 107,086 $ 111,322
Net realized gain on investments..... -- 130,354 100,916 13,670
Net unrealized gain (loss) on
investments....................... -- 531,795 480,921 (288,014)
Realized gain distributions
reinvested........................ -- 636,692 237,747 174,638
------------ ---------- ---------- ----------
Increase in net assets from
operations........................... 119,221 1,336,282 926,670 11,616
Increase (decrease) in net assets from
variable annuity contract
transactions:
Contract purchase payments........... 21,397,097 542,144 862,564 357,394
Surrenders and withdrawals........... (777,511) (76,995) (81,416) (67,495)
Death benefit payments............... -- (18,871) -- --
Transfers (to) from general
account........................... (2,621,752) 2,689 (10,270) 2,524
Intra-portfolio transfers............ (14,307,815) 2,121,299 2,545,350 1,279,304
------------ ---------- ---------- ----------
Increase (decrease) in net assets from
variable annuity contract
transactions......................... 3,690,019 2,570,266 3,316,228 1,571,727
Capital distribution to American
General Annuity Insurance Company:... -- -- -- --
------------ ---------- ---------- ----------
Total increase (decrease) in net
assets............................ 3,809,240 3,906,548 4,242,898 1,583,343
Net assets at beginning of year...... 1,291,024 3,420,466 3,145,099 2,726,982
------------ ---------- ---------- ----------
Net assets at end of year............ $ 5,100,264 $7,327,014 $7,387,997 $4,310,325
============ ========== ========== ==========
</TABLE>
See accompanying notes.
F-8
<PAGE> 65
AMERICAN GENERAL ANNUITY INSURANCE COMPANY
AGA SEPARATE ACCOUNT A
STATEMENT OF CHANGES IN NET ASSETS -- (CONTINUED)
YEAR ENDED DECEMBER 31, 1997
<TABLE>
<CAPTION>
VAN KAMPEN
AMERICAN SALOMON
CAPITAL BROTHERS
EMERGING BLACKROCK U.S. GOVERNMENT ELITE VALUE
GROWTH MANAGED BOND SECURITIES ASSET ALLOCATION
PORTFOLIO PORTFOLIO PORTFOLIO PORTFOLIO
---------- ------------ --------------- ----------------
<S> <C> <C> <C> <C>
Increase in net assets from
operations:
Net investment income (loss)........ $ (33,852) $ 191,902 $ 153,971 $ 28,057
Net realized gain on investments.... 20,833 49,882 3,525 205,487
Net unrealized gain on
investments...................... 581,783 62,853 58,319 403,870
Realized gain distributions
reinvested....................... -- 28,519 -- 213,790
---------- ----------- ---------- ----------
Increase in net assets from
operations.......................... 568,764 333,156 215,815 851,204
Increase (decrease) in net assets from
variable annuity contract
transactions:
Contract purchase payments.......... 867,637 250,628 92,161 1,260,185
Surrenders and withdrawals.......... (60,234) (38,350) (40,812) (171,166)
Death benefit payments.............. (16,672) -- -- --
Transfers to general account........ (21,657) -- -- (8,947)
Intra-portfolio transfers........... 2,278,922 (521,383) 1,372,018 5,232,305
---------- ----------- ---------- ----------
Increase (decrease) in net assets from
variable annuity contract
transactions........................ 3,047,996 (309,105) 1,423,367 6,312,377
Capital distribution to American
General Annuity Insurance
Company:............................ -- (3,400,169) -- --
---------- ----------- ---------- ----------
Total increase (decrease) in net
assets........................... 3,616,760 (3,376,118) 1,639,182 7,163,581
Net assets at beginning of year..... 1,881,837 3,376,118 2,346,717 2,307,038
---------- ----------- ---------- ----------
Net assets at end of year........... $5,498,597 $ -- $3,985,899 $9,470,619
========== =========== ========== ==========
</TABLE>
See accompanying notes.
F-9
<PAGE> 66
AMERICAN GENERAL ANNUITY INSURANCE COMPANY
AGA SEPARATE ACCOUNT A
STATEMENT OF CHANGES IN NET ASSETS -- (CONTINUED)
YEAR ENDED DECEMBER 31, 1996
<TABLE>
<CAPTION>
GLOBAL ADVISORS GLOBAL ADVISORS BEA GROWTH CREDIT SUISSE
MONEY MARKET GROWTH EQUITY AND INCOME INTERNATIONAL
PORTFOLIO PORTFOLIO PORTFOLIO EQUITY PORTFOLIO
--------------- --------------- ---------- ----------------
<S> <C> <C> <C> <C>
Increase in net assets from operations:
Net investment income (loss)......... $ 28,527 $ 42,344 $ 115,002 $ 85,456
Net realized gain (loss) on
investments....................... -- 2,446 649 3,291
Net unrealized gain (loss) on
investments....................... -- 345,342 118,099 48,275
Realized gain distributions
reinvested........................ -- 123,806 102,803 223,678
----------- ---------- ---------- ----------
Increase in net assets from
operations........................... 28,527 513,938 336,553 360,700
Increase (decrease) in net assets from
variable annuity contract
transactions:
Contract purchase payments........... 5,880,850 65,850 65,642 12,334
Surrenders and withdrawals........... (3,961) (2,169) (3,500) (9,327)
Death benefit payments............... -- -- -- --
Transfers to general account......... (483,232) -- -- --
Intra-portfolio transfers............ (4,257,439) 770,208 610,085 280,251
----------- ---------- ---------- ----------
Increase in net assets from variable
annuity contract transactions........ 1,136,218 833,889 672,227 283,258
Capital distribution from American
General Annuity Insurance Company:... -- -- -- --
----------- ---------- ---------- ----------
Total increase in net assets......... 1,164,745 1,347,827 1,008,780 643,958
Net assets at beginning of year...... 126,279 2,072,639 2,136,319 2,083,024
----------- ---------- ---------- ----------
Net assets at end of year............ $ 1,291,024 $3,420,466 $3,145,099 $2,726,982
=========== ========== ========== ==========
</TABLE>
See accompanying notes.
F-10
<PAGE> 67
AMERICAN GENERAL ANNUITY INSURANCE COMPANY
AGA SEPARATE ACCOUNT A
STATEMENT OF CHANGES IN NET ASSETS -- (CONTINUED)
YEAR ENDED DECEMBER 31, 1996
<TABLE>
<CAPTION>
VAN KAMPEN
AMERICAN SALOMON
CAPITAL BLACKROCK BROTHERS
EMERGING MANAGED U.S. GOVERNMENT ELITE VALUE
GROWTH BOND SECURITIES ASSET ALLOCATION
PORTFOLIO PORTFOLIO PORTFOLIO PORTFOLIO
---------- ------------ --------------- ----------------
<S> <C> <C> <C> <C>
Increase in net assets from
operations:
Net investment income (loss)...... $ (4,773) $ 187,081 $ 119,192 $ 20,518
Net realized gain (loss) on
investments.................... 83,267 (116) (225) 2,490
Net unrealized gain (loss) on
investments.................... 622 (62,846) (41,021) 306,894
Realized gain distributions
reinvested..................... 49,696 -- -- 28,615
---------- ---------- ---------- ----------
Increase in net assets from
operations........................ 128,812 124,119 77,946 358,517
Increase (decrease) in net assets
from variable annuity contract
transactions:
Contract purchase payments........ 122,596 1,882 400 31,419
Surrenders and withdrawals........ (4,606) (915) (10,042) (12,454)
Death benefit payments............ -- -- -- --
Transfers to general account...... -- -- -- --
Intra-portfolio transfers......... 1,135,035 251,032 278,413 929,556
---------- ---------- ---------- ----------
Increase in net assets from variable
annuity contract transactions..... 1,253,025 251,999 268,771 948,521
Capital distribution from American
General Annuity Insurance
Company: ......................... 500,000 3,000,000 2,000,000 1,000,000
---------- ---------- ---------- ----------
Total increase in net assets...... 1,881,837 3,376,118 2,346,717 2,307,038
Net assets at beginning of year... -- -- -- --
---------- ---------- ---------- ----------
Net assets at end of year......... $1,881,837 $3,376,118 $2,346,717 $2,307,038
========== ========== ========== ==========
</TABLE>
See accompanying notes.
F-11
<PAGE> 68
AMERICAN GENERAL ANNUITY INSURANCE COMPANY
AGA SEPARATE ACCOUNT A
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1997
1. ORGANIZATION
AGA Separate Account A (the "Separate Account"), formerly known as WNL
Separate Account A, was established by (the "Company"), formerly known as
Western National Life Insurance Company, to fund variable annuity insurance
contracts issued by the Company. The Separate Account is registered with the
Securities and Exchange Commission as a unit investment trust pursuant to the
provisions of the Investment Company Act of 1940, as amended.
The Separate Account is divided into seven sub-accounts. Each sub-account
invests in one portfolio of AGA Series Trust (the "Trust"), formerly known as
WNL Series Trust. The Trust is managed by AGA Investment Advisory Services, Inc.
(the "Adviser"), formerly known as WNL Investment Advisory Services, Inc., an
affiliate of the Company. As of December 31, 1997, the Trust portfolios
available to contract holders through the various sub-accounts ("Portfolios")
are as follows:
AGA Series Trust:
Global Advisors Money Market Portfolio
Global Advisors Growth Equity Portfolio
BEA Growth and Income Portfolio
Credit Suisse International Equity Portfolio
Van Kampen American Capital Emerging Growth Portfolio (formerly
American Capital Emerging Growth Portfolio)
Salomon Brothers U.S. Government Securities Portfolio
Elite Value Asset Allocation Portfolio (formerly Quest for Value Asset
Allocation Portfolio)
In addition to the seven sub-accounts above, a contract owner may allocate
contract funds to a fixed account, which is part of the Company's general
account. Contract owners should refer to the "ElitePlus Bonus Variable Annuity
Prospectus" for a complete description of the Trust portfolios.
During 1997, the BlackRock Managed Bond sub-account was eliminated as one
of the investment options of the contract owners. Contract owners were given the
opportunity to transfer their BlackRock Managed Bond sub-account value to any
other sub-account without limitation or changes prior to December 17, 1997.
Thereafter, shares of the Salomon Brothers U.S. Government Securities Portfolio
were substituted for shares of the BlackRock Managed Bond Portfolio.
Net premiums from the contracts are allocated to the sub-accounts and
invested in the Portfolios in accordance with contract owner instructions and
are recorded as variable annuity contract transactions in the statement of
changes in net assets. There is no assurance that the investment objectives of
any of the Portfolios will be met. Contract owners bear the complete investment
risk for purchase payments allocated to a sub-account.
2. SIGNIFICANT ACCOUNTING POLICIES
The accompanying financial statements of the Separate Account have been
prepared on the basis of generally accepted accounting principles. The
accounting principles followed by the Separate Account and the methods of
applying those principles are presented below or in the footnotes which follow.
Investment Valuation
The investment shares of the Portfolios are valued at the closing net asset
value (market) per share as determined by the fund on the day of measurement.
Changes in the economic environment have a direct impact on the net asset value
per share of a portfolio. It is reasonably possible that changes in the economic
F-12
<PAGE> 69
AMERICAN GENERAL ANNUITY INSURANCE COMPANY
AGA SEPARATE ACCOUNT A
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
environment will occur in the near term and that such changes will have a
material effect on the net asset value per share of the Portfolios included in
the Trust.
Investment Transactions and Related Investment Income
Investment 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. Realized gains and losses from
investment transactions are reported on the basis of first-in, first-out for
financial reporting and federal income tax purposes.
Annuity Reserves
At December 31, 1997, the Separate Account did not have contracts in the
annuity pay-out phase; therefore, no future policy benefit reserve was required.
Federal Income Taxes
The Company is taxed as a life insurance company and includes the
operations of the Separate Account in its federal income tax return. As a
result, the Separate Account is not taxed as a "Regulated Investment Company"
under subchapter M of the Internal Revenue Code. Under existing laws, taxes are
not currently payable on the investment income on the realized gains of the
Separate Account. The Company reserves the right to allocate to the Separate
Account any federal, state, or other tax liability that may result in the future
from maintenance of the Separate Account.
Use of Estimates
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and the
reported amounts of income and expenses during the period. Actual results could
differ from those estimates.
3. CONTRACT CHARGES
Deductions for the administrative expenses and mortality and expense risks
assumed by the Company are calculated daily, at an annual rate, on the average
daily net asset value of the Portfolios attributable to the contract owners and
are paid to the Company. The annual rate for administrative expenses is .15% and
the annual rate for the mortality and expense risks is 1.25%. The annual rate
for enhanced death benefit option is .15%. For the year ended December 31, 1997,
deductions for administrative expenses and mortality and expense risk charges
were $24,727 and $209,050, respectively.
An annual maintenance charge of $30 per contract is assessed on the
contract anniversary during the accumulation period for the maintenance of the
contract. The maintenance charge is not assessed if the contract value on the
contract anniversary equals or exceeds $40,000. Maintenance charges totaled
$7,212 for the year ended December 31, 1997.
A contingent deferred sales charge is applicable to certain contract
withdrawals pursuant to the contract and is payable to the Company. For the year
ended December 31, 1997, deferred sales charges totaled $20,229 and are included
as a component of surrenders and withdrawals on the statement of changes in net
assets.
There are other deductions from and expenses (including management fees
paid to the investment adviser as other expenses) paid out of the assets of the
Trust. As full compensation for its services under the Investment Advisory
Agreement, the Adviser receives a monthly fee from the Trust based on annual
rates
F-13
<PAGE> 70
AMERICAN GENERAL ANNUITY INSURANCE COMPANY
AGA SEPARATE ACCOUNT A
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
which range from .45% to .90% based on the average daily net assets of each
Portfolio. The Adviser has waived that portion of its management fee which is in
excess of the amount payable by the Adviser to each sub-adviser pursuant to the
respective subadvisory agreements for each Portfolio through May 1, 1998. In
addition, the Company reimbursed each Portfolio for all operating expenses,
excluding management fees, that exceeded .12% of each Portfolio's average daily
net assets through May 1, 1998.
For the year ended December 31, 1997, the Adviser waived advisory fees and
the Company reimbursed operating expenses as follows:
<TABLE>
<CAPTION>
ADVISORY EXPENSES
FEES WAIVED REIMBURSED
----------- ----------
<S> <C> <C>
Global Advisors Money Market Portfolio...................... $ 7,387 $106,355
Global Advisors Growth Equity Portfolio..................... $13,030 $133,368
BEA Growth and Income Portfolio............................. $12,263 $117,412
Credit Suisse International Equity Portfolio................ $ 9,113 $147,213
Van Kampen American Capital Emerging Growth Portfolio....... $ 8,943 $170,896
Salomon Brothers U.S. Government Securities Portfolio....... $ 6,395 $104,434
Elite Value Asset Allocation Portfolio...................... $13,732 $109,560
</TABLE>
4. PURCHASE AND SALE OF INVESTMENTS
Portfolio shares are purchased at net asset value with net contract
payments (contract purchase payments less surrenders) and with reinvestment of
dividend and capital distributions made by the Portfolios. The aggregate cost of
purchases and proceeds from sales of investment in the Trust shares for the year
ended December 31, 1997 was $40,050,074 and $19,281,037, respectively, and
$21,165,690 and $7,804,034, respectively, for the year ended December 31, 1996.
The cost of total investments in Trust shares owned at December 31, 1997 and
1996 was the same for financial reporting and federal income tax purposes. At
December 31, 1997, gross unrealized appreciation and depreciation on Trust
shares was $2,940,777 and $172,712, respectively.
5. NET INCREASE (DECREASE) IN ACCUMULATION UNITS
The Company offers owners standard and enhanced death benefit contracts,
which differ in the calculation of death benefits and related charges.
F-14
<PAGE> 71
AMERICAN GENERAL ANNUITY INSURANCE COMPANY
AGA SEPARATE ACCOUNT A
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
The increase (decrease) in accumulation units for the years ended are as
follows:
For the year ended December 31, 1997:
<TABLE>
<CAPTION>
GLOBAL ADVISORS GLOBAL ADVISORS BEA GROWTH CREDIT SUISSE
MONEY MARKET GROWTH EQUITY AND INCOME INTERNATIONAL
PORTFOLIO PORTFOLIO PORTFOLIO EQUITY PORTFOLIO
--------------- --------------- --------------- ----------------
<S> <C> <C> <C> <C>
Standard benefit units:
Outstanding at beginning of
year....................... 109,837.9 68,154.9 48,634.3 17,186.2
Increase for payments
received................... 1,748,815.9 35,404.8 60,968.9 26,594.6
Decrease for surrendered
contracts.................. (62,967.4) (4,923.2) (5,242.9) (2,943.8)
Decrease for death claims..... -- (1,202.5) -- --
Change for net interfund
exchanges.................. (1,350,732.4) 133,774.0 157,755.8 85,563.0
------------- ---------- ---------- ----------
Outstanding at end of
period..................... 444,954.0 231,208.0 262,116.1 126,400.0
============= ========== ========== ==========
Enhanced benefit units:
Outstanding at beginning of
year....................... 3,403.7 5,232.7 11,709.8 8,510.2
Increase for payments
received................... 254,399.5 225.9 658.6 88.1
Decrease for surrendered
contracts.................. (10,056.9) (312.5) (845.4) (2,159.1)
Decrease for death claims..... -- -- -- --
Change for net interfund
exchanges.................. (234,269.8) 14,135.4 33,075.0 13,071.2
------------- ---------- ---------- ----------
Outstanding at end of
period..................... 13,476.5 19,281.5 44,598.0 19,510.4
============= ========== ========== ==========
</TABLE>
<TABLE>
<CAPTION>
VAN KAMPEN
AMERICAN SALOMON
CAPITAL BROTHERS ELITE VALUE
EMERGING BLACKROCK U.S. GOVERNMENT ASSET
GROWTH MANAGED BOND SECURITIES ALLOCATION
PORTFOLIO PORTFOLIO PORTFOLIO PORTFOLIO
--------------- --------------- --------------- ----------------
<S> <C> <C> <C> <C>
Standard benefit units:
Outstanding at beginning of
year....................... 107,870.9 14,436.2 15,638.1 69,575.7
Increase for payments
received................... 61,310.8 23,328.7 8,598.5 84,615.1
Decrease for surrendered
contracts.................. (4,703.4) (2,641.1) (674.1) (8,707.2)
Decrease for death claims..... (1,147.7) -- -- --
Change for net interfund
exchanges.................. 139,680.6 (35,123.8) 103,270.0 316,446.5
------------- ---------- ---------- ----------
Outstanding at end of
period..................... 303,011.2 -- 126,832.5 461,930.1
============= ========== ========== ==========
Enhanced benefit units:
Outstanding at beginning of
year....................... 2,072.6 11,399.4 11,806.1 13,965.2
Increase for payments
received................... 2,711.6 -- -- 272.4
Decrease for surrendered
contracts.................. (5.8) (933.2) (3,245.5) (3,424.9)
Decrease for death claims..... -- -- -- --
Change for net interfund
exchanges.................. 36,382.5 (10,466.2) 23,644.6 61,292.1
------------- ---------- ---------- ----------
Outstanding at end of
period..................... 41,160.9 -- 32,205.2 72,104.8
============= ========== ========== ==========
</TABLE>
F-15
<PAGE> 72
AMERICAN GENERAL ANNUITY INSURANCE COMPANY
AGA SEPARATE ACCOUNT A
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
For the year ended December 31, 1996:
<TABLE>
<CAPTION>
GLOBAL ADVISORS GLOBAL ADVISORS BEA GROWTH CREDIT SUISSE
MONEY MARKET GROWTH EQUITY AND INCOME INTERNATIONAL
PORTFOLIO PORTFOLIO PORTFOLIO EQUITY PORTFOLIO
--------------- --------------- ---------- ----------------
<S> <C> <C> <C> <C>
Standard benefit units:
Outstanding at beginning of year..... 2,464.4 124.2 461.8 430.6
Increase for payments received....... 500,186.2 5,781.3 4,927.3 978.8
Decrease for surrendered contracts... (386.1) (193.0) (308.2) (497.1)
Change for net interfund exchanges... (392,426.6) 62,442.4 43,553.4 16,273.9
---------- -------- -------- --------
Outstanding at end of period......... 109,837.9 68,154.9 48,634.3 17,186.2
========== ======== ======== ========
Enhanced benefit units:
Outstanding at beginning of year..... 24.9 -- -- --
Increase for payments received....... 71,973.9 3.6 933.4 108.1
Decrease for surrendered contracts... -- -- (2.5) (629.8)
Change for net interfund exchanges... (68,595.1) 5,229.1 10,778.9 9,031.9
---------- -------- -------- --------
Outstanding at end of period......... 3,403.7 5,232.7 11,709.8 8,510.2
========== ======== ======== ========
</TABLE>
<TABLE>
<CAPTION>
VAN KAMPEN
AMERICAN
CAPITAL SALOMON BROTHERS
EMERGING BLACKROCK U.S. GOVERNMENT ELITE VALUE
GROWTH MANAGED BOND SECURITIES ASSET ALLOCATION
PORTFOLIO PORTFOLIO PORTFOLIO PORTFOLIO
---------- -------------- ---------------- ----------------
<S> <C> <C> <C> <C>
Standard benefit units:
Outstanding at beginning of year..... -- -- -- --
Increase for payments received....... 10,902.4 154.5 -- 2,570.1
Decrease for surrendered contracts... (387.3) (94.3) (155.7) (357.2)
Change for net interfund exchanges... 97,355.8 14,376.0 15,793.8 67,362.8
--------- -------- -------- --------
Outstanding at end of period......... 107,870.9 14,436.2 15,638.1 69,575.7
========= ======== ======== ========
Enhanced benefit units:
Outstanding at beginning of year..... -- -- -- --
Increase for payments received....... -- 41.6 41.4 237.0
Decrease for surrendered contracts... -- -- (855.9) (769.0)
Change for net interfund exchanges... 2,072.6 11,357.8 12,620.6 14,497.2
--------- -------- -------- --------
Outstanding at end of period......... 2,072.6 11,399.4 11,806.1 13,965.2
========= ======== ======== ========
</TABLE>
6. DISTRIBUTION AGREEMENT
AGA Brokerage Services, Inc. ("AGA Brokerage"), formerly WNL Brokerage
Services, Inc., a wholly owned subsidiary of WNL Holding Corp., acts as the
principal underwriter of the contracts funded by the Separate Account. AGA
Brokerage is registered as a broker-dealer under the Securities Exchange Act of
1934 and is a member of the National Association of Securities Dealers, Inc. The
contracts are sold by registered representatives of the Company, who are also
insurance agents under state law.
7. RELATED PARTIES
Total capital contributed by the Company to the Separate Account was
$9,600,000 as of December 31, 1997. The capital was contributed to provide
diversification and to enhance investment performance. The capital will be
removed as the funds grow large enough to meet the diversification requirements
without the
F-16
<PAGE> 73
AMERICAN GENERAL ANNUITY INSURANCE COMPANY
AGA SEPARATE ACCOUNT A
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
additional capital. During 1997, the Company received a capital distribution
from the Separate Account of $3,400,169 due to the elimination of the BlackRock
Managed Bond Portfolio as one of the available investment options to contract
owners. Dividends, realized gain distributions, and unrealized gains related to
the contributed capital as of and for the year ended were $517,091, $573,091,
and $2,149,932, respectively.
8. SUBSEQUENT EVENT
On February 25, 1998, the Company's parent, Western National Corporation,
was acquired by American General Corporation.
F-17
<PAGE> 74
FINANCIAL STATEMENTS
AMERICAN GENERAL ANNUITY INSURANCE COMPANY
YEARS ENDED DECEMBER 31, 1997 AND 1996
<PAGE> 75
INDEX TO FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Reports of Independent Auditors............................. F-2
Balance Sheet as of December 31, 1997 and 1996.............. F-4
Statement of Operations for the years ended December 31,
1997, 1996 and 1995....................................... F-5
Statement of Shareholder's Equity for the years ended
December 31, 1997, 1996 and 1995.......................... F-6
Statement of Cash Flows for the years ended December 31,
1997, 1996 and 1995....................................... F-7
Notes to Financial Statements............................... F-8
Report of Independent Auditors on Financial Statement
Schedule.................................................. F-29
Financial Statement Schedule:
Schedule VI -- Reinsurance for the years ended December
31, 1997, 1996 and 1995................................ F-30
</TABLE>
F-1
<PAGE> 76
REPORT OF INDEPENDENT AUDITORS
To the Board of Directors of
American General Annuity Insurance Company
We have audited the accompanying balance sheet of American General Annuity
Insurance Company (formerly known as Western National Life Insurance Company) as
of December 31, 1997, and the related statements of Operations, shareholders
equity, and cash flows for the year ended December 31, 1997. Our audit also
included the financial statement schedule listed in the Index on page F-1 of
this Form N-4. These financial statements and schedule are the responsibility of
the Company's management. Our responsibility is to express an opinion on these
financial statements and schedules based on our audit.
We conducted our audit in accordance with generally accepted auditing
standards and 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 audit provides a reasonable basis for our
opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of American General Annuity
Insurance Company at December 31, 1997, and the consolidated results of its
operations and its cash flows for the year ended December 31, 1997, in
conformity with generally accepted accounting principles. Also, in our opinion,
the related financial statement schedule, when considered in relation to the
basic financial statements taken as a whole, presents fairly in all material
respects the information set forth therein.
ERNST & YOUNG LLP
Houston, Texas
May 12, 1998
F-2
<PAGE> 77
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors of
American General Annuity Insurance Company
We have audited the accompanying balance sheet of American General Annuity
Insurance Company, formerly known as Western National Life Insurance Company, as
of December 31, 1996, and the related statements of operations, shareholder's
equity, and cash flows for each of the two years in the period ended December
31, 1996. These financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these financial
statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of American General Annuity
Insurance Company as of December 31, 1996, and the results of its operations and
its cash flows for each of the two years in the period ended December 31, 1996,
in conformity with generally accepted accounting principles.
COOPERS & LYBRAND L.L.P.
Houston, Texas
February 5, 1997
F-3
<PAGE> 78
AMERICAN GENERAL ANNUITY INSURANCE COMPANY
BALANCE SHEET
DECEMBER 31, 1997 AND 1996
(DOLLARS IN MILLIONS)
ASSETS
<TABLE>
<CAPTION>
1997 1996
--------- ---------
<S> <C> <C>
Investments:
Fixed maturities actively managed at fair value (amortized
cost: 1997 -- $9,635.1; 1996 -- $8,738.4).............. $ 9,989.2 $ 8,842.5
Equity securities at fair value (cost: 1997 -- $10.1;
1996 -- $0.0).......................................... 10.4 --
Mortgage loans............................................ 102.5 122.7
Credit-tenant loans....................................... 217.0 208.5
Policy loans.............................................. 61.8 66.8
Other invested assets..................................... 33.4 24.5
Receivable for securities................................. 3.4 0.4
Short-term investments.................................... 475.6 105.4
--------- ---------
Total investments................................. 10,893.3 9,370.8
Accrued investment income................................... 161.7 156.6
Funds held by reinsurer and reinsurance receivables......... 220.8 98.0
Cost of policies purchased.................................. 7.7 50.4
Cost of policies produced................................... 418.0 380.2
Current income taxes........................................ 8.2 --
Other assets................................................ 13.8 9.7
Separate account assets..................................... 29.6 6.0
--------- ---------
Total assets...................................... $11,753.1 $10,071.7
========= =========
LIABILITIES AND SHAREHOLDER'S EQUITY
Liabilities:
Insurance liabilities..................................... $ 9,801.0 $ 8,679.9
Investment borrowings and payable for securities.......... 434.6 156.3
Deferred income taxes..................................... 153.8 96.4
Other liabilities......................................... 23.2 38.1
Separate account liability................................ 29.6 6.0
--------- ---------
Total liabilities................................. 10,442.2 8,976.7
--------- ---------
Shareholder's equity:
Common stock and additional paid-in capital (par value $50
per share; 100,000 shares authorized; 50,000 issued and
outstanding)........................................... 458.5 448.5
Unrealized appreciation of investments, net............... 129.9 39.1
Retained earnings......................................... 722.5 607.4
--------- ---------
Total shareholder's equity........................ 1,310.9 1,095.0
--------- ---------
Total liabilities and shareholder's equity........ $11,753.1 $10,071.7
========= =========
</TABLE>
The accompanying notes are an integral part of the financial statements.
F-4
<PAGE> 79
AMERICAN GENERAL ANNUITY INSURANCE COMPANY
STATEMENT OF OPERATIONS
FOR THE YEARS ENDED DECEMBER 31, 1997, 1996 AND 1995
(DOLLARS IN MILLIONS)
<TABLE>
<CAPTION>
1997 1996 1995
------ ------ -------
<S> <C> <C> <C>
Revenues:
Insurance policy income................................... $126.9 $ 91.0 $ 26.4
Net investment income..................................... 807.0 703.1 662.2
Equity in earnings of partnerships investments............ 0.3 7.0 3.8
Net realized losses....................................... (22.7) (2.3) (126.2)
------ ------ -------
Total revenues.................................... 911.5 798.8 566.2
------ ------ -------
Benefits and expenses:
Insurance policy benefits................................. 108.8 109.6 108.3
Change in future policy benefits and other liabilities.... 114.2 74.6 14.1
Interest expense on annuities and financial products...... 425.9 381.7 364.9
Interest expense on investment borrowing.................. 17.8 8.1 8.6
Amortization related to operations........................ 48.3 41.6 37.1
Amortization and change in future policy benefits related
to realized gains (losses)............................. (4.0) 0.6 (29.8)
Other operating costs and expenses........................ 20.3 13.5 41.3
------ ------ -------
Total benefits and expenses....................... 731.3 629.7 544.5
------ ------ -------
Income before income taxes........................ 180.2 169.1 21.7
Income tax expense.......................................... 64.9 59.1 6.3
------ ------ -------
Net income.................................................. $115.3 $110.0 $ 15.4
====== ====== =======
</TABLE>
The accompanying notes are an integral part of the financial statements.
F-5
<PAGE> 80
AMERICAN GENERAL ANNUITY INSURANCE COMPANY
STATEMENT OF SHAREHOLDER'S EQUITY
FOR THE YEARS ENDED DECEMBER 31, 1997, 1996 AND 1995
(DOLLARS IN MILLIONS)
<TABLE>
<CAPTION>
1997 1996 1995
-------- -------- -------
<S> <C> <C> <C>
Common stock and additional paid-in capital:
Balance, beginning of year................................ $ 448.5 $ 322.6 $ 322.6
Capital contribution................................... 10.0 125.9 --
-------- -------- -------
Balance, end of year...................................... 458.5 448.5 $ 322.6
======== ======== =======
Unrealized appreciation (depreciation) of investments, net:
Balance, beginning of year................................ $ 39.1 $ 125.2 $(322.1)
Change in unrealized appreciation (depreciation),
net.................................................. 90.8 (86.1) 447.3
-------- -------- -------
Balance, end of year................................... $ 129.9 $ 39.1 $ 125.2
======== ======== =======
Retained earnings:
Balance, beginning of year................................ $ 607.4 $ 496.9 $ 481.5
Beginning balance for WNL Investment Advisory Services,
Inc.................................................. -- 0.5 --
Other.................................................. (0.2) -- --
Net income............................................. 115.3 110.0 15.4
-------- -------- -------
Balance, end of year...................................... $ 722.5 $ 607.4 $ 496.9
======== ======== =======
Total shareholder's equity........................ $1,310.9 $1,095.0 $ 944.7
======== ======== =======
</TABLE>
The accompanying notes are an integral part of the financial statements.
F-6
<PAGE> 81
AMERICAN GENERAL ANNUITY INSURANCE COMPANY
STATEMENT OF CASH FLOWS
FOR THE YEARS ENDED DECEMBER 31, 1997, 1996 AND 1995
(DOLLARS IN MILLIONS)
<TABLE>
<CAPTION>
1997 1996 1995
--------- --------- ---------
<S> <C> <C> <C>
Cash flows from operating activities:
Net income................................................ $ 115.3 $ 110.0 $ 15.4
Adjustments to reconcile net income to net cash provided
by operating activities:
Amortization and depreciation.......................... 44.9 42.6 7.3
Realized (gains) losses on investments, net............ 16.2 (2.6) 119.4
Income taxes........................................... (11.6) 50.4 60.7
Increase in insurance liabilities...................... 57.3 8.2 116.0
Interest credited to insurance liabilities............. 438.4 391.8 370.2
Fees charged to insurance liabilities.................. (6.9) (4.4) (4.2)
Amortization (accrual) of investment income, net....... (10.5) (27.3) 3.7
Deferral of cost of policies produced.................. (147.6) (120.7) (62.2)
Other.................................................. (15.1) (9.3) (0.4)
--------- --------- ---------
Net cash provided by operating activities......... 480.4 438.7 625.9
--------- --------- ---------
Cash flows from investing activities:
Sales of investments...................................... 3,091.0 3,086.8 3,151.9
Maturities and redemptions of investments................. 581.2 431.0 376.3
Purchases of investments.................................. (4,593.1) (4,571.8) (3,686.4)
--------- --------- ---------
Net cash used in investing activities............. (920.9) (1,054.0) (158.2)
--------- --------- ---------
Cash flows from financing activities:
Deposits to insurance liabilities......................... 1,949.6 1,711.3 747.2
Withdrawals from insurance liabilities.................... (1,440.0) (1,402.7) (1,052.5)
Capital contributions from parent......................... 10.0 125.9 --
Advances to affiliates.................................... 6.0 -- --
Investment borrowings, net................................ 285.1 (128.6) 226.6
--------- --------- ---------
Net cash provided by (used in) financing
activities...................................... 810.7 305.9 (78.7)
--------- --------- ---------
Net increase (decrease) in short-term
investments..................................... 370.2 (309.4) 389.0
Short-term investments beginning of year.................... 105.4 414.8 25.8
--------- --------- ---------
Short-term investments end of year.......................... $ 475.6 $ 105.4 $ 414.8
========= ========= =========
Supplemental cash flow disclosure:
Income taxes (refunded) paid, net......................... $ 75.1 $ (25.4) $ (4.7)
========= ========= =========
Interest paid on investment borrowings.................... $ 17.8 $ 8.4 $ 8.0
========= ========= =========
</TABLE>
The accompanying notes are an integral part of the financial statements.
F-7
<PAGE> 82
AMERICAN GENERAL ANNUITY INSURANCE COMPANY
(FORMERLY WESTERN NATIONAL LIFE INSURANCE COMPANY)
NOTES TO FINANCIAL STATEMENTS
1. SIGNIFICANT ACCOUNTING POLICIES:
Organization, Nature of Operations and Basis of Presentation
American General Annuity Insurance Company (the "Company") is a State of
Texas domiciled life insurance company that was founded in 1944. The Company is
a wholly-owned subsidiary of Western National Corporation ("Western National").
In February 1994, Conseco, Inc. ("Conseco") transferred ownership of the Company
to Western National, an insurance holding company formed by Conseco. The
transactions were approved by the Texas Department of Insurance. Western
National completed an initial public offering of its common stock in February
1994 whereby Conseco retained approximately 40% ownership of Western National's
common stock. On December 23, 1994, AGC Life Insurance Company ("AGC Life"), a
Missouri-domiciled life insurer, purchased the remaining shares of common stock
held by Conseco. AGC Life is a wholly-owned subsidiary of American General
Corporation, a Texas corporation ("AGC"). References to "American General" are
references to AGC and its direct and indirect majority controlled subsidiaries.
As of December 31, 1996, American General owned approximately a 46% equity
interest in Western National. The increase in American General's equity interest
was the result of Western National issuing preferred stock to American General
in September 1996. On February 25, 1998, with the approval of the Texas
Department of Insurance and the shareholders of Western National, American
General acquired the remaining 54% of the outstanding common stock of Western
National for consideration valued at approximately $1.2 billion. The financial
statements are presented on an historical basis of accounting and do not reflect
any of the push down of purchase accounting adjustments that will occur upon the
acquisition.
WNL Investment Advisory Services, Inc. ("WNLIAS") was formed primarily to
manage the Company's investment portfolio and to own certain investments of the
Company. On March 27, 1998, WNLIAS changed its name to AGA Investment Advisory
Services, Inc ("AGAIAS"). AGAIAS is an investment subsidiary as defined by the
National Association of Insurance Commissioners. The Company and AGAIAS are
subsidiaries of Western National and are under common management control. The
accompanying financial statements include the accounts of WNLIAS as of and for
the years ended December 31, 1997 and 1996. The Company's investment in WNLIAS
preferred stock, intercompany investment advisory fees, and other intercompany
accounts have been eliminated.
The Company develops, markets and issues annuity products through niche
distribution channels. The Company sells deferred annuities, including its
proprietary fixed annuities, to the savings and retirement markets through
financial institutions (primarily banks and thrifts), and sells deferred
annuities to both tax-qualified and nonqualified retirement markets through
personal producing general agents ("PPGAs"). The Company also sells deferred
annuities through its direct sales operations. Under a joint marketing
arrangement with American General Life Insurance Company ("AGLIC"), the Company
markets and coinsures single premium immediate annuities ("SPIAs") through
specialty brokers to the structured settlement market. The Company also sells
SPIAs (other than structured settlement SPIAs) through its financial institution
and PPGA distribution channels. The Company commenced sales of its first
variable annuity product in fourth quarter 1995. Sales of deferred annuities
through financial institutions comprised 81%, 82% and 68% of net premiums
collected in 1997, 1996 and 1995, respectively. Sales through a single financial
institution comprised 40% of net premiums collected in 1997.
Overall Effect of Estimates
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities, the
disclosure of contingent assets and liabilities at the date of the financial
statements, and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
F-8
<PAGE> 83
AMERICAN GENERAL ANNUITY INSURANCE COMPANY
(FORMERLY WESTERN NATIONAL LIFE INSURANCE COMPANY)
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
Investments
Fixed maturity investments ("fixed maturities") are debt securities that
have original maturities greater than one year and are comprised of investments
such as U.S. Treasury securities, mortgage-backed securities, corporate bonds,
asset-backed securities and redeemable preferred stocks. Equity securities
include common and non-redeemable preferred stocks. The Company follows the
provisions of Statement of Financial Accounting Standards No. 115, ACCOUNTING
FOR CERTAIN INVESTMENTS IN DEBT AND EQUITY SECURITIES ("SFAS 115"), and,
accordingly, classifies its fixed maturities and equity securities into the
following categories:
- Actively managed fixed maturities and equity securities are securities
that may be sold prior to maturity due to changes that might occur in
market interest rates, changes in prepayment risk, the Company's
management of its income tax position, general liquidity needs, increase
in loan demand, the need to increase regulatory capital or similar
factors. Actively managed securities are carried at estimated fair value
and the net unrealized gains (losses) are recorded as a component of
shareholder's equity, net of tax and related adjustments described below.
All of the Company's fixed maturities and equity securities were
classified as actively managed as of December 31, 1997 and 1996.
- Held to maturity securities are those debt securities which the Company
has the ability and positive intent to hold to maturity, and are carried
at amortized cost. The Company may dispose of such securities under
certain unforeseen circumstances, such as issuer credit deterioration or
changes in regulatory requirements. The Company had no held to maturity
securities in 1997 and 1996.
- Trading account securities are fixed maturity and equity securities that
are bought and held primarily for the purpose of selling them in the near
term. Trading account securities are carried at estimated fair value and
the net unrealized gains (losses) are included as a component of net
trading income. The Company had no trading account activities in 1997 or
1996.
Changes in interest rates have a direct, inverse impact on the market value
of fixed-income investments. It is reasonably possible that changes in interest
rates will occur in the near term and, as a result of SFAS 115, such changes
will have a material impact on the carrying value of actively managed fixed
maturity and equity securities, with an offsetting effect to stockholder's
equity, net of the related effects on cost of policies purchased and produced
and deferred income taxes.
Anticipated returns, including realized gains and losses, from the
investment of policyholder balances are considered in determining the
amortization of the cost of policies purchased and the cost of policies
produced. When actively managed fixed maturity and equity securities are stated
at fair value, an adjustment is made to the cost of policies purchased and the
cost of policies produced equal to the change in amortization that would have
been recorded if such securities had been sold at their fair value and the
proceeds reinvested at current yields. Furthermore, if future yields expected to
be earned on such securities decline, it may be necessary to increase certain
insurance liabilities. Adjustments to such liabilities are required when their
balances, in addition to future net cash flows including investment income, are
insufficient to cover future benefits and expenses.
Mortgage loans and credit-tenant loans are carried at amortized cost.
Policy loans are carried at their current unpaid principal balance. Fees
received and costs incurred in connection with the Company's origination of
these loans are deferred and amortized as yield adjustments over the loan's
remaining contractual lives in accordance with SFAS 91. Short-term investments,
which principally include commercial paper, cash and other financial instruments
with original maturities of 90 days or less, are carried at amortized cost.
F-9
<PAGE> 84
AMERICAN GENERAL ANNUITY INSURANCE COMPANY
(FORMERLY WESTERN NATIONAL LIFE INSURANCE COMPANY)
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
Discounts and premiums of investment securities to par are amortized as
yield adjustments over the contractual lives of the underlying securities and
callable corporate bonds. Principal prepayments can alter the cash flow pattern
and yield of prepayment-sensitive investments such as mortgage-backed securities
("MBS") and callable bonds. The accretion of discount and amortization of
premium takes into consideration actual and estimated principal prepayments. In
the case of MBS, the Company utilizes estimated prepayment speed information
obtained from published sources or from estimates developed internally. The
effects on the yield of a security from changes in principal prepayments are
recognized retrospectively, except for interest only or residual interests in
structured securities which are recognized prospectively. The degree to which a
security is susceptible to yield adjustments is influenced by the difference
between its carrying value and par, the relative sensitivity of the underlying
assets backing the securities to changing interest rates, and the repayment
priority of the securities in the overall securitization structure. Prepayments
may also reduce future yield to the extent that proceeds are reinvested in a
lower rate environment.
The Company manages the extent of these risks by (i) principally purchasing
securities which are backed by collateral with lower prepayment sensitivity
(such as MBS priced at or near par value that are highly seasoned), (ii)
avoiding securities with values heavily influenced by changes in prepayments
(such as interest-only and principal-only securities), and (iii) purchasing
securities with prepayment protected structures.
The specific identification method is used to account for the disposition
of investments. The differences between the sales proceeds and the carrying
values are reported as gains (losses), or in the case of prepayments, as
adjustments to investment income. Declines in values of investments which are
considered other than temporary are recognized as realized losses. Subsequent
recoveries in value are recognized only when the investments are sold.
The Company occasionally uses derivative financial instruments to alter
interest rate exposure arising from mismatches between assets and liabilities.
Certain of the Company's fixed maturity investments are floating-rate
instruments. In an effort to reasonably closely match the average duration of
assets and liabilities, the Company has entered into interest rate swap
contracts that effectively convert the floating-rate securities to fixed-rate
instruments. Specifically, the Company contracts with counterparties to
exchange, at specified intervals, the difference between fixed-rate and
floating-rate interest amounts calculated by reference to an agreed notional
amount. The Company pays the floating rate and receives the fixed rate, with the
net difference charged or credited as an adjustment to investment income. The
Company's investment guidelines provide that all swap contracts must be either
(i) with parties rated "A" or better by a nationally recognized statistical
rating service, and/or (ii) secured by collateral approved by the Company's
Investment Committee.
The Company occasionally enters into mortgage dollar roll and reverse
repurchase transactions (collectively, "dollar rolls") when earnings enhancement
opportunities arise. Dollar rolls are agreements with an outside source, usually
broker/dealers, to sell mortgage-backed securities and then, at a predetermined
date, to buy back "substantially the same securities". The securities "rolled"
are agency pass-throughs [i.e., have been issued, assumed or guaranteed by the
Government National Mortgage Association ("GNMA"), the Federal National Mortgage
Association ("FNMA"), or the Federal Home Loan Mortgage Corporation ("FHLMC")].
The Company enters into dollar rolls whenever a positive spread can be
realized from the implicit interest cost of the investment borrowings and the
reinvestment of the proceeds in short-term financial instruments. Because both
sides of the transaction are entered into on the basis of short-term,
money-market rates, dollar rolls involve relatively little duration risk while
providing an enhancement to investment income. The Company's dollar rolls are
accounted for as short-term investment borrowings.
Other invested assets include investments in limited partnerships. The
Company follows the equity method of accounting for these investments. Limited
partnerships investments are likely to result in a higher
F-10
<PAGE> 85
AMERICAN GENERAL ANNUITY INSURANCE COMPANY
(FORMERLY WESTERN NATIONAL LIFE INSURANCE COMPANY)
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
degree of volatility in reported earnings than is typically the case with fixed
income investments, and present a greater risk of loss, as they reflect claims
on an issuer's capital structure junior to that of most fixed-income
investments.
Cost of Policies Purchased
The cost of policies purchased represents the portion of Conseco's cost of
acquiring the Company in 1987 that was attributable to the value of the right to
receive future cash flows from insurance contracts existing at the date of
acquisition. The value of the cost of policies purchased is the actuarially
determined present value of the projected future cash flows from the acquired
policies.
Expected future cash flows used in determining the cost of policies
purchased are based on actuarially determined projections of future premium
collection, mortality, surrenders, benefit payments, operating expenses, changes
in insurance liabilities, investment yields on the assets held to back such
policy liabilities and other factors. These projections take into account all
factors known or expected at the valuation date based on the collective judgment
of the management of the Company. Actual experience on purchased business may
vary from projections due to differences in renewal premiums collected,
investment spread, investment gains (losses), mortality and morbidity costs and
other factors. These variances from original projections, whether positive or
negative, are included in net income as they occur. To the extent that these
variances indicate that future cash flows will differ from those reflected in
the scheduled amortization of the cost of policies purchased, current and future
amortization is adjusted. Therefore, when the Company sells fixed maturities and
recognizes a gain (loss) it also reduces (increases) the future investment
spread because the proceeds from the sale of investments are reinvested at a
lower (higher) earnings rate and amortization is increased (decreased) to
reflect the change in the incidence of cash flows. The discount rate used to
determine such value is the current rate of return the Company would require to
justify the investment.
The cost of policies purchased is amortized (with interest at the same rate
used to determine the discounted value of the asset) based on the incidence of
the expected cash flows. Recoverability of the cost of policies purchased is
evaluated regularly by comparing the current estimate of expected future cash
flows (discounted at the rate of interest that accrues to the policies) to the
unamortized asset balance by line of insurance business. If such current
estimate indicates that the existing insurance liabilities, together with the
present value of future net cash flows from the business, will not be sufficient
to recover the cost of policies purchased, the difference is charged to expense.
Amortization is also adjusted for the current and future years to reflect (i)
the revised estimate of future cash flows and (ii) the revised interest rate
(but not greater than the rate initially used and not lower than the rate of
interest earned on invested assets) at which the discounted present value of
such expected future profits equals the unamortized asset balance. Expected
future cash flows used in determining the amortization pattern and
recoverability of cost of policies purchased is based on historical gross
profits and management's estimates and assumptions regarding future investment
spreads, maintenance expenses, and persistency of the block of business. The
accuracy of the estimates and assumptions are impacted by several factors,
including factors outside the control of management such as movements in
interest rates and competition from other investment alternatives. It is
reasonably possible that conditions impacting the estimates and assumptions will
change and that such changes will result in future adjustments to cost of
policies purchased.
F-11
<PAGE> 86
AMERICAN GENERAL ANNUITY INSURANCE COMPANY
(FORMERLY WESTERN NATIONAL LIFE INSURANCE COMPANY)
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
Cost of Policies Produced
Costs of producing new business (primarily commissions and certain costs of
policy issuance and underwriting) which vary with and are primarily related to
the production of new business, are deferred to the extent recoverable from
future profits. Such costs are amortized with interest as follows:
- For universal life-type contracts and investment-type contracts, in
relation to the present value of expected gross profits from these
contracts, discounted using the interest rate credited to the policy;
- For immediate annuities with mortality risks, in relation to the present
value of benefits to be paid;
- For traditional life contracts, in relation to future anticipated premium
revenue using the same assumptions that are used in calculating the
insurance liabilities.
Recoverability of the unamortized balance of the cost of policies produced
is evaluated regularly. For universal life-type contracts and investment-type
contracts, the accumulated amortization is adjusted (whether an increase or a
decrease) whenever there is a material change in the estimated gross profits
expected over the life of a block of business in order to maintain a constant
relationship between cumulative amortization and the present value (discounted
at the rate of interest that accrues to the policies) of expected gross profits.
For most other contracts, the unamortized asset balance is reduced by a charge
to income only when the sum of the present value of future cash flows and the
policy liabilities is not sufficient to cover such asset balance. Expected gross
profits used in determining the amortization pattern and recoverability of cost
of policies produced is based on historical gross profits and management's
estimates and assumptions regarding future investment spreads, maintenance
expenses, and persistency of the block of business. The accuracy of the
estimates and assumptions are impacted by several factors, including factors
outside the control of management such as movements in interest rates and
competition from other investment alternatives. It is reasonably possible that
conditions impacting the estimates and assumptions will change and that such
changes will result in future adjustments to cost of policies produced.
Insurance Liabilities, Recognition of Insurance Policy Income and Related
Benefits and Expenses
Reserves for universal life-type and investment-type contracts are based on
the contract account balance, if future benefit payments in excess of the
account balance are not guaranteed, or on the present value of future benefit
payments when such payments are guaranteed. Additional increases to insurance
liabilities are made, or deferred acquisition costs are written off, if future
cash flows, including investment income, are insufficient to cover future
benefits and expenses.
For investment contracts without mortality risk (such as deferred annuities
and immediate annuities with benefits paid for a period certain) and for
contracts that permit the Company or the insured to make changes in the contract
terms (such as single premium whole life and universal life), premium deposits
and benefit payments are recorded as increases or decreases in a liability
account rather than as revenue and expense. Amounts charged against the
liability account for the cost of insurance, policy administration and surrender
penalties are recorded as revenues. Interest credited to the liability account
and benefit payments made in excess of the contract liability account balance
are charged to expense.
Reserves for traditional and limited-payment contracts are generally
calculated using the net level premium method and assumptions as to investment
yields, mortality, withdrawals and dividends. The assumptions are based on
projections of past experience and include provisions for possible adverse
deviation. These assumptions are made at the time the contract is issued or, in
the case of contracts acquired by purchase, at the purchase date.
F-12
<PAGE> 87
AMERICAN GENERAL ANNUITY INSURANCE COMPANY
(FORMERLY WESTERN NATIONAL LIFE INSURANCE COMPANY)
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
For traditional insurance contracts, premiums are recognized as income when
due. Benefits and expenses are associated with earned premiums so as to result
in their recognition over the premium-paying period of the contracts. Such
recognition is accomplished through the provision for future policy benefits and
the amortization of deferred policy acquisition costs.
For contracts with mortality risk, but with premiums paid for only a
limited period (such as single premium immediate annuities with benefits paid
for the life of the annuitant), the accounting treatment is similar to
traditional contracts. However, the excess of the gross premium over the net
premium is deferred and recognized in relation to the present value of expected
future benefit payments.
Liabilities for incurred claims are determined using historical experience
and represent an estimate of the present value of the ultimate net cost of all
reported and unreported claims. Management believes these estimates are
adequate. Such estimates are periodically reviewed and any adjustments are
reflected in current operations.
Income Taxes
Pursuant to a tax sharing agreement, the Company was included in Conseco's
consolidated tax return beginning January 1, 1993. Under the agreements, income
taxes were allocated based upon separate return calculations with certain
adjustments. Commencing with the income tax reporting period ended December 31,
1994, the Company has filed separate life insurance company tax returns. WNLIAS
is included in the consolidated tax return of Western National. Income taxes are
allocated to WNLIAS on a separate return basis.
Deferred income taxes are provided for the future tax effects of temporary
differences between the tax bases of assets and liabilities and their financial
reporting amounts, measured using the enacted tax rates and laws that will be in
effect when the differences are expected to reverse. The Company provides a
valuation allowance, if necessary, to reduce deferred tax assets, if any, to
their estimated realizable value.
2. INVESTMENTS:
The amortized cost, gross unrealized gains and losses, estimated fair value
and carrying value of actively managed and held to maturity fixed maturities
were as follows:
<TABLE>
<CAPTION>
DECEMBER 31, 1997
--------------------------------------------------
GROSS GROSS ESTIMATED
AMORTIZED UNREALIZED UNREALIZED FAIR
COST GAINS LOSSES VALUE
--------- ---------- ---------- ---------
(DOLLARS IN MILLIONS)
<S> <C> <C> <C> <C>
Actively managed:
U.S. Treasury securities and obligations of
U.S. government corporations and agencies... $ 130.1 $ 1.0 $ -- $ 131.1
Obligations of states and political
subdivisions................................ 185.7 9.4 (5.3) 189.8
Public utility securities...................... 1,015.2 37.3 (14.6) 1,037.9
Other corporate securities..................... 5,030.8 258.3 (32.9) 5,256.2
Asset-backed securities........................ 479.6 19.0 (0.9) 497.7
Mortgage-backed securities..................... 2,793.7 88.4 (5.6) 2,876.5
-------- ------ ------ --------
Total actively managed................. $9,635.1 $413.4 $(59.3) $9,989.2
======== ====== ====== ========
</TABLE>
F-13
<PAGE> 88
AMERICAN GENERAL ANNUITY INSURANCE COMPANY
(FORMERLY WESTERN NATIONAL LIFE INSURANCE COMPANY)
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
<TABLE>
<CAPTION>
DECEMBER 31, 1996
--------------------------------------------------
GROSS GROSS ESTIMATED
AMORTIZED UNREALIZED UNREALIZED FAIR
COST GAINS LOSSES VALUE
--------- ---------- ---------- ---------
(DOLLARS IN MILLIONS)
<S> <C> <C> <C> <C>
Actively managed:
U.S. Treasury securities and obligations of
U.S. government corporations and agencies... $ 20.8 $ 0.6 $ -- $ 21.4
Obligations of states and political
subdivisions................................ 224.1 2.6 (4.7) 222.0
Public utility securities...................... 1,251.6 21.0 (30.4) 1,242.2
Other corporate securities..................... 4,583.6 140.0 (36.2) 4,687.4
Asset-backed securities........................ 349.3 5.2 (2.6) 351.9
Mortgage-backed securities..................... 2,309.0 28.4 (19.8) 2,317.6
-------- ------ ------ --------
Total actively managed................. $8,738.4 $197.8 $(93.7) $8,842.5
======== ====== ====== ========
</TABLE>
The following table sets forth the amortized cost and estimated fair value
of fixed maturities as of December 31, 1997, based upon the source of the
estimated fair value:
<TABLE>
<CAPTION>
ESTIMATED
AMORTIZED FAIR
COST VALUE
--------- ---------
(DOLLARS IN MILLIONS)
<S> <C> <C>
Nationally recognized pricing services...................... $8,335.3 $8,663.1
Broker-dealer market makers................................. 757.4 782.9
Internally developed methods................................ 542.4 543.2
-------- --------
Total fixed maturities............................ $9,635.1 $9,989.2
======== ========
</TABLE>
The following table sets forth the quality of total fixed maturities as of
December 31, 1997, classified in accordance with the highest rating by a
nationally recognized statistical rating organization or, as to $220.3 million
of fixed maturities not commercially rated, then based on ratings assigned by
the NAIC as follows (for purposes of the table, and only for fixed maturities
not commercially rated: NAIC Class 1
F-14
<PAGE> 89
AMERICAN GENERAL ANNUITY INSURANCE COMPANY
(FORMERLY WESTERN NATIONAL LIFE INSURANCE COMPANY)
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
securities would be included in the "A" rating; Class 2, "BBBC"; Class 3, "BBC";
and Classes 4-6, "B" and below):
<TABLE>
<CAPTION>
FAIR VALUE
----------
AS A % OF AS A % OF AS A % OF
AMORTIZED FAIR FIXED AMORTIZED TOTAL
COMMERCIAL RATING COST VALUE MATURITIES COST INVESTMENTS
----------------- --------- -------- ---------- ---------- -----------
(DOLLARS IN MILLIONS)
<S> <C> <C> <C> <C> <C>
A....................................... $3,075.4 $3,163.4 31.7% 102.9% 29.0%
AA...................................... 787.1 813.4 8.1 103.3 7.5
A....................................... 2,275.1 2,382.7 23.8 104.7 21.8
BBB+.................................... 773.8 808.5 8.1 104.5 7.4
BBB..................................... 1,170.1 1,219.0 12.2 104.2 11.2
BBBC.................................... 844.3 876.3 8.8 103.8 8.0
-------- -------- ----- ----- ----
Total investment grade........ 8,925.8 9,263.3 92.7 103.8 84.9
-------- -------- ----- ----- ----
BB+..................................... 229.2 231.4 2.3 101.0 2.1
BB...................................... 93.6 96.9 1.0 103.5 0.9
BBC..................................... 130.7 137.1 1.4 104.9 1.3
B and below............................. 255.8 260.5 2.6 101.8 2.4
-------- -------- ----- ----- ----
Total below investment
grade....................... 709.3 725.9 7.3 102.4 6.7
-------- -------- ----- ----- ----
Total fixed maturities........ $9,635.1 $9,989.2 100.0% 103.7% 91.6%
======== ======== ===== ===== ====
</TABLE>
The amortized cost and estimated fair value of fixed maturities by
contractual maturity as of December 31, 1997 were as follows:
<TABLE>
<CAPTION>
ESTIMATED
AMORTIZED FAIR
COST VALUE
--------- ---------
(DOLLARS IN MILLIONS)
<S> <C> <C>
Due in one year or less..................................... $ 143.4 $ 148.2
Due after one year through five years....................... 673.5 690.4
Due after five years through ten years...................... 2,547.9 2,619.1
Due after ten years......................................... 3,476.7 3,655.1
-------- --------
Subtotal.......................................... 6,841.5 7,112.8
Mortgage-backed securities.................................. 2,793.6 2,876.4
-------- --------
Total fixed maturities............................ $9,635.1 $9,989.2
======== ========
</TABLE>
Actual maturities will differ from contractual maturities because borrowers
may have the right to call or prepay obligations, with or without call or
prepayment penalties, and because most mortgage-backed securities provide for
periodic payments throughout their lives.
F-15
<PAGE> 90
AMERICAN GENERAL ANNUITY INSURANCE COMPANY
(FORMERLY WESTERN NATIONAL LIFE INSURANCE COMPANY)
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
Net investment income consisted of the following:
<TABLE>
<CAPTION>
1997 1996 1995
------ ------ ------
(DOLLARS IN MILLIONS)
<S> <C> <C> <C>
Fixed maturities........................................... $746.2 $656.8 $610.1
Equity securities........................................ 0.4 0.8 0.2
Mortgage loans........................................... 7.9 9.7 9.4
Credit-tenant loans...................................... 17.7 19.8 23.9
Policy loans............................................. 3.9 4.1 4.4
Equity in earnings of partnership investment............. 0.3 7.0 3.8
Other invested assets.................................... 16.6 8.3 6.0
Short-term investments................................... 18.6 6.8 12.8
------ ------ ------
Gross investment income.................................... 811.6 713.3 670.6
Investment expenses...................................... (4.3) (3.2) (4.6)
------ ------ ------
Net investment income and equity in earnings of partnership
investments.............................................. $807.3 $710.1 $666.0
====== ====== ======
</TABLE>
The Company had no investments on nonaccrual status nor any fixed
maturities in default as to the payment of principal or interest at December 31,
1997 and 1996. No credit impairment write-downs were necessitated in 1997,
compared to $5.6 million in 1996 and $6.4 million in 1995.
The proceeds from sales of actively managed fixed maturities were $3.1
billion, $3.1 billion, and $3.2 billion for the years ended December 31, 1997,
1996 and 1995, respectively.
Net realized gains (losses) were as follows:
<TABLE>
<CAPTION>
1997 1996 1995
------ ------ -------
(DOLLARS IN MILLIONS)
<S> <C> <C> <C>
Fixed maturities:
Gross realized gains.................................... $ 29.9 $ 34.0 $ 17.8
Gross realized losses................................... (47.5) (25.6) (128.6)
Decline in net realizable value that is other than
temporary............................................ -- (5.6) (6.4)
------ ------ -------
(17.6) 2.8 (117.2)
Equity securities......................................... -- -- 0.8
Mortgages loans........................................... -- (0.2) --
Other..................................................... 1.4 -- (3.0)
------ ------ -------
Net realized gains (losses) before expenses............. (16.2) 2.6 (119.4)
Investment expenses....................................... (6.5) (4.9) (6.8)
------ ------ -------
Net realized losses..................................... $(22.7) $ (2.3) $(126.2)
====== ====== =======
</TABLE>
F-16
<PAGE> 91
AMERICAN GENERAL ANNUITY INSURANCE COMPANY
(FORMERLY WESTERN NATIONAL LIFE INSURANCE COMPANY)
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
Changes in unrealized appreciation (depreciation) on investments carried at
estimated fair value, net of the effects on other balance sheet accounts, were
as follows:
<TABLE>
<CAPTION>
1997 1996 1995
------ ------- -------
(DOLLARS IN MILLIONS)
<S> <C> <C> <C>
Investments carried at estimated fair value:
Actively managed fixed maturities...................... $250.0 $(238.1) $ 947.5
Equity securities...................................... 0.3 -- 0.4
Other.................................................. 1.3 (10.1) 11.0
------ ------- -------
Change in unrealized appreciation (depreciation),
gross............................................. 251.6 (248.2) 958.9
Less effect on other balance sheet accounts:
Cost of policies purchased............................. (37.7) 18.9 (63.7)
Cost of policies produced.............................. (71.0) 68.3 (196.7)
Insurance liabilities.................................. -- 36.3 (36.3)
Other liabilities...................................... (3.3) (7.8) 25.8
Deferred income taxes.................................. (48.8) 46.4 (240.7)
------ ------- -------
Change in unrealized appreciation (depreciation),
net............................................... $ 90.8 $ (86.1) $ 447.3
====== ======= =======
</TABLE>
At December 31, 1997, the aggregate carrying value of the Company's MBS
portfolio was approximately $2.9 billion, or 26.4% of total invested assets. The
following table sets forth the carrying value of the Company's MBS portfolio by
structural type and underlying collateral coupon class as of December 31, 1997:
<TABLE>
<CAPTION>
COLLATERAL COUPON CLASS
-------------------------------------------------------
7% AND 9.01% AND
MBS TYPE BELOW 7.01-8.00% 8.01-9.00% ABOVE TOTAL
-------- ------ ---------- ---------- --------- --------
(DOLLARS IN MILLIONS)
<S> <C> <C> <C> <C> <C>
Agency pass-throughs....................... $865.2 $764.9 $23.9 $ 8.4 $1,662.4
Commercial MBS............................. 34.9 61.2 1.1 -- 97.2
CMOs:
PACs, TACs and VADMs..................... 271.3 141.9 6.2 -- 419.4
Sequentials.............................. 118.3 167.1 80.1 42.7 408.2
Supports and other....................... 21.4 11.9 -- -- 33.3
Mezzanines and subordinates.............. 24.5 9.4 -- -- 33.9
Z-tranches............................... 29.2 5.8 30.5 -- 65.5
ARMs and floaters........................ (a) (a) (a) (a) 156.5
--------
Total CMOs....................... 1,116.8
--------
Total MBS........................ $2,876.4
========
</TABLE>
- ---------------
(a) The collateral coupon rates are not meaningful as they reset periodically in
accordance with changes in market interest rates.
Asset-backed securities ("ABS") are securitized pools of assets, such as
manufactured housing loans and credit card receivables, that are collateralized
by the underlying loans. ABS are typically structured similarly to CMOs or MBS
pass-throughs, but are usually not subject to as much prepayment risk as MBS.
Senior-tranche ABS contain credit enhancement features that raise the quality of
the ABS above that of the underlying loans. At December 31, 1997, the aggregate
carrying value of the Company's ABS portfolio was
F-17
<PAGE> 92
AMERICAN GENERAL ANNUITY INSURANCE COMPANY
(FORMERLY WESTERN NATIONAL LIFE INSURANCE COMPANY)
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
$497.7 million, or 4.6% of total invested assets. The following table sets forth
the carrying value of the Company's ABS portfolio by collateral type as of
December 31, 1997:
<TABLE>
<CAPTION>
CARRYING VALUE
---------------------
(DOLLARS IN AS A
COLLATERAL TYPE MILLIONS) PERCENT
--------------- ----------- -------
<S> <C> <C>
Manufactured housing loans.................................. $214.9 43.2%
Home equity loans........................................... 133.8 26.9
Emerging markets debt....................................... 30.9 6.2
Credit card receivables..................................... 28.3 5.7
Automobile loans............................................ 28.0 5.6
Commercial loans............................................ 25.0 5.0
Airplane leases............................................. 14.4 2.9
Home improvement loans...................................... 11.8 2.4
All other................................................... 10.6 2.1
------ -----
Total asset-backed securities..................... $497.7 100.0%
====== =====
</TABLE>
At December 31, 1997, the Company had total mortgage loans of $102.5
million, or 0.9% of total invested assets, consisting of $72.7 million of
commercial mortgages and $29.8 million of mortgage investments in junior and
residual interest of CMOs ("CMO residuals"). Total mortgage loans at year-end
1997 decreased by $20.2 million from $122.7 million at year-end 1996. This
decrease reflects payoffs of $14.4 million and paydowns of $5.8 million received
during 1997. There were no commercial mortgage loan originations in 1997.
Approximately 71% of the commercial mortgages were on properties located in
three states -- Florida (29%), Texas (24%), and North Carolina (18%),
respectively. No other state comprised greater than 8% of the total commercial
mortgage loan balance.
The CMO residuals entitle the Company to the excess cash flows arising from
the difference between (i) the cash flows required to make principal and
interest payments on the other tranches of the CMO and (ii) the actual cash
flows received on the mortgage loan assets backing the CMO. If prepayments or
credit losses on the underlying mortgage loan assets vary from projections, the
total cash flows to the Company could differ from projections. Changes in
projected cash flows which impact the yields of the CMO residuals are recognized
in investment income prospectively. The average yield of the Company's CMO
residuals was 9.5% at December 31, 1997.
During 1996 the Company recognized $0.2 million of realized losses on
mortgage loans, compared with none in 1997 and 1995. The Company had no
nonperforming mortgage loans as of December 31, 1997 and 1996.
At December 31, 1997, the Company held $217.0 million, or 2.0% of total
invested assets, of credit-tenant loans ("CTLs") compared to $208.5 million at
year-end 1996. CTLs are mortgage loans for commercial properties which require,
as stipulated by the Company's underwriting guidelines, (i) the lease of the
principal tenant to be assigned to the Company (including the direct receipt by
the Company of the tenant's lease payments) and to produce adequate cash flow to
fund the requirements of the loan and (ii) the principal tenant (or the
guarantor of such tenant's obligations) to have a credit rating of generally at
least "BBB" or its equivalent. The underwriting guidelines take into account
such factors as the lease terms on the subject property; the borrower's
management ability, including business experience, property management
capabilities and financial soundness; and such economic, demographic or other
factors that may affect the income generated by the property or its value. The
underwriting guidelines also require a loan-to-value ratio of 75% or less.
Because CTLs are principally underwritten on the basis of the creditworthiness
of the tenant rather than on the value of the underlying property, they are
classified as a separate class of securities for
F-18
<PAGE> 93
AMERICAN GENERAL ANNUITY INSURANCE COMPANY
(FORMERLY WESTERN NATIONAL LIFE INSURANCE COMPANY)
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
financial reporting purposes. As with commercial mortgage loans, CTLs are
additionally secured by liens on the underlying property.
As part of its investment strategy, the Company enters into mortgage dollar
roll and reverse repurchase transactions principally to increase investment
earnings and to improve liquidity. These transactions are typically terminable
after 30 days and are accounted for as short-term investment borrowings, with
the proceeds of such borrowings typically reinvested in short-term financial
instruments. The dollar rolls are collateralized by mortgage-backed agency
pass-throughs with fair values approximating the underlying loan value. Such
borrowings were $419.7 million and $134.6 million at December 31, 1997 and 1996,
respectively. At December 31, 1997 and 1996, the weighted average interest rate
approximated 5.5% and 5.0%, respectively.
At December 31, 1997, the Company had outstanding interest rate swap
agreements with total notional contract amounts of $230.0 million, compared to
$330.0 million at December 31, 1996. The $100.0 million decrease resulted from
several contracts expiring in 1997. The remaining contracts expire at various
dates in 1998 and 1999. At December 31, 1997 and 1996, the average contractual
floating-pay rates approximated 5.9% and 5.7%, respectively, and the average
fixed-receipt rates approximated 7.2% and 7.3%, respectively. The Company's
interest rate swaps had an estimated fair value of a positive $1.1 million and
$4.4 million at year-end 1997 and 1996, respectively.
Excluding investments issued, assumed or guaranteed by the U. S. government
or U.S. government agencies, the Company had no investments in any entity in
excess of 10% of shareholder's equity or $131.1 million as of December 31, 1997.
The Company's twenty non-U.S. government issuer concentrations were as follows:
<TABLE>
<CAPTION>
AMORTIZED ESTIMATED
COLLATERAL TYPE COST FAIR VALUE
--------------- --------- ----------
(DOLLARS IN MILLIONS)
<S> <C> <C>
1. British Columbia Hydro & Power.......................... $ 93.7 $ 88.7
2. Occidental Petroleum.................................... 81.4 89.0
3. Time Warner, Inc........................................ 77.3 85.6
4. Paine Webber Group...................................... 76.0 80.8
5. American Airlines....................................... 74.6 85.0
6. Federal Express......................................... 68.1 73.6
7. USX Corp................................................ 67.1 71.9
8. May Department Stores................................... 60.9 62.4
9. Ford Motor Co./Ford Capital............................. 60.8 63.6
10. Lehman Brothers......................................... 58.4 61.6
11. Phillips Petroleum...................................... 57.6 66.1
12. Long Island Lighting.................................... 56.9 57.0
13. Continental Cablevision, Inc............................ 56.7 59.6
14. Freeport-McMoran........................................ 55.2 51.3
15. BankAmerica Corp........................................ 54.1 55.1
16. Salomon, Inc............................................ 52.4 54.7
17. McDonnell Douglas....................................... 50.8 58.6
18. Wal-Mart Stores......................................... 50.7 51.2
19. Northern Indiana Public Service......................... 50.4 52.4
20. United Airlines......................................... 50.2 54.0
-------- --------
$1,253.3 $1,322.2
======== ========
</TABLE>
F-19
<PAGE> 94
AMERICAN GENERAL ANNUITY INSURANCE COMPANY
(FORMERLY WESTERN NATIONAL LIFE INSURANCE COMPANY)
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
3. INSURANCE LIABILITIES:
Insurance liabilities consisted of the following:
<TABLE>
<CAPTION>
INTEREST DECEMBER 31,
WITHDRAWAL MORTALITY RATE ---------------------
ASSUMPTION ASSUMPTION ASSUMPTION 1997 1996
---------- ---------- ---------- --------- ---------
(DOLLARS IN MILLIONS)
<S> <C> <C> <C> <C> <C>
Future policy benefits:
Investment contracts.................. N/A N/A (d) $8,294.2 $7,274.3
Limited-payment contracts............. None (b) 4%-11% 1,418.8 1,328.1
Traditional life insurance
contracts.......................... (a) (c) (e) 32.5 32.5
Universal life-type contracts......... N/A N/A N/A 36.7 43.5
Claims payable and other
policyholders' funds............... N/A N/A N/A 18.8 1.5
-------- --------
Total insurance liabilities... $9,801.0 $8,679.9
======== ========
</TABLE>
- ---------------
(a) Company experience.
(b) Principally the 1984 United States Population Table.
(c) Principally modifications of the 1965C70 Basic, Select and Ultimate Tables.
(d) In 1997 and 1996, approximately 95% of this liability represented account
balances where future benefits were not guaranteed and 5% represented the
present value of guaranteed future benefits determined using interest rates
ranging from 3% to 12%.
(e) Various, ranging from 3% to 6% in 1997 and 1996.
Realized gains on fixed maturities during 1994 reduced the expected future
yields on the investment of policyholder balances to the extent that future cash
flows on certain products were insufficient to cover future benefits and
expenses. No additions to liabilities were required in 1997 and 1996.
4. REINSURANCE:
In the normal course of business, the Company seeks to limit its exposure
to loss on any single policy and to recover a portion of benefits paid by ceding
reinsurance to other insurance enterprises or reinsurers under excess coverage
contracts. The Company has set its retention limit for acceptance of risk on
life insurance policies at various levels up to $0.8 million. To the extent that
reinsuring companies are unable to meet obligations under these agreements, the
Company remains contingently liable. The Company evaluates the financial
condition of its reinsurers to minimize its exposure to significant losses from
reinsurer insolvencies. Assets and liabilities relating to reinsurance contracts
are reported gross of the effects of reinsurance. Reinsurance receivables and
prepaid reinsurance premiums, including amounts related to insurance
liabilities, are reported as assets.
Direct and assumed life insurance in force totaled $495.8 million, $561.5
million and $628.6 million at December 31, 1997, 1996 and 1995, respectively and
ceded life insurance in force totaled $212.8 million, $247.6 million and $286.1
million at December 31, 1997, 1996 and 1995, respectively.
The cost of ceded policies containing mortality risks totaled $1.2 million
in 1997, $1.5 million in 1996, and $1.3 million in 1995, and was deducted from
insurance premium revenue. Reinsurance recoveries netted against insurance
policy benefits totaled $1.5 million, $1.4 million and $4.5 million in 1997,
1996 and 1995, respectively.
F-20
<PAGE> 95
AMERICAN GENERAL ANNUITY INSURANCE COMPANY
(FORMERLY WESTERN NATIONAL LIFE INSURANCE COMPANY)
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
Effective October 1, 1995, the Company recaptured certain annuity business
with assets approximately equal to insurance liabilities of $72.8 million that
had previously been ceded.
In October 1995, the Company and American General Life Insurance Company
("AG Life") entered into a modified coinsurance agreement. Under the agreement,
AG Life issues the SPIAs, and 50% of each risk is reinsured to the Company.
Under this arrangement, the Company reports its pro rata share of premiums and
shares in its pro rata portion of the gain or loss on policies sold. Pursuant to
this arrangement, the Company assumed premiums of $126.3 million and $90.9
million for the years ended December 31, 1997 and 1996, respectively. The
arrangement resulted in $126.8 million and $91.3 million of revenues and
expenses for the Company in 1997 and 1996, respectively. As of December 31, 1997
and 1996, the funds held by reinsurer and the insurance liabilities resulting
from this agreement were $219.5 million and $96.6 million, respectively.
Since 1994, the Company has been a party to a standby reinsurance agreement
for new SPDA sales through selected financial institutions, which becomes
effective only if the Company's risk-based capital ratio falls below a
prescribed level. No reinsurance pursuant to this agreement has become
effective.
5. INCOME TAXES:
The components of income tax included in the balance sheet are as follows:
<TABLE>
<CAPTION>
DECEMBER 31,
----------------------
1997 1996
--------- ---------
(DOLLARS IN MILLIONS)
<S> <C> <C>
Deferred income tax liabilities:
Investments............................................... $ 20.0 $ 21.1
Cost of policies produced and purchased................... 176.0 143.6
Unrealized appreciation of investments.................... 69.9 21.1
------ ------
Gross deferred income tax liabilities.................. 265.9 185.8
Deferred income tax assets:
Insurance liabilities..................................... 105.4 80.6
Other..................................................... 6.7 8.8
------ ------
Gross deferred income tax assets....................... 112.1 89.4
Net deferred income tax liabilities......................... $153.8 $ 96.4
====== ======
</TABLE>
Income tax expense was as follows:
<TABLE>
<CAPTION>
1997 1996 1995
----- ----- ------
(DOLLARS IN MILLIONS)
<S> <C> <C> <C>
Current tax provision (benefit)............................ $55.8 $31.6 $(23.0)
Deferred tax provision..................................... 9.1 27.5 29.3
----- ----- ------
Income tax expense............................... $64.9 $59.1 $ 6.3
===== ===== ======
</TABLE>
F-21
<PAGE> 96
AMERICAN GENERAL ANNUITY INSURANCE COMPANY
(FORMERLY WESTERN NATIONAL LIFE INSURANCE COMPANY)
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
Income tax expense differed from that computed at the applicable federal
statutory rate (35% during 1997, 1996 and 1995) for the following reasons:
<TABLE>
<CAPTION>
1997 1996 1995
----- ----- -----
(DOLLARS IN MILLIONS)
<S> <C> <C> <C>
Federal tax on income before income taxes at statutory
rates..................................................... $63.1 $59.1 $ 7.6
State taxes................................................. 1.4 0.3 0.5
Various adjustments......................................... 0.4 (0.3) (1.8)
----- ----- -----
Income tax expense................................ $64.9 $59.1 $ 6.3
===== ===== =====
</TABLE>
During 1995, the Company assigned its right to tax benefits related to
realized investment losses generated during 1995 to an affiliate in return for
cash payments equal to the tax benefits. During 1995, the Company received $36.9
million and at December 31, 1995, $9.7 million, included in other assets,
related to the remaining 1995 tax benefits receivable from the affiliate.
6. FAIR VALUE OF FINANCIAL INSTRUMENTS:
Statement of Financial Accounting Standards No. 107, Disclosures about Fair
Values of Financial Instruments ("SFAS 107") requires disclosures of fair value
information about financial instruments, and includes assets and liabilities
recognized or not recognized in the balance sheet, for which it is practicable
to estimate their fair value. In cases where quoted market prices are not
available, fair values are based on estimates using discounted cash flow or
other valuation techniques. Those techniques are significantly affected by the
assumptions used, including the discount rates and estimates of the amount and
timing of future cash flows. SFAS 107 excludes certain insurance liabilities and
other non-financial instruments from its disclosure requirements, such as the
amount for the value associated with customer or agent relationships, the
expected interest margin (interest earnings over interest credited) to be earned
in the future on investment-type products, or other intangible items.
Accordingly, the aggregate fair value amounts presented herein do not
necessarily represent the underlying value of the Company; likewise, care should
be exercised in deriving conclusions about the Company's business or financial
condition based on the fair value information presented herein.
The following methods and assumptions were used by the Company in
determining estimated fair values of financial instruments:
Fixed maturities and equity securities: The estimated fair values for
actively traded fixed maturities and equities are based on quoted market
prices. For fixed maturities and equities not actively traded, the
estimated fair values are determined using values obtained from independent
pricing services or, in the case of private placements, by discounting
expected future cash flows using a current market rate commensurate with
the credit quality, prepayment optionality and maturity of the respective
securities.
Short-term investments: The carrying values approximate estimated fair
value.
Mortgage loans, credit-tenant loans, and policy loans: The estimated
fair values for mortgage loans, CTLs and policy loans are determined by
discounting future expected cash flows using interest rates currently being
offered for similar loans to borrowers with similar credit ratings.
Other invested assets: The estimated fair values are determined using
quoted market prices for similar instruments.
Insurance liabilities for investment contracts: The estimated fair
values are determined using discounted cash flow calculations based on
interest rates currently being offered for similar contracts with
maturities consistent with those remaining for the contracts being valued.
The estimated fair values of the
F-22
<PAGE> 97
AMERICAN GENERAL ANNUITY INSURANCE COMPANY
(FORMERLY WESTERN NATIONAL LIFE INSURANCE COMPANY)
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
insurance liabilities for investment contracts were approximately equal to
the carrying values as of December 31, 1997 and 1996, because interest
rates credited on the vast majority of account balances approximate current
rates paid on similar investments and are not generally guaranteed beyond
one year. Fair values for the Company's insurance liabilities other than
those for investment-type insurance contracts are not required to be
disclosed. However, the estimated fair values of liabilities for all
insurance contracts are taken into consideration in the Company's overall
management of interest rate risk, which minimizes exposure to changing
interest rates through the matching of investment maturities with amounts
due under insurance contracts.
Investment borrowings: The carrying values approximate estimated fair
value.
The estimated fair values and carrying values of the Company's financial
instruments were as follows:
<TABLE>
<CAPTION>
DECEMBER 31,
--------------------------------------------
1997 1996
-------------------- --------------------
FAIR CARRYING FAIR CARRYING
VALUE VALUE VALUE VALUE
-------- -------- -------- --------
(DOLLARS IN MILLIONS)
<S> <C> <C> <C> <C>
Assets:
Fixed maturities and equity securities.......... $9,999.6 $9,999.6 $8,842.5 $8,842.5
Mortgage loans, credit-tenant loans and policy
loans........................................ 387.2 381.3 396.2 398.0
Other invested assets........................... 33.4 33.4 24.5 24.5
Short-term investments.......................... 475.6 475.6 105.8 105.8
Liabilities:
Insurance liabilities for investment
contracts.................................... 8,294.2 8,294.2 7,274.3 7,274.3
Investment borrowings........................... 434.6 434.6 156.3 156.3
</TABLE>
7. SHAREHOLDER'S EQUITY:
Generally, dividends that can be paid by the Company during any
twelve-month period cannot exceed the greater of statutory net gain from
operations (excluding realized gains on investments) for the preceding year or
10% of statutory surplus at the end of the preceding year. In 1998, the Company
can pay dividends of up to $76.3 million.
F-23
<PAGE> 98
AMERICAN GENERAL ANNUITY INSURANCE COMPANY
(FORMERLY WESTERN NATIONAL LIFE INSURANCE COMPANY)
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
The components of the balance sheet caption "unrealized appreciation of
investments, net" in shareholder's equity are summarized as follows:
<TABLE>
<CAPTION>
DECEMBER 31, 1997 DECEMBER 31, 1996
---------------------------------- ---------------------------------
EFFECT OF EFFECT OF
COST FAIR VALUE CARRYING COST FAIR VALUE CARRYING
BASIS ADJUSTMENTS VALUE BASIS ADJUSTMENTS VALUE
-------- ----------- --------- -------- ----------- --------
(DOLLARS IN MILLIONS)
<S> <C> <C> <C> <C> <C> <C>
Investments:
Actively managed fixed
maturities.............. $9,635.1 $354.1 $ 9,989.2 $8,738.4 $104.1 $8,842.5
Equity securities.......... 10.1 0.3 10.4 -- -- --
Other invested assets...... 31.2 2.2 33.4 23.6 0.9 24.5
-------- ------ --------- -------- ------ --------
9,676.4 356.6 10,033.0 8,762.0 105.0 8,867.0
Other Balance Sheet Items:
Cost of policies
purchased............... 66.5 (58.8) 7.7 71.5 (21.1) 50.4
Cost of policies
produced................ 517.1 (99.1) 418.0 408.3 (28.1) 380.2
Other liabilities.......... (53.9) 1.1 (52.8) (34.7) 4.4 (44.1)
Deferred income taxes...... (83.9) (69.9) (153.8) (75.3) (21.1) (96.4)
-------- ------ --------- -------- ------ --------
Unrealized appreciation of
investments, net........ $129.9 $ 39.1
====== ========
</TABLE>
In September 1996, Western National generated net proceeds of $125.9
million from the issuance of preferred stocks to American General. Such net
proceeds were contributed to the Company.
8. COMMITMENTS AND CONTINGENCIES:
Commitments
The Company leases office space and equipment under noncancellable
operating leases. The approximate future minimum lease rental commitments under
such leases as of December 31, 1997 are as follows (dollars in thousands):
<TABLE>
<CAPTION>
YEAR ENDING DECEMBER 31,
------------------------
<S> <C>
1998........................................................ 1,123
1999........................................................ 1,112
2000........................................................ 1,028
2001........................................................ 581
2002........................................................ 581
Thereafter.................................................. 823
-----
5,248
=====
</TABLE>
Rent expense was $946,000, $1,018,000 and $752,000 in 1997, 1996, and 1995,
respectively.
Until May 1, 1998, the Company is committed to reimburse the AGA Series
Trust (formerly WNL Series Trust) for administrative expenses in excess of .12%
of the market value of investments related to variable annuity policies issued
by the Company. During 1997 and 1996, the Company incurred approximately $0.9
million and $0.6 million, respectively, related to this commitment.
F-24
<PAGE> 99
AMERICAN GENERAL ANNUITY INSURANCE COMPANY
(FORMERLY WESTERN NATIONAL LIFE INSURANCE COMPANY)
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
Contingencies
Assessments are levied on the Company from time to time by guaranty fund
associations of states in which it is licensed to provide for payment of covered
claims or to meet other insurance obligations, subject to prescribed limits, of
insolvent insurance enterprises. Assessments are allocated to an insurer based
on the ratio of premiums written by an insurer to total premiums written in the
state. The terms of the assessments depend on how each guaranty fund association
elects to fund its obligations. Assessments levied by certain states may be
recoverable through a reduction in future premium taxes. The Company provides a
liability, net of discount and estimated premium tax offsets, for estimated
future assessments of known insolvencies. Included in other liabilities is a
reserve for guaranty fund assessments of $16.6 million, $22.1 million, and $29.2
million in 1997, 1996, and 1995, respectively. The Company determines guaranty
fund liabilities by utilizing a report prepared annually by the National
Organization of Life and Health Insurance Guaranty Associations which provides
estimates of assessments by insolvency. Although management believes the
provision for guaranty fund assessments is adequate for all known insolvencies,
and does not currently anticipate the need for any material additions to the
reserve for known insolvencies. However, it is reasonably possible that the
estimates on which the provision is based will change and that such changes will
result in future adjustments.
From time to time, the Company is involved in lawsuits which are related to
its operations. In most cases, such lawsuits involve claims under insurance
policies or other contracts of the Company. None of the lawsuits currently
pending, either individually or in the aggregate, is expected to have a material
effect on the Company's financial condition or results of operations.
9. EMPLOYEE BENEFIT PLAN:
Prior to January 1, 1998, Western National sponsored a qualified defined
contribution plan (the "Plan") covering all full-time employees. The Plan
provided for the Company to match, with equivalent value of Western National
stock, 50% of a participant's voluntary contributions up to 4% of a
participant's compensation (subject to certain Internal Revenue Code
limitations). The Company could also elect to make additional discretionary
contributions to the Plan. For 1996 and 1995, the Company made a matching
contribution in an amount equal to 65% and 50%, respectively, of each
participant's elective contributions, up to 6% of annual compensation (subject
to Internal Revenue Code limitations). During 1997 the Company's matching
contribution was increased to 75% for 1997 contributions. The Company's
Supplemental Plan is an unfunded, nonqualified plan that provided to certain
employees similar benefits that could not be provided by a qualified defined
contribution plan due to Internal Revenue Code limitations. Prior to January 1,
1998, participants could defer additional amounts of salary and bonus under the
Supplemental Plan, but there was no employer match for such additional
contributions. Expense recorded related to the Company's matching contributions
under both plans was approximately $480,000, $451,000 and $247,000 in 1997,
1996, and 1995, respectively.
On December 31, 1997, active employees of the Company who were plan
participants became 100% vested under the Plan. Effective March 1, 1998, the
Plan will be merged with the American General Employees' Thrift and Incentive
Plan. As of December 31, 1997, no additional contributions may be made to the
Plan or the Supplemental Plan.
10. RELATED PARTY TRANSACTIONS:
See Note 4 for a description of the modified coinsurance agreement with AG
Life.
F-25
<PAGE> 100
AMERICAN GENERAL ANNUITY INSURANCE COMPANY
(FORMERLY WESTERN NATIONAL LIFE INSURANCE COMPANY)
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
11. OTHER OPERATING STATEMENT DATA:
Insurance policy income consisted of the following:
<TABLE>
<CAPTION>
1997 1996 1995
--------- --------- -------
(DOLLARS IN MILLIONS)
<S> <C> <C> <C>
Premiums collected................................... $ 2,051.1 $ 1,625.5 $ 720.4
Reinsurance ceded.................................... (1.2) (1.5) (0.9)
--------- --------- -------
Premiums collected, net.............................. 2,049.9 1,624.0 719.5
Less premiums on universal life and investment
contracts without mortality risk which are recorded
as additions to insurance liabilities.............. (2,040.8) (1,613.4) (697.8)
--------- --------- -------
Premiums on products with mortality risk, recorded as
insurance policy income............................ 9.1 10.6 21.7
Reinsurance assumed.................................. 109.4 71.1 0.0
Amortization of deferred revenue..................... 0.6 0.5 0.5
Fees and surrender charges........................... 6.9 4.4 4.2
Other................................................ 0.9 4.4 0.0
--------- --------- -------
Insurance policy income.................... $ 126.9 $ 91.0 $ 26.4
========= ========= =======
</TABLE>
The changes in the cost of policies purchased were as follows:
<TABLE>
<CAPTION>
1997 1996 1995
------ ------ ------
(DOLLARS IN MILLIONS)
<S> <C> <C> <C>
Balance, beginning of year before effect of fair value
adjustments of actively managed fixed maturities....... $ 71.5 $ 75.8 $ 80.5
Scheduled amortization................................... (5.0) (4.3) (4.7)
------ ------ ------
Balance, end of year before effect of fair value
adjustments of actively managed fixed maturities....... 66.5 71.5 75.8
Effect of fair value adjustment of actively managed fixed
maturities............................................. (58.8) (21.1) (40.0)
------ ------ ------
Balance, end of year..................................... $ 7.7 $ 50.4 $ 35.8
====== ====== ======
</TABLE>
The changes in the cost of policies produced were as follows:
<TABLE>
<CAPTION>
1997 1996 1995
------ ------ ------
(DOLLARS IN MILLIONS)
<S> <C> <C> <C>
Balance, beginning of year before effect of fair value
adjustments of actively managed fixed maturities......... $408.3 $325.1 $265.0
Acquisition costs incurred................................. 147.6 120.6 62.2
Scheduled amortization..................................... (43.4) (37.3) (34.0)
Amortization related to realized gains and losses.......... 4.0 (0.6) 29.8
Amortization of deferred revenue........................... 0.6 0.5 0.5
Effects of reinsurance..................................... 0.0 0.0 1.6
------ ------ ------
Balance, end of year before effect of fair value
adjustments of actively managed fixed maturities......... 517.1 408.3 325.1
Effect of fair value adjustment of actively managed fixed
maturities............................................... (99.1) (28.1) (96.4)
------ ------ ------
Balance, end of year....................................... $418.0 $380.2 $228.7
====== ====== ======
</TABLE>
F-26
<PAGE> 101
AMERICAN GENERAL ANNUITY INSURANCE COMPANY
(FORMERLY WESTERN NATIONAL LIFE INSURANCE COMPANY)
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
Based on current conditions and assumptions as to future events on all
policies in force, approximately 6% to 7% of the cost of policies purchased as
of December 31, 1997, excluding the effect of fair value adjustments for
actively managed fixed maturities, is expected to be amortized in each of the
next five years. The average discount rate for the cost of policies purchased
was approximately 19% for the year ended December 31, 1997.
12. STATUTORY INFORMATION:
Statutory accounting practices prescribed or permitted for the Company by
regulatory authorities differ from generally accepted accounting principles. The
Company reported the following amounts to regulatory agencies:
<TABLE>
<CAPTION>
DECEMBER 31,
----------------------
1997 1996
--------- ---------
(DOLLARS IN MILLIONS)
<S> <C> <C>
Statutory capital and surplus.............................. $638.7 $572.4
Asset valuation reserve.................................... 116.4 109.0
Interest maintenance reserve............................... 105.4 104.4
------ ------
Total............................................ $860.5 $785.8
====== ======
</TABLE>
Statutory accounting practices require that certain investment-related
portions of surplus, called the asset valuation reserve ("AVR") and the interest
maintenance reserve ("IMR"), be appropriated and reported as liabilities. The
purpose of these reserves is to stabilize statutory surplus against fluctuations
in the market value of investments. The AVR captures realized and unrealized
investment gains and losses related to changes in creditworthiness. The IMR
captures realized investment gains and losses on debt instruments resulting from
changes in interest rates and provides for subsequent amortization of such
amounts into statutory net income on a basis reflecting the remaining life of
the assets sold.
The following table compares the pre-tax income determined on a statutory
accounting basis with such income reported herein in accordance with generally
accepted accounting principles:
<TABLE>
<CAPTION>
1997 1996 1995
------ ------ -------
(DOLLARS IN MILLIONS)
<S> <C> <C> <C>
Pre-tax statutory net gain from operations................ $121.6 $ 65.3 $ 51.6
IMR amortization.......................................... (12.6) (8.7) (8.7)
Realized gains (losses)................................... 12.3 15.1 (118.2)
------ ------ -------
Pre-tax statutory income before transfers to and from and
amortization of tax IMR................................. 121.3 71.7 (75.3)
Net effect of adjustments for generally accepted
accounting principles................................... 58.9 97.4 97.0
------ ------ -------
Pre-tax income, generally accepted accounting
principles.............................................. $180.2 $169.1 $ 21.7
====== ====== =======
</TABLE>
13. YEAR 2000 CONTINGENCY (UNAUDITED)
Management has been engaged in a program to render the Company's computer
systems (hardware and mainframe and personal applications software) Year 2000
compliant. The Company will incur internal staff costs as well as third-party
vendor and other expenses to prepare the systems for Year 2000. The cost of
testing and conversion of systems applications has not had, and is not expected
to have, a material adverse effect on the Company's results of operations or
financial condition. However, risks and uncertainties exist in most significant
systems development projects. If conversion of the Company's systems is not
completed on a timely basis, due to nonperformance by third-party vendors or
other unforeseen circumstances, the Year 2000 problem could have a material
adverse impact on the operations of the Company.
F-27
<PAGE> 102
REPORT OF INDEPENDENT ACCOUNTANTS
ON FINANCIAL STATEMENT SCHEDULE
To the Board of Directors of
American General Annuity Insurance Company
Our report on the financial statements of American General Annuity
Insurance Company, formerly known as Western National Life Insurance Company, is
included on page F-3 of this Form N-4. In connection with our audits of such
financial statements, we have also audited the related financial statement
schedule listed in the index on page F-1 of this Form N-4.
In our opinion, the financial statement schedule referred to above, when
considered in relation to the basic financial statements taken as a whole,
presents fairly, in all material respects, the information required to be
included therein.
Coopers & Lybrand L.L.P.
Houston, Texas
February 5, 1997
F-28
<PAGE> 103
WESTERN NATIONAL LIFE INSURANCE COMPANY
SCHEDULE VI
REINSURANCE
FOR THE YEARS ENDED DECEMBER 31, 1997, 1996 AND 1995
(DOLLARS IN MILLIONS)
<TABLE>
<CAPTION>
1997 1996 1995
------- ------- -------
<S> <C> <C> <C>
Life insurance in force:
Direct.................................................... $ 494.1 $ 559.3 $ 626.0
Assumed................................................... 1.8 2.2 2.6
Ceded..................................................... (212.8) (247.6) (286.1)
------- ------- -------
Net insurance in force............................ $ 283.1 $ 313.9 $ 342.5
======= ======= =======
Percentage of assumed to net...................... 0.6% 0.7% 0.7%
Premiums recorded as revenue for generally accepted
accounting principles:
Direct.................................................... $ 10.3 $ 12.1 $ 23.0
Assumed................................................... 109.4 71.1 --
Ceded..................................................... (1.2) (1.5) (1.3)
------- ------- -------
Net premiums...................................... $ 118.5 $ 81.7 $ 21.7
======= ======= =======
Percentage of assumed to net...................... 92.3% 87.0% 0.0%
</TABLE>
F-29
<PAGE> 104
PART C
OTHER INFORMATION
ITEM 24. FINANCIAL STATEMENTS AND EXHIBITS
A. FINANCIAL STATEMENTS
The financial statements of the Separate Account and the Company are
included in Part B hereof.
B. EXHIBITS
<TABLE>
<C> <S>
1. -- Resolution of Board of Directors of the Company
authorizing the establishment of the Separate Account.*
2. -- Not applicable.
3. -- Form of Principal Underwriter's Agreement.*
4. -- (i) Individual Fixed and Variable Deferred Annuity
Contract.*
-- (ii) Annual Step-Up Death Benefit Endorsement.
-- (iii) Persistency Bonus Endorsement.**
5. -- Application Form.
6. -- (i) Copy of Amended and Restated Articles of
Incorporation of the Company.***
-- (ii) Copy of the Restated Bylaws of the Company.***
7. -- Not applicable.
8. -- (i) Form of Participation Agreement between American
General Annuity Insurance Company and AIM Variable
Insurance Funds, Inc.
-- (ii) Form of Participation Agreement between American
General Annuity Insurance Company and Templeton Variable
Product Series Fund and Franklin Templeton Distributors,
Inc.
-- (iii) Form of Participation Agreement between American
General Annuity Insurance Company and Oppenheimer
Variable Account Funds and OppenheimerFunds, Inc.
9. -- (i) Written Consent and Opinion of Cynthia A. Toles,
Senior Vice President, General Counsel and Secretary.
-- (ii) Consent of Counsel.
10. -- (i) Consent of Independent Auditors.
-- (ii) Consent of Independent Accountants.
11. -- Not applicable.
12. -- Not applicable.
13. -- Calculation of Performance Information.***
14. -- Not applicable.
15. -- Company Organizational Chart.***
</TABLE>
C-1
<PAGE> 105
<TABLE>
<C> <S>
16. -- (i) Copy of manually signed powers of attorney for
American General Annuity Insurance Company Director James
S. D'Agostino, Jr.
-- (ii) Copy of manually signed powers of attorney for
American General Annuity Insurance Company Director Jon
P. Newton.
-- (iii) Copy of manually signed powers of attorney for
American General Annuity Insurance Company Director
Robert M. Devlin.
-- (iv) Copy of manually signed powers of attorney for
American General Annuity Insurance Company Director
Thomas L. West, Jr.
-- (v) Copy of manually signed powers of attorney for
American General Annuity Insurance Company Director Craig
R. Rodby.
-- (vi) Copy of manually signed powers of attorney for
American General Annuity Insurance Company Director John
A. Graf.
-- (vii) Copy of manually signed powers of attorney for
American General Annuity Insurance Company Director Bruce
R. Abrams.
-- (viii) Copy of manually signed powers of attorney for
American General Annuity Insurance Company Director
Michael G. Atnip.
-- (ix) Copy of manually signed powers of attorney for
American General Annuity Insurance Company Director Joe
C. Osborne.
-- (x) Copy of manually signed powers of attorney for
American General Annuity Insurance Company Director
Patrick E. Grady.
-- (xi) Copy of manually signed powers of attorney for
American General Annuity Insurance Company Director Brent
C. Nelson.
-- (xii) Copy of manually signed powers of attorney for
American General Annuity Insurance Company Director
Richard W. Scott.
27. -- Not applicable.
</TABLE>
- ---------------
* Incorporated by reference to Registrant's Form N-4 as filed on November 11,
1994 (File No. 33-86464).
** Incorporated by reference to Registrant's Post-Effective Amendment No. 3 to
Form N-4 as electronically filed on March 2, 1998.
*** Incorporated by reference to Registrant's Post-Effective Amendment No. 5 to
Form N-4 as electronically filed on May 26, 1998.
ITEM 25. DIRECTORS AND OFFICERS OF THE DEPOSITOR
The following are the Officers and Directors of the Company who are engaged
directly or indirectly in activities relating to the Registrant or the Contracts
offered by the Registrant:
<TABLE>
<CAPTION>
NAME TITLE
---- -----
<S> <C>
Robert M. Devlin......................... Director
Jon P. Newton............................ Director and Senior Chairman of the Board
Thomas L. West, Jr....................... Director, Chairman and Chief Executive
Officer
James S. D'Agostino, Jr.................. Director and Vice Chairman of the Board
John A. Graf............................. Director and President
Craig R. Rodby........................... Director, Vice Chairman and Chief
Financial Officer
Bruce R. Abrams.......................... Director and Executive Vice President --
Marketing
</TABLE>
C-2
<PAGE> 106
<TABLE>
<CAPTION>
NAME TITLE
---- -----
<S> <C>
John E. Arant............................ Executive Vice President -- Sales
Michael G. Atnip......................... Director and Executive Vice President --
Administration and Information Systems
Joe C. Osborne........................... Director and Executive Vice President --
Marketing
Dwight L. Cramer II...................... Senior Vice President -- Specialty
Markets
Patrick E. Grady......................... Director, Senior Vice President and
Treasurer
Stephen G. Kellison...................... Senior Vice President and Chief Actuary
Brent C. Nelson.......................... Director, Senior Vice President and
Controller
Charles D. Robinson...................... Senior Vice President -- Institutional
Marketing
Donald L. Sharps......................... Senior Vice President -- Systems
Cynthia A. Toles......................... Senior Vice President, General Counsel
and Secretary
Dan W. Arnold............................ Vice President -- Customer Care Center
James D. Bonsall......................... Vice President -- Financial Reporting
Harry N. Bragg........................... Vice President -- Strategic Systems
Gregory S. Broer......................... Vice President -- Actuarial
Richard A. Combs......................... Vice President -- Actuarial
J. David Crank........................... Vice President -- Group Services
Neil J. Davidson......................... Vice President -- Actuarial
David H. denBoer......................... Vice President -- Compliance
Stephen R. Duff.......................... Vice President -- Financial Institution
Acquisitions
Daniel Fritz............................. Vice President -- Actuarial
Sharla A. Jackson........................ Vice President -- Operations and Customer
Service
Jeff S. Johnson.......................... Vice President -- Marketing
Communications
Kent W. Lamb............................. Vice President -- Financial Reporting
Richard Lindsay.......................... Vice President -- Personal Retirement
Services
James J. Michel.......................... Vice President -- Insurance Accounting
and Assistant Secretary
Stephen J. Poston........................ Vice President -- National Sales Manager
Steven D. Rubinstein..................... Vice President -- Financial Planning and
Reporting
Phillip W. Schraub....................... Vice President -- Houston Administration
Richard W. Scott......................... Director, Vice President and Chief
Investment Officer
Gary N. See.............................. Vice President -- Actuarial
Gregory R. Seward........................ Vice President -- Variable Product
Accounting
Conway R. Shaw........................... Vice President -- Group Marketing
Norman A. Skinrood, Jr. ................. Vice President -- Group Plan
Administration
</TABLE>
C-3
<PAGE> 107
<TABLE>
<CAPTION>
NAME TITLE
---- -----
<S> <C>
Paula F. Snyder.......................... Vice President -- Marketing Services
Robert E. Steele......................... Vice President -- Structured Settlements
Kenneth R. Story......................... Vice President -- Amarillo Systems
Terry L. Swenson......................... Vice President -- Variable Products
Peter V. Tuters.......................... Vice President and Investment Officer
Senior Vice President -- Investments
William C. Vetterling.................... Vice President -- Marketing
Administration
Garry B. Watts........................... Vice President -- Independent
Agents/Brokers
William A. Wilson........................ Vice President -- Government Affairs
Jane E. Bates............................ Chief Compliance Officer
Treasurer and Chief Compliance Officer
Roger E. Hahn............................ Investment Officer
C. Scott Inglis.......................... Investment Officer
Julia S. Tucker.......................... Investment Officer
Rembert R. Owen, Jr...................... Real Estate Investment Officer and
Assistant Secretary
D. Lynne Walters......................... Tax Officer
W. Joan Farmer........................... Assistant Secretary
Cheryl G. Hemley......................... Assistant Secretary
Susan A. Jacobs.......................... Assistant Secretary
Christine W. McGinnis.................... Assistant Secretary
Patricia W. Neighbors.................... Assistant Secretary
Daniel R. Cricks......................... Assistant Tax Officer
James L. Gleaves......................... Assistant Treasurer
Kristy L. McWilliams..................... Assistant Treasurer
William H. Murray........................ Assistant Treasurer
Tara S. Rock............................. Assistant Treasurer
Carolyn Roller........................... Assistant Treasurer
Barbara G. Trygstad...................... Assistant Treasurer
Marylyn S. Zlotnick...................... Assistant Controller
Leslie K. Bates.......................... Administrative Officer
Mary C. Birmingham....................... Administrative Officer
Donald L. Davis.......................... Administrative Officer
Robert A. Demchak........................ Administrative Officer
Ruby K. Donelson......................... Administrative Officer
David E. Green........................... Administrative Officer
Ted D. Hennis............................ Administrative Officer
William L. Hinkle........................ Administrative Officer
Joan M. Keller........................... Administrative Officer
William R. Keller, Jr.................... Administrative Officer
Fred M. Lowery........................... Administrative Officer
James F. McCulloch....................... Administrative Officer
</TABLE>
C-4
<PAGE> 108
<TABLE>
<CAPTION>
NAME TITLE
---- -----
<S> <C>
Robert M. Mason.......................... Administrative Officer
Michael E. Mead.......................... Administrative Officer
Connie E. Pritchett...................... Administrative Officer
Elliott L. Shifman....................... Administrative Officer
Nancy K. Shumbera........................ Administrative Officer
Kathryn T. Smith......................... Administrative Officer
John M. Stanton.......................... Administrative Officer
James P. Steele.......................... Administrative Officer
</TABLE>
The principal business address is 2929 Allen Parkway, Houston, Texas 77019.
ITEM 26. PERSONS CONTROLLED BY OR UNDER COMMON CONTROL WITH THE DEPOSITOR OR
REGISTRANT
The Company organizational chart was included as Exhibit 15 in Registrant's
Post-Effective Amendment No. 5 (File Nos. 33-86464 and 811-8862) and is
incorporated herein by reference.
ITEM 27. NUMBER OF CONTRACT OWNERS
As of August 31, 1998, there were 1,172 Qualified Contract Owners and 1,100
Non-Qualified Contract Owners.
ITEM 28. INDEMNIFICATION
The Bylaws (Article VI -- Section 1) of the Company provide that:
The Corporation shall indemnify any person who was or is a party, or is
threatened to be made a party, to any threatened, pending, or completed action,
suit or proceeding, whether civil, criminal, administrative, or investigative,
by reason of the fact that he is or was a director or officer of the
Corporation, or is or was serving at the request of the Corporation as a
director, officer, employee or agent of another corporation, partnership, joint
venture, trust or other enterprise (collectively, "Agent") against expenses
(including attorneys' fees), judgments, fines, penalties, court costs and
amounts paid in settlement actually and reasonably incurred by him in connection
with such action, suit or proceeding if he acted in good faith and in a manner
he reasonably believed to be in or not opposed to the best interests of the
Corporation, and, with respect to any criminal action or proceeding, had no
reasonable cause to believe his conduct was unlawful. The termination of any
action, suit, or proceeding by judgment, order, settlement (whether with or
without court approval), conviction or upon a plea of NOLO CONTENDERE or its
equivalent, shall not, of itself, create a presumption that the Agent did not
act in good faith and in a manner which he reasonably believed to be in or not
opposed to the best interests of the Corporation, and, with respect to any
criminal action or proceeding, had no reasonable cause to believe that his
conduct was unlawful. If several claims, issues or matters are involved, an
Agent may be entitled to indemnification as to some matters even though he is
not entitled as to other matters. Any director or officer of the Corporation
serving in any capacity of another corporation, of which a majority of the
shares entitled to vote in the election of its directors is held, directly or
indirectly, by the Corporation, shall be deemed to be doing so at the request of
the Corporation.
Insofar as indemnification for liability arising under the Securities Act
of 1933 may be permitted directors and officers or controlling persons of the
Company pursuant to the foregoing, or otherwise, the Company 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, therefore,
unenforceable. In the event that a claim for indemnification against such
liabilities (other than the payment by the Company of expenses incurred or paid
by a director, officer or controlling person of the Company 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
Company 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.
C-5
<PAGE> 109
ITEM 29. PRINCIPAL UNDERWRITERS
(a) Not Applicable.
(b) AGA Brokerage Services, Inc. ("AGA Brokerage") is the principal
underwriter for the Contracts. The following persons are the officers and
directors of AGA Brokerage.
<TABLE>
<CAPTION>
NAME AND PRINCIPAL POSITION AND OFFICES
BUSINESS ADDRESS* WITH UNDERWRITER
- ------------------ --------------------
<S> <C>
Kurt R. Fredland......................... President, Chief Executive Officer and
Director
Kent W. Lamb............................. Assistant Treasurer
Beverli J. Lee........................... Vice President, Chief Compliance Officer,
Chief Legal Officer, Assistant
Secretary and Director
Terry L. Swenson......................... Director
Patrick E. Grady......................... Vice President, Chief Financial Officer
and Treasurer
Dwight L. Cramer II...................... Vice President and Secretary
Debra M. Green........................... Assistant Secretary
</TABLE>
The principal business address is 2929 Allen Parkway, Houston, Texas 77019.
(c) Not Applicable.
ITEM 30. LOCATION OF ACCOUNTS AND RECORDS
Persons maintaining physical possession of the accounts, books or documents
of the Separate Account required to be maintained by Section 31(a) of the
Investment Company Act of 1940 and the rules promulgated thereunder include Kent
W. Lamb, Vice President -- Financial Reporting of the Company, whose address is
2929 Allen Parkway, Houston, TX 77019. In addition, certain required records are
maintained by the third party administrator, Financial Administrative Services,
Inc., whose address is 1290 Silas Deane Highway, Wethersfield, CT 06109-4303.
ITEM 31. MANAGEMENT SERVICES
Not Applicable.
ITEM 32. UNDERTAKINGS
a. Registrant hereby undertakes 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 sixteen
(16) months old for so long as payment under the variable annuity contracts may
be accepted.
b. Registrant hereby undertakes to include either (1) as part of any
application to purchase a contract offered by the Prospectus, a space that an
applicant can check to request a Statement of Additional Information, or (2) a
postcard or similar written communication affixed to or included in the
Prospectus that the applicant can remove to send for a Statement of Additional
Information.
c. Registrant hereby undertakes to deliver any Statement of Additional
Information and any financial statement required to be made available under this
Form promptly upon written or oral request.
d. American General Annuity Insurance Company ("Company"), hereby
represents that the fees and charges deducted under the Contract described in
the Prospectus, in the aggregate, are reasonable in relation to the services
rendered, the expenses to be incurred and the risks assumed by the Company.
C-6
<PAGE> 110
Representations
(1) The Company hereby represents that it is relying upon Investment
Company Act Rule 6c-7. The Company further represents that paragraphs (a)-(d) of
Rule 6c-7 have been complied with.
(2) The Company hereby represents that it is relying upon a No-Action
Letter issued to the American Council of Life Insurance dated November 28, 1988
(Commission ref. IP-6-88) and that the following provisions have been complied
with:
1. Include appropriate disclosure regarding the redemption restrictions
imposed by Section 403(b)(11) in each registration statement, including the
prospectus, used in connection with the offer of the contract;
2. Include appropriate disclosure regarding the redemption restrictions
imposed by Section 403(b)(11) in any sales literature used in connection with
the offer of the contract;
3. Instruct sales representatives who solicit participants to purchase the
contract specifically to bring the redemption restrictions imposed by Section
403(b)(11) to the attention of the potential participants;
4. Obtain from each plan participant who purchases a Section 403(b) annuity
contract, prior to or at the time of such purchase, a signed statement
acknowledging the participant's understanding of (1) the restrictions on
redemption imposed by Section 403(b)(11), and (2) other investment alternatives
available under the employer's Section 403(b) arrangement to which the
participant may elect to transfer his contract value.
C-7
<PAGE> 111
SIGNATURES
As required by the Securities Act of 1933 and the Investment Company Act of
1940, the Registrant certifies that it meets the requirements of Securities Act
Rule 485(b) for effectiveness of this Registration Statement and has caused this
Registration Statement to be signed on its behalf, in the City of Houston, and
State of Texas on this 28th day of September, 1998.
AGA SEPARATE ACCOUNT A
Registrant
By: AMERICAN GENERAL ANNUITY
INSURANCE COMPANY
By: /s/ THOMAS L. WEST, JR.
----------------------------------
Thomas L. West, Jr.
By: AMERICAN GENERAL ANNUITY
INSURANCE COMPANY
Depositor
By: /s/ THOMAS L. WEST, JR.
----------------------------------
Thomas L. West, Jr.
As required by the Securities Act of 1933, this Registration Statement has
been signed by the following persons in the capacities and on the dates
indicated.
<TABLE>
<C> <S> <C>
/s/ JAMES S. D'AGOSTINO, JR.* Senior Chairman of the Board and September 28, 1998
- ----------------------------------------------------- Director
James S. D'Agostino, Jr.
/s/ JON P. NEWTON* Vice Chairman of the Board and September 28, 1998
- ----------------------------------------------------- Director
Jon P. Newton
/s/ ROBERT M. DEVLIN* Director September 28, 1998
- -----------------------------------------------------
Robert M. Devlin
/s/ THOMAS L. WEST, JR.* Chairman and Chief Executive September 28, 1998
- ----------------------------------------------------- Officer
Thomas L. West, Jr.
/s/ CRAIG R. RODBY* Vice Chairman of the Board, September 28, 1998
- ----------------------------------------------------- Director and Chief Financial
Craig R. Rodby Officer
/s/ JOHN A. GRAF* President and Director September 28, 1998
- -----------------------------------------------------
John A. Graf
/s/ BRUCE R. ABRAMS* Executive Vice President -- September 28, 1998
- ----------------------------------------------------- Marketing and Director
Bruce R. Abrams
</TABLE>
C-8
<PAGE> 112
<TABLE>
<C> <S> <C>
/s/ MICHAEL G. ATNIP* Executive Vice President -- September 28, 1998
- ----------------------------------------------------- Administration and Information
Michael G. Atnip Systems and Director
/s/ JOE C. OSBORNE* Executive Vice President -- September 28, 1998
- ----------------------------------------------------- Marketing and Director
Joe C. Osborne
/s/ PATRICK E. GRADY* Senior Vice President, Treasurer September 28, 1998
- ----------------------------------------------------- and Director
Patrick E. Grady
/s/ BRENT C. NELSON* Senior Vice President, Controller September 28, 1998
- ----------------------------------------------------- and Director
Brent C. Nelson
/s/ RICHARD W. SCOTT* Vice President, Chief Investment September 28, 1998
- ----------------------------------------------------- Officer and Director
Richard W. Scott
</TABLE>
*By: /s/ CYNTHIA A. TOLES
----------------------------------
Cynthia A. Toles, Power of
Attorney
C-9
<PAGE> 113
EXHIBITS
TO
POST-EFFECTIVE AMENDMENT NO. 6
TO
FORM N-4
FOR
AGA SEPARATE ACCOUNT A
OF
AMERICAN GENERAL ANNUITY INSURANCE COMPANY
INDEX TO EXHIBITS
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION PAGE
------- ----------- ----
<C> <S> <C>
B5 -- Application Form.
B8 -- (i) Form of Participation Agreement between American
General Annuity Insurance Company and AIM Variable
Insurance Funds, Inc.
B8 -- (ii) Form of Participation Agreement between American
General Annuity Insurance Company and Templeton Variable
Product Series Fund and Franklin Templeton Distributors,
Inc.
B8 -- (iii) Form of Participation Agreement between American
General Annuity Insurance Company and Oppenheimer
Variable Account Funds and OppenheimerFunds, Inc.
B9 -- (i) Written Consent and Opinion of Cynthia A. Toles,
Senior Vice President, General Counsel and Secretary.
B9 -- (ii) Consent of Counsel
B10 -- (i) Consent of Independent Auditors
-- (ii) Consent of Independent Accountants
B16 -- (i) Copy of manually signed powers of attorney for
American General Annuity Insurance Company Director James
S. D'Agostino, Jr.
-- (ii) Copy of manually signed powers of attorney for
American General Annuity Insurance Company Director Jon
P. Newton.
-- (iii) Copy of manually signed powers of attorney for
American General Annuity Insurance Company Director
Robert M. Devlin.
-- (iv) Copy of manually signed powers of attorney for
American General Annuity Insurance Company Director
Thomas L. West, Jr.
-- (v) Copy of manually signed powers of attorney for
American General Annuity Insurance Company Director Craig
R. Rodby.
-- (vi) Copy of manually signed powers of attorney for
American General Annuity Insurance Company Director John
A. Graf.
-- (vii) Copy of manually signed powers of attorney for
American General Annuity Insurance Company Director Bruce
R. Abrams.
-- (viii) Copy of manually signed powers of attorney for
American General Annuity Insurance Company Director
Michael G. Atnip.
-- (ix) Copy of manually signed powers of attorney for
American General Annuity Insurance Company Director Joe
C. Osborne.
-- (x) Copy of manually signed powers of attorney for
American General Annuity Insurance Company Director
Patrick E. Grady.
-- (xi) Copy of manually signed powers of attorney for
American General Annuity Insurance Company Director Brent
C. Nelson.
-- (xii) Copy of manually signed powers of attorney for
American General Annuity Insurance Company Director
Richard W. Scott.
</TABLE>
C-10
<PAGE> 1
EXHIBIT B5
ELITEPLUS BONUS
VARIABLE ANNUITY
APPLICATION
[AMERICAN -------------------- AMERICAN GENERAL ANNUITY
GENERAL Home Office Use Only INSURANCE COMPANY
LOGO] 205 East 10th Avenue
-------------------- Amarillo, Texas 79101
800.424.4990
<TABLE>
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C>
OWNER Name: Last First Middle Marital Status
(All Policyholder
correspondence ----------------------------------------------------------------------------------------------------------------
will be sent to Address: Street City State Zip Code
this address.)
----------------------------------------------------------------------------------------------------------------
Date of Birth Age Sex Social Security Number Daytime Telephone:
( )
- ------------------------------------------------------------------------------------------------------------------------------------
JOINT OWNER Name: Last First Middle Marital Status
(Optional.
Non-Qualified ----------------------------------------------------------------------------------------------------------------
Annuities Only.)
Date of Birth Age Sex Social Security Number Daytime Telephone:
( )
- ------------------------------------------------------------------------------------------------------------------------------------
ANNUITANT Name: Last First Middle
(If different
from Owner, ----------------------------------------------------------------------------------------------------------------
must be age 85 Address: Street City State Zip Code
or younger.)
----------------------------------------------------------------------------------------------------------------
Date of Birth Age Sex Social Security Number Relationship to Owner:
- ------------------------------------------------------------------------------------------------------------------------------------
OWNER'S [ ] IF YOU DO NOT WANT JOINT OWNER TO BE THE PRIMARY BENEFICIARY, CHECK HERE AND NAME BENEFICIARY BELOW.
BENEFICIARY ----------------------------------------------------------------------------------------------------------------
DESIGNATION(S) Full Name of Beneficiary(ies) and Relationship to Owner: Relationship: Date of Birth:
(In event of ----------------------------------------------
Owner's death, Primary: Social Security Number(s):
surviving Joint ----------------------------------------------------------------------------------------------------------------
Owner becomes Relationship: Date of Birth:
Primary ----------------------------------------------
Beneficiary.) Contingent: Social Security Number(s):
----------------------------------------------------------------------------------------------------------------
Enhanced Death Benefit: (Optional) [ ] 3% rising floor [ ] Annual Step-Up
- ------------------------------------------------------------------------------------------------------------------------------------
PURCHASE Initial Purchase Tax-Qualified Plans:
PAYMENT Payment: $ Select Income Date [ ] Traditional IRA [ ] SEP IRA
------------------ Month Day Year [ ] Roth IRA [ ] 403(b) TSA
Make check payable to: 01 [ ] 401 (Corp. Plan) [ ] Other:
AMERICAN GENERAL ANNUITY -------
[ ] Check if Automatic (Circle one):
Check Option is applicable
---------------------------------------------------------------------- Transfer Rollover Initial Contribution
[ ] Check this box if Contract is Non-Qualified Roth Conversion Year
---------------------------------------------------------------------- --------
Is this annuity intended to replace or be exchanged for existing Contribution for Tax Year:
life insurance or annuities? [ ] Yes [ ] No 19 20
---- -----
- ------------------------------------------------------------------------------------------------------------------------------------
INITIAL INVESTMENT ALLOCATION FOR AGA SEPARATE ACCOUNT A
- ------------------------------------------------------------------------------------------------------------------------------------
AGA SEPARATE ACCOUNT A: USE WHOLE PERCENTAGES ONLY. When a Return of Purchase Payment is required by law during the Right to
Examine Contract period, the company will allocate Purchase Payments to the Money Market Sub-Account as described in the
Prospectus. Thereafter, Purchase Payments will be allocated as directed by the Owner.
% Credit Suisse Growth & Income % Oppenheimer Growth % Aim Capital Appreciation
- ------ ------ ------
% Credit Suisse International Equity % Oppenheimer Small Cap % Aim Diversified Income
- ------ ------ ------
% Salomon Brothers U.S. Government Securities % Oppenheimer High Income % EliteValue
- ------ ------ ------
% State Street Global Advisors Growth Equity % Templeton Developing Markets % General Account
- ------ ------ ------
% State Street Global Advisors Money Market % Templeton International
- ------ ------
% Van Kampen American Capital Emerging Growth % Templeton Mutual Discovery ----------------
- ------ ------ % Total
% Oppenheimer Growth and Income ------
- ------ (Must Total 100%)
- ------------------------------------------------------------------------------------------------------------------------------------
DOLLAR COST AVERAGING OPTION: (CHECK ONLY ONE)
[ ] FROM DCA GENERAL ACCOUNT $______ Amount (Minimum $250) Account balance will be dollar cost averaged over a 12-month period
from the Dollar Cost Average General Account to the percentage allocations indicated below.
[ ] FROM MONEY MARKET SUB-ACCOUNT $______ Amount (Minimum $250) Must have a percentage directed to the MONEY MARKET PORTFOLIO in
the Initial Investment Allocation above. Dollar Cost Average _____ Monthly ______ Quarterly ______ Semi-Annually or
______ Annually over a ___ month period (12-month minimum) from the Money Market Portfolio to the percentage allocations
indicated below.
USE WHOLE PERCENTAGES. TOTAL MUST EQUAL 100%.
% Credit Suisse Growth & Income % Oppenheimer Growth % Aim Capital Appreciation
- ------ ------ ------
% Credit Suisse International Equity % Oppenheimer Small Cap % Aim Diversified Income
- ------ ------ ------
% Salomon Brothers U.S. Government Securities % Oppenheimer High Income % EliteValue
- ------ ------ ------
% State Street Global Advisors Growth Equity % Templeton Developing Markets
- ------ ------
% Van Kampen American Capital Emerging Growth % Templeton International ----------------
- ------ ------ % Total
% Oppenheimer Growth and Income % Templeton Mutual Discovery ------
- ------ ------ (Must Total 100%)
- ------------------------------------------------------------------------------------------------------------------------------------
VA61-99-A Continued on reverse side
</TABLE>
<PAGE> 2
<TABLE>
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C>
SWEEP ACCOUNT OPTION:
SWEEP THE INCOME ON A QUARTERLY BASIS FROM THE GENERAL ACCOUNT TO THE PERCENTAGE ALLOCATIONS INDICATED BELOW. USE WHOLE PERCENTAGES
ONLY. TOTAL MUST EQUAL 100%. GENERAL ACCOUNT BALANCE MUST BE AT LEAST $25,000.
% Credit Suisse Growth & Income % Oppenheimer Growth % Aim Capital Appreciation
- ------ ------ ------
% Credit Suisse International Equity % Oppenheimer Small Cap % Aim Diversified Income
- ------ ------ ------
% Salomon Brothers U.S. Government Securities % Oppenheimer High Income % EliteValue
- ------ ------ ------
% State Street Global Advisors Growth Equity % Templeton Developing Markets
- ------ ------
% State Street Global Advisors Money Market % Templeton International
- ------ ------
% Van Kampen American Capital Emerging Growth % Templeton Mutual Discovery ----------------
- ------ ------ % Total
% Oppenheimer Growth and Income ------
- ------ (Must Total 100%)
- ------------------------------------------------------------------------------------------------------------------------------------
ASSET ALLOCATION OPTION (PORTFOLIO REBALANCING):
REALLOCATE MY INVESTMENTS ___ MONTHLY ___ QUARTERLY ___ SEMI-ANNUALLY OR ___ ANNUALLY TO THE PERCENTAGE ALLOCATIONS INDICATED
BELOW. USE WHOLE PERCENTAGES ONLY. TOTAL MUST EQUAL 100%.
% Credit Suisse Growth & Income % Oppenheimer Growth % Aim Capital Appreciation
- ------ ------ ------
% Credit Suisse International Equity % Oppenheimer Small Cap % Aim Diversified Income
- ------ ------ ------
% Salomon Brothers U.S. Government Securities % Oppenheimer High Income % EliteValue
- ------ ------ ------
% State Street Global Advisors Growth Equity % Templeton Developing Markets
- ------ ------
% State Street Global Advisors Money Market % Templeton International
- ------ ------
% Van Kampen American Capital Emerging Growth % Templeton Mutual Discovery ----------------
- ------ ------ % Total
% Oppenheimer Growth and Income ------
- ------ (Must Total 100%)
- ------------------------------------------------------------------------------------------------------------------------------------
ACKNOWLEDGMENT:
BY SIGNING BELOW, THE OWNER(S) UNDERSTAND(S) THAT:
A) PAYMENTS AND VALUES WHEN ALLOCATED TO THE SEPARATE ACCOUNT ARE VARIABLE AND ARE NOT GUARANTEED AS TO DOLLAR
AMOUNT;
B) THIS ANNUITY IS A LONG-TERM COMMITMENT TO MEET INSURANCE NEEDS AND FINANCIAL GOALS; I (WE) ACKNOWLEDGE RECEIPT OF
THE MOST RECENT PROSPECTUS FOR AGA SEPARATE ACCOUNT A AND AGA SERIES TRUST;
C) THE VARIABLE ANNUITY APPLIED FOR IS NOT UNSUITABLE FOR MY (OUR) INVESTMENT OBJECTIVES, FINANCIAL SITUATION AND NEEDS;
AND,
D) FOR 403(b) ROLLOVERS, I (WE) UNDERSTAND THE WITHDRAWAL RESTRICTIONS UNDER INTERNAL REVENUE CODE SECTION 403(b)(11)
ON CONTRIBUTIONS AND EARNINGS, AND HAVE RECEIVED A PROSPECTUS EXPLAINING THE RESTRICTIONS. I (WE) UNDERSTAND THE
OTHER INVESTMENT ALTERNATIVES AVAILABLE UNDER THE EMPLOYER'S 403(b) ARRANGEMENT TO WHICH I (WE) MAY ELECT TO TRANSFER MY (OUR)
CONTRACT VALUE.
- ------------------------------------------------------------------------------------------------------------------------------------
NOTICE:
The Owner agrees that to the best of his/her knowledge and belief, all statements and answers in this Application are complete and
true. It is further agreed that these statements and answers will become a part of any Contract to be issued. No representative is
authorized to modify this agreement or waive any of American General Annuity's rights or requirements. If American General
Annuity makes a change in the space designated "Home Office Use Only" in order to correct any apparent errors or omissions, where
allowed by state law, it will be approved by the acceptance of the Contract; however, any material changes must be accepted in
writing by the Owner.
- ------------------------------------------------------------------------------------------------------------------------------------
I HAVE READ AND UNDERSTAND THE ACKNOWLEDGMENT AND NOTICE.
Signed at on
--------------------------------------------------------------- --------------------------------------------------------
City State Date
X X X
------------------------------------- ---------------------------------- ------------------------------------------------------
Owner Joint Owner (if applicable) Witness & Registered Rep/Agent
- -------------------------------------- -----------------------------------------------------------------------------------------
Broker-Dealer Print Name of Registered Rep/Agent State Lic. # Agent #
- ------------------------------------------------------------------------------------------------------------------------------------
BY SIGNING ABOVE, THE REGISTERED REP/AGENT CERTIFIES THAT:
A) The questions contained in this Application were asked of the Owner and the answers duly recorded. This application is
complete and true to the best of my knowledge and belief;
B) I am NASD-registered and state-licensed for variable annuity contracts where this Application is written and delivered;
C) To the best of my knowledge and belief, this Application [ ] does [ ] does not involve replacement of existing life insurance
or annuities. If replacement is involved, I have attached a copy of each disclosure statement and a list of companies involved
and indicated cost basis:
pre-TEFRA $ ; post-TEFRA $ ; and
----------------------------- -----------------------------
D) I received $ as the Purchase Payment.
------------------------------
- ------------------------------------------------------------------------------------------------------------------------------------
FOR American General Annuity Insurance Company FOR American General Annuity Variable Products
PAYMENTS 205 East 10th Avenue APPLICATIONS State Street Bank
BY WIRE, Amarillo, Texas 79101 WITH PAYMENT 1776 Heritage Drive
MAIL (800) 424-4990 BY CHECK, SEND N. Quincy, MA 02171
APPLICATION BY OVERNIGHT Attn: Lock Box A3W
TO: MAIL TO: (800) 910-4455
</TABLE>
Any person who, with intent to defraud or knowing that he/she is facilitating a
fraud against an insurer, submits an application or files a claim containing a
false or deceptive statement, commits insurance fraud, which is a crime and may
subject the person to criminal and civil penalties.
VA61-99-A
<PAGE> 1
EXHIBIT B8(i)
PARTICIPATION AGREEMENT
BY AND AMONG
AIM VARIABLE INSURANCE FUNDS, INC.,
LIFE INSURANCE COMPANY,
ON BEHALF OF ITSELF AND
ITS SEPARATE ACCOUNTS,
AND
NAME OF UNDERWRITER OF VARIABLE CONTRACTS AND POLICIES
<PAGE> 2
TABLE OF CONTENTS
<TABLE>
<CAPTION>
DESCRIPTION PAGE
- ----------- ----
<S> <C>
Section 1. Available Funds ..................................... 2
1.1 Availability ........................................... 2
1.2 Addition, Deletion or Modification of Funds ............ 2
1.3 No Sales to the General Public ......................... 2
Section 2. Processing Transactions ............................. 2
2.1 Timely Pricing and Orders .............................. 2
2.2 Timely Payments ........................................ 3
2.3 Applicable Price ....................................... 3
2.4 Dividends and Distributions ............................ 4
2.5 Book Entry ............................................. 4
Section 3. Costs and Expenses .................................. 4
3.1 General ................................................ 4
3.2 Parties To Cooperate ................................... 4
Section 4. Legal Compliance .................................... 4
4.1 Tax Laws ............................................... 4
4.2 Insurance and Certain Other Laws ....................... 7
4.3 Securities Laws ........................................ 7
4.4 Notice of Certain Proceedings and Other Circumstances... 8
4.5 LIFE COMPANY To Provide Documents; Information
About AVIF ............................................. 9
4.6 AVIF To Provide Documents; Information About
LIFE COMPANY ........................................... 10
Section 5. Mixed and Shared Funding ............................ 12
5.1 General ................................................ 12
5.2 Disinterested Directors ................................ 12
5.3 Monitoring for Material Irreconcilable Conflicts ....... 13
5.4 Conflict Remedies ...................................... 13
5.5 Notice to LIFE COMPANY ................................. 14
5.6 Information Requested by Board of Directors ............ 14
5.7 Compliance with SEC Rules .............................. 14
5.8 Other Requirements ..................................... 14
Section 6. Termination ......................................... 14
6.1 Events of Termination .................................. 14
6.2 Notice Requirement for Termination ..................... 15
6.3 Funds To Remain Available .............................. 16
</TABLE>
i
<PAGE> 3
<TABLE>
<CAPTION>
DESCRIPTION PAGE
- ----------- ----
<S> <C>
6.4 Survival of Warranties and Indemnifications ............. 16
6.5 Continuance of Agreement for Certain Purposes ........... 16
Section 7. Parties To Cooperate Respecting Termination ......... 16
Section 8. Assignment .......................................... 17
Section 9. Notices ............................................. 17
Section 10. Voting Procedures ................................... 18
Section 11. Foreign Tax Credits ................................. 18
Section 12. Indemnification ..................................... 18
12.1 Of AVIF by LIFE COMPANY and UNDERWRITER ................. 18
12.2 Of LIFE COMPANY and UNDERWRITER by AVIF ................. 20
12.3 Effect of Notice ........................................ 23
12.4 Successors .............................................. 23
Section 13. Applicable Law ...................................... 23
Section 14. Execution in Counterparts ........................... 23
Section 15. Severability ........................................ 23
Section 16. Rights Cumulative ................................... 24
Section 17. Headings ............................................ 24
Section 18. Confidentiality ..................................... 24
Section 19. Trademarks and Fund Names ........................... 25
Section 20. Parties to Cooperate ................................ 26
</TABLE>
ii
<PAGE> 4
PARTICIPATION AGREEMENT
THIS AGREEMENT, made and entered into as of the ____ day of _________,
1998 ("Agreement"), by and among AIM Variable Insurance Funds, Inc., a Maryland
corporation ("AVIF"); ____________ Life Insurance Company, a [STATE] life
insurance company ("LIFE COMPANY"), on behalf of itself and each of its
segregated asset accounts listed in Schedule A hereto, as the parties hereto may
amend from time to time (each, an "Account," and collectively, the "Accounts");
and [NAME OF SEPARATE ACCOUNT UNDERWRITER], an affiliate of LIFE COMPANY and the
principal underwriter of the Contracts ("UNDERWRITER") (collectively, the
"Parties").
WITNESSETH THAT:
WHEREAS, AVIF is registered with the Securities and Exchange Commission
("SEC") as an open-end management investment company under the Investment
Company Act of 1940, as amended (the "1940 Act"); and
WHEREAS, AVIF currently consists of thirteen separate series
("Series"), shares ("Shares") of each of which are registered under the
Securities Act of 1933, as amended (the "1933 Act") and are currently sold to
one or more separate accounts of life insurance companies to fund benefits under
variable annuity contracts and variable life insurance contracts; and
WHEREAS, AVIF will make Shares of each Series listed on Schedule A
hereto as the Parties hereto may amend from time to time (each a "Fund";
reference herein to "AVIF" includes reference to each Fund, to the extent the
context requires) available for purchase by the Accounts; and
WHEREAS, LIFE COMPANY will be the issuer of certain variable annuity
contracts and variable life insurance contracts ("Contracts") as set forth on
Schedule A hereto, as the Parties hereto may amend from time to time, which
Contracts (hereinafter collectively, the "Contracts"), if required by applicable
law, will be registered under the 1933 Act; and
WHEREAS, LIFE COMPANY will fund the Contracts through the Accounts,
each of which may be divided into two or more subaccounts ("Subaccounts";
reference herein to an "Account" includes reference to each Subaccount thereof
to the extent the context requires); and
WHEREAS, LIFE COMPANY will serve as the depositor of the Accounts, each
of which is registered as a unit investment trust investment company under the
1940 Act (or exempt therefrom), and the security interests deemed to be issued
by the Accounts under the Contracts will be registered as securities under the
1933 Act (or exempt therefrom); and
1
<PAGE> 5
WHEREAS, to the extent permitted by applicable insurance laws and
regulations, LIFE COMPANY intends to purchase Shares in one or more of the Funds
on behalf of the Accounts to fund the Contracts; and
WHEREAS, UNDERWRITER is a broker-dealer registered with the SEC under
the Securities Exchange Act of 1934 ("1934 Act") and a member in good standing
of the National Association of Securities Dealers, Inc. ("NASD");
NOW, THEREFORE, in consideration of the mutual benefits and promises
contained herein, the Parties hereto agree as follows:
SECTION 1. AVAILABLE FUNDS
1.1 AVAILABILITY.
AVIF will make Shares of each Fund available to LIFE COMPANY for
purchase and redemption at net asset value and with no sales charges, subject to
the terms and conditions of this Agreement. The Board of Directors of AVIF may
refuse to sell Shares of any Fund to any person, or suspend or terminate the
offering of Shares of any Fund if such action is required by law or by
regulatory authorities having jurisdiction or if, in the sole discretion of the
Directors acting in good faith and in light of their fiduciary duties under
federal and any applicable state laws, such action is deemed in the best
interests of the shareholders of such Fund.
1.2 ADDITION, DELETION OR MODIFICATION OF FUNDS.
The Parties hereto may agree, from time to time, to add other Funds to
provide additional funding media for the Contracts, or to delete, combine, or
modify existing Funds, by amending Schedule A hereto. Upon such amendment to
Schedule A, any applicable reference to a Fund, AVIF, or its Shares herein shall
include a reference to any such additional Fund. Schedule A, as amended from
time to time, is incorporated herein by reference and is a part hereof.
1.3 NO SALES TO THE GENERAL PUBLIC.
AVIF represents and warrants that no Shares of any Fund have been or
will be sold to the general public.
SECTION 2. PROCESSING TRANSACTIONS
2.1 TIMELY PRICING AND ORDERS.
(a) AVIF or its designated agent will use its best efforts to provide
LIFE COMPANY with the net asset value per Share for each Fund by 6:00 p.m.
Central Time on each Business Day. As used herein, "Business Day" shall mean any
day on which (i) the New York Stock Exchange is open for regular trading, (ii)
AVIF calculates the Fund's net asset value, and (iii) LIFE COMPANY is open for
business.
2
<PAGE> 6
(b) LIFE COMPANY will use the data provided by AVIF each Business Day
pursuant to paragraph (a) immediately above to calculate Account unit values and
to process transactions that receive that same Business Day's Account unit
values. LIFE COMPANY will perform such Account processing the same Business Day,
and will place corresponding orders to purchase or redeem Shares with AVIF by
9:00 a.m. Central Time the following Business Day; provided, however, that AVIF
shall provide additional time to LIFE COMPANY in the event that AVIF is unable
to meet the 6:00 p.m. time stated in paragraph (a) immediately above. Such
additional time shall be equal to the additional time that AVIF takes to make
the net asset values available to LIFE COMPANY.
(c) With respect to payment of the purchase price by LIFE COMPANY and
of redemption proceeds by AVIF, LIFE COMPANY and AVIF shall net purchase and
redemption orders with respect to each Fund and shall transmit one net payment
per Fund in accordance with Section 2.2, below.
(d) If AVIF provides materially incorrect Share net asset value
information (as determined under SEC guidelines), LIFE COMPANY shall be entitled
to an adjustment to the number of Shares purchased or redeemed to reflect the
correct net asset value per Share. Any material error in the calculation or
reporting of net asset value per Share, dividend or capital gain information
shall be reported promptly upon discovery to LIFE COMPANY.
2.2 TIMELY PAYMENTS.
LIFE COMPANY will wire payment for net purchases to a custodial account
designated by AVIF by 1:00 p.m. Central Time on the same day as the order for
Shares is placed, to the extent practicable. AVIF will wire payment for net
redemptions to an account designated by LIFE COMPANY by 1:00 p.m. Central Time
on the same day as the Order is placed, to the extent practicable, but in any
event within five (5) calendar days after the date the order is placed in order
to enable LIFE COMPANY to pay redemption proceeds within the time specified in
Section 22(e) of the 1940 Act or such shorter period of time as may be required
by law.
2.3 APPLICABLE PRICE.
(a) Share purchase payments and redemption orders that result from
purchase payments, premium payments, surrenders and other transactions under
Contracts (collectively, "Contract transactions") and that LIFE COMPANY receives
prior to the close of regular trading on the New York Stock Exchange on a
Business Day will be executed at the net asset values of the appropriate Funds
next computed after receipt by AVIF or its designated agent of the orders. For
purposes of this Section 2.3(a), LIFE COMPANY shall be the designated agent of
AVIF for receipt of orders relating to Contract transactions on each Business
Day and receipt by such designated agent shall constitute receipt by AVIF;
provided that AVIF receives notice of such
3
<PAGE> 7
orders by 9:00 a.m. Central Time on the next following Business Day or such
later time as computed in accordance with Section 2.1(b) hereof.
(b) All other Share purchases and redemptions by LIFE COMPANY will
be effected at the net asset values of the appropriate Funds next computed after
receipt by AVIF or its designated agent of the order therefor, and such orders
will be irrevocable.
2.4 DIVIDENDS AND DISTRIBUTIONS.
AVIF will furnish notice by wire or telephone (followed by written
confirmation) on or prior to the payment date to LIFE COMPANY of any income
dividends or capital gain distributions payable on the Shares of any Fund. LIFE
COMPANY hereby elects to reinvest all dividends and capital gains distributions
in additional Shares of the corresponding Fund at the ex-dividend date net asset
values until LIFE COMPANY otherwise notifies AVIF in writing, it being agreed by
the Parties that the ex-dividend date and the payment date with respect to any
dividend or distribution will be the same Business Day. LIFE COMPANY reserves
the right to revoke this election and to receive all such income dividends and
capital gain distributions in cash.
2.5 BOOK ENTRY.
Issuance and transfer of AVIF Shares will be by book entry only. Stock
certificates will not be issued to LIFE COMPANY. Shares ordered from AVIF will
be recorded in an appropriate title for LIFE COMPANY, on behalf of its Account.
SECTION 3. COSTS AND EXPENSES
3.1 GENERAL.
Except as otherwise specifically provided in Schedule C, attached
hereto and made a part hereof, each Party will bear, or arrange for others to
bear, all expenses incident to its performance under this Agreement.
3.2 PARTIES TO COOPERATE.
Each Party agrees to cooperate with the others, as applicable, in
arranging to print, mail and/or deliver, in a timely manner, combined or
coordinated prospectuses or other materials of AVIF and the Accounts.
4
<PAGE> 8
SECTION 4. LEGAL COMPLIANCE
4.1 TAX LAWS.
(a) AVIF represents and warrants that each Fund is currently qualified
as a regulated investment company ("RIC") under Subchapter M of the Internal
Revenue Code of 1986, as amended (the "Code"), and represents that it will use
its best efforts to qualify and to maintain qualification of each Fund as a RIC.
AVIF will notify LIFE COMPANY 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) AVIF represents that it will use its best efforts to comply and to
maintain each Fund's compliance with the diversification requirements set forth
in Section 817(h) of the Code and Section 1.817-5(b) of the regulations under
the Code. AVIF will notify LIFE COMPANY 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. In the event of a breach of this Section 4.1(b) by
AVIF, it will take all reasonable steps to adequately diversify the Fund so as
to achieve compliance within the grace period afforded by Section 1.817-5 of the
regulations under the Code.
(c) LIFE COMPANY agrees that if the Internal Revenue Service ("IRS")
asserts in writing in connection with any governmental audit or review of LIFE
COMPANY or, to LIFE COMPANY's knowledge, of any Participant, that any Fund has
failed to comply with the diversification requirements of Section 817(h) of the
Code or LIFE COMPANY otherwise becomes aware of any facts that could give rise
to any claim against AVIF or its affiliates as a result of such a failure or
alleged failure:
(i) LIFE COMPANY shall promptly notify AVIF of such
assertion or potential claim (subject to the
Confidentiality provisions of Section 18 as to any
Participant);
(ii) LIFE COMPANY shall consult with AVIF as to how to
minimize any liability that may arise as a result
of such failure or alleged failure;
(iii) LIFE COMPANY shall use its best efforts to
minimize any liability of AVIF or its affiliates
resulting from such failure, including, without
limitation, demonstrating, pursuant to Treasury
Regulations Section 1.817-5(a)(2), to the
Commissioner of the IRS that such failure was
inadvertent;
(iv) LIFE COMPANY shall permit AVIF, its affiliates and
their legal and accounting advisors to participate
in any conferences, settlement discussions or
other administrative or judicial proceeding or
contests (including judicial appeals thereof) with
the IRS, any Participant or any other claimant
regarding any claims that could give rise to
liability to AVIF or its affiliates as a result of
such a failure or alleged failure; provided,
however, that LIFE
5
<PAGE> 9
COMPANY will retain control of the conduct of such
conferences discussions, proceedings, contests or
appeals;
(v) any written materials to be submitted by LIFE
COMPANY to the IRS, any Participant or any other
claimant in connection with any of the foregoing
proceedings or contests (including, without
limitation, any such materials to be submitted to
the IRS pursuant to Treasury Regulations Section
1.817-5(a)(2)), (a) shall be provided by LIFE
COMPANY to AVIF (together with any supporting
information or analysis); subject to the
confidentiality provisions of Section 18, at least
ten (10) business days or such shorter period to
which the Parties hereto agree prior to the day on
which such proposed materials are to be submitted,
and (b) shall not be submitted by LIFE COMPANY to
any such person without the express written
consent of AVIF which shall not be unreasonably
withheld;
(vi) LIFE COMPANY shall provide AVIF or its affiliates
and their accounting and legal advisors with such
cooperation as AVIF shall reasonably request
(including, without limitation, by permitting AVIF
and its accounting and legal advisors to review
the relevant books and records of LIFE COMPANY) in
order to facilitate review by AVIF or its advisors
of any written submissions provided to it pursuant
to the preceding clause or its assessment of the
validity or amount of any claim against its
arising from such a failure or alleged failure;
(vii) LIFE COMPANY shall not with respect to any claim
of the IRS or any Participant that would give rise
to a claim against AVIF or its affiliates (a)
compromise or settle any claim, (b) accept any
adjustment on audit, or (c) forego any allowable
administrative or judicial appeals, without the
express written consent of AVIF or its affiliates,
which shall not be unreasonably withheld, provided
that LIFE COMPANY shall not be required, after
exhausting all administrative penalties, to appeal
any adverse judicial decision unless AVIF or its
affiliates shall have provided an opinion of
independent counsel to the effect that a
reasonable basis exists for taking such appeal;
and provided further that the costs of any such
appeal shall be borne equally by the Parties
hereto; and
(viii) AVIF and its affiliates shall have no liability
as a result of such failure or alleged failure if
LIFE COMPANY fails to comply with any of the
foregoing clauses (i) through (vii), and such
failure could be shown to have materially
contributed to the liability.
Should AVIF or any of its affiliates refuse to give its written consent
to any compromise or settlement of any claim or liability hereunder, LIFE
COMPANY may, in its discretion, authorize AVIF or its affiliates to act in the
name of LIFE COMPANY in, and to control the conduct of, such conferences,
discussions, proceedings, contests or appeals and all administrative
6
<PAGE> 10
or judicial appeals thereof, and in that event AVIF or its affiliates shall bear
the fees and expenses associated with the conduct of the proceedings that it is
so authorized to control; provided, that in no event shall LIFE COMPANY have any
liability resulting from AVIF's refusal to accept the proposed settlement or
compromise with respect to any failure caused by AVIF. As used in this
Agreement, the term "affiliates" shall have the same meaning as "affiliated
person" as defined in Section 2(a)(3) of the 1940 Act.
(d) LIFE COMPANY represents and warrants that the Contracts currently
are and will be treated as annuity contracts or life insurance contracts under
applicable provisions of the Code and that it will use its best efforts to
maintain such treatment; LIFE COMPANY will notify AVIF 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.
(e) LIFE COMPANY represents and warrants that each Account is a
"segregated asset account" and that interests in each 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. LIFE COMPANY will use its best efforts to continue to
meet such definitional requirements, and it will notify AVIF 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 INSURANCE AND CERTAIN OTHER LAWS.
(a) AVIF will use its best efforts to comply with any applicable state
insurance laws or regulations, to the extent specifically requested in writing
by LIFE COMPANY, including, the furnishing of information not otherwise
available to LIFE COMPANY which is required by state insurance law to enable
LIFE COMPANY to obtain the authority needed to issue the Contracts in any
applicable state.
(b) LIFE COMPANY 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 _________________ 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
each Account as a segregated asset account under Section ____ of the
_________________ Insurance Law and the regulations thereunder, and (iii) the
Contracts comply in all material respects with all other applicable federal and
state laws and regulations.
(c) AVIF represents and warrants that it is a corporation duly
organized, validly existing, and in good standing under the laws of the State of
Maryland and has full power, authority, and legal right to execute, deliver, and
perform its duties and comply with its obligations under this Agreement.
4.3 SECURITIES LAWS.
(a) LIFE COMPANY represents and warrants that (i) interests in each
Account pursuant to the Contracts will be registered under the 1933
7
<PAGE> 11
Act to the extent required by the 1933 Act, (ii) 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 and ________________ law, (iii) each Account is and will remain registered
under the 1940 Act, to the extent required by the 1940 Act, (iv) 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, (v) 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, (vi) LIFE COMPANY 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 (vii) each Account Prospectus will at all times comply in
all material respects with the requirements of the 1933 Act and the rules
thereunder.
(b) AVIF represents and warrants that (i) 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 Maryland
law, (ii) AVIF is and will remain registered under the 1940 Act to the extent
required by the 1940 Act, (iii) AVIF 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, (iv) AVIF
does and will comply in all material respects with the requirements of the 1940
Act and the rules thereunder, (v) AVIF's 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 (vi)
AVIF's Prospectus will at all times comply in all material respects with the
requirements of the 1933 Act and the rules thereunder.
(c) AVIF will at its expense register and qualify its Shares for sale
in accordance with the laws of any state or other jurisdiction if and to the
extent reasonably deemed advisable by AVIF.
(d) AVIF currently does not intend to make any payments to finance
distribution expenses pursuant to Rule 12b-1 under the 1940 Act or otherwise,
although it reserves the right to make such payments in the future. To the
extent that it decides to finance distribution expenses pursuant to Rule 12b-1,
AVIF undertakes to have its Board of Directors, a majority of whom are not
"interested" persons of the Fund, formulate and approve any plan under Rule
12b-1 to finance distribution expenses.
(e) AVIF represents and warrants that all of its trustees, officers,
employees, investment advisers, and other individuals/entities having access to
the funds and/or securities of the Fund are and continue to be at all times
covered by a blanket fidelity bond or similar coverage for the benefit of the
Fund in an amount not less than the minimal coverage as required currently by
Rule 17g-(1) of the 1940 Act or related provisions as may be promulgated from
time to time. The aforesaid bond includes coverage for larceny and embezzlement
and is issued by a reputable bonding company.
8
<PAGE> 12
4.4 NOTICE OF CERTAIN PROCEEDINGS AND OTHER CIRCUMSTANCES.
(a) AVIF will immediately notify LIFE COMPANY 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 AVIF's registration statement under the 1933 Act
or AVIF Prospectus, (ii) any request by the SEC for any amendment to such
registration statement or AVIF Prospectus that may affect the offering of Shares
of AVIF, (iii) the initiation of any proceedings for that purpose or for any
other purpose relating to the registration or offering of AVIF's Shares, or (iv)
any other action or circumstances that may prevent the lawful offer or sale of
Shares of any Fund in any state or jurisdiction, including, without limitation,
any circumstances in which (a) such Shares are not registered and, in all
material respects, issued and sold in accordance with applicable state and
federal law, or (b) such law precludes the use of such Shares as an underlying
investment medium of the Contracts issued or to be issued by LIFE COMPANY. AVIF
will make every reasonable effort to prevent the issuance, with respect to any
Fund, 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) LIFE COMPANY will immediately notify AVIF 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 each Account's registration statement under the
1933 Act relating to the Contracts or each Account Prospectus, (ii) any request
by the SEC for any amendment to such registration statement or Account
Prospectus that may affect the offering of Shares of AVIF, (iii) the initiation
of any proceedings for that purpose or for any other purpose relating to the
registration or offering of each Account's interests pursuant to the Contracts,
or (iv) any other action or circumstances that may prevent 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. LIFE COMPANY will 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.
4.5 LIFE COMPANY TO PROVIDE DOCUMENTS; INFORMATION ABOUT AVIF.
(a) LIFE COMPANY will provide to AVIF or its designated agent at least
one (1) complete copy of all SEC registration statements, 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 each Account or the Contracts,
contemporaneously with the filing of such document with the SEC or other
regulatory authorities.
(b) LIFE COMPANY will provide to AVIF or its designated agent at least
one (1) complete copy of each piece of sales literature or other promotional
material in which AVIF or any of its affiliates is named, at least five (5)
Business Days prior to its use or such shorter period as the Parties hereto may,
from time to time, agree upon. No such material shall be used if AVIF or its
designated agent objects to such use within five (5) Business Days after receipt
of such material or such shorter period as the Parties hereto may, from time to
time, agree upon. AVIF
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hereby designates AIM as the entity to receive such sales literature, until such
time as AVIF appoints another designated agent by giving notice to LIFE COMPANY
in the manner required by Section 9 hereof.
(c) Neither LIFE COMPANY nor any of its affiliates, will give any
information or make any representations or statements on behalf of or concerning
AVIF or its affiliates in connection with the sale of the Contracts other than
(i) the information or representations contained in the registration statement,
including the AVIF Prospectus contained therein, relating to Shares, as such
registration statement and AVIF Prospectus may be amended from time to time; or
(ii) in reports or proxy materials for AVIF; or (iii) in published reports for
AVIF that are in the public domain and approved by AVIF for distribution; or
(iv) in sales literature or other promotional material approved by AVIF, except
with the express written permission of AVIF.
(d) LIFE COMPANY shall adopt and implement procedures reasonably
designed to ensure that information concerning AVIF and its affiliates that is
intended for use only by brokers or agents selling the Contracts (i.e.,
information that is not intended for distribution to Participants) ("broker only
materials") is so used, and neither AVIF nor any of its affiliates shall be
liable for any losses, damages or expenses relating to the improper use of such
broker only materials.
(e) For the purposes of this Section 4.5, the phrase "sales literature
or other promotional material" includes, but is not limited to, advertisements
(such as material published, or designed for use in, a newspaper, magazine, or
other periodical, radio, television, telephone or tape recording, videotape
display, signs or billboards, motion pictures, or other public media, (e.g.,
on-line networks such as the Internet or other electronic messages), sales
literature (i.e., any written communication distributed or made generally
available to customers or the public, including brochures, circulars, research
reports, market letters, form letters, seminar texts, reprints or excerpts of
any other advertisement, sales literature, or published article), educational or
training materials or other communications distributed or made generally
available to some or all agents or employees, registration statements,
prospectuses, statements of additional information, shareholder reports, and
proxy materials and any other material constituting sales literature or
advertising under the NASD rules, the 1933 Act or the 1940 Act.
4.6 AVIF TO PROVIDE DOCUMENTS; INFORMATION ABOUT LIFE COMPANY.
(a) AVIF will provide to LIFE COMPANY at least one (1) complete copy of
all SEC registration statements, AVIF 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 AVIF or the
Shares of a Fund, contemporaneously with the filing of such document with the
SEC or other regulatory authorities.
(b) AVIF will provide to LIFE COMPANY a camera ready copy of all AVIF
prospectuses and printed copies, in an amount specified by LIFE COMPANY, of AVIF
statements of additional information, proxy materials, periodic reports to
shareholders and other materials required by law to be sent to Participants who
have allocated any Contract value to a Fund. AVIF
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<PAGE> 14
will provide such copies to LIFE COMPANY in a timely manner so as to enable LIFE
COMPANY, as the case may be, to print and distribute such materials within the
time required by law to be furnished to Participants.
(c) AVIF will provide to LIFE COMPANY or its designated agent at least
one (1) complete copy of each piece of sales literature or other promotional
material in which LIFE COMPANY, or any of its respective affiliates is named, or
that refers to the Contracts, at least five (5) Business Days prior to its use
or such shorter period as the Parties hereto may, from time to time, agree upon.
No such material shall be used if LIFE COMPANY or its designated agent objects
to such use within five (5) Business Days after receipt of such material or such
shorter period as the Parties hereto may, from time to time, agree upon. LIFE
COMPANY shall receive all such sales literature until such time as it appoints a
designated agent by giving notice to AVIF in the manner required by Section 9
hereof.
(d) Neither AVIF nor any of its affiliates will give any information or
make any representations or statements on behalf of or concerning LIFE COMPANY,
each Account, or the Contracts other than (i) the information or representations
contained in the registration statement, including each Account Prospectus
contained therein, relating to the Contracts, as such registration statement and
Account Prospectus may be amended from time to time; or (ii) in published
reports for the Account or the Contracts that are in the public domain and
approved by LIFE COMPANY for distribution; or (iii) in sales literature or other
promotional material approved by LIFE COMPANY or its affiliates, except with the
express written permission of LIFE COMPANY.
(e) AVIF shall cause its principal underwriter to adopt and implement
procedures reasonably designed to ensure that information concerning LIFE
COMPANY, and its respective affiliates that is intended for use only by brokers
or agents selling the Contracts (i.e., information that is not intended for
distribution to Participants) ("broker only materials") is so used, and neither
LIFE COMPANY, nor any of its respective affiliates shall be liable for any
losses, damages or expenses relating to the improper use of such broker only
materials.
(f) For purposes of this Section 4.6, the phrase "sales literature or
other promotional material" includes, but is not limited to, advertisements
(such as material published, or designed for use in, a newspaper, magazine, or
other periodical, radio, television, telephone or tape recording, videotape
display, signs or billboards, motion pictures, or other public media, (e.g.,
on-line networks such as the Internet or other electronic messages), sales
literature (i.e., any written communication distributed or made generally
available to customers or the public, including brochures, circulars, research
reports, market letters, form letters, seminar texts, reprints or excerpts of
any other advertisement, sales literature, or published article), educational or
training materials or other communications distributed or made generally
available to some or all agents or employees, registration statements,
prospectuses, statements of additional information, shareholder reports, and
proxy materials and any other material constituting sales literature or
advertising under the NASD rules, the 1933 Act or the 1940 Act.
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SECTION 5. MIXED AND SHARED FUNDING
5.1 GENERAL.
The SEC has granted an order to AVIF exempting it from certain
provisions of the 1940 Act and rules thereunder so that AVIF may be available
for investment by certain other entities, including, without limitation,
separate accounts funding variable annuity contracts or variable life insurance
contracts, separate accounts of insurance companies unaffiliated with LIFE
COMPANY, and trustees of qualified pension and retirement plans (collectively,
"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. Sections 5.2 through 5.8 below shall apply
pursuant to such an exemptive order granted to AVIF. AVIF hereby notifies LIFE
COMPANY that, in the event that AVIF implements Mixed and Shared Funding, it may
be appropriate to include in the prospectus pursuant to which a Contract is
offered disclosure regarding the potential risks of Mixed and Shared Funding.
5.2 DISINTERESTED DIRECTORS.
AVIF agrees that its Board of Directors shall at all times consist of
directors a majority of whom (the "Disinterested Directors") are not interested
persons of AVIF within the meaning of Section 2(a)(19) of the 1940 Act and the
rules thereunder and as modified by any applicable orders of the SEC, except
that if this condition is not met by reason of the death, disqualification, or
bona fide resignation of any director, then the operation of this condition
shall be suspended (a) for a period of forty-five (45) days if the vacancy or
vacancies may be filled by the Board;(b) for a period of sixty (60) days if a
vote of shareholders is required to fill the vacancy or vacancies; or (c) for
such longer period as the SEC may prescribe by order upon application.
5.3 MONITORING FOR MATERIAL IRRECONCILABLE CONFLICTS.
AVIF agrees that its Board of Directors will monitor for the existence
of any material irreconcilable conflict between the interests of the
Participants in all separate accounts of life insurance companies utilizing AVIF
("Participating Insurance Companies"), including each Account, and participants
in all qualified retirement and pension plans investing in AVIF ("Participating
Plans"). LIFE COMPANY agrees to inform the Board of Directors of AVIF 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;
(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;
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<PAGE> 16
(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 Participating Insurance Companies;
(f) a decision by a Participating Insurance Company to disregard
the voting instructions of Participants; or
(g) a decision by a Participating Plan to disregard the voting
instructions of Plan participants.
Consistent with the SEC's requirements in connection with exemptive
orders of the type referred to in Section 5.1 hereof, LIFE COMPANY will assist
the Board of Directors in carrying out its responsibilities by providing the
Board of Directors with all information reasonably necessary for the Board of
Directors to consider any issue raised, including information as to a decision
by LIFE COMPANY to disregard voting instructions of Participants. LIFE COMPANY's
responsibilities in connection with the foregoing shall be carried out with a
view only to the interests 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 Directors or a majority of the Disinterested Directors that a
material irreconcilable conflict exists, LIFE COMPANY will, if it is a
Participating Insurance Company for which a material irreconcilable conflict is
relevant, at its own expense and to the extent reasonably practicable (as
determined by a majority of the Disinterested Directors), take whatever steps
are necessary to remedy or eliminate the material irreconcilable conflict, which
steps may include, but are not limited to:
(i) withdrawing the assets allocable to some or all
of the Accounts from AVIF or any Fund and reinvesting
such assets in a different investment medium,
including another Fund of AVIF, 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 Participants, life
insurance Participants or all Participants) that
votes in favor of such segregation, or offering to
the affected 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 LIFE
COMPANY's decision to disregard Participant voting instructions and that
decision represents a minority position or
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<PAGE> 17
would preclude a majority vote, LIFE COMPANY may be required, at AVIF's
election, to withdraw each Account's investment in AVIF or any Fund. No charge
or penalty will be imposed as a result of such withdrawal. Any such withdrawal
must take place within six (6) months after AVIF gives notice to LIFE COMPANY
that this provision is being implemented, and until such withdrawal AVIF shall
continue to accept and implement orders by LIFE COMPANY for the purchase and
redemption of Shares of AVIF.
(c) If a material irreconcilable conflict arises because a particular
state insurance regulator's decision applicable to LIFE COMPANY conflicts with
the majority of other state regulators, then LIFE COMPANY will withdraw each
Account's investment in AVIF within six (6) months after AVIF's Board of
Directors informs LIFE COMPANY that it has determined that such decision has
created a material irreconcilable conflict, and until such withdrawal AVIF shall
continue to accept and implement orders by LIFE COMPANY for the purchase and
redemption of Shares of AVIF. No charge or penalty will be imposed as a result
of such withdrawal.
(d) LIFE COMPANY 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 Directors will
determine whether or not any proposed action adequately remedies any material
irreconcilable conflict. In no event, however, will AVIF or any of its
affiliates be required to establish a new funding medium for any Contracts. LIFE
COMPANY will not be required by the terms hereof to establish a new funding
medium for any 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 LIFE COMPANY.
AVIF will promptly make known in writing to LIFE COMPANY the Board of
Directors' 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 DIRECTORS.
LIFE COMPANY and AVIF (or its investment adviser) will at least
annually submit to the Board of Directors of AVIF such reports, materials or
data as the Board of Directors may reasonably request so that the Board of
Directors may fully carry out the obligations imposed upon it by the provisions
hereof or any exemptive order granted by the SEC to permit Mixed and Shared
Funding, and said reports, materials and data will be submitted at any
reasonable time deemed appropriate by the Board of Directors. All reports
received by the Board of Directors of potential or existing conflicts, and all
Board of Directors actions with regard to determining the existence of a
conflict, notifying Participating Insurance Companies and Participating Plans of
a conflict, and determining whether any proposed action adequately remedies a
conflict, will be properly recorded in the minutes of the Board of Directors or
other appropriate records, and such minutes or other records will be made
available to the SEC upon request.
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5.7 COMPLIANCE WITH SEC RULES.
If, at any time during which AVIF is serving as an investment medium
for variable life insurance Contracts, 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, AVIF agrees that it will comply with the
terms and conditions thereof and that the terms of this Section 5 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 OTHER REQUIREMENTS.
AVIF will require that each Participating Insurance Company and
Participating Plan enter into an agreement with AVIF that contains in substance
the same provisions as are set forth in Sections 4.1(b), 4.1(d), 4.3(a), 4.4(b),
4.5(a), 5, and 10 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 any party, with or without cause with respect to
the Fund, upon six (6) months advance written notice to the other parties, or,
if later, upon receipt of any required exemptive relief from the SEC, unless
otherwise agreed to in writing by the parties; or
(b) at the option of AVIF upon institution of formal proceedings
against LIFE COMPANY or its affiliates by the NASD, the SEC, any state insurance
regulator or any other regulatory body regarding LIFE COMPANY's obligations
under this Agreement or related to the sale of the Contracts, the operation of
each Account, or the purchase of Shares, if, in each case, AVIF reasonably
determines that such proceedings, or the facts on which such proceedings would
be based, have a material likelihood of imposing material adverse consequences
on the Fund with respect to which the Agreement is to be terminated; or
(c) at the option of LIFE COMPANY upon institution of formal
proceedings against AVIF, its principal underwriter, or its investment adviser
by the NASD, the SEC, or any state insurance regulator or any other regulatory
body regarding AVIF's obligations under this Agreement or related to the
operation or management of AVIF or the purchase of AVIF Shares, if, in each
case, LIFE COMPANY reasonably determines that such proceedings, or the facts on
which such proceedings would be based, have a material likelihood of imposing
material adverse consequences on LIFE COMPANY, or the Subaccount corresponding
to the Fund with respect to which the Agreement is 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 any applicable federal or state
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<PAGE> 19
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 LIFE COMPANY; or
(e) upon termination of the corresponding Subaccount's investment in
the Fund pursuant to Section 5 hereof; or
(f) at the option of LIFE COMPANY if the Fund ceases to qualify as a
RIC under Subchapter M of the Code or under successor or similar provisions, or
if LIFE COMPANY reasonably believes that the Fund may fail to so qualify; or
(g) at the option of LIFE COMPANY if the Fund fails to comply with
Section 817(h) of the Code or with successor or similar provisions, or if LIFE
COMPANY reasonably believes that the Fund may fail to so comply; or
(h) at the option of AVIF if the Contracts issued by LIFE COMPANY cease
to qualify as annuity contracts or life insurance contracts under the Code
(other than by reason of the Fund's noncompliance with Section 817(h) or
Subchapter M of the Code) or if interests in an Account under the Contracts are
not registered, where required, and, in all material respects, are not issued or
sold in accordance with any applicable federal or state law; or
(i) upon another Party's material breach of any provision of this
Agreement.
6.2 NOTICE REQUIREMENT FOR TERMINATION.
No termination of this Agreement will be effective unless and until the
Party terminating this Agreement gives prior written notice to the other Party
to this Agreement of its intent to terminate, and such notice shall set forth
the basis for such termination. Furthermore:
(a) in the event that any termination is based upon the provisions of
Sections 6.1(a) or 6.1(e) hereof, such prior written notice shall be given at
least six (6) months in advance of the effective date of termination unless a
shorter time is agreed to by the Parties hereto;
(b) in the event that any termination is based upon the provisions of
Sections 6.1(b) or 6.1(c) hereof, such prior written notice shall be given at
least ninety (90) days in advance of the effective date of termination unless a
shorter time is agreed to by the Parties hereto; and
(c) in the event that any termination is based upon the provisions of
Sections 6.1(d), 6.1(f), 6.1(g), 6.1(h) or 6.1(i) hereof, such prior written
notice shall be given as soon as possible within twenty-four (24) hours after
the terminating Party learns of the event causing termination to be required.
6.3 FUNDS TO REMAIN AVAILABLE.
Notwithstanding any termination of this Agreement, AVIF will, at the
option of LIFE COMPANY, continue to make available additional shares of the Fund
pursuant to the terms and
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<PAGE> 20
conditions of this Agreement, for all Contracts in effect on the effective date
of termination of this Agreement (hereinafter referred to as "Existing
Contracts"). Specifically, without limitation, the owners of the Existing
Contracts will be permitted to reallocate investments in the Fund (as in effect
on such date), redeem investments in the Fund and/or invest in the Fund upon the
making of additional purchase payments under the Existing Contracts. The parties
agree that this Section 6.3 will not apply to any terminations under Section 5
and the effect of such terminations will be governed by Section 5 of this
Agreement.
6.4 SURVIVAL OF WARRANTIES AND INDEMNIFICATIONS.
All warranties and indemnifications will survive the termination of
this Agreement.
6.5 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), 6.1(g), 6.1(h) or 6.1(i)
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 an Account owns no Shares of the affected Fund or a date (the "Final
Termination Date") six (6) months following the Initial Termination Date, except
that LIFE COMPANY may, by written notice shorten said six (6) month period in
the case of a termination pursuant to Sections 6.1(d), 6.1(f), 6.1(g), 6.1(h) or
6.1(i).
SECTION 7. PARTIES TO COOPERATE RESPECTING TERMINATION
The Parties hereto agree to cooperate and give reasonable assistance to
one another in taking all necessary and appropriate steps for the purpose of
ensuring that an 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. Such steps
may include combining the affected Account with another Account, substituting
other mutual fund shares for those of the affected Fund, or otherwise
terminating participation by the Contracts in such Fund.
SECTION 8. ASSIGNMENT
This Agreement may not be assigned by any Party, except with the
written consent of each other Party.
SECTION 9. NOTICES
Notices and communications required or permitted by Section 9 hereof
will be given by means mutually acceptable to the Parties concerned. Each other
notice or communication required
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<PAGE> 21
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:
AIM VARIABLE INSURANCE FUNDS, INC.
11 Greenway Plaza, Suite 100
Houston, Texas 77046
Facsimile: (713) 993-9185
Attn: Nancy L. Martin, Esq.
LIFE COMPANY
Street Address
City, State, Zip Code
Facsimile:
Attn: [NAME OF PERSON]
UNDERWRITER
Street Address
City, State, Zip Code
Facsimile:
Attn: [NAME OF PERSON]
SECTION 10. VOTING PROCEDURES
Subject to the cost allocation procedures set forth in Section 3
hereof, LIFE COMPANY will distribute all proxy material furnished by AVIF to
Participants to whom pass-through voting privileges are required to be extended
and will solicit voting instructions from Participants. LIFE COMPANY will vote
Shares in accordance with timely instructions received from Participants. LIFE
COMPANY will vote Shares that are (a) not attributable to Participants to whom
pass-through voting privileges are extended, or (b) attributable to
Participants, but for which no timely instructions have been received, in the
same proportion as Shares for which said instructions have been received from
Participants, so long as and to the extent that the SEC continues to interpret
the 1940 Act to require pass through voting privileges for Participants. Neither
LIFE COMPANY nor any of its affiliates will in any way recommend action in
connection with or oppose or interfere with the solicitation of proxies for the
Shares held for such Participants. LIFE COMPANY reserves the right to vote
shares held in any Account in its own right, to the extent
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<PAGE> 22
permitted by law. LIFE COMPANY shall be responsible for assuring that each of
its Accounts holding Shares calculates voting privileges in a manner consistent
with that of other Participating Insurance Companies or in the manner required
by the Mixed and Shared Funding exemptive order obtained by AVIF. AVIF will
notify LIFE COMPANY of any changes of interpretations or amendments to Mixed and
Shared Funding exemptive order it has obtained. AVIF will comply with all
provisions of the 1940 Act requiring voting by shareholders, and in particular,
AVIF either will provide for annual meetings (except insofar as the SEC may
interpret Section 16 of the 1940 Act not to require such meetings) or will
comply with Section 16(c) of the 1940 Act (although AVIF is not one of the
trusts described in Section 16(c) of that Act) as well as with Sections 16(a)
and, if and when applicable, 16(b). Further, AVIF will act in accordance with
the SEC's interpretation of the requirements of Section 16(a) with respect to
periodic elections of directors and with whatever rules the SEC may promulgate
with respect thereto.
SECTION 11. FOREIGN TAX CREDITS
AVIF agrees to consult in advance with LIFE COMPANY 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
12.1 OF AVIF BY LIFE COMPANY AND UNDERWRITER.
(a) Except to the extent provided in Sections 12.1(b) and 12.1(c),
below, LIFE COMPANY and UNDERWRITER agree to indemnify and hold harmless AVIF,
its affiliates, and each person, if any, who controls AVIF or its affiliates
within the meaning of Section 15 of the 1933 Act and each of their respective
directors and officers, (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 LIFE COMPANY
and UNDERWRITER) 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;
provided, the Account owns shares of the Fund and insofar as such losses,
claims, damages, liabilities or actions:
(i) arise out of or are based upon any untrue
statement or alleged untrue statement of any material
fact contained in any Account's 1933 Act registration
statement, any Account Prospectus, the Contracts, or
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
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or omission was made in reliance upon and in
conformity with information furnished to LIFE COMPANY
or UNDERWRITER by or on behalf of AVIF for use in any
Account's 1933 Act registration statement, any
Account Prospectus, the Contracts, or sales
literature or advertising or otherwise for use in
connection with the sale of Contracts or Shares (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 AVIF's 1933 Act
registration statement, AVIF Prospectus, sales
literature or advertising of AVIF, or any amendment
or supplement to any of the foregoing, not supplied
for use therein by or on behalf of LIFE COMPANY,
UNDERWRITER or their respective affiliates and on
which such persons have reasonably relied) or the
negligent, illegal or fraudulent conduct of LIFE
COMPANY, UNDERWRITER or their respective affiliates
or persons under their control (including, without
limitation, their employees and "persons associated
with a member," as that term is defined in paragraph
(q) of Article I of the NASD's By-Laws), in
connection with the sale or distribution of the
Contracts or Shares; or
(iii)arise out of or are based upon any untrue
statement or alleged untrue statement of any material
fact contained in AVIF's 1933 Act registration
statement, AVIF Prospectus, sales literature or
advertising of AVIF, 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 AVIF or its affiliates
by or on behalf of LIFE COMPANY, UNDERWRITER or their
respective affiliates for use in AVIF's 1933 Act
registration statement, AVIF Prospectus, sales
literature or advertising of AVIF, or any amendment
or supplement to any of the foregoing; or
(iv) arise as a result of any failure by LIFE COMPANY
or UNDERWRITER to perform the obligations, provide
the services and furnish the materials required of
them under the terms of this Agreement, or any
material breach of any representation and/or warranty
made by LIFE COMPANY or UNDERWRITER in this Agreement
or arise out of or result from any other material
breach of this Agreement by LIFE COMPANY or
UNDERWRITER; or
(v) arise as a result of failure by the Contracts
issued by LIFE COMPANY to qualify as annuity
contracts or life insurance contracts under the Code,
otherwise than by reason of any Fund's failure to
comply with Subchapter M or Section 817(h) of the
Code.
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(b) Neither LIFE COMPANY nor UNDERWRITER shall be liable under this
Section 12.1 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 that Indemnified Party's
reckless disregard of obligations or duties (i) under this Agreement, or (ii) to
AVIF.
(c) Neither LIFE COMPANY nor UNDERWRITER shall be liable under this
Section 12.1 with respect to any action against an Indemnified Party unless AVIF
shall have notified LIFE COMPANY and UNDERWRITER 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 LIFE COMPANY and UNDERWRITER of any
such action shall not relieve LIFE COMPANY and UNDERWRITER from any liability
which they may have to the Indemnified Party against whom such action is brought
otherwise than on account of this Section 12.1. Except as otherwise provided
herein, in case any such action is brought against an Indemnified Party, LIFE
COMPANY and UNDERWRITER shall be entitled to participate, at their own expense,
in the defense of such action and 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 LIFE
COMPANY or UNDERWRITER to such Indemnified Party of LIFE COMPANY's or
UNDERWRITER's election to assume the defense thereof, the Indemnified Party will
cooperate fully with LIFE COMPANY and UNDERWRITER and shall bear the fees and
expenses of any additional counsel retained by it, and neither LIFE COMPANY nor
UNDERWRITER will 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.
12.2 OF LIFE COMPANY AND UNDERWRITER BY AVIF.
(a) Except to the extent provided in Sections 12.2(c), 12.2(d) and
12.2(e), below, AVIF agrees to indemnify and hold harmless LIFE COMPANY,
UNDERWRITER, their respective affiliates, and each person, if any, who controls
LIFE COMPANY, UNDERWRITER or their respective affiliates within the meaning of
Section 15 of the 1933 Act and each of their respective directors and officers,
(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 AVIF) 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; provided, the Account owns shares of the Fund and insofar as
such losses, claims, damages, liabilities or actions:
(i) arise out of or are based upon any untrue
statement or alleged untrue statement of any material
fact contained in AVIF's 1933 Act registration
statement, AVIF Prospectus or sales literature or
advertising of AVIF (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
21
<PAGE> 25
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 AVIF or
its affiliates by or on behalf of LIFE COMPANY,
UNDERWRITER or their respective affiliates for use in
AVIF's 1933 Act registration statement, AVIF
Prospectus, or in sales literature or advertising or
otherwise for use in connection with the sale of
Contracts or Shares (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 any Account's 1933
Act registration statement, any 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 AVIF
or its affiliates and on which such persons have
reasonably relied) or the negligent, illegal or
fraudulent conduct of AVIF or its affiliates or
persons under its control (including, without
limitation, their employees and "persons associated
with a member" as that term is defined in Section (q)
of Article I of the NASD By-Laws), in connection with
the sale or distribution of AVIF Shares; or
(iii) arise out of or are based upon any untrue
statement or alleged untrue statement of any material
fact contained in any Account's 1933 Act registration
statement, any 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 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 LIFE COMPANY, UNDERWRITER or their
respective affiliates by or on behalf of AVIF for use
in any Account's 1933 Act registration statement, any
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 AVIF to
perform the obligations, provide the services and
furnish the materials required of it under the terms
of this Agreement, or any material breach of any
representation and/or warranty made by AVIF in this
Agreement or arise out of or result from any other
material breach of this Agreement by AVIF.
(b) Except to the extent provided in Sections 12.2(c), 12.2(d) and
12.2(e) hereof, AVIF agrees to indemnify and hold harmless the Indemnified
Parties from and against any and all losses,
22
<PAGE> 26
claims, damages, liabilities (including amounts paid in settlement thereof with,
the written consent of AVIF) 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 failure of any Fund to
operate as a regulated investment company in compliance with (i) Subchapter M of
the Code and regulations thereunder, or (ii) 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 Participants
asserting liability against LIFE COMPANY pursuant to the Contracts, the costs of
any ruling and closing agreement or other settlement with the IRS, and the cost
of any substitution by LIFE COMPANY of Shares of another investment company or
portfolio for those of any adversely affected Fund as a funding medium for each
Account that LIFE COMPANY reasonably deems necessary or appropriate as a result
of the noncompliance.
(c) AVIF shall not be liable under this Section 12.2 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 such Indemnified Party's reckless disregard of its obligations and
duties (i) under this Agreement, or (ii) to LIFE COMPANY, UNDERWRITER, each
Account or Participants.
(d) AVIF shall not be liable under this Section 12.2 with respect to
any action against an Indemnified Party unless the Indemnified Party shall have
notified AVIF 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 AVIF of any such action shall not relieve AVIF from any liability which
it may have to the Indemnified Party against whom such action is brought
otherwise than on account of this Section 12.2. Except as otherwise provided
herein, in case any such action is brought against an Indemnified Party, AVIF
will be entitled to participate, at its own expense, in the defense of such
action and also 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 IRS), with counsel approved by
the Indemnified Party named in the action, which approval shall not be
unreasonably withheld. After notice from AVIF to such Indemnified Party of
AVIF's election to assume the defense thereof, the Indemnified Party will
cooperate fully with AVIF and shall bear the fees and expenses of any additional
counsel retained by it, and AVIF 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.
(e) In no event shall AVIF be liable under the indemnification
provisions contained in this Agreement to any individual or entity, including,
without limitation, LIFE COMPANY, UNDERWRITER or any other Participating
Insurance Company or any Participant, with respect to any losses, claims,
damages, liabilities or expenses that arise out of or result from (i) a breach
of any representation, warranty, and/or covenant made by LIFE COMPANY or
UNDERWRITER
23
<PAGE> 27
hereunder or by any Participating Insurance Company under an agreement
containing substantially similar representations, warranties and covenants; (ii)
the failure by LIFE COMPANY or any Participating Insurance Company to maintain
its segregated asset account (which invests in any Fund) as a legally and
validly established segregated asset account under applicable state law and as a
duly registered unit investment trust under the provisions of the 1940 Act
(unless exempt therefrom); or (iii) the failure by LIFE COMPANY or any
Participating Insurance Company to maintain its variable annuity or life
insurance contracts (with respect to which any Fund serves as an underlying
funding vehicle) as annuity contracts or life insurance contracts under
applicable provisions of the Code.
12.3 EFFECT OF NOTICE.
Any notice given by the indemnifying Party to an Indemnified Party
referred to in Sections 12.1(c) or 12.2(d) 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.
12.4 SUCCESSORS.
A successor by law of any Party shall be entitled to the benefits of
the indemnification contained in this Section 12.
SECTION 13. APPLICABLE LAW
This Agreement will be construed and the provisions hereof interpreted
under and in accordance with Maryland 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.
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.
24
<PAGE> 28
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. 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.
SECTION 18. CONFIDENTIALITY
AVIF acknowledges that the identities of the customers of LIFE COMPANY
or any of its affiliates (collectively, the "LIFE COMPANY Protected Parties" for
purposes of this Section 18), information maintained regarding those customers,
and all computer programs and procedures or other information developed by the
LIFE COMPANY Protected Parties or any of their employees or agents in connection
with LIFE COMPANY's performance of its duties under this Agreement are the
valuable property of the LIFE COMPANY Protected Parties. AVIF agrees that if it
comes into possession of any list or compilation of the identities of or other
information about the LIFE COMPANY Protected Parties' customers, or any other
information or property of the LIFE COMPANY Protected Parties, other than such
information as may be independently developed or compiled by AVIF from
information supplied to it by the LIFE COMPANY Protected Parties' customers who
also maintain accounts directly with AVIF, AVIF will hold such information or
property in confidence and refrain from using, disclosing or distributing any of
such information or other property except: (a) with LIFE COMPANY's prior written
consent; or (b) as required by law or judicial process. LIFE COMPANY
acknowledges that the identities of the customers of AVIF or any of its
affiliates (collectively, the "AVIF Protected Parties" for purposes of this
Section 18), information maintained regarding those customers, and all computer
programs and procedures or other information developed by the AVIF Protected
Parties or any of their employees or agents in connection with AVIF's
performance of its duties under this Agreement are the valuable property of the
AVIF Protected Parties. LIFE COMPANY agrees that if it comes into possession of
any list or compilation of the identities of or other information about the AVIF
Protected Parties' customers or any other information or property of the AVIF
Protected Parties, other than such information as may be independently developed
or compiled by LIFE COMPANY from information supplied to it by the AVIF
Protected Parties' customers who also maintain accounts directly with LIFE
COMPANY, LIFE COMPANY will hold such information or property in confidence and
refrain from using, disclosing or distributing any of such information or other
property except: (a) with AVIF's prior written consent; or (b) as required by
law or judicial process. Each party acknowledges that any breach of the
agreements in this Section 18 would result in immediate and irreparable harm to
the other parties for which there would be no adequate remedy at law and agree
that in the event of such a breach, the other parties will be entitled to
equitable relief by way of temporary and permanent injunctions, as well as such
other relief as any court of competent jurisdiction deems appropriate.
25
<PAGE> 29
SECTION 19. TRADEMARKS AND FUND NAMES
(a) A I M Management Group Inc. ("AIM" or "licensor"), an affiliate of
AVIF, owns all right, title and interest in and to the name, trademark and
service mark "AIM" and such other tradenames, trademarks and service marks as
may be set forth on Schedule B, as amended from time to time by written notice
from AIM to LIFE COMPANY (the "AIM licensed marks" or the "licensor's licensed
marks") and is authorized to use and to license other persons to use such marks.
LIFE COMPANY and its affiliates are hereby granted a non-exclusive license to
use the AIM licensed marks in connection with LIFE COMPANY's performance of the
services contemplated under this Agreement, subject to the terms and conditions
set forth in this Section 19.
(b) The grant of license to LIFE COMPANY and its affiliates ( the
"licensee") shall terminate automatically upon termination of this Agreement.
Upon automatic termination, the licensee shall cease to use the licensor's
licensed marks, except that LIFE COMPANY shall have the right to continue to
service any outstanding Contracts bearing any of the AIM licensed marks. Upon
AIM's elective termination of this license, LIFE COMPANY and its affiliates
shall immediately cease to issue any new annuity or life insurance contracts
bearing any of the AIM licensed marks and shall likewise cease any activity
which suggests that it has any right under any of the AIM licensed marks or that
it has any association with AIM, except that LIFE COMPANY shall have the right
to continue to service outstanding Contracts bearing any of the AIM licensed
marks.
(c) The 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 approvals shall not be unreasonably
withheld.
(d) 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 which were previously approved by the licensor but, due to
changed circumstances, the licensor may wish to reconsider. If, on
reconsideration, or on initial review, respectively, any such samples fail to
meet with the written approval of the licensor, then the licensee shall
immediately cease distributing such disapproved materials. The licensor's
approval shall not be unreasonably withheld, and the licensor, when requesting
reconsideration of a prior approval, shall assume the reasonable expenses of
withdrawing and replacing such disapproved materials. 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.
(e) The licensee hereunder: (i) acknowledges and stipulates that, to
the best of the knowledge of the licensee, 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
26
<PAGE> 30
no rights therein other than as a licensee under this Agreement; (ii) agrees
never to contend otherwise in legal proceedings or in other circumstances; and
(iii) 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 20. PARTIES TO COOPERATE
Each party to this Agreement will cooperate with each other party and
all appropriate governmental authorities (including, without limitation, the
SEC, the NASD and state insurance regulators) and will permit each other and
such authorities reasonable access to its books and records (including copies
thereof) in connection with any investigation or inquiry relating to this
Agreement or the transactions contemplated hereby.
--------------------------------
27
<PAGE> 31
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.
AIM VARIABLE INSURANCE FUNDS, INC.
Attest: By:
------------------------ ------------------------
Name: Nancy L. Martin Name: Robert H. Graham
Title Assistant Secretary Title: President
LIFE INSURANCE COMPANY, on behalf
of itself and its separate accounts
Attest: By:
------------------------ ------------------------
Name: Name:
------------------------ ------------------------
Title: Title:
------------------------ ------------------------
SEPARATE ACCOUNT UNDERWRITER
Attest: By:
------------------------ ------------------------
Name: Name:
------------------------ ------------------------
Title: Title:
------------------------ ------------------------
28
<PAGE> 32
SCHEDULE A
FUNDS AVAILABLE UNDER THE CONTRACTS
o AIM VARIABLE INSURANCE FUNDS, INC.
[LIST APPLICABLE PORTFOLIOS]
SEPARATE ACCOUNTS UTILIZING THE FUNDS
CONTRACTS FUNDED BY THE SEPARATE ACCOUNTS
29
<PAGE> 33
SCHEDULE B
o AIM VARIABLE INSURANCE FUNDS, INC.
AIM Fund
-------------------------------------
o AIM and Design
[AIM LOGO]
30
<PAGE> 34
SCHEDULE C
EXPENSE ALLOCATIONS
<TABLE>
<CAPTION>
===================================================================================================================================
LIFE COMPANY AVIF
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C>
preparing and filing the Account's registration preparing and filing the Fund's registration statement
statement
- -----------------------------------------------------------------------------------------------------------------------------------
text composition for Account prospectuses and text composition for Fund prospectuses and supplements
supplements
- -----------------------------------------------------------------------------------------------------------------------------------
text alterations of prospectuses (Account) and text alterations of prospectuses (Fund) and supplements
supplements (Account) (Fund)
- -----------------------------------------------------------------------------------------------------------------------------------
printing Account and Fund prospectuses and supplements a camera ready Fund prospectus
- -----------------------------------------------------------------------------------------------------------------------------------
text composition and printing Account SAIs text composition and printing Fund SAIs
- -----------------------------------------------------------------------------------------------------------------------------------
mailing and distributing Account SAIs to mailing and distributing Fund SAIs to policy
policy owners upon request by policy owners owners upon request by policy owners
- -----------------------------------------------------------------------------------------------------------------------------------
mailing and distributing prospectuses
(Account and Fund) and supplements
(Account and Fund) to policy owners of
record as required by Federal Securities
Laws and to prospective purchasers
- -----------------------------------------------------------------------------------------------------------------------------------
text composition (Account), printing, mailing, and text composition of annual and semi-annual reports
distributing annual and semi-annual reports for Account (Fund)
(Fund and Account as, applicable)
- -----------------------------------------------------------------------------------------------------------------------------------
text composition, printing, mailing, text composition, printing, mailing,
distributing and tabulation of proxy distributing and tabulation of proxy
statements and voting instruction tabulation statements and voting instruction tabulation
materials to policy owners with respect to materials to policy owners with respect to
proxies related to the Account proxies related to the Fund
- -----------------------------------------------------------------------------------------------------------------------------------
preparation, printing and distributing sales
material and advertising relating to the Funds,
insofar as such materials relate to the
Contracts and filing such materials with and
obtaining approval from, the SEC, the NASD,
any state insurance regulatory authority, and
any other appropriate regulatory authority, to
the extent required
===================================================================================================================================
</TABLE>
31
<PAGE> 1
EXHIBIT B8(ii)
DRAFT
PARTICIPATION AGREEMENT
AMONG TEMPLETON VARIABLE PRODUCTS SERIES FUND,
FRANKLIN TEMPLETON DISTRIBUTORS, INC. AND
AMERICAN GENERAL ANNUITY
THIS AGREEMENT made as of ____________, 1998, among Templeton Variable
Products Series Fund (the "Trust"), an open-end management investment company
organized as a business trust under Massachusetts law, Franklin Templeton
Distributors, Inc., a California corporation, the Trust's principal underwriter
("Underwriter"), and American General Annuity, a life insurance company
organized as a corporation under ______________ law (the "Company"), on its own
behalf and on behalf of each segregated asset account of the Company set forth
in Schedule A, as may be amended from time to time (the "Accounts").
W I T N E S S E T H:
WHEREAS, the Trust is registered with the Securities and Exchange
Commission (the "SEC") as an open-end management investment company under the
Investment Company Act of 1940, as amended (the "1940 Act"), and has an
effective registration statement relating to the offer and sale of the various
series of its shares under the Securities Act of 1933, as amended (the "1933
Act");
WHEREAS, the Trust and the Underwriter desire that Trust shares be used as
an investment vehicle for separate accounts established for variable life
insurance policies and variable annuity contracts to be offered by life
insurance companies which have entered into fund participation agreements with
the Trust (the "Participating Insurance Companies");
WHEREAS, the beneficial interest in the Trust is divided into several
series of shares, each series representing an interest in a particular managed
portfolio of securities and other assets, and certain of those series, named in
Schedule B, (the "Portfolios") are to be made available for purchase by the
Company for the Accounts; and
WHEREAS, the Trust has received an order from the SEC, dated November 16,
1993 (File No. 812-8546), granting Participating Insurance Companies and their
separate accounts exemptions from the provisions of Sections 9(a), 13(a), 15(a)
and 15(b) of the 1940 Act, and Rules 6e-2 (b) (15) and 6e-3 (T) (b) (15)
thereunder, to the extent necessary to permit shares of the Trust to be sold to
and held by variable annuity and variable life insurance separate accounts of
both affiliated and unaffiliated life insurance companies and certain qualified
pension and retirement plans (the "Shared Funding Exemptive Order");
1
<PAGE> 2
WHEREAS, the Company has registered or will register each Account as a unit
investment trust under the 1940 Act unless an exemption from registration under
the 1940 Act is available and the Trust has been so advised; and has registered
or will register certain variable annuity contracts and variable life insurance
policies, listed on Schedule C attached hereto, under which the portfolios are
to be made available as investment vehicles (the "Contracts") under the 1933 Act
unless such interests under the Contracts in the Accounts are exempt from
registration under the 1933 Act and the Trust has been so advised;
WHEREAS, each Account is a duly organized, validly existing segregated
asset account, established by resolution of the Board of Directors of the
Company, on the date shown for such account on Schedule A hereto, to set aside
and invest assets attributable to one or more Contracts; and
WHEREAS, the Underwriter is registered as a broker dealer with the
Securities and Exchange Commission under the Securities Exchange Act of 1934, as
amended (the "1934 Act"), and is a member in good standing of the National
Association of Securities Dealers, Inc. ("NASD"); and
WHEREAS, each investment adviser listed on Schedule B (each, an "Adviser")
is duly registered as an investment adviser under the Investment Advisers Act of
1940, as amended ("Advisers Act") and any applicable state securities laws;
WHEREAS, to the extent permitted by applicable insurance laws and
regulations, the Company intends to purchase shares in the Portfolios on behalf
of each Account to fund certain of the aforesaid Contracts and the Underwriter
is authorized to sell such shares to unit investment trusts such as each Account
at net asset value;
NOW THEREFORE, in consideration of their mutual promises, the parties agree
as follows:
ARTICLE I.
PURCHASE AND REDEMPTION OF TRUST PORTFOLIO SHARES
1.1. For purposes of this Article I, the Company shall be the Trust's agent
for receipt of purchase orders and requests for redemption relating to each
Portfolio from each Account, provided that the Company notifies the Trust of
such purchase orders and requests for redemption by 9:00 a.m. Eastern time on
the next following Business Day, as defined in Section 1.3.
1.2. The Trust agrees to make shares of the Portfolios available to the
Accounts for purchase at the net asset value per share next computed after
receipt of a purchase order by the Trust (or its agent), as established in
accordance with the provisions of the then current prospectus of the Trust
2
<PAGE> 3
describing Portfolio purchase procedures on those days on which the Trust
calculates its net asset value pursuant to rules of the SEC, and the Trust shall
use its best efforts to calculate such net asset value on each day on which the
New York Stock Exchange ("NYSE") is open for trading. The Company will transmit
orders from time to time to the Trust for the purchase of shares of the
Portfolios. The Trustees of the Trust (the "Trustees") may refuse to sell shares
of any Portfolio to any person, or suspend or terminate the offering of shares
of any Portfolio if such action is required by law or by regulatory authorities
having jurisdiction or if, in the sole discretion of the Trustees acting in good
faith and in light of their fiduciary duties under federal and any applicable
state laws, such action is deemed in the best interests of the shareholders of
such Portfolio.
1.3 The Company shall submit payment for the purchase of shares of a
Portfolio on behalf of an Account no later than the close of business on the
next Business Day after the Trust receives the purchase order. Payment shall be
made in federal funds transmitted by wire to the Trust or its designated
custodian. Upon receipt by the Trust of the federal funds so wired, such funds
shall cease to be the responsibility of the Company and shall become the
responsibility of the Trust for this purpose. "Business Day" shall mean any day
on which the NYSE is open for trading and on which the Trust calculates its net
asset value pursuant to the rules of the SEC.
1.4 The Trust will redeem for cash any full or fractional shares of any
Portfolio, when requested by the Company on behalf of an Account, at the net
asset value next computed after receipt by the Trust (or its agent) of the
request for redemption, as established in accordance with the provisions of the
then current prospectus of the Trust describing Portfolio redemption procedures.
The Trust shall make payment for such shares in the manner established from time
to time by the Trust. Redemption with respect to a Portfolio will normally be
paid to the Company for an Account in federal funds transmitted by wire to the
Company before the close of business on the next Business Day after the receipt
of the request for redemption. Such payment may be delayed if, for example, the
Portfolio's cash position so requires or if extraordinary market conditions
exist, but in no event shall payment be delayed for a greater period than is
permitted by the 1940 Act.
1.5 Payments for the purchase of shares of the Trust's Portfolios by the
Company under Section 1.3 and payments for the redemption of shares of the
Trust's Portfolios under Section 1.4 may be netted against one another on any
Business Day for the purpose of determining the amount of any wire transfer on
that Business Day.
1.6 Issuance and transfer of the Trust's Portfolio shares will be by book
entry only. Stock certificates will not be issued to the Company or the Account.
Portfolio Shares purchased from the Trust will be recorded in the appropriate
title for each Account or the appropriate subaccount of each Account.
3
<PAGE> 4
1.7 The Trust shall furnish, on or before the ex-dividend date, notice to
the Company of any income dividends or capital gain distributions payable on the
shares of any Portfolio of the Trust. The Company hereby elects to receive all
such income dividends and capital gain distributions as are payable on a
Portfolio's shares in additional shares of the Portfolio. The Trust shall notify
the Company of the number of shares so issued as payment of such dividends and
distributions.
1.8 The Trust shall calculate the net asset value of each Portfolio on each
Business Day, as defined in Section 1.3. The Trust shall make the net asset
value per share for each Portfolio available to the Company or its designated
agent on a daily basis as soon as reasonably practical after the net asset value
per share is calculated (normally by 6:30 p.m. Eastern time) and shall use
reasonable efforts to make such net asset value per share available by 7:00 p.m.
Eastern time each Business Day.
1.9 The Trust agrees that its Portfolio shares will be sold only to
Participating Insurance Companies and their separate accounts and to certain
qualified pension and retirement plans to the extent permitted by the Shared
Funding Exemptive Order. No shares of any Portfolio will be sold directly to the
general public. The Company agrees that it will use Trust shares only for the
purposes of funding the Contracts through the Accounts listed in Schedule A, as
amended from time to time.
1.10 The Company agrees that all net amounts available under the Contracts
shall be invested in the Trust, in such other Funds advised by an Adviser or its
affiliates as may be mutually agreed to in writing by the parties hereto, or in
the Company's general account, provided that such amounts may also be invested
in an investment company other than the Trust if: (a) such other investment
company, or series thereof, has investment objectives or policies that are
substantially different from the investment objectives and policies of the
Portfolios; or (b) the Company gives the Trust and the Underwriter 45 days
written notice of its intention to make such other investment company available
as a funding vehicle for the Contracts; or (c) such other investment company is
available as a funding vehicle for the Contracts at the date of this Agreement
and the Company so informs the Trust and the Underwriter prior to their signing
this Agreement (a list of such investment companies appearing on Schedule D to
this Agreement); or (d) the Trust or Underwriter consents to the use of such
other investment company.
1.11 The Trust agrees that all Participating Insurance Companies shall have
the obligations and responsibilities regarding pass-through voting and conflicts
of interest corresponding to those contained in Section 2.10 and Article IV of
this Agreement.
4
<PAGE> 5
1.12 Each party to this Agreement shall have the right to rely on
information or confirmations provided by any other party (or by any affiliate of
any other party), and shall not be liable in the event that an error results
from any incorrect information or confirmations supplied by any other party. If
an error is made in reliance upon incorrect information or confirmations, any
amount required to make a Contract owner's account whole shall be borne by the
party who provided the incorrect information or confirmation.
ARTICLE II.
OBLIGATIONS OF THE PARTIES; FEES AND EXPENSES
2.1 The Trust shall prepare and be responsible for filing with the SEC and
any state regulators requiring such filing all shareholder reports, notices,
proxy materials (or similar materials such as voting instruction solicitation
materials), prospectuses and statements of additional information of the Trust.
The Trust shall bear the costs of registration and qualification of its shares
of the Portfolios, preparation and filing of the documents listed in this
Section 2.1 and all taxes to which an issuer is subject on the issuance and
transfer of its shares.
2.2 At the option of the Company, the Trust or the Underwriter shall either
(a) provide the Company with as many copies of portions of the Trust's current
prospectus, annual report, semi-annual report and other shareholder
communications, including any amendments or supplements to any of the foregoing,
pertaining specifically to the Portfolios as the Company shall reasonably
request; or (b) provide the Company with a camera ready copy of such documents
in a form suitable for printing and from which information relating to series of
the Trust other than the Portfolios has been deleted to the extent practicable.
The Trust or the Underwriter shall provide the Company with a copy of its
current statement of additional information, including any amendments or
supplements, in a form suitable for duplication by the Company. Expenses of
furnishing such documents for marketing purposes shall be borne by the Company
and expenses of furnishing such documents for current contract owners invested
in the Trust shall be borne by the Trust or the Underwriter.
2.3 The Trust (at its expense) shall provide the Company with copies of any
Trust-sponsored proxy materials in such quantity as the Company shall reasonably
require for distribution to Contract owners. The Company shall bear the costs of
distributing proxy materials (or similar materials such as voting solicitation
instructions), prospectuses and statements of additional information to Contract
owners. The Company assumes sole responsibility for ensuring that such materials
are delivered to Contract owners in accordance with applicable federal and state
securities laws.
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<PAGE> 6
2.4 If and to the extent required by law, the Company shall: (i) solicit
voting instructions from Contract owners; (ii) vote the Trust shares in
accordance with the instructions received from Contract owners; and (iii) vote
Trust shares for which no instructions have been received in the same proportion
as Trust shares of such Portfolio for which instructions have been received; so
long as and to the extent that the SEC continues to interpret the 1940 Act to
require pass-through voting privileges for variable contract owners. The Company
reserves the right to vote Trust shares held in any segregated asset account in
its own right, to the extent permitted by law.
2.5 Except as provided in section 2.6, the Company shall not use any
designation comprised in whole or part of the names or marks "Franklin" or
"Templeton" or any other Trademark relating to the Trust or Underwriter without
prior written consent, and upon termination of this Agreement for any reason,
the Company shall cease all use of any such name or mark as soon as reasonably
practicable.
2.6 The Company shall furnish, or cause to be furnished to the Trust or its
designee, at least one complete copy of each registration statement, prospectus,
statement of additional information, retirement plan disclosure information or
other disclosure documents or similar information, as applicable (collectively
"disclosure documents"), as well as any report, solicitation for voting
instructions, sales literature and other promotional materials, and all
amendments to any of the above that relate to the Contracts or the Accounts
prior to its first use. The Company shall furnish, or shall cause to be
furnished, to the Trust or its designee each piece of sales literature or other
promotional material in which the Trust or an Adviser is named, at least 15
Business Days prior to its use. No such material shall be used if the Trust or
its designee reasonably objects to such use within five Business Days after
receipt of such material. For purposes of this paragraph, "sales literature or
other promotional material" includes, but is not limited to, portions of the
following that use any Trademark related to the Trust or Underwriter or refer to
the Trust or affiliates of the Trust: advertisements (such as material published
or designed for use in a newspaper, magazine or other periodical, radio,
television, telephone or tape recording, videotape display, signs or billboards,
motion pictures or electronic communication or other public media), sales
literature (i.e., any written communication distributed or made generally
available to customers or the public, including brochures, circulars, research
reports, market letters, form letters, seminar texts, reprints or excerpts or
any other advertisement, sales literature or published article or electronic
communication), educational or training materials or other communications
distributed or made generally available to some or all agents or employees, and
disclosure documents, shareholder reports and proxy materials.
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2.7 The Company and its agents shall not give any information or make any
representations or statements on behalf of the Trust or concerning the Trust,
the Underwriter or an Adviser in connection with the sale of the Contracts other
than information or representations contained in and accurately derived from the
registration statement or prospectus for the Trust shares (as such registration
statement and prospectus may be amended or supplemented from time to time),
annual and semi-annual reports of the Trust, Trust-sponsored proxy statements,
or in sales literature or other promotional material approved by the Trust or
its designee, except as required by legal process or regulatory authorities or
with the written permission of the Trust or its designee.
2.8 The Trust shall use its best efforts to provide the Company, on a
timely basis, with such information about the Trust, the Portfolios and each
Adviser, in such form as the Company may reasonably require, as the Company
shall reasonably request in connection with the preparation of disclosure
documents and annual and semi-annual reports pertaining to the Contracts.
2.9 The Trust shall not give any information or make any representations or
statements on behalf of the Company or concerning the Company, the Accounts or
the Contracts other than information or representations contained in and
accurately derived from disclosure documents for the Contracts (as such
disclosure documents may be amended or supplemented from time to time), or in
materials approved by the Company for distribution including sales literature or
other promotional materials, except as required by legal process or regulatory
authorities or with the written permission of the Company.
2.10 So long as, and to the extent that, the SEC interprets the 1940 Act to
require pass-through voting privileges for Contract owners, the Company will
provide pass-through voting privileges to Contract owners whose Contract values
are invested, through the registered Accounts, in shares of one or more
Portfolios of the Trust. The Trust shall require all Participating Insurance
Companies to calculate voting privileges in the same manner and the Company
shall be responsible for assuring that the Accounts calculate voting privileges
in the manner established by the Trust. With respect to each registered Account,
the Company will vote shares of each Portfolio of the Trust held by a registered
Account and for which no timely voting instructions from Contract owners are
received in the same proportion as those shares held by that registered Account
for which voting instructions are received. The Company and its agents will in
no way recommend or oppose or interfere with the solicitation of proxies for
Portfolio shares held to fund the Contracts without the prior written consent of
the Trust, which consent may be withheld in the Trust's sole discretion.
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2.11 The Trust and Underwriter shall pay no fee or other compensation to
the Company under this Agreement except as provided on Schedule E, if attached.
Nevertheless, the Trust or the Underwriter or an affiliate may make payments
(other than pursuant to a Rule 12b-1 Plan) to the Company or its affiliates or
to the Contracts' underwriter in amounts agreed to by the Underwriter in writing
and such payments may be made out of fees otherwise payable to the Underwriter
or its affiliates, profits of the Underwriter or its affiliates, or other
resources available to the Underwriter or its affiliates.
ARTICLE III.
REPRESENTATIONS AND WARRANTIES
3.1 The Company represents and warrants that it is an insurance company
duly organized and in good standing under the laws of its state of incorporation
and that it has legally and validly established each Account as a segregated
asset account under such law as of the date set forth in Schedule A.
3.2 The Company represents and warrants that, with respect to each Account,
(1) the Company has registered or, prior to any issuance or sale of the
Contracts, will register the Account as a unit investment trust in accordance
with the provisions of the 1940 Act to serve as a segregated asset account for
the Contracts, or (2) if the Account is exempt from registration as an
investment company under Section 3(c) of the 1940 Act, the Company will make
every effort to maintain such exemption and will notify the Trust and the
Adviser immediately upon having a reasonable basis for believing that such
exemption no longer applies or might not apply in the future.
3.3 The Company represents and warrants that, with respect to each
Contract, (1) the Contract will be registered under the 1933 Act, or (2) if the
Contract is exempt from registration under Section 3(a)(2) of the 1933 Act or
under Section 4(2) and Regulation D of the 1933 Act, the Company will make every
effort to maintain such exemption and will notify the Trust and the Adviser
immediately upon having a reasonable basis for believing that such exemption no
longer applies or might not apply in the future. The Company further represents
and warrants that the Contracts will be sold by broker-dealers, or their
registered representatives, who are registered with the SEC under the 1934 Act
and who are members in good standing of the NASD; the Contracts will be issued
and sold in compliance in all material respects with all applicable federal and
state laws; and the sale of the Contracts shall comply in all material respects
with state insurance suitability requirements.
For any unregistered Accounts which are exempt from registration under the
`40 Act in reliance upon Sections 3(c)(1) or 3(c)(7) thereof, the Company
represents and warrants that:
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(a) each Account and sub-account thereof has a principal underwriter which
is registered as a broker-dealer under the Securities Exchange Act of
1934, as amended;
(b) Trust shares are and will continue to be the only investment
securities held by the corresponding Account sub-accounts; and
(c) with regard to each Portfolio, the Company, on behalf of the
corresponding sub-account, will:
(1) seek instructions from all Contract owners with regard to the
voting of all proxies with respect to Trust shares and vote such
proxies only in accordance with such instructions or vote such
shares held by it in the same proportion as the vote of all other
holders of such shares; and
(2) refrain from substituting shares of another security for such
shares unless the SEC has approved such substitution in the
manner provided in Section 26 of the `40 Act.
3.4 The Trust represents and warrants that it is duly organized and validly
existing under the laws of the State of Massachusetts and that it does and will
comply in all material respects with the 1940 Act and the rules and regulations
thereunder.
3.5 The Trust represents and warrants that the Portfolio shares offered and
sold pursuant to this Agreement will be registered under the 1933 Act and the
Trust shall be registered under the 1940 Act prior to and at the time of any
issuance or sale of such shares. The Trust shall amend its registration
statement under the 1933 Act and the 1940 Act from time to time as required in
order to effect the continuous offering of its shares. The Trust shall register
and qualify its shares for sale in accordance with the laws of the various
states only if and to the extent deemed advisable by the Trust or the
Underwriter.
3.6 The Trust represents and warrants that the investments of each
Portfolio will comply with the diversification requirements for variable
annuity, endowment or life insurance contracts set forth in Section 817(h) of
the Internal Revenue Code of 1986, as amended ("Code"), and the rules and
regulations thereunder, including without limitation Treasury Regulation
1.817-5, and will notify the Company immediately upon having a reasonable basis
for believing any Portfolio has ceased to comply or might not so comply and will
in that event immediately take all reasonable steps to adequately diversify the
Portfolio to achieve compliance within the grace period afforded by Regulation
1.817-5.
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3.7 The Trust represents and warrants that it is currently qualified as a
"regulated investment company" under Subchapter M of the Code, that it will make
every effort to maintain such qualification and will notify the Company
immediately upon having a reasonable basis for believing it has ceased to so
qualify or might not so qualify in the future.
3.8 The Trust represents and warrants that should it ever desire to make
any payments to finance distribution expenses pursuant to Rule 12b-1 under the
1940 Act, the Trustees, including a majority who are not "interested persons" of
the Trust under the 1940 Act ( "disinterested Trustees" ), will formulate and
approve any plan under Rule 12b-1 to finance distribution expenses.
3.9 The Trust represents and warrants that it, its directors, officers,
employees and others dealing with the money or securities, or both, of a
Portfolio shall at all times be covered by a blanket fidelity bond or similar
coverage for the benefit of the Trust in an amount not less that the minimum
coverage required by Rule 17g-1 or other regulations under the 1940 Act. Such
bond shall include coverage for larceny and embezzlement and be issued by a
reputable bonding company.
3.10 The Company represents and warrants that all of its directors,
officers, employees, investment advisers, and other individuals or entities
dealing with the money and/or securities of the Trust are and shall be at all
times covered by a blanket fidelity bond or similar coverage for the benefit of
the Trust, in an amount not less than $5 million. The aforesaid bond shall
include coverage for larceny and embezzlement and shall be issued by a reputable
bonding company. The Company agrees to make all reasonable efforts to see that
this bond or another bond containing these provisions is always in effect, and
agrees to notify the Trust and the Underwriter in the event that such coverage
no longer applies.
3.11 The Underwriter represents that each Adviser is duly organized and
validly existing under applicable corporate law and that it is registered and
will during the term of this Agreement remain registered as an investment
adviser under the Advisers Act.
3.12 The Trust currently intends for one or more Classes to make payments
to finance its distribution expenses, including service fees, pursuant to a Plan
adopted under Rule 12b-1 under the 1940 Act ("Rule 12b-1"), although it may
determine to discontinue such practice in the future. To the extent that any
Class of the Trust finances its distribution expenses pursuant to a Plan adopted
under Rule 12b-1, the Trust undertakes to comply with any then current SEC and
SEC staff interpretations concerning Rule 12b-1 or any successor provisions.
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ARTICLE IV.
POTENTIAL CONFLICTS
4.1 The parties acknowledge that a Portfolio's shares may be made available
for investment to other Participating Insurance Companies. In such event, the
Trustees will monitor the Trust for the existence of any material irreconcilable
conflict between the interests of the contract owners of all Participating
Insurance Companies. An irreconcilable material conflict may arise for a variety
of reasons, including: (a) an action by any state insurance regulatory
authority; (b) a change in applicable federal or state insurance, tax, or
securities laws or regulations, or a public ruling, private letter ruling,
no-action or interpretative letter, or any similar action by insurance, tax, or
securities regulatory authorities; (c) an administrative or judicial decision in
any relevant proceeding; (d) the manner in which the investments of any
Portfolio are being managed; (e) a difference in voting instructions given by
variable annuity contract and variable life insurance contract owners; or (f) a
decision by an insurer to disregard the voting instructions of contract owners.
The Trust shall promptly inform the Company of any determination by the Trustees
that an irreconcilable material conflict exists and of the implications thereof.
4.2 The Company agrees to promptly report any potential or existing
conflicts of which it is aware to the Trustees. The Company will assist the
Trustees in carrying out their responsibilities under the Shared Funding
Exemptive Order by providing the Trustees with all information reasonably
necessary for the Trustees to consider any issues raised including, but not
limited to, information as to a decision by the Company to disregard Contract
owner voting instructions. All communications from the Company to the Trustees
may be made in care of the Trust.
4.3 If it is determined by a majority of the Trustees, or a majority of the
disinterested Trustees, that a material irreconcilable conflict exists that
affects the interests of Contract owners, the Company shall, in cooperation with
other Participating Insurance Companies whose contract owners are also affected,
at its own expense and to the extent reasonably practicable (as determined by
the Trustees) take whatever steps are necessary to remedy or eliminate the
irreconcilable material conflict, which steps could include: (a) withdrawing the
assets allocable to some or all of the Accounts from the Trust or any Portfolio
and reinvesting such assets in a different investment medium, including (but not
limited to) another Portfolio of the Trust, or submitting the question of
whether or not such withdrawal should be implemented to a vote of all affected
Contract owners and, as appropriate, withdrawal of the assets of any appropriate
group (i.e., annuity contract owners, life insurance policy owners, or variable
contract owners of one or more Participating Insurance Companies) that votes in
favor of
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such withdrawal, or offering to the affected Contract owners the option of
making such a change; and (b) establishing a new registered management
investment company or managed separate account.
4.4 If a material irreconcilable conflict arises because of a decision by
the Company to disregard Contract owner voting instructions and that decision
represents a minority position or would preclude a majority vote, the Company
may be required, at the Trust's election, to withdraw the affected Account's
investment in the Trust and terminate this Agreement with respect to such
Account; provided, however, that such withdrawal and termination shall be
limited to the extent required by the foregoing material irreconcilable conflict
as determined by a majority of the disinterested Trustees. Any such withdrawal
and termination must take place within six (6) months after the Trust gives
written notice that this provision is being implemented. Until the end of such
six (6) month period, the Trust shall continue to accept and implement orders by
the Company for the purchase and redemption of shares of the Trust.
4.5 If a material irreconcilable conflict arises because a particular state
insurance regulator's decision applicable to the Company conflicts with a
majority of other state regulators, then the Company will withdraw the affected
Account's investment in the Trust and terminate this Agreement with respect to
such Account within six (6) months after the Trustees inform the Company in
writing that it has determined that such decision has created an irreconcilable
material conflict; provided, however, that such withdrawal and termination shall
be limited to the extent required by the foregoing material irreconcilable
conflict as determined by a majority of the disinterested Trustees. Until the
end of such six (6) month period, the Trust shall continue to accept and
implement orders by the Company for the purchase and redemption of shares of the
Trust.
4.6 For purposes of Sections 4.3 through 4.6 of this Agreement, a majority
of the disinterested Trustees shall determine whether any proposed action
adequately remedies any irreconcilable material conflict, but in no event will
the Trust be required to establish a new funding medium for the Contracts. In
the event that the Trustees determine that any proposed action does not
adequately remedy any irreconcilable material conflict, then the Company will
withdraw the Account's investment in the Trust and terminate this Agreement
within six (6) months after the Trustees inform the Company in writing of the
foregoing determination; provided, however, that such withdrawal and termination
shall be limited to the extent required by any such material irreconcilable
conflict as determined by a majority of the disinterested Trustees.
4.7 The Company shall at least annually submit to the Trustees such
reports, materials or data as the Trustees may reasonably request so that the
Trustees may fully carry out the duties imposed upon them by the Shared Funding
Exemptive Order, and said reports, materials and data shall be submitted more
frequently if reasonably deemed appropriate by the Trustees.
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4.8 If and to the extent that Rule 6e-2 and Rule 6e-3(T) are amended, or
Rule 6e-3 is adopted, to provide exemptive relief from any provision of the 1940
Act or the rules promulgated thereunder with respect to mixed or shared funding
(as defined in the Shared Funding Exemptive Order) on terms and conditions
materially different from those contained in the Shared Funding Exemptive Order,
then the Trust and/or the Participating Insurance Companies, as appropriate,
shall take such steps as may be necessary to comply with Rules 6e-2 and 6e-3(T),
as amended, and Rule 6e-3, as adopted, to the extent such rules are applicable.
ARTICLE V.
INDEMNIFICATION
5.1 Indemnification By the Company
(a) The Company agrees to indemnify and hold harmless the
Underwriter, the Trust and each of its Trustees, officers, employees
and agents and each person, if any, who controls the Trust within the
meaning of Section 15 of the 1933 Act (collectively, the "Indemnified
Parties" and individually the "Indemnified Party" for purposes of this
Article V) against any and all losses, claims, damages, liabilities
(including amounts paid in settlement with the written consent of the
Company, which consent shall not be unreasonably withheld) or expenses
(including the reasonable costs of investigating or defending any
alleged loss, claim, damage, liability or expense and reasonable legal
counsel fees incurred in connection therewith) (collectively,
"Losses"), to which the Indemnified Parties may become subject under
any statute or regulation, or at common law or otherwise, insofar as
such Losses are related to the sale or acquisition of Trust Shares or
the Contracts and
(i) arise out of or are based upon any untrue statements or
alleged untrue statements of any material fact contained in a
disclosure document for the Contracts or in the Contracts
themselves or in sales literature generated or approved by the
Company on behalf of the Contracts or Accounts (or any amendment
or supplement to any of the foregoing) (collectively, "Company
Documents" for the purposes of this Article V), 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
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not misleading, provided that this indemnity 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 was
accurately derived from written information furnished to the
Company by or on behalf of the Trust for use in Company Documents
or otherwise for use in connection with the sale of the Contracts
or Trust shares; or
(ii) arise out of or result from statements or
representations (other than statements or representations
contained in and accurately derived from Trust Documents as
defined in Section 5.2 (a)(i)) or wrongful conduct of the Company
or persons under its control, with respect to the sale or
acquisition of the Contracts or Trust shares; or
(iii) arise out of or result from any untrue statement or
alleged untrue statement of a material fact contained in Trust
Documents as defined in Section 5.2(a)(i) 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 statement or omission was made in reliance
upon and accurately derived from written information furnished to
the Trust by or on behalf of the Company; or
(iv) arise out of or result from any failure by the Company
to provide the services or furnish the materials required under
the terms of this Agreement; or
(v) arise out of or result from any material breach of any
representation and/or warranty made by the Company in this
Agreement or arise out of or result from any other material
breach of this Agreement by the Company.
(b) The Company shall not be liable under this indemnification
provision with respect to any Losses to which an Indemnified Party
would otherwise be subject by reason of such Indemnified Party's
willful misfeasance, bad faith, or gross negligence in the performance
of such Indemnified Party's duties or by reason of such Indemnified
Party's reckless disregard of obligations and duties under this
Agreement or to the Trust or Underwriter, whichever is applicable. The
Company shall also not be liable under this indemnification provision
with respect to any claim made against an Indemnified Party unless
such Indemnified Party shall have notified the Company in writing
within a reasonable time after the summons or other first legal
process giving information of the nature of the
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claim shall have been served upon such Indemnified Party (or after
such Indemnified Party shall have received notice of such service on
any designated agent), but failure to notify the Company of any such
claim shall not relieve the Company from any liability which it may
have to the Indemnified Party against whom such action is brought
otherwise than on account of this indemnification provision. In case
any such action is brought against the Indemnified Parties, the
Company shall be entitled to participate, at its own expense, in the
defense of such action. The Company also shall be entitled to assume
the defense thereof, with counsel satisfactory to the party named in
the action. After notice from the Company to such party of the
Company's election to assume the defense thereof, the Indemnified
Party shall bear the fees and expenses of any additional counsel
retained by it, and the Company 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.
(c) The Indemnified Parties will promptly notify the Company of
the commencement of any litigation or proceedings against them in
connection with the issuance or sale of the Trust shares or the
Contracts or the operation of the Trust.
5.2 Indemnification By The Underwriter
(a) The Underwriter agrees to indemnify and hold harmless the Company,
the underwriter of the Contracts and each of its directors and officers and
each person, if any, who controls the Company within the meaning of Section
15 of the 1933 Act (collectively, the "Indemnified Parties" and
individually an "Indemnified Party" for purposes of this Section 5.2)
against any and all losses, claims, damages, liabilities (including amounts
paid in settlement with the written consent of the Underwriter, which
consent shall not be unreasonably withheld) or expenses (including the
reasonable costs of investigating or defending any alleged loss, claim,
damage, liability or expense and reasonable legal counsel fees incurred in
connection therewith) (collectively, "Losses") to which the Indemnified
Parties may become subject under any statute, at common law or otherwise,
insofar as such Losses are related to the sale or acquisition of the
Trust's Shares or the Contracts and:
(i) arise out of or are based upon any untrue statements or alleged
untrue statements of any material fact contained in the Registration
Statement, prospectus or sales literature of the Trust (or any
amendment or supplement to any of the foregoing) (collectively,
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the "Trust Documents") 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 of such
alleged statement or omission was made in reliance upon and in
conformity with information furnished to the Underwriter or Trust by
or on behalf of the Company for use in the Registration Statement or
prospectus for the Trust or in sales literature (or any amendment or
supplement) or otherwise for use in connection with the sale of the
Contracts or Trust shares; or
(ii) arise out of or as a result of statements or representations
(other than statements or representations contained in the disclosure
documents or sales literature for the Contracts not supplied by the
Underwriter or persons under its control) or wrongful conduct of the
Trust, Adviser or Underwriter or persons under their control, with
respect to the sale or distribution of the Contracts or Trust shares;
or
(iii) arise out of any untrue statement or alleged untrue statement
of a material fact contained in a disclosure document or sales
literature covering the Contracts, or any amendment thereof or
supplement thereto, or the omission or alleged omission to state
therein a material fact required to be stated therein or necessary to
make the statement or statements therein not misleading, if such
statement or omission was made in reliance upon information furnished
to the Company by or on behalf of the Trust; or
(iv) arise as a result of any failure by the Trust to provide the
services and furnish the materials under the terms of this Agreement
(including a failure, whether unintentional or in good faith or
otherwise, to comply with the qualification representation specified
in Section 3.7 of this Agreement and the diversification requirements
specified in Section 3.6 of this Agreement); or
(v) arise out of or result from any material breach of any
representation and/or warranty made by the Underwriter in this
Agreement or arise out of or result from any other material breach of
this Agreement by the Underwriter; as limited by and in accordance
with the provisions of Sections 5.2(b) and 5.2(c) hereof.
(b) The Underwriter shall not be liable under this indemnification
provision with respect to any Losses to which an Indemnified Party would
otherwise be subject by reason of such Indemnified Party's willful
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misfeasance, bad faith, or gross negligence in the performance of such
Indemnified Party's duties or by reason of such Indemnified Party's
reckless disregard of obligations and duties under this Agreement or to
each Company or the Account, whichever is applicable.
(c) The Underwriter shall not be liable under this indemnification
provision with respect to any claim made against an Indemnified Party
unless such Indemnified Party shall have notified the Underwriter in
writing within a reasonable time after the summons or other first legal
process giving information of the nature of the claim shall have been
served upon such Indemnified Party (or after such Indemnified Party shall
have received notice of such service on any designated agent), but failure
to notify the Underwriter of any such claim shall not relieve the
Underwriter from any liability which it may have to the Indemnified Party
against whom such action is brought otherwise than on account of this
indemnification provision. In case any such action is brought against the
Indemnified Parties, the Underwriter will be entitled to participate, at
its own expense, in the defense thereof. The Underwriter also shall be
entitled to assume the defense thereof, with counsel satisfactory to the
party named in the action. After notice from the Underwriter to such party
of the Underwriter's election to assume the defense thereof, the
Indemnified Party shall bear the expenses of any additional counsel
retained by it, and the Underwriter 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.
(d) The Company agrees promptly to notify the Underwriter of the
commencement of any litigation or proceedings against it or any of its
officers or directors in connection with the issuance or sale of the
Contracts or the operation of each Account.
5.3 Indemnification By The Trust
(a) The Trust agrees to indemnify and hold harmless the Company, and
each of its directors and officers and each person, if any, who controls
the Company within the meaning of Section 15 of the 1933 Act (collectively,
the "Indemnified Parties" for purposes of this Section 5.3) against any and
all losses, claims, damages, liabilities (including amounts paid in
settlement with the written consent of the Trust, which consent shall not
be unreasonably withheld) or litigation (including legal and other
expenses) to which the Indemnified Parties may become subject under any
statute, at common law or otherwise, insofar as such losses, claims,
damages, liabilities or expenses (or actions in respect thereof) or
settlements result from the gross negligence, bad faith or willful
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misconduct of the Board or any member thereof, are related to the
operations of the Trust, and arise out of or result from any material
breach of any representation and/or warranty made by the Trust in this
Agreement or arise out of or result from any other material breach of this
Agreement by the Trust; as limited by and in accordance with the provisions
of Section 5.3(b) and 5.3(c) hereof. It is understood and expressly
stipulated that neither the holders of shares of the Trust nor any Trustee,
officer, agent or employee of the Trust shall be personally liable
hereunder, nor shall any resort to be had to other private property for the
satisfaction of any claim or obligation hereunder, but the Trust only shall
be liable.
(b) The Trust shall not be liable under this indemnification provision
with respect to any losses, claims, damages, liabilities or litigation
incurred or assessed against any 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 and
duties under this Agreement or to the Company, the Trust, the Underwriter
or each Account, whichever is applicable.
(c) The Trust shall not be liable under this indemnification provision
with respect to any claim made against an Indemnified Party unless such
Indemnified Party shall have notified the Trust in writing within a
reasonable time after the summons or other first legal process giving
information of the nature of the claims shall have been served upon such
Indemnified Party (or after such Indemnified Party shall have received
notice of such service on any designated agent), but failure to notify the
Trust of any such claim shall not relieve the Trust from any liability
which it may have to the Indemnified Party against whom such action is
brought otherwise than on account of this indemnification provision. In
case any such action is brought against the Indemnified Parties, the Trust
will be entitled to participate, at its own expense, in the defense
thereof. The Trust also shall be entitled to assume the defense thereof,
with counsel satisfactory to the party named in the action. After notice
from the Trust to such party of the Trust's election to assume the defense
thereof, the Indemnified Party shall bear the fees and expenses of any
additional counsel retained by it, and the Trust 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.
(d) The Company and the Underwriter agree promptly to notify the Trust
of the commencement of any litigation or proceedings against it or any of
its respective officers or directors in connection with this
18
<PAGE> 19
Agreement, the issuance or sale of the Contracts, with respect to the
operation of either the Account, or the sale or acquisition of share of the
Trust.
ARTICLE VI.
TERMINATION
6.1 This Agreement may be terminated by any party in its entirety or with
respect to one, some or all Portfolios or any reason by sixty (60) days advance
written notice delivered to the other parties, and shall terminate immediately
in the event of its assignment, as that term is used in the 1940 Act.
6.2 This Agreement may be terminated immediately by either the Trust or the
Underwriter following consultation with the Trustees upon written notice to the
Company if:
(a) the Company notifies the Trust or the Underwriter that the
exemption from registration under Section 3(c) of the 1940 Act no longer
applies, or might not apply in the future, to the unregistered Accounts, or
that the exemption from registration under Section 4(2) or Regulation D
promulgated under the 1933 Act no longer applies or might not apply in the
future, to interests under the unregistered Contracts; or
(b) either one or both of the Trust or the Underwriter respectively,
shall determine, in their sole judgment exercised in good faith, that the
Company has suffered a material adverse change in its business, operations,
financial condition or prospects since the date of this Agreement or is the
subject of material adverse publicity; or
(c) the Company gives the Trust and the Underwriter the written notice
specified in Section 1.10 hereof and at the same time such notice was given
there was no notice of termination outstanding under any other provision of
this Agreement; provided, however, that any termination under this Section
6.2(c) shall be effective forty-five (45) days after the notice specified
in Section 1.10 was given; or
6.3 If this Agreement is terminated for any reason, except under Article IV
(Potential Conflicts) above, the Trust shall, at the option of the Company,
continue to make available additional shares of any Portfolio and redeem shares
of any Portfolio pursuant to all of the terms and conditions of this Agreement
for all Contracts in effect on the effective date of termination of this
Agreement. If this Agreement is terminated pursuant to Article IV, the
provisions of Article IV shall govern.
19
<PAGE> 20
6.4 The provisions of Articles II (Representations and Warranties) and V
(Indemnification) shall survive the termination of this Agreement. All other
applicable provisions of this Agreement shall survive the termination of this
Agreement, as long as shares of the Trust are held on behalf of Contract owners
in accordance with Section 6.3, except that the Trust and the Underwriter shall
have no further obligation to sell Trust shares with respect to Contracts issued
after termination.
6.5 The Company shall not redeem Trust shares attributable to the Contracts
(as opposed to Trust shares attributable to the Company's assets held in the
Account) except (i) as necessary to implement Contract owner initiated or
approved transactions, (ii) as required by state and/or federal laws or
regulations or judicial or other legal precedent of general application
(hereinafter referred to as a "Legally Required Redemption"), or (iii) as
permitted by an order of the SEC pursuant to Section 26(b) of the 1940 Act. Upon
request, the Company will promptly furnish to the Trust and the Underwriter the
opinion of counsel for the Company (which counsel shall be reasonably
satisfactory to the Trust and the Underwriter) to the effect that any redemption
pursuant to clause (ii) above is a Legally Required Redemption. Furthermore,
except in cases where permitted under the terms of the Contracts, the Company
shall not prevent Contract owners from allocating payments to a Portfolio that
was otherwise available under the Contracts without first giving the Trust or
the Underwriter 90 days notice of its intention to do so.
ARTICLE VII.
NOTICES.
Any notice shall be sufficiently given when sent by registered or certified
mail to the other party at the address of such party set forth below or at such
other address as such party may from time to time specify in writing to the
other party.
If to the Trust or the Underwriter:
Templeton Variable Products Series Fund or
Franklin Templeton Distributors, Inc.
500 E. Broward Boulevard
Fort Lauderdale, FL 33394-3091
Attention: Barbara J. Green, Trust Secretary
20
<PAGE> 21
WITH A COPY TO
Franklin Resources, Inc.
777 Mariners Island Boulevard
San Mateo, CA 94404
Attention:Karen L. Skidmore, Senior Corporate Counsel
If to the Company:
American General Annuity
2919 Allen Parkway
Houston, TX 77019
Attention: Nori Gabert, Esq.
ARTICLE VIII.
MISCELLANEOUS
8.1 The captions in this Agreement are included for convenience of
reference only and in no way define or delineate any of the provisions hereof or
otherwise affect their construction or effect.
8.2 This Agreement may be executed simultaneously in two or more
counterparts, each of which taken together shall constitute one and the same
instrument.
8.3 If any provision of this Agreement shall be held or made invalid by a
court decision, statute, rule or otherwise, the remainder of the Agreement shall
not be affected thereby.
8.4 This Agreement shall be construed and the provisions hereof interpreted
under and in accordance with the laws of the State of Florida. It shall also be
subject to the provisions of the federal securities laws and the rules and
regulations thereunder and to any orders of the SEC granting exemptive relief
therefrom and the conditions of such orders. Copies of any such orders shall be
promptly forwarded by the Trust to the Company.
8.5 The parties to this Agreement acknowledge and agree that all
liabilities of the Trust arising, directly or indirectly, under this Agreement,
of any and every nature whatsoever, shall be satisfied solely out of the assets
of the Trust and that no Trustee, officer, agent or holder of shares of
beneficial interest of the Trust shall be personally liable for any such
liabilities.
8.6 Each party shall cooperate with each other party and all appropriate
governmental authorities (including without limitation the SEC, the NASD, and
state insurance regulators) and shall permit such authorities reasonable access
to its books and records in connection with any investigation or inquiry
relating to this Agreement or the transactions contemplated hereby.
21
<PAGE> 22
8.7 Each party hereto shall treat as confidential the names and addresses
of the Contract owners and all information reasonably identified as confidential
in writing by any other party hereto, and, except as permitted by this Agreement
or as required by legal process or regulatory authorities, shall not disclose,
disseminate, or utilize such names and addresses and other confidential
information until such time as they may come into the public domain, without the
express written consent of the affected party. Without limiting the foregoing,
no party hereto shall disclose any information that such party has been advised
is proprietary, except such information that such party is required to disclose
by any appropriate governmental authority (including, without limitation, the
SEC, the NASD, and state securities and insurance regulators).
8.8 The rights, remedies and obligations contained in this Agreement are
cumulative and are in addition to any and all rights, remedies and obligations,
at law or in equity, which the parties hereto are entitled to under state and
federal laws.
8.9 The parties to this Agreement acknowledge and agree that this Agreement
shall not be exclusive in any respect, except as provided in Section 1.10.
8.10 Neither this Agreement nor any rights or obligations hereunder may be
assigned by either party without the prior written approval of the other party.
8.11 No provisions of this Agreement may be amended or modified in any
manner except by a written agreement properly authorized and executed by both
parties.
22
<PAGE> 23
IN WITNESS WHEREOF, the parties have caused their duly authorized
officers to execute this Participation Agreement as of the date and year first
above written.
The Company:
American General Annuity
By its authorized officer
By:
------------------------------------
Name:
Title:
The Trust:
Templeton Variable Products Series Fund
By its authorized officer
By:
------------------------------------
Name: Karen L. Skidmore
Title: Assistant Vice President, Assistant Secretary
The Underwriter:
Franklin Templeton Distributors, Inc.
By its authorized officer
By:
------------------------------------
Name: Deborah R. Gatzek
Title: Senior Vice President, Assistant Secretary
23
<PAGE> 24
SCHEDULE A
SEPARATE ACCOUNTS OF
AMERICAN GENERAL ANNUITY
1. American General Annuity Separate Account A
Date Established:
SEC Registration Number:
24
<PAGE> 25
SCHEDULE B
TRUST PORTFOLIOS AND CLASSES AVAILABLE
<TABLE>
<CAPTION>
Templeton Variable Products Series Adviser
- ---------------------------------- -------
<S> <C>
Templeton Developing Markets Fund Templeton Asset Management Ltd.
-Class 2
Templeton International Fund Templeton Investment Counsel, Inc.
-Class 2
Templeton Stock Fund Templeton Investment Counsel, Inc.
-Class 2
Mutual Discovery Investments Fund Franklin Mutual Advisers, Inc.
-Class 2
</TABLE>
25
<PAGE> 26
SCHEDULE C
VARIABLE ANNUITY CONTRACTS
ISSUED BY AMERICAN GENERAL ANNUITY
<TABLE>
<CAPTION>
REPRESENTATIVE
CONTRACT FORM NUMBER
- -------- --------------
<S> <C>
1. American General Annuity Separate Account A
Title: Elite Plus Bonus Variable Annuity Form:
SEC Registration Number:
</TABLE>
26
<PAGE> 27
SCHEDULE D
OTHER PORTFOLIOS AVAILABLE UNDER THE CONTRACTS
27
<PAGE> 28
SCHEDULE E
RULE 12B-1 PLANS
COMPENSATION SCHEDULE
Each Portfolio named below shall pay the following amounts pursuant to the terms
and conditions referenced below under its Class 2 Rule 12b-1 Distribution Plan,
stated as a percentage per year of Class 2's average daily net assets
represented by shares of Class 2.
<TABLE>
<CAPTION>
Portfolio Name Maximum Annual Payment Rate
- -------------- ---------------------------
<S> <C>
TEMPLETON DEVELOPING MARKETS FUND
TEMPLETON INTERNATIONAL FUND
TEMPLETON STOCK FUND
MUTUAL DISCOVERY INVESTMENTS FUND
</TABLE>
Agreement Provisions
If the Company, of behalf of any Account, purchases Trust Portfolio shares
("Eligible Shares") which are subject to a Rule 12b-1 Plan adopted under the
1940 Act (the "Plan"), the Company may participate in the Plan.
To the extent the Company or its affiliates, agents or designees
(collectively "you") you provide administrative and other services which assist
in the promotion and distribution of Eligible Shares or Variable Contracts
offering Eligible Shares, the Underwriter, the Trust or their affiliates
(collectively, "we") may pay you a Rule 12b-1 fee. "Administrative and other
services" may include, but are not limited to, furnishing personal services to
owners of Contracts which may invest in Eligible Shares ("Contract Owners"),
answering routine inquiries regarding a Portfolio, coordinating responses to
Contract Owner inquiries regarding the Portfolios, maintaining such accounts or
providing such other enhanced services as a Trust Portfolio or Contract may
require, maintaining customer accounts and records, or providing other services
eligible for service fees as defined under NASD rules. Your acceptance of such
compensation is your acknowledgment that eligible services have been rendered.
All Rule 12b-1 fees, shall be based on the value of Eligible Shares owned by the
Company on behalf of its Accounts, and shall be calculated on the basis and at
the rates set forth in the Compensation Schedule stated above. The aggregate
annual fees paid pursuant to each Plan shall not exceed the amounts stated as
the "annual maximums" in the Portfolio's prospectus, unless an increase is
approved by shareholders as provided in the Plan. These
28
<PAGE> 29
maximums shall be a specified percent of the value of a Portfolio's net assets
attributable to Eligible Shares owned by the Company on behalf of its Accounts
(determined in the same manner as the Portfolio uses to compute its net assets
as set forth in its effective Prospectus).
You shall furnish us with such information as shall reasonably be requested
by the Trust's Boards of Trustees ("Trustees") with respect to the Rule 12b-1
fees paid to you pursuant to the Plans. We shall furnish to the Trustees, for
their review on a quarterly basis, a written report of the amounts expended
under the Plans and the purposes for which such expenditures were made.
The Plans and provisions of any agreement relating to such Plans must be
approved annually by a vote of the Trustees, including the Trustees who are not
interested persons of the Trust and who have no financial interest in the Plans
or any related agreement ("Disinterested Trustees"). Each Plan may be terminated
at any time by the vote of a majority of the Disinterested Trustees, or by a
vote of a majority of the outstanding shares as provided in the Plan, on sixty
(60) days' written notice, without payment of any penalty. The Plans may also be
terminated by any act that terminates the Underwriting Agreement between the
Underwriter and the Trust, and/or the management or administration agreement
between Franklin Advisers, Inc. or Templeton Investment Counsel, Inc. or their
affiliates and the Trust. Continuation of the Plans is also conditioned on
Disinterested Trustees being ultimately responsible for selecting and nominating
any new Disinterested Trustees. Under Rule 12b-1, the Trustees have a duty to
request and evaluate, and persons who are party to any agreement related to a
Plan have a duty to furnish, such information as may reasonably be necessary to
an informed determination of whether the Plan or any agreement should be
implemented or continued. Under Rule 12b-1, the Trust is permitted to implement
or continue Plans or the provisions of any agreement relating to such Plans from
year-to-year only if, based on certain legal considerations, the Trustees are
able to conclude that the Plans will benefit each affected Trust Portfolio and
class. Absent such yearly determination, the Plans must be terminated as set
forth above. In the event of the termination of the Plans for any reason, the
provisions of this Schedule E relating to the Plans will also terminate.
Any obligation assumed by the Trust pursuant to this Agreement shall be
limited in all cases to the assets of the Trust and no person shall seek
satisfaction thereof from shareholders of the Trust. You agree to waive payment
of any amounts payable to you by Underwriter under a Plan until such time as the
Underwriter has received such fee from the Fund.
29
<PAGE> 30
The provisions of the Plans shall control over the provisions of the
Participation Agreement, including this Schedule E, in the event of any
inconsistency.
You agree to provide complete disclosure as required by all applicable statutes,
rules and regulations of all rule 12b-1 fees received from us in the prospectus
of the contracts.
30
<PAGE> 1
EXHIBIT B8(iii)
PARTICIPATION AGREEMENT
Among
OPPENHEIMER VARIABLE ACCOUNT FUNDS,
OPPENHEIMERFUNDS, INC.
and
LIFE INSURANCE COMPANY
--------------------
THIS AGREEMENT (the "Agreement"), made and entered into as of
the ____ day of ____________, 199__ by and among ______________________ Life
Insurance Company (hereinafter the "Company"), on its own behalf and on behalf
of each separate account of the Company named in Schedule 1 to this Agreement,
as may be amended from time to time by mutual consent (hereinafter collectively
the "Accounts"), Oppenheimer Variable Account Funds (hereinafter the "Fund") and
OppenheimerFunds, Inc. (hereinafter the "Adviser").
WHEREAS, the Fund is an open-end management investment company
and is available to act as the investment vehicle for separate accounts now in
existence or to be established at any date hereafter for variable life insurance
policies and variable annuity contracts (collectively, the "Variable Insurance
Products") offered by insurance companies (hereinafter "Participating Insurance
Companies");
WHEREAS, the beneficial interest in the Fund is divided into
several series of shares, each designated a "Portfolio", and each representing
the interests in a particular managed pool of securities and other assets;
WHEREAS, the Fund has obtained an order from the Securities
and Exchange Commission, dated July 16, 1986 (File No. 812-6324) granting
Participating Insurance Companies and variable annuity and variable life
insurance separate accounts exemptions from the provisions of sections 9(a),
13(a), 15(a), and 15(b) of the Investment Company Act of 1940, as amended,
(hereinafter the "1940 Act") and Rules 6e-2(b)(15) and 6e-3(T)(b)(15)
thereunder, to the extent necessary to permit shares of the Fund to be sold to
and held by variable annuity and variable life insurance separate accounts of
both
-1-
<PAGE> 2
affiliated and unaffiliated life insurance companies (hereinafter the "Mixed and
Shared Funding Exemptive Order")
WHEREAS, the Fund is registered as an open-end management
investment company under the 1940 Act and its shares are registered under the
Securities Act of 1933, as amended (hereinafter the "1933 Act");
WHEREAS, the Adviser is duly registered as an investment
adviser under the federal Investment Advisers Act of 1940;
WHEREAS, the Company has registered or will register certain
variable annuity and/or life insurance contracts under the 1933 Act (hereinafter
"Contracts") (unless an exemption from registration is available);
WHEREAS, the Accounts are or will be duly organized, validly
existing segregated asset accounts, established by resolution of the Board of
Directors of the Company, to set aside and invest assets attributable to the
aforesaid variable contracts (the Contract(s) and the Account(s) covered by the
Agreement are specified in Schedule 2 attached hereto, as may be modified by
mutual consent from time to time);
WHEREAS, the Company has registered or will register the
Accounts as unit investment trusts under the 1940 Act (unless an exemption from
registration is available);
WHEREAS, to the extent permitted by applicable insurance laws
and regulations, the Company intends to purchase shares in the Portfolios (the
Portfolios covered by this Agreement are specified in Schedule 2 attached hereto
as may be modified by mutual consent from time to time), on behalf of the
Accounts to fund the Contracts named in Schedule 3, as may be amended from time
to time by mutual consent, and the Fund is authorized to sell such shares to
unit investment trusts such as the Accounts at net asset value; and
NOW, THEREFORE, in consideration of their mutual promises, the
Fund, the Adviser and the Company agree as follows:
-2-
<PAGE> 3
ARTICLE I. Sale of Fund Shares
1.1. The Fund agrees to sell to the Company those shares of
the Fund which the Company orders on behalf of the Account, executing such
orders on a daily basis at the net asset value next computed after receipt by
the Fund or its designee of the order for the shares of the Fund. For purposes
of this Section 1.1, the Company shall be the designee of the Fund for receipt
of such orders from each Account and receipt by such designee shall constitute
receipt by the Fund; provided that the Fund receives written (or facsimile)
notice of such order by 9:30 a.m. New York time on the next following Business
Day. "Business Day" shall mean any day on which the New York Stock Exchange is
open for trading and on which the Fund calculates its net asset value pursuant
to the rules of the SEC.
1.2. The Company shall pay for Fund shares on the next
Business Day after it places an order to purchase Fund shares in accordance with
Section 1.1 hereof. Payment shall be in federal funds transmitted by wire or by
a credit for any shares redeemed.
1.3. The Fund agrees to make Fund shares available for
purchase at the applicable net asset value per share by the Company for their
separate Accounts listed in Schedule 1 on those days on which the Fund
calculates its net asset value pursuant to rules of the SEC; provided, however,
that the Board of Trustees of the Fund (hereinafter the "Trustees") may refuse
to sell shares of any Portfolio to any person, or suspend or terminate the
offering of shares of any Portfolio if such action is required by law or by
regulatory authorities having jurisdiction or is, in the sole discretion of the
Trustees, acting in good faith and in light of their fiduciary duties under
federal and any applicable state laws, in the best interests of the shareholders
of any Portfolio.
1.4. The Fund agrees to redeem, upon the Company's request,
any full or fractional shares of the Fund held by the Company, executing such
requests on a daily basis at the net asset value next computed after receipt by
the Fund or its designee of the request for redemption. For purposes of this
Section 1.4, the Company shall be the designee of the Fund for receipt of
requests for redemption and receipt by such designee shall constitute receipt by
the Fund; provided that the Fund receives written (or
-3-
<PAGE> 4
facsimile) notice of such request for redemption by 9:30 a.m. New York time on
the next following Business Day. Payment shall be made within the time period
specified in the Fund's prospectus or statement of additional information, in
federal funds transmitted by wire to the Company's account as designated by the
Company in writing from time to time.
1.5. The Company shall pay for the Fund shares on the next
Business Day after an order to purchase shares is made in accordance with the
provisions of Section 1.4 hereof. Payment shall be in federal funds transmitted
by wire pursuant to the instructions of the Fund's treasurer or by a credit for
any shares redeemed.
1.6. The Company agree to purchase and redeem the shares of
the Portfolios named in Schedule 2 offered by the then current prospectus and
statement of additional information of the Fund in accordance with the
provisions of such prospectus and statement of additional information. The
Company shall not permit any person other than a Contract owner to give
instructions to the Company which would require the Company to redeem or
exchange shares of the Fund.
ARTICLE II. Sales Material, Prospectuses and Other Reports
2.1. The Company shall furnish, or shall cause to be
furnished, to the Fund or its designee, each piece of sales literature or other
promotional material in which the Fund or the Adviser is named, at least ten
Business Days prior to its use. No such material shall be used if the Fund or
its designee reasonably object to such use within ten Business Days after
receipt of such material. "Business Day" shall mean any day in which the New
York Stock Exchange is open for trading and in which the Fund calculates its net
asset value pursuant to the rules of the Securities and Exchange Commission.
2.2. The Company shall not give any information or make any
representations or statements on behalf of the Fund or concerning the Fund in
connection with the sale of the Contracts other than the information or
representations contained in the registration statement or prospectus for the
Fund shares, as such registration statement and prospectus may be amended or
supplemented from time to time,
-4-
<PAGE> 5
or in reports or proxy statements for the Fund, or in sale literature or other
promotional material approved by the Fund or its designee, except with the
permission of the Fund.
2.3. For purposes of this Article II, the phrase "sales
literature or other promotional material" means advertisements (such as material
published, or designed for use in, a newspaper, magazine, or other periodical,
radio, television, telephone or tape recording, videotape display, signs or
billboard or electronic media), and sales literature (such as brochures,
circulars, market letters and form letters), distributed or made generally
available to customers or the public.
2.4. The Fund shall provide a copy of its current prospectus
within a reasonable period of its filing date, and provide other assistance as
is reasonably necessary in order for the Company once each year (or more
frequently if the prospectus for the Fund is supplemented or amended) to have
the prospectus for the Contracts and the Fund's prospectus printed together in
one document (such printing to be at the Company's expense). The Adviser shall
be permitted to review and approve the typeset form of the Fund's Prospectus
prior to such printing.
2.5. The Fund or the Adviser shall provide the Company with
either: (i) a copy of the Fund's proxy material, reports to shareholders, other
information relating to the Fund necessary to prepare financial reports, and
other communications to shareholders for printing and distribution to Contract
owners at the Company's expense, or (ii) camera ready and/or printed copies, if
appropriate, of such material for distribution to Contract owners at the
Company' expense, within a reasonable period of the filing date for definitive
copies of such material. The Adviser shall be permitted to review and approve
the typeset form of such proxy material and shareholder reports prior to such
printing provided such materials have been provided within a reasonable period.
ARTICLE III. Fees and Expenses
-5-
<PAGE> 6
3.1. The Fund and Adviser shall pay no fee or other
compensation to the Company under this agreement, and the Company shall pay no
fee or other compensation to the Fund or Adviser, except as provided herein.
3.2. All expenses incident to performance by each party of its
respective duties under this Agreement shall be paid by that party. The Fund
shall see to it that all its shares are registered and authorized for issuance
in accordance with applicable federal law and, if and to the extent advisable by
the Fund, in accordance with applicable state laws prior to their sale. The Fund
shall bear the expenses for the cost of registration and qualification of the
Fund's shares, preparation and filing of the Fund's prospectus and registration
statement, proxy materials and reports, and the preparation of all statements
and notices required by any federal or state law.
3.3. The Company shall bear the expenses of typesetting,
printing and distributing the Fund's prospectus, proxy materials and reports to
owners of Contracts issued by the Company.
3.4. In the event the Fund adds one or more additional
Portfolios and the parties desire to make such Portfolios available to the
respective Contract owners as an underlying investment medium, a new Schedule 3
or an amendment to this Agreement shall be executed by the parties authorizing
the issuance of shares of the new Portfolios to the particular Account. The
amendment may also provide for the sharing of expenses for the establishment of
new Portfolios among Participating Insurance Companies desiring to invest in
such Portfolios and the provision of funds as the initial investment in the new
Portfolios.
ARTICLE IV. Potential Conflicts
4.1. The Board of Trustees of the Fund (the "Board") will
monitor the Fund for the existence of any material irreconcilable conflict
between the interests of the Contract owners of all separate accounts investing
in the Fund. An irreconcilable material conflict may arise for a variety of
reasons, including: (a) an action by any state insurance regulatory authority;
(b) a change in applicable federal or state insurance, tax, or securities laws
or regulations, or a public ruling, private letter ruling,
-6-
<PAGE> 7
no-action or interpretative letter, or any similar action by insurance, tax, or
securities regulatory authorities; (c) an administrative or judicial decision in
any relevant proceeding; (d) the manner in which the investments of any
Portfolio are being managed; (e) a difference in voting instructions given by
variable annuity contract and variable life insurance contract owners; or (f) a
decision by an insurer to disregard the voting instructions of Contract owners.
The Board shall promptly inform the Company if it determines that an
irreconcilable material conflict exists and the implications thereof.
4.2. The Company has reviewed a copy of the Mixed and Shared
Funding Exemptive Order, and in particular, has reviewed the conditions to the
requested relief set forth therein. The Company agrees to be bound by the
responsibilities of a participating insurance companies as set forth in the
Mixed and Shared Funding Exemptive Order, including without limitation the
requirement that the Company report any potential or existing conflicts of which
it is aware to the Board. The Company will assist the Board in carrying out its
responsibilities in monitoring such conflicts under the Mixed and Shared Funding
Exemptive Order, by providing the Board in a timely manner with all information
reasonably necessary for the Board to consider any issues raised. This includes,
but is not limited to, an obligation by the Company to inform the Board whenever
Contract owner voting instructions are disregarded and by confirming in writing,
at the Fund's request, that the Company are unaware of any such potential or
existing material irreconcilable conflicts.
4.3. If it is determined by a majority of the Board, or a
majority of its disinterested Trustees, that a material irreconcilable conflict
exists, the Company shall, at its expense and to the extent reasonably
practicable (as determined by a majority of the disinterested trustees), take
whatever steps are necessary to remedy or eliminate the irreconcilable material
conflict, up to an including: (1) withdrawing the assets allocable to some or
all of the separate accounts from the Fund or any Portfolio and reinvesting such
assets in a different investment medium, including (but not limited to) another
Portfolio of the Fund, or submitting the question whether such segregation
should be implemented to a vote of all affected Contract owners and, as
appropriate, segregating the assets of any appropriate group (i.e., annuity
contract
-7-
<PAGE> 8
owners, life insurance contract owners, or variable contract owners of one or
more Participating Insurance Companies) that votes in favor of such segregation,
or offering to the affected Contract owners the option of making such a change;
and (2) establishing a new registered management investment company or managed
separate account.
4.4. If a material irreconcilable conflict arises because of a
decision by the Company to disregard Contract owner voting instructions and that
decision represents a minority position or would preclude a majority vote, the
Company may be required, at the Fund's election, to withdraw the Account's
investment in the Fund and terminate this Agreement; provided, however, that
such withdrawal and termination shall be limited to the extent required by the
foregoing material irreconcilable conflict as determined by a majority of the
disinterested members of the Board. Any such withdrawal and termination must
take place within six (6) months after the Fund gives written notice that this
provision is being implemented, and until the end of the six month period the
Fund shall continue to accept and implement orders by the Company for the
purchase and redemption of shares of the Fund.
4.5. If a material irreconcilable conflict arises because a
particular state insurance regulator's decision applicable to the Company
conflicts with the majority of other state regulators, then the Company will
withdraw the Account's investment in the Fund and terminate this Agreement
within six months after the Board informs the Company in writing that it has
determined that such decision has created an irreconcilable material conflict;
provided, however, that such withdrawal and termination shall be limited to the
extent required by the foregoing material irreconcilable conflict as determined
by a majority of the disinterested members of the Board. Until the end of the
foregoing six month period, the Fund shall continue to accept and implement
orders by the Company for the purchase and redemption of shares of the Fund,
subject to applicable regulatory limitation.
4.6. For purposes of Sections 4.3 through 4.6 of this
Agreement, a majority of the disinterested members of the Board shall determine
whether any proposed action adequately remedies any irreconcilable material
conflict, but in no event will the Fund be required to establish a new funding
-8-
<PAGE> 9
medium for the Contracts. The Company shall not be required by Section 4.3 to
establish a new funding medium for Contracts if an offer to do so has been
declined by vote of a majority of Contract owners materially adversely affected
by the irreconcilable material conflict. In the event that the Board determines
that any proposed action does not adequately remedy any irreconcilable material
conflict, then the Company will withdraw the particular Account's investment in
the Fund and terminate this Agreement within six (6) months after the Board
informs the Company in writing of the foregoing determination, provided,
however, that such withdrawal and termination shall be limited to the extent
required by any such material irreconcilable conflict as determined by a
majority of the disinterested members of the Board.
ARTICLE V. Applicable Law
5.1. This Agreement shall be construed and the provisions
hereof interpreted under and in accordance with the laws of the State of New
York.
5.2. This Agreement shall be subject to the provisions of the
1933, 1934 and 1940 Acts, and the rules and regulations and rulings thereunder,
including such exemptions from those statutes, rules and regulations as the
Securities and Exchange Commission may grant (including, but not limited to, the
Mixed and Shared Funding Exemptive Order) and the terms hereof shall be
interpreted and construed in accordance therewith.
ARTICLE VI. Termination
6.1 This Agreement shall terminate with respect to some or all
Portfolios:
(a) at the option of any party upon six month's
advance written notice to the other parties;
(b) at the option of the Company to the extent that
shares of Portfolios are not reasonably available to meet the requirements of
its Contracts or are not appropriate funding vehicles for the Contracts, as
determined by the Company reasonably and in good faith. Prompt notice of the
-9-
<PAGE> 10
election to terminate for such cause and an explanation of such cause shall be
furnished by the Company; or
(c) as provided in Article IV
6.2. It is understood and agreed that the right of any party
hereto to terminate this Agreement pursuant to Section 6.1(a) may be exercised
for cause or for no cause.
ARTICLE VII. Notices
Any notice shall be sufficiently given when sent by registered
or certified mail to the other party at the address of such party set forth
below or at such other address as such party may from time to time specify to
the other party.
If to the Fund:
Oppenheimer Variable Account Funds
c/o OppenheimerFunds, Inc.
2 World Trade Center
New York, NY 10048-0203
Attn: Legal Department
If to the Adviser:
OppenheimerFunds, Inc.
2 World Trade Center
New York, NY 10048-0203
Attn: General Counsel
If to the Company:
ARTICLE VIII. Miscellaneous
8.1. Subject to the requirements of legal process and
regulatory authority, each party hereto shall treat as confidential the names
and addresses of the owners of the Contracts and all information reasonably
identified as confidential in writing by any other party hereto and, except as
permitted by this Agreement, shall not disclose, disseminate or utilize such
names and addresses and other
-10-
<PAGE> 11
confidential information without the express written consent of the affected
party until such time as it may come into the public domain.
8.2. The captions in this Agreement are included for
convenience of reference only and in no way define or delineate any of the
provisions hereof or otherwise affect their construction or effect.
8.3. This Agreement may be executed simultaneously in two or
more counterparts, each of which taken together shall constitute one and the
same instrument.
8.4. If any provision of this Agreement shall be held or made
invalid by a court decision, statute, rule or otherwise, the remainder of the
Agreement shall not be affected thereby.
8.5. Each party hereto shall cooperate with, and promptly
notify each other party and all appropriate governmental authorities (including
without limitation the Securities and Exchange Commission, the National
Association of Securities Dealers, Inc. and state insurance regulators) and
shall permit such authorities reasonable access to its books and records in
connection with any investigation or inquiry relating to this Agreement or the
transactions contemplated hereby.
8.6. The rights, remedies and obligations contained in this
Agreement are cumulative and are in addition to any and all rights, remedies and
obligations, at law or in equity, which the parties hereto are entitled to under
state and federal laws.
8.7. It is understood by the parties that this Agreement is
not an exclusive arrangement in any respect.
8.8. The Company and the Adviser each understand and agree
that the obligations of the Fund under this Agreement are not binding upon any
shareholder of the Fund personally, but bind only the Fund and the Fund's
property; the Company and the Adviser each represent that it has notice of the
provisions of the Declaration of Trust of the Fund disclaiming shareholder
liability for acts or obligations of the Fund.
-11-
<PAGE> 12
8.9. This Agreement shall not be assigned by any party hereto
without the prior written consent of all the parties.
8.10. This Agreement sets forth the entire agreement between
the parties and supercedes all prior communications, agreements and
understandings, oral or written, between the parties regarding the subject
matter hereof.
IN WITNESS WHEREOF, each of the parties hereto has caused this
Agreement to be executed in its name and on its behalf by its duly authorized
representative and its seal to be hereunder affixed as of the date specified
below.
LIFE INSURANCE COMPANY
-------------
By:
----------------------------------
Title:
-------------------------------
Date:
--------------------------------
OPPENHEIMER VARIABLE ACCOUNT
FUNDS
By:
----------------------------------
Title:
-------------------------------
Date:
--------------------------------
-12-
<PAGE> 13
OPPENHEIMERFUNDS, INC.
By:
----------------------------------
Title:
-------------------------------
Date:
--------------------------------
-13-
<PAGE> 14
SCHEDULE 1
-14-
<PAGE> 15
SCHEDULE 2
Portfolios of Oppenheimer Variable Account Funds:
-15-
<PAGE> 16
SCHEDULE 3
-16-
<PAGE> 1
EXHIBIT B9 (i)
[AMERICAN GENERAL LETTERHEAD]
September 29, 1998
Board of Directors
American General Annuity
Insurance Company
2929 Allen Parkway
Houston, TX 77019
Gentlemen:
This opinion is furnished in connection with the filing of a registration
statement on Form N-4 ("Registration Statement") by American General Annuity
Insurance Company ("AGAIC") and AGA Separate Account A ("Separate Account A").
The securities being registered under the Registration Statement are to be
issued by Separate Account A pursuant to individual variable annuity contracts
("Contracts") described in the Registration Statement.
I am Senior Vice President, General Counsel and Secretary of AGAIC, and in such
capacity I am familiar with AGAIC's Articles of Incorporation and By-Laws and
have reviewed all statements, records, instruments and documents which I have
deemed it necessary to examine for the purpose of this opinion. I have examined
the form of the Registration Statement to be filed with the Securities and
Exchange Commission in connection with the registration under the Securities Act
of 1933, as amended, of securities to be issued by Separate Account A in
connection with the Contracts. I am familiar with the proceedings taken and
proposed to be taken in connection with the authorization, issuance and sale of
these securities. Based upon a review of these documents and such laws that I
consider appropriate, I am of the opinion that:
1. AGAIC is a duly incorporated life insurance company under the laws
of the State of Texas.
2. Separate Account A is duly organized under the provisions of the
Texas Insurance Code, under which income, gains, or losses, whether
realized or unrealized, from assets allocated to the Separate Account,
are, in accordance with the terms of the Contracts, credited to or
charged against Separate Account A without regard to the income,
gains, or losses to AGAIC.
<PAGE> 2
Board of Directors
September 29, 1998
Page Two
3. The portion of the assets to be held in Separate Account A equal to
the reserves and other liabilities under the Contracts will not be
chargeable with liabilities arising out of any other business AGAIC
may conduct.
4. The Contracts have been duly authorized by AGAIC and, when issued
in the manner contemplated by the Registration Statement, the Units
thereunder will constitute legal, validly issued, and binding
obligations of AGAIC in accordance with the terms of the Contracts.
I hereby consent to the use of this opinion as an exhibit to the Registration
Statement.
Respectfully submitted,
/s/ CYNTHIA A. TOLES
----------------------------
Cynthia A. Toles
Senior Vice President,
General Counsel & Secretary
<PAGE> 1
EXHIBIT B9(ii)
[BLAZZARD, GRODD & HASENAUER, P.C. LETTERHEAD]
We consent to the reference to our firm under the caption "Legal Opinions"
contained in the Statement of Additional Information in Post-Effective
Amendment No. 6 to Form N-4 (File No. 33-86464) for AGA Separate Account A.
/s/ BLAZZARD, GRODD & HASENAUER, P.C.
Blazzard, Grodd & Hasenauer, P.C.
September 28, 1998
<PAGE> 1
EXHIBIT B10(i)
CONSENT OF INDEPENDENT AUDITORS
We consent to the reference to our firm under the caption "Independent
Auditors" and to the use of our reports dated May 12, 1998 as to the American
General Annuity Insurance Company (formerly know as Western National Life
Insurance Company) and as to AGA Separate Account A (formerly know as WNL
Separate Account A) in Post-Effective Amendment No. 6 to the Registration
Statement (Form N-4, Nos. 33-86464/811-8862) of the AGA Separate Account A.
/s/ ERNST & YOUNG LLP
ERNST & YOUNG LLP
Houston, Texas
September 28, 1998
<PAGE> 1
EXHIBIT B10(ii)
[PRICEWATERHOUSECOOPERS LLP LETTERHEAD]
CONSENT OF INDEPENDENT ACCOUNTANTS
We consent to the inclusion in Post Effective Amendment No. 6 to the
Registration Statement on Form N-4 of AGA Separate Account A, formerly WNL
Separate Account A, File No. 33-86464) of our reports dated February 5, 1997 and
February 20, 1997 on our audits of the financial statements and financial
statement schedule of Western National Life Insurance Company and WNL Separate
Account A, respectively. We also consent to the reference to our firm under the
caption "Independent Auditors".
/s/ PricewaterhouseCoopers LLP
PricewaterhouseCoopers LLP
Houston, Texas
September 29, 1998
<PAGE> 1
EXHIBIT B16(i)
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that the undersigned, an officer and/or
director of American General Annuity Insurance Company, a life insurance
corporation organized and existing under Chapter 3 of the Texas Insurance Code,
does hereby constitute and appoint James S. D'Agostino, Jr., Thomas L. West, Jr.
and Cynthia A. Toles, and each of them, with full power of substitution as his
true and lawful attorney and agent, to do any and all acts and things and to
execute any and all instruments which said attorney and agent may deem necessary
or advisable:
(i) to enable the said corporation to comply with the Securities Act of
1933, as amended, and any rules, regulations and requirements of the Securities
and Exchange Commission in respect thereof, in connection with the registration
under the said Securities Act of variable annuity contracts of the said
corporation, interests under benefit plans for employees and agents and managers
of said corporation and of its affiliates, and the variable annuity contracts of
the said corporation with respect to such benefit plans (hereinafter
collectively called "AGAIC Securities"), including specifically, but without
limiting the generality of the foregoing, the power and authority to sign for
and on behalf of the undersigned the name of the undersigned as officer and/or
director of the said corporation to a registration statement or to any amendment
thereto filed with the Securities and Exchange Commission in respect to said
AGAIC Securities and to any instrument or document filed as a part of, as an
exhibit to or in connection with, said registration statement or amendment; and
(ii) to register or qualify said AGAIC Securities for sale and to register
or license said corporation or any subsidiary thereof as a broker or dealer in
said AGAIC Securities under the securities or Blue Sky Laws of all such states
as may be necessary or appropriate to permit therein the offering and sale of
said AGAIC Securities as contemplated by said registration statement, including
specifically, but without limiting the generality of the foregoing, the power
and authority to sign for and on behalf of the undersigned the name of the
undersigned as an officer and/or director of said corporation to any
application, statement, petition, prospectus, notice or other instrument or
document, or to any amendment thereto, or to any exhibit filed as a part thereto
or in connection therewith, which is required to be signed by the undersigned
and to be filed with the public authority or authorities administering said
securities or Blue Sky Laws for the purpose of so registering or qualifying said
AGAIC Securities or registering or licensing said corporation;
and the undersigned does hereby ratify and confirm as his own act and deed all
that said attorney and agent shall do or cause to be done by virtue hereof.
IN WITNESS WHEREOF, the undersigned has subscribed these presents this 16th
day of April, 1998.
/s/ JAMES S. D'AGOSTINO, JR.
-----------------------------
James S. D'Agostino, Jr.
In the Presence of:
/s/ [ILLEGIBLE]
- --------------------
<PAGE> 1
EXHIBIT B16(ii)
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that the undersigned, an officer and/or
director of American General Annuity Insurance Company, a life insurance
corporation organized and existing under Chapter 3 of the Texas Insurance Code,
does hereby constitute and appoint James S. D'Agostino, Jr., Thomas L. West, Jr.
and Cynthia A. Toles, and each of them, with full power of substitution as his
true and lawful attorney and agent, to do any and all acts and things and to
execute any and all instruments which said attorney and agent may deem necessary
or advisable:
(i) to enable the said corporation to comply with the Securities Act of
1933, as amended, and any rules, regulations and requirements of the Securities
and Exchange Commission in respect thereof, in connection with the registration
under the said Securities Act of variable annuity contracts of the said
corporation, interests under benefit plans for employees and agents and managers
of said corporation and of its affiliates, and the variable annuity contracts of
the said corporation with respect to such benefit plans (hereinafter
collectively called "AGAIC Securities"), including specifically, but without
limiting the generality of the foregoing, the power and authority to sign for
and on behalf of the undersigned the name of the undersigned as officer and/or
director of the said corporation to a registration statement or to any amendment
thereto filed with the Securities and Exchange Commission in respect to said
AGAIC Securities and to any instrument or document filed as a part of, as an
exhibit to or in connection with, said registration statement or amendment; and
(ii) to register or qualify said AGAIC Securities for sale and to register
or license said corporation or any subsidiary thereof as a broker or dealer in
said AGAIC Securities under the securities or Blue Sky Laws of all such states
as may be necessary or appropriate to permit therein the offering and sale of
said AGAIC Securities as contemplated by said registration statement, including
specifically, but without limiting the generality of the foregoing, the power
and authority to sign for and on behalf of the undersigned the name of the
undersigned as an officer and/or director of said corporation to any
application, statement, petition, prospectus, notice or other instrument or
document, or to any amendment thereto, or to any exhibit filed as a part thereto
or in connection therewith, which is required to be signed by the undersigned
and to be filed with the public authority or authorities administering said
securities or Blue Sky Laws for the purpose of so registering or qualifying said
AGAIC Securities or registering or licensing said corporation;
and the undersigned does hereby ratify and confirm as his own act and deed all
that said attorney and agent shall do or cause to be done by virtue hereof.
IN WITNESS WHEREOF, the undersigned has subscribed these presents this 16th
day of April, 1998.
/s/ JON P. NEWTON
----------------------------
Jon P. Newton
In the Presence of:
/s/ [ILLEGIBLE]
- -------------------
<PAGE> 1
EXHIBIT B16(iii)
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that the undersigned, an officer and/or
director of American General Annuity Insurance Company, a life insurance
corporation organized and existing under Chapter 3 of the Texas Insurance Code,
does hereby constitute and appoint James S. D'Agostino, Jr., Thomas L. West, Jr.
and Cynthia A. Toles, and each of them, with full power of substitution as his
true and lawful attorney and agent, to do any and all acts and things and to
execute any and all instruments which said attorney and agent may deem necessary
or advisable:
(i) to enable the said corporation to comply with the Securities Act of
1933, as amended, and any rules, regulations and requirements of the Securities
and Exchange Commission in respect thereof, in connection with the registration
under the said Securities Act of variable annuity contracts of the said
corporation, interests under benefit plans for employees and agents and managers
of said corporation and of its affiliates, and the variable annuity contracts of
the said corporation with respect to such benefit plans (hereinafter
collectively called "AGAIC Securities"), including specifically, but without
limiting the generality of the foregoing, the power and authority to sign for
and on behalf of the undersigned the name of the undersigned as officer and/or
director of the said corporation to a registration statement or to any amendment
thereto filed with the Securities and Exchange Commission in respect to said
AGAIC Securities and to any instrument or document filed as a part of, as an
exhibit to or in connection with, said registration statement or amendment; and
(ii) to register or qualify said AGAIC Securities for sale and to register
or license said corporation or any subsidiary thereof as a broker or dealer in
said AGAIC Securities under the securities or Blue Sky Laws of all such states
as may be necessary or appropriate to permit therein the offering and sale of
said AGAIC Securities as contemplated by said registration statement, including
specifically, but without limiting the generality of the foregoing, the power
and authority to sign for and on behalf of the undersigned the name of the
undersigned as an officer and/or director of said corporation to any
application, statement, petition, prospectus, notice or other instrument or
document, or to any amendment thereto, or to any exhibit filed as a part thereto
or in connection therewith, which is required to be signed by the undersigned
and to be filed with the public authority or authorities administering said
securities or Blue Sky Laws for the purpose of so registering or qualifying said
AGAIC Securities or registering or licensing said corporation;
and the undersigned does hereby ratify and confirm as his own act and deed all
that said attorney and agent shall do or cause to be done by virtue hereof.
IN WITNESS WHEREOF, the undersigned has subscribed these presents this 16th
day of April, 1998.
/s/ ROBERT M. DEVLIN
----------------------------
Robert M. Devlin
In the Presence of:
/s/ PAM YOUNG
- -------------------
<PAGE> 1
EXHIBIT B16(iv)
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that the undersigned, an officer and/or
director of American General Annuity Insurance Company, a life insurance
corporation organized and existing under Chapter 3 of the Texas Insurance Code,
does hereby constitute and appoint James S. D'Agostino, Jr., Thomas L. West, Jr.
and Cynthia A. Toles, and each of them, with full power of substitution as his
true and lawful attorney and agent, to do any and all acts and things and to
execute any and all instruments which said attorney and agent may deem necessary
or advisable:
(i) to enable the said corporation to comply with the Securities Act of
1933, as amended, and any rules, regulations and requirements of the Securities
and Exchange Commission in respect thereof, in connection with the registration
under the said Securities Act of variable annuity contracts of the said
corporation, interests under benefit plans for employees and agents and managers
of said corporation and of its affiliates, and the variable annuity contracts of
the said corporation with respect to such benefit plans (hereinafter
collectively called "AGAIC Securities"), including specifically, but without
limiting the generality of the foregoing, the power and authority to sign for
and on behalf of the undersigned the name of the undersigned as officer and/or
director of the said corporation to a registration statement or to any amendment
thereto filed with the Securities and Exchange Commission in respect to said
AGAIC Securities and to any instrument or document filed as a part of, as an
exhibit to or in connection with, said registration statement or amendment; and
(ii) to register or qualify said AGAIC Securities for sale and to register
or license said corporation or any subsidiary thereof as a broker or dealer in
said AGAIC Securities under the securities or Blue Sky Laws of all such states
as may be necessary or appropriate to permit therein the offering and sale of
said AGAIC Securities as contemplated by said registration statement, including
specifically, but without limiting the generality of the foregoing, the power
and authority to sign for and on behalf of the undersigned the name of the
undersigned as an officer and/or director of said corporation to any
application, statement, petition, prospectus, notice or other instrument or
document, or to any amendment thereto, or to any exhibit filed as a part thereto
or in connection therewith, which is required to be signed by the undersigned
and to be filed with the public authority or authorities administering said
securities or Blue Sky Laws for the purpose of so registering or qualifying said
AGAIC Securities or registering or licensing said corporation;
and the undersigned does hereby ratify and confirm as his own act and deed all
that said attorney and agent shall do or cause to be done by virtue hereof.
IN WITNESS WHEREOF, the undersigned has subscribed these presents this 13th
day of April, 1998.
/s/ THOMAS L. WEST, JR.
----------------------------
Thomas L. West, Jr.
In the Presence of:
/s/ LORI LAKE
- -------------------
<PAGE> 1
EXHIBIT B16(v)
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that the undersigned, an officer and/or
director of American General Annuity Insurance Company, a life insurance
corporation organized and existing under Chapter 3 of the Texas Insurance Code,
does hereby constitute and appoint James S. D'Agostino, Jr., Thomas L. West, Jr.
and Cynthia A. Toles, and each of them, with full power of substitution as his
true and lawful attorney and agent, to do any and all acts and things and to
execute any and all instruments which said attorney and agent may deem necessary
or advisable:
(i) to enable the said corporation to comply with the Securities Act of
1933, as amended, and any rules, regulations and requirements of the Securities
and Exchange Commission in respect thereof, in connection with the registration
under the said Securities Act of variable annuity contracts of the said
corporation, interests under benefit plans for employees and agents and managers
of said corporation and of its affiliates, and the variable annuity contracts of
the said corporation with respect to such benefit plans (hereinafter
collectively called "AGAIC Securities"), including specifically, but without
limiting the generality of the foregoing, the power and authority to sign for
and on behalf of the undersigned the name of the undersigned as officer and/or
director of the said corporation to a registration statement or to any amendment
thereto filed with the Securities and Exchange Commission in respect to said
AGAIC Securities and to any instrument or document filed as a part of, as an
exhibit to or in connection with, said registration statement or amendment; and
(ii) to register or qualify said AGAIC Securities for sale and to register
or license said corporation or any subsidiary thereof as a broker or dealer in
said AGAIC Securities under the securities or Blue Sky Laws of all such states
as may be necessary or appropriate to permit therein the offering and sale of
said AGAIC Securities as contemplated by said registration statement, including
specifically, but without limiting the generality of the foregoing, the power
and authority to sign for and on behalf of the undersigned the name of the
undersigned as an officer and/or director of said corporation to any
application, statement, petition, prospectus, notice or other instrument or
document, or to any amendment thereto, or to any exhibit filed as a part thereto
or in connection therewith, which is required to be signed by the undersigned
and to be filed with the public authority or authorities administering said
securities or Blue Sky Laws for the purpose of so registering or qualifying said
AGAIC Securities or registering or licensing said corporation;
and the undersigned does hereby ratify and confirm as his own act and deed all
that said attorney and agent shall do or cause to be done by virtue hereof.
IN WITNESS WHEREOF, the undersigned has subscribed these presents this 1st
day of April, 1998.
/s/ CRAIG R. RODBY
----------------------------
Craig R. Rodby
In the Presence of:
/s/ BRANDEE STANDLEY
- ---------------------
<PAGE> 1
EXHIBIT B16(vi)
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that the undersigned, an officer and/or
director of American General Annuity Insurance Company, a life insurance
corporation organized and existing under Chapter 3 of the Texas Insurance Code,
does hereby constitute and appoint James S. D'Agostino, Jr., Thomas L. West, Jr.
and Cynthia A. Toles, and each of them, with full power of substitution as his
true and lawful attorney and agent, to do any and all acts and things and to
execute any and all instruments which said attorney and agent may deem necessary
or advisable:
(i) to enable the said corporation to comply with the Securities Act of
1933, as amended, and any rules, regulations and requirements of the Securities
and Exchange Commission in respect thereof, in connection with the registration
under the said Securities Act of variable annuity contracts of the said
corporation, interests under benefit plans for employees and agents and managers
of said corporation and of its affiliates, and the variable annuity contracts of
the said corporation with respect to such benefit plans (hereinafter
collectively called "AGAIC Securities"), including specifically, but without
limiting the generality of the foregoing, the power and authority to sign for
and on behalf of the undersigned the name of the undersigned as officer and/or
director of the said corporation to a registration statement or to any amendment
thereto filed with the Securities and Exchange Commission in respect to said
AGAIC Securities and to any instrument or document filed as a part of, as an
exhibit to or in connection with, said registration statement or amendment; and
(ii) to register or qualify said AGAIC Securities for sale and to register
or license said corporation or any subsidiary thereof as a broker or dealer in
said AGAIC Securities under the securities or Blue Sky Laws of all such states
as may be necessary or appropriate to permit therein the offering and sale of
said AGAIC Securities as contemplated by said registration statement, including
specifically, but without limiting the generality of the foregoing, the power
and authority to sign for and on behalf of the undersigned the name of the
undersigned as an officer and/or director of said corporation to any
application, statement, petition, prospectus, notice or other instrument or
document, or to any amendment thereto, or to any exhibit filed as a part thereto
or in connection therewith, which is required to be signed by the undersigned
and to be filed with the public authority or authorities administering said
securities or Blue Sky Laws for the purpose of so registering or qualifying said
AGAIC Securities or registering or licensing said corporation;
and the undersigned does hereby ratify and confirm as his own act and deed all
that said attorney and agent shall do or cause to be done by virtue hereof.
IN WITNESS WHEREOF, the undersigned has subscribed these presents this 1st
day of April, 1998.
/s/ JOHN A. GRAF
----------------------------
John A. Graf
In the Presence of:
/s/ DEBRA M. GREEN
- -------------------
<PAGE> 1
EXHIBIT B16(vii)
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that the undersigned, an officer and/or
director of American General Annuity Insurance Company, a life insurance
corporation organized and existing under Chapter 3 of the Texas Insurance Code,
does hereby constitute and appoint James S. D'Agostino, Jr., Thomas L. West, Jr.
and Cynthia A. Toles, and each of them, with full power of substitution as his
true and lawful attorney and agent, to do any and all acts and things and to
execute any and all instruments which said attorney and agent may deem necessary
or advisable:
(i) to enable the said corporation to comply with the Securities Act of
1933, as amended, and any rules, regulations and requirements of the Securities
and Exchange Commission in respect thereof, in connection with the registration
under the said Securities Act of variable annuity contracts of the said
corporation, interests under benefit plans for employees and agents and managers
of said corporation and of its affiliates, and the variable annuity contracts of
the said corporation with respect to such benefit plans (hereinafter
collectively called "AGAIC Securities"), including specifically, but without
limiting the generality of the foregoing, the power and authority to sign for
and on behalf of the undersigned the name of the undersigned as officer and/or
director of the said corporation to a registration statement or to any amendment
thereto filed with the Securities and Exchange Commission in respect to said
AGAIC Securities and to any instrument or document filed as a part of, as an
exhibit to or in connection with, said registration statement or amendment; and
(ii) to register or qualify said AGAIC Securities for sale and to register
or license said corporation or any subsidiary thereof as a broker or dealer in
said AGAIC Securities under the securities or Blue Sky Laws of all such states
as may be necessary or appropriate to permit therein the offering and sale of
said AGAIC Securities as contemplated by said registration statement, including
specifically, but without limiting the generality of the foregoing, the power
and authority to sign for and on behalf of the undersigned the name of the
undersigned as an officer and/or director of said corporation to any
application, statement, petition, prospectus, notice or other instrument or
document, or to any amendment thereto, or to any exhibit filed as a part thereto
or in connection therewith, which is required to be signed by the undersigned
and to be filed with the public authority or authorities administering said
securities or Blue Sky Laws for the purpose of so registering or qualifying said
AGAIC Securities or registering or licensing said corporation;
and the undersigned does hereby ratify and confirm as his own act and deed all
that said attorney and agent shall do or cause to be done by virtue hereof.
IN WITNESS WHEREOF, the undersigned has subscribed these presents this 1st
day of April, 1998.
/s/ BRUCE R. ABRAMS
----------------------------
Bruce R. Abrams
In the Presence of:
/s/ DEBRA M. GREEN
- -------------------
<PAGE> 1
EXHIBIT B16(viii)
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that the undersigned, an officer and/or
director of American General Annuity Insurance Company, a life insurance
corporation organized and existing under Chapter 3 of the Texas Insurance Code,
does hereby constitute and appoint James S. D'Agostino, Jr., Thomas L. West, Jr.
and Cynthia A. Toles, and each of them, with full power of substitution as his
true and lawful attorney and agent, to do any and all acts and things and to
execute any and all instruments which said attorney and agent may deem necessary
or advisable:
(i) to enable the said corporation to comply with the Securities Act of
1933, as amended, and any rules, regulations and requirements of the Securities
and Exchange Commission in respect thereof, in connection with the registration
under the said Securities Act of variable annuity contracts of the said
corporation, interests under benefit plans for employees and agents and managers
of said corporation and of its affiliates, and the variable annuity contracts of
the said corporation with respect to such benefit plans (hereinafter
collectively called "AGAIC Securities"), including specifically, but without
limiting the generality of the foregoing, the power and authority to sign for
and on behalf of the undersigned the name of the undersigned as officer and/or
director of the said corporation to a registration statement or to any amendment
thereto filed with the Securities and Exchange Commission in respect to said
AGAIC Securities and to any instrument or document filed as a part of, as an
exhibit to or in connection with, said registration statement or amendment; and
(ii) to register or qualify said AGAIC Securities for sale and to register
or license said corporation or any subsidiary thereof as a broker or dealer in
said AGAIC Securities under the securities or Blue Sky Laws of all such states
as may be necessary or appropriate to permit therein the offering and sale of
said AGAIC Securities as contemplated by said registration statement, including
specifically, but without limiting the generality of the foregoing, the power
and authority to sign for and on behalf of the undersigned the name of the
undersigned as an officer and/or director of said corporation to any
application, statement, petition, prospectus, notice or other instrument or
document, or to any amendment thereto, or to any exhibit filed as a part thereto
or in connection therewith, which is required to be signed by the undersigned
and to be filed with the public authority or authorities administering said
securities or Blue Sky Laws for the purpose of so registering or qualifying said
AGAIC Securities or registering or licensing said corporation;
and the undersigned does hereby ratify and confirm as his own act and deed all
that said attorney and agent shall do or cause to be done by virtue hereof.
IN WITNESS WHEREOF, the undersigned has subscribed these presents this 5th
day of April, 1998.
/s/ MICHAEL G. ATNIP
----------------------------
Michael G. Atnip
In the Presence of:
/s/ [ILLEGIBLE]
- -------------------
<PAGE> 1
EXHIBIT B16(ix)
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that the undersigned, an officer and/or
director of American General Annuity Insurance Company, a life insurance
corporation organized and existing under Chapter 3 of the Texas Insurance Code,
does hereby constitute and appoint James S. D'Agostino, Jr., Thomas L. West, Jr.
and Cynthia A. Toles, and each of them, with full power of substitution as his
true and lawful attorney and agent, to do any and all acts and things and to
execute any and all instruments which said attorney and agent may deem necessary
or advisable:
(i) to enable the said corporation to comply with the Securities Act of
1933, as amended, and any rules, regulations and requirements of the Securities
and Exchange Commission in respect thereof, in connection with the registration
under the said Securities Act of variable annuity contracts of the said
corporation, interests under benefit plans for employees and agents and managers
of said corporation and of its affiliates, and the variable annuity contracts of
the said corporation with respect to such benefit plans (hereinafter
collectively called "AGAIC Securities"), including specifically, but without
limiting the generality of the foregoing, the power and authority to sign for
and on behalf of the undersigned the name of the undersigned as officer and/or
director of the said corporation to a registration statement or to any amendment
thereto filed with the Securities and Exchange Commission in respect to said
AGAIC Securities and to any instrument or document filed as a part of, as an
exhibit to or in connection with, said registration statement or amendment; and
(ii) to register or qualify said AGAIC Securities for sale and to register
or license said corporation or any subsidiary thereof as a broker or dealer in
said AGAIC Securities under the securities or Blue Sky Laws of all such states
as may be necessary or appropriate to permit therein the offering and sale of
said AGAIC Securities as contemplated by said registration statement, including
specifically, but without limiting the generality of the foregoing, the power
and authority to sign for and on behalf of the undersigned the name of the
undersigned as an officer and/or director of said corporation to any
application, statement, petition, prospectus, notice or other instrument or
document, or to any amendment thereto, or to any exhibit filed as a part thereto
or in connection therewith, which is required to be signed by the undersigned
and to be filed with the public authority or authorities administering said
securities or Blue Sky Laws for the purpose of so registering or qualifying said
AGAIC Securities or registering or licensing said corporation;
and the undersigned does hereby ratify and confirm as his own act and deed all
that said attorney and agent shall do or cause to be done by virtue hereof.
IN WITNESS WHEREOF, the undersigned has subscribed these presents this 7th
day of April, 1998.
/s/ JOE C. OSBORNE
----------------------------
Joe C. Osborne
In the Presence of:
/s/ ROBIN SELLERS
- -------------------
<PAGE> 1
EXHIBIT B16(x)
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that the undersigned, an officer and/or
director of American General Annuity Insurance Company, a life insurance
corporation organized and existing under Chapter 3 of the Texas Insurance Code,
does hereby constitute and appoint James S. D'Agostino, Jr., Thomas L. West, Jr.
and Cynthia A. Toles, and each of them, with full power of substitution as his
true and lawful attorney and agent, to do any and all acts and things and to
execute any and all instruments which said attorney and agent may deem necessary
or advisable:
(i) to enable the said corporation to comply with the Securities Act of
1933, as amended, and any rules, regulations and requirements of the Securities
and Exchange Commission in respect thereof, in connection with the registration
under the said Securities Act of variable annuity contracts of the said
corporation, interests under benefit plans for employees and agents and managers
of said corporation and of its affiliates, and the variable annuity contracts of
the said corporation with respect to such benefit plans (hereinafter
collectively called "AGAIC Securities"), including specifically, but without
limiting the generality of the foregoing, the power and authority to sign for
and on behalf of the undersigned the name of the undersigned as officer and/or
director of the said corporation to a registration statement or to any amendment
thereto filed with the Securities and Exchange Commission in respect to said
AGAIC Securities and to any instrument or document filed as a part of, as an
exhibit to or in connection with, said registration statement or amendment; and
(ii) to register or qualify said AGAIC Securities for sale and to register
or license said corporation or any subsidiary thereof as a broker or dealer in
said AGAIC Securities under the securities or Blue Sky Laws of all such states
as may be necessary or appropriate to permit therein the offering and sale of
said AGAIC Securities as contemplated by said registration statement, including
specifically, but without limiting the generality of the foregoing, the power
and authority to sign for and on behalf of the undersigned the name of the
undersigned as an officer and/or director of said corporation to any
application, statement, petition, prospectus, notice or other instrument or
document, or to any amendment thereto, or to any exhibit filed as a part thereto
or in connection therewith, which is required to be signed by the undersigned
and to be filed with the public authority or authorities administering said
securities or Blue Sky Laws for the purpose of so registering or qualifying said
AGAIC Securities or registering or licensing said corporation;
and the undersigned does hereby ratify and confirm as his own act and deed all
that said attorney and agent shall do or cause to be done by virtue hereof.
IN WITNESS WHEREOF, the undersigned has subscribed these presents this 1st
day of April, 1998.
/s/ PATRICK E. GRADY
----------------------------
Patrick E. Grady
In the Presence of:
/s/ [ILLEGIBLE]
- -------------------
<PAGE> 1
EXHIBIT B16(xi)
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that the undersigned, an officer and/or
director of American General Annuity Insurance Company, a life insurance
corporation organized and existing under Chapter 3 of the Texas Insurance Code,
does hereby constitute and appoint James S. D'Agostino, Jr., Thomas L. West, Jr.
and Cynthia A. Toles, and each of them, with full power of substitution as his
true and lawful attorney and agent, to do any and all acts and things and to
execute any and all instruments which said attorney and agent may deem necessary
or advisable:
(i) to enable the said corporation to comply with the Securities Act of
1933, as amended, and any rules, regulations and requirements of the Securities
and Exchange Commission in respect thereof, in connection with the registration
under the said Securities Act of variable annuity contracts of the said
corporation, interests under benefit plans for employees and agents and managers
of said corporation and of its affiliates, and the variable annuity contracts of
the said corporation with respect to such benefit plans (hereinafter
collectively called "AGAIC Securities"), including specifically, but without
limiting the generality of the foregoing, the power and authority to sign for
and on behalf of the undersigned the name of the undersigned as officer and/or
director of the said corporation to a registration statement or to any amendment
thereto filed with the Securities and Exchange Commission in respect to said
AGAIC Securities and to any instrument or document filed as a part of, as an
exhibit to or in connection with, said registration statement or amendment; and
(ii) to register or qualify said AGAIC Securities for sale and to register
or license said corporation or any subsidiary thereof as a broker or dealer in
said AGAIC Securities under the securities or Blue Sky Laws of all such states
as may be necessary or appropriate to permit therein the offering and sale of
said AGAIC Securities as contemplated by said registration statement, including
specifically, but without limiting the generality of the foregoing, the power
and authority to sign for and on behalf of the undersigned the name of the
undersigned as an officer and/or director of said corporation to any
application, statement, petition, prospectus, notice or other instrument or
document, or to any amendment thereto, or to any exhibit filed as a part thereto
or in connection therewith, which is required to be signed by the undersigned
and to be filed with the public authority or authorities administering said
securities or Blue Sky Laws for the purpose of so registering or qualifying said
AGAIC Securities or registering or licensing said corporation;
and the undersigned does hereby ratify and confirm as his own act and deed all
that said attorney and agent shall do or cause to be done by virtue hereof.
IN WITNESS WHEREOF, the undersigned has subscribed these presents this 1st
day of April, 1998.
/s/ BRENT C. NELSON
----------------------------
Brent C. Nelson
In the Presence of:
/s/ [ILLEGIBLE]
- -------------------
<PAGE> 1
EXHIBIT B16(xii)
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that the undersigned, an officer and/or
director of American General Annuity Insurance Company, a life insurance
corporation organized and existing under Chapter 3 of the Texas Insurance Code,
does hereby constitute and appoint James S. D'Agostino, Jr., Thomas L. West, Jr.
and Cynthia A. Toles, and each of them, with full power of substitution as his
true and lawful attorney and agent, to do any and all acts and things and to
execute any and all instruments which said attorney and agent may deem necessary
or advisable:
(i) to enable the said corporation to comply with the Securities Act of
1933, as amended, and any rules, regulations and requirements of the Securities
and Exchange Commission in respect thereof, in connection with the registration
under the said Securities Act of variable annuity contracts of the said
corporation, interests under benefit plans for employees and agents and managers
of said corporation and of its affiliates, and the variable annuity contracts of
the said corporation with respect to such benefit plans (hereinafter
collectively called "AGAIC Securities"), including specifically, but without
limiting the generality of the foregoing, the power and authority to sign for
and on behalf of the undersigned the name of the undersigned as officer and/or
director of the said corporation to a registration statement or to any amendment
thereto filed with the Securities and Exchange Commission in respect to said
AGAIC Securities and to any instrument or document filed as a part of, as an
exhibit to or in connection with, said registration statement or amendment; and
(ii) to register or qualify said AGAIC Securities for sale and to register
or license said corporation or any subsidiary thereof as a broker or dealer in
said AGAIC Securities under the securities or Blue Sky Laws of all such states
as may be necessary or appropriate to permit therein the offering and sale of
said AGAIC Securities as contemplated by said registration statement, including
specifically, but without limiting the generality of the foregoing, the power
and authority to sign for and on behalf of the undersigned the name of the
undersigned as an officer and/or director of said corporation to any
application, statement, petition, prospectus, notice or other instrument or
document, or to any amendment thereto, or to any exhibit filed as a part thereto
or in connection therewith, which is required to be signed by the undersigned
and to be filed with the public authority or authorities administering said
securities or Blue Sky Laws for the purpose of so registering or qualifying said
AGAIC Securities or registering or licensing said corporation;
and the undersigned does hereby ratify and confirm as his own act and deed all
that said attorney and agent shall do or cause to be done by virtue hereof.
IN WITNESS WHEREOF, the undersigned has subscribed these presents this 16th
day of April, 1998.
/s/ RICHARD W. SCOTT
----------------------------
Richard W. Scott
In the Presence of:
/s/ [ILLEGIBLE]
- -------------------
