-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, TO2kJjpsGjDr9FmFL/BUB/iZBRunkguq3Sz1K6kJZ2Wx19+3D/i5BViU4Xmf/tLD CKmq8ltZ1uzGYkemkVGFgg== 0000899243-98-001661.txt : 19980820 0000899243-98-001661.hdr.sgml : 19980820 ACCESSION NUMBER: 0000899243-98-001661 CONFORMED SUBMISSION TYPE: S-6/A PUBLIC DOCUMENT COUNT: 17 FILED AS OF DATE: 19980819 SROS: NONE FILER: COMPANY DATA: COMPANY CONFORMED NAME: AMERICAN GENERAL LIFE INSURANCE CO SEPARATE ACCOUNT VL R CENTRAL INDEX KEY: 0001051485 STANDARD INDUSTRIAL CLASSIFICATION: [] STATE OF INCORPORATION: TX FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: S-6/A SEC ACT: SEC FILE NUMBER: 333-53909 FILM NUMBER: 98694588 BUSINESS ADDRESS: STREET 1: 2727 A ALLEN PARKWAY CITY: HOUSTON STATE: TX ZIP: 77019-2191 BUSINESS PHONE: 7138313632 MAIL ADDRESS: STREET 1: 2727 A ALLEN PARKWAY CITY: HOUSTON STATE: TX ZIP: 77019-2191 S-6/A 1 PRE-EFFECTIVE AMENDMENT NO. 3 TO FORM S-6 Registration No. 333-53909 As filed with the Securities and Exchange Commission on August 19, 1998 SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 FORM S-6 PRE-EFFECTIVE AMENDMENT NO. 3 TO REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933 OF SECURITIES OF UNIT INVESTMENT TRUST REGISTERED ON FORM N-8B-2 AMERICAN GENERAL LIFE INSURANCE COMPANY SEPARATE ACCOUNT VL-R (Exact Name of Trust) AMERICAN GENERAL LIFE INSURANCE COMPANY (Exact Name of Depositor) 2727-A Allen Parkway Houston, Texas 77019-2191 (Complete Address of Depositor's Principal Executive Offices) Pauletta P. Cohn, Esq. Associate General Counsel American General Life Companies 2727-A Allen Parkway Houston, Texas 77019-2191 (Name and Complete Address of Agent for Service) Please send copies of all communications to: Diane E. Ambler, Esq. Mayer, Brown & Platt 2000 Pennsylvania Ave., N.W. Washington, D.C. 20006 Approximate Date of Proposed Public Offering: As soon as practicable after the effective date of this Registration Statement. Securities Being Offered: Flexible Premium Variable Life Insurance Policies. -------------------------- The Registrant hereby amends this Registration Statement on such date or dates as may be necessary to delay its effective date until the Registrant shall file a further amendment which specifically states that this Registration Statement shall thereafter become effective in accordance with Section 8(a) of the Securities Act of 1933 or until this Registration Statement shall become effective on such date as the Commission, acting pursuant to said Section 8(a), may determine. - ------------------------------------------------------------------------------- AMERICAN GENERAL LIFE INSURANCE COMPANY SEPARATE ACCOUNT VL-R RECONCILIATION AND TIE BETWEEN ITEMS IN FORM N-8B-2 AND THE PROSPECTUS (PURSUANT TO INSTRUCTION 4 OF FORM S-6) CROSS REFERENCE SHEET
ITEM NO. OF FORM N-8B-2* PROSPECTUS CAPTION - ----------------------- ------------------ 1 Additional Information : Separate Account VL-R 2 Additional Information: AGL. 3 Inapplicable. 4 Additional Information: Distribution of Policies. 5, 6 Additional Information: Separate Account VL-R. 7 Inapplicable.** 8 Inapplicable.** 9 Additional Information: Legal Matters. 10(a) Additional Information: Your Beneficiary, Assigning Your Policy. 10(b) Basic Questions You May Have: How will the value of my investment in a Policy change over time? 10(c)(d) Basic Questions You May Have: How can I change my Policy's insurance coverage? How can I access my investment in a Policy? Can I choose the form in which AGL pays out any proceeds from my Policy? Additional Information: Payment of Policy Proceeds. 10(e) Basic Questions You May Have: Must I invest any minimum amount in a policy? 10(f) Additional Information: Voting Privileges. 10(g)(1), 10(g)(4), 10(h)(3), 10(h)(2) Basic Questions You May Have: To what extent will AGL vary the terms and conditions of the Policies in particular cases? Additional Information: Voting Privileges; Additional Rights That We Have. 10(g)(3), 10(g)(4), 10(h)(3), 10(h)(4) Inapplicable.** 10(i) Additional Information: Separate Account VL-R;Tax Effects. 11 Basic Questions You May Have: How will the value of my investment in a Policy change over time? Additional Information: Separate Account VL-R. 12(a) Additional Information: Separate Account VL-R; Front Cover. 12(b) Inapplicable. 12(c), 12(d) Inapplicable.** 12(e) Inapplicable, because the Separate Account did not commence operations until 1998. 13(a) Basic Questions You May Have: What charges will AGL deduct from my investment in a Policy? What charges and expenses will the Mutual Funds deduct from the amounts I invest through my Policy? Additional Information: More About Policy Charges. 13(b) Illustrations of Hypothetical Policy Benefits. 13(c) Inapplicable.**
13(d) Basic Questions You May Have: To what extent will AGL vary the terms and conditions of the Policy in particular cases? 13(e), 13(f), 13(g) None. 14 Basic Questions You May Have: How can I invest money in a Policy? 15 Basic Questions You May Have: How can I invest money in a Policy? How do I communicate with AGL? 16 Basic Questions You May Have: How will the value of my investment in a Policy change over time? ITEM NO. ADDITIONAL INFORMATION - -------- ---------------------- 17(a), 17(b) Captions referenced under Items 10(c), 10(d), and 10(e). 17(c) Inapplicable. 18(a) Captions referred to under Item 16. 18(b), 18(d) Inapplicable. 18(c) Additional Information: Separate Account VL-R. 19 Additional Information: Separate Account VL-R; Our Reports to Policy Owners. 20(a), 20(b), 20(c), 20(d), 20(e), 20(f) Inapplicable. 21(a), 21(b) Basic Questions You May Have: How can I access my investment in a Policy? Additional Information: Payment of Policy Proceeds. 21(c) Inapplicable.** 22 Additional Information: Payment of Policy Proceeds- Delay to Challenge Coverage. 23 Inapplicable.** 24 Basic Questions You May Have; Additional Information. 25 Additional Information: AGL. 26 Inapplicable, because the Separate Account did not commence operations until 1998. 27 Additional Information: AGL. 28 Additional Information: AGL's Management. 29 Additional Information: AGL. 30, 31, 32, 33, 34 Inapplicable, because the Separate Account did not commence operations until 1998. 35 Inapplicable.** 36 Inapplicable.** 37 None. 38, 39 Additional Information: Distribution of the Policies. 40 Inapplicable, because the Separate Account did not commence operations until 1998. 41(a) Additional Information: Distribution of the Policies. 41(b), 41(c) Inapplicable.** 42, 43 Inapplicable, because the Separate Account did not commence operations or issue any securities until 1998. 44(a)(1), 44(a)(2), 44(a)(3) Basic Questions You May Have: How will the value of my investment in a Policy change over time? 44(a)(4) Additional Information: Tax Effects--Our taxes. 44(a)(5), 44(a)(6) Basic Questions You May Have: What charges will AGL deduct from my investment in a Policy? 44(b) Inapplicable.** 44(c) Caption referenced in 13(d) above.
45 Inapplicable, because the Separate Account did not commence operations until 1998. 46(a) Captions referenced in 44(a) above. 46(b) Inapplicable.** 47, 48, 49 None. 50 Inapplicable. 51 Inapplicable. 52(a), 52(c) Basic Questions You May Have: To what extent can AGL vary the terms and conditions of the Policy in particular cases? Additional Information: Additional Rights That We Have. 52(b), 52(d) None. 53(a) Additional Information: Tax Effects--Our taxes. 53(b), 54 Inapplicable. 55 Illustrations of Hypothetical Policy Benefits. 56-59 Inapplicable.** * Registrant includes this Reconciliation and Tie in its Registration Statement in compliance with Instruction 4 as to the Prospectus as set out in Form S-6. Separate Account VL-R (Account) has previously filed a notice of registration as an investment company on Form N-8A under the Investment Company Act of 1940 (Act), and a Form N-8B-2 Registration Statement. Pursuant to Sections 8 and 30(b)(1) of the Act, Rule 30a-1 under the Act, and Forms N-8B-2 and N-SAR under that Act, the Account will keep its Form N-8B-2 Registration Statement current through the filing of periodic reports required by the Securities and Exchange Commission (Commission). ** Not required pursuant to either Instruction 1(a) as to the Prospectus as set out in Form S-6 or the administrative practice of the Commission and its staff of adapting the disclosure requirements of the Commission's registration statement forms in recognition of the differences between variable life insurance policies and other periodic payment plan certificates issued by investment companies and between separate accounts organized as management companies and unit investment trusts. LEGACY PLUS FLEXIBLE PREMIUM VARIABLE LIFE INSURANCE POLICY (THE "POLICY") ISSUED BY AMERICAN GENERAL LIFE INSURANCE COMPANY ("AGL") HOME OFFICE:
(Express Delivery) (US Mail) 2727-A Allen Parkway Variable Universal Life Houston, Texas 77019-2191 Administration PHONE: 1-888-325-9315 P.O. Box 4880 or 1-713-831-3443 Houston, Texas 77210-4880 FAX: 1-713-620-3857
Investment options. You may invest in the following variable investment options and change your selections from time to time: BT INSURANCE FUNDS TRUST MORGAN STANLEY UNIVERSAL ROYCE CAPITAL FUND .Equity 500 Index FUNDS, INC. .Royce Total Return .EAFE Equity Index .Equity Growth - ----------------------------------------------------------------------------- AIM VARIABLE INSURANCE AMERICAN GENERAL SERIES FUNDS, INC. PORTFOLIO COMPANY .AIM V.I. Value .Money Market
SEPARATE PROSPECTUSES CONTAIN MORE INFORMATION ABOUT THE MUTUAL FUNDS ("FUNDS" OR "MUTUAL FUNDS") IN WHICH WE INVEST THE ACCUMULATION VALUE THAT YOU ALLOCATE TO ANY OF THE ABOVE-LISTED INVESTMENT OPTIONS. THE FORMAL NAME OF EACH SUCH FUND IS SET FORTH IN THE CHART THAT APPEARS ABOVE. YOUR INVESTMENT RESULTS IN ANY SUCH OPTION WILL DEPEND ON THOSE OF THE RELATED FUND. THEREFORE, YOU SHOULD BE SURE YOU ALSO READ THE PROSPECTUS OF THE MUTUAL FUND FOR ANY SUCH INVESTMENT OPTION YOU MAY BE INTERESTED IN. YOU CAN REQUEST FREE COPIES OF ANY OR ALL OF THE MUTUAL FUND PROSPECTUSES FROM YOUR AGL REPRESENTATIVE OR FROM US AT OUR HOME OFFICE LISTED ABOVE. Other choices you have. During the insured person's lifetime, you can (1) increase (but not decrease) the amount of insurance, (2) borrow or withdraw amounts you have invested, (3) choose, within limits, when and how much you invest, and (4) choose whether the amount you have invested under your Policy, upon the insured person's death, will be added to the insurance proceeds we otherwise will pay to the beneficiary. Charges and expenses. We deduct charges and expenses from the amounts you invest. These are described beginning on page 6. Right to return. If for any reason you are not satisfied with your Policy, you may return it to us and we will refund any premiums paid adjusted to reflect investment experience. (In some states, we will return premiums paid as required by state law.) To exercise your right to return your Policy, you must mail it directly to the Home Office address shown on the first page of this prospectus or return it to the AGL representative through whom you purchased the Policy within 10 days after you receive it. In a few states, this period may be longer. Because you have this right, we will invest your initial premium payment in the money market investment option from the date your investment performance begins until the first business day that is at least 15 days later. Then we will automatically allocate your investment among the above-listed investment options as you have chosen. Any additional premium we receive during the 15-day period will also be invested in the money market division and allocated to the investment options at the same time as your initial premium. PLEASE READ THIS PROSPECTUS CAREFULLY AND KEEP IT FOR FUTURE REFERENCE. THIS PROSPECTUS CONTAINS INFORMATION THAT YOU SHOULD KNOW BEFORE INVESTING IN A POLICY. THE POLICIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND EXCHANGE COMMISSION ("SEC") NOR HAS THE SEC PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE. THE POLICIES ARE NOT INSURED BY THE FDIC OR ANY OTHER AGENCY. THEY ARE NOT DEPOSITS OR OTHER OBLIGATIONS OF ANY BANK AND ARE NOT BANK GUARANTEED. THEY ARE SUBJECT TO INVESTMENT RISKS AND POSSIBLE LOSS OF PRINCIPAL INVESTED. THIS BOOKLET IS CALLED A "PROSPECTUS." ITS DATE IS , 1998. 2 GUIDE TO THIS PROSPECTUS This booklet (which is called a "prospectus") contains information that you should know before you purchase a Legacy Plus policy ("Policy") or exercise any of your rights or privileges under a Policy. Basic Information. Here are the page numbers in this prospectus where you may find answers to most of your questions:
PAGE TO SEE IN THIS BASIC QUESTIONS YOU MAY HAVE PROSPECTUS ---------------------------- ---------- .How can I invest money in a Policy?................................ 4 .How will the value of my investment in a Policy change over time?.. 5 .What is the basic amount of insurance ("death benefit") that AGL pays when the insured person dies?............................. 5 .What charges will AGL deduct from my investment in a Policy?....... 6 .What charges and expenses will the Mutual Funds deduct from amounts I invest through my Policy?.................................... 7 .Must I invest any minimum amount in a Policy?...................... 8 .How can I change my Policy's investment options?................... 8 .How can I change my Policy's insurance coverage?................... 8 .What additional rider benefits might I select?..................... 9 .How can I access my investment in a Policy?........................ 9 .Can I choose the form in which AGL pays out proceeds from my Policy?............................................................ 10 .To what extent can AGL vary the terms and conditions of the Policy in particular cases?............................................... 11 .How will my Policy be treated for income tax purposes?............. 11 .How do I communicate with AGL?..................................... 11
Illustrations of a hypothetical Policy. Starting on page 13, we have included some illustrations of how the values of a hypothetical Policy would change over time, based on certain assumptions we have made. Because your circumstances may vary considerably from our assumptions, your AGL representative will also provide you with a similar hypothetical illustration that is more tailored to your own circumstances and wishes. Additional information. You may find the answers to any other questions you have under "Additional Information" beginning on page 16 or in the form of our Policy. A table of contents for the "Additional Information" portion of this prospectus also appears on page 16. You can obtain copies of our Policy form from (and direct any other questions to) your AGL representative or our Home Office (shown on the first page of this Prospectus). Financial statements. We have included certain financial statements of AGL and Separate Account VL-R in this prospectus. These begin on page 30. Special words and phrases. If you want more information about any words or phrases that you read in this prospectus, you may wish to refer to the Index of Words and Phrases that appears at the back of this prospectus. That index will tell you on what page you can read more about many of the words and phrases that we use. 3 BASIC QUESTIONS YOU MAY HAVE HOW CAN I INVEST MONEY IN A POLICY? Premium payments. We call the investments you make in a Policy "premiums" or "premium payments." The amount we require as your initial premium varies depending on the specifics of your Policy and the insured person. We can refuse to accept a subsequent premium payment that is less than $50. Otherwise, with a few exceptions mentioned below, you can make premium payments at any time and in any amount. Limits on premium payments. In certain circumstances, we may refuse to accept an additional premium if the insured person does not provide us with adequate evidence that he/she continues to meet our requirements for issuing insurance or if the additional premium would cause the "net amount at risk" to exceed the Maximum Net Amount at Risk, as set out in your Policy. The net amount at risk is the difference between (a) the death benefit that would be payable before reduction by policy loans if the insured person died on that date and (b) the then total accumulation value under the Policy. The term "accumulation value" is described on page 5. Additional premium payments may result in an increase in the death benefit. If the increase in the death benefit exceeds the increase in the accumulation value due to the alternative basic death benefit calculation, then the net amount at risk will increase. The resulting increase in the net amount at risk could cause the net amount at risk to exceed the Maximum Net Amount at Risk. The "alternative basic death benefit calculation" is described starting on page 5. The sum of the premiums paid under your Policy may not exceed the guideline premium limitation as defined by Section 7702 of the Internal Revenue Code of 1986, as amended. Any portion of any premium paid which is determined to be in excess of the limit will be refunded. Checks and money orders. Premiums must be by check or money order drawn on a U.S. bank in U.S. dollars and made payable to "American General Life Insurance Company," or "AGL." Premiums after the initial premium must be sent directly to our Home Office. Other ways to pay premiums. We also accept premium payments by bank draft, wire, or by exchange from another insurance company. You may obtain further information about how to make premium payments by any of these methods from your AGL representative or from our Home Office shown on the first page of this prospectus. Dollar cost averaging. Dollar cost averaging is an investment strategy designed to reduce the risks that result from market fluctuations. The strategy spreads the allocation of your accumulation value over a period of time. This allows you to reduce the risk of investing most of your funds at a time when prices are high. The success of this strategy depends on market trends and is not guaranteed. Under dollar cost averaging, we automatically make transfers of your accumulation value from the money market investment option to one or more of the other investment options that you choose. You tell us whether you want these transfers to be made monthly, quarterly, semi-annually or annually; and we make the transfers as of the end of the valuation period that contains the day of the month that you select other than the 29th, 30th or 31st day of the month. The term "valuation period" is described on page 22. You must have at least $100,000 of accumulation value to start dollar cost averaging and each transfer under the program must be at least $5,000. You cannot participate in dollar cost averaging while also using automatic rebalancing (discussed below). Dollar cost averaging ceases upon your request, or if your accumulation value in the money market option becomes exhausted. Automatic rebalancing. This feature automatically rebalances the proportion of your accumulation value in each investment option under your Policy to correspond to your then current premium allocation designation. You tell us whether you want us to do the rebalancing quarterly, semi-annually or annually. The date automatic 4 rebalancing occurs will be based on the date of issue of your Policy. For example, if your Policy is dated January 17, and you have requested automatic rebalancing on a quarterly basis, automatic rebalancing will start on April 17, and will occur quarterly thereafter. Automatic rebalancing will occur as of the end of the valuation period that contains the date of the month your Policy was issued. You must have a total accumulation value of at least $100,000 to begin automatic rebalancing. You cannot participate in this program while also participating in dollar cost averaging (discussed above). Rebalancing terminates upon your request. HOW WILL THE VALUE OF MY INVESTMENT IN A POLICY CHANGE OVER TIME? Your accumulation value. From each premium payment you make, we deduct the charges that we describe on page 6 under "Deductions from each premium payment." We invest the rest in one or more of the investment options listed on the first page of this prospectus. We call the amount that is at any time invested under your Policy (including any loan collateral we are holding for your Policy loans) your "accumulation value." Your investment options. We invest the accumulation value that you have allocated to any investment option in shares of a Mutual Fund that follows investment practices, policies and objectives that are appropriate to that option. Over time, your accumulation value in any investment option will increase or decrease by the same amount as if you had invested in the related Fund's shares directly (and reinvested all dividends and distributions from the Fund in additional Fund shares); except that your accumulation value will be reduced by certain charges that we deduct. We describe these charges beginning on page 6 under "What charges will AGL deduct from my investment in a Policy?" Other important information about the Mutual Funds that you can choose is included in the separate prospectuses for those Funds. This includes information about the investment performance that each Fund's investment manager has achieved. Additional free copies of these prospectuses are available from your AGL representative or from our Home Office shown on the first page of this prospectus. Policies are "non-participating." The Policies are not "participating." Therefore, you will not be entitled to any dividends from AGL. WHAT IS THE BASIC AMOUNT OF INSURANCE ("DEATH BENEFIT") THAT AGL PAYS WHEN THE INSURED PERSON DIES? Your specified amount of insurance. In your application to buy a Legacy Plus Policy, you will tell us how much life insurance coverage you want on the life of the insured person. We call this the "specified amount" of insurance. Your death benefit. The basic death benefit we will pay is reduced by any outstanding Policy loans. You also choose whether the basic death benefit we will pay is .Option 1--The specified amount on the date of the insured person's death - or - .Option 2--The specified amount plus the Policy's accumulation value on the date of death. Under Option 2, your death benefit will tend to be higher than under Option 1. However, the monthly insurance charge we deduct will also be higher to compensate us for our additional risk. Because of this, your accumulation value will tend to be higher under Option 1 than under Option 2. We will automatically pay an alternative basic death benefit if it is higher than the basic Option 1 or Option 2 death benefit (whichever you have selected). The alternative basic death benefit is computed by multiplying your Policy's accumulation value on the insured person's date of death by the following percentages: 5 TABLE OF ALTERNATIVE BASIC DEATH BENEFITS AS A PERCENTAGE MULTIPLE OF POLICY ACCUMULATION VALUE BASED ON GUIDELINE PREMIUM
INSURED'S INSURED'S AGE ON % OF AGE ON % OF POLICY ACCUMULATION POLICY ACCUMULATION ANNIVERSARY* VALUE ANNIVERSARY* VALUE ------------ ------------ ------------ ------------ 0-40 250 60 130 41 243 61 128 42 236 62 126 43 229 63 124 44 222 64 122 45 215 65 120 46 209 66 119 47 203 67 118 48 197 68 117 49 191 69 116 50 185 70 115 51 178 71 113 52 171 72 111 53 164 73 109 54 157 74 107 55 150 75-90 105 56 146 91 104 57 142 92 103 58 138 93 102 59 134 94 101 95+ 100
- -------- * Nearest birthday at the beginning of the Policy year in which the insured person dies. WHAT CHARGES WILL AGL DEDUCT FROM MY INVESTMENT IN A POLICY? Deductions from each premium payment. There is currently no deduction from each premium payment you make. However, We have the right at any time to assess a charge not to exceed more than 1.5% on all future premium payments for the costs associated with the issuance of the Policy and administrative services we perform. Daily charge. We make a daily deduction at an annual effective rate of .75% of your accumulation value that is then being invested in any of the investment options for the costs associated with the mortality and expense risks we assume under the Policy. After a Policy has been in effect for 10 years, we will reduce the rate of the charge to a maximum of .50%, and after 20 years, we will further reduce the charge to a maximum of .25%. Because the Policies were first offered in 1998, however, this decrease has not yet occurred for any outstanding Policy. The daily deduction charges, including the current charge of .75%, are the maximums we may charge; we may charge less, but we can never charge more. Monthly insurance charge. Every month we will deduct from your accumulation value a charge based on the cost of insurance rates applicable to your Policy on the date of the deduction and our "amount at risk" on that date. Our amount at risk is the difference between (a) the death benefit that would be payable before reduction by policy loans if the insured person died on that date and (b) the then total accumulation value under the Policy. For otherwise identical Policies, a greater amount at risk results in a higher monthly insurance charge. The current monthly insurance charge has been designed primarily to provide funds out of which we can make payments of death benefits under the Policy as insured persons die. For otherwise identical Policies, a higher cost of insurance rate also results in a higher monthly insurance charge. Our cost of insurance rates are guaranteed not to exceed those that will be specified in your Policy. 6 In general, our cost of insurance rates increase with the insured person's age. Therefore, the longer you own your Policy, the higher the cost of insurance rate will be. Also our cost of insurance rates will generally be lower (except in Montana) if the insured person is a female than if a male. Similarly, our current cost of insurance rates are generally lower for non- smokers than smokers. Insured persons who present particular health, occupational or avocational risks may be charged higher cost of insurance rates and other additional charges based on the specified amount of insurance coverage under their Policy. Our cost of insurance rates also are generally higher under a Policy that has been in force for some period of time than they would be under an otherwise identical Policy purchased more recently on the same insured person. Transaction Fee. We will charge a $25 transaction fee for each partial surrender you make to cover administrative services. This charge will be deducted from the investment options in the same ratio as the requested transfer. Charge for taxes. We can make a charge in the future for taxes we incur or reserves we set aside for taxes in connection with the Policies. This would reduce the investment experience of your accumulation value. For a further discussion regarding the charges we will deduct from your investment in a Policy, see "More About Policy Charges" on page 21. Allocation of charges. You may choose from which of your investment options we deduct all monthly charges. If you do not have enough accumulation value in any investment option to comply with your selection, we will deduct these charges in proportion to the amount of accumulation value you then have in each investment option. WHAT CHARGES AND EXPENSES WILL THE MUTUAL FUNDS DEDUCT FROM AMOUNTS I INVEST THROUGH MY POLICY? Each Mutual Fund pays its investment management fees and other operating expenses. Because they reduce the investment return of a Fund, these fees and expenses also will reduce indirectly the return you will earn on any accumulation value that you have invested in that Fund. These charges and expenses currently are as follows: THE MUTUAL FUNDS' ANNUAL EXPENSES (1) (as a percentage of average net assets)
FUND OTHER FUND TOTAL FUND MANAGEMENT OPERATING OPERATING FEES AFTER EXPENSES EXPENSES EXPENSE AFTER EXPENSE AFTER EXPENSE NAME OF FUND REIMBURSEMENT REIMBURSEMENT REIMBURSEMENT ------------ ------------- ------------- ------------- The following funds of BT INSURANCE FUNDS TRUST: Equity 500 Index................... 0.00% 0.30% 0.30% EAFE Equity Index.................. 0.02% 0.63% 0.65% The following fund of MORGAN STANLEY UNIVERSAL FUNDS, INC.: Equity Growth...................... 0.0% 0.85% 0.85% The following fund of AMERICAN GENERAL SERIES PORTFOLIO COMPANY: Money Market....................... 0.50% 0.07% 0.57% The following fund of ROYCE CAPITAL FUND: Royce Total Return................. 0.00% 1.35% 1.35% The following fund of AIM VARIABLE INSURANCE FUNDS, INC.: AIM V.I. Value..................... 0.62% 0.08% 0.70%
- -------- (1) The annual expenses are estimated for the current fiscal year for the Equity 500 Index and EAFE Equity Index Funds, because neither of these Funds has financial statements covering a period of at least ten months. 7 If certain voluntary expense reimbursements from the investment adviser were terminated, management fees and other expenses for the fiscal year ended in 1997 would have been as set out in the following table. Information about annual expenses excluding voluntary expense reimbursements is estimated for the Equity 500 Index and EAFE Equity Index Funds since neither of these Funds has financial statements covering a period of at least ten months.
OTHER TOTAL FUND FUND FUND MANAGEMENT OPERATING OPERATING NAME OF FUND FEES EXPENSES EXPENSES ------------ ---------- --------- --------- Equity 500 Index.............................. 0.20% 2.58% 2.78% EAFE Equity Index............................. 0.45% 2.30% 2.75% Royce Total Return............................ 1.00% 1.99% 2.99% Equity Growth................................. 0.55% 1.50% 2.05%
MUST I INVEST ANY MINIMUM AMOUNT IN A POLICY? Planned periodic premiums. Page 3 of your Policy will specify a "Planned Periodic Premium." This is the amount that you (within limits) choose to have us bill you. Our current practice is to bill quarterly, semi-annually or annually. However, payment of these or any other specific amounts of premiums is not mandatory. After payment of your initial premium, you need only invest enough to ensure your Policy's cash surrender value stays above zero. The less you invest, the more likely it is that your Policy's cash surrender value could fall to zero, as a result of the deductions we periodically make from your accumulation value. Policy lapse and reinstatement. If your Policy's cash surrender value does fall to zero, we will notify you and give you a grace period to pay at least the amount we estimate is necessary to keep your Policy in force for a reasonable time. If we do not receive your payment by the end of the grace period, your Policy will terminate without value and all coverage under your Policy will cease. Although you can apply to have your Policy "reinstated," you must do this within 5 years (or, if earlier, before the Policy's maturity date), and you must present evidence that the insured person still meets our requirements for issuing coverage. Also, you would have to pay certain extra amounts that we require. In the Policy form itself, you will find additional information about the values and terms of a Policy after it is reinstated. HOW CAN I CHANGE MY POLICY'S INVESTMENT OPTIONS? Future premium payments. You may at any time change the investment options in which future premiums you pay will be invested. Your allocation must, however, be in whole percentages that total 100%. Transfers of existing accumulation value. You may also transfer your existing accumulation value from one investment option under the Policy to another. You may make transfers at any time. Unless you are transferring the entire amount you have in an investment option, each transfer must be at least $5,000. See "Additional Rights That We Have" on page 25. Transaction Fee. We will charge a $25 transaction fee for each transfer you make in excess of 12 per Policy year. Maximum number of investment options. We can at any time limit the number of investment options you may use. HOW CAN I CHANGE MY POLICY'S INSURANCE COVERAGE? Increase in coverage. You may at any time request an increase in the specified amount of coverage under your Policy. You must, however, provide us with satisfactory evidence that the insured person continues to meet our requirements for issuing insurance coverage. You may not request a decrease in the specified amount of coverage under your Policy. 8 We treat an increase in specified amount in many respects as if it were the issuance of a new Policy. For example, the monthly insurance charge for the increase will be based on the age and risk class of the insured person at the time of the increase. Change of death benefit option. You may at any time request us to change your coverage from death benefit Option 1 to 2 or vice-versa. If you change from Option 1 to 2, we also automatically reduce your Policy's specified amount of insurance by the amount of your Policy's accumulation value (but not below zero) at the time of the change. If you change from Option 2 to 1, we automatically increase your Policy's specified amount by the amount of your Policy's accumulation value. Tax consequences of changes in insurance coverage. Please read "Tax Effects" starting on page 17 of this prospectus to learn about possible tax consequences of changing your insurance coverage under your Policy. WHAT ADDITIONAL RIDER BENEFITS MIGHT I SELECT? Under the terms of your Policy, there are currently no additional rider benefits available. HOW CAN I ACCESS MY INVESTMENT IN A POLICY? Full surrender. You may at any time surrender your Policy in full. If you do, we will pay you the accumulation value, less any Policy loans. We call this amount your "cash surrender value". Partial surrender. You may, at any time after the first Policy year, make a partial surrender of your Policy's cash surrender value. A partial surrender must be at least $5,000. If the Option 1 death benefit is then in effect, we will also automatically reduce your Policy's specified amount of insurance by the amount of your withdrawal and any related charges. We will not permit a partial surrender if it would cause your accumulation value to fall below $100,000 or your death benefit to fall below the minimum specified in your Policy. You may choose the investment option or options from which money that you withdraw will be taken. Otherwise, we will allocate the withdrawal in the same proportions as then apply for deducting monthly charges under your Policy or, if that is not possible, in proportion to the amount of accumulation value you then have in each investment option. Exchange of Policy in Certain States. Certain states require that a policy owner be given the right to exchange the Policy for a fixed benefit life insurance policy, within either 18 or 24 months from the date of issue. This right is subject to various conditions imposed by the states and us. In such states, this right has been more fully described in your Policy or related endorsements to comply with the applicable state requirements. Transaction Fee. We will charge a $25 transaction fee for each partial surrender you make. This charge will be deducted from the investment options in the same ratio as the requested transfer. Policy loans. You may at any time borrow from us an amount equal to your Policy's cash surrender value less $100,000, less our estimate of three months' charges and less the interest that will be payable on your loan through your next Policy anniversary; this rule is not applicable in all states. The minimum amount of each loan is $5,000. We remove from your investment options an amount equal to your loan and hold that amount as additional collateral for the loan. We will credit your Policy with interest on this collateral amount at an effective annual rate of 4% (rather than any amount you could otherwise earn in one of our investment options), and we will charge you interest on your loan at an effective annual rate of 4.75%. Loan interest is payable annually, on the Policy anniversary, in advance, at a rate of 4.54%. Any amount not paid by its due date will automatically be added to the loan balance as an additional loan. Interest you pay on Policy loans will not, in most cases, be deductible on your tax returns. 9 You may choose which of your investment options the loan will be taken from. If you do not so specify, we will allocate the loan in the same way that charges under your Policy are being allocated. If this is not possible, we will make the loan pro-rata from each investment option that you then are using. You may repay all or part (but not less than $5,000) of your loan at any time prior to the death of the Insured while the Policy is in force. You must designate any loan repayment as such. Otherwise, we will treat it as a premium payment instead. We will invest any additional loan repayments you make in the investment options you request. In the absence of such a request we will invest the repayment in the same proportion as you then have selected for premium payments that we receive from you. Any unpaid loan will be deducted from the proceeds we pay following the insured person's death. Preferred loan interest rate. We will credit a higher interest rate, but not more than 4.75%, on an amount of the collateral securing Policy loans taken out after the first 10 Policy years. The maximum amount of new loans that will receive this preferred loan interest rate for any year is (a) 10% of your Policy's accumulation value (including any loan collateral we are holding for your Policy loans) at the beginning of the Policy year or (b) if less, your Policy's maximum remaining loan value at that anniversary. We intend to set the rate of interest we credit to your preferred collateral amount equal to the loan interest rate you are paying, resulting in a zero net cost of borrowing for that amount. We have full discretion to vary the preferred rate, provided that it will always be greater than the rate we are then crediting in connection with regular Policy loans, and will never be less than an effective annual rate of 4.5%. Because we first offered the Policies in 1998, we have not yet applied the preferred loan interest rate to any Policy loan amounts. Maturity of your Policy. If the insured person is still living on the "Maturity Date" shown on page 3 of your Policy, we will automatically pay you the cash surrender value of the Policy, and the Policy will terminate. The maturity date is the Policy anniversary nearest the insured person's 100th birthday. CAN I CHOOSE THE FORM IN WHICH AGL PAYS OUT THE PROCEEDS FROM MY POLICY? Choosing a payment option. You may choose to receive the full proceeds from the Policy as a single sum. This includes proceeds that become payable upon the death of the insured person, full surrender or the maturity date. Alternatively, you may elect that all or part of such proceeds be applied to one or more of the following payment options: . Option 1--Equal monthly payments for a specified period of time. . Option 2--Equal monthly payments of a specified amount until all amounts are paid out. . Option 3--Equal monthly payments for the payee's life, but with payments guaranteed for a specified number of years. These payments are based on annuity rates that are set forth in the Policy or, at the payee's request, the annuity rates that we then are using. . Option 4--Proceeds left to accumulate with interest. Additional payment options may also be available with our consent. We have the right to veto any payment option, if the payee is a corporation or other entity. You can read more about each of these options in our Policy form and in the separate form of payment contract that we issue when any such option takes effect. Within 60 days after the insured person's death, any payee entitled to receive proceeds as a single sum may elect one or more payment options. Interest rates that we credit under each option will be at least 3%. Change of payment option. You may change any payment option you have elected at any time while the Policy is in force and before the start date of the payment option. 10 Tax impact. If a payment option is chosen, you or your beneficiary may have tax consequences. You therefore should consult with a qualified tax adviser before deciding whether to elect one or more payment options. TO WHAT EXTENT CAN AGL VARY THE TERMS AND CONDITIONS OF THE POLICY IN PARTICULAR CASES? Listed below are some variations we may make in the terms of a Policy. Any variations will be made only in accordance with uniform rules that we establish. Policies purchased through "internal rollovers." We maintain published rules that describe the procedures necessary to replace the other life insurance we issue with a Policy. Not all types of other insurance we issue are eligible to be replaced with a Policy. Our published rules may be changed from time to time, but are evenly applied to all our customers. Policies purchased through term life conversions. Also, we maintain rules about how to convert term insurance to a Legacy Plus Policy. This is referred to as a term conversion. Term conversions are available to owners of term life insurance we have issued. Any right to a term conversion is stated in the term life insurance policy. Again, our published rules about term conversions may be changed from time to time, but are evenly applied to all our customers. State law requirements. AGL is subject to the insurance laws and regulations in every jurisdiction in which Legacy Plus Policies are sold. As a result, various time periods and other terms and conditions described in this prospectus may vary depending on where you reside. These variations will be reflected in your Policy and related endorsements. Variations in expenses or risks. AGL may vary the charges and other terms of the Policy where special circumstances result in sales, administrative or other expenses, mortality risks or other risks that are different from those normally associated with the Policy. HOW WILL MY POLICY BE TREATED FOR INCOME TAX PURPOSES? Generally, death benefits paid under a Policy are not subject to income tax, and earnings on your accumulation value are not subject to income tax as long as we do not pay them out to you. If we do pay any amount of your Policy's accumulation value upon surrender, partial surrender, or maturity of your Policy, all or part of that distribution may be treated as a return of the premiums you paid, and therefore not subject to income tax. Amounts you receive as Policy loans are not taxable to you, unless you have paid such a large amount of premiums that your Policy becomes what the tax law calls a "modified endowment contract." In that case, the loan will be taxed as if it were a partial surrender. Furthermore, loans, partial surrenders and other distributions from a modified endowment contract may require you to pay additional taxes and penalties that otherwise would not apply. For further information about the tax consequences of owning a Policy, please read "Tax Effects" starting on page 17. HOW DO I COMMUNICATE WITH AGL? When we refer to "you," we mean the person who is duly authorized to take any contemplated action with respect to a Policy. Generally, this is the owner named in the Policy. Where a Policy has more than one owner, each owner generally must join in any requested action, except for transfers and changes in the allocation of future premiums or charges among the investment options. General. You should mail or express checks and money orders for premium payments and loan repayments directly to our Home Office. 11 The following requests must be made in writing and signed by you: transfer of accumulation value; loan; full surrender; partial surrender; change of beneficiary or contingent beneficiary; change of allocation percentages for premium payments; loan repayments or charges; change of death benefit option or manner of death benefit payment; increase in specified insurance amount; addition or cancellation of, or other action with respect to, election of a payment option for Policy proceeds; tax withholding elections; and telephone transaction privileges. You should mail or express these requests to our Home Office at the appropriate address shown on the first page of this prospectus. You should also communicate notice of the insured person's death, and related documentation, to our Home Office. We have special forms which should be used for loans, assignments, partial and full surrenders, changes of owner or beneficiary, and all other contractual changes. A Service Request form covering many of these transactions is attached to the back of this prospectus. You will be asked to return your Policy when you request a full surrender. You may also obtain these forms from our Home Office or from your AGL representative. Each communication must include your name, Policy number and, if you are not the insured person, that person's name. We cannot process any requested action that does not include all required information. Telephone transactions. If you have a completed telephone authorization form on file with us, you may make transfers, or change the allocation of future premium payments or deduction of charges, by telephone, subject to the terms of the form. We will honor telephone instructions from any person who provides the correct information, so there is a risk of possible loss to you if unauthorized persons use this service in your name. Our current procedure is that only the owner or your AGL representative may make a transfer request by phone. We are not liable for any acts or omissions based upon instructions that we reasonably believe to be genuine. Our procedures include verification of the Policy number, the identity of the caller, both the insured person's and owner's names, and a form of personal identification from the caller. We will mail you a prompt written confirmation of the transaction. If many people seek to make telephone requests at or about the same time, or if our recording equipment malfunctions, it may be impossible for you to make a telephone request at the time you wish. If this occurs, you should submit a written request. Also, if, due to malfunction or other circumstances, the recording of your telephone request is incomplete or not fully comprehensible, we will not process the transaction. The phone number for telephone requests is 1-888-325-9315. The Policy is not designed for professional market timing organizations or other entities utilizing programmed and frequent transfers. We reserve the right at any time and without prior notice to any party to terminate, suspend, or modify our policies or procedures regarding telephone requests or to cease permitting telephone requests altogether. 12 ILLUSTRATIONS OF HYPOTHETICAL POLICY BENEFITS To help clarify how our Policy works, we have prepared the following tables:
PAGE TO SEE IN THIS TABLE PROSPECTUS ----- ---------- Death Benefit Option 1--Current Charges........................... 14 Guaranteed Maximum Charges...................................... 15
The tables show how death benefits, accumulation values, and cash surrender values ("Policy benefits") under a hypothetical Legacy Plus Policy would vary over time if the investment options had constant hypothetical gross annual investment returns of 0%, 6% or 12% over the years covered by each table. The tables are for a 45 year-old male non-tobacco user. A single premium payment of $250,000 for an initial $1,090,988 of specified amount of coverage is assumed to be paid at issue. The illustrations assume no Policy loan has been taken. As illustrated, this Policy would be classified as a modified endowment contract (See "Tax Effects" in Additional Information for further discussion). Although the tables below do not include illustrations of a Policy with an Option 2 death benefit, such a Policy would have higher death benefits and lower cash surrender values. Separate tables are included to illustrate both current and guaranteed maximum charges. The charges assumed in the current charge tables include a daily charge at an annual effective rate of .75% for the first 10 Policy years, .50% for Policy years 11--20, and .25% thereafter and current monthly insurance charges. The guaranteed maximum charge tables assume that these charges will include a daily charge at an annual effective rate of .75% for the first 10 Policy years, .50% for Policy years 11--20, and .25% thereafter, and an additional charge of 1.5% of every premium and guaranteed maximum insurance charges. In Texas and Oregon, the guaranteed maximum daily charge is .35% per annum higher for certain periods of time than the daily charges assumed in the maximum charge tables below. Therefore, an identical Policy sold in those states would have values less than those illustrated if we deducted the maximum charges. The charges assumed by both the current and guaranteed maximum charge tables also include 0.74% for expenses of the Mutual Funds, which is the unweighted average of the advisory fees payable with respect to each Mutual Fund, after all reimbursements, as reflected on page 7 of this prospectus, plus the weighted average of all other operating expenses of each such Fund after all reimbursements, as reflected on page 8 of this prospectus. The second column of each table shows the effect of an amount equal to the premiums invested to earn interest, after taxes, of 5% compounded annually. Individual illustrations. On request, we will furnish you with a comparable illustration based on your Policy's characteristics. If you request illustrations more than once in any Policy year, we may charge $25 for the illustration. 13 LEGACY PLUS SINGLE PREMIUM $250,000.00 INITIAL SPECIFIED $1,090,988 DEATH BENEFIT OPTION 1 MALE AGE 45 NONSMOKER ASSUMING CURRENT CHARGES
CASH SURRENDER VALUE DEATH BENEFIT ASSUMING ACCOUNT VALUE ASSUMING ASSUMING HYPOTHETICAL HYPOTHETICAL GROSS HYPOTHETICAL GROSS GROSS END OF ANNUAL RETURN OF ANNUAL RETURN OF ANNUAL RETURN OF POLICY ACCUMULATED ----------------------------- ------------------------- ------------------------- YEAR PREMIUMS(1) 0.0% 6.0% 12.0% 0.0% 6.0% 12.0% 0.0% 6.0% 12.0% - ------ ----------- --------- --------- --------- ------- ------- --------- ------- ------- --------- 1 262,500 1,090,988 1,090,988 1,090,988 244,730 259,580 274,432 244,730 259,580 274,432 2 275,625 1,090,988 1,090,988 1,090,988 239,076 269,153 301,006 239,076 269,153 301,006 3 289,406 1,090,988 1,090,988 1,090,988 233,654 279,338 330,579 233,654 279,338 330,579 4 303,877 1,090,988 1,090,988 1,090,988 227,963 289,675 362,997 227,963 289,675 362,997 5 319,070 1,090,988 1,090,988 1,090,988 222,059 300,234 398,641 222,059 300,234 398,641 6 335,024 1,090,988 1,090,988 1,090,988 215,978 311,068 437,916 215,978 311,068 437,916 7 351,775 1,090,988 1,090,988 1,090,988 209,742 322,217 481,252 209,742 322,217 481,252 8 369,364 1,090,988 1,090,988 1,090,988 203,330 333,686 529,101 203,330 333,686 529,101 9 387,832 1,090,988 1,090,988 1,090,988 196,691 345,453 581,947 196,691 345,453 581,947 10 407,224 1,090,988 1,090,988 1,090,988 189,702 357,439 640,303 189,702 357,439 640,303 15 519,732 1,090,988 1,090,988 1,381,903 155,590 427,456 1,031,271 155,590 427,456 1,031,271 20 663,324 1,090,988 1,090,988 1,969,072 112,436 507,996 1,613,994 112,436 507,996 1,613,994
- -------- (1) Assumes net interest of 5% compounded annually. THE VALUES WILL DIFFER IF PREMIUMS ARE PAID IN DIFFERENT AMOUNTS OR FREQUENCIES. THE HYPOTHETICAL INVESTMENT RESULTS ARE ILLUSTRATIVE ONLY AND SHOULD NOT BE DEEMED A REPRESENTATION OF PAST OR FUTURE INVESTMENT RESULTS. ACTUAL INVESTMENT RESULTS MAY BE MORE OR LESS THAN THOSE SHOWN. 14 LEGACY PLUS SINGLE PREMIUM $250,000 INITIAL SPECIFIED $1,090,988 DEATH BENEFIT OPTION 1 MALE AGE 45 NONSMOKER ASSUMING GUARANTEED CHARGES
CASH SURRENDER VALUE DEATH BENEFIT ASSUMING ACCOUNT VALUE ASSUMING ASSUMING HYPOTHETICAL HYPOTHETICAL GROSS HYPOTHETICAL GROSS GROSS END OF ANNUAL RETURN OF ANNUAL RETURN OF ANNUAL RETURN OF POLICY ACCUMULATED ----------------------------- ------------------------- ------------------------- YEAR PREMIUMS(1) 0.0% 6.0% 12.0% 0.0% 6.0% 12.0% 0.0% 6.0% 12.0% - ------ ----------- --------- --------- --------- ------- ------- --------- ------- ------- --------- 1 262,500 1,090,988 1,090,988 1,090,988 238,764 253,335 267,910 238,764 253,335 267,910 2 275,625 1,090,988 1,090,988 1,090,988 231,038 260,453 291,618 231,038 260,453 291,618 3 289,406 1,090,988 1,090,988 1,090,988 223,044 267,584 317,593 223,044 267,584 317,593 4 303,877 1,090,988 1,090,988 1,090,988 214,760 274,719 346,090 214,760 274,719 346,090 5 319,070 1,090,988 1,090,988 1,090,988 206,138 281,820 377,375 206,138 281,820 377,375 6 335,024 1,090,988 1,090,988 1,090,988 197,145 288,869 411,765 197,145 288,869 411,765 7 351,775 1,090,988 1,090,988 1,090,988 187,694 295,795 449,582 187,694 295,795 449,582 8 369,364 1,090,988 1,090,988 1,090,988 177,713 302,543 491,211 177,713 302,543 491,211 9 387,832 1,090,988 1,090,988 1,090,988 167,109 309,037 537,085 167,109 309,037 537,085 10 407,224 1,090,988 1,090,988 1,090,988 155,777 315,195 587,704 155,777 315,195 587,704 15 519,732 1,090,988 1,090,988 1,244,718 89,456 343,481 928,894 89,456 343,481 928,894 20 663,324 -- 1,090,988 1,749,133 -- 351,725 1,433,715 -- 351,725 1,433,715
- -------- (1) Assumes net interest of 5% compounded annually. THE VALUES WILL DIFFER IF PREMIUMS ARE PAID IN DIFFERENT AMOUNTS OR FREQUENCIES. THE HYPOTHETICAL INVESTMENT RESULTS ARE ILLUSTRATIVE ONLY AND SHOULD NOT BE DEEMED A REPRESENTATION OF PAST OR FUTURE INVESTMENT RESULTS. ACTUAL INVESTMENT RESULTS MAY BE MORE OR LESS THAN THOSE SHOWN. 15 ADDITIONAL INFORMATION A general overview of the Policy appears at pages 1-15. The additional information that follows gives more details, but generally does not repeat what is set forth above.
PAGE TO SEE IN THIS CONTENTS OF ADDITIONAL INFORMATION PROSPECTUS ---------------------------------- ---------- AGL.................................................................. 16 Separate Account VL-R................................................ 16 Tax Effects.......................................................... 17 Voting Privileges.................................................... 20 Your Beneficiary..................................................... 21 Assigning Your Policy................................................ 21 More About Policy Charges............................................ 21 Effective Date of Policy and Related Transactions.................... 22 Distribution of the Policies......................................... 23 Payment of Policy Proceeds........................................... 24 Adjustments to Death Benefit......................................... 24 Additional Rights That We Have....................................... 25 Performance Information.............................................. 25 Our Reports to Policy Owners......................................... 26 AGL's Management..................................................... 26 Legal Matters........................................................ 28 Independent Auditors ................................................ 28 Actuarial Expert..................................................... 28 Services Agreement................................................... 28 Certain Potential Conflicts.......................................... 29 Year 2000............................................................ 29
Special words and phrases. If you want more information about any words or phrases that you read in this prospectus, you may wish to refer to the Index of Words and Phrases that appears at the end of the back cover of this prospectus. That index will tell you on what page you can read more about many of the words and phrases that we use. AGL We are American General Life Insurance Company ("AGL"). AGL is a stock life insurance company organized under the laws of Texas. AGL is a successor in interest to a company originally organized under the laws of Delaware in 1917. AGL is an indirect, wholly-owned subsidiary of American General Corporation (formerly American General Insurance Company), a diversified financial services holding company engaged primarily in the insurance business. The commitments under the Policies are AGL's, and American General Corporation has no legal obligation to back those commitments. SEPARATE ACCOUNT VL-R We hold the Mutual Fund shares in which any of your accumulation value is invested in Separate Account VL-R. Separate Account VL-R is a "separate account," as defined by the SEC and is registered as a unit investment trust with the SEC under the Investment Company Act of 1940, as amended. We created the separate account on May 6, 1997. For record keeping and financial reporting purposes, Separate Account VL-R is divided into 22 separate "divisions", 6 of which correspond to one of the 6 available investment options. The remaining 16 divisions represent investment options available under another variable life policy we offer. We hold the Mutual Fund shares in which we invest your accumulation value for an investment option in the division that corresponds to that investment option. 16 The assets in Separate Account VL-R are our property. Nevertheless, the assets in Separate Account VL-R would be available only to satisfy the claims of owners of the Policies, to the extent they have allocated their accumulation value to Separate Account VL-R. Our other creditors could reach only those Separate Account VL-R assets (if any) that are in excess of the amount of our reserves and other contract liabilities under the Policies with respect to Separate Account VL-R. TAX EFFECTS This discussion is based on current federal income tax law and interpretations. It assumes that the policy owner is a natural person who is a U.S. citizen and resident. The tax effects on corporate taxpayers, non-U.S. residents or non-U.S. citizens, may be different. This discussion is general in nature, and should not be considered tax advice, for which you should consult a qualified tax adviser. General. A Legacy Plus Policy will be treated as "life insurance" for federal income tax purposes (a) if it meets the definition of life insurance under Section 7702 of the Internal Revenue Code of 1986, as amended ("the Code") and (b) for as long as the investments made by the underlying Mutual Funds satisfy certain investment diversification requirements under Section 817(h) of the Code. We believe that the Policy will meet these requirements and that: . the death benefit received by the beneficiary under your Policy will not be subject to federal income tax; and . increases in your Policy's accumulation value as a result of interest or investment experience will not be subject to federal income tax unless and until there is a distribution from your Policy, such as a surrender or a partial surrender. The federal income tax consequences of a distribution from your Policy can be affected by whether your Policy is determined to be a "modified endowment contract" (which is discussed below). In all cases, however, the character of all income that is described below as taxable to the payee will be ordinary income (as opposed to capital gain). Testing for modified endowment contract status. Your Policy will be a "modified endowment contract" if, at any time during the first seven Policy years, you have paid a cumulative amount of premiums that exceeds the premiums that would have been paid by that time under a similar fixed-benefit insurance policy that was designed (based on certain assumptions mandated under the Code) to provide for paid-up future benefits after the payment of seven level annual premiums. This is called the "seven-pay" test. Whenever there is a "material change" under a policy, the policy will generally be (a) treated as a new contract for purposes of determining whether the policy is a modified endowment contract and (b) subjected to a new seven- pay period and a new seven-pay limit. The new seven-pay limit would be determined taking into account, under a prescribed formula, the accumulation value of the policy at the time of such change. A materially changed policy would be considered a modified endowment contract if it failed to satisfy the new seven-pay limit. A material change for these purposes could occur as a result of a change in death benefit option. A material change will occur as a result of an increase in your Policy's specified amount of coverage, and certain other changes. If your Policy's benefits are reduced during the first seven Policy years (or within seven years after a material change), the calculated seven-pay premium limit will be redetermined based on the reduced level of benefits and applied retroactively for purposes of the seven-pay test. (Such a reduction in benefits could include, for example, a decrease in the specified amount resulting from a partial surrender). If the premiums previously paid are greater than the recalculated seven-payment premium level limit, the Policy will become a modified endowment contract. A life insurance policy that is received in exchange for a modified endowment contract will also be considered a modified endowment contract. Other effects of Policy changes. Changes made to your Policy (for example, a decrease in benefits or a lapse or reinstatement of your Policy) may also have other effects on your Policy. Such effects may include impacting 17 the maximum amount of premiums that can be paid under your Policy, as well as the maximum amount of accumulation value that may be maintained under your Policy. Taxation of pre-death distributions if your Policy is not a modified endowment contract. As long as your Policy remains in force during the insured person's lifetime, as a non-modified endowment contract, a Policy loan will be treated as indebtedness, and no part of the loan proceeds will be subject to current federal income tax. Interest on the loan generally will not be tax deductible. After the first 15 Policy years, the proceeds from a partial surrender will not be subject to federal income tax except to the extent such proceeds exceed your "basis" in your Policy. (Your basis generally will equal the premiums you have paid, less the amount of any previous distributions from your Policy that were not taxable.) During the first 15 Policy years, the proceeds from a partial surrender could be subject to federal income tax, under a complex formula, to the extent that your accumulation value exceeds your basis in your Policy. On the maturity date or upon full surrender, any excess in the amount of proceeds we pay (including amounts we use to discharge any Policy loan) over your basis in the Policy, will be subject to federal income tax. In addition, if a Policy terminates after a grace period while there is a policy loan, the cancellation of such loan and accrued loan interest will be treated as a distribution and could be subject to tax under the above rules. Finally, if you make an assignment of rights or benefits under your Policy you may be deemed to have received a distribution from your Policy, all or part of which may be taxable. Taxation of pre-death distributions if your Policy is a modified endowment contract. If your Policy is a modified endowment contract, any distribution from your Policy during the insured person's lifetime will be taxed on an "income-first" basis. Distributions for this purpose include a loan (including any increase in the loan amount to pay interest on an existing loan or an assignment or a pledge to secure a loan) or partial surrender. Any such distributions will be considered taxable income to you to the extent your accumulation value exceeds your basis in the Policy. For modified endowment contracts, your basis is similar to the basis described above for other policies, except that it also would be increased by the amount of any prior loan under your Policy that was considered taxable income to you. For purposes of determining the taxable portion of any distribution, all modified endowment contracts issued by the same insurer (or its affiliate) to the same owner (excluding certain qualified plans) during any calendar year are aggregated. The Treasury Department has authority to prescribe additional rules to prevent avoidance of "income-first" taxation on distributions from modified endowment contracts. A 10% penalty tax also will apply to the taxable portion of most distributions from a policy that is a modified endowment contract. The penalty tax will not, however, apply to distributions (i) to taxpayers 59 1/2 years of age or older, (ii) in the case of a disability (as defined in the Code) or (iii) received as part of a series of substantially equal periodic annuity payments for the life (or life expectancy) of the taxpayer or the joint lives (or joint life expectancies) of the taxpayer and his or her beneficiary. If your Policy terminates after a grace period while there is a Policy loan, the cancellation of such loan will be treated as a distribution to the extent not previously treated as such and could be subject to tax, including the 10% penalty tax, as described above. In addition, on the maturity date or upon a full surrender, any excess of the proceeds we pay (including any amounts we use to discharge any loan) over your basis in the Policy, will be subject to federal income tax and, unless an exception applies, the 10% penalty tax. Distributions that occur during a Policy year in which your Policy becomes a modified endowment contract, and during any subsequent Policy years, will be taxed as described in the two preceding paragraphs. In addition, distributions from a policy within two years before it becomes a modified endowment contract also will be subject to tax in this manner. This means that a distribution made from a policy that is not a modified endowment contract could later become taxable as a distribution from a modified endowment contract. The Treasury Department has been authorized to prescribe rules which would treat similarly other distributions made in anticipation of a policy becoming a modified endowment contract. 18 Policy lapses and reinstatements. A Policy which has lapsed may have the tax consequences described above, even though you may be able to reinstate that Policy. For tax purposes, some reinstatements may be treated as the purchase of a new insurance contract. Diversification. Under Section 817(h) of the Code, the Treasury Department has issued regulations that implement investment diversification requirements. Failure by us to comply with these regulations would disqualify your Policy as a life insurance policy under Section 7702 of the Code. If this were to occur, you would be subject to federal income tax on the income under the Policy for the period of the disqualification and for subsequent periods. Separate Account VL-R, through the Mutual Funds, intends to comply with these requirements. Although we do not have direct control over the investments or activities of the Mutual Funds, we will enter into agreements with them requiring the Mutual Funds to comply with the diversification requirements of the Section 817(h) Treasury Regulations. In connection with the issuance of then temporary diversification regulations, the Treasury Department stated that it anticipated the issuance of guidelines prescribing the circumstances in which the ability of a policy owner to direct his or her investment to particular Mutual Funds within Separate Account VL-R may cause the policy owner, rather than the insurance company, to be treated as the owner of the assets in the account. If you were considered the owner of the assets of Separate Account VL-R, income and gains from the account would be included in your gross income for federal income tax purposes. Under current law, however, we believe that AGL, and not the owner of a Policy, would be considered the owner of the assets of Separate Account VL-R. Estate and generation skipping taxes. If the insured person is the Policy's owner, the death benefit under a Legacy Plus Policy will generally be includable in the owner's estate for purposes of federal estate tax. If the owner is not the insured person, under certain conditions, only an amount approximately equal to the cash surrender value of the Policy would be includable. Federal estate tax is integrated with federal gift tax under a unified rate schedule. In general, estates less than $625,000 (or larger amounts specified in the Code to commence in certain future years) will not incur a federal estate tax liability. In addition, an unlimited marital deduction may be available for federal estate tax purposes. As a general rule, if a "transfer" is made to a person two or more generations younger than the Policy's owner, a generation skipping tax may be payable at rates similar to the maximum estate tax rate in effect at the time. The generation skipping tax provisions generally apply to "transfers" that would be subject to the gift and estate tax rules. Individuals are generally allowed an aggregate generation skipping tax exemption of $1 million. Because these rules are complex, you should consult with a qualified tax adviser for specific information, especially where benefits are passing to younger generations. The particular situation of each policy owner, insured person or beneficiary will determine how ownership or receipt of Policy proceeds will be treated for purposes of federal estate and generation skipping taxes, as well as state and local estate, inheritance and other taxes. Pension and profit-sharing plans. If a life insurance policy is purchased by a trust or other entity that forms part of a pension or profit-sharing plan qualified under Section 401(a) of the Code for the benefit of participants covered under the plan, the federal income tax treatment of such policies will be somewhat different from that described above. If purchased as part of a pension or profit-sharing plan, the reasonable net premium cost for such amount of insurance is required to be included annually in the plan participant's gross income. This cost (generally referred to as the "P.S. 58" cost) is reported to the participant annually. If the plan participant dies while covered by the plan and the policy proceeds are paid to the participant's beneficiary, then the excess of the death benefit over the policy's accumulation value will not be subject to federal income tax. However, the policy's accumulation value will generally be taxable to the extent it exceeds the participant's cost basis in the policy. The participant's cost basis will generally include the costs of insurance previously reported as income to the participant. Special rules may apply if the participant had borrowed from the policy or was an owner-employee under the plan. 19 There are limits on the amounts of life insurance that may be purchased on behalf of a participant in a pension or profit-sharing plan. Complex rules, in addition to those discussed above, apply whenever life insurance is purchased by a tax qualified plan. You should consult a qualified tax adviser. Other employee benefit programs. Complex rules may also apply when a policy is held by an employer or a trust, or acquired by an employee, in connection with the provision of other employee benefits. These policy owners must consider whether the policy was applied for by or issued to a person having an insurable interest under applicable state law and with the insured person's consent. The lack of an insurable interest or consent may, among other things, affect the qualification of the policy as life insurance for federal income tax purposes and the right of the beneficiary to receive a death benefit. ERISA. Employers and employer-created trusts may be subject to reporting, disclosure and fiduciary obligations under the Employee Retirement Income Security Act of 1974, as amended. You should consult a qualified legal adviser. Our taxes. The operations of Separate Account VL-R are reported in our federal income tax return, but we currently pay no income tax on Separate Account VL-R's investment income and capital gains, because these items are, for tax purposes, reflected in our variable life insurance policy reserves. Therefore, no charge is currently being made to any Separate Account VL-R division for taxes. We reserve the right to make a charge in the future for taxes incurred; for example, a charge to Separate Account VL-R for income taxes incurred by us that are allocable to the Policy. We may have to pay state, local or other taxes in addition to applicable taxes based on premiums. At present, these taxes are not substantial. If they increase, charges may be made for such taxes when they are attributable to Separate Account VL-R or allocable to the Policy. Certain Mutual Funds in which your accumulation value is invested may elect to pass through to AGL taxes withheld by foreign taxing jurisdictions on foreign source income. Such an election will result in additional taxable income and income tax to AGL. The amount of additional income tax, however, may be more than offset by credits for the foreign taxes withheld which are also passed through. These credits may provide a benefit to AGL. When we withhold income taxes. Generally, unless you provide us with an election to the contrary before we make the distribution, we are required to withhold income tax from any proceeds we distribute as part of a taxable transaction under your Policy. In some cases, where generation skipping taxes may apply, we may also be required to withhold for such taxes unless we are provided satisfactory written notification that no such taxes are due. Tax changes. The U.S. Congress frequently considers legislation that, if enacted, could change the tax treatment of life insurance policies. In addition, the Treasury Department may amend existing regulations, issue regulations on the qualification of life insurance and modified endowment contracts, or adopt new interpretations of existing law. State and local tax law or, if you are not a U.S. citizen and resident, foreign tax law, may also affect the tax consequences to you, the insured person or your beneficiary, and are subject to change. Any changes in federal, state, local or foreign tax law or interpretation could have a retroactive effect. We suggest you consult a qualified tax adviser. VOTING PRIVILEGES We are the legal owner of the Funds' shares held in Separate Account VL-R. However, you may be asked to instruct us how to vote the Fund shares held in the various Mutual Funds and attributable to your Policy at meetings of shareholders of the Funds. The number of votes for which you may give directions will be determined as of the record date for the meeting. The number of votes that you may direct with respect to a particular Fund is equal to (a) your accumulation value invested in that Fund divided by (b) the net asset value of one share of that Fund. Fractional votes will be recognized. 20 We will vote all shares of each Fund that we hold of record, including any shares we own on our own behalf, in the same proportions as those shares for which we have received instructions from owners participating in that Fund through Separate Account VL-R. If you are asked to give us voting instructions, we will send you the proxy material and a form for providing such instructions. Should we determine that we are no longer required to send the owner such materials, we will vote the shares as we determine in our sole discretion. In certain cases, we may disregard instructions relating to changes in a Fund's investment manager or its investment policies. We will advise you if we do and detail the reasons in our next report to policy owners. AGL reserves the right to modify these procedures in any manner consistent with applicable legal requirements and interpretations as in effect from time to time. YOUR BENEFICIARY You name your beneficiary when you apply for a Policy. The beneficiary is entitled to the insurance benefits of the Policy. You may change the beneficiary during the insured person's lifetime. We also require the consent of any irrevocably named beneficiary. A new beneficiary designation is effective as of the date you sign it, but will not affect any payments we may make before we receive it. If no beneficiary is living when the insured person dies, we will pay the insurance proceeds to the owner or the owner's estate. ASSIGNING YOUR POLICY You may assign (transfer) your rights in a Policy to someone else as collateral for a loan or for some other reason. We will not be bound by an assignment unless it is received in writing. Two copies of the assignment must be forwarded to us. We are not responsible for any payment we make or any action taken before we receive due and complete notice of the assignment in good order. Nor are we responsible for the validity of the assignment. An absolute assignment is a change of ownership. Because there may be unfavorable tax consequences, including recognition of taxable income and the loss of income tax-free treatment for any death benefit payable to the beneficiary, you should consult a qualified tax adviser prior to making an assignment. MORE ABOUT POLICY CHARGES Purpose of our charges. The charges under the Policy are designed to cover, in the aggregate, our direct and indirect costs of selling, administering and providing benefits under the Policy. They are also designed, in the aggregate, to compensate us for the risks we assume and services that we provide under the Policy. These include mortality risks (such as the risk that insured persons will, on average, die before we expect, thereby increasing the amount of claims we must pay); investment risks (such as the risk that adverse investment performance will make it more difficult for us to reduce the amount of our daily charge for revenues below what we anticipate); sales risks (such as the risk that the number of Policies we sell and the premiums we receive net of withdrawals, are less than we expect, thereby depriving us of expected economies of scale); regulatory risks (such as the risk that tax or other regulations may be changed in ways adverse to issuers of variable life insurance policies); and expense risks (such as the risk that the costs of administrative services that the Policy requires us to provide will exceed what we currently project). If the charges that we collect from the Policy exceed our total costs in connection with the Policy, we will earn a profit. Otherwise we will incur a loss. The current monthly insurance charge has been designed primarily to provide funds out of which we can make payments of death benefits under the Policy as insured persons die. Any excess from the charges discussed in the preceding paragraph, are primarily intended (a) to defray other expenses in connection with the Policies (such as the costs of processing applications for Policies and other unreimbursed administrative expenses, costs of paying marketing and distribution expenses for the Policies, and costs of paying death claims if the mortality experience of insured persons is worse than we expect), (b) to compensate us for the risk we assume under the Policies, or (c) otherwise to be retained by us as profit. 21 Although the preceding paragraphs describe the primary purposes for which charges under the Policies have been designed, these distinctions are imprecise and subject to considerable change over the life of a Policy. We have full discretion to retain or use the revenues from any charge or charge increase for any purpose, whether or not related to the Policies. Change of tobacco use. If the person insured under your Policy is a tobacco user, you may apply to us for an improved risk class if the insured person meets our then applicable requirements for demonstrating that he or she has ceased tobacco use for a sufficient period. Gender neutral Policy. Our cost of insurance charge rates in Montana will not be greater than the comparable male rates illustrated in this prospectus. Congress and the legislatures of various states have from time to time considered legislation that would require insurance rates to be the same for males and females of the same age, rating class and tobacco user status. In addition, employers and employee organizations should consider, in consultation with counsel, the impact of Title VII of the Civil Rights Act of 1964 on the purchase of life insurance policies in connection with an employment-related insurance or benefit plan. In a 1983 decision, the United States Supreme Court held that, under Title VII, optional annuity benefits under a deferred compensation plan could not vary on the basis of sex. Cost of insurance rates. Because of specified amount increases, different cost of insurance rates may apply to different increments of specified amount under your Policy. If so, we attribute your accumulation value first to the oldest increments of specified amount in order to compute our net amount at risk at each cost of insurance rate. See "Monthly Insurance Charge" beginning on page 6. Miscellaneous. Each of the distributors or advisers of the Mutual Funds listed on page 1 of this prospectus reimburses us, on a quarterly basis, for certain administrative, Policy, and policy owner support expenses. These reimbursements will be reasonable in relation to the services performed and are not designed to result in a profit. These reimbursements are paid by the distributors or the advisers, and will not be paid by the Mutual Funds, the divisions or the owners. No payments have yet been made under these arrangements, because no Policies have yet been issued. EFFECTIVE DATE OF POLICY AND RELATED TRANSACTIONS Valuation dates, times, and periods. We generally compute values under a Policy on each day that we are open for business except, with respect to any investment option, days on which the related Mutual Fund does not value its shares. We call each such day a "valuation date." We compute policy values as of 3:00 p.m., Central time, on each valuation date. We call this our "close of business." We call the time from the close of business on one valuation date to the close of business of the next valuation date a "valuation period." Date of receipt. Generally we consider that we have received a premium payment or another communication from you on the day we actually receive it in full and proper order at our Home Office. If we receive it after the close of business on any valuation date, however, we consider that we have received it on the day following that valuation date. Commencement of insurance coverage. After you apply for a Policy, it can sometimes take up to several weeks for us to gather and evaluate all the information we need to decide whether to issue a Policy to you and, if so, what the insured person's insurance rate class should be. We will not pay a death benefit under a Policy unless (a) it has been delivered to and accepted by the owner and at least the initial premium has been paid, and (b) at the time of such delivery and payment, there have been no adverse developments in the insured person's health or risk of death. Date of issue; Policy months and years. After we approve an application for a Policy and assign an appropriate insurance rate class, we prepare the Policy. The day we begin to deduct charges will appear on page 22 3 of your Policy and is called the "date of issue." Policy months and years are measured from the date of issue. In order to preserve a younger age at issue for the insured person, we may assign a date of issue to a Policy that is up to 6 months earlier than otherwise would apply. Monthly deduction days. Each charge that we deduct monthly is assessed against your accumulation value at the close of business on the date of issue and at the end of each subsequent valuation period that includes the first day of a Policy month. We call these "monthly deduction days." Commencement of investment performance. We begin to credit an investment return to the accumulation value resulting from your initial premium payment on the later of (a) the date of issue, or (b) the date all requirements needed to place the Policy (whether a back-dated Policy or not) in force have been satisfied, including underwriting approval and receipt in the Home Office of the necessary premium. Effective date of other premium payments and requests that you make. Premium payments (after the first) and transactions implemented in response to requests and elections made by you are generally effected at the end of the valuation period in which we receive the payment, request or election and based on prices and values computed as of that same time. Exceptions to this general rule are as follows: . Increases you request in the specified amount of insurance, and reinstatements of a Policy that has lapsed take effect on the Policy's monthly deduction day on or next following our approval of the transaction; . We may return premium payments if we determine that such premiums would cause your Policy to become a modified endowment contract or to cease to qualify as life insurance under federal income tax law or exceed the maximum net amount at risk; . If you exercise the right to return your Policy described on the first page of this prospectus, your coverage will end when you mail us your Policy or deliver it to your AGL representative; and . If you pay a premium in connection with a request which requires our approval, your payment will be applied when received rather than following the effective date of the change requested so long as your coverage is in force and the amount paid will not cause you to exceed premium limitations under the Code. If we do not approve your request, no premium will be refunded to you except to the extent necessary to cure any violation of the maximum premium limitations under the Code. This procedure will not apply to premiums remitted in connection with reinstatement requests. DISTRIBUTION OF THE POLICIES American General Securities Incorporated ("AGSI") is the principal underwriter of the Policies. AGSI is a wholly-owned subsidiary of AGL, a wholly-owned subsidiary of American General Corporation ("American General"), and its principal office is 2727 Allen Parkway, Houston, Texas, 77019. AGSI was organized as a Texas corporation on March 8, 1983 and is a registered broker-dealer under the Securities Exchange Act of 1934, as amended ("1934 Act") and is a member of the National Association of Securities Dealers, Inc. ("NASD"). AGSI is also the principal underwriter for AGL's Separate Accounts A and D, and Separate Account E of American General Life Insurance Company of New York, which is a wholly-owned subsidiary of AGL. These separate accounts are registered investment companies. AGL has entered into a distribution agreement with AGSI which acts as the principal distributor of the Policies and provides certain marketing support services for which it is compensated by AGL. Pursuant to the agreement, AGL pays AGSI a distribution fee of .20% of each Policy's average annual cash value. AGSI may enter into other agreements with broker-dealers registered under the 1934 Act. AGSI has also entered into an arrangement with Independent Advantage Financial and Insurance Services, Inc., a licensed insurance agency and another indirect wholly-owned subsidiary of American General, to provide certain additional marketing support services. 23 PAYMENT OF POLICY PROCEEDS General. We will pay any death benefit, maturity benefit, cash surrender value or loan proceeds within seven days after we receive the last required form or request (and any other documents that may be required for payment of a death benefit). If we do not have information about the desired manner of payment within 60 days after the date of notification of the insured person's death, we will pay the proceeds as a single sum, normally within seven days thereafter. Delay for check clearance. We reserve the right to defer payment of that portion of your accumulation value that is attributable to a premium payment made by check for a reasonable period of time (not to exceed 15 days) to allow the check to clear the banking system. Delay of Separate Account VL-R proceeds. We may suspend the calculation and payment of the Policy's cash surrender value in the following circumstances: (1) if there is a failure in any of the means normally employed in ascertaining the prices or values of investments, or (2) if for any reason the prices or values of investments in Separate Account VL-R cannot be reasonably ascertained; or (3) if circumstances exist as a result of which it is not reasonably practicable to realize any of Separate Account VL-R's investments or to determine fairly the net asset value of Separate Account VL-R; or (4) if the remittance of funds involved in the realization of, or in the payment for investments or payment due under this Policy cannot be carried out without undue delay and at normal rates of exchange; or (5) the SEC determines that a state of emergency exists; or (6) an order of the SEC permits a delay for the protection of policy owners. Transfers and allocations of accumulation value among the investment options may also be postponed under these circumstances. Payments or calculations which were due to have been made and which were deferred following the suspension of the calculation of the cash surrender value will be made within thirty (30) days following the lifting of the suspension, and will be calculated based on the valuation date which immediately follows termination of the suspension. Delay to challenge coverage. We may challenge the validity of your insurance Policy based on any material misstatements in your application and any application for a change in coverage. However, . We cannot challenge the Policy after it has been in effect, during the insured person's lifetime, for two years from the date the Policy was issued or restored after termination. (Some states may require that we measure this time in some other way.) . We cannot challenge any Policy change that requires evidence of insurability (such as an increase in specified amount) after the change has been in effect for two years during the insured person's lifetime. ADJUSTMENTS TO DEATH BENEFIT Suicide. If the insured person commits suicide within two years after the date on which the Policy was issued, the death benefit will be limited to the total of all premiums that have been paid to the time of death minus any outstanding Policy loans and any partial surrenders. If the insured person commits suicide within two years after the effective date of an increase in specified amount that you requested, we will pay the death benefit based on the specified amount which was in effect before the increase, plus the monthly insurance deductions for the increase. Some states require that we compute differently these periods for non-contestability following a suicide. Wrong age or sex. If the age or gender of the insured person was misstated on your application for a Policy (or for any increase in benefits), we will adjust any death benefit to be what the monthly insurance charge deducted for the current month would have purchased based on the correct information. Death during grace period. If the insured person dies during the Policy's grace period, we will deduct any overdue monthly charges from the insurance proceeds. 24 ADDITIONAL RIGHTS THAT WE HAVE We have the right at any time to: . transfer the entire balance in an investment option in accordance with any transfer request you make that would reduce your accumulation value for that option to below $5,000; . transfer the entire balance in proportion to any other investment options you then are using, if the accumulation value in an investment option is below $5,000 for any other reason; . terminate the automatic rebalancing feature if your accumulation value falls below $100,000; . change the underlying Mutual Fund that any investment option uses; . add or delete investment options, combine two or more investment options, or withdraw assets relating to Legacy Plus from one investment option and put them into another; . operate Separate Account VL-R under the direction of a committee or discharge such a committee at any time; . operate Separate Account VL-R, or one or more investment options, in any other form the law allows, including a form that allows us to make direct investments. Separate Account VL-R may be charged an advisory fee if its investments are made directly rather than through another investment company. In that case, we may make any legal investments we wish; or . make other changes in the Policy that in our judgment are necessary or appropriate to ensure that the Policy continues to qualify for tax treatment as life insurance, or that do not reduce any cash surrender value, death benefit, accumulation value, or other accrued rights or benefits. If there are any material changes in the underlying investments of an investment option that you are using, you will be notified as required by law. We intend to comply with all applicable laws in making any changes and, if necessary, we will seek policy owner approval. PERFORMANCE INFORMATION From time to time, we may quote performance information for the divisions of Separate Account VL-R in advertisements, sales literature, or reports to owners or prospective investors. We may quote performance information in any manner permitted under applicable law. We may, for example, present such information as a change in a hypothetical owner's cash value or death benefit. We also may present the yield or total return of the division based on a hypothetical investment in a Policy. The performance information shown may cover various periods of time, including periods beginning with the commencement of the operations of the division or the Mutual Funds in which it invests. The performance information shown may reflect the deduction of one or more charges, such as the premium charge, and we generally expect to exclude costs of insurance charges because of the individual nature of these charges. We may compare a division's performance to that of other variable life separate accounts or investment products, as well as to generally accepted indices or analyses, such as those provided by research firms and rating services. In addition, we may use performance ratings that may be reported periodically in financial publications, such as Money Magazine, Forbes, Business Week, Fortune, Financial Planning and The Wall Street Journal. We also may advertise ratings of AGL's financial strength or claims-paying ability as determined by firms that analyze and rate insurance companies and by nationally recognized statistical rating organizations. Performance information for any division reflects the performance of a hypothetical Policy and are not illustrative of how actual investment performance would affect the benefits under your Policy. Therefore, you should not consider such performance information to be an estimate or guarantee of future performance. 25 OUR REPORTS TO POLICY OWNERS Shortly after the end of each Policy year, we will mail you a report that includes information about your Policy's current death benefit, accumulation value, cash surrender value and policy loans. Notices will be sent to you to confirm premium payments, transfers and certain other Policy transactions. We will mail to you at your last known address of record, these and any other reports and communications required by law. You should therefore give us prompt written notice of any address change. AGL'S MANAGEMENT The directors, executive officers, and (to the extent responsible for variable life operations) the other principal officers of AGL are listed below.
NAME BUSINESS EXPERIENCE WITHIN PAST FIVE YEARS - ------------------------------------------------------------------------------- James S. D'Agostino, Jr. Director and Vice Chairman of American General Life Insurance Company since May 1997. Director and President American General Corporation since 1996 and Senior Vice President (February 1993--August 1993). Officer positions with other American General Companies since July 1986. - ------------------------------------------------------------------------------- Jon P. Newton Director and Vice Chairman of American General Life Insurance Company since February 1996. Director of American General Corporation since October 1995 and Vice Chairman since April 1997; Vice Chairman and General Counsel (October 1995--April 1997). Director of other American General affiliates since October 1994. Prior thereto, Partner with Clark, Thomas, Winter & Newton,Austin, Texas (February 1979-- February 1993). Directorships with Houston Museum of Natural Science Board of Trustees since 1997; University of Texas Law School Foundation Board of Trustees, Austin, Texas since 1997; University of Texas-Houston Health Science Center Development Board, Houston, Texas since 1996; Texas Commerce Bancshares, Houston, Texas (1985--1993); Texas Commerce Bank, Austin, Texas (1979-1993); Lomas Financial Corporation, Dallas, Texas (1983-1993); Vista Properties, Inc., Dallas, Texas (1992-1993). - ------------------------------------------------------------------------------- Rodney O. Martin, Jr. Chairman of the Board of American General Life Insurance Company since July, 1998 and a Director since August 1996. President and CEO (August 1996-- July 1998). President of American General Life Insurance Company of New York (November 1995- August 1996). Vice President Agencies, with Connecticut Mutual Life Insurance Company (1990-1995). - ------------------------------------------------------------------------------- Ronald H. Ridlehuber President, Chief Executive Officer and a Director of American General Life Insurance Company since July, 1998. Senior Vice President and Chief Marketing Officer of Jefferson-Pilot Life Insurance Company in Greensboro, North Carolina (1993--1998). Prior to 1993 held various positions with Southland Life Insurance Company in Dallas, Texas and Atlanta, Georgia including Vice President, Sales. - ------------------------------------------------------------------------------- David A. Fravel Director and Senior Vice President of American General Life Insurance Company since November 1996. Elected Executive Vice President in April, 1998. Senior Vice President Massachusetts Mutual, Springfield, Missouri (March 1996-June 1996); Vice President, New Business, Connecticut Mutual Life, Hartford, Connecticut (December 1978--March 1996). - ------------------------------------------------------------------------------- Robert F. Herbert, Jr. Director, Senior Vice President and Chief Financial Officer of American General Life Insurance Company since May 1996, and Controller and Actuary from June 1988 to May 1996.
26
NAME BUSINESS EXPERIENCE WITHIN PAST FIVE YEARS - ------------------------------------------------------------------------------- Royce G. Imhoff, II Director, Senior Vice President and Chief Marketing Officer for American General Life Insurance Company since November 1997, Vice President (August 1996-- August 1997), and Regional Director (1992-1996). - ------------------------------------------------------------------------------- John V. LaGrasse Director, Senior Vice President and Chief Systems Officer of American General Life Insurance Company since August 1996. Elected Executive Vice President in July, 1998. Prior thereto, Director Citicorp Insurance Services, Inc., Dover, Delaware (1986-1996). - ------------------------------------------------------------------------------- Gary D. Reddick Executive Vice President of American General Life Insurance Company since April 1998. Vice Chairman since July 1997 and Executive Vice President--Administration of The Franklin Life Insurance Company since February 1995. Senior Vice President--Administration of American General Corporation (October 1994--February 1995). Senior Vice President for American General Life Insurance Company (September 1986--October 1994). - ------------------------------------------------------------------------------- Philip K. Polkinghorn Director of American General Life Insurance Company since February 1997. Senior Vice President--Product Development Center since April, 1998. Senior Vice President and Chief Marketing Officer (December 1996-- September 1997). Prior thereto, Chief Financial Officer, Connecticut Mutual Life Insurance Company (March 1995--March 1996); Senior Vice President First Colony Life Insurance Company, Lynchburg, Virginia (March 1996--December 1996), and Chief Marketing Officer, Allmerica Financial, Worcester, MA (March 1993--April 1994). - ------------------------------------------------------------------------------- Wayne A. Barnard Senior Vice President and Chief Actuary of American General Life Insurance Company since November 1997 and Vice President since February, 1991 and Chief Actuary since February, 1993. - ------------------------------------------------------------------------------- F. Paul Kovach, Jr. Senior Vice President--Broker Dealers and FIMG for American General Life Insurance Company since August 1997. Since October 1994, President and Director of American General Securities Incorporated. Vice President of Chubb Securities Corporation, Concord, New Hampshire, (February 1990--October 1994). - ------------------------------------------------------------------------------- Simon J. Leech In July 1997 named as Senior Vice President--Houston Service Center for American General Life Insurance Company. Various positions with American General Life Company since 1981, including Director of POS in 1993, and Vice President--Policy Administration in 1995. - ------------------------------------------------------------------------------- Brian D. Murphy In April 1998 named as Senior Vice President--Insurance Operations of American General Life Insurance Company. Vice President--Sales, Phoenix Home Life, Hartford, CT (January 1997--April 1998). Vice President of Underwriting and Issue, Phoenix Home Life (July 1994--January 1997). Various positions with Mutual of New York, Syracuse, NY, including Agent, Agency Manager, Marketing Life and Disability Income Underwriting Management, (1978--July 1994).
27
NAME BUSINESS EXPERIENCE WITHIN PAST FIVE YEARS - ------------------------------------------------------------------------------- Robert A. Slepicka In September, 1997 named as President of the Corporate Markets Group of American General Life Insurance Company. Senior Vice President--American General Life Insurance Company, American General Life Insurance Company of New York, and the United States Life Insurance Company, New York. President--American General Life Insurance Company of New York (December 1996). President--United States Life Insurance Company, New York (June 1997). Senior Vice President of New York Life Insurance Company, New York, NY (1987--October 1996). - ------------------------------------------------------------------------------- Don M. Ward In February 1998 named as Senior Vice President--Variable Products-Marketing of American General Life Insurance Company. Vice President of Pacific Life Insurance Company, Newport Beach, CA (1991--February 1998). - ------------------------------------------------------------------------------- Larry M. Robinson In April 1998 named as Vice President--Variable Products- Marketing of American General Life Insurance Company. From July 1996 Vice President of American General Life Insurance Company. Vice President of Business Development of Allmerica Financial, Worcester, MA (1994--1996). Vice President of Life Marketing at Nationwide Insurance Enterprise, Columbus, Ohio (1991--1994).
The principal business address of each person listed above is our Home Office; except that the street number for Messrs. D'Agostino and Newton, is 2929 Allen Parkway. LEGAL MATTERS We are not involved in any legal proceedings that would be considered material with respect to a policy owner's interest in Separate Account VL-R. Pauletta P. Cohn, Esquire, Associate General Counsel of the American General Life Companies, an affiliate of AGL, has opined as to the validity of the Policies. Mayer, Brown & Platt has advised AGL about certain federal securities and tax law matters in connection with the Policies. INDEPENDENT AUDITORS The financial statements of AGL and the June 30, 1998 financial statements of Separate Account VL-R included in this prospectus have been audited by Ernst & Young, LLP, independent auditors, as set forth in their reports appearing elsewhere herein. Such financial statements have been included in this prospectus in reliance upon the reports of Ernst & Young, LLP given upon the authority of such firm as experts in accounting and auditing. Ernst & Young, LLP is located at One Houston Center, 1221 McKinney, Suite 2400, Houston, Texas 77010-2007. ACTUARIAL EXPERT Actuarial matters in this prospectus have been examined by Wayne A. Barnard, who is Senior Vice President and Chief Actuary of AGL. His opinion on actuarial matters is filed as an exhibit to the registration statement we have filed with the SEC in connection with the Policies. SERVICES AGREEMENT American General Life Companies ("AGLC") is party to an existing general services agreement with AGL. AGLC, an affiliate of AGL, is a corporation incorporated in Delaware on November 24, 1997. Pursuant to this agreement, AGLC provides services to AGL, including most of the administration, data processing, systems, customer services, product development, actuarial, auditing, accounting and legal services for AGL and the Legacy Plus Policies. 28 CERTAIN POTENTIAL CONFLICTS The Mutual Funds sell shares to separate accounts of insurance companies, both affiliated and not affiliated with AGL. We currently do not foresee any disadvantages to you arising out of this process. Nevertheless, differences in treatment under tax and other laws, as well as other considerations, could cause the interests of various owners to conflict. For example, violation of the federal tax laws by one separate account investing in the Funds could cause the contracts funded through another separate account to lose their tax- deferred status, unless remedial action were taken. However, each Mutual Fund has advised us that its board of trustees (or directors) intends to monitor events in order to identify any material irreconcilable conflicts that possibly may arise and to determine what action, if any, should be taken in response. If we believe that a Fund's response to any such event insufficiently protects our policy owners, we will see to it that appropriate action is taken to do so. If it becomes necessary for any separate account to replace shares of any Mutual Fund in which it invests, that Fund may have to liquidate securities in its portfolio on a disadvantageous basis. YEAR 2000 AGL and its affiliates are in the process of modifying its computer systems to be Year 2000 compliant. During 1997, AGL and its affiliates incurred and expensed $15 million (pretax) related to this project. AGL and its affiliates estimate that it will incur future costs in excess of $45 million (pretax) for additional internal staff, third-party vendors, and other expenses to render its systems Year 2000 compliant. AGL and its affiliates expect to substantially complete this project during 1998. However, risks and uncertainties exist in most significant systems development projects. If conversion of AGL and its affiliates' systems is not completed on a timely basis, due to non-performance by third-party vendors or other unforeseen circumstances, the Year 2000 issue could have a material adverse impact on the operations of AGL and its affiliates. 29 FINANCIAL STATEMENTS The financial statements of AGL contained in this prospectus should be considered to bear only upon the ability of AGL to meet its obligations under the Legacy Plus Policies. They should not be considered as bearing upon the investment experience of Separate Account VL-R. Interim financial statements of Separate Account VL-R are included because Separate Account VL-R commenced operations in 1998.
PAGE TO SEE IN THIS FINANCIAL STATEMENTS OF SEPARATE ACCOUNT VL-R PROSPECTUS --------------------------------------------- ---------- Report of Ernst & Young, LLP, Independent Auditors.................. 31 Statement of Net Assets as of June 30, 1998......................... 32 Statement of Operations for the six months ended June 30, 1998...... 32 Statement of Changes in Net Assets for the six months ended June 30, 1998............................................................... 33 Notes to Financial Statements....................................... 34 PAGE TO SEE IN CONSOLIDATED FINANCIAL STATEMENTS OF AMERICAN GENERAL LIFE INSURANCE THIS COMPANY PROSPECTUS - -------------------------------------------------------------------- ---------- Unaudited Consolidated Balance Sheet as of June 30, 1998............ 39 Unaudited Consolidated Income Statement for the six months ended June 30, 1998...................................................... 40 Report of Ernst & Young, LLP, Independent Auditors.................. 41 Consolidated Balance Sheets as of December 31, 1997 and 1996........ 42 Consolidated Income Statements for the years ended December 31, 1997, 1996 and 1995................................................ 43 Consolidated Statements of Shareholders' Equity for the years ended December 31, 1997, 1996 and 1995................................... 44 Consolidated Statements of Cash Flows for the years ended December 31, 1997, 1996 and 1995............................................ 45 Notes to Consolidated Financial Statements.......................... 46
30 [Letterhead of Ernst & Young appears here] REPORT OF INDEPENDENT AUDITORS Board of Directors American General Life Insurance Company and Policy Owners American General Life Insurance Company Separate Account VL-R We have audited the accompanying statement of net assets of American General Life Insurance Company (the "Company") Separate Account VL-R as of June 30, 1998, and the related statements of operations and changes in net assets for the six-month period ended June 30, 1998. These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audit in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. Our procedures included confirmation of securities owned as of June 30, 1998, by correspondence with the transfer agents. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audit provides a reasonable basis for our opinion. In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of American General Life Insurance Company Separate Account VL-R at June 30, 1998, the results of its operations and the changes in its net assets for the six-month period ended June 30, 1998, in conformity with generally accepted accounting principles. /s/ Ernst & Young LLP August 12, 1998 Houston, Texas 31 AMERICAN GENERAL LIFE INSURANCE COMPANY SEPARATE ACCOUNT VL-R STATEMENT OF NET ASSETS JUNE 30, 1998 ASSETS: Investment securities--at market (cost $783,853)................... $ 810,934 Due from American General Life Insurance Company................... 423 --------- Net Assets for Variable Life Insurance Policies.................. $ 811,357 =========
STATEMENT OF OPERATIONS SIX MONTHS ENDED JUNE 30, 1998 INVESTMENT INCOME: Dividends from mutual funds.......................................... $ 1,727 EXPENSES: Expense and mortality fee............................................ 397 ------- Net Investment Income.............................................. 1,330 ------- REALIZED AND UNREALIZED GAIN ON INVESTMENTS: Net realized gain on investments..................................... 0 Net unrealized gain on investments................................... 27,081 ------- Net Realized and Unrealized Gain on Investments.................... 27,081 ------- Increase in Net Assets Resulting from Operations................... $28,411 =======
See accompanying notes. 32 AMERICAN GENERAL LIFE INSURANCE COMPANY SEPARATE ACCOUNT VL-R STATEMENT OF CHANGES IN NET ASSETS SIX MONTHS ENDED JUNE 30, 1998 OPERATIONS: Net investment income............................................... $ 1,330 Net realized gain on investments.................................... 0 Net unrealized gain on investments.................................. 27,081 -------- Increase in net assets resulting from operations.................. 28,411 -------- PRINCIPAL TRANSACTIONS: Premiums, net of premium taxes...................................... 875,369 Cost of insurance and administrative expenses....................... (92,423) Payments to contract owners: Terminations and withdrawals...................................... 0 -------- Increase in net assets resulting from principal transactions........ 782,946 -------- Total Increase in Net Assets........................................ 811,357 NET ASSETS: Beginning of period................................................. 0 -------- End of period....................................................... $811,357 ========
See accompanying notes. 33 AMERICAN GENERAL LIFE INSURANCE COMPANY NOTES TO FINANCIAL STATEMENTS SEPARATE ACCOUNT VL-R NOTE A--ORGANIZATION American General Life Insurance Company Separate Account VL-R (the "Separate Account") was established by resolution of the Board of Directors of American General Life Insurance Company (the "Company") on May 6, 1997. The Separate Account is registered under the Investment Company Act of 1940 as a unit investment trust and consists of seventeen investment divisions at June 30, 1998. The Separate Account Divisions (the "Divisions") which received their first deposits in May 1998, are currently available through Platinum Investor I and Platinum Investor II Variable Life Insurance Policies offered by the Company. These Divisions, funded by series of independently managed mutual fund portfolios ("Funds") are as follows: AIM VARIABLE INSURANCE FUNDS, INC.: MORGAN STANLEY UNIVERSAL FUNDS, V.I. International Equity Fund INC.: V.I. Value Fund Equity Growth Portfolio High Yield Portfolio AMERICAN GENERAL SERIES PORTFOLIO COMPANY: PUTNAM VARIABLE TRUST: International Equities Fund Putnam VT Diversified Income Fund MidCap Index Fund Putnam VT Growth and Income Fund Money Market Fund Putnam VT International Growth and Stock Index Fund Income Fund DREYFUS VARIABLE INVESTMENT FUND: SAFECO RESOURCE SERIES TRUST: Quality Bond Portfolio Equity Portfolio Small Cap Portfolio Growth Portfolio MFS VARIABLE INSURANCE TRUST: VAN KAMPEN LIFE INVESTMENT TRUST: MFS Emerging Growth Series Strategic Stock Portfolio NOTE B--SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES AND BASIS OF PRESENTATION The accompanying financial statements of the Separate Account Divisions have been prepared on the basis of generally accepted accounting principles ("GAAP"). The accounting principles followed by the Divisions and the methods of applying those principles are presented below or in the footnotes which follow. SECURITY VALUATION--The investments in shares of the Funds listed above are valued at the closing net asset value (market) per share as determined by the Funds on the day of measurement. SECURITY TRANSACTIONS AND RELATED INVESTMENT INCOME--Security transactions are accounted for on the date the order to buy or sell is executed ("trade date"). Dividend income and distributions of capital gains are recorded on the ex-dividend date and reinvested upon receipt. Realized gains and losses from security transactions are determined on the basis of identified cost. Charges and Expenses Deductions from premium payments. Certain jurisdictions require that deductions be made from premium payment for taxes. The amount of such deduction currently ranges from .75% to 3.5%. Prior to allocation to the Separate Account, an additional 2.5% is deducted from each after-tax premium payment. 34 AMERICAN GENERAL LIFE INSURANCE COMPANY SEPARATE ACCOUNT VL-R NOTES TO FINANCIAL STATEMENTS--(CONTINUED) Separate Account charges. Currently, daily charges at an annual effective rate of .75% on the average daily net asset value of the Divisions are paid to the Company. These charges are made in return for the Company's assumption of mortality and expense risks associated with the policies issued. For all policies, a reduction in the current daily charge by .25% will occur after year 10, and a further reduction of .25% will occur after year 20. Because the policies were first offered in 1998, this decrease has not yet occurred for any outstanding policy. Other charges. Other charges paid to the Company include: deductions for monthly administrative charges, the cost of insurance, additional benefit riders and withdrawal charges. The monthly administrative charge deduction is $6 for each policy in force. An additional monthly expense deduction for Platinum Investor II policies is charged during the first two policy years. The amount of this charge varies from $0.0999 per $1,000 of specified amount to $1.88 per $1,000 of specified amount, depending upon the age and other characteristics of the insured person. Since determination of both the insurance rate and the Company's net amount at risk depends upon several factors, the cost of insurance deduction may vary from month to month. Policy accumulation value, specified amount of insurance and certain characteristics of the insured person, are among the variables included in the calculation for the cost of insurance deduction. Surrender charges are deducted for the Platinum Investor I policies if the policy is surrendered during the first 10 years. Beginning in the fourth year, the amount of the surrender charge decreases by a constant amount each year. In addition, a $25 transaction fee per policy is charged for each partial surrender made. No surrender charges or transaction fees were collected for the six months ended June 30, 1998. NOTE C--FEDERAL INCOME TAXES The Company is taxed as a life insurance company under the Internal Revenue Code and includes the operations of the Separate Account in determining its federal income tax liability. Under existing federal income tax law, the investment income and capital gains from sales of investments realized by the Separate Account are not taxable. Therefore, no federal income tax provision has been made. NOTE D--YEAR 2000 CONTINGENCY (UNAUDITED) Management has 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. 35 AMERICAN GENERAL LIFE INSURANCE COMPANY SEPARATE ACCOUNT VL-R NOTES TO FINANCIAL STATEMENTS--(CONTINUED) NOTE E--INVESTMENTS Fund shares are purchased at net asset value with net policy transactions (net premium payments less surrenders and amounts payable to the Company for administrative, insurance and surrender charges) and reinvestment of distributions made by the Funds. The following is a summary of shares of the Funds owned as of June 30, 1998.
NET VALUE OF UNREALIZED ASSET SHARES AT COST OF APPRECIATION FUND SHARES VALUE MARKET SHARES HELD (DEPRECIATION) ---- ---------- ------ --------- ----------- -------------- AIM VARIABLE INSURANCE FUNDS, INC.: V.I. International Equity Fund........... 0.000 $20.35 $ 0 $ 0 $ 0 V.I. Value Fund........ 7,457.465 24.67 183,976 175,821 8,155 -------- -------- ------- 183,976 175,821 8,155 AMERICAN GENERAL SERIES PORTFOLIO COMPANY: International Equities Fund.................. 0.000 12.06 0 0 0 MidCap Index Fund...... 336.929 25.42 8,565 8,299 266 Money Market Fund...... 34,573.370 1.00 34,573 34,573 0 Stock Index Fund....... 249.188 34.70 8,647 8,301 346 -------- -------- ------- 51,785 51,173 612 DREYFUS VARIABLE INVESTMENT FUND: Quality Bond Portfolio. 0.000 11.91 0 0 0 Small Cap Portfolio.... 3,020.532 60.54 182,863 175,820 7,043 -------- -------- ------- 182,863 175,820 7,043 MFS VARIABLE INSURANCE TRUST: MFS Emerging Growth Series................ 0.000 19.45 0 0 0 MORGAN STANLEY UNIVERSAL FUNDS, INC.: Equity Growth Portfolio............. 12,334.756 14.74 181,814 175,820 5,994 High Yield Portfolio... 0.000 11.01 0 0 0 -------- -------- ------- 181,814 175,820 5,994 PUTNAM VARIABLE TRUST: VT Diversified Income Fund.................. 1,338.756 10.94 14,646 14,700 (54) VT Growth and Income Fund.................. 213.114 27.40 5,839 5,880 (41) VT International Growth and Income Fund....... 324.971 13.28 4,316 4,410 (94) -------- -------- ------- 24,801 24,990 (189) SAFECO RESOURCE SERIES TRUST: Equity Portfolio....... 2,085.662 28.77 60,004 58,607 1,397 Growth Portfolio....... 4,577.229 27.46 125,691 121,622 4,069 -------- -------- ------- 185,695 180,229 5,466 VAN KAMPEN LIFE INVESTMENT TRUST: Strategic Stock Portfolio............. 0.000 11.25 0 0 0 -------- -------- ------- Total.................. $810,934 $783,853 $27,081 ======== ======== =======
The aggregate cost of purchases and proceeds from sales of investments for the period ended June 30, 1998 were $1,519,295 and $735,442, respectively. The cost of total investments owned at June 30, 1998 was the same for both financial reporting and federal income tax purposes. 36 AMERICAN GENERAL LIFE INSURANCE COMPANY SEPARATE ACCOUNT VL-R NOTES TO FINANCIAL STATEMENTS--(CONTINUED) NOTE F--SUMMARY OF CHANGES IN UNITS Summary of Changes in Units for the Period Ended June 30, 1998
AIM V.I. AIM V.I. AGSPC AGSPC AGSPC INTERNATIONAL VALUE INTERNATIONAL MIDCAP INDEX MONEY MARKET EQUITY FUND FUND EQUITIES FUND FUND FUND -------------- ------------------ ------------- --------------- -------------- Outstanding at beginning of period.............. 0.000 0.000 0.000 0.000 0.000 Purchase payments....... 0.000 0.000 0.000 0.000 85,258.281 Transfers between funds. 0.000 17,623.827 0.000 829.319 (74,712.995) COI and administration charges................ 0.000 0.000 0.000 0.000 (7,046.489) Surrenders.............. 0.000 0.000 0.000 0.000 0.000 ---------- ---------- ---------- ------- ----------- Outstanding at end of period................. 0.000 17,623.827 0.000 829.319 3,498.797 ========== ========== ========== ======= =========== AGSPC DREYFUS DREYFUS MFS MORGAN STANLEY STOCK INDEX QUALITY BOND SMALL CAP EMERGING GROWTH EQUITY GROWTH FUND PORTFOLIO PORTFOLIO SERIES PORTFOLIO -------------- ------------------ ------------- --------------- -------------- Outstanding at beginning of period.............. 0.000 0.000 0.000 0.000 0.000 Purchase payments....... 0.000 0.000 0.000 0.000 0.000 Transfers between funds. 829.319 0.000 17,711.214 0.000 17,640.530 COI and administration charges................ 0.000 0.000 0.000 0.000 0.000 Surrenders.............. 0.000 0.000 0.000 0.000 0.000 ---------- ---------- ---------- ------- ----------- Outstanding at end of period................. 829.319 0.000 17,711.214 0.000 17,640.530 ========== ========== ========== ======= =========== MORGAN STANLEY PUTNAM VT PUTNAM VT PUTNAM VT SAFECO HIGH YIELD DIVERSIFIED INCOME GROWTH AND INTL GROWTH AND EQUITY PORTFOLIO FUND INCOME FUND INCOME FUND PORTFOLIO -------------- ------------------ ------------- --------------- -------------- Outstanding at beginning of period.............. 0.000 0.000 0.000 0.000 0.000 Purchase payments....... 0.000 0.000 0.000 0.000 0.000 Transfers between funds. 0.000 1,469.984 587.994 440.995 5,861.072 COI and administration charges................ 0.000 0.000 0.000 0.000 0.000 Surrenders.............. 0.000 0.000 0.000 0.000 0.000 ---------- ---------- ---------- ------- ----------- Outstanding at end of period................. 0.000 1,469.984 587.994 440.995 5,861.072 ========== ========== ========== ======= =========== SAFECO VAN KAMPEN LIT GROWTH STRATEGIC STOCK PORTFOLIO PORTFOLIO -------------- ------------------ Outstanding at beginning of period.............. 0.000 0.000 Purchase payments....... 0.000 0.000 Transfers between funds. 12,636.546 0.000 COI and administration charges................ 0.000 0.000 Surrenders.............. 0.000 0.000 ---------- ---------- Outstanding at end of period................. 12,636.546 0.000 ========== ==========
37 AMERICAN GENERAL LIFE INSURANCE COMPANY SEPARATE ACCOUNT VL-R NOTES TO FINANCIAL STATEMENTS--(CONTINUED) NOTE G--NET ASSETS REPRESENTED BY:
JUNE 30, 1998 ------------------------------ UNITS UNIT VALUE AMOUNT ---------- ---------- -------- UNITS OUTSTANDING: AIM VARIABLE INSURANCE FUNDS, INC.: AIM V.I. International Equity Fund............ 0.000 $10.000000 $ 0 AIM V.I. Value Fund........................... 17,623.827 10.437299 183,945 -------- 183,945 -------- AMERICAN GENERAL SERIES PORTFOLIO COMPANY: International Equities Fund................... 0.000 10.000000 0 MidCap Index Fund............................. 829.319 10.324636 8,562 Money Market Fund............................. 3,498.797 10.041460 35,133 Stock Index Fund.............................. 829.319 10.423558 8,644 -------- 52,339 -------- DREYFUS VARIABLE INVESTMENT FUND: Quality Bond Portfolio........................ 0.000 10.000000 0 Small Cap Portfolio........................... 17,711.214 10.322999 182,833 -------- 182,833 -------- MFS VARIABLE INSURANCE TRUST: MFS Emerging Growth Series.................... 0.000 10.000000 0 -------- MORGAN STANLEY UNIVERSAL FUNDS, INC.: Equity Growth Portfolio....................... 17,640.530 10.304911 181,784 High Yield Portfolio.......................... 0.000 10.000000 0 -------- 181,784 -------- PUTNAM VARIABLE TRUST: Putnam VT Diversified Income Fund............. 1,469.984 9.959193 14,640 Putnam VT Growth and Income Fund.............. 587.994 9.926772 5,837 Putnam VT International Growth and Income Fund......................................... 440.995 9.781966 4,314 -------- 24,791 -------- SAFECO RESOURCE SERIES TRUST: Equity Growth................................. 5,861.072 10.236099 59,995 Growth Portfolio.............................. 12,636.546 9.944948 125,670 -------- 185,665 -------- VAN KAMPEN LIFE INVESTMENT TRUST: Strategic Stock Portfolio..................... 0.000 10.000000 0 -------- Value of Units Outstanding at June 30, 1998..... $811,357 ========
38 AMERICAN GENERAL LIFE INSURANCE COMPANY UNAUDITED CONSOLIDATED BALANCE SHEET
ASSETS JUNE 30, 1998 ------ -------------- (IN THOUSANDS) Investments: Fixed maturity securities, at fair value (amortized cost $27,328,947)................................................. $28,716,667 Equity securities, at fair value (cost $13,008)............... 14,696 Mortgage loans on real estate................................. 1,664,063 Policy loans.................................................. 1,131,687 Investment real estate........................................ 130,010 Other long-term investments................................... 50,310 Short-term investments........................................ 150,629 ----------- Total investments............................................... 31,858,062 Cash............................................................ 27,298 Investment in Parent Company (cost $8,597)...................... 49,804 Indebtedness from affiliates.................................... 77,401 Accrued investment income....................................... 454,769 Accounts receivable............................................. 255,963 Deferred policy acquisition costs............................... 1,072,776 Property and equipment.......................................... 34,667 Other assets.................................................... 157,239 Assets held in separate accounts................................ 13,898,985 ----------- Total assets.................................................... $47,886,964 =========== LIABILITIES AND SHAREHOLDERS' EQUITY ------------------------------------ Liabilities: Future policy benefits........................................ $28,844,322 Other policy claims and benefits payable...................... 69,246 Other policyholders' funds.................................... 401,343 Federal income taxes.......................................... 670,979 Indebtedness to affiliates.................................... 3,740 Other liabilities............................................. 629,312 Liabilities related to separate accounts...................... 13,898,985 ----------- Total liabilities............................................... 44,517,927 Shareholders' equity: Common stock, $10 par value, 600,000 shares authorized, issued, and outstanding...................................... 6,000 Preferred stock, $100 par value, 8,500 shares authorized, issued, and outstanding...................................... 850 Additional paid-in capital.................................... 1,242,106 Net unrealized investment gains............................... 638,178 Retained earnings............................................. 1,481,903 ----------- Total shareholders' equity...................................... 3,369,037 ----------- Total liabilities and shareholders' equity...................... $47,886,964 ===========
39 AMERICAN GENERAL LIFE INSURANCE COMPANY UNAUDITED CONSOLIDATED INCOME STATEMENT
SIX MONTHS ENDED JUNE 30, 1998 -------------- (IN THOUSANDS) Revenues: Premiums and other considerations.............................. $ 234,825 Net investment income.......................................... 1,149,155 Net realized investment gains (losses)......................... 5,072 Other.......................................................... 34,982 ---------- Total revenues................................................... 1,424,034 Benefits and expenses: Benefits....................................................... 889,007 Operating costs and expenses................................... 211,749 Interest expense............................................... 5 ---------- Total benefits and expenses...................................... 1,100,761 ---------- Income before income tax expense................................. 323,273 Income tax expense............................................... 108,785 ---------- Net income....................................................... $ 214,488 ==========
40 [Letterhead of Ernst & Young LLP] REPORT OF INDEPENDENT AUDITORS Board of Directors and Stockholders American General Life Insurance Company We have audited the accompanying consolidated balance sheets of American General Life Insurance Company (an indirectly wholly owned subsidiary of American General Corporation) and subsidiaries as of December 31, 1997 and 1996, and the related consolidated statements of income, shareholders' equity, and cash flows for each of the three years in the period ended December 31, 1997. These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the financial statements referred to above present fairly, in all material respects, the consolidated financial position of American General Life Insurance Company and subsidiaries at December 31, 1997 and 1996, and the consolidated results of their operations and their cash flows for each of the three years in the period ended December 31, 1997, in conformity with generally accepted accounting principles. /s/ Ernst & Young LLP February 23, 1998 41 AMERICAN GENERAL LIFE INSURANCE COMPANY CONSOLIDATED BALANCE SHEETS
DECEMBER 31, ----------------------- ASSETS 1997 1996 ------ ----------- ----------- (IN THOUSANDS) Investments: Fixed maturity securities, at fair value (amortized cost $26,131,207 in 1997 and $24,762,134 in 1996)... $27,386,715 $25,395,381 Equity securities, at fair value (cost $19,208 in 1997 and $17,642 in 1996)........................... 20,555 21,114 Mortgage loans on real estate........................ 1,659,921 1,707,843 Policy loans......................................... 1,093,694 1,006,137 Investment real estate............................... 129,364 145,442 Other long-term investments.......................... 55,118 43,344 Short-term investments............................... 100,061 94,882 ----------- ----------- Total investments...................................... 30,445,987 28,413,584 Cash................................................... 99,284 33,550 Investment in Parent Company (cost $8,597 in 1997 and 1996)................................................. 37,823 28,597 Indebtedness from affiliates........................... 96,519 86,488 Accrued investment income.............................. 433,111 392,058 Accounts receivable.................................... 208,209 170,457 Deferred policy acquisition costs...................... 835,031 1,042,783 Property and equipment................................. 33,827 35,414 Other assets........................................... 132,659 134,289 Assets held in separate accounts....................... 11,242,270 7,727,189 ----------- ----------- Total assets........................................... $43,564,720 $38,064,409 =========== =========== LIABILITIES AND SHAREHOLDERS' EQUITY ------------------------------------ Liabilities: Future policy benefits............................... $27,849,893 $26,558,538 Other policy claims and benefits payable............. 42,677 41,679 Other policyholders' funds........................... 398,314 376,675 Federal income taxes................................. 543,379 402,361 Indebtedness to affiliates........................... 4,712 3,376 Other liabilities.................................... 421,861 325,630 Liabilities related to separate accounts............. 11,242,270 7,727,189 ----------- ----------- Total liabilities.................................. 40,503,106 35,435,448 Shareholders' equity: Common stock, $10 par value, 600,000 shares authorized, issued, and outstanding................. 6,000 6,000 Preferred stock, $100 par value, 8,500 shares authorized, issued, and outstanding................. 850 850 Additional paid-in capital........................... 1,184,743 933,342 Net unrealized investment gains...................... 427,526 219,151 Retained earnings.................................... 1,442,495 1,469,618 ----------- ----------- Total shareholders' equity............................. 3,061,614 2,628,961 Total liabilities and shareholders' equity............. $43,564,720 $38,064,409 =========== ===========
See accompanying notes. 42 AMERICAN GENERAL LIFE INSURANCE COMPANY CONSOLIDATED INCOME STATEMENTS
YEAR ENDED DECEMBER 31 -------------------------------- 1997 1996 1995 ---------- ---------- ---------- (IN THOUSANDS) Revenues: Premiums and other considerations........... $ 428,721 $ 382,923 $ 342,420 Net investment income....................... 2,198,623 2,095,072 2,011,088 Net realized investment gains (losses)...... 29,865 28,502 (1,942) Other....................................... 53,370 41,968 27,172 ---------- ---------- ---------- Total revenues............................ 2,710,579 2,548,465 2,378,738 Benefits and expenses: Benefits.................................... 1,757,504 1,689,011 1,641,206 Operating costs and expenses................ 379,012 347,369 309,110 Interest expense............................ 782 830 2,180 ---------- ---------- ---------- Total benefits and expenses................... 2,137,298 2,037,210 1,952,496 ---------- ---------- ---------- Income before income tax expense.............. 573,281 511,255 426,242 Income tax expense............................ 198,724 176,660 143,947 ---------- ---------- ---------- Net income.................................... $ 374,557 $ 334,595 $ 282,295 ========== ========== ==========
See accompanying notes. 43 AMERICAN GENERAL LIFE INSURANCE COMPANY CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
YEAR ENDED DECEMBER 31 ---------------------------------- 1997 1996 1995 ---------- ---------- ---------- (IN THOUSANDS) Common stock: Balance at beginning of year................... $ 6,000 $ 6,000 $ 6,000 Change during year...... -- -- -- ---------- ---------- ---------- Balance at end of year.... 6,000 6,000 6,000 Preferred stock: Balance at beginning of year................... 850 850 -- Change during year...... -- -- 850 ---------- ---------- ---------- Balance at end of year.... 850 850 850 Additional paid-in capital: Balance at beginning of year................... 933,342 858,075 850,358 Capital contribution from Parent Company.... 250,000 75,000 -- Other changes during year................... 1,401 267 7,717 ---------- ---------- ---------- Balance at end of year.... 1,184,743 933,342 858,075 Net unrealized investment gains (losses): Balance at beginning of year................... 219,151 493,594 (730,900) Change during year...... 208,375 (274,443) 1,224,494 ---------- ---------- ---------- Balance at end of year.... 427,526 219,151 493,594 Retained earnings: Balance at beginning of year................... 1,469,618 1,324,703 1,249,109 Net income.............. 374,557 334,595 282,295 Dividends paid.......... (401,680) (189,680) (206,701) ---------- ---------- ---------- Balance at end of year.... 1,442,495 1,469,618 1,324,703 ---------- ---------- ---------- Total shareholders' equity................... $3,061,614 $2,628,961 $2,683,222 ========== ========== ==========
See accompanying notes. 44 AMERICAN GENERAL LIFE INSURANCE COMPANY CONSOLIDATED STATEMENTS OF CASH FLOWS
YEAR ENDED DECEMBER 31 ------------------------------------- 1997 1996 1995 ----------- ----------- ----------- (IN THOUSANDS) OPERATING ACTIVITIES Net income.............................. $ 374,557 $ 334,595 $ 282,295 Adjustments to reconcile net income to net cash (used in) provided by operating activities: Change in accounts receivable......... (37,752) 3,846 (18,654) Change in future policy benefits and other policy claims.................. (1,143,736) (543,193) (70,383) Amortization of policy acquisition costs................................ 115,467 102,189 68,295 Policy acquisition costs deferred..... (219,339) (188,001) (203,607) Change in other policyholders' funds.. 21,639 (69,126) 63,174 Provision for deferred income tax expense.............................. 13,264 12,388 (9,773) Depreciation.......................... 16,893 16,993 18,119 Amortization.......................... (28,276) (30,758) (35,825) Change in indebtedness to/from affiliates........................... (8,695) 4,432 7,596 Change in amounts payable to brokers.. 31,769 (25,260) 30,964 Net (gain) loss on sale of investments.......................... (29,865) (28,502) 1,942 Other, net............................ 30,409 32,111 46,863 ----------- ----------- ----------- Net cash (used in) provided by operating activities............... (863,665) (378,286) 181,006 INVESTING ACTIVITIES Purchases of investments and loans made. (29,638,861) (27,245,453) (14,573,323) Sales or maturities of investments and receipts from repayment of loans....... 28,300,238 25,889,422 12,528,185 Sales and purchases of property and equipment, net......................... (9,230) (8,057) (12,114) ----------- ----------- ----------- Net cash used in investing activities... (1,347,853) (1,364,088) (2,057,252) FINANCING ACTIVITIES Policyholder account deposits........... 4,187,191 3,593,380 3,372,522 Policyholder account withdrawals........ (1,759,660) (1,746,987) (1,258,560) Dividends paid.......................... (401,680) (189,680) (206,701) Capital contribution from Parent........ 250,000 75,000 -- Other................................... 1,401 267 67 ----------- ----------- ----------- Net cash provided by financing activities............................. 2,277,252 1,731,980 1,907,328 ----------- ----------- ----------- Increase (decrease) in cash............. 65,734 (10,394) 31,082 Cash at beginning of year............... 33,550 43,944 12,862 ----------- ----------- ----------- Cash at end of year..................... $ 99,284 $ 33,550 $ 43,944 =========== =========== ===========
Interest paid amounted to approximately $1,004,000, $1,080,000, and $1,933,000 in 1997, 1996, and 1995, respectively. See accompanying notes. 45 AMERICAN GENERAL LIFE INSURANCE COMPANY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS DECEMBER 31, 1997 NATURE OF OPERATIONS American General Life Insurance Company (the "Company") is a wholly owned subsidiary of AGC Life Insurance Company, which is a wholly owned subsidiary of American General Corporation (the "Parent Company"). The Company's wholly owned life insurance subsidiaries are American General Life Insurance Company of New York ("AGNY") and The Variable Annuity Life Insurance Company ("VALIC"). The Company offers a complete portfolio of the standard forms of universal life, interest-sensitive whole life, term life, structured settlements, and fixed and variable annuities throughout the United States. In addition, a variety of equity products is sold through its broker/dealer, American General Securities, Inc. The Company serves the estate planning needs of middle- and upper-income households and the insurance needs of small- to medium-sized businesses. AGNY offers a broad array of traditional and interest-sensitive insurance, in addition to individual annuity products. VALIC provides tax- deferred retirement annuities and employer-sponsored retirement plans to employees of health care, educational, public sector, and other not-for-profit organizations throughout the United States. 1. ACCOUNTING POLICIES 1.1 PREPARATION OF FINANCIAL STATEMENTS The consolidated financial statements have been prepared in accordance with generally accepted accounting principles ("GAAP") and include the accounts of the Company and its wholly owned life insurance subsidiaries, AGNY and VALIC. Transactions with the Parent Company and other subsidiaries of the Parent Company are not eliminated from the financial statements of the Company. All other material intercompany transactions have been eliminated in consolidation. The preparation of financial statements requires management to make estimates and assumptions that affect amounts reported in the financial statements and disclosures of contingent assets and liabilities. Ultimate results could differ from those estimates. 46 AMERICAN GENERAL LIFE INSURANCE COMPANY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED) 1.2 STATUTORY ACCOUNTING The Company and its wholly owned life insurance subsidiaries are required to file financial statements with state regulatory authorities. State insurance laws and regulations prescribe accounting practices for calculating statutory net income and equity. In addition, state regulators may permit statutory accounting practices that differ from prescribed practices. The use of such permitted practices by the Company and its wholly owned life insurance subsidiaries did not have a material effect on statutory equity at December 31, 1997. Statutory financial statements differ from GAAP. Significant differences were as follows (in thousands):
1997 1996 1995 ---------- ---------- ---------- Net income: Statutory net income (1997 balance is unaudited).............................. $ 327,813 $ 284,070 $ 197,769 Deferred policy acquisition costs........ 103,872 85,812 135,312 Deferred income taxes.................... (13,264) (12,388) 9,773 Adjustments to policy reserves........... (30,162) (19,954) (77,591) Goodwill amortization.................... (2,067) (2,169) (2,195) Net realized gain on investments......... 20,139 14,140 22,874 Gain on sale of subsidiary............... -- -- 661 Other, net............................... (31,774) (14,916) (4,308) ---------- ---------- ---------- GAAP net income........................ $ 374,557 $ 334,595 $ 282,295 ========== ========== ========== Shareholders' equity: Statutory capital and surplus (1997 balance is unaudited)................... $1,636,327 $1,441,768 $1,298,323 Deferred policy acquisition costs........ 835,031 1,042,783 605,501 Deferred income taxes.................... (535,703) (410,007) (549,663) Adjustments to policy reserves........... (319,680) (297,434) (311,065) Acquisition-related goodwill............. 51,424 55,626 57,795 Asset valuation reserve ("AVR").......... 255,975 291,205 263,295 Interest maintenance reserve ("IMR")..... 9,596 63 3,114 Investment valuation differences......... 1,272,339 643,289 1,417,775 Benefit plans, pretax.................... 6,103 6,749 6,023 Surplus from separate accounts........... (150,928) (106,026) (76,645) Other, net............................... 1,130 (39,055) (31,231) ---------- ---------- ---------- Total GAAP shareholders' equity............ $3,061,614 $2,628,961 $2,683,222 ========== ========== ==========
The more significant differences between GAAP and statutory accounting principles are that under GAAP: (a) acquisition costs related to acquiring new business are deferred and amortized (generally in proportion to the present value of expected gross profits from surrender charges and investment, mortality, and expense margins), rather than being charged to operations as incurred; (b) future policy benefits are based on estimates of mortality, interest, and withdrawals generally representing the Company's experience, which may differ from those based on statutory mortality and interest requirements without consideration of withdrawals; (c) deferred federal income taxes are provided for significant timing differences between income reported for financial reporting purposes and income reported for federal income tax purposes; (d) certain assets (principally furniture and equipment, agents' debit balances, computer software, and certain other receivables) are reported as assets rather than being charged to retained earnings; (e) acquisitions are accounted for using the purchase method of accounting rather than being accounted for as equity investments; and (f) fixed maturity investments are carried at fair value rather than amortized cost. In addition, statutory accounting principles require life insurance companies to establish an AVR and an IMR. The AVR is designed to address the credit-related risk for bonds, 47 AMERICAN GENERAL LIFE INSURANCE COMPANY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED) preferred stocks, derivative instruments, and mortgages and market risk for common stocks, real estate, and other invested assets. The IMR is composed of investment- and liability-related realized gains and losses that result from interest rate fluctuations. These realized gains and losses, net of tax, are amortized into income over the expected remaining life of the asset sold or the liability released. 1.3 INSURANCE CONTRACTS The insurance contracts accounted for in these financial statements include primarily long-duration contracts. Long-duration contracts include traditional whole life, endowment, guaranteed renewable term life, universal life, limited payment, and investment contracts. Long-duration contracts generally require the performance of various functions and services over a period of more than one year. The contract provisions generally cannot be changed or canceled by the insurer during the contract period; however, most new contracts written by the Company allow the insurer to revise certain elements used in determining premium rates or policy benefits, subject to guarantees stated in the contracts. 1.4 INVESTMENTS Fixed Maturity and Equity Securities All fixed maturity and equity securities are currently classified as available-for-sale and recorded at fair value. After adjusting related balance sheet accounts as if the unrealized gains (losses) had been realized, the net adjustment is recorded in net unrealized gains (losses) on securities within shareholders' equity. If the fair value of a security classified as available- for-sale declines below its cost and this decline is considered to be other than temporary, the security is reduced to its fair value, and the reduction is recorded as a realized loss. Mortgage Loans Mortgage loans are reported at amortized cost, net of an allowance for losses. The allowance for losses covers all nonperforming loans, consisting of loans restructured or delinquent 60 days or more, and loans for which management has a concern based on its assessment of risk factors, such as potential nonpayment or nonmonetary default. The allowance is based on a loan- specific review and a formula that reflects past results and current trends. Impaired loans, those for which the Company determines it is probable that all amounts due under the contractual terms will not be collected, are reported at the lower of amortized cost or fair value of the underlying collateral, less estimated costs to sell. Policy Loans Policy loans are reported at unpaid principal balances adjusted periodically for uncollectible amounts. Investment Real Estate Investment real estate consists of income-producing real estate, foreclosed real estate, and the American General Center, an office complex in Houston. The Company classifies all investment real estate, except the American General Center, as available-for-sale. Real estate available-for-sale is carried at the lower of cost less accumulated depreciation, if applicable, or fair value less costs to sell. Changes in estimates of fair value less costs to sell are recognized as realized gains (losses) through a valuation allowance. Real estate held-for-investment is carried at cost less accumulated depreciation and impairment reserves and write-downs, if applicable. Impairment losses are recorded whenever circumstances indicate that a property 48 AMERICAN GENERAL LIFE INSURANCE COMPANY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED) might be impaired and the estimated undiscounted future cash flows of the property are less than the carrying amount. In such event, the property is written down to fair value, determined by market prices, third-party appraisals, or expected future cash flows discounted at market rates. Any write-down is recognized as a realized loss, and a new cost basis is established. Investment Income Interest on fixed maturity securities, performing and restructured mortgage loans, and policy loans is recorded as income when earned and is adjusted for any amortization of premium or discount. Interest on impaired mortgage loans is recorded as income when received. Dividends are recorded as income on ex- dividend dates. Realized Investment Gains (Losses) Realized investment gains (losses) are recognized using the specific- identification method and include declines in fair value of investments below cost that are considered to be other than temporary. 1.5 SEPARATE ACCOUNTS Separate accounts are assets and liabilities associated with certain contracts, principally annuities; the investment risk lies solely with the contract holder rather than the Company. Consequently, the Company's liability for these accounts equals the value of the account assets. Investment income, realized investment gains (losses), and policyholder account deposits and withdrawals related to separate accounts are excluded from the consolidated statements of income and cash flows. Assets held in separate accounts are primarily shares in mutual funds, which are carried at fair value based on the quoted net asset value per share. 1.6 DEFERRED POLICY ACQUISITION COSTS ("DPAC") Certain costs of writing an insurance policy, including agents' commissions, underwriting and marketing expenses, are deferred and reported as DPAC. DPAC associated with interest-sensitive life insurance contracts, insurance investment contracts, and participating life insurance contracts, to the extent recoverable from expected future gross profits, is deferred and amortized generally in proportion to the present value of expected future gross profits from surrender charges and investment, mortality, and expense margins. Expected future gross profits are adjusted to include the impact of realized and unrealized gains (losses) as if net unrealized investment gains (losses) had been realized at the balance sheet date. The impact of this adjustment is included in the net unrealized gains (losses) on securities within shareholders' equity. DPAC associated with all other insurance contracts, to the extent recoverable from future policy revenues, is amortized over the premium-paying period of the related contracts using assumptions that are consistent with those used in computing policy benefit reserves. The Company reviews the carrying value of DPAC on at least an annual basis. In determining whether the carrying amount is appropriate, the Company considers estimated future gross profits or future premiums, as applicable for the type of contract. In all cases, the Company considers expected mortality, interest earned and credited rates, persistency, and expenses. 1.7 PREMIUM RECOGNITION Most receipts for annuities and interest-sensitive life insurance policies are classified as deposits instead of revenue. Revenues for these contracts consist of mortality, expense, and surrender charges assessed against the 49 AMERICAN GENERAL LIFE INSURANCE COMPANY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED) account balance. Policy charges that compensate the Company for future services are deferred and recognized in income over the period earned, using the same assumptions used to amortize DPAC (see Note 1.6). For limited-payment contracts, net premiums are recorded as revenue, and the difference between the gross premium received and the net premium is deferred and recognized in income in a constant relationship to insurance in force. For all other contracts, premiums are recognized when due. When the revenue is recorded, an estimate of the cost of the related benefit is recorded in the future policy benefits account on the consolidated balance sheet. Also, this cost is recorded in the consolidated statement of income as a benefit in the current year and in all future years during which the policy is expected to be renewed. 1.8 OTHER ASSETS Acquisition-related goodwill, which is included in other assets, is charged to expense in equal amounts over 40 years. The carrying value of goodwill is regularly reviewed for indicators of impairment in value. 1.9 DEPRECIATION Provision for depreciation of American General Center, data processing equipment, and furniture and fixtures is computed on the straight-line method over the estimated useful lives of the assets. 1.10 POLICY AND CONTRACT CLAIMS RESERVES Substantially all of the Company's insurance and annuity liabilities relate to long-duration contracts which generally require performance over a period of more than one year. The contract provisions normally cannot be changed or canceled by the Company during the contract period. For interest-sensitive and investment contracts, reserves equal the sum of the policy account balance and deferred revenue charges. In establishing reserves for limited payment and other long-duration contracts, an estimate is made of the cost of future policy benefits to be paid as a result of present and future claims due to death, disability, surrender of a policy, and payment of an endowment. Reserves for traditional insurance products are determined using the net level premium method. Based on past experience, consideration is given to expected policyholder deaths, policy lapses, surrenders, and terminations. Consideration is also given to the possibility that the Company's experience with policyholders will be worse than expected. Interest assumptions used to compute reserves ranged from 2.0% to 13.5% at December 31, 1997. The claims reserves are determined using case-basis evaluation and statistical analyses and represent estimates of the ultimate net cost of unpaid claims. These estimates are reviewed; and as adjustments become necessary, such adjustments are reflected in current operations. Since these reserves are based on estimates, the ultimate settlement of claims may vary from the amounts included in the accompanying financial statements. Although it is not possible to measure the degree of variability inherent in such estimates, management believes claim reserves are reasonable. 1.11 REINSURANCE The Company limits its exposure to loss on any single insured to $1.5 million by ceding additional risks through reinsurance contracts with other insurers. Ceded reinsurance becomes a liability of the reinsurer assuming the risk. The Company diversifies its risk of exposure to reinsurance loss by using several reinsurers that have strong claims-paying ability ratings. If a reinsurer could not meet its obligations, the Company would reassume the liability. The likelihood of a material reinsurance liability being reassumed by the Company is considered to be remote. 50 AMERICAN GENERAL LIFE INSURANCE COMPANY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED) Benefits paid and future policy benefits related to ceded reinsurance contracts are recorded as reinsurance receivables. The cost of reinsurance is recognized over the life of the underlying reinsured policies using assumptions consistent with those used to account for the underlying policies. 1.12 PARTICIPATING POLICY CONTRACTS Participating life insurance contracts contain dividend payment provisions that entitle the policyholder to participate in the earnings of the contracts. Participating life insurance contracts accounted for 2.22% and 2.47% of life insurance in force at December 31, 1997 and 1996, respectively. Such business is accounted for in accordance with Statement of Financial Accounting Standards ("SFAS") No. 120. 1.13 INCOME TAXES The Company and its life insurance subsidiaries, together with certain other life insurance subsidiaries of the Parent Company, are included in a life/non- life consolidated tax return with the Parent Company and its noninsurance subsidiaries. The Company participates in a tax sharing agreement with other companies included in the consolidated tax return. Under this agreement, tax payments are made to the Parent Company as if the companies filed separate tax returns; and companies incurring operating and/or capital losses are reimbursed for the use of these losses by the consolidated return group. Income taxes are provided for in accordance with SFAS No. 109. Under this standard, deferred tax assets and liabilities are calculated using the differences between the financial reporting basis and the tax basis of assets and liabilities, using the enacted tax rate. The effect of a tax rate change is recognized in income in the period of enactment. Under SFAS No. 109, state income taxes are included in income tax expense. 1.14 NEW ACCOUNTING STANDARD NOT YET ADOPTED In June 1997, the Financial Accounting Standards Board issued SFAS No. 130, Reporting Comprehensive Income, which establishes standards for reporting and displaying comprehensive income and its components in the financial statements. Beginning in 1998, the Company must adopt this statement for all periods presented. Application of this statement will not change recognition or measurement of net income and, therefore, will not impact the Company's consolidated results of operations or financial position. 2. INVESTMENTS 2.1 INVESTMENT INCOME Investment income by type of investment was as follows:
1997 1996 1995 ---------- ---------- ---------- (IN THOUSANDS) Investment income: Fixed maturities............................ $1,966,528 $1,846,549 $1,759,358 Equity securities........................... 1,067 1,842 6,773 Mortgage loans on real estate............... 157,035 175,833 185,022 Investment real estate...................... 22,157 22,752 16,397 Policy loans................................ 62,939 58,211 52,939 Other long-term investments................. 3,135 2,328 1,996 Short-term investments...................... 8,626 9,280 6,234 Investment income from affiliates........... 11,094 11,502 12,570 ---------- ---------- ---------- Gross investment income....................... 2,232,581 2,128,297 2,041,289 Investment expenses........................... 33,958 33,225 30,201 ---------- ---------- ---------- Net investment income......................... $2,198,623 $2,095,072 $2,011,088 ========== ========== ==========
51 AMERICAN GENERAL LIFE INSURANCE COMPANY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED) The carrying value of investments that have produced no investment income during 1997 was less than 1% of total invested assets. The ultimate disposition of these investments is not expected to have a material effect on the Company's results of operations and financial position. 2.2 NET REALIZED INVESTMENT GAINS (LOSSES) Realized gains (losses) by type of investment were as follows:
1997 1996 1995 -------- -------- -------- (IN THOUSANDS) Fixed maturities: Gross gains.................................... $ 42,966 $ 46,498 $ 38,657 Gross losses................................... (34,456) (47,293) (41,022) -------- -------- -------- Total fixed maturities........................... 8,510 (795) (2,365) Equity securities................................ 1,971 18,304 9,710 Other investments................................ 19,384 10,993 (9,287) -------- -------- -------- Net realized investment gains (losses) before tax............................................. 29,865 28,502 (1,942) Income tax expense............................... 10,452 9,976 547 -------- -------- -------- Net realized investment gains (losses) after tax. $ 19,413 $ 18,526 $ (2,489) ======== ======== ========
2.3 FIXED MATURITY AND EQUITY SECURITIES All fixed maturity and equity securities are classified as available-for- sale and reported at fair value (see Note 1.4). Amortized cost and fair value at December 31, 1997 and 1996 were as follows:
GROSS GROSS AMORTIZED UNREALIZED UNREALIZED COST GAIN LOSS FAIR VALUE ----------- ---------- ---------- ----------- (IN THOUSANDS) DECEMBER 31, 1997 Fixed maturity securities: Corporate securities: Investment-grade............... $17,913,942 $ 906,235 $17,551 $18,802,626 Below investment-grade......... 950,438 34,290 4,032 980,696 Mortgage-backed securities*..... 6,614,704 278,143 4,260 6,888,587 U.S. government obligations..... 289,406 46,529 74 335,861 Foreign governments............. 318,212 18,076 3,534 332,754 State and political subdivisions................... 44,505 1,686 -- 46,191 ----------- ---------- ------- ----------- Total fixed maturity securities.. $26,131,207 $1,284,959 $29,451 $27,386,715 =========== ========== ======= =========== Equity securities................ $ 19,208 $ 2,145 $ 239 $ 21,114 =========== ========== ======= =========== Investment in Parent Company..... $ 8,597 $ 29,226 $ -- $ 37,823 =========== ========== ======= ===========
52 AMERICAN GENERAL LIFE INSURANCE COMPANY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
GROSS GROSS AMORTIZED UNREALIZED UNREALIZED COST GAIN LOSS FAIR VALUE ----------- ---------- ---------- ----------- (IN THOUSANDS) DECEMBER 31, 1996 Fixed maturity securities: Corporate securities: Investment-grade............... $15,639,170 $528,602 $ 90,379 $16,077,393 Below investment-grade......... 898,187 29,384 5,999 921,572 Mortgage-backed securities*..... 7,547,616 186,743 54,543 7,679,816 U.S. government obligations..... 313,759 26,597 1,050 339,306 Foreign governments............. 313,655 13,255 248 326,662 State and political subdivisions................... 48,553 1,003 226 49,330 ----------- -------- -------- ----------- Redeemable preferred stocks..... 1,194 108 -- 1,302 ----------- -------- -------- ----------- Total fixed maturity securities.. $24,762,134 $785,692 $152,445 $25,395,381 =========== ======== ======== =========== Equity securities................ $ 17,642 $ 3,021 $ 108 $ 20,555 =========== ======== ======== =========== Investment in Parent Company..... $ 8,597 $ 20,000 $ -- $ 28,597 =========== ======== ======== ===========
- -------- * Primarily include pass-through securities guaranteed by and mortgage obligations ("CMOs") collateralized by the U.S. government and government agencies. Net unrealized gains (losses) on securities included in shareholders' equity at December 31 were as follows:
1997 1996 ---------- --------- (IN THOUSANDS) Gross unrealized gains................................... $1,316,330 $ 808,713 Gross unrealized losses.................................. (29,690) (152,553) DPAC and other fair value adjustments.................... (621,867) (315,117) Deferred federal income taxes............................ (237,247) (121,892) ---------- --------- Net unrealized gains on securities....................... $ 427,526 $ 219,151 ========== =========
The contractual maturities of fixed maturity securities at December 31, 1997 were as follows:
AMORTIZED COST FAIR VALUE ----------- ----------- (IN THOUSANDS) Fixed maturity securities, excluding mortgage-backed securities: Due in one year or less............................. $ 205,719 $ 207,364 Due after one year through five years............... 5,008,933 5,216,174 Due after five years through ten years.............. 9,163,681 9,604,447 Due after ten years................................. 5,138,169 5,470,143 Mortgage-backed securities............................ 6,614,705 6,888,587 ----------- ----------- Total fixed maturity securities....................... $26,131,207 $27,386,715 =========== ===========
Actual maturities may differ from contractual maturities, since borrowers may have the right to call or prepay obligations. In addition, corporate requirements and investment strategies may result in the sale of investments before maturity. Proceeds from sales of fixed maturities were $14.8 billion, $16.2 billion, and $7.3 billion during 1997, 1996, and 1995, respectively. 53 AMERICAN GENERAL LIFE INSURANCE COMPANY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED) 2.4 MORTGAGE LOANS ON REAL ESTATE Diversification of the geographic location and type of property collateralizing mortgage loans reduces the concentration of credit risk. For new loans, the Company requires loan-to-value ratios of 75% or less, based on management's credit assessment of the borrower. The mortgage loan portfolio was distributed as follows at December 31, 1997 and 1996:
OUTSTANDING PERCENT PERCENT AMOUNT OF TOTAL NONPERFORMING ------------- -------- ------------- (IN MILLIONS) DECEMBER 31, 1997 Geographic distribution: South Atlantic........................... $ 456 27.5% 1.8% Pacific.................................. 340 20.5 14.4 Mid-Atlantic............................. 288 17.3 -- East North Central....................... 186 11.2 -- Mountain................................. 151 9.1 2.7 West South Central....................... 132 7.9 .1 East South Central....................... 94 5.7 -- West North Central....................... 19 1.1 -- New England.............................. 17 1.1 -- Allowance for losses....................... (23) (1.4) -- ------ ----- Total...................................... $1,660 100.0% 3.6% ====== ===== Property type: Office................................... $ 622 37.5% 4.6% Retail................................... 463 27.9 3.0 Industrial............................... 324 19.5 1.8 Apartments............................... 223 13.4 6.1 Hotel/motel.............................. 40 2.4 -- Other.................................... 11 .7 -- Allowance for losses....................... (23) (1.4) -- ------ ----- Total...................................... $1,660 100.0% 3.6% ====== ===== DECEMBER 31, 1996 Geographic distribution: South Atlantic........................... $ 522 30.6% 8.1% Pacific.................................. 407 23.8 8.1 Mid-Atlantic............................. 231 13.5 -- East North Central....................... 168 9.8 -- Mountain................................. 153 9.0 2.8 West South Central....................... 141 8.2 5.3 East South Central....................... 109 6.4 -- West North Central....................... 13 0.8 -- New England.............................. 13 0.8 -- Allowance for losses....................... (49) (2.9) -- ------ ----- Total...................................... $1,708 100.0% 5.0% ====== ===== Property type: Office................................... $ 590 34.5% --% Retail................................... 502 29.4 2.5 Industrial............................... 304 17.8 6.0 Apartments............................... 264 15.5 8.3 Hotel/motel.............................. 54 3.2 -- Other.................................... 43 2.5 78.8 Allowance for losses....................... (49) (2.9) -- ------ ----- Total...................................... $1,708 100.0% 5.0% ====== =====
54 AMERICAN GENERAL LIFE INSURANCE COMPANY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED) Impaired mortgage loans on real estate and related interest income were as follows:
DECEMBER 31 -------------- 1997 1996 ------ ------ (IN MILLIONS) Impaired loans: With allowance*................................................ $ 35 $ 60 Without allowance.............................................. -- -- ------ ------ Total impaired loans............................................. $ 35 $ 60 ------ ------
- -------- * Represents gross amounts before allowance for mortgage loan losses of $10 million and $9 million, respectively.
1997 1996 1995 ---- ---- ---- (IN MILLIONS) Average investment.............................................. $48 $72 $102 Interest income earned.......................................... $ 3 $ 6 $ 8 Interest income cash basis...................................... $-- $ 6 $ 8
2.5 INVESTMENT SUMMARY Investments of the Company were as follows:
DECEMBER 31, 1997 ---------------------------------- CARRYING COST FAIR VALUE AMOUNT ----------- ---------- ----------- (IN THOUSANDS) Fixed maturities: Bonds: United States government and government agencies and authorities................. $ 289,406 $ 335,861 $ 335,861 States, municipalities, and political subdivisions............................. 44,505 46,191 46,191 Foreign governments....................... 318,212 332,754 332,754 Public utilities.......................... 1,848,546 1,952,724 1,952,724 Mortgage-backed securities................ 6,614,704 6,888,587 6,888,587 All other corporate bonds................. 17,015,834 17,830,598 17,830,598 ----------- ---------- ----------- Total fixed maturities...................... 26,131,207 27,386,715 27,386,715 Equity securities: Common stocks: Industrial, miscellaneous, and other...... 5,604 5,785 5,785 Nonredeemable preferred stocks............ 13,604 15,329 15,329 ----------- ---------- ----------- Total equity securities..................... 19,208 21,114 21,114 Mortgage loans on real estate*.............. 1,659,921 XXX 1,659,921 Investment real estate...................... 129,364 XXX 129,364 Policy loans................................ 1,093,694 XXX 1,093,694 Other long-term investments................. 55,118 XXX 55,118 Short-term investments...................... 100,061 XXX 100,061 ----------- ---------- ----------- Total investments........................... $29,188,573 $ XXX $30,445,987 =========== ========== ===========
- -------- * Amount is net of a $23 million allowance for losses. 55 AMERICAN GENERAL LIFE INSURANCE COMPANY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED) 3. DEFERRED POLICY ACQUISITION COSTS The balance of DPAC at December 31 and the components of the change reported in operating costs and expenses for the years then ended were as follows:
1997 1996 1995 ---------- ---------- ----------- (IN THOUSANDS) Balance at January 1....................... $1,042,783 $ 605,501 $ 1,479,115 Capitalization........................... 219,339 188,001 203,607 Amortization............................. (115,467) (102,189) (68,295) Change in the effect of SFAS No. 115..... (311,624) 351,470 (1,008,926) ---------- ---------- ----------- Balance at December 31..................... $ 835,031 $1,042,783 $ 605,501 ========== ========== ===========
4. OTHER ASSETS Other assets consisted of the following:
DECEMBER 31 ----------------- 1997 1996 -------- -------- (IN THOUSANDS) Goodwill...................................................... $ 51,424 $ 55,626 Other......................................................... 81,235 78,663 -------- -------- Total other assets............................................ $132,659 $134,289 ======== ========
5. FEDERAL INCOME TAXES 5.1 TAX LIABILITIES Income tax liabilities were as follows:
DECEMBER 31 ----------------- 1997 1996 -------- -------- (IN THOUSANDS) Current tax payable (receivable)............................ $ 7,676 $ (7,646) Deferred tax liabilities, applicable to: Net income................................................ 298,456 288,115 Net unrealized investment gains........................... 237,247 121,892 -------- -------- Total deferred tax liabilities.............................. 535,703 410,007 -------- -------- Total current and deferred tax liabilities.................. $543,379 $402,361 ======== ========
56 AMERICAN GENERAL LIFE INSURANCE COMPANY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED) Components of deferred tax liabilities and assets at December 31 were as follows:
1997 1996 --------- --------- (IN THOUSANDS) Deferred tax liabilities applicable to: Deferred policy acquisition costs....................... $ 226,653 $ 308,802 Basis differential of investments....................... 486,194 254,402 Other................................................... 139,298 130,423 --------- --------- Total deferred tax liabilities............................ 852,145 693,627 Deferred tax assets applicable to: Policy reserves......................................... (232,539) (219,677) Other................................................... (83,903) (63,943) --------- --------- Total deferred tax assets before valuation allowance...... (316,442) (283,620) Valuation allowance....................................... -- -- --------- --------- Total deferred tax assets, net of valuation allowance..... (316,442) (283,620) --------- --------- Net deferred tax liabilities.............................. $ 535,703 $ 410,007 ========= =========
A portion of life insurance income earned prior to 1984 is not taxable unless it exceeds certain statutory limitations or is distributed as dividends. Such income, accumulated in policyholders' surplus accounts, totaled $93.6 million at December 31, 1997. At current corporate rates, the maximum amount of tax on such income is approximately $32.8 million. Deferred income taxes on these accumulations are not required because no distributions are expected. 5.2 TAX EXPENSE Components of income tax expense for the year were as follows:
1997 1996 1995 -------- -------- -------- (IN THOUSANDS) Current expense................................... $185,460 $164,272 $153,720 Deferred expense (benefit): Deferred policy acquisition cost................ 27,644 21,628 38,275 Policy reserves................................. (27,496) (27,460) (49,177) Basis differential of investments............... 3,769 4,129 3,710 Other, net...................................... 9,347 14,091 (2,581) -------- -------- -------- Total deferred expense (benefit).................. 13,264 12,388 (9,773) -------- -------- -------- Income tax expense................................ $198,724 $176,660 $143,947 ======== ======== ========
A reconciliation between the income tax expense computed by applying the federal income tax rate (35%) to income before taxes and the income tax expense reported in the financial statement is presented below.
1997 1996 1995 -------- -------- -------- (IN THOUSANDS) Income tax at statutory percentage of GAAP pretax income $200,649 $178,939 $149,185 Tax-exempt investment income.................... (9,493) (9,347) (10,185) Goodwill........................................ 723 759 768 Tax on sale of subsidiary....................... -- -- (661) Other........................................... 6,845 6,309 4,840 -------- -------- -------- Income tax expense.............................. $198,724 $176,660 $143,947 ======== ======== ========
57 AMERICAN GENERAL LIFE INSURANCE COMPANY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED) 5.3 TAXES PAID Income taxes paid amounted to approximately $168 million, $182 million, and $90 million in 1997, 1996, and 1995, respectively. 5.4 TAX RETURN EXAMINATIONS The Parent Company and the majority of its subsidiaries file a consolidated federal income tax return. The Internal Revenue Service has completed examinations of the Company's tax returns through 1988 and is currently examining tax returns for 1989 through 1996. In addition, the tax returns of companies recently acquired are also being examined. Although the final outcome of any issues raised in examination is uncertain, the Company believes that the ultimate liability, including interest, will not exceed amounts recorded in the consolidated financial statements. 6. TRANSACTIONS WITH AFFILIATES Affiliated notes and accounts receivable were as follows:
DECEMBER 31, DECEMBER 31, 1997 1996 --------------- --------------- PAR BOOK PAR BOOK VALUE VALUE VALUE VALUE ------- ------- ------- ------- (IN THOUSANDS) American General Corporation, 9 3/8%, due 2008. $ 4,725 $ 3,288 $ 4,725 $ 3,239 American General Corporation, 8 1/4%, due 2004. 17,125 32,953 19,572 19,572 American General Corporation, Restricted Subordinated Note, 13 1/2%, due 2002.......... 31,494 31,494 33,550 33,550 ------- ------- ------- ------- Total notes receivable from affiliates......... 53,344 67,735 57,847 56,361 Accounts receivable from affiliates............ -- 28,784 -- 30,127 ------- ------- ------- ------- Indebtedness from affiliates................... $53,344 $96,519 $57,847 $86,488 ======= ======= ======= =======
Various American General companies provide services to the Company, principally mortgage servicing and investment advisory services. The Company paid approximately $33,916,000, $22,083,000, and $21,006,000 for such services in 1997, 1996, and 1995, respectively. Accounts payable for such services at December 31, 1997 and 1996 were not material. In addition, the Company rents facilities and provides services to various American General companies. The Company received approximately $6,455,000, $1,255,000, and $2,086,000 for such services and rent in 1997, 1996, and 1995, respectively. Accounts receivable for rent and services at December 31, 1997 and 1996 were not material. The Company has 8,500 shares of $100 par value cumulative preferred stock authorized and outstanding with an $80 dividend rate, redeemable at $1,000 per share after December 31, 2000. The holder of this stock, the Franklin Life Insurance Company ("Franklin"), an affiliated company, is entitled to one vote per share, voting together with the holders of common stock. During 1996, the Company's residential mortgage loan portfolio of $42 million was sold to American General Finance at carrying value plus accrued interest. 7. STOCK-BASED COMPENSATION Certain officers of the Company participate in American General Corporation's stock and incentive plans which provide for the award of stock options, restricted stock awards, performance awards, and incentive awards to key employees. Stock options constitute the majority of such awards. Expense related to stock options is 58 AMERICAN GENERAL LIFE INSURANCE COMPANY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED) measured as the excess of the market price of the stock at the measurement date over the exercise price. The measurement date is the first date on which both the number of shares that the employee is entitled to receive and the exercise price are known. Under the stock option plans, no expense is recognized, since the market price equals the exercise price at the measurement date. Under an alternative accounting method, compensation expense arising from stock options would be measured at the estimated fair value of the options at the date of grant. Had compensation expense for the stock options been determined using this method, net income would have been as follows:
1997 1996 1995 -------- -------- -------- (IN THOUSANDS) Net income as reported............................... $374,557 $334,595 $282,295 Net income pro forma................................. 373,328 334,029 281,821
The average fair values of the options granted during 1997, 1996, and 1995 were $10.33, $7.07, and $6.93, respectively. The fair value of each option was estimated at the date of grant using a Black-Scholes option pricing model. The weighted average assumptions used to estimate the fair value of the stock options were as follows:
1997 1996 1995 ------- ------- ------- Dividend yield.......................................... 3.0% 4.0% 4.0% Expected volatility..................................... 22.0% 22.3% 23.0% Risk-free interest rate................................. 6.4% 6.2% 6.9% Expected life 6 YEARS 6 years 6 years
8. BENEFIT PLANS 8.1 PENSION PLANS The Company has noncontributory, defined benefit pension plans covering most employees. Pension benefits are based on the participant's average monthly compensation and length of credited service offset by an amount that complies with federal regulations. The Company's funding policy is to contribute annually no more than the maximum amount deductible for federal income tax purposes. The Company uses the projected unit credit method for computing pension expense. The components of pension expense and underlying assumptions were as follows:
1997 1996 1995 -------- ------- -------- (DOLLARS IN THOUSANDS) Service cost benefits earned during period........ $ 1,891 $ 1,826 $ 1,346 Interest cost on projected benefit obligation..... 2,929 2,660 2,215 Actual return on plan assets...................... (15,617) (9,087) (10,178) Amortization of unrecognized net asset............ -- (261) (888) Amortization of unrecognized prior service cost... 195 197 197 Deferral of net asset gain........................ 10,148 4,060 5,724 Amortization of gain.............................. -- 68 38 -------- ------- -------- Total pension income.............................. $ (454) $ (537) $ (1,546) ======== ======= ======== Assumptions: Weighted average discount rate on benefit obligation..................................... 7.25% 7.50% 7.25% Rate of increase in compensation levels......... 4.00% 4.00% 4.00% Expected long-term rate of return on plan assets......................................... 10.00% 10.00% 10.00%
59 AMERICAN GENERAL LIFE INSURANCE COMPANY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED) The funded status of the plans and the prepaid pension expenses included in other assets at December 31 were as follows:
DECEMBER 31 ------------------ 1997 1996 -------- -------- (IN THOUSANDS) Actuarial present value of benefit obligation: Vested.................................................... $ 32,926 $ 27,558 Nonvested................................................. 3,465 4,000 Additional minimum liability.............................. -- 205 -------- -------- Accumulated benefit obligation.............................. 36,391 31,763 Effect of increase in compensation levels................... 7,002 5,831 -------- -------- Projected benefit obligation................................ 43,393 37,594 Plan assets at fair value................................... 80,102 65,159 -------- -------- Plan assets in excess of projected benefit obligation....... 36,709 27,565 Unrecognized net gain....................................... (23,548) (15,881) Unrecognized prior service cost............................. 78 274 -------- -------- Prepaid pension expense..................................... $ 13,239 $ 11,958 ======== ========
More than 85% of the plan assets were invested in fixed maturity and equity securities at the plan's most recent balance sheet date. 8.2 POSTRETIREMENT BENEFITS OTHER THAN PENSIONS The Company and its life insurance subsidiaries, together with certain other insurance subsidiaries of the Parent Company, have life, medical, supplemental major medical, and dental plans for certain retired employees and agents. Most plans are contributory, with retiree contributions adjusted annually to limit employer contributions to predetermined amounts. The Company has reserved the right to change or eliminate these benefits at any time. The life plans are fully insured. A portion of the retiree medical and dental plans are funded through a voluntary employees' beneficiary association ("VEBA") established in 1994; the remainder is unfunded and self-insured. All of the retiree medical and dental plans' assets held in the VEBA were invested in readily marketable securities at its most recent balance sheet date. The plans' combined funded status and the accrued postretirement benefit cost included in other liabilities were as follows:
DECEMBER 31 --------------- 1997 1996 ------- ------ (DOLLARS IN THOUSANDS) Actuarial present value of benefit obligation: Retirees.................................................... $ 2,469 $5,199 Fully eligible active plan participants..................... 259 251 Other active plan participants.............................. 3,214 2,465 ------- ------ Accumulated postretirement benefit obligation................. 5,942 7,915 Plan assets at fair value..................................... 159 106 ------- ------ Accumulated postretirement benefit obligation in excess of plan assets at fair value.................................... 5,783 7,809 Unrecognized net gain......................................... (1,950) (243) ------- ------ Accrued postretirement benefit cost........................... $ 3,833 $7,566 ======= ====== Weighted-average discount rate on postretirement benefit obligation 7.25% 7.50%
60 AMERICAN GENERAL LIFE INSURANCE COMPANY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED) The components of postretirement benefit expense were as follows:
1997 1996 1995 ---- ---- ---- (IN THOUSANDS) Service cost benefits earned..................................... $211 $218 $171 Interest cost on accumulated postretirement benefit obligation... 390 626 638 ---- ---- ---- Postretirement benefit expense................................... $601 $844 $809 ==== ==== ====
9. DERIVATIVE FINANCIAL INSTRUMENTS 9.1 USE OF DERIVATIVE FINANCIAL INSTRUMENTS The Company's use of derivative financial instruments is generally limited to interest rate and currency swap agreements, and options to enter into interest rate swap agreements (call swaptions). The Company accounts for its derivative financial instruments as hedges. Hedge accounting requires a high correlation between changes in fair values or cash flows or the derivative financial instruments and the specific items being hedged, both at inception and throughout the life of the hedge. 9.2 INTEREST RATE AND CURRENCY SWAP AGREEMENTS Interest rate swap agreements are used to convert specific investment securities from a floating to a fixed-rate basis, or vice versa, and to hedge against the risk of rising prices on anticipated investment security purchases. Currency swap agreements are infrequently used to effectively convert cash flows from specific investment securities denominated in foreign currencies into U.S. dollars at specified exchange rates, and to hedge against currency rate fluctuations on anticipated investment security purchases. The difference between amounts paid and received on swap agreements is recorded on an accrual basis as an adjustment to net investment income or interest expense, as appropriate, over the periods covered by the agreements. The related amount payable to or receivable from counterparties is included in other liabilities or assets. The fair values of swap agreements are recognized in the consolidated balance sheet if they hedge investments carried at fair value or if they hedge anticipated purchases of such investments. In this event, changes in the fair value of a swap agreement are reported in net unrealized gains on securities included in shareholders' equity, consistent with the treatment of the related investment security. For swap agreements hedging anticipated investment purchases, the net swap settlement amount or unrealized gain or loss is deferred and included in the measurement of the anticipated transaction when it occurs. Swap agreements generally have terms of two to ten years. Any gain or loss from early termination of a swap agreement is deferred and amortized into income over the remaining term of the related investment. If the underlying investment is extinguished or sold, any related gain or loss on swap agreements is recognized in income. Average floating rates may change significantly, thereby affecting future cash flows. 61 AMERICAN GENERAL LIFE INSURANCE COMPANY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED) Interest rate and currency swap agreements related to investment securities at December 31 were as follows:
1997 1995 ---------- ---------- (DOLLARS IN MILLIONS) Interest rate swap agreements to pay fixed rate: Notional amount..................................... $ 15 $ 60 Average receive rate................................ 6.74% 6.19% Average pay rate.................................... 6.48% 6.42% Interest rate swap agreements to receive fixed rate: Notional amount..................................... $ 144 $ 44 Average receive rate................................ 6.89% 6.84% Average pay rate.................................... 6.37% 6.01% Currency swap agreements (receive U.S. dollars/pay Canadian dollars): Notional amount (in U.S. dollars)................... $ 139 $ 99 Average exchange rate............................... 1.50 1.57
9.3 CALL SWAPTIONS Options to enter into interest rate swap agreements are used to limit the Company's exposure to reduced spreads between investment yields and interest crediting rates should interest rates decline significantly over prolonged periods. During such periods, the spread between investment yields and interest crediting rates may be reduced as a result of certain limitations on the Company's ability to manage interest crediting rates. Call swaptions allow the Company to enter into interest rate swap agreements to receive fixed rates and pay lower floating rates, effectively increasing the spread between investment yields and interest crediting rates. Premiums paid to purchase call swaptions are included in investments and are amortized to net investment income over the exercise period of the swaptions. If a call swaption is terminated, any gain is deferred and amortized to insurance and annuity benefits over the expected life of the insurance and annuity contracts and any unamortized premium is charged to income. If a call swaption ceases to be an effective hedge, any related gain or loss is recognized in income. During 1997, the Company purchased call swaptions which expire in 1998. These call swaptions had a notional amount of $1.35 billion and strike rates ranging from 4.5% to 5.5% at December 31, 1997. Should the strike rates remain below market rates, the call swaptions will expire and the Company's exposure would be limited to the premiums paid. 9.4 CREDIT AND MARKET RISK Derivative financial instruments expose the Company to credit risk in the event of non-performance by counterparties. The Company limits this exposure by entering into agreements with counterparties having high credit ratings and by regularly monitoring the ratings. The Company does not expect any counterparty to fail to meet its obligation; however, non-performance would not have a material impact on the Company's consolidated results of operations and financial position. The Company's exposure to market risk is mitigated by the offsetting effects of changes in the value of the agreements and the related items being hedged. Derivative financial instruments related to investment securities did not have a material effect on net investment income in 1997, 1996 or 1995. 62 AMERICAN GENERAL LIFE INSURANCE COMPANY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED) 10. FAIR VALUE OF FINANCIAL INSTRUMENTS SFAS No. 107, Disclosures About Fair Value of Financial Instruments, requires disclosure of the fair value of financial instruments. This standard excludes certain financial instruments and all nonfinancial instruments, including policyholder liabilities for life insurance contracts from its disclosure requirements. Care should be exercised in drawing conclusions based on fair value, since (1) the fair values presented do not include the value associated with all of the Company's assets and liabilities and (2) the reporting of investments at fair value without a corresponding revaluation of related policyholder liabilities can be misinterpreted. Carrying amounts and fair values for those financial instruments covered by SFAS 107 at December 31, 1997 are presented below:
FAIR CARRYING VALUE AMOUNT ------- -------- (IN MILLIONS) ---------------- Assets: Fixed maturity and equity securities *....................... $27,408 $27,408 Mortgage loans on real estate................................ $ 1,702 $ 1,660 Policy loans................................................. $ 1,127 $ 1,094 Investment in parent company................................. $ 38 $ 38 Indebtedness from affiliates................................. $ 97 $ 97 Liabilities: Insurance investment contracts............................... $24,011 $24,497
- -------- * Includes derivative financial instruments with negative fair value of $4.2 million and $10.8 million and positive fair value of $7.2 million and $.6 million at December 31, 1997 and 1996, respectively. The following methods and assumptions were used to estimate the fair values of financial instruments: FIXED MATURITY AND EQUITY SECURITIES Fair values of fixed maturity and equity securities were based on quoted market prices, where available. For investments not actively traded, fair values were estimated using values obtained from independent pricing services or, in the case of some private placements, by discounting expected future cash flows using a current market rate applicable to yield, credit quality, and average life of investments. MORTGAGE LOANS ON REAL ESTATE Fair value of mortgage loans was estimated primarily using discounted cash flows based on contractual maturities and risk-adjusted discount rates. POLICY LOANS Fair value of policy loans was estimated using discounted cash flows and actuarially determined assumptions incorporating market rates. INVESTMENT IN PARENT COMPANY The fair value of the investment in Parent Company is based on quoted market prices of American General Corporation common stock. INSURANCE INVESTMENT CONTRACTS Insurance investment contracts do not subject the Company to significant risks arising from policyholder mortality or morbidity. The majority of the Company's annuity products are considered insurance 63 AMERICAN GENERAL LIFE INSURANCE COMPANY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED) investment contracts. Fair value of insurance investment contracts was estimated using cash flows discounted at market interest rates. INDEBTEDNESS FROM AFFILIATES Indebtedness from affiliates is composed of accounts receivable and notes receivable from affiliates. Due to the short-term nature of accounts receivable, fair value is assumed to equal carrying value. Fair value of notes receivable was estimated using discounted cash flows based on contractual maturities and discount rates that were based on U.S. Treasury rates for similar maturity ranges. 11. DIVIDENDS PAID American General Life Insurance Company paid $402 million, $189 million, and $207 million in dividends on common stock to AGC Life Insurance Company in 1997, 1996, and 1995, respectively. The 1995 dividends included $701 thousand in the form of furniture and equipment. In addition, in 1996, the Company paid $680 thousand in dividends on preferred stock to Franklin. 12. RESTRICTIONS, COMMITMENTS, AND CONTINGENCIES The Company and its insurance subsidiaries are restricted by state insurance laws as to the amounts they may pay as dividends without prior approval from their respective state insurance departments. At December 31, 1997, approximately $2.6 billion of consolidated shareholders' equity represents net assets of the Company which cannot be transferred, in the form of dividends, loans, or advances to the Parent Company. Approximately $2.0 billion of consolidated shareholders' equity is similarly restricted as to transfer from its subsidiaries to the Company. Generally, the net assets of the Company's subsidiaries available for transfer to the Parent are limited to the amounts that the subsidiaries' net assets, as determined in accordance with statutory accounting practices, exceed minimum statutory capital requirements. However, payments of such amounts as dividends may be subject to approval by regulatory authorities and are generally limited to the greater of 10% of policyholders' surplus or the previous year's statutory net gain from operations. The Company has various leases, substantially all of which are for office space and facilities. Rentals under financing leases, contingent rentals, and future minimum rental commitments and rental expense under operating leases are not material. In recent years, various life insurance companies have been named as defendants in class action lawsuits relating, to life insurance pricing and sales practices, and a number of these lawsuits has resulted in substantial settlements. The Company is a defendant in such purported class action lawsuits, asserting claims related to pricing and sales practices. These claims are being defended vigorously by the Company. Given the uncertain nature of litigation and the early stages of this litigation, the outcome of these actions cannot be predicted at this time. The Company nevertheless believes that the ultimate outcome of all such pending litigation should not have a material adverse effect on the Company's financial position; however, it is possible that settlements or adverse determinations in one or more of these actions or other future proceedings could have a material adverse effect on results of operations for a given period. No provision has been made in the consolidated financial statements related to this pending litigation because the amount of loss, if any, from these actions cannot be reasonably estimated at this time. The Company is a party to various other lawsuits and proceedings arising in the ordinary course of business. Many of these lawsuits and proceedings arise in jurisdictions, such as Alabama, that permit damage awards 64 AMERICAN GENERAL LIFE INSURANCE COMPANY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED) disproportionate to the actual economic damages incurred. Based upon information presently available, the Company believes that the total amounts that will ultimately be paid, if any, arising from these lawsuits and proceedings will not have a material adverse effect on the Company's results of operations and financial position. However, it should be noted that the frequency of large damage awards, including large punitive damage awards, that bear little or no relation to actual economic damages incurred by plaintiffs in jurisdictions like Alabama continues to increase and creates the potential for an unpredictable judgment in any given suit. The increase in the number of insurance companies that are under regulatory supervision has resulted, and is expected to continue to result, in increased assessments by state guaranty funds to cover losses to policyholders of insolvent or rehabilitated insurance companies. Those mandatory assessments may be partially recovered through a reduction in future premium taxes in certain states. At December 31, 1997 and 1996, the Company has accrued $7.6 million and $16.1 million, respectively, for guaranty fund assessments, net of $4.3 million and $4.1 million, respectively, of premium tax deductions. The Company has recorded receivables of $9.7 million and $10.9 million at December 31, 1997 and 1996, respectively, for expected recoveries against the payment of future premium taxes. Expenses incurred for guaranty fund assessments were $2.1 million, $6.0 million, and $22.4 million in 1997, 1996, and 1995, respectively. 13. REINSURANCE Reinsurance transactions for the years ended December 31, 1997, 1996, and 1995 were as follows:
CEDED TO ASSUMED PERCENTAGE OF GROSS OTHER FROM OTHER AMOUNT ASSUMED AMOUNT COMPANIES COMPANIES NET AMOUNT TO NET ----------- ----------- ---------- ----------- -------------- (IN THOUSANDS) DECEMBER 31, 1997 Life insurance in force. $45,963,710 $10,926,255 $4,997 $35,042,452 0.01% =========== =========== ====== =========== Premiums: Life insurance and annuities............ $ 100,357 $ 37,294 $ 75 $ 63,138 0.12% Accident and health insurance............ 1,208 172 -- 1,036 0.00% ----------- ----------- ------ ----------- Total premiums.......... $ 101,565 $ 37,466 $ 75 $ 64,174 0.12% =========== =========== ====== =========== DECEMBER 31, 1996 Life insurance in force. $44,535,841 $ 8,625,465 $5,081 $35,915,457 0.01% =========== =========== ====== =========== Premiums: Life insurance and annuities............ $ 104,225 $ 34,451 $ 36 $ 69,810 0.05% Accident and health insurance............ 1,426 64 -- 1,362 0.00% ----------- ----------- ------ ----------- Total premiums.......... $ 105,651 $ 34,515 $ 36 $ 71,172 0.05% =========== =========== ====== =========== DECEMBER 31, 1995 Life insurance in force. $44,637,599 $ 7,189,493 $5,771 $37,453,877 0.02% =========== =========== ====== =========== Premiums: Life insurance and annuities............ $ 103,780 $ 26,875 $ 171 $ 77,076 0.22% Accident and health insurance............ 1,510 82 -- 1,428 0.00% ----------- ----------- ------ ----------- Total premiums.......... $ 105,290 $ 26,957 $ 171 $ 78,504 0.22% =========== =========== ====== ===========
Reinsurance recoverable on paid losses was approximately $2,278,000, $6,904,000, and $6,190,000 at December 31, 1997, 1996, and 1995, respectively. Reinsurance recoverable on unpaid losses was approximately $3,210,000, $4,282,000, and $2,775,000 at December 31, 1997, 1996, and 1995, respectively. 65 AMERICAN GENERAL LIFE INSURANCE COMPANY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED) 14. ACQUISITIONS Effective December 31, 1995, the Company purchased Franklin United Life Insurance Company, a subsidiary of Franklin, which is a wholly owned subsidiary of the Parent Company. This purchase was effected through issuance of $8.5 million in preferred stock to Franklin. The acquisition was accounted for using the purchase method of accounting and is not material to the operations of the Company. 15. YEAR 2000 CONTINGENCY (UNAUDITED) Management has been engaged in a program to render the Company's computer systems (hardware and mainframe and personal applications software) Year 2000 compliant. The Company will incur internal staff costs as well as third-party vendor and other expenses to prepare the systems for Year 2000. The cost of testing and conversion of systems applications has not had, and is not expected to have, a material adverse effect on the Company's results of operations or financial condition. However, risks and uncertainties exist in most significant systems development projects. If conversion of the Company's systems is not completed on a timely basis, due to nonperformance by third- party vendors or other unforeseen circumstances, the Year 2000 problem could have a material adverse impact on the operations of the Company. 66 INDEX OF WORDS AND PHRASES This index should help you to locate more information about some of the terms and phrases used in this prospectus.
PAGE TO SEE IN THIS DEFINED TERM PROSPECTUS ------------ ---------- accumulation value........... 5 AGLC......................... 28 AGL.......................... 16 amount at risk............... 4 automatic rebalancing........ 4 basis........................ 18 beneficiary.................. 21 cash surrender value......... 9 close of business............ 22 Code......................... 17 cost of insurance rates...... 22 daily charge................. 6 date of issue................ 22 death benefit................ 5 dollar cost averaging........ 4 full surrender............... 9 Fund......................... 1 investment option............ 1 lapse........................ 8 Legacy Plus.................. 1 loan, loan interest.......... 9 maturity, maturity date...... 10 modified endowment contract.. 17 monthly deduction day........ 23
PAGE TO SEE IN THIS DEFINED TERM PROSPECTUS ------------ ---------- Mutual Fund............... 1 monthly insurance charge.. 6 Option 1, 2............... 5 partial surrender......... 9 payment option............ 10 planned periodic premium.. 8 Policy.................... 1 Policy loan............... 9 Policy month, year........ 22 preferred loan interest... 10 premium payments.......... 4 premiums.................. 4 prospectus................ 3 reinstate, reinstatement.. 8 SEC....................... 2 separate account.......... 16 Separate Account VL-R..... 16 seven-pay test............ 17 specified amount.......... 5 surrender................. 9 telephone transactions.... 12 transfers................. 4 valuation date, period.... 22
We have filed a registration statement relating to Separate Account VL-R and the Policy with the SEC. The registration statement, which is required by the Securities Act of 1933, includes additional information that is not required in this prospectus. If you would like the additional information, you may obtain it from the SEC's main office in Washington, D.C. You will have to pay a fee for the material. NO PERSON HAS BEEN AUTHORIZED TO GIVE ANY INFORMATION OR TO MAKE ANY REPRESENTATIONS OTHER THAN THOSE CONTAINED IN THIS PROSPECTUS (OR ANY SALES LITERATURE APPROVED BY AGL) IN CONNECTION WITH THE OFFER OF THE POLICIES, AND, IF GIVEN OR MADE, SUCH INFORMATION OR REPRESENTATIONS MUST NOT BE RELIED UPON AS HAVING BEEN AUTHORIZED. THE POLICIES ARE NOT AVAILABLE IN ALL JURISDICTIONS, AND THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFER IN ANY JURISDICTION TO ANY PERSON TO WHOM SUCH OFFER WOULD BE UNLAWFUL THEREIN. 67 PART II (OTHER INFORMATION) UNDERTAKING TO FILE REPORTS Subject to the terms and conditions of Section 15(d) of the Securities Exchange Act of 1934, the undersigned Registrant hereby undertakes to file with the Securities and Exchange Commission such supplementary and periodic information, documents, and reports as may be prescribed by any rule or regulation of the Commission heretofore, or hereafter duly adopted pursuant to authority conferred in that section. RULE 484 UNDERTAKING American General Life Insurance Company's Bylaws provide in Article VII, Section 1 for indemnification of directors, officers and employees of the Company. Insofar as indemnification for liability arising under the Securities Act of 1933 (the "Act") may be permitted to directors, officers and controlling persons of the Registrant pursuant to the foregoing provisions, or otherwise, the Registrant has been advised that in the opinion of the Securities and Exchange Commission such indemnification is against public policy as expressed in the Act and is, therefore, unenforceable. In the event that a claim for indemnification against such liabilities (other than the payment by the Registrant of expenses incurred or paid by a director, officer or controlling person of the Registrant in the successful defense of any action, suit or proceeding) is asserted by such director, officer or controlling person in connection with the securities being registered, the Registrant will, unless in the opinion of its counsel the matter has been settled by controlling precedent, submit to a court of appropriate jurisdiction the question whether such indemnification by it is against public policy as expressed in the Act and will be governed by the final adjudication of such issue. REPRESENTATION PURSUANT TO SECTION 26(e)(2)(A) OF THE INVESTMENT COMPANY ACT OF 1940 American General Life Insurance Company hereby represents that the fees and charges deducted under the Policy, in the aggregate, are reasonable in relation to the services rendered, the expenses expected to be incurred, and risks assumed by American General Life Insurance Company. CONTENTS OF REGISTRATION STATEMENT This Registration Statement contains the following papers and documents: The facing sheet. Cross-Reference Table. Prospectus, consisting of 67 pages. The undertaking to file reports. The Rule 484 undertaking. Representation pursuant to Section 26(e)(2)(A). The signatures. Written Consents of the following persons: (a) Pauletta P. Cohn, Associate General Counsel of the American General Life Companies. (b) Mayer, Brown & Platt. (c) American General Life Insurance Company's actuary. (d) Independent Auditors. The following exhibits: 1. Exhibits required by Article IX, paragraph A of Form N-8B-2: (1)(a) Resolutions of Board of Directors of American General Life Insurance Company authorizing the establishment of Separate Account VL-R. (3) (1)(b) Resolutions of Board of Directors of American General Life Insurance Company authorizing the establishment of variable life insurance standards of suitability and conduct. (1) (2) Not applicable. (3)(a)(i) Distribution Agreement dated October 3, 1991, between American General Securities Incorporated and American General Life Insurance Company. (2) (3)(a)(ii) Form of First Amendment to Distribution Agreement. (5) (3)(b) Form of Selling Group Agreement. (5) (3)(c) Not applicable. (4) Not applicable. 2 (5)(a)(i) Amended Specimen form of the Lockwood Flexible Premium Variable Life Insurance Policy (Policy Form No. 98615). (Filed herewith) (6)(a) Amended and Restated Articles of Incorporation of American General Life Insurance Company, effective December 31, 1991. (2) (6)(b) Bylaws of American General Life Insurance Company, adopted January 22, 1992. (3) (6)(c) Amendment to the Amended and Restated Articles of Incorporation of American General Life Insurance Company, effective July 13, 1995 (Filed herewith). (7) Not applicable. (8)(a) Form of Participation Agreement by and between BT Insurance Funds Trust and American General Life Insurance Company. (Filed herewith) (8)(b) Form of Amendment No. 3 to the Participation Agreement by and between Morgan Stanley Universal Funds, Inc. and American General Life Insurance Company. (Filed herewith) (8)(c) Form of First Amendment to Participation Agreement by and between American General Life Insurance Company and American General Series Portfolio Company. (Filed herewith) (8)(d) Form of Agreement by and between AIM Variable Insurance Funds, Inc. and American General Life Insurance Company. (Filed herewith) (8)(e) Form of First Amendment to Participation Agreement by and between Royce Capital Fund and American General Life Insurance Company. (Filed herewith) (8)(f) Form of Administrative Services Agreement between American General Life Insurance Company and fund distributor. (Filed herewith) (9) All other material contracts not entered into in the ordinary course of business of the trust or of the depositor concerning the trust. Not applicable. (10)(a) Specimen form of application for life insurance issued by American General Life Insurance Company. (Filed herewith) 3 (10)(b) Specimen form of supplemental application for variable life insurance issued by American General Life Insurance Company on Policy Form No. 98615. (Filed herewith) (10)(c) Form of Service Request. (Filed herewith) (10)(d) Form of Owner Authorization of Third Party Transfers Other Exhibits 2(a) Opinion and Consent of Pauletta P. Cohn, Associate General Counsel of American General Life Companies. (Filed herewith) 2(b) Consent of Mayer, Brown & Platt. (Filed herewith) 2(c) Opinion and Consent of American General Life Insurance Company's actuary. (Filed herewith) 3 Not applicable. 4 Not applicable. 6 Consent of Independent Auditors. (Filed herewith) 7 Powers of Attorney. (6) 27 Financial Data Schedule. Not applicable. (1) Incorporated herein by reference to the initial filing of the Form S-6 Registration Statement (File No. 333-42567) of American General Life Insurance Company Separate Account VL-R on December 18, 1997. (2) Incorporated herein by reference to the initial filing of the Form N-4 Registration Statement (File No. 33-43390) of Separate Account D of American General Life Insurance Company on October 16, 1991. (3) Incorporated herein by reference to the filing of Post-Effective Amendment No. 1 of the Form N-4 Registration Statement (File No. 33-43390) of Separate Account D of American General Life Insurance Company on April 30, 1992. (4) Incorporated by reference to the filing of Pre-Effective Amendment No. 1 of the Form N-4 Registration Statement (File No. 333-40637) of Separate Account D of American General Life Insurance Company on February 12, 1998. 4 (5) Incorporated by reference to the filing of Pre-Effective Amendment No. 1 of the Form S-6 Registration Statement (File No. 333-42567) of American General Life Insurance Company Separate Account VL-R on March 23, 1998. (6) Incorporated herein by reference to the initial filing of the Form S-6 Registration Statement (File No. 333-53909) of American General Life Insurance Company Separate Account VL-R filed on May 29, 1998. 5 SIGNATURES Pursuant to the requirements of the Securities Act of 1933, the Registrant, American General Life Insurance Company Separate Account VL-R, has duly caused this amended registration statement to be signed on its behalf by the undersigned thereunto duly authorized, and its seal to be hereunto affixed and attested, all in the City of Houston, and State of Texas, on the 14th day of August, 1998. AMERICAN GENERAL LIFE INSURANCE COMPANY SEPARATE ACCOUNT VL-R (Registrant) BY: AMERICAN GENERAL LIFE INSURANCE COMPANY (On behalf of the Registrant and itself) BY: /s/ ROBERT F. HERBERT, JR. ------------------------------------- Robert F. Herbert, Jr. Senior Vice President [SEAL] ATTEST: /s/ PAULETTA P. COHN ----------------------- Pauletta P. Cohn Secretary Pursuant to the requirements of the Securities Act of 1933, this amended Registration Statement has been signed by the following persons in the capacities and on the dates indicated. Signature Title Date - --------- ----- ---- /s/ RONALD H. RIDLEHUBER Principal Executive Officer August 14, 1998 - ----------------------------- (Ronald H. Ridlehuber) /s/ ROBERT F. HERBERT, JR. Principal Financial and August 14, 1998 - ----------------------------- Accounting Officer (Robert F. Herbert, Jr.) Signature Title Date - --------- ----- ---- Director , 1998 - ---------------------------------- ----------- (James S. D'Agostino, Jr.) /s/ DAVID A. FRAVEL* Director - ---------------------------------- August 14, 1998 (David A. Fravel) /s/ ROBERT F. HERBERT, JR. Director - ---------------------------------- August 14, 1998 (Robert F. Herbert, Jr.) Director , 1998 - ---------------------------------- ----------- Royce G. Imhoff, II) /s/ JOHN V. LAGRASSE* Director August 14, 1998 - ---------------------------------- (John V. LaGrasse) /s/ RODNEY O. MARTIN, JR. * Director August 14, 1998 - ---------------------------------- (Rodney O. Martin, Jr.) Director , 1998 - ---------------------------------- ----------- (Jon P. Newton) /s/ PHILIP K. POLKINGHORN* Director August 14, 1998 - ---------------------------------- (Philip K. Polkinghorn) /s/ RONALD H. RIDLEHUBER Director - ---------------------------------- (Ronald H. Ridlehuber August 14, 1998 /s/ ROBERT F. HERBERT, JR. - ---------------------------------- * By Robert F. Herbert, Jr., Attorney-in-Fact EXHIBIT INDEX 1. Exhibits required by Article IX, paragraph A of Form N-8B-2: (1)(a) Resolutions of Board of Directors of American General Life Insurance Company authorizing the establishment of Separate Account VL-R. (3) (1)(b) Resolutions of Board of Directors of American General Life Insurance Company authorizing the establishment of variable life insurance standards of suitability and conduct. (1) (2) Not applicable. (3)(a)(i) Distribution Agreement dated October 3, 1991, between American General Securities Incorporated and American General Life Insurance Company. (2) (3)(a)(ii) Form of First Amendment to Distribution Agreement. (5) (3)(b) Form of Selling Group Agreement. (5) (3)(c) Not applicable. (4) Not applicable. (5)(a)(i) Amended Specimen form of the Lockwood Flexible Premium Variable Life Insurance Policy (Policy Form No. 98615). (Filed herewith) (6)(a) Amended and Restated Articles of Incorporation of American General Life Insurance Company, effective December 31, 1991. (2) (6)(b) Bylaws of American General Life Insurance Company, adopted January 22, 1992. (3) (6)(c) Amendment to the Amended and Restated Articles of Incorporation of American General Life Insurance Company, effective July 13, 1995 (Filed herewith). (7) Not applicable. (8)(a) Form of Participation Agreement by and between BT Insurance Funds Trust and American General Life Insurance Company. (Filed herewith) (8)(b) Form of Amendment No. 3 to the Participation Agreement by and between Morgan Stanley Universal Funds, Inc. and American General Life Insurance Company. (Filed herewith) (8)(c) Form of First Amendment to Participation Agreement by and between American General Life Insurance Company and American General Series Portfolio Company. (Filed herewith) (8)(d) Form of Agreement by and between AIM Variable Insurance Funds, Inc. and American General Life Insurance Company. (Filed herewith) (8)(e) Form of First Amendment to Participation Agreement by and between Royce Capital Fund and American General Life Insurance Company. (Filed herewith) (8)(f) Form of Administrative Services Agreement between American General Life Insurance Company and fund distributor. (Filed herewith) (9) All other material contracts not entered into in the ordinary course of business of the trust or of the depositor concerning the trust. Not applicable. (10)(a) Specimen form of application for life insurance issued by American General Life Insurance Company. (Filed herewith) (10)(b) Specimen form of supplemental application for variable life insurance issued by American General Life Insurance Company on Policy Form No. 98615. (Filed herewith) (10)(c) Form of Service Request. (Filed herewith) (10)(d) Form of Owner Authorization of Third Party Transfers Other Exhibits 2(a) Opinion and Consent of Pauletta P. Cohn, Associate General Counsel of American General Life Companies. (Filed herewith) 2(b) Consent of Mayer, Brown & Platt. (Filed herewith) 2(c) Opinion and Consent of American General Life Insurance Company's actuary. (Filed herewith) 3 Not applicable. 4 Not applicable. 6 Consent of Independent Auditors. (Filed herewith) 7 Powers of Attorney. (6) 27 Financial Data Schedule. Not applicable. (1) Incorporated herein by reference to the initial filing of the Form S-6 Registration Statement (File No. 333-42567) of American General Life Insurance Company Separate Account VL-R on December 18, 1997. (2) Incorporated herein by reference to the initial filing of the Form N-4 Registration Statement (File No. 33-43390) of Separate Account D of American General Life Insurance Company on October 16, 1991. (3) Incorporated herein by reference to the filing of Post-Effective Amendment No. 1 of the Form N-4 Registration Statement (File No. 33-43390) of Separate Account D of American General Life Insurance Company on April 30, 1992. (4) Incorporated by reference to the filing of Pre-Effective Amendment No. 1 of the Form N-4 Registration Statement (File No. 333-40637) of Separate Account D of American General Life Insurance Company on February 12, 1998. (5) Incorporated by reference to the filing of Pre-Effective Amendment No. 1 of the Form S-6 Registration Statement (File No. 333-42567) of American General Life Insurance Company Separate Account VL-R on March 23, 1998. (6) Incorporated herein by reference to the initial filing of the Form S-6 Registration Statement (File No. 333-53909) of American General Life Insurance Company Separate Account VL-R filed on May 29, 1998. EX-1.5AI 2 AMERICAN GENERAL SPECIMEN POLICY EXHIBIT 1.5(a)(i) AMERICAN GENERAL LIFE INSURANCE COMPANY Home Office: Houston, Texas [AMERICAN GENERAL 2727-A Allen Parkway JOHN DOE LOGO P.O. Box 4880 POLICY NUMBER: 0000000000 APPEARS HERE] Houston, Texas 77210-4880 A STOCK COMPANY ------------------------------------------------ (713) 522-1111 A Subsidiary of American General Corporation ------------------------------------------------ WE WILL PAY THE DEATH BENEFIT PROCEEDS to the Beneficiary if the Insured dies prior to the Maturity Date and while this policy is in force. Payment will be made after We receive due proof of the Insured's death, and will be subject to the terms of this policy. WE WILL PAY THE CASH SURRENDER VALUE of this policy to the Owner on the Maturity Date if the Insured is living on that date. THE AMOUNT OR DURATION OF THE DEATH BENEFIT PROCEEDS AND THE ACCUMULATION VALUES PROVIDED BY THIS POLICY WHEN BASED ON THE INVESTMENT EXPERIENCE OF A SEPARATE ACCOUNT, ARE VARIABLE AND NOT GUARANTEED AS TO FIXED DOLLAR AMOUNT. The consideration for this policy is the application and payment of the first premium. The first premium must be paid on or before delivery of this policy. This is a FLEXIBLE PREMIUM VARIABLE LIFE INSURANCE POLICY. An adjustable Death Benefit is payable upon the Insured's death prior to the Maturity Date. Investment results are reflected in policy benefits. ACCUMULATION VALUES are flexible and will be based on the amount and frequency of premiums paid and the investment results of the Separate Account. NONPARTICIPATING - NOT ELIGIBLE FOR DIVIDENDS. NOTICE OF TEN DAY RIGHT TO EXAMINE POLICY YOU MAY RETURN THIS POLICY WITHIN 10 DAYS AFTER DELIVERY IF YOU ARE NOT SATISFIED WITH IT FOR ANY REASON. THE POLICY MAY BE RETURNED TO US OR TO THE REGISTERED REPRESENTATIVE THROUGH WHOM IT WAS PURCHASED. UPON SURRENDER OF THIS POLICY WITHIN THE 10 DAY PERIOD, IT WILL BE DEEMED VOID FROM THE DATE OF ISSUE, AND WE WILL REFUND ANY PREMIUMS PAID ADJUSTED TO REFLECT INVESTMENT EXPERIENCE. SIGNED AT THE HOME OFFICE ON THE DATE OF ISSUE. Secretary President FLEXIBLE PREMIUM VARIABLE LIFE INSURANCE POLICY READ YOUR POLICY CAREFULLY INDEX
Allocation of Policy Deductions 4 General Provisions 18 Allocation of Net Premiums 4 Grace Period 11 Annual Report 19 Incontestability 18 Automatic Rebalancing 13 Investment Advisor, Change of 9 Beneficiary and Proceeds 16 Investments of the Separate Account 8 Cash Surrender Value 11 Maturity Date 3 Changing Your Insurance Policy 7 Owner 5 Change of Ownership or Beneficiary 16 Payment Options 16 Changing the Death Benefit Option 7 Policy Loans 14 Increasing the Death Benefit Amount 7 Policy Values Provision 9 Contract 5 Premium Class 2 Cost of Insurance Rate Table 20 Premium Payments 5 Date of Issue 3,5 Separate Account Provisions 7 Death Benefit and Death Benefit Options 6 Surrender, Full and Partial 12 Dollar Cost Averaging 13 Suspension and Deferral of Payments Provision 14 Expense Charges Transfer Provision 13 Premium Expense Charge 4 Valuation of Assets 8 Loan Account 14 Valuation Dates 8 Valuation Units 8
COMPANY REFERENCE. We, Our, Us, or Company means American General Life Insurance Company. YOU, YOUR. The words You or Your mean the Owner of this policy. HOME OFFICE. Our office at 2727-A Allen Parkway, Houston, Texas 77019-4880; Mailing Address P. O. Box 4880, Houston, Texas 77210-4880. WRITTEN, IN WRITING. A written request or notice in acceptable form and content, which is signed and dated, and received at Our Home Office. PREMIUM CLASS. The Premium Class of this policy is shown on page 3 as one or a combination of the following terms: . PREFERRED. The term "Preferred" means the cost of insurance is based on the Insured being a non-user of tobacco. . STANDARD. The term "Standard" means the cost of insurance is based on the Insured being a tobacco user. . SPECIAL. The term "Special" means an extra premium is being charged due to the Insured's health, occupation or avocation. NOTICE This Policy Is A Legal Contract Between The Policy Owner And the Company. Page 2 POLICY SCHEDULE BASIC POLICY MONTHLY COST YEARS PAYABLE VARIABLE LIFE SEE PAGE 21 65 ADDITIONAL BENEFITS PROVIDED BY RIDERS
NONE PREMIUM CLASS: PREFERRED
INITIAL PREMIUM: [$250,000.00] PLANNED PERIODIC PREMIUM: $5,000.00 PAYABLE ANNUALLY MONTHLY DEDUCTION DAY: 1ST DAY OF EACH MONTH
MINIMUM DEATH BENEFIT $ 500,000 AMOUNT (AFTER A DECREASE IN SPECIFIED AMOUNT) MINIMUM CASH SURRENDER VALUE AFTER A PARTIAL SURRENDER: $ 100,000 MINIMUM PARTIAL SURRENDER $ 5,000 MINIMUM VALUE THAT MAY BE RETAINED IN A DIVISION AFTER A PARTIAL SURRENDER OR TRANSFER $ 5,000 MAXIMUM NET AMOUNT AT RISK [$1,500,000]
COVERAGE MAY EXPIRE PRIOR TO THE MATURITY DATE SHOWN WHERE EITHER NO PREMIUMS ARE PAID FOLLOWING PAYMENT OF THE INITIAL PREMIUM, OR SUBSEQUENT PREMIUMS ARE INSUFFICIENT TO CONTINUE COVERAGE TO SUCH DATE.
INSURED: JOHN DOE POLICY NUMBER: 0000000000 INSURANCE AGE: 35 DATE OF ISSUE: JUNE 1, 1998 INITIAL SPECIFIED AMOUNT: $500,000 MATURITY DATE: JUNE 1, 2063 DEATH BENEFIT OPTION: 1
THIS IS A (STATE NAME) POLICY Page 3 POLICY SCHEDULE CONTINUED - POLICY NUMBER 0000000000 CHARGES DEDUCTED FROM THE SEPARATE ACCOUNT MORTALITY AND EXPENSE CHARGE. Deductions from the Separate Account will be made at an annual rate not to exceed .75%. After the 10th policy anniversary the annual rate will not exceed .50%. After the 20th policy anniversary the annual rate will not exceed .25% The current rate on the date of issue is [.75%]. The actual deduction will be made on a daily basis. The current rate on a daily basis is [.002055%]. EXPENSE CHARGES: PREMIUM EXPENSE CHARGE: CURRENT GUARANTEED (ADJUSTABLE PERCENTAGE OF PREMIUM) [0%] 1.5% BASIC POLICY CHARGES AND FEES COST OF INSURANCE CHARGES. Guaranteed Maximum Cost of Insurance Rates Per $1,000 of Net Amount at Risk are shown on page 21. INITIAL ALLOCATION OF NET PREMIUMS AND POLICY DEDUCTIONS
Investment Option(s) Initial Allocation Initial Allocation of of Net Premiums Policy Deductions SEPARATE ACCOUNT: VL-R [( ) Equity 500 Index 100% 100% ( ) EAFE Equity Index 0% 0% ( ) AIM V.I. Value 0% 0% ( ) Equity Growth 0% 0% ( ) Royce Total Return 0% 0% ( ) Money Market 0% 0%]
Page 4 CONTRACT. Your policy is a legal contract that You have entered into with Us. You have paid the first premium and have submitted an application, a copy of which is attached. In return, We promise to provide the insurance coverage described in this policy. The entire contract consists of: 1. The basic policy; 2. The riders that add benefits to the basic policy, if any; 3. Endorsements, if any; and 4. The attached copy of your application, and any amendments or supplemental applications. DATE OF ISSUE. The Date of Issue of this policy is the date on which the first premium is due. The Date of Issue is also the date from which all policy years, anniversaries, and monthly deduction dates are determined. OWNER. The Owner is as stated in the application unless later changed. During the Insured's lifetime, the Owner may exercise every right the policy confers or We allow (subject to the rights of any assignee of record, and to any endorsement on this policy limiting such rights). You may have Joint Owners of the policy. In that case, the authorization of both Joint Owners is required for all policy changes except for transfers, premium allocations and deduction allocations. We will accept the authorization of either Joint Owner for transfers and changes in premium and deduction allocations. The Owner and the Insured may be the same person but do not have to be. If the Owner dies while the policy is in force and the Insured is living, ownership rights pass on to a successor owner, if any, or to the estate of the Owner. PREMIUM PAYMENTS All premiums after the first are payable in advance. Premium payments are flexible. This means You may choose the amount and frequency of payments. The sum of the premiums paid under this policy may not exceed the guideline premium limitation as defined by Section 7702, Internal Revenue Code of 1986 (or as later amended). Any portion of any premium paid which is determined to be in excess of the limit will be refunded. To receive the tax treatment accorded life insurance under U.S. law, this policy must initially qualify and continue to qualify as life insurance under Section 7702 of the Internal Revenue Code. PLANNED PERIODIC PREMIUMS. The amount and frequency of the Planned Periodic Premiums You selected are shown on page 3. You may request a change in the amount and frequency. We may limit the amount of any increase. (See "Maximum Net Amount at Risk"). UNSCHEDULED ADDITIONAL PREMIUMS. You may pay additional premiums at any time before the Maturity Date shown on page 3, except that: 1. We may limit the number and amount of additional premiums, as provided in the "Maximum Net Amount at Risk" provision; or 2. If payment of additional premiums would result in an increase in the Death Benefit Amount, such increase will be subject to a written application and evidence of insurability satisfactory to Us. Any unscheduled payments will be applied as Unscheduled Additional Premiums unless You specifically state otherwise. MAXIMUM NET AMOUNT AT RISK. We reserve the right to reduce the Death Benefit by affecting partial surrenders or limit the number and amount of additional premiums in order to maintain the Net Amount at Risk, as defined below, at an amount that will not exceed the Maximum Net Amount at Risk shown on page 3. Net Amount at Risk is the excess of the Death Benefit over the Page 5 Accumulation Value of the policy. PREMIUM EXPENSE CHARGE. The Premium Expense Charge is calculated by multiplying the premium paid by the Premium Expense Charge Percentage. The Premium Expense Charge Percentage is adjustable, but will never be more than the guaranteed Premium Expense Charge Percentage shown on the Policy Schedule. NET PREMIUM. The Net Premium is the premium paid, less the Premium Expense Charge. ALLOCATION OF PREMIUMS. The initial allocation of Net Premiums is shown on the Policy Schedule and will remain in effect until changed by Written notice from the Owner. The percentage allocation for future Net Premiums may be changed at any time by Written notice. If We have on file a completed telephone authorization form (Telephone Transaction), We will allow the percentage allocation for future Net Premiums to be changed at any time by telephone. We will honor instructions for Telephone Transactions from any person who provides the correct information. Therefore, there is a risk of possible loss to You if unauthorized persons use this service in Your name. Under Telephone Transactions, We are not liable for any acts or omissions based upon instructions that We reasonably believe to be genuine, including losses arising from errors in the communication of telephone instructions. The initial Net Premium will be allocated to the Money Market Division on the later of the following dates: 1. The Date of Issue; or 2. The date all requirements needed to place the policy in force have been satisfied, including underwriting approval and receipt in the Home Office of the necessary premium. The initial Net Premium will remain in the Money Market Division until the first Valuation Date following the 15th day after it was applied. Any additional Net Premiums received prior to the first Valuation Date which follows the 15th day after the initial Net Premium was applied will be allocated to the Money Market Division until such Valuation Date. At that time, We will transfer the Accumulation Value to the selected Investment Option(s). Each premium received after such Valuation Date will be reduced by the Premium Expense Charge and applied directly to the selected Investment Option(s) as of the Business Day received. Changes in the allocation will be effective on the date we receive the Owner's notice. The allocation may be 100% to any available Division or may be divided among these options in whole percentage points totaling 100%. We reserve the right to limit the number of Divisions which You may select. WHERE TO PAY. You may make Your payments to Us at Our Home Office or to an authorized agent. A receipt signed by an officer of the Company will be furnished upon request. DEATH BENEFIT AND DEATH BENEFIT OPTIONS DEATH BENEFIT PROCEEDS. If the Insured dies prior to the Maturity Date and while this policy is in force, We will pay the Death Benefit Proceeds to the Beneficiary. The Death Benefit Proceeds will be subject to: 1. The Death Benefit Option in effect on the date of death; and 2. Any increases (or decreases resulting from a partial surrender) made to the Specified Amount. The Initial Specified Amount is shown on page 3. Guidelines for changing the Death Benefit Option or the Specified Amount will be found in the section entitled "Changing Your Insurance Policy." Page 6 The Death Benefit Proceeds will be the Death Benefit Amount reduced by any outstanding policy loan and will be subject to the other provisions of the "Beneficiary and Proceeds" section. DEATH BENEFIT OPTION. The Death Benefit Option which You have chosen is shown on page 3 as either Option 1 or Option 2. OPTION 1. If You have chosen Option 1 the Death Benefit Amount will be the greater of: 1. The Specified Amount on the date of death; or 2. The Accumulation Value on the date of death multiplied by the Death Benefit Corridor Rate for the Insured's age nearest birthday as shown in the table on page 20. OPTION 2. If You have chosen Option 2, the Death Benefit Amount will be the greater of: 1. The Specified Amount plus the Accumulation Value on the date of death; or 2. The Accumulation Value on the date of death multiplied by the Death Benefit Corridor Rate for the Insured's age nearest birthday as shown in the table on page 20. CHANGING YOUR INSURANCE POLICY You may request an increase in the Specified Amount or a change in the Death Benefit Option at any time. Your request must be submitted to Our Home Office In Writing in a form acceptable to Us. INCREASING THE DEATH BENEFIT AMOUNT. The Owner may request an increase in the Death Benefit Amount by submitting a written supplemental application to Us. The increase will require evidence of insurability satisfactory to Us. An increase will be effective as of the next Monthly Deduction Day following the date the application for increase is approved by Us. The effective date will appear in an endorsement to this policy. CHANGING THE DEATH BENEFIT OPTION. You may request a change in the Death Benefit Option You have chosen. 1. If You request a change from Option 1 to Option 2: The new Specified Amount will be the Specified Amount, prior to change, less the Accumulation Value as of the effective date of the change, but not less than zero. 2. If You request a change from Option 2 to Option 1: The new Specified Amount will be the Specified Amount, prior to change, plus the Accumulation Value as of the effective date of the change. We will not require evidence of insurability for a change in the Death Benefit Option. The change will go into effect on the Monthly Deduction Day following the date We receive Your Written request for change. CHANGING THE TERMS OF YOUR POLICY. Any change in Your policy must be approved by one of Our officers. No agent has the authority to make any changes or waive any of the terms of Your policy. SEPARATE ACCOUNT PROVISIONS SEPARATE ACCOUNT. Separate Account VL-R is a segregated investment account established by the Company under Texas law to separate the assets funding the variable benefits for the class of policies to which this policy belongs from the other assets of the Company. That portion of the assets of the Separate Account equal to the reserves and other policy liabilities with respect to the Separate Account shall not be chargeable with liabilities arising out of any other business We Page 7 SEPARATE ACCOUNT PROVISIONS (CONT'D) may conduct. Income, gains and losses, whether or not realized from assets allocable to the Separate Account, are credited to or charged against such Account without regard to Our other income, gains or losses. INVESTMENTS OF THE SEPARATE ACCOUNT. The Separate Account is segmented into Divisions. Each Division invests in a single Investment Option. Net Premiums will be applied to the Separate Account and allocated to one or more Divisions. The assets of the Separate Account are invested in the Investment Option(s) listed on the Policy Schedule pages. From time to time, We may add additional Divisions to those shown on the Policy Schedule pages. We may also discontinue offering one or more Divisions as provided in "Rights Reserved by Us." Any change in Divisions available or selected are shown on the Policy Schedule or on an amended Policy Schedule. Any change in investment selection shall be pursuant to a duly executed change form filed with Our Home Office. Transfers may be made to the additional Divisions subject to the rules stated in the Transfer Provision and any new rules or limitations tied to such additional Divisions. If shares of any of the Investment Options become unavailable for investment by the Separate Account, or the Company's Board of Directors deems further investment in these shares inappropriate, the Company may limit further investment in the shares or may substitute shares of another Investment Option for shares already purchased under this policy as provided in "Rights Reserved by Us" provision. VALUATION OF ASSETS. The assets of the Separate Account are valued as of each Valuation Date at their fair market value in accordance with Our established procedures. The Separate Account Value as of any Valuation Date prior to the Maturity Date is the sum of Your account values in each Division of the Separate Account as of that date. VALUATION UNITS. In order to determine policy values in the Divisions, We use Valuation Units which are calculated separately for each Division. The Valuation Unit value for each Division will vary to reflect the investment experience of the applicable Investment Option. The Valuation Unit for a Division will be determined on each Valuation Date for the Division by multiplying the Valuation Unit value for the Division on the preceding Valuation Date by the Net Investment Factor for that Division for the current Valuation Date. The Net Investment Factor for each Division is determined by dividing (1) by (2) and subtracting (3), where: (1) is the net asset value per share of the applicable Investment Option as of the current Valuation Date (plus any per share amount of any dividend or capital gains distribution paid by the Investment Option since the last Valuation Date); and (2) is the net asset value per share of the shares held in the Division as determined at the end of the previous valuation period; and (3) is a factor representing the Mortality and Expense Charge. The net asset value of an Investment Option's shares held in each division shall be the value reported to Us by that Investment Option. VALUATION DATES. Valuation of the various Divisions will occur on each Business Day during each month. If the underlying Investment Option is unable to value or determine the Division's investment in an Investment Option due to any of the reasons stated in the "Suspension and Deferral of Payments Provision," the Valuation Date for the Division with respect to the unvalued portion shall be the first Business Day that the assets can be valued or determined. Page 8 BUSINESS DAY. A business day is each day that the New York Stock Exchange and the Company are open for business. For the purpose of collecting daily charges, a business day immediately preceded by one or more non-business calendar days will include those non-business days as a part of that business day. For example, a business day which falls on a Monday will consist of a Monday and the immediately preceding Saturday and Sunday. MINIMUM BALANCE. The minimum value that may be retained in a Division after a partial surrender or transfer is shown on page 3. If a partial surrender causes the balance in any Division to drop below such minimum amount, the Company reserves the right to transfer the remaining balance to the Money Market Division. If a transfer causes the balance in any Division to drop below the minimum amount, the Company reserves the right to transfer the remaining balance in proportion to the transfer request. A partial surrender may not leave a Cash Surrender Value of less than the amount specified on page 3. CHANGE OF INVESTMENT ADVISOR OR INVESTMENT POLICY. Unless otherwise required by law or regulation, the investment advisor or any investment policy may not be changed without Our consent. If required, approval of or change of any investment objective will be filed with the Insurance Department of the state where the policy is being delivered. RIGHTS RESERVED BY US. Upon notice to You, this policy may be modified by Us, but only if such modification is necessary to: 1. Operate the Separate Account in any form permitted under the Investment Company Act of 1940 or in any other form permitted by law; 2. Transfer any assets in any Division to another Division, or to one or more other separate accounts; 3. Add, combine or remove Divisions in the Separate Account, or combine the Separate Account with another separate account; 4 Make any new Division available to You on a basis to be determined by Us; 5. Substitute for the shares held by any Division the shares of another Division or the shares of another investment company or any other investment permitted by law; 6. Make any changes as required by the Internal Revenue Code, or by any other applicable law, regulation or interpretation in order to continue treatment of this policy as life insurance; or 7. Make any changes required to comply with the requirements of any underlying Investment Option. When required by law, We will obtain Your approval of changes and We will gain approval from any appropriate regulatory authority. POLICY VALUES PROVISION ACCUMULATION VALUE. The Accumulation Value of Your policy is the total of all values in the Divisions of the Separate Account and in the Loan Account. The Accumulation Value reflects: 1. Net Premiums paid; 2. Monthly deductions; 3. The investment experience of the Divisions selected less the Mortality and Expense Charge; 4. Amounts allocated to the Loan Account, including interest earned on amounts in the Loan Account (See "Policy Loans"); Page 9 5. Deductions due to partial surrenders and any charges for partial surrenders and transfers. Net premiums are allocated, in accordance with your instructions, to the selected Divisions of the Separate Account and converted to Valuation Units. On each Monthly Deduction Day, a Monthly Deduction will be made by redeeming Valuation Units from each applicable Division in the same ratio as the Allocation of Policy Deductions in effect on the Monthly Deduction Day. If the number of Valuation Units in any Division is insufficient to make a Monthly Deduction in this manner, We will cancel Valuation Units from each applicable Division in the same ratio the Monthly Deduction bears to the unloaned Accumulation Value of your policy. The Accumulation Value in any Division is determined by multiplying the value of a Valuation Unit by the number of Valuation Units held under the policy in that Division. The value of the Valuation Units equal to the amount being borrowed from the Separate Account will be transferred to the Loan Account as of the Business Day that the loan request is received In Writing. Valuation Units are surrendered to reflect a partial surrender as of the Business Day that the request for partial surrender is received In Writing. ON THE DATE OF ISSUE. The Accumulation Value on the Date of Issue will be determined as follows: 1. The Net Premium received; less 2. The Monthly Deduction for the first policy month (See "How We Calculate a Monthly Deduction."). The first deduction day is the Date of Issue. The Monthly Deduction Day is shown on page 3. ON EACH MONTHLY DEDUCTION DAY. On each Monthly Deduction Day after the Date of Issue, we will determine the Accumulation Value as follows: 1. We will take the Accumulation Value as of the last Monthly Deduction Day; and 2. Add the interest earned for the month on the excess of the Loan Account value on the last Monthly Deduction Day over any reductions made in the Loan Account since the last Monthly Deduction Day; and 3. Add any investment gain (or subtract any investment loss) on the Divisions of the Separate Account since the last Monthly Deduction Day as measured by the change in the value of the Valuation Units; and 4. Add all Net Premiums received since the last Monthly Deduction Day; and 5. Subtract any partial surrender made since the last Monthly Deduction Day; and 6. Subtract the Monthly Deduction for the policy month following the Monthly Deduction Day. (See "How We Calculate a Monthly Deduction.") ON ANY VALUATION DATE OTHER THAN A MONTHLY DEDUCTION DAY. The Accumulation Value on any Valuation Date other than a Monthly Deduction Day will be the sum of: 1. The value of the Loan Account; 2. Less any partial surrenders since the last Monthly Deduction Day. 3. Plus all Net Premiums received since the last Monthly Deduction Day; 4. Plus the sum of the values of the Divisions of the Separate Account as of the last Monthly Deduction Day, plus the amount of any investment gain (or minus any investment loss) on the Divisions since the last Monthly Deduction Day as measured by the change in the value of the Valuation Units. Page 10 CASH SURRENDER VALUE. The Cash Surrender Value of this policy will be equal to the Accumulation Value less any indebtedness. HOW WE CALCULATE A MONTHLY DEDUCTION. Each Monthly Deduction includes: 1. The cost of insurance provided by the basic policy; and 2. The cost of insurance for benefits provided by riders, if any. HOW WE CALCULATE THE COST OF INSURANCE FOR THE BASIC POLICY. We calculate the cost of insurance at the beginning of each policy month as of the Monthly Deduction Day. The cost of insurance is determined as follows: 1. Reduce the Death Benefit Amount by the amount of Accumulation Value on the Monthly Deduction Day before the cost of insurance deduction is taken, and after the cost of insurance for riders, if any, are deducted; 2. Multiply the difference by the cost of insurance rate per $1,000 of the Net Amount at Risk as provided in the Cost of Insurance Rate provision; and 3. Divide the result by 1,000. If Option 1 is in effect, and there have been increases in the Specified Amount, the Accumulation Value will first be considered part of the Initial Specified Amount. If the Accumulation Value exceeds the Initial Specified Amount, the excess will be considered part of any Specified Amount increases in the order in which the increases were made. COST OF INSURANCE FOR BENEFITS PROVIDED BY RIDERS. The cost of insurance for benefits provided by riders, if any, will be as stated on the Policy Schedule or in an endorsement to this policy. COST OF INSURANCE RATE. The cost of insurance rate for the Initial Specified Amount, and for each Specified Amount increase, is based on the Insured's: 1. Sex (if issued on a Sex Distinct basis); 2. Age nearest birthday on each policy anniversary; and 3. Premium class shown on the Policy Schedule, associated with the Initial Specified Amount and each increase in the Specified Amount. The guaranteed monthly cost of insurance rates are shown in the table on page []. We can use cost of insurance rates that are lower than the guaranteed rates. Any change in rates will apply to all policies in the same rate class as this policy. The rate class of this policy is determined on its Date of Issue and according to: 1. The calendar year of issue and policy year; 2. The plan of insurance; 3. The amount of insurance; and 4. The age, sex and premium class of the Insured if issued on a Sex Distinct basis or the age and premium class if issued on a Unisex basis. CHANGES IN RATES, CHARGES AND FEES. This policy does not participate in Our profits or surplus. Any redetermination of the cost of insurance rates, interest rates, mortality and expense charges or percentage of premium charges will be based on Our expectations as to investment earnings, mortality, persistency and expenses. We will not change these charges in order to recoup any prior losses. GRACE PERIOD. If the Cash Surrender Value on a Monthly Deduction Day is not enough to meet the Monthly Deduction for the current month, this policy will remain in force during the 61-day period that follows. If the Cash Surrender Value on a policy anniversary is not enough to pay any loan interest due, this policy will remain in force during the 61-day period that follows. Such 61- Page 11 day period is referred to in this policy as the "Grace Period." There is no Grace Period for the initial Monthly Deduction. If the amount we require to keep your policy in force is not paid by the end of the Grace Period, this policy will terminate without value. However, we will give You at least 31 days notice prior to termination that your policy is in the Grace Period and advise You of the amount required to keep your policy in force. Such 31 days prior notice will be sent to You at your last known address, and to the assignee of record, if any. If death occurs during the Grace Period, Monthly Deductions through the policy month in which death occurred will be deducted from the proceeds. If a surrender request is received within 31 days after the Grace Period commences, the Cash Surrender Value payable will not be less than the Cash Surrender Value on the Monthly Deduction Day the Grace Period commenced. The Monthly Deduction for the policy month following such Monthly Deduction Day will not be subtracted in the calculation of such Cash Surrender Value. FULL SURRENDER. Subject to the Beneficiary and Proceeds section, You may return Your policy to Us and request its Cash Surrender Value at any time during the Insured's lifetime before the Maturity Date. The Cash Surrender Value will be determined as of the Business Day the policy and the signed request for surrender are received In Writing at the Home Office. The Company may delay payment if the Suspension and Deferral of Payments Provision is in effect. PARTIAL SURRENDER. At any time after the first policy year, You may request a portion of the Cash Surrender Value of the policy. Your request must be made In Writing prior to the Maturity Date during the Insured's lifetime. The minimum partial surrender is $5,000.00. Valuation Units are surrendered to reflect a partial surrender as of the Business Day the request for partial surrender is received In Writing. A partial surrender will result in a reduction of the Accumulation Value and the Death Benefit Amount. The Accumulation Value will be reduced by the amount of partial surrender benefit. The reduced Death Benefit Amount will be determined in accordance with the Death Benefit Option provision. If your Death Benefit Option is Option 1, the Specified Amount will be reduced by the amount of the partial surrender. (The reduced amount will not be less than zero.) The Cash Surrender Value and Death Benefit Amount remaining after this reduction must be no less than the Minimum Cash Surrender Value and Minimum Death Benefit Amount after a Partial Surrender shown on page 3. A partial surrender will result in the cancellation of Valuation Units from each applicable Division in the same ratio as the Allocation of Policy Deductions in effect on the date of partial surrender. If the number of Valuation Units in any Division is insufficient to make a partial surrender in this manner, We will cancel Valuation Units from each applicable Division in the ratio the partial surrender request bears to the Cash Surrender Value of your policy. You must state In Writing in advance how partial surrenders should be made if other than this method is to be used. There will be a $25.00 charge for each partial surrender. The Company may delay payment if the Suspension and Deferral of Payments Provision is in effect. PERIOD OF INSURANCE COVERAGE IF AMOUNT OR FREQUENCY OF PREMIUM PAYMENTS IS REDUCED OR IF PREMIUM PAYMENTS ARE DISCONTINUED. If You reduce the amount or frequency of premium payments, or if You discontinue payment of premiums, We will continue making Monthly Deductions (as long as there is sufficient Cash Surrender Value to make such deductions) until the Maturity date. This policy will remain in force until the earlier of the following dates: Page 12 1. The Maturity Date (if there is sufficient Cash Surrender Value to make Monthly Deductions to that date); or 2. Surrender of the policy; or 3. The end of the Grace Period; or 4. Death of the insured. TRANSFER PROVISION TRANSFER OF ACCUMULATION VALUE. You may transfer all or part of Your interest in a Division of the Separate Account subject to the following: 1. Transfers will be made as of the Business Day that the transfer request is received in good order. 2. The minimum amount which may be transferred is $5,000.00. 3. Prior to the Maturity Date, You may make up to 12 transfers each policy year without charge. 4. There will be a charge of $25.00 for each transfer in excess of 12 in a policy year. This charge will be deducted from the Divisions in the same ratio as the requested transfer. 5. We reserve the right to transfer the entire balance in proportion to any other Investment Options you are then using, if the Accumulation Value is below $5,000. 6. We reserve the right to terminate, suspend or modify the transfer privilege described above. If You elect to use the transfer privilege, We will not be liable for a transfer made in accordance with Your instructions. Transfers between Separate Account Divisions result in the redemption of Valuation Units in one Division and the purchase of Valuation Units in the Division to which the transfer is made. DOLLAR COST AVERAGING. Dollar Cost Averaging is an automatic transfer of funds made periodically prior to the Maturity Date in accordance with the Transfers provision, except as provided below, and instructions from the Owner. Dollar Cost Averaging (DCA) is subject to the following guidelines: 1. DCA transfers may be made: (a) On any day of the month except the 29th, 30th or 31st; (b) On a monthly, quarterly, semi-annual or annual basis; and (c) From the Money Market Division to one or more of the other Separate Account Divisions. 2. DCA may be elected only if the Accumulation Value at the time of election is $100,000 or more. 3. The minimum amount of each DCA transfer is $5,000, or the remaining amount in the Money Market Division, if less. 4. DCA may not begin prior to the first Valuation Date following the 15th day after the initial Net Premium is applied. 5. DCA will end when there is no longer any value in the Money Market Division, or when You request that DCA end. (You will be notified if the value of Your Money Market Division reaches zero). 6. Amounts applied to the Money Market Division while DCA is active will be available for future Dollar Cost Averaging in accordance with the current DCA request. 7. There is no charge for DCA. 8. DCA is not available if Automatic Rebalancing is active. AUTOMATIC REBALANCING. Automatic Rebalancing occurs when funds are transferred by Page 13 the Company between the Separate Account Divisions so that the values in each Division match the premium allocation percentages then in effect. You may choose Automatic Rebalancing on a quarterly, semi-annual or annual basis if your Accumulation Value is $100,000 or more. The date Automatic Rebalancing occurs will be based on the Date of Issue of Your policy. For example, if Your policy is dated January 17, and You have requested Automatic Rebalancing on a quarterly basis, Automatic Rebalancing will start on April 17, and will occur quarterly thereafter. After Automatic Rebalancing is elected, it will continue until We are notified In Writing that it is to be discontinued. There is no charge for Automatic Rebalancing. Automatic Rebalancing is not available if Dollar Cost Averaging is active. SUSPENSION AND DEFERRAL OF PAYMENTS PROVISION We may suspend the calculation and payment of the policy's Cash Surrender Value in the following circumstances: 1. If there is a failure in any of the means normally employed in ascertaining the prices or values of investments, or 2. If for any reason the prices or values of investments in the Separate Account cannot be reasonably ascertained; or 3. If circumstances exist as a result of which it is not reasonably practicable to realize any of the Separate Account's investments or to determine fairly the net asset value of the Separate Account; or 4. If the remittance of funds involved in the realization of, or in the payment for investments or payment due under this policy cannot be carried out without undue delay and at normal rates of exchange; or 5. The U.S. Securities and Exchange Commission (SEC) determines that a state of emergency exists; or 6. An order of the SEC permits a delay for the protection of policy holders. Written notice of both the imposition and termination of any such suspension will be given to the Owners, assignees of record and any irrevocable Beneficiaries. Payments which were due to have been made and which were deferred following the suspension of the calculation of the Cash Surrender Value will be made within thirty (30) days following the lifting of the suspension, and will be calculated based on the Valuation Date which immediately follows termination of the suspension. POLICY LOANS You may borrow from Us at any time while this policy is in force, an amount which is equal to or less than the policy's loan value. The loan value will be the Cash Surrender Value, less $100,000, minus 3 monthly deductions and less interest on the amount to be borrowed to the next policy anniversary. The minimum amount of each loan is $5,000 or, if less, the entire remaining loan value. The value of Valuation Units equal to the amount being borrowed from the Separate Account will be transferred to the Loan Account as of the Business Day that the loan request is received in good order. LOAN ACCOUNT. The Loan Account is a fixed account within Our general assets which we have established for any amounts transferred from the Divisions as a result of a loan. Interest applied to the Loan Account will be an annual rate of not less than 4% nor more than 4.75%, and is not based on investment experience of any Division of the Separate Account. Page 14 LOAN INTEREST. Loan interest will accrue daily at an annual effective rate of 4.54% payable in advance. (This is equivalent to an annual effective rate of 4.75% paid in arrears.) On each policy anniversary, loan interest for the next year is due in advance. Unpaid loan interest will be deducted from the various Divisions according to the Allocation of Policy Deductions then in effect, and added to the Loan Account. If the number of Valuation Units in any Division is insufficient to deduct unpaid loan interest in this manner, We will cancel Valuation Units from each applicable Division in the same ratio the unpaid loan interest bears to the unloaned Accumulation Value of your policy. HOW YOU MAY REPAY A POLICY LOAN. You may repay all or part of a policy loan at any time, except that; 1. Repayment may be made only while this policy is in force and prior to the death of the Insured; 2. A partial repayment must be at least $5,000; and 3. At the time You repay all or part of a Policy Loan, You must specify the payment is to repay all or part of the Policy Loan. You may tell Us how to allocate repayments. If You do not tell Us, an amount equal to the loan repayment will be transferred from the Loan Account to the Divisions in the same ratio currently in effect for the Allocation of Premiums. WE CAN DELAY PAYMENT. We can delay lending You money for up to 6 months, or the period allowed by law, whichever is less. However, We cannot delay lending You money if the amount is to be used to pay a premium to Us. OBTAINING A LOAN. You may obtain a policy loan by Written request and assignment of the policy as sole security for the loan. The Company may delay a loan if the Suspension and Deferral of Payments Provision is in effect. EFFECT OF A LOAN. When a loan is made, an amount equal to the amount being borrowed from the Separate Account will be transferred to the Loan Account. A loan will result in cancellation of units from each applicable Division in the ratio that the loan bears to the unloaned Accumulation Value of Your policy. You must state In Writing in advance which Division units are to be canceled if a different method is to be used. A loan, whether or not repaid, will have a permanent effect on the Cash Surrender Values and on the death benefits. If not repaid, any indebtedness will reduce the amount of Death Benefit Proceeds and the amount available upon surrender of the policy. PREFERRED LOANS. A "Preferred Loan" is a policy loan that is made at a net cost to the Owner that is less than the net cost of other policy loans. Starting on the tenth policy anniversary, this policy will be eligible for "Preferred Loans" subject to the following guidelines: 1. The maximum amount eligible for a new Preferred Loan during a policy year is restricted to the lesser of the following values on the first day of such policy year: a. The policy loan value; or b. 10% of the Accumulation Value. 2. When a Preferred Loan is made, interest to the next policy anniversary will be charged at the rate shown in the Loan Interest provision. 3. Interest credited to the amount of the Accumulation Value offset by a Preferred Loan: a. Will be at an annual effective rate that is equal to or less than the Policy Loan annual effective interest rate; and b. Will be at a higher rate than the rate used to credit interest to values offset by any other policy loan and will never be less than an annual effective rate of 4.5%. Page 15 BENEFICIARY AND PROCEEDS BENEFICIARY. The Beneficiary as named in the application, or later changed by You, will receive the proceeds upon the death of the Insured. Unless You have stated otherwise, proceeds will be paid as follows: 1. If any Beneficiary dies before the Insured, that Beneficiary's interest will pass to any other Beneficiaries according to their respective interests. 2. If no Beneficiary survives the Insured, proceeds will be paid to You, as Owner, if You are then living; otherwise proceeds will be paid to Your estate. CHANGE OF OWNERSHIP OR BENEFICIARY. You may change the Owner or the Beneficiary at any time during the lifetime of the Insured unless the previous designation provides otherwise. To do so, send a Written request to Our Home Office. The change will go into effect when We have recorded the change. However, after the change is recorded, it will be deemed effective as of the date of Your Written request for change. The change will be subject to any payment made or action taken by Us before the request is recorded. COMMON DISASTER. If We cannot determine whether a Beneficiary or the Insured died first in a common disaster, We will assume that the Beneficiary died first. Proceeds will be paid on this basis unless an endorsement to this policy provides otherwise. PROCEEDS. Proceeds means the amount payable on: 1. The Maturity Date; 2. Exercise of the full surrender benefit; or 3. The Insured's death. The Proceeds on the Maturity Date will be the Cash Surrender Value. The Proceeds on the Insured's death will be the Death Benefit Amount less any outstanding Policy Loan. All Proceeds are subject to the provisions of the Payment Options section and the other provisions of this policy. PAYMENT OPTIONS Instead of being paid in one sum, all or part of the proceeds may be applied under any of the Payment Options described below. In addition to these options other methods of payment may be chosen with Our consent. PAYMENT CONTRACT. When proceeds become payable under a Payment Option, a Payment Contract will be issued to each payee. The Payment Contract will state the rights and benefits of the payee. It will also name those who are to receive any balance unpaid at the death of the payee. ELECTION OF OPTIONS. The Owner may elect or change any Payment Option while the Insured is living, subject to the provisions of this policy. This election or change must be In Writing. Within 60 days after the Insured's death, a payee entitled to proceeds in one sum may elect to receive proceeds under any option. OPTION 1. PAYMENTS FOR A SPECIFIED PERIOD: Equal monthly payments will be made for a specified period. The Option 1 Table in this policy shows the monthly income for each $1,000 of proceeds applied. OPTION 2. PAYMENTS OF A SPECIFIED AMOUNT: Equal monthly payments of a specified amount will be made. Each payment must be at least $60 a year for each $1,000 of proceeds applied. Payments will continue until the amount applied, with interest, has been paid in full. OPTION 3. MONTHLY PAYMENTS FOR LIFE: Equal monthly payments will be made for a specified period, and will continue after that period for as long as the payee lives. The specified period may be 10, 15 or 20 years. The Option 3 Table in this policy shows the monthly income for each $1,000 of proceeds applied. If issued on a Sex Distinct Page 16 basis, tables are based on the 1983a Male or Female Tables adjusted by projection scale G for 9 years, with interest at the rate of 3% per year and a 2% load. If issued on a Unisex basis, tables are based on the 1983a Male or Female Tables, adjusted by projection scale G for 9 years, with unisex rates based on 60% female and 40% male, and interest at the rate of 3% per year and a 2% load. At the time payments are to begin under this option, the payee may choose one of the following: 1. Monthly payments based on the Option 3 Table; or 2. Monthly payments equal to a monthly annuity based on our single premium immediate annuity rates then in use. OPTION 4. PROCEEDS LEFT AT INTEREST: Proceeds may be left on deposit with us for any period up to 30 years. Interest earned on the proceeds may be: 1. Left on deposit to accumulate at the rate of 3% compounded annually; or 2. Paid in installments at the rate for each $1,000 of proceeds of $30 annually, $14.89 semiannually, $7.42 quarterly or $2.47 monthly. Upon the death of the payee, or at the end of the specified period, any balance left on deposit will be paid in a lump sum or under Payment Options 1, 2 or 3. INTEREST RATES. The guaranteed rate of interest for proceeds held under Payment Options 1, 2, 3 and 4 is 3% compounded annually. We may credit interest at a higher rate. The amount of any increase will be determined by Us. PAYMENTS. The first payment under Options 1, 2 and 3 will be made when the claim for settlement has been approved. Payments after the first will be made according to the manner of payment chosen. Interest under Option 4 will be credited from the date of death and paid or added to the proceeds as provided in the Payment Contract. AVAILABILITY OF OPTIONS. If the proposed payee is not a natural person, payment options may be chosen only with Our consent. If this policy is assigned, We will have the right to pay the assignee in one sum the amount to which the assignee is entitled. Any balance will be applied according to the option chosen. The amount to be applied under any one option must be at least $2,000. The payment elected under any one option must be at least $25. If the total policy proceeds are less than $2,000, payment will be made in one lump sum. EVIDENCE THAT PAYEE IS ALIVE. Before making any payment under a Payment Option, We may ask for proof that the payee is alive. If proof is requested, no payment will be made or considered due until We receive proof. DEATH OF A PAYEE. If a payee dies, any unpaid balance will be paid as stated in the Payment Contract. If there is no surviving payee named in the Payment Contract, We will pay the estate of the payee: 1. Under Options 1 and 3, the value as of the date of death of the remaining payments for the specified period, discounted at the rate of interest, compounded annually, that was used in determining the amount of the monthly payment; 2. Under Options 2 and 4, the balance of any proceeds remaining unpaid with accrued interest, if any. WITHDRAWAL OF PROCEEDS UNDER OPTIONS 1 OR 2. If provided in the Payment Contract, a payee will have the right to withdraw the entire unpaid balance under Options 1 or 2. Under Option 1, the amount will be the value of the remaining payments for the specified period discounted at the rate of interest used in determining monthly income. Under Option 2, the amount will be the entire unpaid balance. WITHDRAWAL OF PROCEEDS UNDER OPTION 4. A payee will have the right to withdraw proceeds left under Option 4 subject to the following rules: 1. The amount to be withdrawn must be $500 or more; and Page 17 2. A partial withdrawal must leave a balance on deposit of $1,000 or more. WITHDRAWALS MAY BE DEFERRED. We may defer payment of any withdrawal for up to 6 months from the date We receive a withdrawal request. ASSIGNMENT. Payment Contracts may not be assigned. CHANGE IN PAYMENT. The right to make any change in payment is available only if it is provided in the Payment Contract. CLAIMS OF CREDITORS. To the extent permitted by law, proceeds will not be subject to any claims of a Beneficiary's creditors. GENERAL PROVISIONS ASSIGNING YOUR POLICY. During the lifetime of the Insured, You may assign this policy as security for an obligation. We will not be bound by an assignment unless it is received In Writing at the Home Office. Two copies of the assignment must be submitted. We will retain one copy and return the other. We will not be responsible for the validity of any assignment. INCONTESTABILITY. We rely on the statements made in the application for the policy and applications for any reinstatements or increases in Specified Amount. These statements, in the absence of fraud, are considered representations and not warranties. No statement may be used in defense of a claim under the policy unless it is in such applications. Except as stated below, We cannot contest this policy after it has been in force during the Insured's lifetime for 2 years from the Date of Issue. Exceptions: We cannot contest any claim related to an increase in Specified Amount after such increase has been in effect during the Insured's lifetime for 2 years. If this policy is reinstated, We cannot contest this policy after it has been in force during the Insured's lifetime for 2 years from the date of reinstatement. We can contest a reinstatement or an increase in Specified Amount only on the basis of the information furnished in the application for such reinstatement or increase. This 2-year limitation does not apply to any Disability or Accidental Death Benefit, or to the nonpayment of premium. SUICIDE EXCLUSION. If the Insured takes his or her own life, while sane or insane, within 2 years from the Date of Issue, We will limit the Death Benefit Proceeds to the premiums paid less any policy loans and less any partial cash surrenders paid. If there are any increases in the Specified Amount (See the section entitled "Changing Your Insurance Policy") a new 2 year period shall apply to each increase beginning on the date of each increase. The Death Benefit Proceeds will be the costs of insurance associated with each increase. When the laws of the state in which this policy is delivered require less than this 2 year period, the period will be as stated in such laws. AGE OR SEX INCORRECTLY STATED (AGE INCORRECTLY STATED IF ISSUED ON A UNISEX BASIS). If the (1) age or sex of the Insured (if this policy was issued on a Sex Distinct basis) or (2) age of the Insured (if this policy was issued on a Unisex basis) has been misstated to Us, We will adjust the excess of the Death Benefit Amount over the Accumulation Value on the date of death to that which would have been purchased by the Monthly Deduction for the policy month of death at the correct cost of insurance rate. By age, We mean age nearest birthday as of the Date of Issue. STATUTORY BASIS OF POLICY VALUES. The Accumulation Values of the policy are not less than the minimum values required by the law of the state where this policy is delivered. The Page 18 calculation of the Accumulation Values includes a charge for the cost of insurance, as shown in the Table of Guaranteed Monthly Cost of Insurance Rates. Calculation of minimum Accumulation Values, nonforfeiture benefits and Guaranteed Cost of Insurance Rates are based on the Composite 1980 Commissioners Standard Ordinary Male\Female\Unisex Table B (80% male, 20% female) Mortality Table for the appropriate sex and age nearest birthday. A detailed statement of the method of computing values has been filed with the state insurance department where required. NO DIVIDENDS. This policy will not pay dividends. It will not participate in any of Our surplus or earnings. ANNUAL REPORT. We will send You at least once a year an annual report which will show a summary of all transactions since the last report, including: 1. Premiums paid since the last report; 2. Transfers since the last report; 3. Expense charges deducted since the last report; 4. The cost of insurance deducted since the last report; 5. Partial surrender benefits deducted since the last report including partial surrender fees; 6. The amount of any outstanding policy loan; 7. Separate Account Unit Values; 8. The current Cash Surrender Value and Accumulation Values; and 9. The Death Benefit Amount. WHEN THIS POLICY TERMINATES. This policy will terminate if: 1. You request that this policy be terminated; 2. The Insured dies; 3. The policy matures; or 4. The Grace Period ends and there is not sufficient Cash Surrender Value to cover a Monthly Deduction. REINSTATEMENT. "Reinstating" means placing Your policy in force after it has terminated at the end of the Grace Period. We will reinstate this policy if We receive: 1. Your Written request within 5 years after the end of the Grace Period and before the Maturity Date; 2. Evidence of insurability satisfactory to Us; 3. Payment of enough premiums so that the policy will remain in force for 2 months; and 4. Payment or reinstatement of any indebtedness. The reinstated policy will be in force from the Monthly Deduction Day on or following the date We approve the reinstatement application. The Accumulation Value at the time of reinstatement will be: 1. The Net Premium allocated in accordance with the premium allocation percentages at time of lapse unless the reinstatement application provides otherwise, using Unit Values as of the date of reinstatement; plus 2. Any loan, including loan interest to the next policy anniversary, repaid or reinstated; less 3. The monthly deduction for one month. If a person other than the Insured is covered by a rider attached to this policy, coverage will be reinstated according to that rider. Page 19 DEATH BENEFIT CORRIDOR RATES BASED ON GUIDELINE PREMIUM ATTAINED ATTAINED AGE RATE AGE RATE AGE 0-40 2.50 60 1.30 41 2.43 61 1.28 42 2.36 62 1.26 43 2.29 63 1.24 44 2.22 64 1.22 45 2.15 65 1.20 46 2.09 66 1.19 47 2.03 67 1.18 48 1.97 68 1.17 49 1.91 69 1.16 50 1.85 70 1.15 51 1.78 71 1.13 52 1.71 72 1.11 53 1.64 73 1.09 54 1.57 74 1.07 55 1.50 75-90 1.05 56 1.46 91 1.04 57 1.42 92 1.03 58 1.38 93 1.02 59 1.34 94 1.01 95+ 1.00 Page 20 TABLE OF GUARANTEED MONTHLY COST OF INSURANCE RATES PER $1,000 OF NET AMOUNT AT RISK
Nearest Birthday Nearest Birthday (On Each Policy (On Each Policy Anniversary) Anniversary) 0 $0.35 50 $0.56 1 0.09 51 0.61 2 0.08 52 0.67 3 0.08 53 0.73 4 0.08 54 0.80 5 0.08 55 0.88 6 0.07 56 0.96 7 0.07 57 1.05 8 0.06 58 1.14 9 0.06 59 1.24 10 0.06 60 1.35 11 0.06 61 1.48 12 0.07 62 1.62 13 0.08 63 1.78 14 0.10 64 1.95 15 0.11 65 2.15 16 0.13 66 2.36 17 0.14 67 2.58 18 0.15 68 2.82 19 0.16 69 3.07 20 0.16 70 3.36 21 0.16 71 3.70 22 0.16 72 4.08 23 0.16 73 4.52 24 0.15 74 5.01 25 0.15 75 5.54 26 0.14 76 6.11 27 0.14 77 6.71 28 0.14 78 7.33 29 0.14 79 7.99 30 0.14 80 8.71 31 0.15 81 9.52 32 0.15 82 10.45 33 0.16 83 11.50 34 0.17 84 12.67 35 0.18 85 13.93 36 0.19 86 15.25 37 0.20 87 16.63 38 0.22 88 18.06 39 0.23 89 19.55 40 0.25 90 21.11 41 0.27 91 22.80 42 0.30 92 24.66 43 0.32 93 26.82 44 0.35 94 29.67 45 0.38 46 0.41 47 0.44 48 0.48 49 0.52
The rates shown above represent the guaranteed (maximum) monthly cost of insurance for each $1,000 of net amount at risk. If this policy has been issued in a special (rated) premium class, the guaranteed monthly cost will be calculated as shown on page 3. Page 21 TABLES OF MONTHLY INSTALLMENTS FOR EACH $1,000 OF PROCEEDS
OPTION 1 TABLE INSTALLMENTS FOR A SPECIFIED PERIOD - -------------------------------------------------------------------------------------------------------- Number Amount of Number Amount of Number Amount of Number Amount of of Years Monthly of Years Monthly of Years Monthly of Years Monthly Payable Installments Payable Installments Payable Installments Payable Installments - -------------------------------------------------------------------------------------------------------- 5 $17.91 15 $6.87 25 $4.71 35 $3.82 6 15.14 16 6.53 26 4.59 36 3.76 7 13.16 17 6.23 27 4.47 37 3.70 8 11.68 18 5.96 28 4.37 38 3.65 9 10.53 19 5.73 29 4.27 39 3.60 10 9.61 20 5.51 30 4.18 40 3.55 11 8.86 21 5.32 31 4.10 12 8.24 22 5.15 32 4.02 13 7.71 23 4.99 33 3.95 14 7.26 24 4.84 34 3.88 - --------------------------------------------------------------------------------------------------------
OPTION 3 TABLE INSTALLMENTS FOR LIFE WITH SPECIFIED MINIMUM PERIOD - ----------------------------------------------------------------------------------------------------------------------------------- AGE OF PAYEE GUARANTEED PERIOD AGE OF PAYEE GUARANTEED PERIOD - --------------------- -------------------------------------------- ----------- ---------------------------------------------------- Male 10 Years 15 Years 20 Years Male 10 Years 15 Years 20 Years - --------------------- ------------- -------------- --------------- ----------- -------------- ------------- ----------------------- 20* $2.95 $2.94 $2.94 50 $4.05 $4.00 $3.93 21 2.97 2.96 2.96 51 4.11 4.06 3.99 22 2.98 2.98 2.98 52 4.18 4.13 4.04 23 3.00 3.00 3.00 53 4.26 4.19 4.10 24 3.02 3.02 3.02 54 4.34 4.27 4.16 25 3.05 3.04 3.04 55 4.42 4.34 4.22 26 3.07 3.06 3.06 56 4.51 4.42 4.28 27 3.09 3.09 3.08 57 4.60 4.50 4.35 28 3.12 3.11 3.11 58 4.69 4.58 4.41 29 3.14 3.14 3.13 59 4.79 4.66 4.47 30 3.17 3.16 3.16 60 4.90 4.75 4.54 31 3.20 3.19 3.18 61 5.01 4.84 4.60 32 3.22 3.22 3.21 62 5.13 4.94 4.67 33 3.25 3.25 3.24 63 5.26 5.03 4.73 34 3.29 3.28 3.27 64 5.39 5.13 4.79 35 3.32 3.31 3.00 65 5.52 5.23 4.85 36 3.35 3.35 3.33 66 5.66 5.33 4.91 37 3.39 3.38 3.36 67 5.81 5.43 4.97 38 3.43 3.42 3.40 68 5.96 5.53 5.02 39 3.47 3.46 3.44 69 6.12 5.63 5.07 40 3.51 3.50 3.47 70 6.28 5.73 5.11 41 3.55 3.54 3.51 71 6.44 5.82 5.15 42 3.60 3.58 3.55 72 6.61 5.91 5.19 43 3.65 3.63 3.59 73 6.78 6.00 5.23 44 3.70 3.67 3.64 74 6.96 6.08 5.26 45 3.75 3.72 3.68 75 7.13 6.16 5.28 46 3.80 3.77 3.73 76 7.30 6.24 5.31 47 3.86 3.83 3.78 77 7.47 6.31 5.33 48 3.92 3.88 3.83 78 7.64 6.37 5.34 49 3.98 3.94 3.88 79 7.81 6.42 5.36 80** 7.97 6.48 5.37 - ----------------------------------------------------------------------------------------------------------------------------------- Payments are based upon the age, nearest birthday, of the Payee on the date the first payment is due. If monthly installments for two or more specified periods for a given age are the same, the specified period of longer duration will apply. *Also applies to younger ages. **Also applies to older ages. - -----------------------------------------------------------------------------------------------------------------------------------
Page 22 TABLE OF GUARANTEED MONTHLY COST OF INSURANCE RATES PER $1,000 OF NET AMOUNT AT RISK
Nearest Birthday Nearest Birthday (On Each Policy (On Each Policy Anniversary) Anniversary) 0 $0.24 50 0.41 1 0.07 51 0.44 2 0.07 52 0.48 3 0.07 53 0.51 4 0.06 54 0.55 5 0.06 55 0.59 6 0.06 56 0.63 7 0.06 57 0.67 8 0.06 58 0.71 9 0.06 59 0.75 10 0.06 60 0.79 11 0.06 61 0.85 12 0.06 62 0.92 13 0.06 63 1.01 14 0.07 64 1.11 15 0.07 65 1.23 16 0.08 66 1.35 17 0.08 67 1.47 18 0.08 68 1.59 19 0.09 69 1.72 20 0.09 70 1.86 21 0.09 71 2.05 22 0.09 72 2.27 23 0.09 73 2.55 24 0.10 74 2.88 25 0.10 75 3.25 26 0.10 76 3.67 27 0.10 77 4.11 28 0.11 78 4.59 29 0.11 79 5.11 30 0.11 80 5.71 31 0.12 81 6.39 32 0.12 82 7.19 33 0.13 83 8.12 34 0.13 84 9.18 35 0.14 85 10.34 36 0.15 86 11.60 37 0.16 87 12.97 38 0.17 88 14.45 39 0.19 89 16.05 40 0.20 90 17.79 41 0.22 91 19.72 42 0.24 92 21.89 43 0.26 93 24.44 44 0.28 94 27.67 45 0.30 46 0.32 47 0.34 48 0.36 49 0.39
The rates shown above represent the guaranteed (maximum) monthly cost of insurance for each $1,000 of net amount at risk. If this policy has been issued in a special (rated) premium class, the guaranteed monthly cost will be calculated as shown on page 3. Page 23 TABLES OF MONTHLY INSTALLMENTS FOR EACH $1,000 OF PROCEEDS
OPTION 1 TABLE INSTALLMENTS FOR A SPECIFIED PERIOD - -------------------------------------------------------------------------------------------------------- Number Amount of Number Amount of Number Amount of Number Amount of of Years Monthly of Years Monthly of Years Monthly of Years Monthly Payable Installments Payable Installments Payable Installments Payable Installments - -------------------------------------------------------------------------------------------------------- 5 $17.91 15 $6.87 25 $4.71 35 $3.82 6 15.14 16 6.53 26 4.59 36 3.76 7 13.16 17 6.23 27 4.47 37 3.70 8 11.68 18 5.96 28 4.37 38 3.65 9 10.53 19 5.73 29 4.27 39 3.60 10 9.61 20 5.51 30 4.18 40 3.55 11 8.86 21 5.32 31 4.10 12 8.24 22 5.15 32 4.02 13 7.71 23 4.99 33 3.95 14 7.26 24 4.84 34 3.88 - --------------------------------------------------------------------------------------------------------
OPTION 3 TABLE INSTALLMENTS FOR LIFE WITH SPECIFIED MINIMUM PERIOD - ----------------------------------------------------------------------------------------------------------------------------------- AGE OF PAYEE GUARANTEED PERIOD AGE OF PAYEE GUARANTEED PERIOD - --------------------- -------------------------------------------- ---------------------------------------------------------------- Female 10 Years 15 Years 20 Years Female 10 Years 15 Years 20 Years - --------------------- ------------- -------------- --------------- ----------- -------------- ------------- ----------------------- 20* $2.85 $2.85 $2.85 50 $3.75 $3.73 $3.69 21 2.87 2.87 2.87 51 3.80 3.78 3.74 22 2.89 2.88 2.88 52 3.86 3.84 3.79 23 2.90 2.90 2.90 53 3.92 3.89 3.85 24 2.92 2.92 2.91 54 3.99 3.96 3.90 25 2.94 2.93 2.93 55 4.06 4.02 3.96 26 2.95 2.95 2.95 56 4.13 4.09 4.02 27 2.97 2.97 2.97 57 4.21 4.16 4.08 28 2.99 2.99 2.99 58 4.29 4.23 4.15 29 3.01 3.01 3.01 59 4.37 4.31 4.21 30 3.03 3.03 3.03 60 4.46 4.39 4.28 31 3.06 3.05 3.05 61 4.56 4.47 4.35 32 3.08 3.08 3.07 62 4.66 4.56 4.42 33 3.10 3.10 3.10 63 4.76 4.65 4.49 34 3.13 3.13 3.12 64 4.88 4.75 4.56 35 3.16 3.15 3.15 65 4.99 4.85 4.63 36 3.19 3.18 3.17 66 5.12 4.95 4.70 37 3.21 3.21 3.20 67 5.25 5.05 4.77 38 3.24 3.24 3.23 68 5.39 5.16 4.83 39 3.28 3.27 3.26 69 5.53 5.27 4.90 40 3.31 3.30 3.29 70 5.69 5.38 4.96 41 3.35 3.34 3.33 71 5.85 5.49 5.02 42 3.38 3.37 3.36 72 6.02 5.60 5.08 43 3.42 3.41 3.40 73 6.19 5.71 5.13 44 3.46 3.45 3.43 74 6.37 5.82 5.17 45 3.50 3.49 3.47 75 6.56 5.92 5.21 46 3.55 3.53 3.51 76 6.75 6.02 5.25 47 3.59 3.58 3.56 77 6.95 6.11 5.28 48 3.64 3.63 3.60 78 7.14 6.20 5.30 49 3.69 3.67 3.65 79 7.34 6.28 5.32 80** 7.54 6.35 5.34 - ----------------------------------------------------------------------------------------------------------------------------------- Payments are based upon the age, nearest birthday, of the Payee on the date the first payment is due. If monthly installments for two or more specified periods for a given age are the same, the specified period of longer duration will apply. *Also applies to younger ages. **Also applies to older ages. - -----------------------------------------------------------------------------------------------------------------------------------
Page 24 TABLE OF GUARANTEED MONTHLY COST OF INSURANCE RATES PER $1,000 OF NET AMOUNT AT RISK
Nearest Birthday Nearest Birthday (On Each Policy (On Each Policy Anniversary) Anniversary) 0 $0.33 50 0.53 1 0.09 51 0.58 2 0.08 52 0.63 3 0.08 53 0.69 4 0.08 54 0.75 5 0.07 55 0.82 6 0.07 56 0.89 7 0.07 57 0.97 8 0.06 58 1.05 9 0.06 59 1.14 10 0.06 60 1.24 11 0.06 61 1.35 12 0.07 62 1.47 13 0.08 63 1.61 14 0.09 64 1.77 15 0.10 65 1.95 16 0.12 66 2.14 17 0.13 67 2.34 18 0.14 68 2.54 19 0.14 69 2.77 20 0.15 70 3.02 21 0.15 71 3.32 22 0.14 72 3.66 23 0.14 73 4.05 24 0.14 74 4.49 25 0.14 75 4.98 26 0.14 76 5.50 27 0.13 77 6.04 28 0.13 78 6.60 29 0.14 79 7.21 30 0.14 80 7.87 31 0.14 81 8.63 32 0.15 82 9.49 33 0.15 83 10.49 34 0.16 84 11.59 35 0.17 85 12.78 36 0.18 86 14.05 37 0.19 87 15.39 38 0.21 88 16.80 39 0.22 89 18.30 40 0.24 90 19.89 41 0.26 91 21.63 42 0.29 92 23.60 43 0.31 93 25.88 44 0.33 94 28.87 45 0.36 46 0.39 47 0.42 48 0.46 49 0.49
The rates shown above represent the guaranteed (maximum) monthly cost of insurance for each $1,000 of net amount at risk. If this policy has been issued in a special (rated) premium class, the guaranteed monthly cost will be calculated as shown on page 3. Page 25 TABLES OF MONTHLY INSTALLMENTS FOR EACH $1,000 OF PROCEEDS
OPTION 1 TABLE INSTALLMENTS FOR A SPECIFIED PERIOD - -------------------------------------------------------------------------------------------------------- Number Amount of Number Amount of Number Amount of Number Amount of of Years Monthly of Years Monthly of Years Monthly of Years Monthly Payable Installments Payable Installments Payable Installments Payable Installments - -------------------------------------------------------------------------------------------------------- 5 $17.91 15 $6.87 25 $4.71 35 $3.82 6 15.14 16 6.53 26 4.59 36 3.76 7 13.16 17 6.23 27 4.47 37 3.70 8 11.68 18 5.96 28 4.37 38 3.65 9 10.53 19 5.73 29 4.27 39 3.60 10 9.61 20 5.51 30 4.18 40 3.55 11 8.86 21 5.32 31 4.10 12 8.24 22 5.15 32 4.02 13 7.71 23 4.99 33 3.95 14 7.26 24 4.84 34 3.88 - --------------------------------------------------------------------------------------------------------
OPTION 3 TABLE INSTALLMENTS FOR LIFE WITH SPECIFIED MINIMUM PERIOD - ----------------------------------------------------------------------------------------------------------------------------------- GUARANTEED PERIOD GUARANTEED PERIOD - ----------------------------------------------------------------------------------------------------------------------------------- AGE OF PAYEE 10 Years 15 Years 20 Years AGE OF PAYEE 10 Years 15 Years 20 Years - ----------------------------------------------------------------------------------------------------------------------------------- 20* $2.89 $2.89 $2.89 50 $3.87 $3.84 $3.79 21 2.91 2.91 2.90 51 3.93 3.90 3.85 22 2.93 2.92 2.92 52 3.99 3.96 3.90 23 2.94 2.94 2.94 53 4.06 4.02 3.95 24 2.96 2.96 2.96 54 4.13 4.08 4.01 25 2.98 2.98 2.98 55 4.21 4.15 4.07 26 3.00 3.00 3.00 56 4.28 4.22 4.13 27 3.02 3.02 3.02 57 4.37 4.30 4.19 28 3.04 3.04 3.04 58 4.45 4.38 4.26 29 3.07 3.06 3.06 59 4.55 4.46 4.32 30 3.09 3.09 3.08 60 4.64 4.54 4.39 31 3.11 3.11 3.11 61 4.74 4.63 4.46 32 3.14 3.14 3.13 62 4.85 4.72 4.52 33 3.17 3.16 3.16 63 4.97 4.81 4.59 34 3.20 3.19 3.18 64 5.08 4.91 4.66 35 3.22 3.22 3.21 65 5.21 5.01 4.73 36 3.26 3.25 3.24 66 5.34 5.11 4.79 37 3.29 3.28 3.27 67 5.48 5.21 4.85 38 3.32 3.31 3.30 68 5.62 5.32 4.92 39 3.36 3.35 3.33 69 5.77 5.42 4.97 40 3.39 3.38 3.37 70 5.93 5.53 5.03 41 3.43 3.42 3.40 71 6.09 5.63 5.08 42 3.47 3.46 3.44 72 6.26 5.73 5.13 43 3.51 3.50 3.48 73 6.44 5.84 5.17 44 3.56 3.54 3.52 74 6.62 5.93 5.21 45 3.60 3.59 3.56 75 6.80 6.03 5.24 46 3.65 3.63 3.60 76 6.98 6.12 5.27 47 3.70 3.68 3.65 77 7.17 6.20 5.30 48 3.76 3.73 3.70 78 7.35 6.27 5.32 49 3.81 3.78 3.74 79 7.54 6.34 5.34 80** 7.72 6.41 5.35 - ----------------------------------------------------------------------------------------------------------------------------------- Payments are based upon the age, nearest birthday, of the Payee on the date the first payment is due. If monthly installments for two or more specified periods for a given age are the same, the specified period of longer duration will apply. *Also applies to younger ages. **Also applies to older ages. - -----------------------------------------------------------------------------------------------------------------------------------
Page 26 AMERICAN GENERAL LIFE INSURANCE COMPANY This is a FLEXIBLE PREMIUM VARIABLE LIFE INSURANCE POLICY. An adjustable Death Benefit is payable upon the Insured's death prior to the Maturity Date. Investment results are reflected in policy benefits. ACCUMULATION VALUES are flexible and will be based on the amount and frequency of premiums paid and the investment results of the Separate Account. NONPARTICIPATING - NOT ELIGIBLE FOR DIVIDENDS. For Information, Service or to make a Complaint Contact your Servicing Agent, or our VUL Administration. 2727-A Allen Parkway P.O. Box 4880 Houston, Texas 77210-4880 1-888-325-9315 [LOGO OF AMERICAN GENERAL APPEARS HERE] A STOCK COMPANY _______________________ A Subsidiary of American General Corporation EX-1.6C 3 AMENDMENT TO AMENDED/RESTATED ARTICLES OF INCORP. EXHIBIT 1.6(c) AMENDMENT TO AMENDED AND RESTATED ARTICLES OF INCORPORATION OF AMERICAN GENERAL LIFE INSURANCE COMPANY ("AMENDMENT") American General Life Insurance Company (hereinafter sometimes referred to as the "Company"), a Texas insurer incorporated on April 11, 1960 and formerly known as American General Life Insurance Company of Delaware, pursuant to the provisions of Texas Insurance Code Articles 3.02a, 3.04 and 3.05 and Texas Business Corporation Act Articles 2.12, 2.25, 4.02, 4.04 and 9.10, hereby amends its Amended and Restated Articles of Incorporation (the "Articles") as follows: 1. The name of the corporation is American General Life Insurance Company. 2. Article IV of the Articles of the corporation is deleted in its entirety and inserted in lieu thereof is the following: "ARTICLE IV A. The aggregate number of shares of capital stock which this corporation shall have authority to issue is six hundred eight thousand five hundred (608,500) shares, consisting of (i) eight thousand five hundred (8,500) shares of Preferred Stock of the par value of One Hundred Dollars ($100.00) per share ("Preferred Stock") and (ii) six hundred thousand (600,000) shares of Common Stock of the par value of ten dollars ($10.00) per share ("Common Stock"). B. The amount of capital stock with which this corporation will commence business is Five Million Five Hundred Thousand Dollars ($5,500,000.00). The amount of its surplus is at least Seven Hundred Thousand Dollars ($700,000.00). C. Concurrent with the merger of The Franklin United Life Insurance Company with and into American General Life Insurance Company of New York ("AGNY"), (which is currently estimated to occur on July 31, 1995, assuming all necessary regulatory approvals have been secured, and if not on July 31, 1995 then, alternatively, on August 31, 1995, assuming all necessary regulatory approvals have been secured) the Board of Directors is expressly vested with the authority to issue to The Franklin Life Insurance Company the shares of Preferred Stock designated below. 1. Designation and Number. There shall be only one series of Preferred Stock, and it is hereby designated the "$80.00 Cumulative Preferred Stock" (hereinafter referred to as the "Cumulative Preferred Stock"). The shares Page 1 of 7 of the Cumulative Preferred Stock shall be of par value of $100.00 each. The number of shares which shall constitute the Cumulative Preferred Stock shall be 8,500. 2. Dividends. (a) The Franklin Life Insurance Company or any subsequent holder or holders of shares of the Cumulative Preferred Stock, in preference to the holders of Common Stock and of any other capital stock of the corporation which ranks junior to the Cumulative Preferred Stock in respect of dividends or distributions of assets on liquidation of the corporation (all of which classes are hereinafter embraced in the term "junior stock"), shall be entitled to receive as and when declared by the Board of Directors out of the assets of the corporation which are by law available for the payment of dividends, cumulative cash dividends at, but not exceeding, the rate of $80.00 per share per annum (8%). Any dividend payment shall be made pro rata among the holders of the Cumulative Preferred Stock. (b) Dividends on the Cumulative Preferred Stock shall be payable annually on the anniversary of the date of the initial issuance of the Cumulative Preferred Stock to The Franklin Life Insurance Company. In the event the corporation fails to pay when due any dividends on the Cumulative Preferred Stock, until the payment or declaration and setting apart of all accrued dividends which have not been paid as scheduled, (i) no dividend shall be declared and paid or set apart for payment upon any junior stock and (ii) no other distribution shall be made with respect to any junior stock. Each share of the Cumulative Preferred Stock shall rank on a parity with each other share of the Cumulative Preferred Stock with respect to preferential dividends. Accruals of dividends on the Cumulative Preferred Stock shall not bear interest. 3. Redemption. (a) On or after five (5) years from the date of the initial issuance of the Cumulative Preferred Stock to The Franklin Life Insurance Company, shares of the Cumulative Preferred Stock shall be redeemable in whole or in part at any time or from time to time, at the option of the Company, at a redemption price per share of $1,000, plus dividends accrued to the date fixed for redemption and remaining unpaid. If less than all outstanding shares of the Cumulative Preferred Stock are to be redeemed, the shares of the Cumulative Preferred Stock to be redeemed shall be redeemed pro rata. Page 2 of 7 (b) Notice of any proposed redemption of the Cumulative Preferred Stock under this Section shall be given by the corporation by providing a copy of such notice at least fifteen (15) and not more than thirty (30) days prior to the date fixed for such redemption to each holder of record of shares of the Cumulative Preferred Stock to be redeemed, at its address appearing on the books of the corporation. If, on or before the redemption date specified in such notice, all funds necessary for such redemption shall have been set aside by the corporation, separate and apart from its other funds, in trust for the pro rata benefit of the holders of the shares so called for redemption, so as to be and continue to be available therefor, then from and after the date of redemption so designated, notwithstanding that any certificate for shares of the Cumulative Preferred Stock so called for redemption shall not have been surrendered for cancellation, the shares represented thereby shall no longer be deemed outstanding, the right to receive dividends thereon shall cease to accrue and all rights with respect to such shares of the Cumulative Preferred Stock so called for redemption shall forthwith on such redemption date cease and terminate except only the right of the holders thereof to receive the redemption price of such shares so to be redeemed plus accrued and unpaid dividends up to the date fixed for redemption, but without interest thereon. Any moneys so set aside by the corporation and unclaimed at the end of five (5) years from the date fixed for redemption shall revert to the general funds of the corporation. 4. Liquidation. (a) In the event of any liquidation, dissolution or winding up of the affairs of the corporation (all of which are hereinafter embraced in the word "liquidation"), then, before any distribution or payment shall be made to the holders of the Common Stock or any other junior stock, the holders of the Cumulative Preferred Stock shall be entitled to be paid in full the respective amounts fixed for such Cumulative Preferred Stock, plus in each case a sum equal to accrued and unpaid dividends thereon to the date of payment thereof. After such payment shall have been made in full to the holders of the Cumulative Preferred Stock, the remaining assets and funds of the corporation shall be distributed among the holders of the junior stock of the corporation according to their respective rights. In the event that the assets of the corporation are not sufficient to make the payment to the holders of the Cumulative Preferred Stock herein required to be made in full, such assets shall be distributed to the holders of the Cumulative Preferred Stock pro rata. (b) The amount per share which the holders of the Cumulative Preferred Stock shall be entitled to receive in the event of a Page 3 of 7 liquidation shall be (in addition to accrued and unpaid dividends) $1,000. (c) Neither the merger or consolidation of the Company into or with another corporation, nor the merger or consolidation of any other corporation into or with the Company, shall be deemed to be a liquidation, dissolution or winding up of the Company within the meaning of this Section 4, but the sale, lease or conveyance of all or substantially all of the Company's assets shall be deemed to be a liquidation, dissolution or winding up of the Company within the meaning of this Section 4. 5. Limitations. (a) So long as any shares of the Cumulative Preferred Stock are outstanding, the corporation shall not, without the consent of the holders of at least two-thirds (2/3) of the total number of shares of the Cumulative Preferred Stock at the time outstanding, given in person or by proxy, by vote at a meeting called for the purpose, increase the authorized amount of preferred stock, or create or authorize any shares of any class of stock ranking prior to, or on a parity with, the Cumulative Preferred Stock in respect of dividends or distributions of assets in the event of any liquidation (hereinafter sometimes referred to as "prior stock" and "parity stock," respectively), or any securities convertible into or exchangeable for any such prior stock or parity stock. (b) Without the consent of the holders of at least two-thirds (2/3) of the total number of shares of the Cumulative Preferred Stock outstanding, given in person or by proxy, by vote at a meeting called for the purpose, the corporation shall not create or acquire any additional shares of the Cumulative Preferred Stock or amend, or repeal any of the rights, preferences or powers of holders of the Cumulative Preferred Stock so as to affect adversely such rights, preferences or powers. (c) So long as any shares of the Cumulative Preferred Stock are outstanding, the corporation shall not at any time purchase, redeem or otherwise acquire for value any shares of preferred stock that may be created in the future or of any other stock ranking junior to or on a parity with the Cumulative Preferred Stock in respect of dividends or distribution of assets on liquidation (i) during the continuance of any default in the payment of dividends on the Cumulative Preferred Stock or (ii) if full dividends on the outstanding shares of the Cumulative Preferred Stock were not paid or set apart for payment in cash in respect of the dividend payment date immediately preceding such time. Page 4 of 7 6. Regarding Voting Rights. (a) The holders of shares of the Cumulative Preferred Stock shall be entitled to one vote per share, voting together with the holders of Common Stock, on any question presented to the holders of Common Stock of the corporation and to be represented and receive notice of any meeting of the shareholders of the corporation. (b) If and whenever cumulative dividends on the Cumulative Preferred Stock shall be in arrears in an amount equal to two (2) years payments or more per share, then during the period (hereinafter called the "class voting period") commencing with such time and ending with the time when all arrears in dividends of the Cumulative Preferred Stock shall have been paid and the full dividend on the Cumulative Preferred Stock for the current annual dividend period shall have been paid or declared and set apart for payment, at any meeting of the shareholders of the corporation held for the election of directors during the class voting period, the holders of the Cumulative Preferred Stock voting together as a class shall be entitled (in addition to exercising such other voting rights as they may have) to elect, by a vote of the majority of the total votes represented by such class, two (2) members of the Board of Directors of the corporation, each share of the Cumulative Preferred Stock entitling the holder thereof to one (1) vote for such purpose. Whenever the right to elect directors shall have accrued to the holders of the Cumulative Preferred Stock, the proper officers of the corporation shall call a meeting for the election of such directors, such meeting to be held not less than forty-five (45) nor more than ninety (90) days after the accrual of such right. (c) Any director who shall have been elected by holders of the Cumulative Preferred Stock, or appointed as provided herein, may be removed at any time during a class voting period by, and only by, the affirmative vote of the holders of record of a majority of the outstanding shares of the Cumulative Preferred Stock to which the right to elect directors shall have accrued (an "Affirmative Shareholder Vote") at a special meeting of such shareholders; and any vacancy thereby created may be filled by an Affirmative Shareholder Vote. If a director shall die, resign, or otherwise cease to be a director of the corporation (other than as a result of removal as provided herein) during a class voting period, such vacancy shall be filled by a person appointed by the remaining director. If both such directors shall die, resign, or otherwise cease to be directors of the corporation during a class voting period, such vacancies shall be filled by an Affirmative Shareholder Vote at a special meeting of such shareholders. At the end of the class voting period, the holders of the Cumulative Preferred Stock shall be Page 5 of 7 automatically divested of all special voting power vested in them under Sections 6(b) and (c) hereunder, but subject always to the subsequent vesting hereunder of voting power in the holders of the Cumulative Preferred Stock in the event of any similar default or defaults thereafter. The term of all directors elected pursuant to the provisions of Sections 6(b) and (c) shall in all events expire at the end of the class voting period. 7. Regarding Preemptive Rights. No holder of shares of the Cumulative Preferred Stock shall by reason of his holding shares of the Cumulative Preferred Stock have any preemptive or preferential right to purchase or subscribe to any securities of the corporation, now or hereafter to be authorized." 3. This Amendment was adopted by unanimous written consent of the board of directors of AGL, and by written consent of the sole shareholder of AGL, AGC Life Insurance Company, a Missouri-domiciled insurer, on July 13, 1995. 4. At the time of adoption of this Amendment there were 600,000 shares of stock outstanding and entitled to vote. 5. The number of shares voting for this Amendment was 600,000. The number of shares that voted against this Amendment was 0. 6. The Amendment does not provide for an exchange, reclassification or cancellation of issued shares. 7. The Amendment does increase the authorized capital of the corporation by the addition of 8,500 shares of Preferred Stock to the currently authorized 600,000 shares of Common Stock. 8. Upon the issuance of the 8,500 shares of Preferred Stock, the stated capital of the corporation will increase from $6,000,000 to $14,500,000. Dated: July 13, 1995. AMERICAN GENERAL LIFE INSURANCE COMPANY By: /s/ ROBERT S. CAUTHEN, JR. ------------------------------------ Robert S. Cauthen, Jr. President and Chief Executive Officer By: /s/ STEVEN A. GLOVER ------------------------------------ Steven A. Glover Assistant Secretary Page 6 of 7 State of Texas (S) (S) County of Harris (S) BEFORE ME, the undersigned authority on this day personally appeared Robert S. Cauthen, Jr., the President and Chief Executive Officer of American General Life Insurance Company ("AGL"), known to me to be the person and officer whose name is subscribed to the foregoing instrument, and after being duly sworn upon his oath, did acknowledge to me that he executed the same as an officer of AGL and that the statements contained therein are true and correct to the best of his knowledge and belief. SWORN TO AND SUBSCRIBED before me, the undersigned authority on this 13th day of July, 1995 to certify which witness my hand and seal of office. /s/ RHONDA K. HENRY -------------------------------------------- Notary Public in and for the State of Texas State of Texas (S) (S) County of Harris (S) BEFORE ME, the undersigned authority on this day personally appeared Steven A. Glover, Assistant Secretary of American General Life Insurance Company ("AGL"), known to me to be the person and officer whose name is subscribed to the foregoing instrument, and after being duly sworn upon his oath, did acknowledge to me that he executed the same as an officer of AGL and that the statements contained therein are true and correct to the best of his knowledge and belief. SWORN TO AND SUBSCRIBED before me, the undersigned authority on this 13th day of July, 1995 to certify which witness my hand and seal of office. /s/ RHONDA K. HENRY --------------------------------------------- Notary Public in and for the State of Texas Page 7 of 7 EX-1.8A 4 FUND PARTICIPATION AGREEMENT EXHIBIT 1.8(a) FUND PARTICIPATION AGREEMENT THIS AGREEMENT made as of the _____ day of August, 1998 by and among BT INSURANCE FUNDS TRUST ("TRUST"), a Massachusetts business trust,BANKERS TRUST COMPANY ("ADVISER"), a New York banking corporation, and AMERICAN GENERAL LIFE INSURANCE COMPANY ("LIFE COMPANY"), a life insurance company organized under the laws of the State of Texas. WHEREAS, TRUST is registered with the Securities and Exchange Commission ("SEC") under the Investment Company Act of 1940, as amended (the " '40 Act"), as an open-end, diversified management investment company; and WHEREAS, TRUST is comprised of several series funds (each a "Portfolio"), with those Portfolios currently available being listed on Appendix A hereto; and WHEREAS, TRUST was organized to act as the funding vehicle for certain variable life insurance and/or variable annuity contracts ("Variable Contracts") offered by life insurance companies through separate accounts ("Separate Accounts") of such life insurance companies ("Participating Insurance Companies"); and WHEREAS, TRUST may also offer its shares to certain qualified pension and retirement plans ("Qualified Plans"); and WHEREAS, TRUST has received an order from the SEC, 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 '40 Act, and Rules 6e-2(b)(15) and 6e-3(T)(b)(15) thereunder, to the extent necessary to permit shares of the Portfolios of the TRUST to be sold to and held by Variable Contract Separate Accounts of both affiliated and unaffiliated Participating Insurance Companies and Qualified Plans ("Exemptive Order"); and WHEREAS, LIFE COMPANY has established or will establish one or more Separate Accounts to offer Variable Contracts and is desirous of having TRUST as one of the underlying funding vehicles for such Variable Contracts; and WHEREAS, ADVISER is a "bank" as defined in the Investment Advisers Act of 1940, as amended (the "Advisers Act") and as such is excluded from the definition of "Investment Adviser" and is not required to register as an investment adviser pursuant to the Advisers Act; and WHEREAS, ADVISER serves as the TRUST's investment adviser; and WHEREAS, to the extent permitted by applicable insurance laws and regulations, LIFE COMPANY intends to purchase shares of TRUST to fund the aforementioned Variable Contracts and TRUST is authorized to sell such shares to LIFE COMPANY at such shares' net asset value; 1 NOW, THEREFORE, in consideration of their mutual promises, LIFE COMPANY, TRUST, and ADVISER agree as follows: Article I. SALE OF TRUST SHARES 1.1 TRUST agrees to make available to the Separate Accounts of LIFE COMPANY the selected Portfolios as listed on Appendix B for investment of purchase payments of Variable Contracts allocated to the designated Separate Accounts as provided in TRUST's Registration Statement. 1.2 TRUST agrees to sell to LIFE COMPANY those shares of the selected Portfolios of TRUST which LIFE COMPANY orders, executing such orders on a daily basis at the net asset value next computed after receipt by TRUST or its designee of the order for the shares of TRUST. For purposes of this Section 1.2, LIFE COMPANY shall be the designee of TRUST for receipt of such orders from the designated Separate Account and receipt by such designee shall constitute receipt by TRUST; provided that LIFE COMPANY receives the order by 4:00 p.m. New York time and TRUST receives notice from LIFE COMPANY by telephone or facsimile (or by such other means as TRUST and LIFE COMPANY may agree in writing) of such order by 10:30 a.m. New York time on the next Business Day. "Business Day" shall mean any day on which the New York Stock Exchange is open for trading and on which TRUST calculates its net asset value pursuant to the rules of the SEC. 1.3 TRUST agrees to redeem on LIFE COMPANY's request, any full or fractional shares of TRUST held by LIFE COMPANY, executing such requests on a daily basis at the net asset value next computed after receipt by TRUST or its designee of the request for redemption, in accordance with the provisions of this Agreement and TRUST's Registration Statement. (In the event of a conflict between the provisions of this Agreement and the Trust's Registration Statement, the provisions of the Registration Statement shall govern.) For purposes of this Section 1.3, LIFE COMPANY shall be the designee of TRUST for receipt of requests for redemption from the designated Separate Account and receipt by such designee shall constitute receipt by TRUST; provided that LIFE COMPANY receives the request for redemption by 4:00 p.m. New York time and TRUST receives notice from LIFE COMPANY by telephone or facsimile (or by such other means as TRUST and LIFE COMPANY may agree in writing) of such request for redemption by 10:30 a.m. New York time on the next Business Day. 1.4 TRUST shall furnish, on or before each ex-dividend date, notice to LIFE COMPANY of any income dividends or capital gain distributions payable on the shares of any Portfolio of TRUST. LIFE 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. TRUST shall notify LIFE COMPANY or its designee of the number of shares so issued as payment of such dividends and distributions. LIFE COMPANY reserves the right, on its behalf and on behalf of the Separate Accounts to revoke this election and receive all such dividends in cash. 2 1.5 TRUST shall make the net asset value per share for the selected Portfolio(s) available to LIFE COMPANY on a daily basis as soon as reasonably practicable after the net asset value per share is calculated but shall use its best efforts to make such net asset value available by 6:30 p.m. New York time. If TRUST provides LIFE COMPANY with materially incorrect share net asset value information through no fault of LIFE COMPANY, LIFE COMPANY on behalf of the Separate Accounts, shall be entitled to an adjustment to the number of shares purchased or redeemed to reflect the correct share net asset value. Any material error in the calculation of net asset value per share, dividend or capital gain information shall be reported promptly upon discovery to LIFE COMPANY. 1.6 At the end of each Business Day, LIFE COMPANY shall use the information described in Section 1.5 to calculate Separate Account unit values for the day. Using these unit values, LIFE COMPANY shall process each such Business Day's Separate Account transactions based on requests and premiums received by it by the close of trading on the floor of the New York Stock Exchange (currently 4:00 p.m. New York time) to determine the net dollar amount of TRUST shares which shall be purchased or redeemed at that day's closing net asset value per share. The net purchase or redemption orders so determined shall be transmitted to TRUST by LIFE COMPANY by 10:30 a.m. New York Time on the Business Day next following LIFE COMPANY's receipt of such requests and premiums in accordance with the terms of Sections 1.2 and 1.3 hereof. 1.7 If LIFE COMPANY's order requests the purchase of TRUST shares, LIFE COMPANY shall pay for such purchase by wiring federal funds to TRUST or its designated custodial account on the day the order is transmitted by LIFE COMPANY. If LIFE COMPANY's order requests a net redemption resulting in a payment of redemption proceeds to LIFE COMPANY, TRUST shall use its best efforts to wire the redemption proceeds to LIFE COMPANY by the next Business Day, unless doing so would require TRUST to dispose of Portfolio securities or otherwise incur additional costs. In any event, proceeds shall be wired to LIFE COMPANY within the time period permitted by the '40 Act or the rules, orders or regulations thereunder, and TRUST shall notify the person designated in writing by LIFE COMPANY as the recipient for such notice of such delay by 3:00 p.m. New York Time on the same Business Day that LIFE COMPANY transmits the redemption order to TRUST. If LIFE COMPANY's order requests the application of redemption proceeds from the redemption of shares to the purchase of shares of another Fund advised by ADVISER, TRUST shall so apply such proceeds on the same Business Day that LIFE COMPANY transmits such order to TRUST. 1.8 TRUST agrees that all shares of the Portfolios of TRUST will be sold only to Participating Insurance Companies which have agreed to participate in TRUST to fund their Separate Accounts and/or to Qualified Plans, all in accordance with the requirements of Section 817(h)(4) of the Internal Revenue Code of 1986, as amended ("Code") and Treasury Regulation 1.817-5. Shares of the TRUST's Portfolios will not be sold directly to the general public. 1.9 TRUST may refuse to sell shares of any Portfolio to any person, or suspend or terminate the offering of the shares of or liquidate any Portfolio of TRUST if such action is required by law or by regulatory authorities having jurisdiction or is, in the sole discretion of the Board of Trustees of the TRUST (the "Board"), acting in good faith and in light of its duties under federal and any applicable state laws, deemed necessary, desirable or appropriate and in the best interests of the shareholders of such Portfolios. 3 1.10 Issuance and transfer of Portfolio shares will be by book entry only. Stock certificates will not be issued to LIFE COMPANY or the Separate Accounts. Shares ordered from Portfolio will be recorded in appropriate book entry titles for the Separate Accounts. Article II. REPRESENTATIONS AND WARRANTIES 2.1 LIFE COMPANY represents and warrants that it is an insurance company duly organized and in good standing under the laws of the State of Texas, and that it has legally and validly established each Separate Account as a segregated asset account under such laws, and that American General Securities Incorporated ("AGSI"), the principal underwriter for the Variable Contracts, is registered as a broker-dealer under the Securities Exchange Act of 1934 (the "'34 Act"). 2.2 LIFE COMPANY represents and warrants that it has registered or, prior to any issuance or sale of the Variable Contracts, will register each Separate Account as a unit investment trust ("UIT") in accordance with the provisions of the '40 Act and cause each Separate Account to remain so registered to serve as a segregated asset account for the Variable Contracts, unless an exemption from registration is available. 2.3 LIFE COMPANY represents and warrants that the Variable Contracts will be registered under the Securities Act of 1933 (the "'33 Act") unless an exemption from registration is available prior to any issuance or sale of the Variable Contracts, and that the Variable Contracts will be issued and sold in compliance in all material respects with all applicable federal and state laws (including all applicable blue sky laws) and further that the sale of the Variable Contracts shall comply in all material respects with applicable state insurance law suitability requirements. 2.4 LIFE COMPANY represents and warrants that the Variable Contracts are currently and at the time of issuance will be treated as life insurance, endowment or annuity contracts under applicable provisions of the Code, that it will maintain such treatment and that it will notify TRUST immediately upon having a reasonable basis for believing that the Variable Contracts have ceased to be so treated or that they might not be so treated in the future. 2.5 TRUST represents and warrants that the Trust shares offered and sold pursuant to this Agreement will be registered under the '33 Act and sold in accordance with all applicable federal laws, and TRUST shall be registered under the '40 Act prior to and at the time of any issuance or sale of such shares. TRUST, subject to Section 1.9 above, shall amend its registration statement under the '33 Act and the '40 Act from time to time as required in order to effect the continuous offering of its shares. 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 TRUST. 2.6 TRUST represents and warrants that each Portfolio will comply with the diversification requirements set forth in Section 817(h) of the Code, and the rules and regulations thereunder, including without limitation Treasury Regulation 1.817-5, and will notify LIFE COMPANY immediately upon having a reasonable basis for believing any Portfolio has ceased to comply and will immediately take all reasonable steps to adequately diversify the Portfolio to achieve compliance. 4 2.7 TRUST represents and warrants that each Portfolio invested in by the Separate Account will be treated as a "regulated investment company" under Subchapter M of the Code, and will notify LIFE COMPANY immediately upon having a reasonable basis for believing it has ceased to so qualify or might not so qualify in the future. 2.8 ADVISER represents and warrants that it shall perform its obligations hereunder in compliance in all material respects with any applicable state and federal laws. Article III. PROSPECTUS AND PROXY STATEMENTS 3.1 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 TRUST. TRUST shall bear the costs of registration and qualification of shares of the Portfolios, preparation and filing of the documents listed in this Section 3.1 and all taxes and filing fees to which an issuer is subject on the issuance and transfer of its shares. 3.2 TRUST or its designee shall provide LIFE COMPANY, free of charge, with as many copies of the current prospectus (or prospectuses), statements of additional information, annual and semi-annual reports and proxy statements for the shares of the Portfolios as LIFE COMPANY may reasonably request for distribution to existing Variable Contract owners whose Variable Contracts are funded by such shares. TRUST or its designee shall provide LIFE COMPANY, at LIFE COMPANY's expense, with as many copies of the current prospectus (or prospectuses) for the shares as LIFE COMPANY may reasonably request for distribution to prospective purchasers of Variable Contracts. If requested by LIFE COMPANY, TRUST or its designee shall provide such documentation (including a "camera ready" copy of the current prospectus (or prospectuses) as set in type or, at the request of LIFE COMPANY, as a diskette in the form sent to the financial printer) and other assistance as is reasonably necessary in order for the parties hereto once a year (or more frequently if the prospectus (or prospectuses) for the shares is supplemented or amended) to have the prospectus for the Variable Contracts and the prospectus (or prospectuses) for the TRUST shares printed together in one document. The expenses of such printing will be apportioned between LIFE COMPANY and TRUST in proportion to the number of pages of the Variable Contract and TRUST prospectus, taking account of other relevant factors affecting the expense of printing, such as covers, columns, graphs and charts; TRUST shall bear the cost of printing the TRUST prospectus portion of such document for distribution only to owners of existing Variable Contracts funded by the TRUST shares and LIFE COMPANY shall bear the expense of printing the portion of such documents relating to the Separate Account; provided, however, LIFE COMPANY shall bear all printing expenses of such combined documents where used for distribution to prospective purchasers or to owners of existing Variable Contracts not funded by the shares. In the event that LIFE COMPANY requests that TRUST or its designee provide TRUST's prospectus in a "camera ready" or diskette format, TRUST shall be responsible for providing the prospectus (or prospectuses) in the format in which it is accustomed to formatting prospectuses and shall bear the expense of providing the prospectus (or prospectuses) in such format (e.g. typesetting expenses), and LIFE COMPANY shall bear the expense of adjusting or changing the format to conform with any of its prospectuses. 5 3.3 TRUST will provide LIFE COMPANY with at least one complete copy of all prospectuses, statements of additional information, annual and semi-annual reports, proxy statements, exemptive applications and all amendments or supplements to any of the above that relate to the Portfolios promptly after the filing of each such document with the SEC or other regulatory authority. LIFE COMPANY will provide TRUST with at least one complete copy of all prospectuses, statements of additional information, annual and semi-annual reports, proxy statements, exemptive applications and all amendments or supplements to any of the above that relate to a Separate Account promptly after the filing of each such document with the SEC or other regulatory authority. Article IV. SALES MATERIALS 4.1 LIFE COMPANY will furnish, or will cause to be furnished, to TRUST and ADVISER, each piece of sales literature or other promotional material in which TRUST or ADVISER is named, at least fifteen (15) Business Days prior to its intended use. No such material will be used if TRUST or ADVISER objects to its use in writing within ten (10) Business Days after receipt of such material. 4.2 TRUST and ADVISER will furnish, or will cause to be furnished, to LIFE COMPANY, each piece of sales literature or other promotional material in which LIFE COMPANY or its Separate Accounts are named, at least fifteen (15) Business Days prior to its intended use. No such material will be used if LIFE COMPANY objects to its use in writing within ten (10) Business Days after receipt of such material. 4.3 TRUST and its affiliates and agents shall not give any information or make any representations on behalf of LIFE COMPANY or concerning LIFE COMPANY, the Separate Accounts, or the Variable Contracts issued by LIFE COMPANY, other than the information or representations contained in a registration statement or prospectus for such Variable Contracts, as such registration statement and prospectus may be amended or supplemented from time to time, or in reports of the Separate Accounts or reports prepared for distribution to owners of such Variable Contracts, or in sales literature or other promotional material approved by LIFE COMPANY or its designee, except with the written permission of LIFE COMPANY. 4.4 LIFE COMPANY and its affiliates and agents shall not give any information or make any representations on behalf of TRUST or concerning TRUST other than the information or representations contained in a registration statement or prospectus for TRUST, as such registration statement and prospectus may be amended or supplemented from time to time, or in sales literature or other promotional material approved by TRUST or its designee, except with the written permission of TRUST. 4.5 For purposes of this Agreement, the phrase "sales literature or other promotional material" or words of similar import include, without limitation, advertisements (such as material published, or designed for use, in a newspaper, magazine or other periodical, radio, television, telephone or tape recording, videotape display, signs or billboards, motion pictures or other public media), sales literature (such as any written communication distributed or made generally available to customers or the public, including brochures, circulars, research reports, market letters, form 6 letters, seminar texts, or 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 National Association of Securities Dealers, Inc. ("NASD") rules, the '40 Act, the '33 Act or rules thereunder. Article V. POTENTIAL CONFLICTS 5.1 The parties acknowledge that TRUST has received an order from the SEC granting relief from various provisions of the '40 Act and the rules thereunder to the extent necessary to permit TRUST shares to be sold to and held by Variable Contract separate accounts of both affiliated and unaffiliated Participating Insurance Companies and Qualified Plans. The Exemptive Order requires TRUST and each Participating Insurance Company to comply with conditions and undertakings substantially as provided in this Section 5. The TRUST will not enter into a participation agreement with any other Participating Insurance Company unless it imposes the same conditions and undertakings as are imposed on LIFE COMPANY hereby. 5.2 The Board will monitor TRUST for the existence of any material irreconcilable conflict between the interests of Variable Contract owners of all separate accounts and with participants of Qualified Plans investing in TRUST. An irreconcilable material conflict may arise for a variety of reasons, which may include: (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 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 TRUST are being managed; (e) a difference in voting instructions given by Variable Contract owners; (f) a decision by a Participating Insurance Company to disregard the voting instructions of Variable Contract owners and (g) if applicable, a decision by a Qualified Plan to disregard the voting instructions of plan participants. 5.3 LIFE COMPANY will report any potential or existing conflicts of which it becomes aware to the Board. LIFE COMPANY will be responsible for assisting the Board in carrying out its duties in this regard by providing the Board with all information reasonably necessary for the Board to consider any issues raised. The responsibility includes, but is not limited to, an obligation by the LIFE COMPANY to inform the Board whenever it has determined to disregard Variable Contract owner voting instructions. These responsibilities of LIFE COMPANY will be carried out with a view only to the interests of the Variable Contract owners. 5.4 If a majority of the Board or majority of its disinterested Trustees, determines that a material irreconcilable conflict exists affecting LIFE COMPANY, LIFE COMPANY, at its expense and to the extent reasonably practicable (as determined by a majority of the Board's disinterested Trustees), will take any steps necessary to remedy or eliminate the irreconcilable material conflict, including; (a) withdrawing the assets allocable to some or all of the Separate Accounts from TRUST or any Portfolio thereof and reinvesting those assets in a different investment medium, which may 7 include another Portfolio of TRUST, or another investment company; (b) submitting the question as to whether such segregation should be implemented to a vote of all affected Variable Contract owners and as appropriate, segregating the assets of any appropriate group (i.e., variable annuity or variable life insurance Contract owners of one or more Participating Insurance Companies) that votes in favor of such segregation, or offering to the affected Variable Contract owners the option of making such a change; and (c) establishing a new registered management investment company (or series thereof) or managed separate account. If a material irreconcilable conflict arises because of LIFE COMPANY's decision to disregard Variable Contract owner voting instructions, and that decision represents a minority position or would preclude a majority vote, LIFE COMPANY may be required, at the election of TRUST, to withdraw the Separate Account's investment in TRUST, and no charge or penalty will be imposed as a result of such withdrawal. The responsibility to take such remedial action shall be carried out with a view only to the interests of the Variable Contract owners. For the purposes of this Section 5.4, a majority of the disinterested members of the Board shall determine whether or not any proposed action adequately remedies any irreconcilable material conflict, but in no event will TRUST or ADVISER (or any other investment adviser of TRUST) be required to establish a new funding medium for any Variable Contract. Further, LIFE COMPANY shall not be required by this Section 5.4 to establish a new funding medium for any Variable Contracts if any offer to do so has been declined by a vote of a majority of Variable Contract owners materially and adversely affected by the irreconcilable material conflict. 5.5 The Board's determination of the existence of an irreconcilable material conflict and its implications shall be made known promptly and in writing to LIFE COMPANY. 5.6 No less than annually, LIFE COMPANY shall submit to the Board such reports, materials or data as the Board may reasonably request so that the Board may fully carry out its obligations. Such reports, materials, and data shall be submitted more frequently if deemed appropriate by the Board. Article VI. VOTING 6.1 LIFE COMPANY will provide pass-through voting privileges to all Variable Contract owners so long as the SEC continues to interpret the '40 Act as requiring pass-through voting privileges for Variable Contract owners. Accordingly, LIFE COMPANY, where applicable, will vote shares of the Portfolio held in its Separate Accounts in a manner consistent with voting instructions timely received from its Variable Contract owners. LIFE COMPANY will be responsible for assuring that each of its Separate Accounts that participates in TRUST calculates voting privileges in a manner consistent with other Participating Insurance Companies. LIFE COMPANY will vote shares for which it has not received timely voting instructions, as well as shares it owns, in the same proportion as its votes those shares for which it has received voting instructions. 6.2 If and to the extent Rule 6e-2 and Rule 6e-3(T) are amended, or if Rule 6e-3 is adopted, to provide exemptive relief from any provision of the '40 Act or the rules thereunder with respect to mixed and shared funding on terms and conditions materially different from any exemptions granted in the Exemptive Order, then TRUST, and/or the Participating Insurance Companies, as appropriate, 8 shall take such steps as may be necessary to comply with Rule 6e-2 and Rule 6e-3(T), as amended, and Rule 6e-3, as adopted, to the extent such Rules are applicable. Article VII. INDEMNIFICATION 7.1 Indemnification by LIFE COMPANY. LIFE COMPANY agrees to indemnify and hold harmless TRUST, ADVISER and each of their Trustees, directors, principals, officers, employees and agents and each person, if any, who controls TRUST or ADVISER within the meaning of Section 15 of the '33 Act (collectively, the "Indemnified Parties") against any and all losses, claims, damages, liabilities (including amounts paid in settlement with the written consent of LIFE COMPANY, which consent shall not be unreasonably withheld) or litigation or threatened litigation (including legal and other expenses), to which the Indemnified Parties may become subject under any statute, regulation, at common law or otherwise, insofar as such losses, claims, damages, liabilities or expenses (or actions in respect thereof) or settlements are related to the sale or acquisition of TRUST's shares or the Variable Contracts and: (a) arise out of or are based upon any untrue statements or alleged untrue statements of any material fact contained in the Registration Statement or prospectus for the Variable Contracts or contained in the Variable Contracts (or any amendment or supplement to any of the foregoing), or arise out of or are based upon the omission or the alleged omission to state therein a material fact required to be stated therein or necessary to make the statements therein not misleading, provided that this agreement to indemnify shall not apply as to any Indemnified Party if such statement or omission or such alleged statement or omission was made in reliance upon and in conformity with information furnished in writing to LIFE COMPANY by or on behalf of TRUST for use in the registration statement or prospectus for the Variable Contracts or in the Variable Contracts or sales literature (or any amendment or supplement) or otherwise for use in connection with the sale of the Variable Contracts or TRUST shares; or (b) arise out of or result from (i) statements or representations (other than statements or representations contained in the registration statement, prospectus or sales literature of TRUST not supplied by LIFE COMPANY, or persons under its control) or (ii) wrongful conduct of LIFE COMPANY or persons under its control, with respect to the sale or distribution of the Variable Contracts or TRUST shares; or (c) arise out of any untrue statement or alleged untrue statement of a material fact contained in a registration statement, prospectus, or sales literature of TRUST or any amendment thereof or supplement thereto or the omission or alleged omission to state therein a material fact required to be stated therein or necessary to make the statements therein not misleading if such statement or omission or such alleged statement or omission was made in reliance upon and in conformity with information furnished in writing to TRUST by or on behalf of LIFE COMPANY; or (d) arise as a result of any failure by LIFE COMPANY to provide substantially the services and furnish the materials under the terms of this Agreement; or 9 (e) arise out of or result from any material breach of any representation and/or warranty made by LIFE COMPANY in this Agreement or arise out of or result from any other material breach of this Agreement by LIFE COMPANY. 7.2 LIFE COMPANY shall not be liable under this indemnification provision with respect to any losses, claims, damages, liabilities or litigation incurred or assessed against an Indemnified Party to the extent that such losses, claims, damages, liabilities or litigation are attributable to such Indemnified Party's willful misfeasance, bad faith, or gross negligence in the performance of such Indemnified Party's duties or by reason of such Indemnified Party's reckless disregard of obligations or duties under this Agreement. 7.3 LIFE COMPANY 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 LIFE COMPANY 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 LIFE COMPANY of any such claim shall not relieve LIFE 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 an Indemnified Party, LIFE COMPANY shall be entitled to participate at its own expense in the defense of such action. LIFE COMPANY also shall be entitled to assume the defense thereof, with counsel satisfactory to the party named in the action. After notice from LIFE COMPANY to such party of LIFE 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 LIFE 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. 7.4 Indemnification by TRUST and ADVISER. TRUST and ADVISER agrees to indemnify and hold harmless LIFE COMPANY, AGSI and each of their respective directors, officers, employees, and agents and each person, if any, who controls LIFE COMPANY within the meaning of Section 15 of the '33 Act (collectively, the "Indemnified Parties") against any and all losses, claims, damages, liabilities (including amounts paid in settlement with the written consent of TRUST and ADVISOR which consent shall not be unreasonably withheld) or litigation or threatened litigation (including legal and other expenses) to which the Indemnified Parties may become subject under any statute, or regulation, at common law or otherwise, insofar as such losses, claims, damages, liabilities or expenses (or actions in respect thereof) or settlements are related to the sale or acquisition of TRUST's shares or the Variable Contracts, and: (a) arise out of or are based upon any untrue statement or alleged untrue statement of any material fact contained in the registration statement or prospectus or sales literature of TRUST (or any amendment or supplement to any of the foregoing), or arise out of or are based upon the omission or the alleged omission to state therein a material fact required to be stated therein or necessary to make the statements therein not misleading, provided that this agreement to indemnify shall not apply as to any Indemnified Party if such statement or omission or such alleged statement or omission was made in reliance upon and in conformity with information 10 furnished in writing to ADVISER or TRUST by or on behalf of LIFE COMPANY for use in the registration statement or prospectus for TRUST or in sales literature (or any amendment or supplement) or otherwise for use in connection with the sale of the Variable Contracts or TRUST shares; or (b) arise out of or result from (i) statements or representations (other than statements or representations contained in the registration statement, prospectus or sales literature for the Variable Contracts not supplied by ADVISER or TRUST or persons under its control) or (ii) gross negligence or wrongful conduct or willful misfeasance of TRUST or ADVISER or persons under their respective control, with respect to the sale or distribution of the Variable Contracts or TRUST shares; or (c) arise out of any untrue statement or alleged untrue statement of a material fact contained in a registration statement, prospectus, or sales literature covering the Variable 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 statements therein not misleading, if such statement or omission or such alleged statement or omission was made in reliance upon and in conformity with information furnished in writing to LIFE COMPANY for inclusion therein by or on behalf of TRUST or ADVISER; or (d) arise as a result of (i) a failure by TRUST to provide substantially the services and furnish the materials under the terms of this Agreement; or (ii) a failure by a Portfolio(s) invested in by the Separate Account to comply with the diversification requirements of Section 817(h) of the Code; or (iii) a failure by a Portfolio(s) invested in by the Separate Account to qualify as a "regulated investment company" under Subchapter M of the Code; or (e) arise out of or result from any material breach of any representation and/or warranty made by TRUST in this Agreement or arise out of or result from any other material breach of this Agreement by TRUST. 7.5 Neither TRUST nor ADVISER shall be liable under this indemnification provision with respect to any losses, claims, damages, liabilities or litigation incurred or assessed against an Indemnified Party to the extent that such losses, claims, damages, liabilities or litigation are attributable to such Indemnified Party's willful misfeasance, bad faith, or gross negligence in the performance of such Indemnified Party's duties or by reason of such Indemnified Party's reckless disregard of obligations and duties under this Agreement. 7.6 Neither TRUST nor ADVISER shall be liable under this indemnification provision with respect to any claim made against an Indemnified Party unless such Indemnified Party shall have notified TRUST 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 TRUST and ADVISER of any such claim shall not relieve TRUST or ADVISER from any liability which it may have to the Indemnified Party against whom such action is brought 11 otherwise than on account of this indemnification provision. In case any such action is brought against the Indemnified Parties, TRUST and ADVISER shall be entitled to participate at its own expense in the defense thereof. TRUST and ADVISER also shall be entitled to assume the defense thereof, with counsel satisfactory to the party named in the action. After notice from TRUST and ADVISER to such party of TRUST's and ADVISER's election to assume the defense thereof, the Indemnified Party shall bear the fees and expenses of any additional counsel retained by it, and neither TRUST or ADVISER will 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. Article VIII. TERM; TERMINATION 8.1 This Agreement shall be effective as of the date hereof and shall continue in force until terminated in accordance with the provisions herein. 8.2 This Agreement shall terminate in accordance with the following provisions: (a) At the option of LIFE COMPANY or TRUST at any time from the date hereof upon 180 days' notice, unless a shorter time is agreed to by the parties; (b) At the option of LIFE COMPANY, if TRUST shares are not reasonably available to meet the requirements of the Variable Contracts as determined by LIFE COMPANY. Prompt notice of election to terminate shall be furnished by LIFE COMPANY, said termination to be effective ten (10) days after receipt of notice unless TRUST makes available a sufficient number of shares to reasonably meet the requirements of the Variable Contracts within said ten (10) day period; (c) At the option of LIFE COMPANY, upon the institution of formal proceedings against TRUST by the SEC, the NASD, or any other regulatory body, the expected or anticipated ruling, judgment or outcome of which would, in LIFE COMPANY's reasonable judgment, materially impair TRUST's ability to meet and perform TRUST's obligations and duties hereunder. Prompt notice of election to terminate shall be furnished by LIFE COMPANY with said termination to be effective upon receipt of notice; (d) At the option of TRUST, upon the institution of formal proceedings against LIFE COMPANY and/or its broker-dealer affiliates by the SEC, the NASD, or any other regulatory body, the expected or anticipated ruling, judgment or outcome of which would, in TRUST's reasonable judgment, materially impair LIFE COMPANY's ability to meet and perform its obligations and duties hereunder. Prompt notice of election to terminate shall be furnished by TRUST with said termination to be effective upon receipt of notice; (e) In the event TRUST's shares are not registered, issued or sold in accordance with applicable state or federal law, or such law precludes the use of such shares as the underlying investment medium of Variable Contracts issued or to be issued by LIFE COMPANY. Termination shall be effective upon such occurrence without notice; 12 (f) At the option of TRUST if the Variable Contracts cease to qualify as annuity contracts or life insurance contracts, as applicable, under the Code, or if TRUST reasonably believes that the Variable Contracts may fail to so qualify. Termination shall be effective upon receipt of notice by LIFE COMPANY; (g) At the option of LIFE COMPANY, upon TRUST's breach of any material provision of this Agreement, which breach has not been cured to the satisfaction of LIFE COMPANY within ten days after written notice of such breach is delivered to TRUST; (h) At the option of TRUST, upon LIFE COMPANY's breach of any material provision of this Agreement, which breach has not been cured to the satisfaction of TRUST within ten days after written notice of such breach is delivered to LIFE COMPANY; (i) At the option of TRUST, if the Variable Contracts are not registered, issued or sold in accordance with applicable federal and/or state law. Termination shall be effective immediately upon such occurrence without notice; In the event this Agreement is assigned without the prior written consent of LIFE COMPANY, TRUST, and ADVISER, termination shall be effective immediately upon such occurrence without notice. 8.3 Notwithstanding any termination of this Agreement pursuant to Section 8.2 hereof, TRUST at its option may elect to continue to make available additional TRUST shares, as provided below, for so long as TRUST desires pursuant to the terms and conditions of this Agreement, for all Variable Contracts in effect on the effective date of termination of this Agreement (hereinafter referred to as "Existing Contracts"). Specifically, without limitation, if TRUST so elects to make additional TRUST shares available, the owners of the Existing Contracts or LIFE COMPANY, whichever shall have legal authority to do so, shall be permitted to reallocate investments in TRUST, redeem investments in TRUST and/or invest in TRUST upon the payment of additional premiums under the Existing Contracts. In the event of a termination of this Agreement pursuant to Section 8.2 hereof, TRUST and ADVISER, as promptly as is practicable under the circumstances, shall notify LIFE COMPANY whether TRUST elects to continue to make TRUST shares available after such termination. If TRUST shares continue to be made available after such termination, the provisions of this Agreement shall remain in effect and thereafter either TRUST or LIFE COMPANY may terminate the Agreement, as so continued pursuant to this Section 8.3, upon sixty (60) days' prior written notice to the other party. 8.4 Except as necessary to implement Variable Contract owner initiated transactions, or as required by state insurance laws or regulations, LIFE COMPANY shall not redeem the shares attributable to the Variable Contracts (as opposed to the shares attributable to LIFE COMPANY's assets held in the Separate Accounts), and LIFE COMPANY shall not prevent Variable Contract owners from allocating payments to a Portfolio that was otherwise available under the Variable Contracts until thirty (30) days after the LIFE COMPANY shall have notified TRUST of its intention to do so. 13 Article IX. NOTICES Any notice hereunder shall be given by registered or certified mail return receipt requested 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 TRUST: BT Insurance Funds Trust c/o First Data Investor Services Group, Inc. One Exchange Place 53 State Street, Mail Stop BOS 865 Boston, MA 02109 Attn: Elizabeth Russell, Legal Dep't and c/o BT Alex. Brown One South Street, Mail Stop 1-18-6 Baltimore, MD 21202 Attn: Brian Wixted, Mutual Fund Services If to ADVISER: Bankers Trust Company - Global Investment Management 130 Liberty Street New York, NY 10006 Attn.: Vinay Mendiratta, Mail Stop 2355 If to LIFE COMPANY: American General Life Insurance Company c/o American General Life Companies 2727-A Allen Parkway Houston, Texas 77019 Attn: Steven Glover, Esq. Notice shall be deemed given on the date of receipt by the addressee as evidenced by the return receipt. Article X. MISCELLANEOUS 10.1 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. 14 10.2 This Agreement may be executed simultaneously in two or more counterparts, each of which taken together shall constitute one and the same instrument. 10.3 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. 10.4 This Agreement shall be construed and the provisions hereof interpreted under and in accordance with the laws of the State of New York. 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. 10.5 It is understood and expressly stipulated that neither the shareholders of shares of any Portfolio nor the Trustees or officers of TRUST or any Portfolio shall be personally liable hereunder. No Portfolio shall be liable for the liabilities of any other Portfolio. All persons dealing with TRUST or a Portfolio must look solely to the property of TRUST or that Portfolio, respectively, for enforcement of any claims against TRUST or that Portfolio. It is also understood that each of the Portfolios shall be deemed to be entering into a separate Agreement with LIFE COMPANY so that it is as if each of the Portfolios had signed a separate Agreement with LIFE COMPANY and that a single document is being signed simply to facilitate the execution and administration of the Agreement. 10.6 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. 10.7 The rights, remedies and obligations contained in this Agreement are cumulative and are in addition to any and all rights, remedies and obligations, at law or in equity, which the parties hereto are entitled to under state and federal laws. 10.8 If the Agreement terminates, the parties agree that Article 7 and Sections 10.5, 10.6 and 10.7 shall remain in effect after termination. 10.9 No provision of this Agreement may be amended or modified in any manner except by a written agreement properly authorized and executed by TRUST, ADVISER and the LIFE COMPANY. 15 10.10 No failure or delay by a party in exercising any right or remedy under this Agreement will operate as a waiver thereof and no single or partial exercise of rights shall preclude a further or subsequent exercise. The rights and remedies provided in this Agreement are cumulative and not exclusive of any rights or remedies provided by law. IN WITNESS WHEREOF, the parties have caused their duly authorized officers to execute this Fund Participation Agreement as of the date and year first above written. BT INSURANCE FUNDS TRUST By:_______________________________________ Name: Title: BANKERS TRUST COMPANY By:_______________________________________ Name: Title: AMERICAN GENERAL LIFE INSURANCE COMPANY By: _______________________________________ Don M. Ward Senior Vice President- Variable Products 16 Appendix A To Participation Agreement by and among BT Insurance Funds Trust, Bakers Trust Company and American General Life Insurance Company. List of portfolios: - Equity 500 Index Fund - EAFE Equity Index Fund 17 Appendix B To Participation Agreement by and among BT Insurance Funds Trust, Bakers Trust Company and American General Life Insurance Company. List of variable separate accounts: Selected Portfolios - ----------------------------------- ------------------- American General Life Insurance Company Equity 500 Index Fund Separate Account VL-R EAFE Equity Index Fund Established May 6, 1997 18 EX-1.8B 5 AMENDMENT #3 TO PARTICIPATION AGREEMENT EXHIBIT 1.8(b) AMENDMENT NUMBER 3 TO PARTICIPATION AGREEMENT AMONG MORGAN STANLEY UNIVERSAL FUNDS, INC., VAN KAMPEN AMERICAN CAPITAL DISTRIBUTORS, INC., MORGAN STANLEY ASSET MANAGEMENT INC., MILLER ANDERSON & SHERRERD, LLP, AMERICAN GENERAL LIFE INSURANCE COMPANY, AND AMERICAN GENERAL SECURITIES INCORPORATED This Amendment No. 3 ("Amendment") executed as of the August 1, 1998 to the Participation Agreement (the "AGLI Agreement") dated as of January 24, 1997, as amended, among Morgan Stanley Universal Funds, Inc. (the "Fund"), Van Kampen American Capital Distributors, Inc. ("VKAC"), Morgan Stanley Asset Management Inc. ("MSAM"), Miller Anderson & Sherrerd, LLP ("MAS"), American General Life Insurance Company (the "Company"), and American General Securities Incorporated ("AGSI"). WHEREAS, the parties desire to amend the Agreement to (i) add to Schedule A of the Agreement the Contracts of the Company relating to the Company's Legacy Plus Flexible Premium Variable Life Insurance Policies ("Legacy Plus Contracts"), and (ii) solely to the extent the Agreement relates to the Legacy Plus Contracts, amend the provisions of Article III of the Agreement as described below. NOW, THEREFORE, in consideration of the premises and of the mutual agreements and covenants herein contained, and other good and valuable consideration, the receipt and sufficiency of which is hereby acknowledged, the parties hereto agree as follows: 1. Schedule A to the Agreement, a revised copy of which is attached hereto, is hereby amended and restated to clarify the complete list of the Fund's portfolios available for purchase under the Agreement. 2. Schedule B to the Agreement, a revised copy of which is attached hereto, is hereby amended and restated to add the Legacy Plus Contracts. 3. Solely to the extent the Agreement relates to the Legacy Plus Contracts, Article III of the Agreement is hereby deleted and replaced with the following: "ARTICLE III. Prospectuses, Reports to Shareholders and Proxy Statements; Voting 3.1. The Fund or its designee shall provide the Company with as many printed copies of the Fund's current prospectus and statement of additional information as the Company may reasonably request. If requested by the Company, in lieu of providing printed copies the Fund shall provide camera-ready film or computer diskettes containing the Fund's prospectus and statement of additional information, and such other assistance as is reasonably necessary in order for the Company once each year (or more frequently if the prospectus and/or statement of additional information for the Fund is amended during the year) to have the prospectus for the Contracts and the Fund's prospectus printed together in one document or separately. The Company may elect to print the Fund's prospectus and/or its statement of additional information in combination with other fund companies' prospectuses and statements of additional information. 3.2(a). Except as otherwise provided in this Section 3.2., all expenses of preparing, setting in type and printing and distributing Fund prospectuses and statements of additional information shall be the expense of the Company. For prospectuses and statements of additional information provided by the Company to its existing owners of Contracts who own shares of the Fund in order to update disclosure as required by the 1933 Act and/or the 1940 Act, the cost of setting in type, printing and distributing shall be borne by the Fund. If the Company chooses to receive camera-ready film or computer diskettes in lieu of receiving printed copies of the Fund's prospectus and/or statement of additional information, the Fund shall bear the cost of typesetting to provide the Fund's prospectus and/or statement of additional information to the Company in the format in which the Fund is accustomed to formatting prospectuses and statements of additional information, respectively, and the Company shall bear the expense of adjusting or changing the format to conform with any of its prospectuses and/or statements of additional information. In such event, the Fund will reimburse the Company in an amount equal to the product of x and y where x is the number of such prospectuses distributed to Participants who own shares of the Fund, and y is the Fund's per unit cost of printing the Fund's prospectuses. The same procedures shall be followed with respect to the Fund's statement of additional information. The Fund shall not pay any costs of typesetting, printing and distributing the Fund's prospectus and/or statement of additional information to prospective Participants. 3.2(b). The Fund, at its expense, shall provide the Company with copies of its proxy statements, reports to shareholders, and other communications (except for prospectuses and statements of additional information, which are covered in Section 3.2(a) above) to shareholders in such quantity as the Company shall reasonably require for distributing to Participants. The Fund shall not pay any costs of distributing such proxy- related material, reports to shareholders, and other communications to prospective Participants. 3.2(c). The Company agrees to provide the Fund or its designee with such information as may be reasonably requested by the Fund to assure that the Fund's expenses do not include the cost of typesetting, printing or distributing any of the foregoing documents other than those actually distributed to existing Participants. 3.2(d). The Fund shall pay no fee or other compensation to the Company under this Agreement, except that if the Fund or any Portfolio adopts and implements a plan pursuant to Rule 12b-1 to finance distribution expenses, then the Underwriter may make payments to the Company or to the underwriter for the Contracts if and in amounts agreed to by the Underwriter in writing. 3.2(e). All expenses, including expenses to be borne by the Fund pursuant to Section 3.2 hereof, incident to performance by the Fund under this Agreement shall be paid by the Fund. The Fund shall see to it that all its shares are registered and authorized for issuance in accordance with applicable federal law and, if and to the extent deemed advisable by the Fund, in accordance with applicable state laws prior to their sale. The Fund shall bear the expenses for the cost of registration and qualification of the Fund's shares. 3.3 The Fund's statement of additional information shall be obtainable from the Fund, the Underwriter, the Company or such other person as the Fund may designate. 3.4 If and to the extent required by law the Company shall distribute all proxy material furnished by the Fund to Contract Owners to whom voting privileges are required to be extended and shall: (i) solicit voting instructions from Contract owners: (ii) vote the Fund shares in accordance with instructions received from Contract owners: and (iii) vote Fund shares for which no instructions have been received in the same proportion as Fund shares of such Portfolio for which instructions have been received, so long as and to the extent that the Securities and Exchange Commission continues to interpret the 1940 Act to require pass-through voting privileges for variable contract owners. The Company reserves the right to vote Fund shares held in any segregated asset account in its own right, to the extent permitted by law. The Fund and the Company shall follow the procedures, and shall have the corresponding responsibilities, for the handling of proxy and voting instruction solicitations, as set forth in Schedule C attached hereto and incorporated herein by reference. Participating Insurance Companies shall be responsible for ensuring that each of their separate accounts participating in the Fund calculates voting privileges in a manner consistent with the standards set forth on Schedule C, which standards will also be provided to the other Participating Insurance Companies. 3.5. The Fund will comply with all provisions of the 1940 Act requiring voting by shareholders, and in particular the Fund will either provide for annual meetings (except insofar as the Securities and Exchange Commission may interpret Section 16 not to require such meetings) or comply with Section 16(c) of the 1940 Act (although the Fund is not one of the trusts described in Section 16(c) of that Act) as well as with Sections 16(a) and, if and when applicable, 16(b). Further, the Fund will act in accordance with the Securities and Exchange Commission's interpretation of the requirements of Section 16(a) with respect to periodic elections of directors and with whatever rules the Commission may promulgate with respect thereto." 4. Except as amended hereby the Agreement is hereby ratified and confirmed in all respects. IN WITNESS WHEREOF, the parties hereto execute this Amendment No. 3 as of the date first written above.
AMERICAN GENERAL LIFE INSURANCE COMPANY AMERICAN GENERAL SECURITIES INCORPORATED on behalf of itself and each of its Accounts named in Schedule B to the Agreement, as amended from time to time By:______________________________________ By:______________________________________ VAN KAMPEN FUNDS INC. MORGAN STANLEY UNIVERSAL (FORMERLY VAN KAMPEN AMERICAN FUNDS, INC. CAPITAL DISTRIBUTORS, INC.) By:______________________________________ By:______________________________________ MORGAN STANLEY ASSET MILLER ANDERSON & SHERRERD, LLP MANAGEMENT, INC. By:______________________________________ By:____________________________________
SCHEDULE A PORTFOLIOS OF MORGAN STANLEY UNIVERSAL FUNDS AVAILABLE FOR PURCHASE BY AMERICAN GENERAL LIFE INSURANCE COMPANY UNDER THIS AGREEMENT Fixed Income High Yield Mid Cap Value Value International Magnum Emerging Markets Equity Global Equity Equity Growth SCHEDULE B SEPARATE ACCOUNTS AND CONTRACTS -------------------------------
Name of Separate Account and Form Numbers and Names of Date Established by Board of Directors Contracts Funded by Separate Account - --------------------------------------------------- ------------------------------------ American General Life Insurance Company Contract Form Numbers: Separate Account D 95020 Rev 896 Established: November 19, 1973 95021 Rev 896 Name of Contract: Generations Combination Fixed and Variable Annuity Contract Contract Form Numbers: 91010 91011 93020 93021 Name of Contract: Variety Plus Combination Fixed and Variable Annuity Contract Contract Form Numbers: 74010 74011 76010 76011 80010 80011 81010 81011 83010 83011 Name of Contract: None American General Life Insurance Company Contract Form Numbers: Separate Account VL-R 97600 Established: May 6, 1997 97610 Name of Contract: Platinum I and Platinum II Flexible Premium Variable Life Insurance Policies Contract Form Number: 98615 Name of Contract: Legacy Plus Flexible Premium Variable Life Insurance Policies
EX-1.8C 6 FIRST AMENDMENT TO PARTICIPATION AGREEMENT EXHIBIT 1.8(c) FIRST AMENDMENT TO PARTICIPATION AGREEMENT AMONG AMERICAN GENERAL LIFE INSURANCE COMPANY, AMERICAN GENERAL SECURITIES INCORPORATED, AMERICAN GENERAL SERIES PORTFOLIO COMPANY AND THE VARIABLE ANNUITY LIFE INSURANCE COMPANY THIS FIRST AMENDMENT TO PARTICIPATION AGREEMENT ("Amendment") dated as of July 21, 1998, amends the Participation Agreement dated as of February 26, 1998 (the "Agreement"), among AMERICAN GENERAL LIFE INSURANCE COMPANY (the "Company"), on its own behalf and on behalf of each separate account of the Company set forth on Schedule B of the Agreement (the "Account"), AMERICAN GENERAL SECURITIES INCORPORATED ("AGSI"), AMERICAN GENERAL SERIES PORTFOLIO COMPANY (the "Fund"), and THE VARIABLE ANNUITY LIFE INSURANCE COMPANY (the "Adviser"), collectively, the "Parties." All capitalized terms not otherwise defined in this Amendment, shall have the same meaning as ascribed in the Agreement. WHEREAS, from time to time, the Company will offer new Variable Insurance Products which are not covered under the Agreement, but for which the Fund will act as an investment vehicle for the Company's Accounts; and WHEREAS, the Company and the Adviser have reached an agreement to provide for the reimbursement to the Company by the Adviser of certain of the administrative costs and expenses incurred by the Company in connection with the servicing of owners of Contracts covered under the Agreement, who have allocated Contract values to a Portfolio, including, but not limited to, responding by the Company to various Contract owner inquiries regarding a Portfolio, and record keeping relating thereto; and WHEREAS, the parties now desire to amend the Agreement to reflect, among other things, (i) the new Variable Insurance Product for which the Fund will act as an investment vehicle for the Accounts, and (ii) the agreement of the Parties with respect to the Adviser's reimbursement to the Company of certain of the Company's administrative costs and expenses; NOW, THEREFORE, in consideration of their mutual promises, the Parties agree as follows: 1. Schedule B to the Agreement, a revised copy of which is attached hereto, is hereby amended to add the Legacy Plus Contract. 2. The Parties acknowledge that from time to time the Company will introduce new Variable Insurance Products for which the Fund will act as an investment vehicle for certain of the Company's Accounts. In this regard, the Parties agree that the Company may, upon written notice to the other Parties, add such new Variable Insurance Products and Separate Accounts of the Company to Schedule B of the Agreement, and thereby amend Schedule B of the Agreement. 3. The following new 3.2(e) paragraph is added to the Agreement: "3.2. Expenses. . . . . (e) Certain Administrative Expenses of the Company. The Adviser will reimburse the Company on a calendar quarterly basis, for certain of the administrative costs and expenses incurred by the Company as a result of operations necessitated by the beneficial ownership of shares of the Portfolios of the Fund by owners of those Contracts which are subject to such reimbursement as indicated on Schedule B hereto. Such reimbursement shall be in an amount equal to fifteen (15) basis points per annum of the net assets of the Funds attributable to such Contracts. The determination of applicable assets shall be made by averaging assets in applicable Portfolios of the Fund as of the last Business Day of each calendar month falling within the applicable calendar quarter. In no event shall such fee be paid by the Fund, its shareholders or by any Contract owner. 4. Except as amended hereby, the Agreement is hereby ratified and confirmed in all respects. IN WITNESS WHEREOF, the Parties hereto has caused this Agreement to be executed in its name and on its behalf by its duly authorized representative hereto as of the date specified above. AMERICAN GENERAL LIFE INSURANCE COMPANY, on behalf of itself and each of its Accounts named in Schedule B hereto, as amended from time to time. By: ----------------------------- Don M. Ward Senior Vice President - Variable Products AMERICAN GENERAL SECURITIES INCORPORATED By: ----------------------------- F. Paul Kovach, Jr. President THE VARIABLE ANNUITY LIFE INSURANCE COMPANY By: ----------------------------- Thomas L. West, Jr. President and CEO AMERICAN GENERAL SERIES PORTFOLIO COMPANY By: ----------------------------- Cynthia A. Toles General Counsel and Secretary SCHEDULE B SEPARATE ACCOUNTS AND CONTRACTS+ NAME OF SEPARATE ACCOUNT AND REGISTRATION NUMBERS AND NAMES OF CONTRACTS DATE ESTABLISHED BY BOARD OF DIRECTORS FUNDED BY SEPARATE ACCOUNT American General Life Insurance Company Registration Nos.: Name of Contract: Separate Account A 33-44744 Group and Individual Variable Established: August 14, 1967 811-1491 Annuity 33-44745 Individual Variable Annuity 811-1491 American General Life Insurance Company 333-40637 Select Reserve Flexible Payment Separate Account D 811-02441 Variable and Fixed Individual Established: November 19, 1973 Deferred Annuity* 33-43390 VAriety Plus Variable Annuity 811-2441 American General Life Insurance Company 333-42567 Platinum Investor I and Platinum Separate Account VL-R 811-08561 Investor II Variable Life Insurance Established: May 6, 1997 Policies* 333-53909 Legacy Plus Variable Life Insurance 811-08561 Policies*
*Subject to reimbursement of certain administrative expenses as set forth in Paragraph 3.2(e) of the Participation Agreement above. +The parties hereto agree that this Schedule B may be revised and replaced as necessary to accurately reflect the Separate Accounts and Contracts covered under this Agreement. EX-1.8D 7 PARTICIPATION AGREEMENT EXHIBIT 1.8(d) PARTICIPATION AGREEMENT BY AND AMONG AIM VARIABLE INSURANCE FUNDS, INC., A I M DISTRIBUTORS, INC., AMERICAN GENERAL LIFE INSURANCE COMPANY, ON BEHALF OF ITSELF AND ITS SEPARATE ACCOUNTS, AND AMERICAN GENERAL SECURITIES INCORPORATED TABLE OF CONTENTS
DESCRIPTION PAGE 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......................................... 3 2.1 Timely Pricing and Orders......................................... 3 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................................................ 5 4.1 Tax Laws.......................................................... 5 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........................................11 5.1 General...........................................................11 5.2 Disinterested Directors...........................................12 5.3 Monitoring for Material Irreconcilable Conflicts..................12 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................................16 6.3 Funds To Remain Available.........................................16
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DESCRIPTION PAGE 6.4 Survival of Warranties and Indemnifications.......................16 6.5 Continuance of Agreement for Certain Purposes.....................16 Section 7. Parties To Cooperate Respecting Termination.....................17 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 and AIM by LIFE COMPANY and UNDERWRITER...................18 12.2 Of LIFE COMPANY and UNDERWRITER by AVIF and AIM...................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
ii 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"); A I M Distributors, Inc. ("AIM"); American General Life Insurance Company, a Texas 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"); American General Securities Incorporated, 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 nine 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 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"); WHEREAS, AIM 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. 2 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 5:30 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. (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 5:30 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 3:00 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 3:00 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 3 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 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 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 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 COMPANY 5 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 (except for its parent company, affiliates, accounting and legal representatives on a need to know basis), 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; (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 or judicial appeals 6 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 Texas and has full corporate power, authority and legal right to execute, deliver and perform its duties and comply with its obligations under this Agreement, (ii) it has legally and validly established and maintains each Account as a segregated asset account under Article 3.75 of the Texas Insurance Code 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 Act to the extent required by the 1933 Act, (ii) the 7 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 Texas 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. 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 8 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 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 9 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 camera ready or computer diskette copies 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 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, 10 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, any of its affiliates or related entities, 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. 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, 11 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; (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 12 (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. 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 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 13 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. 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. 14 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 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 15 (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 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. 16 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 or permitted by this Agreement will be given to the following persons at the following addresses and facsimile numbers, or such other persons, addresses or facsimile numbers as the Party receiving such notices or communications may subsequently direct in writing: AMERICAN GENERAL LIFE INSURANCE COMPANY AMERICAN GENERAL SECURITIES INCORPORATED c/o American General Independent Producer Division 2727-A Allen Parkway Houston, Texas 77019 Facsimile: (713) 831-3071 17 Attn: Steven Glover, Esquire AIM VARIABLE INSURANCE FUNDS, INC. AIM DISTRIBUTORS, INC. 11 Greenway Plaza, Suite 1919 Houston, Texas 77046 Facsimile: (713) 993-9185 Attn: Nancy L. Martin, Esquire 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 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 18 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 AND AIM 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, AIM, and their respective affiliates, and each person, if any, who controls AVIF, AIM, and 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 12.1) 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 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 "Associated Persons," as that term is defined in paragraph 19 (m) 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. (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 20 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 AND AIM. (a) Except to the extent provided in Sections 12.2(c), 12.2(d) and 12.2(e), below, AVIF and AIM agree 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 and AIM) 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 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, AIM or their respective 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 and AIM or their respective affiliates and on which such persons have reasonably relied) or the negligent, illegal or fraudulent conduct of AVIF and AIM or their respective affiliates or persons under its control (including, without limitation, their employees and "Associated Persons" as that term is defined in Section (n) of Article I of the 21 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 or AIM 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 or AIM in this Agreement or arise out of or result from any other material breach of this Agreement by AVIF or AIM. (b) Except to the extent provided in Sections 12.2(c), 12.2(d) and 12.2(e) hereof, AVIF and AIM agree to indemnify and hold harmless the Indemnified Parties from and against any and all losses, 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) Neither AVIF nor AIM shall 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. 22 (d) Neither AVIF nor AIM shall be liable under this Section 12.2 with respect to any action against an Indemnified Party unless the Indemnified Party shall have notified AVIF and AIM 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 and AIM of any such action shall not relieve AVIF and AIM 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 and AIM 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 and/or AIM to such Indemnified Party of AVIF's and/or AIM's election to assume the defense thereof, the Indemnified Party will cooperate fully with AVIF and/or AIM and shall bear the fees and expenses of any additional counsel retained by it, and neither AVIF nor AIM 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 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. 23 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. 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. 24 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 or on behalf of LIFE COMPANY, 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 or LIFE COMPANY Protected Parties, as the case may be. 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 LIFE COMPANY or 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. 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 25 "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 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. 26 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 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 A I M DISTRIBUTORS, INC. Attest: By: ---------------------------- ------------------------------------ Name: Nancy L. Martin Name: Michael J. Cemo Title: Assistant Secretary Title: President AMERICAN GENERAL LIFE INSURANCE COMPANY, on behalf of itself and its separate accounts Attest: By: ---------------------------- ------------------------------------ Name: Don M. Ward Name: Title: Senior Vice President - Variable ---------------------------- Products Title: ---------------------------- AMERICAN GENERAL SECURITIES INCORPORATED Attest: By: ---------------------------- ------------------------------------ Name: Frank P. Kovach, Jr. Name: Title: President ---------------------------- Title: ---------------------------- 28 SCHEDULE A FUNDS AVAILABLE UNDER THE CONTRACTS . AIM VARIABLE INSURANCE FUNDS, INC. AIM V.I. International Equity Fund AIM V.I. Value Fund SEPARATE ACCOUNTS UTILIZING THE FUNDS American General Life Insurance Company Separate Account VL-R Established: May 1, 1997 CONTRACTS FUNDED BY THE SEPARATE ACCOUNTS INCLUDING THE CORRESPONDING FUNDS AVAILABLE THEREUNDER Platinum Investor I Flexible Premium Life Insurance Policy - Policy Form No. 97600 AIM Variable Insurance Funds, Inc. AIM V.I. International Equity Fund AIM V.I. Value Fund Platinum Investor II Flexible Premium Life Insurance Policy - Policy Form No. 97610 AIM Variable Insurance Funds, Inc. AIM V.I. International Equity Fund AIM V.I. Value Fund Legacy Plus Flexible Premium Life Insurance Policy - Policy Form No. 98615 AIM Variable Insurance Funds, Inc. AIM V.I. Value Fund 29 SCHEDULE B . AIM VARIABLE INSURANCE FUNDS, INC. AIM V.I. International Equity Fund AIM V.I. Value Fund . AIM and Design [LOGO OF AIM APPEARS HERE] 30 SCHEDULE C EXPENSE ALLOCATIONS =============================================================================== AMERICAN GENERAL LIFE AVIF / AIM - ------------------------------------------------------------------------------- preparing and filing the Account's preparing and filing the Fund's registration statement registration statement - ------------------------------------------------------------------------------- text composition for Account prospectuses text composition for Fund and supplements prospectuses and supplements - ------------------------------------------------------------------------------- text alterations of prospectuses (Account) text alterations of prospectuses and supplements (Account) (Fund) and supplements (Fund) - ------------------------------------------------------------------------------- printing Account and Fund prospectuses and a camera ready Fund prospectus supplements (the prospectus shall be limited to those Funds listed on Schedule A) - ------------------------------------------------------------------------------- text composition and printing Account SAIs text composition and printing Fund SAIs - ------------------------------------------------------------------------------- mailing and distributing Account SAIs to mailing and distributing Fund policy owners upon request by policy owners SAIs to policy 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 and printing (Account), text composition and printing printing, mailing, and distributing annual of annual and semi-annual and semi-annual reports for Account (Fund reports (Fund) and Account as, applicable) - ------------------------------------------------------------------------------- text composition, printing, mailing, text composition, printing, distributing, and tabulation of proxy mailing, distributing and statements and voting instruction tabulation of proxy statements solicitation materials to policy owners and voting instruction with respect to proxies related to the solicitation materials to policy Account owners with respect to proxies related to the Fund - ------------------------------------------------------------------------------- 31 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 =============================================================================== 32 EX-1.8E 8 FIRST AMENDMENT TO PARTICIPATION AGREEMENT EXHIBIT 1.8(e) FIRST AMENDMENT TO PARTICIPATION AGREEMENT AMONG AMERICAN GENERAL LIFE INSURANCE COMPANY, AMERICAN GENERAL SECURITIES INCORPORATED, ROYCE CAPITAL FUND AND ROYCE & ASSOCIATES, INC. THIS FIRST AMENDMENT TO PARTICIPATION AGREEMENT ("Amendment") dated as of August __, 1998, amends the Participation Agreement dated as of February 26, 1998 (the "Agreement"), among AMERICAN GENERAL LIFE INSURANCE COMPANY (the "Company"), on its own behalf and on behalf of each separate account of the Company set forth on Schedule B of the Agreement (the "Account"), AMERICAN GENERAL SECURITIES INCORPORATED ("AGSI"), ROYCE CAPITAL FUND (the "Fund"), and ROYCE & ASSOCIATES, INC. (the "Adviser"), collectively, the "Parties." All capitalized terms not otherwise defined in this Amendment, shall have the same meaning as ascribed in the Agreement. WHEREAS, the Company will offer a new Variable Insurance Products comprised of a variable life insurance product which is not covered under the Agreement, but for which the Fund will act as an investment vehicle for the Company's Accounts; and WHEREAS, the Parties now desire to amend the Agreement to reflect the new Variable Insurance Product for which the Fund will act as an investment vehicle for the Accounts, and to otherwise amend the agreement in the manner set forth herein; NOW, THEREFORE, in consideration of their mutual promises, the Parties agree as follows: 1. The fifth (5th) recital of the agreement is hereby deleted in its entirety and replaced therefor with the following new recital: WHEREAS, the Fund has obtained an order from the Securities and Exchange Commission, dated July 24, 1996 (File No. 812-9988), granting Participating Insurance Companies and Variable Insurance Product separate accounts exemptions from the provisions of Sections 9(a), 13(a), 15(a), and 15(b) of the Investment Company Act of 1940, as amended (hereinafter the "1940 Act"), and Rules 6e-2(b)(15) and 6e-3(T)(b)(15) thereunder, to the extent necessary to permit shares of the Fund to be sold to and held by Variable Insurance Product separate accounts of both affiliated and unaffiliated life insurance companies and Qualified Plans (hereinafter the "Shared Funding Exemptive Order"); and 2. The ninth (9th) recital of the Agreement is hereby deleted in its entirety. Page 1 of 2 Pages 3. Schedule B to the Agreement, a revised copy of which is attached hereto, is hereby amended to add the Legacy Plus/(SM)/ Contract. 4. Except as amended hereby, the Agreement is hereby ratified and confirmed in all respects. IN WITNESS WHEREOF, the Parties hereto has caused this Agreement to be executed in its name and on its behalf by its duly authorized representative hereto as of the date specified above. AMERICAN GENERAL LIFE INSURANCE COMPANY, on behalf of itself and each of its Accounts named in Schedule B hereto, as amended from time to time. By: -------------------------- Don M. Ward Senior Vice President -Variable Markets AMERICAN GENERAL SECURITIES INCORPORATED By: -------------------------- F. Paul Kovach, Jr. President ROYCE CAPITAL FUNDS By: -------------------------- John D. Diederich Vice President ROYCE & ASSOCIATES, INC. By: -------------------------- Daniel A. O'Byrne Vice President Page 2 of 2 Pages SCHEDULE B SEPARATE ACCOUNTS AND CONTRACTS
NAME OF SEPARATE ACCOUNT AND REGISTRATION NUMBERS AND NAMES OF CONTRACTS FUNDED BY DATE ESTABLISHED BY BOARD OF DIRECTORS SEPARATE ACCOUNT - -------------------------------------- ---------------- Form Nos.: Name of Contract: American General Life Insurance Company 97505 Select Reserve/(SM)/ Flexible Payment Separate Account D Variable and Fixed Established: November 19, 1973 Individual Deferred Annuity American General Life Insurance Company 98615 Legacy Plus/(SM)/ Variable Life Insurance Separate Account VL-R Policies Established: May 6, 1997
EX-1.8F 9 AGREEMENT EXHIBIT 1.8(f) AGREEMENT THIS AGREEMENT ("Agreement") made as of , 1998, is by and between , a corporation ("Adviser") and AMERICAN GENERAL LIFE INSURANCE COMPANY, a Texas corporation ("AGL"). W I T N E S S E T H: WHEREAS, each of the investment companies listed on Schedule One hereto ("Schedule One," as the same may be amended from time to time), is registered as an open-end management investment company under the Investment Company Act of 1940, as amended (the "Act") (such investment companies are hereinafter collectively called the "Funds," or each a "Fund"); and WHEREAS, each of the Funds is available as the investment vehicle for certain separate accounts of AGL, established for variable life insurance policies and/or variable annuity contracts offered by AGL (the "Separate Account," whether one or more); and WHEREAS, AGL has entered into a participation agreement dated among AGL, and the Funds (the "Participation Agreement," as the same may be amended from time to time); and WHEREAS, Adviser provides, among other things, investment advisory and/or administrative services to the Funds; and WHEREAS, (the "Distributor"), is the [underwriter][distributor] of the funds; and WHEREAS, Adviser desires AGL to provide the administrative services specified in the attached Exhibit A ("Administrative Services"), in connection with the ownership of interests of the Separate Account, which is the owner of shares of the Funds for the benefit of persons who maintain their ownership interests in the Separate Account, whose interests are included in the master account ("Master Account") referred to in paragraph 1, of Exhibit A ("Shareholders"), and AGL is willing and able to provide such Administrative Services on the terms and conditions hereinafter set forth; NOW, THEREFORE, in consideration of the premises and mutual covenants hereinafter contained, each party hereto severally agrees as follows: 1. AGL agrees to perform the Administrative Services specified in Exhibit A hereto for the benefit of the Shareholders. 2. AGL represents and agrees that it will maintain and preserve all records as required by law to be maintained and preserved in connection with providing the Administrative Services, and will otherwise comply with all laws, rules and regulations applicable to the Administrative Services. 3. AGL agrees to provide copies of all the historical records relating to transactions between the Funds and Shareholders, and all written communications and other related materials regarding the Fund(s) to or from such Shareholders, as reasonably requested by Adviser or its representatives (which representatives, include, without limitation, its auditors, legal counsel or the Distributor, as the case may be), to enable Adviser or its representatives to monitor and review the Administrative Services performed by AGL, or comply with any request of the board of directors, or trustees or general partners (collectively, the "Directors") of any Fund, or of a governmental body, self-regulatory organization or Shareholder. In addition, AGL agrees that it will permit Adviser, the Funds or their representatives, to have reasonable access to its personnel and records in order to facilitate the monitoring of the quality of the Administrative Services. 4. AGL may, with the consent of Adviser, contract with or establish relationships with other parties for the provision of the Administrative Services or other activities of AGL required by this Agreement, or the Participation Agreement, provided that AGL shall be fully responsible for the acts and omissions of such other parties. 5. AGL hereby agrees to notify Adviser promptly if for any reason it is unable to perform fully and promptly any of its obligations under this Agreement. 6. AGL hereby represents and covenants that it does not, and will not, own or hold or control with power to vote any shares of the Funds which are registered in the name of AGL or the name of its nominee and which are maintained in AGL variable annuity or variable life insurance accounts. AGL represents further that it is not registered as a broker-dealer under the Securities Exchange Act of 1934, as amended (the "1934 Act"), and it is not required to be so registered, including as a result of entering into this Agreement and performing the Administrative Services, and other obligations of AGL set forth in this Agreement. 7. The provisions of the Agreement shall in no way limit the authority of Adviser, or any Fund or Distributor to take such action as any of such parties may deem appropriate or advisable in connection with all matters relating to the operations of any of such Funds and/or sale of its shares. 8. In consideration of the performance of the Administrative Services by AGL, Adviser agrees to pay AGL a monthly fee at an annual rate which shall equal % of the value of each Fund's average daily net assets maintained in the Master Account for the Shareholders. The foregoing fee will be paid by Adviser to AGL on a calendar quarterly basis, and in this regard, payment of such fee will be made by Adviser to AGL within thirty (30) days following the end of each calendar quarter. The determination of applicable assets shall be made by averaging assets in applicable portfolios as of the first and last Business Day (as defined in the Participation Agreement) of each month falling within the applicable calendar quarter. 2 Notwithstanding anything in this Agreement or the Participation Agreement appearing to the contrary, the payments by Adviser to AGL relate solely to the performance by AGL of the Administrative Services described herein only, and do not constitute payment in any manner for services provided by AGL to AGL policy or contract owners, or to any separate account organized by AGL, or for any investment advisory services, or for costs associated with the distribution of any variable annuity or variable life insurance contracts. 9. AGL shall indemnify and hold harmless each of the Funds, Adviser and Distributor and each of their respective officers, Directors, employees and agents from and against any and all losses, claims, damages, expenses, or liabilities that any one or more of them may incur including without limitation reasonable attorneys' fees, expenses and costs arising out of or related to the performance or non-performance by AGL of the Administrative Services under this Agreement. 10 This Agreement may be terminated without penalty at any time by AGL or by Adviser as to one or more of the Funds collectively, upon one hundred and eighty days (180) written notice to the other party. Notwithstanding the foregoing, the provisions of paragraphs 2, 3, 9 and 11 of this Agreement, shall continue in full force and effect after termination of this Agreement. This Agreement shall not require AGL to preserve any records (in any medium or format) relating to this Agreement beyond the time periods otherwise required by the laws to which AGL or the Funds are subject provided that such records shall be offered to the Funds in the event AGL decides to no longer preserve such records following such time periods. 11. After the date of any termination of this Agreement in accordance with paragraph 10 of this Agreement, no fee will be due with respect to any amounts first placed in the Master Account for the benefit of Shareholders after the date of such termination. However, notwithstanding any such termination, Adviser will remain obligated to pay AGL the fee specified in paragraph 8 of this Agreement, with respect to the value of each Fund's average daily net assets maintained in the Master Account as of the date of such termination, for so long as such amounts are held in the Master Account and AGL continues to provide the Administrative Services with respect to such amounts in conformity with this Agreement. This Agreement, or any provision hereof, shall survive termination to the extent necessary for each party to perform its obligations with respect to amounts for which a fee continues to be due subsequent to such termination. 12. AGL understands and agrees that the obligations of Adviser under this Agreement are not binding upon any of the Funds, upon any of their Board members or upon any shareholder of any of the Funds. 13. It is understood and agreed that in performing the services under this Agreement AGL, acting in its capacity described herein, shall at no time be acting as an agent for Adviser, Distributor or any of the Funds. AGL agrees, and agrees to cause its agents, not to make any representations concerning a Fund except those contained in the Fund's then-current prospectus; in current sales literature furnished by the Fund, Adviser or Distributor to AGL; in the then current prospectus for a variable annuity contract or variable life insurance policy issued by AGL or then current sales literature with respect to such variable annuity contract or variable life insurance policy, approved by Adviser. 3 14. This Agreement, including the provisions set forth herein in paragraph 8, may only be amended pursuant to a written instrument signed by the party to be charged. This Agreement may not be assigned by a party hereto, by operation of law or otherwise, without the prior written consent of the other party. 15. This Agreement shall be governed by the laws of the State of , without giving effect to the principles of conflicts of law of such jurisdiction. 16. This Agreement, including Exhibit A and Schedule One, constitutes the entire agreement between the parties with respect to the matters dealt with herein and supersedes any previous agreements and documents with respect to such matters. The parties agree that Schedule One may be replaced from time to time with a new Schedule One to accurately reflect any changes in the Funds available as investment vehicles under the Participation Agreement. IN WITNESS HEREOF, the parties hereto have executed and delivered this Agreement as of the date first above written. AMERICAN GENERAL LIFE INSURANCE COMPANY By: ----------------------------------------- Authorized Signatory ----------------------------------------- Print or Type Name -------------------------------------------------- By: ----------------------------------------- Authorized Signatory ----------------------------------------- Print or Type Name 4 SCHEDULE ONE INVESTMENT COMPANY NAME: FUND NAME(S): 5 EXHIBIT A Pursuant to the Agreement by and among the parties hereto, AGL shall perform the following Administrative Services: 1. Maintain separate records for each Shareholder, which records shall reflect shares purchased and redeemed for the benefit of the Shareholder and share balances held for the benefit of the Shareholder. AGL shall maintain the Master Account with the transfer agent of the Fund on behalf of Shareholders and such Master Account shall be in the name of AGL or its nominee as the record owner of the shares held for such Shareholders. 2. For each Fund, disburse or credit to Shareholders all proceeds of redemptions of shares of the Fund and all dividends and other distributions not reinvested in shares of the Fund or paid to the Separate Account holding the Shareholders' interests. 3. Prepare and transmit to Shareholders periodic account statements showing the total number of shares held for the benefit of the Shareholder as of the statement closing date (converted to interests in the Separate Account), purchases and redemptions of Fund shares for the benefit of the Shareholder during the period covered by the statement, and the dividends and other distributions paid for the benefit of the Shareholder during the statement period (whether paid in cash or reinvested in Fund shares). 4. Transmit to Shareholders proxy materials and reports and other information received by AGL from any of the Funds and required to be sent to Shareholders under the federal securities laws and, upon request of the Fund's transfer agent, transmit to Shareholders material Fund communications deemed by the Fund, through its Board of Directors or other similar governing body, to be necessary and proper for receipt by all Fund beneficial shareholders. 5. Transmit to the Fund's transfer agent purchase and redemption orders on behalf of Shareholders. 6. Provide to the Funds, or to the transfer agent for any of the Funds, or any of the agents designated by any of them, such periodic reports as shall reasonably be concluded to be necessary to enable each of the Funds and its distributor to comply with any applicable State Blue Sky requirements. 6 EX-1.10A 10 APPLICATION FOR LIFE INSURANCE EXHIBIT 1.10(a) AMERICAN GENERAL LIFE INSURANCE COMPANY Home Office: Houston, Texas APPLICATION FOR LIFE INSURANCE 1. Names of persons proposed for insurance: First Name Middle Name Last Name Sex Relationship Date of Birth Ins. Age Place of Birth Height Weight A. Drivers Lic Num & State:_________________SS#___________________ B. Drivers Lic Num & State:_________________SS#___________________ C. D. For child or family benefits, list only children who are natural or legally adopted children of the Primary Proposed Insured or Spouse and who actually reside at the address of the Primary Proposed Insured. 2. Present Residence of Primary Proposed Insured Address City State ZIP Telephone No. of Yrs. 3. OCCUPATION Proposed Insured A Occupation Yrs. Employer Name Address City__________________State______Zip______ Telephone Proposed Insured B Occupation Yrs. Employer Name Address City__________________State______Zip______ Telephone 4. Has proposed insured A or B used tobacco in any form in the past 24 months? Proposed Insured A Yes No Proposed Insured B Yes No 5. Plan of basic insurance: Amount ____________________ $______________ Planned Periodic Premium $______________ Lump Sum Payment $______________ Benefit Option: 1 - Level 2 - Increasing Are you requesting Select Rates? Yes No 6. Additional benefits to be added Amount Maturity Extension Rider - Death Benefit Maturity Extension Rider - Accumulation Value Terminal Illness Rider Waiver of Premium/Waiver of Monthly Deduction Waiver of Monthly Guarantee Premium Accidental Death Benefit $______________ Spouse/Other Insured Rider $______________ FIB __________ Units CIB___________ Units Additional Insurance Option $______________ Joint Insurance 4-Year Term $______________ First-to-die Term Rider $______________ Joint Term $______________ Joint ART A n B n $______________ Automatic Increase Rider ______________% Return of Premium Death Benefit Option Premium Assurance Rider Other _____________ $______________ 7. Premiums to be paid Automatic Bank Check Direct List Bill or Government Allotment List Bill #_______________ Company_______________________________________________ Annually Semi-Annually Quarterly Amount paid with application $ _______________ or None 8. Beneficiary Designation Proposed Insured A First_______________________________ Relationship_________________ Second______________________________ Relationship_________________ Trust Name__________________________ Date of Trust________________ Proposed Insured B First_______________________________ Relationship_________________ Second______________________________ Relationship_________________ Trust Name__________________________ Date of Trust________________ 9. Premium PAYOR Name________________________________ Address______________________________ City___________________State_____ ZIP__________ Relationship to Primary Proposed Insured_________________________ Secondary Payor Name_______________________________ Address____________________________ City____________________State_____ ZIP___________ 10. Policyowner and taxpayEr identification number (must be completed) Policyowner Name_________________________ Address_________________________________ City___________________State________ZIP__________ Social Security or Tax ID Number ___________________ Policyowner Date of Birth _______________ Insured Other Relationship Contingent Owner Designation Contingent Policyowner Name____________________________ Social Security or Tax ID Number _________________________________ (Contingent Policyowner designation becomes effective upon the death of the Primary Owner) 11. INCLUDE AUTOMATIC PREMIUM LOAN IF AVAILABLE? Yes No Home Office Endorsement Only. May not be used in any state where prohibited. Page 2 12. HAS ANY PERSON PROPOSED FOR INSURANCE DURING THE LAST 12 MONTHS a. had a heart attack, stroke, cancer, diabetes, or disorder of the immune system? Yes No b. been confined to a hospital or other health care facility and/or been advised to have any diagnostic test or surgery not yet performed? Yes No Temporary insurance is not available if there are any "yes" answers to question number 12 13. REPLACEMENTS, EXCHANGES, CONVERSIONS If this is a replacement, required state replacement forms and disclosures must be used. If state does not require Policy Comparison Form, you must attach AGL Replacement Comparison Guide (L8726). a. List below all Life Insurance policies in force and applied for in all companies. (Use explanations section on pg. 3 if necessary.)
Proposed Proposed Company Year Coverage Amount Is Beneficiary Replace Insured Insured Issued Life ADB Business or Yes No A B Personal Proposed Insured A B-D Yes No Yes No
b. Is this insurance intended to be a 1035 tax-free exchange? c. Is this insurance intended to be a term conversion? d. Will this insurance replace, change, or use the cash value of any existing insurance policy or annuity? PART 2. UNDERWRITING INFORMATION Important: QUESTIONS 1 & 2 MUST BE ANSWERED EVEN IF A MEDICAL EXAM WILL BE PROVIDED) PROVIDE DETAILS TO ANY YES ANSWERS UNDER EXPLANATIONS ON PAGE 3 1. Has any Proposed Insured: Proposed Insured A B-D Yes No Yes No a. in the past 2 years flown in any type of aircraft or plan to fly in the future, other than as a passenger? (If "Yes" complete Military & Civilian Aviation Supplement.) b. in the past 2 years participated or expect to participate in any vehicle racing on land or water, bobsledding, scuba or skin diving, skydiving or parachuting, ultralight aviation, or mountaineering? (If "Yes" complete Avocation Questionnaire.) c. during the past 90 days submitted an application for life insurance to any other company or is any contemplated? d. ever had a life insurance application modified, rated, declined, postponed, withdrawn, canceled, or refused for renewal? e. any intention of traveling or residing outside the United States or Canada within the next 24 months? f. during the past 3 years been refused a driver's license, had a moving violation, or been involved in 1 or more accidents? (If "Yes" give license number, issue state & details.) g. ever used cocaine, barbiturates, heroin, or other narcotic drugs, except as legally prescribed by a physician? h. ever sought, received advice, counseling or treatment for the use of alcohol, marijuana, barbiturates, or drugs including prescription drugs? 2. Has any Proposed Insured ever been diagnosed or treated by any member of the medical profession for Acquired Immune Deficiency Syndrome (AIDS)? 3. Has any Proposed Insured in the past 3 years ever had: a. fainting spells, nervous disorder, convulsions or paralysis? b. pain or discomfort in the chest, or shortness of breath? c. disorder of the stomach, intestines, rectum or blood in the urine? 4. Has any Proposed Insured ever consulted a physician for or been diagnosed or treated for: Proposed Insured A B-D Yes No Yes No a. mental disorder, epilepsy or stroke? b. disease or disorder of the heart or blood vessels, heart attack, high blood pressure, or rheumatic fever? c. elevated cholesterol? d. disease or disorder of the lungs, asthma, emphysema, or tuberculosis? e. disease or disorder of stomach, intestines, rectum, liver, or gall bladder? f. disease or disorder of the kidney, bladder, or prostate gland? g. sugar, albumin, blood, or pus in the urine? h. cancer, tumor, syphilis, diabetes, gland or blood disorder, ulcer, rupture, or disease or disorder of the breast or reproductive organs? 5. Has any Proposed Insured during the past 3 years: a. received or claimed disability or hospital indemnity benefits or a pension for any injury, sickness, disability or impaired condition? b. had any other impairment, sickness, laboratory tests, or diagnostic procedures? c been confined in a hospital or other health care facility, had a blood transfusion, or had surgery performed, advised, or contemplated? 6. Is any Proposed Insured now taking any medication or under any treatment? 7. Medical Exam Certificate (Complete when submitting a medical examination from another company.) a. Attached examination is on the life of: b. Name of insurance company for which examination was made and date of the examination: Company Date of Exam c. Has Proposed Insured A or B consulted a doctor or other practitioner or received medical or surgical advice since the date of the examination? d. To the best of Proposed Insured A's or B's knowledge and belief, are any statements in the examination now inaccurate, as of today? Page 3 FAMILY HISTORY Proposed Insured A Family If living If not living, State of health or History current age(s) age at death cause & date of death Father Mother Brothers & Sisters Proposed Insured B Family If living If not living, State of health or History current age(s) age at death cause & date of death Father Mother Brothers & Sisters 9. PERSONAL PHYSICIAN INFORMATION Proposed Insured A Proposed Insured B Who is your personal physician? Who is your personal physician? Name:_______________________ Name:________________________ Address:____________________ Address:_____________________ City State Zip______________ City State Z_________________ Phone:______________________ Phone:_______________________ Date personal physician was last seen? Date personal physician was last seen? Reason Seen? Reason Seen? EXPLANATIONS: Details of any "Yes" answers to questions 1-7. Identify question number; circle applicable items; include diagnosis, treatment dates, duration, and names and addresses of all attending physicians and health care facilities. QUES (Proposed) Insured A QUES (Proposed) Insureds B-D PART 3. FINANCIAL INFORMATION FINANCIAL INFORMATION MUST BE COMPLETED (1) FOR BUSINESS INSURANCE OR (2) FOR A PROPOSED INSURED AGE 65 OR OVER OR (3) WHERE THE FACE AMOUNT EXCEEDS $250,000 FOR PROPOSED INSUREDS UNDER AGE 65. IF FACE AMOUNT APPLIED FOR IS $1 MILLION OR MORE, PROVIDE AN EXPANDED FINANCIAL STATEMENT. I BELIEVE THAT THIS PURCHASE OF LIFE INSURANCE IS SUITABLE FOR THIS APPLICANT/INSURED, BASED UPON THE APPLICANT'S NEEDS, FINANCIAL SITUATION AND INSURANCE OBJECTIVES. 1. For personal insurance: a. What is the purpose of the insurance? Check all that apply. Estate preservation Family protection Mortgage protection Charitable Other _______ b. What is the Proposed Insured(s) 1) Annual earned income $_______________ 3)Total assets $____________ 2) Annual interest & other income $____________(include retained earnings) 4) Total liabilities $_______________________ 2. For business insurance: a. What is the purpose of the insurance? Check all that apply. Key person Buy-Sell Split dollar Stock redemption Creditor Other b. Annual net profit before taxes: Last year $__________ 2 years ago $____________ net worth $______________ c. If key person insurance: Retained earnings $____________ Yes No 1) Are all partners or key people to be covered? 2) Does either Proposed Insured have an ownership interest in the business? If "Yes" what is Proposed Insured A's percent of ownership?_______% If "Yes" what is Proposed Insured B's percent of ownership?_______% Page 4 SPECIAL INSTRUCTIONS AUTHORIZATION TO OBTAIN AND DISCLOSE INFORMATION I hereby give my consent to: (1) any physician or medical practitioner; (2) hospital, clinic, or other health care facility; (3) insurance or reinsurance company; (4) consumer reporting agency, insurance support organization; (5) my employer; or (6) the Medical Information Bureau, Inc., to give to American General Life Insurance Company (American General Life) all information it has pertaining to: (1) my medical consultations, treatments or surgeries; (2) hospital confinements which concern the physical and mental condition of myself, my spouse or my minor children; (3) my use of drugs or alcohol; or (4) any other non-health (non-medical) information. In turn, American General Life is free to disclose such information and any information developed during its evaluation of my application to: (1) its reinsurers; (2) the Medical Information Bureau, Inc.; (3) other insurance companies; (4) me; (5) any physician designated by me; or (6) any person or entity required to receive such information by law or as I may further consent. I, as well as any person authorized to act on my behalf, may, upon written request, obtain a copy of this consent from American General Life. This consent shall be valid for thirty (30) months from the date stated below. I agree that a photocopy of this consent shall be as valid as the original. I authorize American General Life to obtain an investigative consumer report on me. I understand that I may: (1) request to be interviewed in connection with the preparation of the investigative consumer report; and (2) receive, upon written request, a copy of such report if no personal interview is in fact conducted. DECLARATION. I have read the above statements or they have been read to me. I represent that the above statements are true and complete to the best of my knowledge and belief. I understand that any misrepresentation contained in this application and relied on by the Company may be used to reduce or deny a claim or void the policy if it is within its contestable period and if such misrepresentation materially affects the acceptance of the risk. Except as may be provided in a Limited Temporary Life Insurance Agreement for which all eligibility requirements are met, I understand and agree that no insurance shall be in effect pursuant to this application, or under any policy issued by the Company, until: (1) the policy has been delivered and accepted; (2) the full first mode premium for the issued policy has been paid; and, (3) between the date of the application and the delivery and acceptance of the policy, there has been no material change in the health of any person proposed for insurance. I understand and agree that no agent is authorized to: (1) accept risks or pass upon insurability; (2) make or modify contracts; or (3) waive any of the Company's rights or requirements. I have received a copy of the Fair Credit Reporting Act, Medical Information Bureau (MIB), Insurance Information Practices, and Telephone Interview Information notices. IF ELIGIBLE: I have received and accepted the Limited Temporary Life Insurance Agreement. Temporary insurance is available only if: (1) the full first mode premium is submitted with this application; and (2) only "No" answers have been given in Part 1, Question 12. Any person who includes any false or misleading information on an application for insurance policy is subject to criminal and civil penalties. Under penalties of perjury, I certify: (1) that the number shown on this application is my correct social security (or taxpayer identification) number and (2) that I am not subject to backup withholding under Section 3406(a)(1)(C) of the Internal Revenue Code. The Internal Revenue Service does not require your consent to any provision of this document other than the certifications required to avoid backup withholding. Signed at ___________________________ Date: ________________ city state X__________________________________ X_______________________________ SIGNATURE OF PROPOSED INSURED A SIGNATURE OF OWNER/TRUSTEE (If below age 15, signature of parent Primary Proposed Insured. Show or guardian.) officer's title if signing for firm.) X__________________________________ SIGNATURE OF OWNER X X X X___________________________________ X_______________________________ SIGNATURE OF PROPOSED INSURED B SIGNATURE OF OWNER X___________________________________ SIGNATURE OF OWNER I certify that I have truthfully and accurately recorded on the application the information supplied by the Proposed Insured(s) and personally witnessed the signature(s) of the Proposed Insured(s). X_______________________ ______________________ ______________ AGENT NAME (Please Print) SIGNATURE OF AGENT AGENT No. X_______________________ STATE LICENSE NO. Page 5 AGENT'S REPORT (MUST be completed to issue policy.) 1. If Primary Proposed Insured has lived at present address less than 5 years, list previous addresses for the past 5 years, with dates. List address where correspondence should be sent, if different than the Primary Proposed Insured's or Owner's address shown in Part 1. 2. Current marital status Married Single Divorced Separated Widowed 3. If married, what amount of insurance is in force on the spouse? $__________ 4. If primary proposed insured is a child, what amount of insurance is in force on the father and/or mother? $__________________ 5. How long have you known the proposed insured(s)? Insured A ______________ Insured B ______________ 6. Are you related by blood or marriage to any proposed insured? Yes No Relationship 7. Did you personally see all proposed insureds and ask each and every question and accurately record their answers yourself? Yes No If "No" give details in Remarks. 8. Which of the following have you scheduled? Blood Profile HOS Inspection Resting EKG Stress EKG Chest X-Ray Para Med NAME OF EXAMINER/SERVICE DATE Medical NAME OF EXAMINER/SERVICE DATE APS from DOCTOR DATE APS from DOCTOR DATE 9. Complete if Part 3 not completed a. Purpose of insurance. Check all that apply. Estate preservation Family protection Charitable Mortgage protection Other_____________________ b. Annual earned income of the Proposed Insured(s) or of the Payor, if other than the Primary Proposed Insured Proposed Insured A $_____________________ Proposed Insured B $_____________________ 10. Telephone interview information Best time to call Proposed Insured(s) at Business ( )______________ Home ( )_____________ Time __________Time ______________ 11. AGENT(S) TO RECEIVE COMMISSION & VOLUME CREDIT (Circle letter to indicate who Agency Agent Percent should receive correspondence.) Number Number of credit a. b. c. 12. To the best of your knowledge, will the insurance applied for replace or change existing insurance or annuity in this or any other company? Yes No (If "Yes", complete requirement of the state of residence.) REMARKS: Date Contact Person if other than Agent SIGNATURE OF AGENT Telephone No. of Agent PLEASE PRINT NAME Facsimile No. of Agent STREET ADDRESS (Please Print) Page 6 BANK DRAFT INFORMATION The Automatic Bank Check plan, commonly known as ABC or Electronic Funds Transfer, is a preauthorized debit service which offers a convenient way to pay your insurance premiums. Under the ABC plan, your insurance premiums are collected from your bank account electronically. After each premium payment has been withdrawn from your bank account, a single-line entry in the amount of your premium payment will appear on your bank statement. That entry will be your receipt for payment of your premium. When paying with ABC, you no longer have to write additional checks or mail any premium payments. As long as you maintain a sufficient balance in your bank account, your insurance premiums are automatically paid from your account with no further effort on your part. PREAUTHORIZED DEBIT AGREEMENT I, the undersigned bank account owner, hereby authorize and request American General Life Insurance Company ("Company") to initiate electronic or other commercially accepted type debits against the indicated bank account in the depository institution named below ("Depository") for the payment of premiums and other indicated charges due on the insurance policy or policies listed below (hereafter referred to as "Policy", whether one or more), and to continue to initiate such debits in the event of a conversion, renewal or other change to any such policy. I hereby agree to indemnify and hold the Company harmless from any loss, claim or liability of any kind by reason or dishonor of any debit. I understand that this Authorization will not affect the terms of the Policy, other than the mode of payment, and that if premiums are not paid within the applicable grace period, the Policy will terminate, subject to any applicable nonforfeiture provision. I acknowledge that the debit appearing on my bank statement shall constitute my receipt of payment, but no payment is deemed made until the company receives actual payment in its Home Office. I understand that this Authorization will not result in any insurance becoming effective under any conditional receipt or temporary insurance unless all terms of such conditional receipt or temporary insurance have been met. I agree that this Authorization may be terminated by me or the Company at any time and for any reason by providing written notice of such termination to the non-terminating party and may be terminated by the Company immediately if any debt is not honored by the Depository named below for any reason. Policy No. Insured Premium Amount Bank Account Number_________________FREQUENCY: ___Monthly Transit Routing Number _________________ ___Quarterly Name of Depository_____________________ ___Semi-Annually Address of Depository___________________ ___Annually Preferred withdrawal date__________________________________ ___Please initiate debits against my account for all outstanding premiums due. Signature of Bank Account Owner Date PLEASE ATTACH VOIDED CHECK Page 7 American General Life Insurance Company Home Office: Houston, Texas LIMITED TEMPORARY LIFE INSURANCE AGREEMENT Received $________________on this date from___________________________ This amount was paid when, on this date, a life insurance application was signed in which is named as the Primary Proposed Insured. We agree to provide temporary life insurance coverage as described below, subject to the rules that follow: ALL PREMIUM CHECKS MUST BE MADE PAYABLE TO THE COMPANY: DO NOT MAKE CHECK PAYABLE TO THE AGENT OR LEAVE THE PAYEE BLANK. NOTE: AGENT DOES NOT HAVE THE AUTHORITY TO ACCEPT A PREMIUM (INCLUDING AUTOMATIC BANK DRAFT CHECK, SALARY SAVINGS OR GOVERNMENT ALLOTMENT) WITH THIS APPLICATION IF THE CONDITIONS IN THE DECLARATION CANNOT BE MET; IF ANY PART OF QUESTION 12 HAS BEEN ANSWERED "YES", ANSWERED FALSELY, OR LEFT BLANK, THIS AGREEMENT WILL BE VOID AND ANY PAYMENT SUBMITTED WILL BE REFUNDED. 1. The full first mode premium must be submitted with this application. (Any payment submitted must be honored on its first presentation for payment.) 2. The answer to all parts of question 12 must be "NO". 3. Upon receipt of due proof of the death of any person to be insured during the period covered by this agreement, the total amount we will pay under the policy, any riders, and this agreement, will be the lesser of: (a) the amount applied for on such person; or (b) $300,000 and the amount of any premium paid for coverage in excess of $300,000 on such person. 4. Such payment will be made in one sum to the beneficiary stated in the application. If death is due to suicide, payment will be limited to the return of the amount paid. Coverage under this agreement will be subject to the terms of the policy for which application is made. 5. Coverage will begin on the latest of the following dates: (a) the date of the application; (b) the date that all medical examinations have been taken; or (c) the date requested in the application. 6. Coverage under this agreement will cease on the earliest of the following dates: (a) the date we issue the policy as applied for; (b) the date a policy issued other than as applied for is offered to the applicant; (c) the date we decline the application; (d) the date we state that the application will not be considered on a prepaid basis; or (e) 60 days from the date coverage begins under this agreement. 7. Any payment submitted to and accepted by the Company will be: (a) applied to pay the first premium due if the policy is issued as applied for; (b) applied toward payment of the first premium if a policy is issued other than as applied for and is accepted by the applicant; (c) refunded if we decline the application or if the applicant refuses to accept a policy issued other than as applied for. No changes may be made in the terms and conditions of this form. No statement which claims to make such a change will bind the Company. I understand and agree that no agent is authorized to accept risks or pass upon insurability, to make or modify contracts, or to waive any of the company's rights or requirements. Signed at_____________________________________Date:_______________ CITY STATE X _____________________________________________ SIGNATURE OF AGENT AGENT NUMBER Page 8 DETACH THIS NOTICE & LEAVE IT WITH THE PROPOSED INSURED American General Life Insurance Company Home Office: Houston, Texas NOTICE TO PROPOSED INSURED Fair Credit Reporting Act In compliance with the Fair Credit Reporting Act, as amended, we advise you that we may, as a part of our normal procedure for processing your contract application, request that an investigative consumer report be prepared whereby information is obtained through personal interviews with your neighbors, friends, former employers, primary insurance company or others with whom you are acquainted. This inquiry includes information as to your character, general reputation, personal characteristics and mode of living. You have the right to make a written request to our home office within a reasonable period of time to receive additional, detailed information about the nature and scope of this investigation, if one is made. Please address your request to New Business, American General Life Insurance Company, P.O. Box 1931, Houston, Texas 77251-1931. These reports are obtained in your best interest. They assist us in determining that the Company's insureds meet certain standards, thus allowing us to continue offering coverage at the lowest possible cost to all who qualify. Medical Information Bureau Information regarding your insurability will be treated as confidential. American General Life Insurance Company or its reinsurers may, however, make a brief report thereon to the Medical Information Bureau, a non-profit membership organization of life insurance companies, which operates an information exchange on behalf of its members. If you apply to another Bureau member company for life or health insurance coverage, or a claim for benefits is submitted to such a company, the Bureau, upon request, will supply such company with the information in its file. Upon receipt of a request from you, the Bureau will arrange disclosure of any information it may have in your file. If you question the accuracy of information in the Bureau's file, you may contact the Bureau and seek a correction in accordance with the procedures set forth in the Federal Fair Credit Reporting Act. The address of the Bureau's information office is Post Office Box 105, Essex Station, Boston, Massachusetts 01112, telephone number (617) 426-3660. American General Life Insurance Company or its reinsurers may also release information in its file to other life insurance companies to whom you may apply for life or health insurance, or to whom a claim for benefits may be submitted. Insurance Information Practices To issue an insurance policy, we need to obtain information about you and any other persons proposed for insurance. Some of that information will come from you and some will come from other sources. That information and any subsequent information collected by us may in certain circumstances be disclosed to third parties without your specific authorization. You have a right of access and correction with respect to the information collected about you except information which relates to a claim or civil or criminal proceeding. If you wish to have a more detailed explanation of our information practices, please contact: American General Life Insurance Company, New Business, P.O. Box 1931, Houston, Texas 77251-1931. Telephone Interview Information (If Applicable) To help us process your application as rapidly as possible, American General Life may have one of its representatives contact you by telephone and at your convenience to secure additional underwriting information. You may be assured that all information developed in this interview will be kept in strictest confidence and used solely for insurance purposes. EX-1.10B 11 SUPPLEMENTAL APPLICATION EXHIBIT 1.10(b) Page 1 AMERICAN GENERAL LIFE INSURANCE COMPANY ("AGL") Home Office: Houston, Texas Variable Universal Life Insurance Supplemental Application (This supplement must accompany the appropriate application for life insurance.) PART 1. Applicant INFORMATION Supplement to the application on the life of , dated . PART 2. Initial Allocation Percentages Investment Options: In the "Premium Allocation" column, indicate how each premium received is to be allocated. In the "Deduction Allocation" column, indicate which investment options are to be used for the deduction of monthly account charges. Total allocations in each column must equal 100%. Use whole percentages only. Divisions Premium Allocation Allocation Deduction ---------- ---------- --------- BT Insurance Funds Trust Equity 500 Index (179) % % EAFE Equity Index (180) % % AIM Variable Insurance Funds, Inc. AIM V.I. Value (181) % % Morgan Stanley Universal Funds, Inc. Equity Growth (182) % % Royce Capital Fund Royce Total Return (183) % % American General Series Portfolio Company Money Market (184) % % PART 3. Modified Endowment Contract If any premium payment causes the policy to be classified as a modified endowment contract under Section 7702A of the United States Internal Revenue Code, there may be potentially adverse U.S. tax consequences. Such consequences include: (1) withdrawals or loans being taxed to the extent of gain; and (2) a 10% penalty tax on the taxable amount. In order to avoid modified endowment status, I request any excess premium that could cause such status to be refunded. [ ] YES [ ] NO PART 4. Dollar Cost Averaging Dollar Cost Averaging: ($100,000 minimum beginning accumulation value) An amount can be systematically transferred from the Money Market Division (184) and transferred to one or more of the investment divisions below. Please refer to the prospectus for more information on the Dollar Cost Averaging option. Day of the month for transfers: (Choose a day of the month between 1_28.) Frequency of transfers: [ ] Monthly [ ] Quarterly [ ] Semiannually [ ] Annually Transfer $ ($5,000 minimum, whole dollars only) from the AGSPC Money Market (184) to the following division(s): (179) Equity 500 Index $ (180) EAFE Equity Index $ (181) AIM V.I. Value $ (182) Equity Growth $ (183) Royce Total Return $ PART 5. Automatic Rebalancing Automatic Rebalancing: ($100,000 minimum beginning accumulation value) Variable division assets will be automatically rebalanced based on the premium percentages designated in Part 2. Please refer to the prospectus for more information on the Automatic Rebalancing option. [ ] Check here for Automatic Rebalancing. Frequency: [ ] Quarterly [ ] Semiannually [ ] Annually NOTE: Automatic Rebalancing is not available if the Dollar Cost Averaging option has been chosen. Page 2 AMERICAN GENERAL LIFE INSURANCE COMPANY Home Office: Houston, Texas PART 6. Telephone Authorization I (or we, if Joint Owners), hereby authorize American General Life Insurance Company ("AGL") to act on telephone instructions to transfer values among the variable divisions and to change allocations for future purchase payments and monthly deductions given by: (Initial appropriate box below.) Policy Owner(s) only __ if Joint Owners, either of us acting independently. Policy Owner(s) and the Agent/Registered Representative who is appointed to represent AGL and the firm authorized to service my policy. AGL and any person designated by this authorization will not be responsible for any claim, loss or expense based upon telephone instructions received and acted on in good faith, including losses due to telephone instruction communication errors. AGL's liability for erroneous transfers and allocations, unless clearly contrary to instructions received, will be limited to correction of the allocations on a current basis. If an error, objection or other claim arises due to a telephone transaction, I will notify AGL in writing within five working days from receipt of confirmation of the transaction from AGL. I understand that this authorization is subject to the terms and provisions of my variable universal life insurance policy and its related prospectus. This authorization will remain in effect until my written notice of its revocation is received by AGL at its home office. Initial here to decline the above telephone Authorization. PART 7. Suitability (All questions must be answered.) [ ] YES [ ] NO 1. Have you, the Proposed Insured or Owner (if different), received the variable universal life insurance policy prospectus and the prospectuses describing the investment options? [ ] YES [ ] NO (If "yes," please furnish the Prospectus dates.) Variable Universal Life Insurance Policy Prospectus: Supplements (if any): 2. Do you understand that under the Policy applied for: a. The amount or duration of the death benefit may increase or decrease, depending on the investment experience of the Separate Account? [ ] YES [ ] NO b. The Policy values may increase or decrease, depending on the investment experience of the Separate Account and certain expense deductions? [ ] YES [ ] NO c. The Policy is designed to provide life insurance coverage and to allow for the accumulation of values in the Separate Account? 3. Do you believe the Policy you selected meets your insurance and investment objectives and your anticipated financial needs? [ ] YES [ ] NO Signed at: _______________________________________ Date: __________________ city state ________________________________________ ____________________________________ XSignature of Primary XSignature of Registered Proposed Insured Representative _______________________________________________________________________________ XSignature of Owner (if different from Proposed Insured) _______________________________________________________________________________ Print Name of Broker/Dealer _______________________________________________________________________________ XSignature of Joint Owner (if applicable) EX-1.10C 12 SERVICE REQUEST EXHIBIT 1.10(c) Page 1 Service Request LEGACY Plus AMERICAN GENERAL LIFE Legacy Plus_Variable Divisions BT Insurance Funds Trust . Division 179_Equity 500 Index . Division 180_EAFE Equity Index AIM Variable Insurance Funds, Inc. . Division 181_AIM V.I. Value Morgan Stanley Universal Funds, Inc. . Division 182_Equity Growth Royce Capital Fund . Division 183_Royce Total Return American General Series Portfolio Company . Division 184_Money Market Page 2 1. POLICY IDENTIFICATION Complete this section for ALL requests. American General Life Insurance Company ("AGL") A Subsidiary of American General Corporation Houston, Texas Variable Universal Life INSURANCE Service Request Complete and return this request to: Variable Universal Life Operations PO Box 4880 Houston, TX. 77210-4880 (888) 325-9315 or (713) 831-3443 Fax: (713) 620-3857 1. POLICY #: Insured: Address: New Address (yes) (no) Primary Owner (If other than insured): Address: New Address (yes) (no) Primary Owner's S.S. No. or Tax l.D. No._____________________ Phone Number: (___) ______ - __________ Joint Owner (If applicable): Address: New Address (yes) (no) 2. NAME CHANGE Complete this section if the name of the Insured, Owner, Payor or Beneficiary has changed. (Please note, this does not change the Insured, Owner, Payor or Beneficiary designation) Change Name Of: (Circle One) Insured Owner Payor Beneficiary Change Name From: (First, Middle, Last) Change Name To: (First, Middle, Last) Reason for Change: (Circle One) Marriage Divorce Correction Other (Attach copy of legal proof) 3. MODE OF PREMIUM PAYMENT/BILLING METHOD CHANGE Use this section to change the billing frequency and/or method of premium payment. Note, however, that AGL will not bill you on a direct monthly basis. Refer to your policy and its related prospectus for further information concerning minimum premiums and billing options. Indicate frequency and premium amount desired: $ Annual $ Semi-Annual $ Quarterly $ Monthly (Bank Draft Only) Indicate billing method desired: Direct Bill Pre-Authorized Bank Draft (attach a Bank Draft Authorization Form and "Void" Check) Start Date: / / PAGE 3 4. LOST POLICY CERTIFICATE Complete this section if applying for a Certificate of Insurance or duplicate policy to replace a lost or misplaced policy. If a full duplicate policy is being requested, a check or money order for $25 payable to AGL must be submitted with this request. I/we hereby certify that the policy of insurance for the listed policy has been LOST DESTROYED OTHER. Unless I/we have directed cancellation of the policy, I/we request that a: Certificate of Insurance at no charge Full duplicate policy at a charge of $25 be issued to me/us. If the original policy is located, I/we will return the Certificate or duplicate policy to AGL for cancellation. 5. DOLLAR COST AVERAGING ($100,000 minimum initial accumulation value) An amount may be deducted periodically from the Money Market Division and placed in one or more of the Divisions listed. Please refer to the prospectus for more information on the Dollar Cost Averaging Option. Designate the day of the month for transfers: (choose a day from 1-28) Frequency of transfers (check one): Monthly Quarterly Semi-Annually Annually I want: $ ($5,000 minimum) taken from the Money Market Division and transferred to the following Divisions: I (/we if Joint Owners) hereby authorize AGL to act on telephone instructions to transfer values among Divisions and to change allocations for future purchase payments and monthly deductions. PAGE 4 6. TELEPHONE PRIVILEGE AUTHORIZATION Complete this section if you are applying for or revoking current telephone privileges. I (/we if Joint Owners) hereby authorize AGL to act on telephone instructions to transfer values among Divisions and to change allocations for future purchase payments and monthly deductions. Initial the designation you prefer: Policy Owner(s) only_If Joint Owners, either one acting independently. Policy Owner(s) and Agent/Registered Representative who is appointed to represent AGL and the firm authorized to service my policy. AGL and any person designated by this authorization will not be responsible for any claim, loss or expense based upon telephone transfer or allocation instructions received and acted upon in good faith, including losses due to telephone instruction communication errors. AGL's liability for erroneous transfers or allocations, unless clearly contrary to instructions received, will be limited to correction of the allocations on a current basis. If an error, objection or other claim arises due to a telephone transaction, l will notify AGL in writing within five working days from the receipt of the confirmation of the transaction from AGL. I understand that this authorization is subject to the terms and provisions of my policy and its related prospectus. This authorization will remain in effect until my written notice of its revocation is received by AGL at the address printed on the top of this service request form. Initial Here To Revoke Telephone privilege authorization. 7. CORRECT AGE Use this section to correct the age of any person covered under this policy. Proof of the correct date of birth must accompany this request. Name of Insured for whom this correction is submitted: ________________________ Correct DOB: ________/________/________ 8. TRANSFER OF ACCUMULATED VALUES Use this section if you want to move money between divisions. If a transfer causes the balance in any division to drop below $5,000, AGL reserves the right to transfer the remaining balance. There is a $25 charge for each transfer in excess of 12 per maintaining consistency throughout. (Division Name or Number) (Division Name or Number) Transfer $ or % from to . Transfer $ or % from to . Transfer $ or % from to . Transfer $ or % from to . Transfer $ or % from to . Transfer $ or % from to . Transfer $ or % from to . Transfer $ or % from to . Transfer $ or % from to . Transfer $ or % from to . PAGE 5 9. CHANGE IN ALLOCATION PERCENTAGES Use this section to indicate how premiums or monthly deductions are to be allocated. Total allocation in each column must equal 100%; whole numbers only. INVESTMENT DIVISION PREM % DED % INVESTMENT DIVISION PREM % DED % BT Insurance Funds Trust (179) Equity 500 Index (180) EAFE Equity Index AIM Variable Insurance Funds, Inc. (181) AIM V.l. Int'l Equity Morgan Stanley Universal Funds, Inc. (182) Equity Growth Royce Capital Fund (183) Royce Total Return American General Series Porfolio Company (184) Money Market 10. AUTOMATIC REBALANCING ($100,000 minimum accumulation value) Use this section to apply for or make changes to Automatic Rebalancing of the divisions. Please refer to the prospectus for more information on the Automatic Rebalancing Option. This option is not available while the Dollar Cost Averaging Option is in use. Indicate frequency: Quarterly Semi-Annually Annually (Division Name or Number) (Division Name or Number) % : % : % : % : % : % : % : % : % : % : % : % : Initial Here To Revoke Automatic Rebalancing Election. 11. REQUEST FOR PARTIAL SURRENDER/POLICY LOAN Use this section to apply for a partial surrender or policy loan. Minimum Cash Surrenter Value after a Partial Surrender or Loan must not be less than $100,000. (There are some states which are excluded from the Minimum Cash Surrender Value Provision.) For detailed information concerning these two options please refer to your policy and its related prospectus. PAGE 6 If applying for a partial surrender, be sure to complete the Notice of Withholding section of this Service Request in addition to this section. I request a partial surrender of $ or % of the net cash surrender value. I request a loan in the amount of $ . I request the maximum loan amount available from my policy. Unless you direct otherwise below, proceeds are allocated according to the deduction allocation percentages in effect, if available; otherwise they are taken pro-rata from the Variable Divisions in use. 12. NOTICE OF WITHHOLDING Complete this section if you have applied for a partial surrender in Section 11. The taxable portion of the distribution you receive from your variable universal life insurance policy is subject to federal income tax withholding unless you elect not to have withholding apply. Withholding of state income tax may also be required by your state of residence. You may elect not to have withholding apply by checking the appropriate box below. If you elect not to have withholding apply to your distribution or if you do not have enough income tax withheld, you may be responsible for payment of estimated tax. You may incur penalties under the estimated tax rules, if your withholding and estimated tax are not sufficient. Check one: I do want income tax withheld from this distribution. I do not want income tax withheld from this distribution. 13. AFFIRMATION/SIGNATURE Complete this section for ALL requests. CERTIFICATION: Under penalties of perjury, I certify: (1) that the number shown on this form is my correct taxpayer identification number and; (2) that I am not subject to backup withholding under Section 3406(a)(1)(c) of the Internal Revenue Code. The Internal Revenue Service does not require your consent to any provision of this document other than the certification required to avoid backup withholding. Dated at__________________________________ this__________ day of____________________________, 19________. ________________________________ ________________________________ XSignature of Owner XSignature of witness ________________________________ ________________________________ XSignature of Joint Owner XSignature of witness ________________________________ ________________________________ XSignature of Assignee XSignature of witness EX-1.10D 13 OWNER AUTHORIZATION EXHIBIT 1.10(d) American General Life Insurance Company A Subsidiary of American General Corporation VUL Operations P.O. Box 4880 Houston, Texas 77210-4880 Owner Authorization of Third Party Transfers Contract Identification Contract Number INSURED/ANNUITANT'S NAME Owner's name Owner's Street Address City state zip Joint Owner's Name (if one is designated) Authorized Third Party Name Title/Position Firm Street Address City state zip Telephone Number Authorization by Owner(s)_Please read carefully! I/we hereby authorize American General Life Insurance Company ("AGL") to act upon instructions to transfer values among the Variable Divisions and Fixed Accounts and to change allocations for future purchase payments given by the Third Party named above for my/our contract referenced above. The Third Party named above is authorized to accept delivery of the contract on my/our behalf and receive copies of transaction confirmations and annual statements. AGL will not be responsible for any claim, loss, or expense based upon transfer instructions received and acted upon in good faith, including losses due to instruction communication errors. AGL's liability for erroneous transfers, unless clearly contrary to instructions received, will be limited to correction of the allocations on a current basis. If an error, objection, or other claim arises due to a transfer transaction, I will notify AGL in writing within five working days from receipt of confirmation of the transaction from AGL. I understand that this authorization is subject to the terms and provisions of my contract referenced above and its related prospectus. This authorization will remain in effect until my written notice of its revocation is received by AGL at its main office. By delivering this Authorization to AGL, I/we revoke all prior third party authorizations which have been delivered to AGL. I/we understand the following: 1. Transfers may be made by telephone or written communication. 2. I/we may cancel this authorization at any time by furnishing written notice to AGL. 3. The Third Party or AGL may cancel this authorization at any time. 4. Requests received after 3:00 p.m. (Central time) on a business day (a day when both the New York Stock Exchange and AGL are open) will be executed on the following business day. Contract Owner's Signature___________________________ Date Joint Owner's Signature (if applicable)_______________________ Date Third Party's Signature_____________________________ Date EX-2.A 14 CONSENT OF PAULETTA COHN EXHIBIT 2(a) AMERICAN GENERAL LIFE COMPANIES 2727-A ALLEN PARKWAY, HOUSTON, TEXAS 77019 Writer's Direct Number (713) 831-8471 August 19, 1998 American General Life Insurance Company 2727-A Allen Parkway Houston, Texas 77019 Dear Ladies and Gentlemen: This opinion is furnished in connection with the filing of a Registration Statement on Form S-6, File No. 333-53909 ("Registration Statement") of Separate Account VL-R ("Separate Account VL-R") of American General Life Insurance Company ("AGL"). The Registration Statement covers an indefinite number of units of interest in Separate Account VL-R ("Units") funding Legacy Plus (policy form No. 98615) individual flexible premium variable life insurance policies issued by AGL ("Policies"). Net premiums received under the Policies are allocated by AGL to Separate Account VL-R to the extent directed by owners of the Policies. Net premiums under other variable life insurance policies which may be issued by AGL may also be allocated to Separate Account VL-R. The Policies are designed to provide life insurance protection and are to be offered in the manner described in the prospectus and the prospectus supplements included in the Registration Statement. The Policies will be sold only in jurisdictions authorizing such sales. I have examined all such corporate records of AGL and such other documents and laws as I consider appropriate as a basis for the opinion expressed herein. Based on the foregoing, I am of the opinion that: l. AGL is a corporation duly organized and validly existing under the laws of the State of Texas. 2. Separate Account VL-R was duly established and is maintained by AGL pursuant to the laws of the State of Texas, under which income, gains and losses, whether or not realized, from assets allocated to Separate Account VL-R, are, in accordance with the Policies, credited to or charged against Separate Account VL-R without regard to other income, gains or losses of AGL. 3. Assets allocated to Separate Account VL-R will be owned by AGL. AGL is not a trustee with respect thereto. The Policies provide that the portion of the assets of Separate Account VL-R equal to the reserves and other contract liabilities with August 19, 1998 Page 2 respect to Separate Account VL-R will not be chargeable with liabilities arising out of any other business AGL may conduct. AGL reserves the right to transfer assets of Separate Account VL-R in excess of such reserves and other Policy liabilities to the general account of AGL. 4. When issued and sold as described above, the Policies (including any Units duly credited thereunder) will be duly authorized and will constitute validly issued and binding obligations of AGL in accordance with their terms. I hereby consent to the use of this opinion as an exhibit to the Registration Statement. Sincerely, PAULETTA P. COHN ---------------------------- Pauletta P. Cohn Associate General Counsel and Corporate Secretary EX-2.B 15 CONSENT OF MAYER, BROWN & PLATT Exhibit 2(b) CONSENT OF MAYER, BROWN & PLATT We hereby consent to the reference to our firm under the caption "Legal Matters" in the Additional Information section comprising a part of Pre-Effective Amendment No. 3 to the Form S-6 Registration Statement of American General Life Insurance Company Separate Account VL-R with respect to File No. 333-53909. /s/MAYER, BROWN & PLATT ----------------------- MAYER, BROWN & PLATT Washington, D.C. August 17, 1998 EX-2.C 16 CONSENT OF ACTUARY Writer's Direct Number Exhibit 2(c) (713) 831-3246 August 19, 1998 American General Life Insurance Company 2727-A Allen Parkway Houston, Texas 77019 Dear Ladies and Gentlemen: This opinion is furnished in connection with the Registration Statement on Form S-6, File No. 333-53909 ("Registration Statement") of Separate Account VL-R ("Separate Account VL-R") of American General Life Insurance Company ("AGL") covering an indefinite number of units of interest in Separate Account VL-R under Legacy Plus (policy form No. 98615) flexible premium variable life insurance policies ("Policies"). Net premiums received under the Policies may be allocated to Separate Account VL-R as described in the prospectus included in the Registration Statement. I participated in the preparation of the Policies and I am familiar with their provisions. I am also familiar with the description contained in the prospectus. In my opinion: The Illustrations of Hypothetical Policy Benefits appearing on page 16 of the Prospectus (the "Illustrations") are consistent with the provisions of the Policies. The assumptions upon which these Illustrations are based, including the current charges and the currently planned .25% and .50% reductions in the daily charges after a specified number of years, are stated in the prospectus and are reasonable. The Policies have not been designed so as to make the relationship between premiums and benefits, as shown in the Illustrations, appear disproportionately more favorable to prospective purchasers of Policies for preferred risk (the best risk class offered by AGL) non-tobacco user males age 45, than to prospective purchasers of Policies for males at other ages within this risk class or any other risk class, or for females. The particular Illustrations shown were not selected for the purpose of making the relationship appear more favorable. I hereby consent to the use of this opinion as an exhibit to the Registration Statement and to the reference to my name under the heading "Accounting and Actuarial Experts" in the prospectus. /s/ WAYNE A. BARNARD ------------------------------------- Wayne A. Barnard Senior Vice President & Chief Actuary EX-6 17 CONSENT OF ERNST & YOUNG EXHIBIT 6 CONSENT OF INDEPENDENT AUDITORS We consent to the reference made to our firm under the caption "Independent Auditors" and to the use of our report dated February 23, 1998, as to American General Life Insurance Company, and our report dated August 12, 1998, as to American General Life Insurance Company Separate Account VL-R, in Pre-Effective Amendment No. 3 to the Registration Statement (Form S-6, No. 333-53909) of American General Life Insurance Company Separate Account VL-R. ERNST & YOUNG LLP Houston, Texas August 14, 1998 -----END PRIVACY-ENHANCED MESSAGE-----