-----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, VnBXi8ipl1tDwKoZ3ivfuOsIfZFXSpm9Itrp1wDRJ8ErYvYjA/HEORO3H0n6HVzp ZNxIMToR7T+tnqYCIte8hQ== 0000904456-98-000081.txt : 19980324 0000904456-98-000081.hdr.sgml : 19980324 ACCESSION NUMBER: 0000904456-98-000081 CONFORMED SUBMISSION TYPE: S-6/A PUBLIC DOCUMENT COUNT: 14 FILED AS OF DATE: 19980323 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: 333-42567 FILM NUMBER: 98570890 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 Registration No. 333-42567 As filed with the Securities and Exchange Commission on March 23, 1998 SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 FORM S-6 PRE-EFFECTIVE AMENDMENT NO. 1 TO REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933 OF SECURITIES OF UNIT INVESTMENT TRUSTS 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) Steven A, Glover, Esq. Assistant Secretary American General Life Insurance Company 2727-A Allen Parkway Houston, Texas 77019-2191 (Name and Complete Address of Agent for Service) Please send copies of all communications to: Gary O. Cohen, Esq. and Thomas C. Lauerman, Esq. Freedman, Levy, Kroll & Simonds 1050 Connecticut Avenue, N.W., Suite 825 Washington, D.C. 20036 Title and Amount of Securities Being Registered: An Indefinite Amount of Units of Interest in American General Life Insurance Company Separate Account VL-R Under Variable Life Insurance Policies Amount of Filing Fee: None required. Approximate Date of Proposed Public Offering: As soon as practicable after the effective date of this Registration Statement. Registrant elects to be governed by Rule 63-3(T)(b)(13)(I)(A) under the Investment Company Act of 1940, with respect to the Variable Life Insurance Policies described in the Prospectus. ii 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)
ITEM NO. OF FORM N-8B-2* CAPTION IN PROSPECTUS 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), 10(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), Basic Questions You May Have: To what 10(h)(2) extent will AGL vary the terms and conditions of the Policies in particular cases? Additional Information: Voting Privileges; Additional Rights That We Have. iii 10(g)(3), 10(g)(4), 10(h)(3), Inapplicable.** 10(h)(4) 10(i) Additional information: Separate Account VL-R; Tax Effects. 11 Basic Questions You May Have: How will the value of my investments 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 has not yet commenced operations. 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 amount 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 Policies in particular cases? 13(e), 13(f) 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? iv 16 Basic Questions You May Have: How will the value of my investment in a Policy change over time? Additional Information: Separate Account VL-R. 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), Inapplicable. 20(e), 20(f) 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: American General Life Insurance Company. 26 Inapplicable, because the Separate Account has not yet commenced operations. 27 Additional Information: American General Life Insurance Company. v 28 Additional Information: AGL's Management. 29 Additional Information: AGL. 30, 31, 32, 33, 34 Inapplicable, because the Separate Account has not yet commenced operations. 35 Inapplicable.** 36 Inapplicable.** 37 None. 38, 39 Additional Information: Distribution of the Policies. 40 Inapplicable, because the Separate Account has not yet commenced operations. 41(a) Additional Information: Distribution of the Policies. 41(b), 41(c) Inapplicable.** 42, 43 Inapplicable, because the Separate Account has not yet commenced operations or issued any securities. 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 has not yet commenced operations. 46(a) Captions referenced in 44(a) above. 46(b) Inapplicable.** vi 47, 48, 49 None. 50 Inapplicable. 51 Inapplicable. 52(a), 52(c) Basic Questions You May Have: To what extent will AGL vary the terms and conditions of the Policies 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 has, simultaneously herewith, filed a notice of registration as an investment company on Form N-8A under the Investment Company Act of 1940, and it is filing a Form N-8B-2 Registration Statement at or about the time this amended Registration Statement is filed. Pursuant to Sections 8 and 30(b)(1) of the Investment Company Act of 1940, 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. ** 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.
vii PLATINUM INVESTOR I (SM) AND PLATINUM INVESTOR II (SM) FLEXIBLE PREMIUM VARIABLE LIFE INSURANCE POLICIES (THE "POLICIES") 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. The AGL Declared Fixed Interest Account is the fixed investment option for these policies. You can also invest in the following variable investment options. You may change your selections from time to time: -------------------------------------------------------------------------------------------------------------------------------- AIM VARIABLE INSURANCE AMERICAN GENERAL SERIES DREYFUS VARIABLE MFS VARIABLE INSURANCE FUNDS, INC. PORTFOLIO COMPANY INVESTMENT FUND TRUST o AIM V.I. International o International Equities o Quality Bond Portfolio o MFS Emerging Growth Equity Fund Fund (1) o Small Cap Portfolio Series o AIM V.I. Value Fund o MidCap Index Fund (1,2) o Money Market Fund (1) o Stock Index Fund (1,2) (1) Variable Annuity Life Insurance Company * Massachusetts Financial AIM Advisors, Inc.* (2) Bankers Trust Company(+) The Dreyfus Corporation* Services Company* -------------------------------------------------------------------------------------------------------------------------------- MORGAN STANLEY PUTNAM VARIABLE TRUST SAFECO RESOURCE VAN KAMPEN AMERICAN UNIVERSAL FUNDS, INC. o Putnam VT Diversified SERIES TRUST CAPITAL LIFE INVESTMENT o Equity Growth Portfolio (1) Income Fund o Equity Portfolio TRUST o High Yield Portfolio (2) o Putnam VT Growth o Growth Portfolio o Strategic Stock Portfolio o Putnam VT Growth and Income Fund o Putnam VT International Growth and Income Fund (1) Morgan Stanley Asset Mgmt, Inc.* SAFECO Asset Management Van Kampen American Capital (2) Miller Anderson Sherrerd, LLP* Putnam Management, Inc.* Company* Asset Management, Inc.* -------------------------------------------------------------------------------------------------------------------------------- * The Investment Adviser of the investment option (+) The Investment Sub-Adviser of the investment option
SEPARATE PROSPECTUSES CONTAIN MORE INFORMATION ABOUT THE MUTUAL FUNDS ("FUNDS" OR "MUTUAL FUNDS") IN WHICH WE INVEST THE AMOUNTS THAT YOU ALLOCATE TO ANY OF THE ABOVE-LISTED INVESTMENT OPTIONS (OTHER THAN OUR DECLARED FIXED INTEREST ACCOUNT OPTION). THE FORMAL NAME OF EACH SUCH FUND IS SET FORTH IN THE CHART THAT APPEARS ON PAGE 1. 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 also (1) change the amount of insurance, (2) borrow or withdraw amounts you have in our investment options, (3) choose, within limits, when and how much you invest, and (4) choose whether the amounts you have in our investment options will, upon the insured person's death, 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 8. RIGHT TO RETURN. If for any reason you are not satisfied with your Policy, you may return it to us for a full refund. (In some states, we will adjust this amount for any investment performance you have earned.) 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 option and allocated to your chosen 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 APRIL 1, 1998. 2 GUIDE TO THIS PROSPECTUS This booklet (which is called a prospectus) contains information that you should know before you purchase a Platinum InvestorSM variable life policy ("Policy") or exercise any of your rights or privileges under a Policy. This prospectus describes two versions of the Platinum Investor Policies: the Platinum Investor I and the Platinum Investor II Policies. Your AGL representative can advise you which version of the Policy he or she offers or whether he or she offers both. You cannot change to a different version once your coverage takes effect. The Platinum Investor I and Platinum Investor II Policies are identical, except for the differences that are discussed beginning on page 13 of this prospectus. BASIC INFORMATION. Here are the page numbers in this prospectus where you may find answers to most of your questions:
PAGE TO SEE BASIC QUESTIONS YOU MAY HAVE IN THIS PROSPECTUS o What are the Policies?.............................................. 1-2 o How can I invest money in a Policy?................................. 5-6 o How will the value of my investment in a Policy change over time?... 6-7 o What is the basic amount of insurance ("death benefit") that AGL pays when the insured person dies?.................................. 7-8 o What charges will AGL deduct from my investment in a Policy?........ 8-10 o What charges and expenses will the Mutual Funds deduct from amounts I invest through my Policy?................................ 10-12 o Must I invest any minimum amount in a Policy?....................... 12-13 o What are the differences between the Platinum Investor I and the Platinum Investor II Policies?..................................... 13-14 o How can I change my Policy's investment options?.................... 14-15 o How can I change my Policy's insurance coverage?.................... 15-16 o What additional rider benefits might I select?...................... 16-18 3 o How can I access my investment in a Policy?......................... 18-19 o Can I choose the form in which AGL pays out the proceeds from my Policy?............................................................ 20 o To what extent can AGL vary the terms and conditions of the Policies in particular cases?...................................... 21 o How will my Policy be treated for income tax purposes?.............. 21 o How do I communicate with AGL?...................................... 21-22
ILLUSTRATIONS OF A HYPOTHETICAL POLICY. Starting on page 23, 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 28, or in the forms of our Policy and riders. A table of contents for the "Additional Information" portion of this prospectus also appears on page 28. You can obtain copies of our Policy and rider forms from (and direct any other questions to) your AGL representative or our Home Office (shown on the cover of this Prospectus). AGL'S FINANCIAL STATEMENTS. We have included our financial statements in this prospectus. These begin on page 49. 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 this prospectus (page 91). That index will tell you on what page you can read more about many of the words and phrases that we use. 4 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 first 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. (Policies issued in some states or automatic premium payment plans may have different minimums.) Otherwise, with a few exceptions mentioned below, you can make premium payments at any time and in any amount. LIMITS ON PREMIUM PAYMENTS. Federal tax law limits your ability to make certain very large amounts of premium payments (relative to the amount of your Policy's insurance coverage) and may impose penalties on amounts you take out of your Policy if you do not observe certain additional requirements. These tax law requirements are summarized further under "Tax Effects" beginning on page 29. We will monitor your premium payments, however, to be sure that you do not exceed permitted amounts or inadvertently incur any tax penalties. Also, 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. 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 first premium must be sent directly to our Home Office at the appropriate address shown on the front cover of this prospectus. 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 front cover of this prospectus. Premium payments from salary deduction plans may be made only if we agree. 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 (but not to our declared fixed interest account option). 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. (The term "valuation period" is described on page 37.) You must have at least $5,000 of accumulation value to start dollar cost averaging and 5 each transfer under the program must be at least $100. 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 (other than our declared fixed interest account option) 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 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 $5,000 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 beginning on page 8, under "Deductions from each premium payment." We invest the rest in one or more of the investment options listed on the front cover of this prospectus. We call the amount that is at any time invested under your Policy your "accumulation value." YOUR INVESTMENT OPTIONS. We invest the accumulation value that you have allocated to any investment option (except our declared fixed interest account 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 8, 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. We invest any accumulation value you have allocated to our declared fixed interest account option as part of our general assets. We credit a fixed rate of interest on that accumulation value, which we declare from time to time. We guarantee that this will be at an effective annual rate of at least 6 4%. Although this interest increases the amount of any accumulation value that you have in our declared fixed interest account option, such accumulation value will also be reduced by any charges that are allocated to this option under the procedures described under "Allocation of charges" on page 10. The "daily charge" described on page 8 and the charges and expenses of the Mutual Funds discussed on pages 10-12 below do NOT apply to our declared fixed interest account option. 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 Platinum Investor 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 loans. You choose whether the basic death benefit is o Option 1 - The specified amount on the date of the insured person's death - or - o 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: 7 TABLE OF ALTERNATIVE BASIC DEATH BENEFITS AS A PERCENTAGE MULTIPLE OF POLICY ACCUMULATION VALUE
INSURED PERSON'S 40 or AGE*: Under 45 50 55 60 65 70 75 to 95 100 %: 250% 215% 185% 150% 130% 120% 115% 105% 100% * Nearest birthday at the beginning of the Policy year in which the insured person dies. The percentages are interpolated for ages that are not shown here.
WHAT CHARGES WILL AGL DEDUCT FROM MY INVESTMENT IN A POLICY? DEDUCTIONS FROM EACH PREMIUM PAYMENT. We deduct from each premium a charge for the tax that is then applicable to us in your state or other jurisdiction. These taxes currently range from .75% to 3.5%. Please let us know if you move to another jurisdiction, so we can adjust this charge if required. You are not permitted to deduct the amount of these taxes on your income tax return. We also currently deduct an additional 2.5% from each after-tax premium payment. We have the right at any time to increase this additional charge to not more than 5% on all future premium payments. 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 (other than our declared fixed interest option). After a Policy has been in effect for a certain number of years, we intend to reduce the rate of this charge by .25%. The number of years depends on whether you have version I or version II of the Policy and is discussed on page 13 under "What are the differences between the Platinum Investor I and Platinum Investor II Policies." Because the Policies were first offered in 1998, however, this decrease has not yet occurred for any outstanding Policy. Neither this decrease nor the current rate of .75% is guaranteed. Rather, we have the right at any time to raise this charge under your Policy to not more than .90%; except that in Texas and Oregon, until a Policy has been in effect for a certain number of years, this maximum is .25% higher. FLAT MONTHLY CHARGE. We will deduct $6 per month from your accumulation value. Also, we have the right to raise this charge at any time to not more than $12 per month. 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 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 cost 8 of insurance rates are generally lower under the Platinum Investor II Policy than under the Platinum Investor I Policy. 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. Our current rates are lower for insured persons in most age and risk classes, although we have the right at any time to raise these rates to not more than the guaranteed maximum. 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, and lower for persons that have other highly favorable health characteristics, as compared to those that do not. On the other hand, 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. Finally, our current cost of insurance rates are lower for Policies having a specified amount of at least $1,000,000 on the day the charge is deducted. This means that if your specified amount for any reason decreases from $1,000,000 or more to less than $1,000,000, your subsequent cost of insurance rates will be higher under your Policy than they otherwise would be. The reverse is also true. 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. MONTHLY CHARGES FOR ADDITIONAL BENEFIT RIDERS. We will deduct charges monthly from your accumulation value, if you select certain additional benefit riders. These are described beginning on page 16, under "What additional rider benefits might I select?" ADDITIONAL MONTHLY CHARGE FOR PLATINUM INVESTOR II POLICIES DURING THE FIRST TWO YEARS. This charge is described on page 13 under "What are the differences between the Platinum Investor I and the Platinum Investor II Policies?" SURRENDER CHARGE FOR PLATINUM INVESTOR I POLICIES. The Platinum Investor I Policies have a surrender charge that applies for the first 10 Policy years (and the first 10 years after any requested increase in the Policy's specified amount). The amount of the surrender charge depends on the age and other insurance characteristics of the insured person. The maximum amount of the surrender charge will be shown on pages 23 and 24 of the Policy. It may initially be as high as $40 per $1,000 of specified amount or as low as $1.80 per $1,000 of specified amount (or increase therein). Any amount of surrender charge decreases automatically by a constant amount each year beginning in the 9 fourth year of its 10 year period referred to above until, in the eleventh year, it is zero. We will deduct the entire amount of any then applicable surrender charge from the accumulation value at the time of a full surrender of a Platinum Investor I Policy. Upon a requested decrease in such a Policy's specified amount of coverage, we will deduct any remaining amount of the surrender charge that was associated with the specified amount that is cancelled. This includes any specified amount decrease that, as described under "Partial surrender" beginning on page 18, results from any requested partial surrender. For this purpose, we deem the most recent increases of specified amount to have been cancelled first. TRANSACTION FEE. We will charge a $25 transaction fee for each partial surrender you make. 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. 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. Any surrender charge upon a decrease in specified amount that is requested under a Platinum Investor I Policy will be allocated in the same manner as if it were a monthly deduction. 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: 10 THE MUTUAL FUNDS' ANNUAL EXPENSES (1) (as a percentage of average net assets)
Other Fund Total Fund Operating Expenses Fund Management After Expense Operating Name Of Fund Fees Reimbursement(2) Expenses(2) ------------ ------------------ ------------------ ----------- The following funds of AIM VARIABLE INSURANCE FUNDS, INC.: V.I. International Equity Fund 0.75% 0.18% 0.93% V.I. Value Fund 0.62% 0.08% 0.70% The following funds of AMERICAN GENERAL SERIES PORTFOLIO COMPANY ("AGSPC"): International Equities Fund 0.35% 0.07% 0.42% MidCap Index Fund 0.35% 0.05% 0.40% Money Market Fund 0.50% 0.07% 0.57% Stock Index Fund 0.34% 0.00% 0.34% The following funds of DREYFUS VARIABLE INVESTMENT FUND: Quality Bond Portfolio 0.65% 0.06% 0.71% Small Cap Portfolio 0.75% 0.03% 0.78% The following series of MFS VARIABLE INSURANCE TRUST: MFS Emerging Growth Series 0.75% 0.15% 0.90% The following portfolios of MORGAN STANLEY UNIVERSAL FUNDS, INC.: Equity Growth Portfolio 0.55% 0.30% 0.85% High Yield Portfolio 0.50% 0.31% 0.81% The following portfolios of PUTNAM VARIABLE TRUST: Putnam VT Diversified Income Fund 0.69% 0.26% (including 12b-1 0.95% fees of 0.15%) Putnam VT Growth and Income Fund 0.49% 0.19% (including 12b-1 0.68% fees of 0.15%) Putnam VT International Growth 0.80% 0.47% (including 12b-1 1.27% and Income Fund fees of 0.15%) 11 The following portfolios of SAFECO RESOURCES SERIES TRUST: Equity Portfolio 0.73% 0.02% 0.75% Growth Portfolio 0.74% 0.03% 0.77% The following portfolio of VAN KAMPEN AMERICAN CAPITAL LIFE INVESTMENT TRUST: Strategic Stock Portfolio 0.50% 0.11% 0.61% (1) The annual expenses are estimated for the current fiscal year for the Van Kampen American Capital Strategic Stock Portfolio because it does not have financial statements covering a period of at least ten months. (2) If certain voluntary expense reimbursements from the investment adviser were terminated, other expenses for the Morgan Stanley Equity Growth and High Yield Portfolios would have been 1.50% and 1.18%, respectively, and for the Van Kampen American Capital Strategic Stock Portfolio would have been 2.09%.
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. You need to invest only enough to ensure either that your Policy's cash surrender value stays above zero or, if you own a Platinum Investor I Policy, that your 5 year no-lapse guarantee (discussed below) remains in effect. ("Cash surrender value" is explained under "Full surrender" on page 18.) 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 don't receive your payment by the end of the grace period, your Policy and all riders will terminate without value and all coverage under your Policy will cease. (The only exception is if the guarantee is in effect that is described below under "Monthly guarantee premiums under Platinum Investor I Policies.") 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. 12 MONTHLY GUARANTEE PREMIUMS UNDER THE PLATINUM INVESTOR I POLICIES. Page 3 of a Platinum Investor I Policy will specify a "Monthly Guarantee Premium." On the first day of each Policy month that the cash surrender value is not sufficient to pay the monthly deduction, we check to see if the cumulative amount of premiums paid under such a Policy is at least equal to the sum of the monthly guarantee premiums for all Policy months to date, including the Policy month then starting. (Policy months are measured from the "Date of Issue" that will also be shown on page 3 of the Policy.) So long as at least this amount of premium payments has been paid by the beginning of that Policy month, a Platinum Investor I Policy will not enter a grace period or terminate (I.E., lapse) because of insufficient cash surrender value during the first 5 Policy years. If this test is not met on the monthly deduction day at the beginning of any Policy month, the Policy enters the grace period. If a sufficient premium is not paid before the end of the grace period, the Policy and the 5 year no-lapse guarantee terminate. If the Policy is later reinstated, the 5 year no-lapse guarantee may also be reinstated if sufficient premiums are paid, although the reinstated guarantee will in no case extend beyond the date that originally marked the end of its maximum 5 year duration. The amount of premiums that must be paid to maintain the 5 year no-lapse guarantee will be increased by the cumulative amount of any loans (including any loan increases to pay interest) and partial surrenders you have taken from your Policy. Such monthly guarantee premiums also will be higher following any requested increase in the specified amount of insurance coverage, or following a requested addition of (or increase in) certain rider benefits. On the other hand, the monthly guarantee premium will be lower following any requested decrease in the specified amount of insurance coverage, or following a requested cancellation of (or decrease in) certain riders. If your Policy is the Platinum Investor I version, we will send you an endorsement to your Policy that will tell you what your new monthly guarantee premium is. However, none of the above-mentioned changes extends the no-lapse period beyond 5 years or establishes a new no-lapse guarantee. The 5-year no-lapse guarantee described in the two previous paragraphs is not available in all states. Although we will bill you for planned premiums, we will not send any specific bills for the amount of any monthly guarantee premium that is due. WHAT ARE THE DIFFERENCES BETWEEN THE PLATINUM INVESTOR I AND THE PLATINUM INVESTOR II POLICIES? Depending on your own financial circumstances and goals, and the uses to which you intend to put a Platinum Investor Policy, either version of the Policy may be appropriate for you. You should consult carefully with your AGL representative about this. Relevant factors may include how much accumulation value you intend to maintain in the Policy relative to the amount of the Policy's death benefit and how likely it is that you may choose to surrender your Policy or otherwise reduce your Policy's specified amount in the foreseeable future. The differences between the two versions of Platinum Investor are: 13 o Platinum Investor I is available for specified amounts of $100,000 or more. Platinum Investor II is available only for specified amounts of $500,000 or more. You may not request a specified amount decrease (or a partial surrender) under a Platinum Investor I or a Platinum Investor II Policy that would reduce the specified amount to less than $100,000 or $500,000, respectively. o Platinum Investor I is available for insured persons through age 80. Platinum Investor II is available for insured persons who are age 18 through age 80. o The Platinum Investor II version of the Policy DOES NOT have a surrender charge. o The Platinum Investor II version of the Policy DOES NOT have a 5 year no-lapse guarantee. o The planned reduction in the current daily charge by .25% per annum of separate account accumulation value is scheduled to occur after year 10 for Platinum Investor II and after year 20 for Platinum Investor I. These are also the same periods after which the guaranteed maximum daily charge under Policies sold in Texas and Oregon will decrease by .25% per annum. o The two versions of Platinum Investor have different current cost of insurance rates. Since this difference results in differing accumulation values, you should carefully review the Policy illustrations that are available to you. o The Platinum Investor II version of the Policy has a monthly expense charge during the first two Policy years (and the first two years after any requested increase in the Policy's specified amount). The amount of this charge depends on the age and other insurance characteristics of the insured person. The amount of this charge will be shown on page 4 of a Platinum Investor II Policy. It may initially be as much as $1.88 per $1,000 of specified amount (or increase therein), or as low as $0.0999 per $1,000 of specified amount (or increase therein). (After the two-year periods mentioned above, this charge is zero.) This additional monthly charge does not apply to the Platinum Investor I version of the Policies. 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. Unless you are transferring the entire amount you have in an 14 investment option, each transfer must be at least $500. See "Additional Rights That We Have," beginning on page 42. Also, you may not in any one Policy year make transfers out of our declared fixed interest account option that aggregate more than 25% of the accumulation value you had invested in that option at the beginning of that Policy year. You may make transfers at any time, except that transfers out of our declared fixed interest account option must be made within 60 days after a Policy anniversary. We will not honor any request received outside that period. MAXIMUM NUMBER OF INVESTMENT OPTIONS. We can at any time limit the number of investment options you may use. Our current rule is that you cannot use more than 18 different options over the life of your Policy. 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. 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. Also, if you have the Platinum Investor I version of the Policy, a new amount of surrender charge and monthly guarantee premium apply to the specified amount increase; and these amounts are the same as they would be if we were instead issuing the same amount of additional coverage as a new Platinum Investor I Policy. On the other hand, if you have the Platinum Investor II version of the Policy, an additional monthly expense charge applies for the first two years following the request for an increase in specified amount. This amount is also the same as it would be if we were instead issuing the same amount of additional coverage as a new Platinum Investor II Policy. DECREASE IN COVERAGE. After the first Policy year, you may request a reduction in the specified amount of coverage, but not below certain minimums. The minimum is $100,000 for a Platinum Investor I Policy and $500,000 for a Platinum Investor II Policy (or, if greater, the minimum amount that the tax law requires relative to the amount of premium payments you have made). At the time of a decrease under such a Policy, we will deduct from the Policy's accumulation value an amount of any remaining surrender charge. If there is not sufficient accumulation value to pay the surrender charge at the time you request a reduction, the decrease will not be allowed. We compute the amount we deduct in the manner described on page 37, under "Decreases in the specified amount of a Platinum Investor I Policy." 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 automatically reduce your Policy's specified amount of insurance by the amount of your Policy's accumulation value (but not below 15 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 29 of this prospectus to learn about possible tax consequences of changing your insurance coverage under your Policy. WHAT ADDITIONAL RIDER BENEFITS MIGHT I SELECT? You can request that your Policy include the additional rider benefits described below. For most of the riders that you choose, a charge, which will be shown on page 3 of your Policy, will be deducted from your accumulation value on each monthly deduction date. Eligibility for and changes in these benefits are subject to our rules and procedures as in effect from time to time. More details are included in the form of each rider, which we suggest that you review if you choose any of these benefits. o ACCIDENTAL DEATH BENEFIT RIDER, which pays an additional death benefit if the insured person dies from certain accidental causes. o AUTOMATIC INCREASE RIDER, which provides for automatic increases in your Policy's specified amount of insurance at certain specified dates and based on a specified index. After you have met our eligibility requirements for this rider, these increases will not require that evidence be provided to us about whether the insured person continues to meet our requirements for insurance coverage. These automatic increases are on the same terms (including additional charges) as any other specified amount increase you request (as described under "Increase in coverage" on page 15). There is no additional charge for the rider itself, although the automatic increases in the specified amount will increase the monthly insurance charge deducted from your accumulation value, to compensate us for the additional coverage. o CHILDREN'S INSURANCE BENEFIT RIDER, which provides term life insurance coverage on the eligible children of the person insured under the Policy. This rider is convertible into any other insurance (except for term coverage) available for conversions, under our published rules at the time of conversion. o MATURITY EXTENSION RIDER, which permits you to extend the Policy's maturity date beyond what it otherwise would be, has two versions from which to choose. One version provides for a death benefit after the original maturity date that is equal to the accumulation value on the date of death. With this version, all accumulation value that is in the 16 separate account can remain there. There is no charge for this version. The other version provides for a death benefit after the original maturity date equal to the base policy death benefit on the original maturity date. With this version, if you elect to extend your maturity date, all accumulation value that is in the separate account will be automatically transferred at the Policy's original maturity date to the declared fixed interest account option. There is a monthly charge for this version of the rider during the first nine Policy years immediately preceding the Policy's original maturity date. Therefore, this rider may not be added to a Policy during that 9 year period. In both versions, only the insurance coverage associated with the base policy will be extended beyond the original maturity date. No additional premium payments, new loans, monthly insurance charge, or changes in specified amount will be allowed after the original maturity date. There is a flat monthly charge of no more than $10 each month after the original maturity date. Extension of the maturity date beyond the insured person's age 100 may result in the current taxation of increases in your Policy's accumulation value as a result of interest or investment experience after that time. You should consult a qualified tax adviser before making such an extension. o RETURN OF PREMIUM DEATH BENEFIT RIDER, which provides additional term life insurance coverage on the person insured under the Policy. The amount of additional insurance varies so that it always equals the cumulative amount of premiums paid under the Policy (subject to certain adjustments). o SPOUSE TERM RIDER, which provides term life insurance on the life of the spouse of the Policy's insured person. This rider is convertible into any other insurance (except for term coverage) available for conversions, under our published rules at the time of conversion. o TERMINAL ILLNESS RIDER, which provides for a benefit to be requested if the Policy's insured person is diagnosed as having a terminal illness (as defined in the rider) and less than 12 months to live. This rider is not available in all states. The maximum amount you may receive under this rider prior to the insured person's death is 50% of the death benefit payable under the Policy (excluding any rider benefits) or, if less, $250,000. The amount of benefits paid under the rider, plus an administrative fee (not to exceed $250), plus interest on these amounts to the next Policy anniversary becomes a "lien" against all future Policy benefits. We will continue to charge interest in advance on the total amount of the lien and will add any unpaid interest to the total amount of the lien each year. Any time the total lien, plus 17 any other Policy loans, exceeds the Policy's then current death benefit, the Policy will terminate without further value. The cash surrender value of the Policy also will be reduced by the amount of the lien. o WAIVER OF MONTHLY DEDUCTION RIDER, under which we will waive all monthly charges under your Policy and riders that we otherwise would deduct from your accumulation value, so long as the insured person is totally disabled (as defined in the rider). While we are paying benefits under this rider we will not permit you to request any increase in the specified amount of your Policy's coverage. However, loan interest will not be paid for you under this rider, and the Policy could, under certain circumstances, lapse for nonpayment of loan interest. TAX CONSEQUENCES OF ADDITIONAL RIDER BENEFITS. Adding or deleting riders, or increasing or decreasing coverage under existing riders can have tax consequences. See "Tax Effects" starting on page 29. You should consult a qualified tax adviser. 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, and, if you have the Platinum Investor I version of the Policy, less any surrender charge that then applies. We call this your "cash surrender value." Because of the surrender charge, it is unlikely that a Platinum Investor I Policy will have any cash surrender value during at least the first year unless you pay significantly more than the monthly guarantee premiums. 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 $500. 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. If you have the Platinum Investor I version of the Policy, and we reduce your Policy's specified amount because you have requested a partial withdrawal while the Option 1 death benefit is in effect, we will deduct the same amount of surrender charge, if any, that would have applied if you had requested such face amount decrease directly. See "Decreases in the specified amount of a Platinum Investor I Policy," on page 37. We will not permit a partial surrender if it would cause your Policy to fail to qualify as life insurance under the tax laws or if it would cause your specified amount to fall below the minimum allowed. 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. 18 POLICY LOANS. You may at any time borrow from us an amount equal to your Policy's cash surrender value (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 $500 or, if less, the entire remaining borrowable amount under your Policy. 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 4.51%. 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. 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 $100) of your loan at any time. You must designate any loan repayment as such. Otherwise, we will treat it as a premium payment instead. Any loan repayments go first to repay all loans that were taken from our declared fixed interest account option. 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 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, however, provided that it will always be greater than the rate we are then crediting in connection with regular Policy loans. 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 95th birthday. 19 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 (and any riders) 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: o Option 1 - Equal monthly payments for a specified period of time. o Option 2 - Equal monthly payments of a specified amount until all amounts are paid out. o 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. o 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. 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. 20 TO WHAT EXTENT CAN AGL VARY THE TERMS AND CONDITIONS OF THE POLICIES 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 from time to time and apply evenly to all our customers. POLICIES PURCHASED THROUGH "INTERNAL ROLLOVERS." We maintain published rules that describe the procedures necessary to replace the other life insurance we issue with one of the Policies. Not all types of other insurance we issue are eligible to be replaced with one of the Policies. POLICIES PURCHASED THROUGH TERM LIFE CONVERSIONS. Also, we maintain rules about how to convert term insurance to a Platinum Investor 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. STATE LAW REQUIREMENTS. AGL is subject to the insurance laws and regulations in every jurisdiction in which Platinum Investor is 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 riders, or related endorsements. VARIATIONS IN EXPENSES OR RISKS. AGL may vary the charges and other terms of the Policies where special circumstances result in sales or administrative expenses, mortality risks, or other risks that are different from those normally associated with the Policies. 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 29. 21 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 at the appropriate address shown on the first page of this prospectus. The following requests must be made in writing signed and dated 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 or decrease in specified insurance amount; addition or cancellation of, or other action with respect to, any rider benefits; 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 22 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 Policies are 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. ILLUSTRATIONS OF HYPOTHETICAL POLICY BENEFITS To help clarify how our Policies work, we have prepared the following tables:
Page to see in this Prospectus ---------- Table Platinum Platinum ----- Investor I Investor II ---------- ----------- Death Benefit Option 1 - Current Charges................... 24 26 Guaranteed Maximum Charges......................... 25 27
The tables show how death benefits, accumulation values, and cash surrender values ("Policy benefits") under hypothetical Platinum Investor Policies 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 and who is a better-than-average mortality risk in other respects as well. Planned premium payments of $1,368 for an initial $100,000 of specified amount of coverage are assumed to be paid at the beginning of each Policy year for the Platinum Investor I Policy. Planned premium payments of $10,560 for an initial $500,000 of specified amount coverage are assumed to be paid at the beginning of each Policy year for the Platinum Investor II Policy. The illustrations assume no Policy loan has been taken. The differences between the accumulation values and the cash surrender values for the first 10 years in the tables for the Platinum Investor I version are that version's surrender charges. 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, lower cash values, and a greater risk of lapse. Separate tables are included to illustrate both current and guaranteed maximum charges for both Platinum Investor I and Platinum Investor II. The charges assumed in the current charge tables include a daily charge at an annual effective rate of .75% for the first 20 Policy years (for Platinum Investor I) or 10 years (for Platinum Investor II), and .50% thereafter, current monthly insurance charges and a flat monthly charge of $6. The guaranteed maximum charge tables assume that these charges will be .90%, guaranteed maximum insurance charges, and $12, respectively, in all years. In 23 Texas and Oregon, the guaranteed maximum daily charge is .25% 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 0.72% 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 pages 11 and 12, plus the weighted average of all other operating expenses of each such Fund after all reimbursements, as reflected on page 12. The total assumed tax charges for all of the tables are 2.5% of premiums. 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. Platinum Investor I Planned Premium 1,368.00 Initial Specified Amount $100,000 Death Benefit Option 1 Male Age 45 Preferred risk Non-Tobacco User Assuming Current Charges
Death Benefit Accumulation Value Cash Surrender Value Assuming Assuming Assuming Hypothetical Gross Hypothetical Gross Hypothetical Gross Annual Investment Annual Investment Annual Investment End Of Return of Return of 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 1,436 100,000 100,000 100,000 892 957 1,022 0 0 0 2 2,945 100,000 100,000 100,000 1,751 1,937 2,130 383 568 762 3 4,528 100,000 100,000 100,000 2,588 2,952 3,346 1,220 1,584 1,978 4 6,191 100,000 100,000 100,000 3,382 3,981 4,658 2,185 2,784 3,461 5 7,937 100,000 100,000 100,000 4,156 5,049 6,100 3,130 4,023 5,074 6 9,770 100,000 100,000 100,000 4,911 6,158 7,688 4,056 5,303 6,833 7 11,695 100,000 100,000 100,000 5,657 7,322 9,449 4,973 6,638 8,765 8 13,716 100,000 100,000 100,000 6,374 8,520 11,381 5,861 8,007 10,868 9 15,839 100,000 100,000 100,000 7,072 9,767 13,512 6,730 9,425 13,170 10 18,067 100,000 100,000 100,000 7,752 11,066 15,866 7,581 10,895 15,695 15 30,995 100,000 100,000 100,000 10,927 18,469 32,009 10,927 18,469 32,009 20 47,497 100,000 100,000 100,000 13,318 27,288 58,686 13,318 27,288 58,686 (1) Assumes net interest of 5% compounded annually.
THE VALUES WILL DIFFER IF PREMIUMS ARE PAID IN DIFFERENT AMOUNTS OR FREQUENCIES. THE MONTHLY GUARANTEE PREMIUM FOR THIS POLICY WOULD BE $56. 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. 24 Platinum Investor I Planned Premium 1,368.00 Initial Specified Amount $100,000 Death Benefit Option 1 Male Age 45 Preferred risk Non-Tobacco User Assuming Current Charges
Death Benefit Accumulation Value Cash Surrender Value Assuming Assuming Assuming Hypothetical Gross Hypothetical Gross Hypothetical Gross Annual Investment Annual Investment Annual Investment End Of Return of Return of 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 1,436 100,000 100,000 100,000 656 713 770 0 0 0 2 2,945 100,000 100,000 100,000 1,270 1,424 1,585 0 56 217 3 4,528 100,000 100,000 100,000 1,842 2,133 2,451 474 765 1,083 4 6,191 100,000 100,000 100,000 2,361 2,829 3,363 1,164 1,632 2,166 5 7,937 100,000 100,000 100,000 2,829 3,513 4,326 1,803 2,487 3,300 6 9,770 100,000 100,000 100,000 3,246 4,183 5,346 2,391 3,328 4,491 7 11,695 100,000 100,000 100,000 3,602 4,829 6,420 2,918 4,145 5,736 8 13,716 100,000 100,000 100,000 3,886 5,438 7,542 3,373 4,925 7,029 9 15,839 100,000 100,000 100,000 4,100 6,010 8,720 3,758 5,668 8,378 10 18,067 100,000 100,000 100,000 4,232 6,531 9,951 4,061 6,360 9,780 15 30,995 100,000 100,000 100,000 3,447 8,048 16,949 3,447 8,048 16,949 20 47,496 100,000 100,000 100,000 0 6,386 25,523 0 6,386 25,523 (1) Assumes net interest of 5% compounded annually.
THE VALUES WILL DIFFER IF PREMIUMS ARE PAID IN DIFFERENT AMOUNTS OR FREQUENCIES. THE MONTHLY GUARANTEE PREMIUM FOR THIS POLICY WOULD BE $56. 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. 25 Platinum Investor II Planned Premium 10,560 Initial Specified Amount $500,000 Death Benefit Option 1 Male Age 45 Preferred risk Non-Tobacco User Assuming Current Charges
Death Benefit Accumulation Value Cash Surrender Value Assuming Assuming Assuming Hypothetical Gross Hypothetical Gross Hypothetical Gross Annual Investment Annual Investment Annual Investment End Of Return of Return of 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 11,088 500,000 500,000 500,000 6,724 7,220 7,717 6,724 7,220 7,717 2 22,730 500,000 500,000 500,000 13,312 14,728 16,207 13,312 14,728 16,207 3 34,955 500,000 500,000 500,000 21,347 24,170 27,234 21,347 24,170 27,234 4 47,791 500,000 500,000 500,000 29,235 34,014 39,396 29,235 34,014 39,396 5 61,269 500,000 500,000 500,000 37,091 44,391 52,933 37,091 44,391 52,933 6 75,420 500,000 500,000 500,000 44,859 55,272 67,936 44,859 55,272 67,936 7 90,279 500,000 500,000 500,000 52,751 66,895 84,775 52,751 66,895 84,775 8 105,881 500,000 500,000 500,000 60,499 79,023 103,378 60,499 79,023 103,378 9 122,263 500,000 500,000 500,000 68,208 91,786 124,035 68,208 91,786 124,035 10 139,464 500,000 500,000 500,000 76,029 105,356 147,100 76,029 105,356 147,100 15 239,263 500,000 500,000 500,000 111,965 181,862 303,941 111,965 181,862 303,941 20 366,635 500,000 500,000 685,968 140,295 274,057 562,269 140,295 274,057 562,269 (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. 26 Platinum Investor II Planned Premium 10,560 Initial Specified Amount $500,000 Death Benefit Option 1 Male Age 45 Preferred risk Non-Tobacco User Assuming Current Charges
Death Benefit Accumulation Value Cash Surrender Value Assuming Assuming Assuming Hypothetical Gross Hypothetical Gross Hypothetical Gross Annual Investment Annual Investment Annual Investment End Of Return of Return of 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 11,088 500,000 500,000 500,000 5,682 6,137 6,595 5,682 6,137 6,595 2 22,730 500,000 500,000 500,000 11,124 12,391 13,716 11,124 12,391 13,716 3 34,955 500,000 500,000 500,000 17,912 20,401 23,108 17,912 20,401 23,108 4 47,791 500,000 500,000 500,000 24,401 28,571 33,283 24,401 28,571 33,283 5 61,268 500,000 500,000 500,000 30,599 36,918 44,339 30,599 36,918 44,339 6 75,420 500,000 500,000 500,000 36,516 45,458 56,382 36,516 45,458 56,382 7 90,279 500,000 500,000 500,000 42,105 54,154 69,479 42,105 54,154 69,479 8 105,881 500,000 500,000 500,000 47,323 62,972 83,710 47,323 62,972 83,710 9 122,263 500,000 500,000 500,000 52,179 71,931 99,224 52,179 71,931 99,224 10 139,464 500,000 500,000 500,000 56,631 81,000 116,140 56,631 81,000 116,140 15 239,263 500,000 500,000 500,000 72,027 127,691 228,350 72,027 127,691 228,350 20 366,635 500,000 500,000 506,249 72,561 175,541 414,958 72,561 175,541 414,958 (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. 27 ADDITIONAL INFORMATION A general overview of the Policies appears at pages 1 through 23. The additional information that follows gives more details, but generally does NOT repeat what is set forth above.
Contents of Additional Information Page to see in this Prospectus AGL................................................................................... 28 Separate Account VL-R................................................................. 29 Tax Effects........................................................................... 29 Voting Privileges..................................................................... 34 Your Beneficiary...................................................................... 35 Assigning Your Policy................................................................. 35 More About Policy Charges............................................................. 35 Effective Date of Policy and Related Transactions..................................... 37 More About Our Declared Fixed Interest Account Option................................. 39 Distribution of the Policies.......................................................... 40 Payment of Policy Proceeds............................................................ 41 Adjustments to Death Benefit.......................................................... 42 Additional Rights That We Have........................................................ 42 Performance Information............................................................... 43 Our Reports to Policy Owners.......................................................... 44 AGL's Management...................................................................... 44 Legal Matters......................................................................... 46 Independent Auditors.................................................................. 46 Actuarial Experts..................................................................... 46 Services Agreement.................................................................... 47 Certain Potential Conflicts........................................................... 47
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 this prospectus (page 91). 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 a indirect, wholly-owned subsidiary of American General Corporation (formerly American General Insurance Company), a diversified financial services holding company engaged primarily in the insurance business. The commitments under the Contracts are AGL's, and American General Corporation has no legal obligation to back those commitments. 28 SEPARATE ACCOUNT VL-R We hold the Mutual Fund shares in which any of your accumulation value is invested in our 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. We created the separate account on May 6, 1997 under Texas law. For recordkeeping and financial reporting purposes, Separate Account VL-R is divided into 17 separate "divisions" each corresponding to one of the 17 available investment options (other than our declared fixed interest account option). 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. The assets in the separate account are our property. Nevertheless, the assets in the separate account would be available only to satisfy the claims of owners of the Policies, to the extent they have allocated their accumulation value to the separate account. Our other creditors could reach only those separate account assets (if any) that are in excess of the amount of our reserves and liabilities under the Policies with respect to the separate account. AGL also issues variable annuity contracts through its Separate Accounts A and D, which also are registered investment companies. 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 Platinum Investor 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 ("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 Policies will meet these requirements and that: o the death benefit received by the beneficiary under your Policy will not be subject to federal income tax; and o 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. 29 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 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, the selection of additional rider benefits, 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 specified amount you request or, in some cases, a partial surrender or termination of additional benefits under a rider.) 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 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. 30 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 U.S. 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 and 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, 31 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. 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. TERMINAL ILLNESS RIDER. Amounts received under an insurance policy on the life of an individual who is terminally ill, as defined by the tax law, are generally excludable from the payee's gross income. We believe that the benefits provided under our terminal illness rider meet the law's definition of terminally ill and can qualify for this income tax exclusion. This exclusion does not apply, however, to amounts paid to someone other than the insured person, if the payee has an insurable interest in the insured person's life because the insured is a director, officer or employee of the payee or by reason of the insured person being financially interested in any trade or business carried on by the payee. 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. Our separate account, through the Mutual Funds, intends to comply with these requirements. 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 a separate account 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 the separate account, 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 our separate account. ESTATE AND GENERATION SKIPPING TAXES. If the insured person is the Policy's owner, the death benefit under a Platinum Investor 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 32 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 Platinum Investor Policies are 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. 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. 33 ERISA. Employers and employer-created trusts may be subject to reporting, disclosure and fiduciary obligations under the Employee Retirement Income Security Act of 1974. You should consult a qualified legal adviser. OUR TAXES. The operations of our Separate Account VL-R are reported in our federal income tax return, but we currently pay no income tax on the separate account'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 division for taxes. We reserve the right to make a charge in the future for taxes incurred; for example, a charge to the separate account for income taxes incurred by us that are allocable to the Policies. 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 our separate account or allocable to the Policies. 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 You will be entitled to instruct us how to vote Mutual Fund shares held in the divisions of Separate Account VL-R 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 you are entitled to direct with respect to a particular Mutual 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 34 recognized. Separate Account VL-R will vote all shares of each Fund that it holds of record in the same proportions as those shares for which we have received instructions from owners participating in that Fund through the separate account. If you are entitled to give us voting instructions, we will send you proxy material and a form for providing such instructions. 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, if we agree. 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. All collateral assignees of record must consent to any full surrender, partial surrender, loan or payment from a Policy under a terminal illness rider. 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 Policies are designed to cover, in the aggregate, our direct and indirect costs of selling, administering and providing benefits under the Policies. They are also designed, in the aggregate, to compensate us for the risks we assume and services that we provide under the Policies. 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 costly for us to provide the 5-year no-lapse guarantee under the Platinum Investor I 35 Policies or reduce the amount of our daily charge fee 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 Policies require us to provide will exceed what we currently project). If the charges that we collect from the Policies exceed our total costs in connection with the Policies, we will earn a profit. Otherwise we will incur a loss. The current charges that we deduct from premiums have been designed to compensate us for taxes we have to pay to the state where you live when we receive a premium from you, as well as similar federal taxes we incur as a result of premium payments. The current flat monthly charge that we deduct has been designed primarily to compensate us for the continuing administrative functions we perform in connection with the Policies. The current monthly insurance charge has been designed primarily to provide funds out of which we can make payments of death benefits under the Policies as insured persons die. Any excess from the charges discussed in the preceding paragraph, as well as revenues from the daily charge, 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 sales commissions and other marketing 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 risks we assume under the Policies, or (c) otherwise to be retained by us as profit. The surrender charge under the Platinum Investor I Policies and the additional monthly charge during the first two years under a Platinum Investor II Policy have also been designed primarily for these purposes. 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 POLICIES. 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 36 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 (including Platinum Investor 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 8. DECREASES IN THE SPECIFIED AMOUNT OF A PLATINUM INVESTOR I POLICY. An amount of any remaining surrender charge will be deducted upon a decrease in specified amount under a Platinum Investor I Policy. If there have been no previous specified amount increases, the amount we deduct will bear the same proportion to the total surrender charge then applicable as the amount of the specified amount decrease bears to the Policy's total specified amount. The remaining amount of surrender charge that we could impose at a future time, however, will also be reduced proportionally. If there have been increases in specified amount, we decrease first those portions of specified amount that were most recently established. We also deduct any remaining amount of the surrender charge that was established with that portion of specified amount (which we pro-rate if less than that entire portion of specified amount is being cancelled). MISCELLANEOUS. Each of the distributors 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, up to an annual rate of 0.25% of the average daily net asset value of shares of the Mutual Funds purchased by the divisions at the instruction of owners. These reimbursements are paid by the distributors, 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 Policies 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." 37 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 (shown on the first page of this prospectus). 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 minimum first 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. However, if you pay at least the minimum first premium payment with your application for a Policy, we will provide temporary coverage of up to $300,000 if the insured person meets certain medical and risk requirements. The terms and conditions of this coverage are described in our "Limited Temporary Life Insurance Agreement." You can obtain a copy from our Home Office by writing to the address shown on the first page of this prospectus or from your AGL representative. 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 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, (b) 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, or (c) in the case of a back-dated policy, the date we approve the Policy for insurance. 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: 38 o Increases or decreases you request in the specified amount of insurance, and reinstatements of Policies that have lapsed take effect on the Policy's monthly deduction day on or next following our approval of the transaction; o 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; o 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 o 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. MORE ABOUT OUR DECLARED FIXED INTEREST ACCOUNT OPTION OUR GENERAL ACCOUNT. Our general account assets are all of our assets that we do not hold in legally segregated separate accounts. Our general account supports our obligations to you under your Policy's declared fixed interest account option. Because of applicable exemptive provisions, no interest in this option has been registered under the Securities Act of 1933; nor is our general account or our declared fixed interest account an investment company under the Investment Company Act of 1940. We have been advised that the staff of the SEC has not reviewed the disclosures that are included in this prospectus for your information about our general account or our declared fixed interest account option. Those disclosures, however, may be subject to certain generally applicable provisions of the federal securities laws relating to the accuracy and completeness of statements made in prospectuses. HOW WE DECLARE INTEREST. We can at any time change the rate of interest we are paying on any accumulation value allocated to our declared fixed interest account option, but it will always be at an effective annual rate of at least 4%. Under these procedures, it is likely that at any time different interest rates will apply to different portions of your accumulation value, depending on when each portion was allocated to our declared fixed interest account option. Any charges, partial surrenders, or loans that we take from any accumulation value that you have in our declared fixed interest account option will be taken from each portion in reverse chronological order based on the 39 date that accumulation value was allocated to this option. DISTRIBUTION OF THE POLICIES American General Securities Incorporated ("AGSI") is the principal underwriter of the Policies. AGSI is a wholly-owned subsidiary of AGL, and its principal office is 2727 Allen Parkway, Houston, Texas 77019. AGSI was organized on March 8, 1983 under Texas law. AGSI is registered with the SEC as a broker-dealer under the Securities Exchange Act of 1934 ("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. We and AGSI have sales agreements with various broker-dealers and banks under which the Policies will be sold by registered representatives of the broker-dealers or employees of the banks. These registered representatives and employees are also required to be authorized under applicable state regulations as life insurance agents to sell variable life insurance. The broker-dealers are ordinarily required to be registered with the SEC and must be members of the NASD. We pay compensation directly to broker-dealers and banks for promotion and sales of the Policies. AGSI also has its own registered representatives who will sell the Policies, and we will pay compensation to AGSI for these sales. The compensation payable to broker-dealers or banks for sales of the Policies may vary with the sales agreement, but is generally not expected to exceed, for the Platinum Investor I Policies, 90% of the premiums paid in the first Policy year up to a "target" amount, 4% of the premiums not in excess of the target amount paid in each of Policy years 2 through 10, 2.5% of all premiums in excess of the target amount received in any of Policy years 1 through 10, and .25% annually of the Policy's accumulation value (reduced by any outstanding loans) in the investment options thereafter. (The target amount is an amount of level annual premium that would be necessary to support the benefits under your Policy, based on certain assumptions that we believe are reasonable.) The compensation payable to the broker-dealers or banks for the Platinum Investor II Policies is generally not expected to exceed 20% of premiums paid in the first Policy year up to the target amount, 12% of the premiums not in excess of the target amount paid in each of Policy years 2 through 7, 2.5% on all premiums in excess of the target amount received in any of Policy years 1 through 7, and .25% of the Policy's accumulation value (reduced by any outstanding loans) in the investment options thereafter. The maximum value of any alternative amounts we may pay for sales of the Policies is expected to be equivalent over time to the amounts described above. We pay a comparable amount of compensation to the broker-dealers or banks with respect to any increase in the specified amount of coverage that you request. In addition, we may pay expense allowances, bonuses, wholesaler fees and training allowances. 40 We pay the compensation directly to AGSI or any other selling broker-dealer firm or bank. We pay the compensation from our own resources and they do not result in any additional charge to you that is not described on page 8. Each broker-dealer firm or bank, in turn compensates its registered representative or employee who acts as agent in selling you a Policy. 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 death benefit). If we do not have information about the desired manner of payment within 60 days after the date we receive notification of the insured person's death, we will pay the proceeds as a single sum, normally within seven days thereafter. DELAY OF DECLARED FIXED INTEREST ACCOUNT OPTION PROCEEDS. We have the right, however, to defer payment or transfers of amounts out of our declared fixed interest account option for up to six months. If we delay more than 30 days in paying you such amounts, we will pay interest of at least 3% a year from the date we receive all items we require to make the payment. 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 PROCEEDS. We reserve the right to defer payment of any death benefit, loan or other distribution that is derived from that portion of your accumulation value that is allocated to Separate Account VL-R, if (a) the New York Stock Exchange is closed other than customary weekend and holiday closings, or trading on the New York Stock Exchange is restricted; (b) an emergency exists, as a result of which disposal of securities is not reasonably practicable or it is not reasonably practicable to fairly determine the accumulation value; or (c) the SEC by order permits the delay for the protection of owners. Transfers and allocations of accumulation value among the investment options may also be postponed under these circumstances. If we need to defer calculation of separate account values for any of the foregoing reasons, all delayed transactions will be processed at the next values that we do compute. 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, o 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.) 41 o 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. o We cannot challenge an additional benefit rider that provides benefits in the event that the insured person becomes totally disabled, after two years from the later of the Policy's date of issue or the date as of which the additional benefit rider becomes effective. 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 loan 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. ADDITIONAL RIGHTS THAT WE HAVE We have the right at any time to: o 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 $500; o transfer the entire balance on a pro-rata basis to any other investment options you then are using, if the accumulation value in an investment option is below $500 for any other reason; o terminate the automatic rebalancing feature if your accumulation value falls below $5,000; 42 o change the underlying Mutual Fund that any investment option uses; o add or delete investment options, combine two or more investment options, or withdraw assets relating to Platinum Investor from one investment option and put them into another; o operate Separate Account VL-R under the direction of a committee or discharge such a committee at any time; o operate the separate account, or one or more investment options, in any other form the law allows, including a form that allows us to make direct investments. Our separate account 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; o do any of the following, if in our judgment necessary or appropriate to ensure that the Policies continue to qualify for tax treatment as life insurance: decline to change death benefit options or the specified amount of insurance, refuse a partial surrender request, require you to pay additional premiums, make distributions from your Policy (which could require payment of taxes and penalties), or make any other changes in your Policy; or o make other changes in the Policies that do not reduce any cash surrender value, death benefit, accumulation value, or other accrued rights or benefits. PERFORMANCE INFORMATION From time to time, we may quote performance information for the divisions of the 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 Fund in which it invests. The performance information shown may reflect the deduction of one or more charges, such as the premium charge or surrender charge, and we generally expect to exclude cost of insurance charges because of the individual nature of these charges. 43 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. 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 applicable law in making any changes and, if necessary, we will seek Policy owner approval. 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). 44 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. Director, President and CEO of American General Life Insurance Company since August 1996. 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). David A. Fravel Director and Senior Vice President of American General Life Insurance Company since November 1996. 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 and Senior Vice President, Chief Financial Officer of American General Life Insurance Company since May 1996, and Controller, Actuary from June 1988 to May 1996. 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 since August 1996. Prior thereto, Director Citicorp Insurance Services, Inc., Dover, Delaware (1986-1996). 45 Peter V. Tuters Director, Vice President and Chief Investment Officer of American General Life Insurance Company since November 1993. Senior Vice President and Chief Investment Officer of American General Corporation since November 1993 Philip K. Polkinghorn Director of American General Life Insurance Company since February 1997. 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, Worchester, MA (March 1993-April 1994) Senior Vice President and Chief Actuary of American General Life Insurance Company since Wayne A. Barnard November 1997 and Vice President and Chief Actuary since August 1983.
The principal business address of each person listed above is our Home Office; except that the street number for Messrs. D'Agostino, Newton, and Tuters 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. Steven A. Glover, Esquire, Senior Counsel of the American General Independent Producer Division, has opined as to the validity of the Policies. Freedman, Levy, Kroll & Simonds, Washington, D.C., has advised AGL about certain federal securities and tax law matters in connection with the Policies. INDEPENDENT AUDITORS The financial statements of AGL included in this prospectus have been audited by Ernst & Young LLP, as stated in their reports. The financial statements of AGL have been included in reliance on the reports of Ernst & Young LLP, independent accountants, given upon the authority of such firm as experts in accounting and auditing. ACTUARIAL EXPERTS 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. 46 SERVICES AGREEMENT American General Independent Producer Division ("AGIPD") is party to an existing general services agreement with AGL. AGIPD, an affiliate of AGL, is a corporation incorporated in Delaware on November 24, 1997. Pursuant to this agreement, AGIPD provides services to AGL, including most of the administrative, data processing, systems, customer services, product development, actuarial, auditing, accounting and legal services for AGL and the Platinum Investor Policies. 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. 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. 47 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 Platinum Investor Policies. They should not be considered as bearing upon the investment experience of the separate account. No financial statements of Separate Account VL-R are included because, at the date of this prospectus, the separate account had not yet commenced operations and had no assets or liabilities.
Consolidated Financial Statements Of Page to see in American General Life Insurance Company this Prospectus --------------------------------------- --------------- Report of Ernst & Young LLP, Independent Auditors 49 Consolidated Balance Sheets as of December 31, 1997 and 1996 50 Consolidated Income Statements for the years ended December 31, 1997, 1996 and 1995 52 Consolidated Statements of Shareholders' Equity for the years ended December 31, 1997, 1996 and 1995 53 Consolidated Statements of Cash Flows for the years, ended December 31, 1997, 1996 and 1995 54 Notes to Consolidated Financial Statements 55
48 CONSOLIDATED FINANCIAL STATEMENTS AMERICAN GENERAL LIFE INSURANCE COMPANY YEARS ENDED DECEMBER 31, 1997 AND 1996 AMERICAN GENERAL LIFE INSURANCE COMPANY CONSOLIDATED FINANCIAL STATEMENTS YEARS ENDED DECEMBER 31, 1997 AND 1996 CONTENTS Report of Independent Auditors......................................... Audited Consolidated Financial Statements Consolidated Balance Sheets............................................ Consolidated Income Statements......................................... Consolidated Statements of Shareholders' Equity........................ Consolidated Statements of Cash Flows.................................. Notes to Consolidated Financial Statements............................. ERNST & YOUNG LLP One Houston Center Phone: 713 750 1500 Suite 2400 Fax: 713 750 1501 1221 McKinney Street Houston, Texas 77010-2007 Report of Independent Auditors Board of Directors and Stockholders American General Life Insurance Company We have audited the accompanying consolidated balance sheets of American General Life Insurance Company (an indirectly wholly owned subsidiary of American General Corporation) and subsidiaries as of December 31, 1997 and , and the related consolidated statements of income, shareholders' equity, and cash flows for each of the three years in the period ended December 31, 1997. These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the financial statements referred to above present fairly, in all material respects, the consolidated financial position of American General Life Insurance Company and subsidiaries at December 31, 1997 and , and the consolidated results of their operations and their cash flows for each of the three years in the period ended December 31, 1997, in conformity with generally accepted accounting principles. /s/ERNST & YOUNG LLP February 23, 1998 Ernst & Young LLP is a member of Ernst & Young International, Ltd. 49 AMERICAN GENERAL LIFE INSURANCE COMPANY Consolidated Balance Sheets
December 31 1997 1996 --------------------------------- (IN THOUSANDS) ASSETS Investments: Fixed maturity securities, at fair value (amortized cost - $26,131,207 in 1997 and $24,762,134 in 1996) $ 27,386,715 $ 25,395,381 Equity securities, at fair value (cost - $19,208 in 1997 and $17,642 in 1996) 21,114 20,555 Mortgage loans on real estate 1,659,921 1,707,843 Policy loans 1,093,694 1,006,137 Investment real estate 129,364 145,442 Other long-term investments 55,118 43,344 Short-term investments 100,061 94,882 --------------------------------- Total investments 30,445,987 28,413,584 Cash 99,284 33,550 Investment in Parent Company (cost - $8,597 in 1997 and 1996) 37,823 28,597 Indebtedness from affiliates 96,519 86,488 Accrued investment income 433,111 392,058 Accounts receivable 208,209 170,457 Deferred policy acquisition costs 835,031 1,042,783 Property and equipment 33,827 35,414 Other assets 132,659 134,289 Assets held in separate accounts 11,242,270 7,727,189 --------------------------------- Total assets $ 43,564,720 $ 38,064,409 =================================
SEE ACCOMPANYING NOTES. 50
December 31 1997 1996 --------------------------------- (IN THOUSANDS) LIABILITIES AND SHAREHOLDERS' EQUITY Liabilities: Future policy benefits $ 27,849,893 $ 26,558,538 Other policy claims and benefits payable 42,677 41,679 Other policyholders' funds 398,314 376,675 Federal income taxes 543,379 402,361 Indebtedness to affiliates 4,712 3,376 Other liabilities 421,861 325,630 Liabilities related to separate accounts 11,242,270 7,727,189 --------------------------------- Total liabilities 40,503,106 35,435,448 Shareholders' equity: Common stock, $10 par value, 600,000 shares authorized, issued, and outstanding 6,000 6,000 Preferred stock, $100 par value, 8,500 shares authorized, issued, and outstanding 850 850 Additional paid-in capital 1,184,743 933,342 Net unrealized investment gains 427,526 219,151 Retained earnings 1,442,495 1,469,618 --------------------------------- Total shareholders' equity 3,061,614 2,628,961 --------------------------------- Total liabilities and shareholders' $ 43,564,720 $ 38,064,409 equity =================================
SEE ACCOMPANYING NOTES. 51 AMERICAN GENERAL LIFE INSURANCE COMPANY Consolidated Income Statements
YEAR ENDED DECEMBER 31 1997 1996 1995 --------------------------------------------- (IN THOUSANDS) Revenues: 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. 52 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. 53 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 63,174 (69,126) Provision for deferred income tax expense 13,264 12,388 (9,773) Depreciation 16,893 16,993 18,119 Amortization (28,276) (30,758) (35,825) Change in indebtedness to/from affiliates (8,695) 4,432 7,596 Change in amounts payable to brokers 31,769 (25,260) 30,964 Net (gain) loss on sale of investments (29,865) (28,502) 1,942 Other, net 30,409 32,111 46,863 ----------------------------------------------- Net cash (used in) provided by operating activities (863,665) (378,286) 181,006 INVESTING ACTIVITIES Purchases of investments and loans made (29,638,861) (27,245,453) (14,573,323) Sales or maturities of investments and receipts from repayment of loans 28,300,238 25,889,422 12,528,185 Sales and purchases of property and equipment, net (9,230) (8,057) (12,114) ----------------------------------------------- Net cash used in investing activities (1,347,853) (1,364,088) (2,057,252) FINANCING ACTIVITIES Policyholder account deposits 4,187,191 3,593,380 3,372,522 Policyholder account withdrawals (1,759,660) (1,746,987) (1,258,560) Dividends paid (401,680) (189,680) (206,701) Capital contribution from Parent 250,000 75,000 - Other 1,401 267 67 ----------------------------------------------- Net cash provided by financing activities 2,277,252 1,731,980 1,907,328 ----------------------------------------------- Increase (decrease) in cash 65,734 (10,394) 31,082 Cash at beginning of year 33,550 43,944 12,862 Cash at end of year $ 99,284 $ 33,550 $ 43,944 ===============================================
Interest paid amounted to approximately $1,004,000, $1,080,000, and $1,933,000 in 1997, 1996, and 1995, respectively. SEE ACCOMPANYING NOTES. 54 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. 55 1. ACCOUNTING POLICIES (CONTINUED) 1.2 STATUTORY ACCOUNTING The Company and its wholly owned life insurance subsidiaries are required to file financial statements with state regulatory authorities. State insurance laws and regulations prescribe accounting practices for calculating statutory net income and equity. In addition, state regulators may permit statutory accounting practices that differ from prescribed practices. The use of such permitted practices by the Company and its wholly owned life insurance subsidiaries did not have a material effect on statutory equity at December 31, 1997. Statutory financial statements differ from GAAP. Significant differences were as follows (in thousands):
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 ================================================
56 1. ACCOUNTING POLICIES (CONTINUED) 1.2 STATUTORY ACCOUNTING (CONTINUED) The more significant differences between GAAP and statutory accounting principles are that under GAAP: (a) acquisition costs related to acquiring new business are deferred and amortized (generally in proportion to the present value of expected gross profits from surrender charges and investment, mortality, and expense margins), rather than being charged to operations as incurred; (b) future policy benefits are based on estimates of mortality, interest, and withdrawals generally representing the Company's experience, which may differ from those based on statutory mortality and interest requirements without consideration of withdrawals; (c) deferred federal income taxes are provided for significant timing differences between income reported for financial reporting purposes and income reported for federal income tax purposes; (d) certain assets (principally furniture and equipment, agents' debit balances, computer software, and certain other receivables) are reported as assets rather than being charged to retained earnings; (e) acquisitions are accounted for using the purchase method of accounting rather than being accounted for as equity investments; and (f) fixed maturity investments are carried at fair value rather than amortized cost. In addition, statutory accounting principles require life insurance companies to establish an AVR and an IMR. The AVR is designed to address the credit-related risk for bonds, preferred stocks, derivative instruments, and mortgages and market risk for common stocks, real estate, and other invested assets. The IMR is composed of investment- and liability-related realized gains and losses that result from interest rate fluctuations. These realized gains and losses, net of tax, are amortized into income over the expected remaining life of the asset sold or the liability released. 1.3 INSURANCE CONTRACTS The insurance contracts accounted for in these financial statements include primarily long-duration contracts. Long-duration contracts include traditional whole life, endowment, guaranteed renewable term life, universal life, limited payment, and investment contracts. Long-duration contracts generally require the performance of various functions and services over a period of more than one year. The contract provisions generally cannot be changed or canceled by the insurer during the contract period; however, most new contracts written by the Company allow the insurer to revise certain elements used in determining premium rates or policy benefits, subject to guarantees stated in the contracts. 57 1. ACCOUNTING POLICIES (CONTINUED) 1.4 INVESTMENTS FIXED MATURITY AND EQUITY SECURITIES All fixed maturity and equity securities are currently classified as available-for-sale and recorded at fair value. After adjusting related balance sheet accounts as if the unrealized gains (losses) had been realized, the net adjustment is recorded in net unrealized gains (losses) on securities within shareholders' equity. If the fair value of a security classified as available-for-sale declines below its cost and this decline is considered to be other than temporary, the security is reduced to its fair value, and the reduction is recorded as a realized loss. MORTGAGE LOANS Mortgage loans are reported at amortized cost, net of an allowance for losses. The allowance for losses covers all nonperforming loans, consisting of loans restructured or delinquent 60-days or more, and loans for which management has a concern based on its assessment of risk factors, such as potential nonpayment or nonmonetary default. The allowance is based on a loan-specific review and a formula that reflects past results and current trends. Impaired loans, those for which the Company determines it is probable that all amounts due under the contractual terms will not be collected, are reported at the lower of amortized cost or fair value of the underlying collateral, less estimated costs to sell. POLICY LOANS Policy loans are reported at unpaid principal balances adjusted periodically for uncollectible amounts. INVESTMENT REAL ESTATE Investment real estate consists of income-producing real estate, foreclosed real estate, and the American General Center, an office complex in Houston. The Company classifies all investment real estate, except the American General Center, as available-for-sale. Real estate available-for-sale is carried at the lower of cost less accumulated depreciation, if applicable, or fair value less costs to sell. Changes in estimates of fair value less costs to sell are recognized as realized gains (losses) through a valuation allowance. 58 1. ACCOUNTING POLICIES (CONTINUED) 1.4 INVESTMENTS (CONTINUED) Real estate held-for-investment is carried at cost less accumulated depreciation and impairment reserves and write-downs, if applicable. Impairment losses are recorded whenever circumstances indicate that a property might be impaired and the estimated undiscounted future cash flows of the property are less than the carrying amount. In such event, the property is written down to fair value, determined by market prices, third-party appraisals, or expected future cash flows discounted at market rates. Any write-down is recognized as a realized loss, and a new cost basis is established. INVESTMENT INCOME Interest on fixed maturity securities, performing and restructured mortgage loans, and policy loans is recorded as income when earned and is adjusted for any amortization of premium or discount. Interest on impaired mortgage loans is recorded as income when received. Dividends are recorded as income on ex-dividend dates. REALIZED INVESTMENT GAINS (LOSSES) Realized investment gains (losses) are recognized using the specific-identification method and include declines in fair value of investments below cost that are considered to be other than temporary. 1.5 SEPARATE ACCOUNTS Separate accounts are assets and liabilities associated with certain contracts, principally annuities; the investment risk lies solely with the contract holder rather than the Company. Consequently, the Company's liability for these accounts equals the value of the account assets. Investment income, realized investment gains (losses), and policyholder account deposits and withdrawals related to separate accounts are excluded from the consolidated statements of income and cash flows. Assets held in separate accounts are primarily shares in mutual funds, which are carried at fair value based on the quoted net asset value per share. 59 1. ACCOUNTING POLICIES (CONTINUED) 1.6 DEFERRED POLICY ACQUISITION COSTS ("DPAC") Certain costs of writing an insurance policy, including agents' commissions, underwriting and marketing expenses, are deferred and reported as DPAC. DPAC associated with interest-sensitive life insurance contracts, insurance investment contracts, and participating life insurance contracts, to the extent recoverable from expected future gross profits, is deferred and amortized generally in proportion to the present value of expected future gross profits from surrender charges and investment, mortality, and expense margins. Expected future gross profits are adjusted to include the impact of realized and unrealized gains (losses) as if net unrealized investment gains (losses) had been realized at the balance sheet date. The impact of this adjustment is included in the net unrealized gains (losses) on securities within shareholders' equity. DPAC associated with all other insurance contracts, to the extent recoverable from future policy revenues, is amortized over the premium-paying period of the related contracts using assumptions that are consistent with those used in computing policy benefit reserves. The Company reviews the carrying value of DPAC on at least an annual basis. In determining whether the carrying amount is appropriate, the Company considers estimated future gross profits or future premiums, as applicable for the type of contract. In all cases, the Company considers expected mortality, interest earned and credited rates, persistency, and expenses. 1.7 PREMIUM RECOGNITION Most receipts for annuities and interest-sensitive life insurance policies are classified as deposits instead of revenue. Revenues for these contracts consist of mortality, expense, and surrender charges assessed against the account balance. Policy charges that compensate the Company for future services are deferred and recognized in income over the period earned, using the same assumptions used to amortize DPAC (see Note 1.6). For limited-payment contracts, net premiums are recorded as revenue, and the difference between the gross premium received and the net premium is deferred and recognized in income in a constant relationship to insurance in force. For all other contracts, premiums are recognized when due. When the revenue is recorded, an estimate of the cost of the 60 1. ACCOUNTING POLICIES (CONTINUED) 1.7 PREMIUM RECOGNITION (CONTINUED) related benefit is recorded in the future policy benefits account on the consolidated balance sheet. Also, this cost is recorded in the consolidated statement of income as a benefit in the current year and in all future years during which the policy is expected to be renewed. 1.8 OTHER ASSETS Acquisition-related goodwill, which is included in other assets, is charged to expense in equal amounts over 40 years. The carrying value of goodwill is regularly reviewed for indicators of impairment in value. 1.9 DEPRECIATION Provision for depreciation of American General Center, data processing equipment, and furniture and fixtures is computed on the straight-line method over the estimated useful lives of the assets. 1.10 POLICY AND CONTRACT CLAIMS RESERVES Substantially all of the Company's insurance and annuity liabilities relate to long-duration contracts which generally require performance over a period of more than one year. The contract provisions normally cannot be changed or canceled by the Company during the contract period. For interest-sensitive and investment contracts, reserves equal the sum of the policy account balance and deferred revenue charges. In establishing reserves for limited payment and other long-duration contracts, an estimate is made of the cost of future policy benefits to be paid as a result of present and future claims due to death, disability, surrender of a policy, and payment of an endowment. Reserves for traditional insurance products are determined using the net level premium method. Based on past experience, consideration is given to expected policyholder deaths, policy lapses, surrenders, and terminations. Consideration is also given to the possibility that the Company's experience with policyholders will be worse than expected. Interest assumptions used to compute reserves ranged from 2.0% to 13.5% at December 31, 1997. 61 1. ACCOUNTING POLICIES (CONTINUED) 1.10 POLICY AND CONTRACT CLAIMS RESERVES (CONTINUED) The claims reserves are determined using case-basis evaluation and statistical analyses and represent estimates of the ultimate net cost of unpaid claims. These estimates are reviewed; and as adjustments become necessary, such adjustments are reflected in current operations. Since these reserves are based on estimates, the ultimate settlement of claims may vary from the amounts included in the accompanying financial statements. Although it is not possible to measure the degree of variability inherent in such estimates, management believes claim reserves are reasonable. 1.11 REINSURANCE The Company limits its exposure to loss on any single insured to $1.5 million by ceding additional risks through reinsurance contracts with other insurers. Ceded reinsurance becomes a liability of the reinsurer assuming the risk. The Company diversifies its risk of exposure to reinsurance loss by using several reinsurers that have strong claims-paying ability ratings. If a reinsurer could not meet its obligations, the Company would reassume the liability. The likelihood of a material reinsurance liability being reassumed by the Company is considered to be remote. Benefits paid and future policy benefits related to ceded reinsurance contracts are recorded as reinsurance receivables. The cost of reinsurance is recognized over the life of the underlying reinsured policies using assumptions consistent with those used to account for the underlying policies. 62 1. ACCOUNTING POLICIES (CONTINUED) 1.12 PARTICIPATING POLICY CONTRACTS Participating life insurance contracts contain dividend payment provisions that entitle the policyholder to participate in the earnings of the contracts. Participating life insurance contracts accounted for 2.22% and 2.47% of life insurance in force at December 31, 1997 and 1996, respectively. Such business is accounted for in accordance with Statement of Financial Accounting Standards ("SFAS") No. 120. 1.13 INCOME TAXES The Company and its life insurance subsidiaries, together with certain other life insurance subsidiaries of the Parent Company, are included in a life/non-life consolidated tax return with the Parent Company and its noninsurance subsidiaries. The Company participates in a tax sharing agreement with other companies included in the consolidated tax return. Under this agreement, tax payments are made to the Parent Company as if the companies filed separate tax returns; and companies incurring operating and/or capital losses are reimbursed for the use of these losses by the consolidated return group. Income taxes are provided for in accordance with SFAS No. 109. Under this standard, deferred tax assets and liabilities are calculated using the differences between the financial reporting basis and the tax basis of assets and liabilities, using the enacted tax rate. The effect of a tax rate change is recognized in income in the period of enactment. Under SFAS No. 109, state income taxes are included in income tax expense. 1.14 NEW ACCOUNTING STANDARD NOT YET ADOPTED In June 1997, the Financial Accounting Standards Board issued SFAS No. 130, REPORTING COMPREHENSIVE INCOME, which establishes standards for reporting and displaying comprehensive income and its components in the financial statements. Beginning in 1998, the Company must adopt this statement for all periods presented. Application of this statement will not change recognition or measurement of net income and, therefore, will not impact the Company's consolidated results of operations or financial position. 63 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 ===============================================
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. 64 2. INVESTMENTS (CONTINUED) 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) (47,29 (41,022) ----------------------------------------------- Total fixed maturities 8,510 (795) (2,365) Equity securities 1,971 18,304 9,710 Other investments 19,384 10,993 (9,287) ----------------------------------------------- Net realized investment gains (losses) before tax 29,865 28,502 (1,942) Income tax expense 10,452 9,976 547 ----------------------------------------------- Net realized investment gains (losses) after tax $ 19,413 $ 18,526 $ (2,489) ================================================
65 2. INVESTMENTS (CONTINUED) 2.3 FIXED MATURITY AND EQUITY SECURITIES All fixed maturity and equity securities are classified as available-for-sale and reported at fair value (see Note 1.4). Amortized cost and fair value at December 31, 1997 and 1996 were as follows:
GROSS GROSS AMORTIZED COST UNREALIZED UNREALIZED FAIR GAIN LOSS 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 ===================================================================
66 2. INVESTMENTS (CONTINUED) 2.3 FIXED MATURITY AND EQUITY SECURITIES (CONTINUED)
GROSS GROSS AMORTIZED COST UNREALIZED UNREALIZED FAIR GAIN LOSS 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.
67 2. INVESTMENTS (CONTINUED) 2.3 FIXED MATURITY AND EQUITY SECURITIES (CONTINUED) Net unrealized gains (losses) on securities included in shareholders' equity at December 31 were as follows:
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 FAIR COST 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. 68 2. INVESTMENTS (CONTINUED) 2.4 MORTGAGE LOANS ON REAL ESTATE Diversification of the geographic location and type of property collateralizing mortgage loans reduces the concentration of credit risk. For new loans, the Company requires loan-to-value ratios of 75% or less, based on management's credit assessment of the borrower. The mortgage loan portfolio was distributed as follows at DECEMBER 31, 1997 and :
OUTSTANDING PERCENT OF PERCENT AMOUNT 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% ===============================
69 2. Investments (continued) 2.4 Mortgage Loans on Real Estate (continued)
OUTSTANDING PERCENT OF PERCENT AMOUNT TOTAL NONPERFORMING ----------------------------------------------------- (IN MILLIONS) 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% ===============================
70 2. INVESTMENTS (CONTINUED) 2.4 MORTGAGE LOANS ON REAL ESTATE (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
71 2. INVESTMENTS (CONTINUED) 2.5 INVESTMENT SUMMARY Investments of the Company were as follows:
December 31, 1997 ----------------------------------------------------- FAIR CARRYING COST 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.
72 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 ====================================
73 5. FEDERAL INCOME TAXES 5.1 TAX LIABILITIES Income tax liabilities were as follows:
December 31 1997 1996 ------------------------------------ (IN THOUSANDS) Current tax (receivable) payable $ 7,676 $ (7,646) Deferred tax liabilities, applicable to: Net income 298,456 288,115 Net unrealized investment gains 237,247 121,892 ------------------------------------ Total deferred tax liabilities 535,703 410,007 ------------------------------------ Total current and deferred tax liabilities $ 543,379 $ 402,361 ====================================
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 ====================================
74 5. FEDERAL INCOME TAXES (CONTINUED) 5.1 TAX LIABILITIES (CONTINUED) A portion of life insurance income earned prior to 1984 is not taxable unless it exceeds certain statutory limitations or is distributed as dividends. Such income, accumulated in policyholders' surplus accounts, totaled $93.6 million at December 31, 1997. At current corporate rates, the maximum amount of tax on such income is approximately $32.8 million. Deferred income taxes on these accumulations are not required because no distributions are expected. 5.2 TAX EXPENSE Components of income tax expense for the year were as follows:
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 ======================================================
75 5. FEDERAL INCOME TAXES (CONTINUED) 5.3 TAXES PAID Income taxes paid amounted to approximately $168 million, $182 million, and $90 million in 1997, 1996, and 1995, respectively. 5.4 TAX RETURN EXAMINATIONS The Parent Company and the majority of its subsidiaries file a consolidated federal income tax return. The Internal Revenue Service has completed examinations of the Company's tax returns through 1988 and is currently examining tax returns for 1989 through 1996. In addition, the tax returns of companies recently acquired are also being examined. Although the final outcome of any issues raised in examination is uncertain, the Company believes that the ultimate liability, including interest, will not exceed amounts recorded in the consolidated financial statements. 6. TRANSACTIONS WITH AFFILIATES Affiliated notes and accounts receivable were as follows:
December 31, 1997 December 31, 1996 ----------------------------------------------------------------------- PAR VALUE BOOK VALUE PAR VALUE BOOK 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 =======================================================================
76 6. TRANSACTIONS WITH AFFILIATES (CONTINUED) Various American General companies provide services to the Company, principally mortgage servicing and investment advisory services. The Company paid approximately $33,916,000, $22,083,000, and $21,006,000 for such services in 1997, 1996, and 1995, respectively. Accounts payable for such services at December 31, 1997 and were not material. In addition, the Company rents facilities and provides services to various American General companies. The Company received approximately $6,455,000, $1,255,000, and $2,086,000 for such services and rent in 1997, 1996, and 1995, respectively. Accounts receivable for rent and services at December 31, 1997 and were not material. The Company has 8,500 shares of $100 par value cumulative preferred stock authorized and outstanding with an $80 dividend rate, redeemable at $1,000 per share after December 31, 2000. The holder of this stock, the Franklin Life Insurance Company ("Franklin"), an affiliated company, is entitled to one vote per share, voting together with the holders of common stock. During 1996, the Company's residential mortgage loan portfolio of $42 million was sold to American General Finance at carrying value plus accrued interest. 7. STOCK-BASED COMPENSATION Certain officers of the Company participate in American General Corporation's stock and incentive plans which provide for the award of stock options, restricted stock awards, performance awards, and incentive awards to key employees. Stock options constitute the majority of such awards. Expense related to stock options is measured as the excess of the market price of the stock at the measurement date over the exercise price. The measurement date is the first date on which both the number of shares that the employee is entitled to receive and the exercise price are known. Under the stock option plans, no expense is recognized, since the market price equals the exercise price at the measurement date. 77 7. STOCK-BASED COMPENSATION (CONTINUED) Under an alternative accounting method, compensation expense arising from stock options would be measured at the estimated fair value of the options at the date of grant. Had compensation expense for the stock options been determined using this method, net income would have been as follows:
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. 78 8. BENEFIT PLANS (CONTINUED) 8.1 PENSION PLANS (CONTINUED) The components of pension expense and underlying assumptions were as follows:
1997 1996 1995 ------------------------------------------------------ (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%
79 8. BENEFIT PLANS (CONTINUED) 8.1 PENSION PLANS (CONTINUED) The funded status of the plans and the prepaid pension expenses included in other assets at DECEMBER 31 were as follows:
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. 80 8. BENEFIT PLANS (CONTINUED) 8.2 POSTRETIREMENT BENEFITS OTHER THAN PENSIONS (CONTINUED) The life plans are fully insured. A portion of the retiree medical and dental plans are funded through a voluntary employees' beneficiary association ("VEBA") established in 1994; the remainder is unfunded and self-insured. All of the retiree medical and dental plans assets held in the VEBA were invested in readily marketable securities at its most recent balance sheet date. The plans' combined funded status and the accrued postretirement benefit cost included in other liabilities were as follows:
December 31 1997 1996 ------------------------------------ (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%
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 ======================================================
81 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. 82 9. DERIVATIVE FINANCIAL INSTRUMENTS (CONTINUED) 9.2 INTEREST RATE AND CURRENCY SWAP AGREEMENTS (CONTINUED) Interest rate and currency swap agreements related to investment securities at December 31 were as follows:
1997 1996 ------------------------------------ (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. 83 9. DERIVATIVE FINANCIAL INSTRUMENTS (CONTINUED) 9.3 CALL SWAPTIONS (CONTINUED) During 1997, the Company purchased call swaptions which expire in 1998. These call swaptions had a notional amount of $1.35 billion and strike rates ranging from 4.5% to 5.5% at December 31, 1997. Should the strike rates remain below market rates, the call swaptions will expire and the Company's exposure would be limited to the premiums paid. 9.4 CREDIT AND MARKET RISK Derivative financial instruments expose the Company to credit risk in the event of non-performance by counterparties. The Company limits this exposure by entering into agreements with counterparties having high credit ratings and by regularly monitoring the ratings. The Company does not expect any counterparty to fail to meet its obligation; however, non-performance would not have a material impact on the Company's consolidated results of operations and financial position. The Company's exposure to market risk is mitigated by the offsetting effects of changes in the value of the agreements and the related items being hedged. Derivative financial instruments related to investment securities did not have a material effect on net investment income in 1997, 1996 or 1995. 10. FAIR VALUE OF FINANCIAL INSTRUMENTS SFAS No. 107, DISCLOSURES ABOUT FAIR VALUE OF FINANCIAL INSTRUMENTS, requires disclosure of the fair value of financial instruments. This standard excludes certain financial instruments and all nonfinancial instruments, including policyholder liabilities for life insurance contracts from its disclosure requirements. Care should be exercised in drawing conclusions based on fair value, since (1) the fair values presented do not include the value associated with all of the Company's assets and liabilities and (2) the reporting of investments at fair value without a corresponding revaluation of related policyholder liabilities can be misinterpreted. 84 10. FAIR VALUE OF FINANCIAL INSTRUMENTS (CONTINUED) Carrying amounts and fair values for those financial instruments covered by SFAS 107 at DECEMBER 31, 1997 are presented below:
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. 85 10. FAIR VALUE OF FINANCIAL INSTRUMENTS (CONTINUED) POLICY LOANS Fair value of policy loans was estimated using discounted cash flows and actuarially determined assumptions incorporating market rates. INVESTMENT IN PARENT COMPANY The fair value of the investment in Parent Company is based on quoted market prices of American General Corporation common stock. INSURANCE INVESTMENT CONTRACTS Insurance investment contracts do not subject the Company to significant risks arising from policyholder mortality or morbidity. The majority of the Company's annuity products are considered insurance investment contracts. Fair value of insurance investment contracts was estimated using cash flows discounted at market interest rates. INDEBTEDNESS FROM AFFILIATES Indebtedness from affiliates is composed of accounts receivable and notes receivable from affiliates. Due to the short-term nature of accounts receivable, fair value is assumed to equal carrying value. Fair value of notes receivable was estimated using discounted cash flows based on contractual maturities and discount rates that were based on U.S. Treasury rates for similar maturity ranges. 11. DIVIDENDS PAID American General Life Insurance Company paid $402 million, $189 million, and $207 million in dividends on common stock to AGC Life Insurance Company in 1997, 1996, and 1995, respectively. The 1995 dividends included $701 thousand in the form of furniture and equipment. In addition, in 1996, the Company paid $680 thousand in dividends on preferred stock to Franklin. 86 12. RESTRICTIONS, COMMITMENTS, AND CONTINGENCIES The Company and its insurance subsidiaries are restricted by state insurance laws as to the amounts they may pay as dividends without prior approval from their respective state insurance departments. At December 31, 1997, approximately $2.6 billion of consolidated shareholders' equity represents net assets of the Company which cannot be transferred, in the form of dividends, loans, or advances to the Parent Company. Approximately $2.0 billion of consolidated shareholders' equity is similarly restricted as to transfer from its subsidiaries to the Company. Generally, the net assets of the Company's subsidiaries available for transfer to the Parent are limited to the amounts that the subsidiaries' net assets, as determined in accordance with statutory accounting practices, exceed minimum statutory capital requirements. However, payments of such amounts as dividends may be subject to approval by regulatory authorities and are generally limited to the greater of 10% of policyholders' surplus or the previous year's statutory net gain from operations. The Company has various leases, substantially all of which are for office space and facilities. Rentals under financing leases, contingent rentals, and future minimum rental commitments and rental expense under operating leases are not material. In recent years, various life insurance companies have been named as defendants in class action lawsuits relating, to life insurance pricing and sales practices, and a number of these lawsuits has resulted in substantial settlements. The Company is a defendant in such purported class action lawsuits, asserting claims related to pricing and sales practices. These claims are being defended vigorously by the Company. Given the uncertain nature of litigation and the early stages of this litigation, the outcome of these actions cannot be predicted at this time. The Company nevertheless believes that the ultimate outcome of all such pending litigation should not have a material adverse effect on the Company's financial position; however, it is possible that settlements or adverse determinations in one or more of these actions or other future proceedings could have a material adverse effect on results of operations for a given period. No provision has been made in the consolidated financial statements related to this pending litigation because the amount of loss, if any, from these actions cannot be reasonably estimated at this time. The Company is a party to various other lawsuits and proceedings arising in the ordinary course of business. Many of these lawsuits and proceedings arise in jurisdictions, such as Alabama, that permit damage awards disproportionate to the actual economic damages 87 12. RESTRICTIONS, COMMITMENTS, AND CONTINGENCIES (CONTINUED) incurred. Based upon information presently available, the Company believes that the total amounts that will ultimately be paid, if any, arising from these lawsuits and proceedings will not have a material adverse effect on the Company's results of operations and financial position. However, it should be noted that the frequency of large damage awards, including large punitive damage awards, that bear little or no relation to actual economic damages incurred by plaintiffs in jurisdictions like Alabama continues to increase and creates the potential for an unpredictable judgment in any given suit. The increase in the number of insurance companies that are under regulatory supervision has resulted, and is expected to continue to result, in increased assessments by state guaranty funds to cover losses to policyholders of insolvent or rehabilitated insurance companies. Those mandatory assessments may be partially recovered through a reduction in future premium taxes in certain states. At December 31, 1997 and , the Company has accrued $7.6 million and $16.1 million, respectively, for guaranty fund assessments, net of $4.3 million and $4.1 million, respectively, of premium tax deductions. The Company has recorded receivables of $9.7 million and $10.9 million at December 31, 1997 and 1996, respectively, for expected recoveries against the payment of future premium taxes. Expenses incurred for guaranty fund assessments were $2.1 million, $6.0 million, and $22.4 million in 1997, 1996, and 1995, respectively. 88 13. REINSURANCE Reinsurance transactions for the years ended December 31, 1997, 1996, and 1995 were as follows:
PERCENTAGE CEDED TO OTHER ASSUMED FROM OF AMOUNT GROSS AMOUNT COMPANIES OTHER COMPANIES NET AMOUNT ASSUMED TO NET ---------------------------------------------------------------------------------------- (IN THOUSANDS) December 31, 1997 Life insurance in force $ 45,963,710 $ 10,926,255 $ 4,997 $ 35,042,452 0.01%2 ======================================================================= Premiums: Life insurance and annuities $ 100,357 $ 37,294 $ 75 $ 63,138 0.12% Accident and health insurance 1,208 172 - 1,036 0.00% ----------------------------------------------------------------------- Total premiums $ 101,565 $ 37,466 $ 75 $ 64,174 0.12% ======================================================================= Premiums: Life insurance and annuities $ 104,225 $ 34,451 $ 36 $ 69,810 0.05% Accident and health insurance 1,426 64 - 1,362 0.00% ----------------------------------------------------------------------- Total premiums $ 105,651 $ 34,515 $ 36 $ 71,172 0.05% ======================================================================= December 31, 1995 Life insurance in force $ 44,637,599 $ 7,189,493 $ 5,771 $ 37,453,877 0.02% ======================================================================= Premiums: Life insurance and annuities $ 103,780 $ 26,875 $ 171 $ 77,076 0.22% Accident and health insurance 1,510 82 - 1,428 0.00% ----------------------------------------------------------------------- Total premiums $ 105,290 $ 26,957 $ 171 $ 78,504 0.22% =======================================================================
89 13. REINSURANCE (CONTINUED) Reinsurance recoverable on paid losses was approximately $2,278,000, $6,904,000, and $6,190,000 at December 31, 1997, 1996, and 1995, respectively. Reinsurance recoverable on unpaid losses was approximately $3,210,000, $4,282,000, and $2,775,000 at December 31, 1997, 1996, and 1995, respectively. 14. ACQUISITIONS Effective December 31, 1995, the Company purchased Franklin United Life Insurance Company, a subsidiary of Franklin, which is a wholly owned subsidiary of the Parent Company. This purchase was effected through issuance of $8.5 million in preferred stock to Franklin. The acquisition was accounted for using the purchase method of accounting and is not material to the operations of the Company. 15. YEAR 2000 CONTINGENCY (UNAUDITED) Management has been engaged in a program to render the Company's computer systems (hardware and mainframe and personal applications software) Year 2000 compliant. The Company will incur internal staff costs as well as third-party vendor and other expenses to prepare the systems for Year 2000. The cost of testing and conversion of systems applications has not had, and is not expected to have, a material adverse effect on the Company's results of operations or financial condition. However, risks and uncertainties exist in most significant systems development projects. If conversion of the Company's systems is not completed on a timely basis, due to nonperformance by third-party vendors or other unforeseen circumstances, the Year 2000 problem could have a material adverse impact on the operations of the Company. 90 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 Page to See Defined Term in Defined Term in this this Prospectus Prospectus accumulation value 6 Option 1, 2 7 AGL 28 our 2 AGSPC 11 owner 22 amount at risk 8 partial surrender 18 automatic rebalancing 6 payment option 20 basis 31 planned periodic premium 12 beneficiary 35 Platinum Investor 3 cash surrender value 18 Platinum Investor I and II 3 close of business 37 Policy 1 Code 29 Policy anniversary 15 cost of insurance rates 37 Policy loan 19 daily charge 8 Policy month, year 38 date of issue 38 preferred loan interest 19 death benefit 7 premiums 5 declared fixed interest account option 1 premium payments 5 division 29 prospectus 2 dollar cost averaging 5 reinstate, reinstatement 12 Five year no-lapse guarantee 13 rider 16 Fund 2 SEC 2 full surrender 18 separate account 29 grace period 12 Separate Account VL-R 29 guarantee premiums 13 seven-pay test 30 insured person 7 specified amount 7 investment option 1 surrender 18 lapse 12 surrender charge 9 loan, loan interest 19 target 40 maturity, maturity date 19 telephone transfers 22 modified endowment contract 30 transfers 14 monthly deduction day 38 valuation date, period 37 monthly guarantee premiums 13 we 28 monthly insurance charge 8 you, your 1 Mutual Fund 2
91 We have filed a registration statement relating to Separate Account VL-R and the Policies 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 PROSPECTUS, 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. 92 SERVICE REQUEST PLATINUM INVESTOR AMERICAN GENERAL LIFE ----------------------------------------------------------------------------- Platinum Investor - Variable Divisions AIM Variable Insurance Funds, Inc. AIM Variable Insurance Funds, Inc. Division 128 - AIM V.I. International Equity Division 127 - AIM V.I. Value American General Series Portfolio Company Division 128 - International Equities Division 129 - MidCap Index Division 131 - Stock Index Dreyfus Variable Investment Fund Division 132 - Quality Bond Division 133 - Small Cap MPS Variable Insurance Trust Division 134 - MPS Emerging Growth Morgan Stanley Universal Funds, Inc. Division 135 - Equity Growth Division 136 - High Yield Putnam Variable Trust Division 137 - Putnam VT Diversified Income Division 138 - Putnam VT Growth and Income Division 139 - Putnam VT Int'l Growth & Income SAFECO Resources Series Trust Division 140 - Equity Division 141 - Growth Van Kampen Amer. Cap. Life Investment Trust Division 142 - Strategic Stock Platinum Investor - Fixed Division Division 125 - Declared Fixed Interest Account AMERICAN GENERAL LIFE INSURANCE COMPANY ("AGL") -------------------------------------------- A Subsidiary of American General Corporation -------------------------------------------- Houston, Texas -SERVICE REQUEST- [American General Logo] VARIABLE UNIVERSAL LIFE INSURANCE SERVICE REQUEST COMPLETE AND RETURN THIS REQUEST TO: Variable Universal Life Operations P.O. Box 4880 Houston, TX 77210-3443 (800)325-9315 or (713) 831-3443 Fax: (713) 620-3657 ----------------------------------------------------------------------------- 1. [ ] POLICY INDENTIFICATION (COMPLETE THIS SECTION FOR ALL REQUESTS.) POLICY #:_________________________ INSURED:_____________________________ ADDRESS: __________________________________________ New Address (yes) (no) PRIMARY OWNER (If other than insured) __________________________________________________________________________ ADDRESS: __________________________________________ New Address (yes) (no) 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 masis. Refer to your policy and it 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: _____/_____/_____ ----------------------------------------------------------------------------- 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 ($5,000 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. The Declared Fixed Interest Account is not available for Dollar Cost Averaging. 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 ___ Annual I want: $ _______ ($100 minimum) taken from the Money Market Division and transferred to the following Divisions: AIM Variable Insurance Funds, Inc. $__________(126) AIM V.I. International Equity $__________(127) AIM V.I. Value American General Series Portfolio Company $__________(128) International Equities $__________(129) MidCap Index $__________(131) Stock Index Dreyfus Variable Investment Fund $__________(132) Quality Bond $__________(133) Small Cap MPS Variable Insurance Trust $__________(134) MPS Emerging Growth Morgan Stanley Universal Funds, Inc. $__________(135) Equity Growth $__________(136) High Yield Putnam Variable Trust $__________(137) Putnam VT Diversified Income $__________(138) Putnam VT Growth and Income $__________(139) Putnam VT Int'l Growth & Income SAFECO Resources Series Trust $__________(140) Equity $__________(141) Growth Van Kampen Amer. Cap. Life Investment Trust $__________(142) Strategic Stock _____INITIAL HERE TO REVOKE DOLLAR COST AVERAGING ELECTION ----------------------------------------------------------------------------- L 8893 Page 2 of 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 Instruction to transfer values among the Variable Divisions and Declared Fixed Interest Account 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. I an error, objection or other claim arises due to a telephone transaction, I 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 PRIVLEGE AUTHORIZATION. ----------------------------------------------------------------------------- 7. [ ] CORRECT AGE Use this section to correct the age of any person covered under the 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. Withdrawals from the Declared Fixed Interest Account are limited to 60 days after the policy anniversary and to no more than 25% of the total unloaned value of the Declared Fixed Interest Account on the policy anniversary. If a transfer causes the balance in any division to drop below $500, AGL reserves the right to transfer the remaining balance. Amounts to be transferred should be indicated in dollar or percentage amounts, maintaining consistency throughout. (Division Name (Division Name or Number) 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_______________________ Transfer $_____ or %_____from_______________________ to_______________________ ----------------------------------------------------------------------------- 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%; who numbers only. INVESTMENT DIVISION PERM % DED % (125) Declared Fixed Interest Account ______ ______ AIM Variable Insurance Funds, Inc. (126) AIM V.I. Int'l Equity ______ ______ (127) AIM V.I. Value ______ ______ American General Series Portfolio Co. (128) International Equities ______ ______ (129) MidCap Index ______ ______ (130) Money Market ______ ______ (131) Stock Index ______ ______ Dreyfus Variable Investment Fund (132) Quality Bond ______ ______ (133) Small Cap ______ ______ MPS Variable Insurance Trust (134) MPS Emerging Growth ______ ______ Morgan Stanley Universal Funds, Inc. (135) Equity Growth ______ ______ (136) High Yield ______ ______ Putnam Variable Trust (137) Putnam VT Diversified Income ______ ______ (138) Putnam VT Growth & Income ______ ______ (139) Putnam VT Int'l Growth & Income ______ ______ SAFECO Resources Series Trust (140) Equity ______ ______ (141) Growth ______ ______ Van Kampen Amer. Cap. Life Investment Trust (142) Strategic Stock ______ ______ ----------------------------------------------------------------------------- L 8893 Page 3 of 4 10. [ ] AUTOMATIC REBALANCING ($5,000 minimum accumulation values) Use this section to apply for or make changes to Automatic Rebalancing of the variable divisions. Please refer to the prospectus for more information on the Automatic Rebalancing Option. This option in not available while the Dollar Cost Averaging Option is in use. Indicated frequency: _____ Quarterly _____ Semi-Annually _____ Annually (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 from or policy loan against policy values. For detailed information concerning these two options please refer to your policy ad its related prospectus. 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 case 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 affect, if available; otherwise they are taken pro-rata from the Declared Fixed Interest Account and 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 to 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 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 340B(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. Date at ________________________this _________ day of _____________, 19_____ x________________________ x________________________ SIGNATURE OF OWNER SIGNATURE OF WITNESS x________________________ x________________________ SIGNATURE OF JOINT OWNER SIGNATURE OF WITNESS x________________________ x________________________ SIGNATURE OF ASSIGNEE SIGNATURE OF WITNESS ----------------------------------------------------------------------------- L 8893 Page 4 of 4 PART II (INFORMATION NOT REQUIRED TO BE FILED IN A PROSPECTUS) REPRESENTATION REGARDING THE REASONABLENESS OF AGGREGATE FEES AND CHARGES DEDUCTED UNDER THE POLICIES PURSUANT TO SECTION 26(e)(2)(A) OF THE INVESTMENT COMPANY ACT OF 1940 AGL represents that the fees and charges deducted under the Policies, in the aggregate, are reasonable in relation to the services rendered, the expenses expected to be incurred, and the risks assumed by AGL under the Policies. AGL bases its representation on its assessment of all of the facts and circumstances, including such relevant factors, as: the nature and extent of such services, expenses and risks; the need for AGL to earn a profit; the degree to which the Policies include innovative features; and the regulatory standards for exemptive relief under the Investment Company Act of 1940 used prior to October 1996, including the range of industry practice. This representation applies to all Policies sold pursuant to this Registration Statement, including those sold on the terms specifically described in the prospectus contained herein, or any variations therein, based on supplements, endorsements, or riders to any Policies or prospectus, or otherwise. CONTENTS OF REGISTRATION STATEMENT This Registration Statement contains the following papers and documents: The facing sheet. Cross-Reference Table. Prospectus, consisting of 92 pages. Form of Service Request. Undertaking to file reports. (Included in the original filing of this Registration Statement on December 18, 1997.) Undertaking pursuant to Rule 484(b)(1) under the Securities Act of 1933. (Included in the original filing of this Registration Statement on December 18, 1997.) Representation with respect to fees and charges. The signatures. Written Consents of the following persons: Steven A. Glover, Senior Counsel of the American General Independent Producer Division (see Exhibit 2(a)). AGL's actuary (see Exhibit 2(b)). Independent Auditors (see Exhibit 6). The following exhibits: 1. Exhibits required by Article IX, paragraph A of Form N-8B-2: (1)(a) Resolutions of Board of Directors of AGL authorizing the establishment of Separate Account VL-R. (3) (1)(b) Resolutions of Board of Directors of AGL authorizing the establishment of variable life insurance standards of suitability and conduct. (1) (2) Inapplicable. (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. (Filed herewith.) (3)(b) Form of Selling Group Agreement. (Filed herewith.) (3)(c) Schedule of Commissions (incorporated by reference from the text included under the heading "Distribution of the Policies" in the prospectus that is filed as part of this amended Registration Statement). (4) Inapplicable. S-2 (5)(a)(i) Specimen form of the "Platinum Investor I" Variable Universal Life Insurance Policy (Policy Form No. 97600). (1) (5)(a)(ii) Specimen form of the "Platinum Investor II" Variable Universal Life Insurance Policy (Policy Form No. 97610). (1) (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) (7) Inapplicable. (8)(a) Form of Participation Agreement by and Among AIM Variable Insurance Funds, Inc., AIM Distributors, Inc., American General Life Insurance Company, on Behalf of Itself and its Separate Accounts, and American General Securities Incorporated. (Filed herewith.) (8)(b) Form of Participation Agreement by and between the Variable Annuity Life Insurance Company and American General Life Insurance Company. (4) (8)(c) Form of Participation Agreement Between American General Life Insurance Company and Dreyfus Variable Investment Fund, The Dreyfus Socially Responsible Growth Fund, Inc. and Dreyfus Life and Annuity Index Fund, Inc.. (Filed herewith.) (8)(d) Form of Participation Agreement Among MFS Variable Insurance Trust, American General Life Insurance Company and Massachusetts Financial Services Company. (Filed herewith.) (8)(e) Amendment Number 2 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. (Filed herewith.) (8)(f) Form of Participation Agreement Among Putnam Variable Trust, Putnam Mutual Funds Corp., and American General Life Insurance Company. (Filed herewith.) S-3 (8)(g) Form of Participation Agreement Among American General Life Insurance Company, American General Securities Incorporated, Safeco Resources Series Trust, and Safeco Securities, Inc. (Filed herewith.) (8)(h) Form of Amendment Number 2 to Amended and Restated Participation Agreement among Van Kampen American Capital Life Investment Trust, Van Kampen American Capital Distributors, Inc., Van Kampen American Capital Asset Management, Inc., American General Life Insurance Company, and American General Securities Incorporated. (Filed herewith.) (8)(i) Form of Administrative Services Agreement between AGL 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 AGL. (1) (10)(b) Specimen form of supplemental application for variable life insurance issued by AGL on Policy Form No. 97600 and Policy Form No. 97610. (1) Other Exhibits 2(a) Opinion and Consent of Steven A. Glover, Senior Counsel of American General Independent Producer Division (Filed herewith.) 2(b) Opinion and Consent of AGL's actuary. (Filed herewith.) 3 Inapplicable. 4 Inapplicable. 5 Financial Data Schedule. (See Exhibit 27 below.) 6 Consent of Independent Auditors. (Filed herewith.) 7 Powers of Attorney. (1) S-4 27 Financial Data Schedule. (Inapplicable, because no financial statements of the Separate Account are being filed herewith) (1) Included in the original filing of this Form S-6 Registration Statement 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 AGL 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 AGL 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 AGL on February 12, 1998.
S-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 16th day of March, 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/STEVEN A. GLOVER ------------------- Steven A. Glover Assistant Secretary Pursuant to the requirements of the Securities Act of 1933, this amended Registration Statement has been signed by the following persons in the capacities and on the dates indicated.
Signature Title ----------- ------- RODNEY O. MARTIN, JR.* Principal Executive Officer -------------------------- (Rodney O. Martin, Jr.) ROBERT F. HERBERT, JR.* Principal Financial and Accounting Officer -------------------------- (Robert F. Herbert, Jr.)
Directors --------- JAMES S. D' AGOSTINO, JR.* RODNEY O. MARTIN, JR.* -------------------------- -------------------------- (James S. D' Agostino, Jr.) (Rodney O. Martin, Jr.) DAVID A. FRAVEL* JON P. NEWTON* -------------------------- -------------------------- (David A. Fravel) (Jon P. Newton) ROBERT F. HERBERT, JR.* PHILIP K. POLKINGHORN* -------------------------- -------------------------- (Robert F. Herbert, Jr.) (Philip K. Polkinghorn) ROYCE G. IMHOFF, II* PETER V. TUTERS* -------------------------- -------------------------- (Royce G. Imofft, II) (Peter V. Tuters) JOHN V. LAGRASSE* -------------------------- (John V. Lagrasse) /s/STEVEN A. GLOVER -------------------------- *By Steven A. Glover, Attorney-in-Fact March 16, 1998
EX-2.(A) 2 EXHIBIT 2(a) AMERICAN GENERAL INDEPENDENT PRODUCER DIVISION 2727-A ALLEN PARKWAY, HOUSTON, TEXAS 77019 Writer's Direct Number (713) 831-3633 March 16, 1998 American General Life Insurance Company 2727-A Allen Parkway Houston, Texas 77019 Dear Sir: This opinion is furnished in connection with the filing of a Registration Statement on Form S-6, File No. 333-42567 ("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 Platinum Investor I (policy form No. 97600) and Platinum Investor II (policy form No. 97610) 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. On the basis of such examination, it is my 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 Policy liabilities with 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. Very truly yours, /s/STEVEN A. GLOVER ------------------- Steven A. Glover Senior Counsel SAG:dt EX-2.(B) 3 EXHIBIT 2(b) AMERICAN GENERAL LIFE INSURANCE COMPANY P.O. Box 1591 - Houston, Texas 77251-1591 A Subsidiary of 713-522-1111 American General Corporation Writer's Direct Number (713) 831-3246 March 18, 1998 American General Life Insurance Company 2727-A Allen Parkway Houston, Texas 77019 Dear Sir: This opinion is furnished in connection with the Registration Statement on Form S-6, File No. 333- 42567 ("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 Platinum Investor I (policy form No. 97600) and Platinum Investor II (policy form No. 97610) 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 24 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% reduction 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. Opinion and Consent Page 2 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 March 18, 1998 -------------- Date EX-3.(A)(II) 4 EXHIBIT 3(a)(ii) DISTRIBUTION AGREEMENT BETWEEN AMERICAN GENERAL LIFE INSURANCE COMPANY AND AMERICAN GENERAL SECURITIES INCORPORATED FIRST AMENDMENT WHEREAS, American General Life Insurance Company (formerly American General Life Insurance Company of Delaware) ("AGL") and American General Securities Incorporated ("AGSI" or "Distributor") have previously entered into a Distribution Agreement ("Agreement") designed for the promotion by AGSI of the sale of AGL's variable annuity contracts; and WHEREAS, the parties now desire to amend the Agreement to provide for the promotion of the sale by AGSI of AGL's variable life and variable annuity contracts ("Contracts") and to provide for a schedule of compensation for each of the Contracts offered by AGL and promoted by AGSI; NOW THEREFORE, the parties agree to this First Amendment, effective March 2, 1998, as follows: 1. The Agreement shall include Schedule A. 2. The first sentence of the paragraph titled "FIRST" shall be amended to read as follows: The Company hereby grants AGSI a non-exclusive right to promote the sale of the Company's Contracts listed on Schedule A to the public through investment dealers which are members of the National Association of Securities Dealers, Inc. (or exempt from such registration) in states of the United States where the Company is licensed. 3. The paragraph titled "FOURTH" shall be amended to restate the second sentence of the second paragraph to read as follows: For its costs in promotion of the sale of the Contracts, including its administrative and ministerial costs, AGSI shall receive the percentage of gross purchase payments received by the Company or of accumulation value held by the Company, as indicated for each of the Contracts listed on Schedule A. IN WITNESS WHEREOF, the parties hereto have caused this First Amendment to be executed in duplicate. ATTEST: AMERICAN GENERAL LIFE INSURANCE COMPANY By ___________________________________ Don M. Ward, Senior Vice President- Variable Contracts ATTEST: AMERICAN GENERAL SECURITIES INCORPORATED By ___________________________________ F. Paul Kovach, President SCHEDULE A
Contract Contract/Policy Name Form No: Compensation: -------- --------------- ------------- Platinum Investor I 97600 Payable to broker-dealer: 90% of premiums paid in the first Policy year, up to target; 4% of premiums not in excess of target paid in Policy years 2-10; 2.5% of all premiums in excess of target paid in years 1-10; 0.25% annually of all Policies' accumulation value (reduced by any outstanding loans). Payable to Distributor: No distribution fee. Platinum Investor II 97610 Payable to broker-dealer: 20% of all premiums paid in the first Policy year up to target; 12 % of all premiums not in excess of target paid in Policy years 2-7; 2.5% on all premiums in excess of the target amount received in Policy years 1-7; 0.25% of all Policies' accumulation value (reduced by any outstanding loans). Payable to Distributor: No distribution fee. Select Reserve 97505 Payable to broker-dealer: 0.2375% of all Purchase Payments received, plus 0.2375% trail commission commencing at the end of the 12th month after receipt of the initial Purchase Payment. Payable to Distributor: 0.0125% of all Purchase Payments received, plus 0.0125% trail compensation commencing at the end of the 12th month after receipt of the initial Purchase Payment.
EX-3.(B) 5 EXHIBIT 3(b) SELLING GROUP AGREEMENT AMERICAN GENERAL SECURITIES INCORPORATED AND AMERICAN GENERAL LIFE INSURANCE COMPANY This Selling Group Agreement ("Agreement") is made among American General Securities Incorporated, a registered broker - dealer and the distributor for the variable life insurance policies and/or annuity contracts set forth in Schedule A ("Distributor"), ______________________________________________________________________________ ("Selling Group Member") ______________________________________________________________________________ ("Associated Agency") and, as the fourth party, American General Life Insurance Company ("AGL"). Distributor is a wholly-owned subsidiary of AGL. Selling Group Member is registered with the Securities and Exchange Commission ("SEC") as a broker-dealer under the Securities Exchange Act of 1934 ("1934 Act") and under any appropriate regulatory requirements of state law, and is a member in good standing of the National Association of Securities Dealers, Inc. ("NASD"), unless Selling Group Member is exempt from the broker-dealer registration requirements of the 1934 Act. Unless exempt, Selling Group Member maintains a level of qualification with the NASD appropriate to enable it to offer and sell the products set forth in Schedule A. Selling Group Member is affiliated with Associated Agency, which is properly licensed under the insurance laws of the state(s) in which Selling Group Member will act under this Agreement. This Agreement is for the purpose of providing for the distribution of certain variable life insurance policies and/or annuity contracts set forth in Schedule A and any successor or additional SEC registered insurance products (as discussed in Part (1) "NEW PRODUCTS" of this Agreement) to be issued by AGL and distributed through Distributor through representatives who are state insurance licensed and appointed agents of AGL and associated with Associated Agency and are also NASD registered representatives of Selling Group Member ("Sales Persons"). The policies and/or annuity contracts set forth in Schedule A, along with any successor or additional SEC registered insurance products, are referred to collectively herein as the "Contracts". In consideration of the mutual promises and covenants contained in this Agreement, AGL and Distributor appoint Selling Group Member and those persons associated with Associated Agency who are NASD registered representatives of Selling Group Member and state insurance licensed agents of AGL to solicit and procure applications for the Contracts. This appointment is not deemed to be exclusive in any manner and only extends to those jurisdictions where the Contracts have been approved for sale. Selling Group Member is authorized to collect the first purchase payment or premium (collectively "Premiums") on the Contracts and, unless Selling Group Member and AGL have otherwise agreed, must remit such premiums in full dollar amount to AGL. Unless Selling Group Member and AGL have otherwise agreed, applications shall be taken only on preprinted application forms supplied by AGL. All completed applications and supporting documents are the sole property of AGL and must be promptly delivered to AGL. All applications are subject to acceptance by AGL at its sole discretion. (1) NEW PRODUCTS AGL and Distributor may propose, and AGL may issue additional or successor products, in which event Selling Group Member will be informed of the product and its related concession schedule. If Selling Group Member does not agree to distribute such product(s), it must notify Distributor in writing within 30 days of receipt of the Concession Schedule for such product(s). If Selling Group Member does not indicate disapproval of the new product(s) or the terms contained in the related Concession Schedule, Selling Group Member will be deemed to have thereby agreed to distribute such product(s) and agreed to the related Concession Schedule which shall be attached to and made a part of this Agreement. (2) SALES PERSONS Associated Agency is authorized to recommend Sales Persons for appointment by AGL to solicit sales of the Contracts. Associated Agency warrants that all such Sales Persons shall not commence solicitation nor aid, directly or indirectly, in the solicitation of any application for any Contract until that Sales Person is appropriately licensed for such product under applicable insurance laws and is a currently NASD registered representative of Selling Group Member. Associated Agency shall be responsible for all fees required to obtain and/or maintain any licenses or registrations required by state or federal law, for Associated Agency and its Sales Persons. From time to time, AGL will provide Associated Agency and Selling Group Member with information regarding the jurisdictions in which AGL is authorized to solicit applications for the Contracts and any limitations on the availability of such Contracts in any jurisdiction. (3) SALES MATERIAL Associated Agency and Selling Group Member shall not utilize in their efforts to market the Contracts, any written brochure, prospectus, descriptive literature, printed and published material, audio-visual material or standard letters unless such material has been provided preprinted by AGL or Distributor or unless AGL and Distributor have provided written approval for the use of such literature. In accordance with the requirements of the laws of the several states, Associated Agency and Selling Group Member shall maintain complete records indicating the manner and extent of distribution of any such solicitation material, shall make such records and files available to staff of AGL and/or Distributor in field inspections and shall make such material available to personnel of state insurance departments, the NASD or other regulatory agencies, including the SEC, which have regulatory authority over AGL or Distributor. Associated Agency and Selling Group Member jointly and severally hold AGL, Distributor and their affiliates harmless from any liability arising from the use of any material which either (a) has not been specifically approved in writing by AGL, or (b) although previously approved, has been disapproved by AGL or Distributor, in writing for further use. (4) PROSPECTUSES Selling Group Member and Associated Agency warrant that solicitation for the sale of SEC registered insurance products will be made by use of a currently effective prospectus, that a prospectus will be 2 delivered concurrently with each sales presentation and that no statements shall be made to a client superseding or controverting any statement made in the prospectus. AGL and Distributor shall furnish Selling Group Member and Associated Agency, at no cost to Selling Group Member or Associated Agency, reasonable quantities of prospectuses to aid in the solicitation of Contracts. (5) SELLING GROUP MEMBER COMPLIANCE Selling Group Member shall be solely responsible for the approval of suitability determinations for the purchase of any Contract or the selection of any investment option thereunder, in compliance with federal and state securities laws and shall supervise Associated Agency and Sales Persons in determining client suitability. Selling Group Member shall hold AGL and Distributor harmless from any financial claim resulting from improper suitability decisions. Selling Group Member will fully comply with the requirements of the NASD and of the 1934 Act and such other applicable federal and state laws and will establish rules, procedures, and supervisory and inspection techniques necessary to diligently supervise the activities of its NASD registered representatives who are state insurance licensed agents or solicitors of AGL, in connection with offers and sales of the Contracts. Such supervision shall include providing, or arranging for, initial and periodic training in knowledge of the Contracts. Upon request by Distributor or AGL, Selling Group Member will furnish appropriate records as are necessary to establish diligent supervision and client suitability. Selling Group Member shall fully cooperate in any insurance or securities regulatory examination, investigation, or proceeding or any judicial proceeding with respect to AGL, Distributor, Selling Group Member, and Associated Agency and their respective affiliates, agents and representatives to the extent that such examination, investigation, or proceeding arises in connection with the Contracts. Selling Group Member shall immediately notify Distributor if its broker-dealer registration or the registration of any of its Sales Persons is revoked, suspended, or terminated. (6) ASSOCIATED AGENCY AND SALES PERSON COMPLIANCE Associated Agency will fully comply with the requirements of state insurance laws and applicable federal laws and will establish rules and procedures necessary to diligently supervise the activities of the Sales Persons. Upon request by Distributor or AGL, Selling Group Member will furnish appropriate records as are necessary to establish such supervision. Associated Agency and Sales Persons shall be responsible for making suitability determinations for the purchase of any Contract or the selection of any investment option thereunder, in compliance with federal and state securities laws. Associated Agency shall fully cooperate in any insurance or securities regulatory examination, investigation, or proceeding or any judicial proceeding with respect to AGL, Distributor, Selling Group Member, and Associated Agency and their respective affiliates, agents and representatives to the extent that such examination, investigation, or proceeding arises in connection with the Contracts. Associated Agency shall immediately notify Distributor if its insurance license or the license of any of its Sales Persons is revoked, suspended, or terminated. 3 (7) AGL COMPLIANCE AGL represents that the prospectus(es) and registration statement(s) relating to the Contracts contain no untrue statements of material fact or omission to state a material fact, the omission of which makes any statement contained in the prospectus and registration statement misleading. AGL agrees to indemnify Associated Agency and Selling Group Member from and against any claims, liabilities and expenses which may be incurred by any of those parties under the Securities Act of 1933, the 1934 Act, the Investment Company Act of 1940, common law, or otherwise, and that arises out of a breach of this paragraph. (8) COMPENSATION AGL will remit to Associated Agency compensation as set forth in Schedule B hereto. (9) CUSTOMER SERVICE, COMPLAINTS, AND INDEMNIFICATION The parties agree that AGL may contact by mail or otherwise, any client, agent, account executive, or employee of Associated Agency or other individual acting in a similar capacity if deemed appropriate by AGL, in the course of normal customer service for existing Contracts, in the investigation of complaints, or as required by law. The parties agree to cooperate fully in the investigation of any complaint. Selling Group Member, Associated Agency, and Sales Persons agree to hold harmless and indemnify Distributor and AGL against any and all claims, liabilities and expenses incurred by either Distributor or AGL, and arising out of or based upon any alleged or untrue statement of Selling Group Member, Associated Agency or Sales Person other than statements contained in the approved sales material for any Contract, or in the registration statement or prospectus for any Contract. (10) FIDELITY BOND Associated Agency represents that all directors, officers, employees and Sales Persons of Associated Agency licensed pursuant to this Agreement or who have access to funds of AGL are and will continue to be covered by a blanket fidelity bond including coverage for larceny, embezzlement and other defalcation, issued by a reputable bonding company. This bond shall be maintained at Associated Agency's expense. Such bond shall be at least equivalent to the minimal coverage required under the NASD Rules of Fair Practice, and endorsed to extend coverage to life insurance and annuity transactions. Associated Agency acknowledges that AGL may require evidence that such coverage is in force and Associated Agency shall promptly give notice to AGL of any notice of cancellation or change of coverage. Associated Agency assigns any proceeds received from the fidelity bond company to AGL to the extent of AGL's loss due to activities covered by the bond. If there is any deficiency, Associated Agency will promptly pay AGL that amount on demand. Associated Agency indemnifies and holds harmless AGL from any deficiency and from the cost of collection. 4 (11) LIMITATIONS OF AUTHORITY The Contract forms are the sole property of AGL. No person other than AGL has the authority to make, alter or discharge any policy, Contract, certificate, supplemental contract or form issued by AGL. No party has the right to waive any provision with respect to any Contract or policy; give or offer to give, on behalf of AGL, any tax or legal advice related to the purchase of a Contract or policy; or make any settlement of any claim or bind AGL or any of its affiliates in any way. No person has the authority to enter into any proceeding in a court of law or before a regulatory agency in the name of or on behalf of AGL. (12) ARBITRATION The parties agree that any controversy between or among them arising out of their business or pursuant to this Agreement that cannot be settled by agreement shall be taken to arbitration as set forth herein. Such arbitration will be conducted according to the securities arbitration rules then in effect, of the American Arbitration Association, NASD, or any registered national securities exchange. Arbitration may be initiated by serving or mailing a written notice. The notice must specify which rules will apply to the arbitration. This specification will be binding on all parties. The arbitrators shall render a written opinion, specifying the factual and legal bases for the award, with a view to effecting the intent of this Agreement. The written opinion shall be signed by a majority of the arbitrators. In rendering the written opinion, the arbitrators shall determine the rights and obligations of the parties according the substantive and procedural laws of the State of Texas. Accordingly, the written opinion of the arbitrators will be determined by the rule of law and not by equity. The decision of the majority of the arbitrators shall be final and binding on the parties and shall be enforced by the courts in Texas. (13) GENERAL PROVISIONS (A) Waiver Failure of any of the parties to promptly insist upon strict compliance with any of the obligations of any other party under this Agreement will not be deemed to constitute a waiver of the right to enforce strict compliance. (B) Independent Contractors Selling Group Member and Associated Agency are independent contractors and not employees or subsidiaries of AGL. AGSI is a wholly - owned subsidiary of AGL. Selling Group Member and Associated Agency are not employees or subsidiaries of Distributor. (C) Independent Assignment No assignment of this Agreement or of commissions or other payments under this Agreement shall be valid without prior written consent of AGL and Distributor. 5 (D) Notice Any notice pursuant to this Agreement may be given electronically (other than vocally by telephone) or by mail, postage paid, transmitted to the last address communicated by the receiving party to the other parties to this Agreement. (E) Severability To the extent this Agreement may be in conflict with any applicable law or regulation, this Agreement shall be construed in a manner consistent with such law or regulation. The invalidity or illegality of any provisions of this Agreement shall not be deemed to affect the validity or legality of any other provision of this Agreement. (F) Amendment This Agreement may be amended only in writing and signed by all parties. No amendment will impair the right to receive commissions as accrued with respect to Contracts issued and applications procured prior to the amendment. (G) Termination This Agreement may be terminated by any party upon 30 days' prior written notice. It may be terminated, for cause, by any party immediately. Termination of this Agreement shall not impair the right to receive commissions accrued with respect to applications procured prior to the termination except as otherwise specifically provided in Schedule B. (H) TEXAS LAW THIS AGREEMENT SHALL BE CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF TEXAS. (I) This Agreement replaces and supersedes any other agreement or understanding related to the Contracts, between or among the parties to this Agreement. 6 By signing below, the undersigned agree to have read and be bound by the terms and conditions of this Agreement. Date: ____________________ Selling Group Member: __________________________________________________ (broker-dealer) Address: __________________________________________________ __________________________________________________ Signature: __________________________________________________ Name & Title: __________________________________________________ Associated Agency: __________________________________________________ (primary insurance agency affiliation) Address: __________________________________________________ __________________________________________________ Signature: __________________________________________________ Name & Title: __________________________________________________ American General Securities Incorporated 2727 Allen Parkway Houston, Texas 77019 Signature: __________________________________________________ Name & Title: __________________________________________________ American General Life Insurance Company 2727-A Allen Parkway Houston Texas 77019 Signed By: __________________________________________________ Name & Title __________________________________________________ 7 Schedule A AMERICAN GENERAL LIFE INSURANCE COMPANY CONTRACTS COVERED BY THIS AGREEMENT
Policy Registration Forms Separate Contract Name Form Nos. And Numbers Account ------------- --------- ------------------ -------- Flexible Payment Variable Life Insurance Policies: Platinum Investor I 97600 Form S-6 VL-R Platinum Investor II 97610 Nos. 811-08561 333-42567
EX-6 6 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, in Pre-Effective Amendment No. 1 to the Registration Statement (Form S-6 No. 333-42567) of American General Life Insurance Company Separate Account VL-R. /s/Ernst & Young LLP -------------------- ERNST & YOUNG LLP Houston, Texas March 23, 1998 EX-8.(A) 7 EXHIBIT 8(a) PARTICIPATION AGREEMENT BY AND AMONG AIM VARIABLE INSURANCE FUNDS, INC., AIM 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....................................... 2 2.1 Timely Pricing and Orders..................................... 2 2.2 Timely Payments............................................... 3 2.3 Applicable Price.............................................. 3 2.4 Dividends and Distributions................................... 4 2.5 Book Entry.................................................... 4 Section 3. Costs and Expenses............................................ 4 3.1 General....................................................... 4 3.2 Registration.................................................. 4 3.3 Other (Non-Sales-Related)..................................... 5 3.4 Other (Sales-Related)......................................... 5 3.5 Parties To Cooperate.......................................... 5 Section 4. Legal Compliance.............................................. 5 4.1 Tax Laws...................................................... 5 4.2 Insurance and Certain Other Laws.............................. 8 4.3 Securities Laws............................................... 8 4.4 Notice of Certain Proceedings and Other Circumstances......... 9 4.5 AMERICAN GENERAL To Provide Documents; Information About AVIF. 10 4.6 AVIF To Provide Documents; Information About LIFE COMPANY..... 11 Section 5. Mixed and Shared Funding...................................... 12 5.1 General....................................................... 12 5.2 Disinterested Directors....................................... 13 5.3 Monitoring for Material Irreconcilable Conflicts.............. 13 5.4 Conflict Remedies............................................. 14 5.5 Notice to AMERICAN GENERAL.................................... 15 5.6 Information Requested by Board of Directors................... 15 5.7 Compliance with SEC Rules..................................... 15 5.8 Other Requirements............................................ 16 Section 6. Termination................................................... 16 i DESCRIPTION PAGE 6.1 Events of Termination.......................................... 16 6.2 Notice Requirement for Termination............................. 17 6.3 Funds To Remain Available...................................... 17 6.4 Survival of Warranties and Indemnifications.................... 18 6.5 Continuance of Agreement for Certain Purposes.................. 18 Section 7. Parties To Cooperate Respecting Termination.................... 18 Section 8. Assignment..................................................... 18 Section 9. Notices........................................................ 18 Section 10. Voting Procedures.............................................. 19 Section 11. Foreign Tax Credits............................................ 20 Section 12. Indemnification................................................ 20 12.1 Of AVIF AIM DISTRIBUTORS by AMERICAN GENERAL and UNDERWRITER.................................................... 20 12.2 Of AMERICAN GENERAL and AIM DISTRIBUTORS by AVIF............... 22 12.3 Effect of Notice............................................... 25 12.4 Successors..................................................... 25 Section 13. Applicable Law................................................. 25 Section 14. Execution in Counterparts...................................... 25 Section 15. Severability................................................... 25 Section 16. Rights Cumulative.............................................. 25 Section 17. Headings....................................................... 26 Section 18. Confidentiality................................................ 26 Section 19. Trademarks and Fund Names...................................... 26 Section 20. Parties to Cooperate........................................... 28 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"); American General Life Insurance Company, a Texas life insurance company ("AMERICAN GENERAL"), on behalf of itself and each of its segregated asset accounts listed in Schedule A hereto, as the parties hereto may amend from time to time (each, an "Account," and collectively, the "Accounts"); and American General Securities Incorporated, an affiliate of AMERICAN GENERAL 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, AMERICAN GENERAL 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, AMERICAN GENERAL 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, AMERICAN GENERAL 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, AMERICAN GENERAL intends to purchase Shares in one or more of the Funds on behalf of the Accounts to fund the Contracts; and WHEREAS, UNDERWRITER is a broker-dealer registered with the SEC under the Securities Exchange Act of 1934 ("1934 Act") and a member in good standing of the National Association of Securities Dealers, Inc. ("NASD"); NOW, THEREFORE, in consideration of the mutual benefits and promises contained herein, the Parties hereto agree as follows: SECTION 1. AVAILABLE FUNDS 1.1 AVAILABILITY. AVIF will make Shares of each Fund available to AMERICAN GENERAL for purchase and redemption at net asset value and with no sales charges, subject to the terms and conditions of this Agreement. The Board of Directors of AVIF may refuse to sell Shares of any Fund to any person, or suspend or terminate the offering of Shares of any Fund if such action is required by law or by regulatory authorities having jurisdiction or if, in the sole discretion of the Directors acting in good faith and in light of their fiduciary duties under federal and any applicable state laws, such action is deemed in the best interests of the shareholders of such Fund. 1.2 ADDITION, DELETION OR MODIFICATION OF FUNDS. The Parties hereto may agree, from time to time, to add other Funds to provide additional funding media for the Contracts, or to delete, combine, or modify existing Funds, by amending Schedule A hereto. Upon such amendment to Schedule A, any applicable reference to a Fund, AVIF, or its Shares herein shall include a reference to any such additional Fund. Schedule A, as amended from time to time, is incorporated herein by reference and is a part hereof. 1.3 NO SALES TO THE GENERAL PUBLIC. AVIF represents and warrants that no Shares of any Fund have been or will be sold to the general public. SECTION 2. PROCESSING TRANSACTIONS 2.1 TIMELY PRICING AND ORDERS. (a) AVIF or its designated agent will use its best efforts to provide AMERICAN GENERAL 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 2 Stock Exchange is open for regular trading, (ii) AVIF calculates the Fund's net asset value, and (iii) AMERICAN GENERAL is open for business. (b) AMERICAN GENERAL 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. AMERICAN GENERAL 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 AMERICAN GENERAL 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 AMERICAN GENERAL. (c) With respect to payment of the purchase price by AMERICAN GENERAL and of redemption proceeds by AVIF, AMERICAN GENERAL 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), AMERICAN GENERAL 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 AMERICAN GENERAL. 2.2 TIMELY PAYMENTS. AMERICAN GENERAL will wire payment for net purchases to a custodial account designated by AVIF by 1:00 p.m. Central Time on the same day as the order for Shares is placed, to the extent practicable. AVIF will wire payment for net redemptions to an account designated by AMERICAN GENERAL by 1:00 p.m. Central Time on the same day as the Order is placed, to the extent practicable, but in any event within five (5) calendar days after the date the order is placed in order to enable AMERICAN GENERAL to pay redemption proceeds within the time specified in Section 22(e) of the 1940 Act or such shorter period of time as may be required by law. 2.3 APPLICABLE PRICE. (a) Share purchase payments and redemption orders that result from purchase payments, premium payments, surrenders and other transactions under Contracts (collectively, "Contract transactions") and that AMERICAN GENERAL 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), AMERICAN GENERAL 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 3 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 AMERICAN GENERAL 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 AMERICAN GENERAL of any income dividends or capital gain distributions payable on the Shares of any Fund. AMERICAN GENERAL 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 AMERICAN GENERAL 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. AMERICAN GENERAL 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 AMERICAN GENERAL. Shares ordered from AVIF will be recorded in an appropriate title for AMERICAN GENERAL, on behalf of its Account. SECTION 3. COSTS AND EXPENSES 3.1 GENERAL. Except as otherwise specifically provided herein, each Party will bear all expenses incident to its performance under this Agreement. 3.2 REGISTRATION. (a) AVIF will bear the cost of its registering as a management investment company under the 1940 Act and registering its Shares under the 1933 Act, and keeping such registrations current and effective; including, without limitation, the preparation of and filing with the SEC of Forms N-SAR and Rule 24f-2 Notices with respect to AVIF and its Shares and payment of all applicable registration or filing fees with respect to any of the foregoing. (b) AMERICAN GENERAL will bear the cost of registering, to the extent required, each Account as a unit investment trust under the 1940 Act and registering units of interest under the Contracts under the 1933 Act and keeping such registrations current and effective; including, without limitation, the preparation and filing with the SEC of Forms N-SAR and Rule 24f-2 4 Notices with respect to each Account and its units of interest and payment of all applicable registration or filing fees with respect to any of the foregoing. 3.3 OTHER (NON-SALES-RELATED). (a) AVIF will bear, or arrange for others to bear, the costs of preparing, filing with the SEC and setting for printing AVIF's prospectus, statement of additional information and any amendments or supplements thereto (collectively, the "AVIF Prospectus"), periodic reports to shareholders, AVIF proxy material and other shareholder communications. (b) AMERICAN GENERAL will bear the costs of preparing, filing with the SEC and setting for printing each Account's prospectus, statement of additional information and any amendments or supplements thereto (collectively, the "Account Prospectus"), any periodic reports to Contract owners, annuitants, insureds or participants (as appropriate) under the Contracts (collectively, "Participants"), voting instruction solicitation material, and other Participant communications. (c) AMERICAN GENERAL will print in quantity and deliver to existing Participants the documents described in Section 3.3(b) above and the prospectus provided by AVIF in camera ready or computer diskette form. AVIF will print the AVIF statement of additional information, proxy materials relating to AVIF and periodic reports of AVIF. 3.4 OTHER (SALES-RELATED). AMERICAN GENERAL will bear the expenses of distribution. These expenses would include by way of illustration, but are not limited to, the costs of distributing to Participants the following documents, whether they relate to the Account or AVIF: prospectuses, statements of additional information, proxy materials and periodic reports. These costs would also include the costs of preparing, printing, and distributing sales literature and advertising relating to the Funds, as well as 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. 3.5 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. 5 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 AMERICAN GENERAL 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 AMERICAN GENERAL 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) AMERICAN GENERAL agrees that if the Internal Revenue Service ("IRS") asserts in writing in connection with any governmental audit or review of AMERICAN GENERAL or, to AMERICAN GENERAL's knowledge, of any Participant, that any Fund has failed to comply with the diversification requirements of Section 817(h) of the Code or AMERICAN GENERAL 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) AMERICAN GENERAL shall promptly notify AVIF of such assertion or potential claim (subject to the Confidentiality provisions of Section 18 as to any Participant); (ii) AMERICAN GENERAL shall consult with AVIF as to how to minimize any liability that may arise as a result of such failure or alleged failure; (iii) AMERICAN GENERAL 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) AMERICAN GENERAL 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, 6 however, that AMERICAN GENERAL will retain control of the conduct of such conferences discussions, proceedings, contests or appeals; (v) any written materials to be submitted by AMERICAN GENERAL 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 AMERICAN GENERAL 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 AMERICAN GENERAL to any such person without the express written consent of AVIF which shall not be unreasonably withheld; (vi) AMERICAN GENERAL 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 AMERICAN GENERAL) 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) AMERICAN GENERAL 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 AMERICAN GENERAL shall not be required, after exhausting all administrative penalties, to appeal any adverse judicial decision unless AVIF or its affiliates shall have provided an opinion of independent counsel to the effect that a reasonable basis exists for taking such appeal; and PROVIDED FURTHER that the costs of any such appeal shall be borne equally by the Parties hereto; and (viii) AVIF and its affiliates shall have no liability as a result of such failure or alleged failure if AMERICAN GENERAL 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, AMERICAN GENERAL may, in its discretion, authorize AVIF or its affiliates to act in the name of AMERICAN GENERAL in, and to control the conduct of, such conferences, discussions, proceedings, contests or appeals and all 7 administrative or judicial appeals thereof, and in that event AVIF or its affiliates shall bear the fees and expenses associated with the conduct of the proceedings that it is so authorized to control; PROVIDED, that in no event shall AMERICAN GENERAL 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) AMERICAN GENERAL 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; AMERICAN GENERAL 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) AMERICAN GENERAL 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. AMERICAN GENERAL 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 AMERICAN GENERAL, including, the furnishing of information not otherwise available to AMERICAN GENERAL which is required by state insurance law to enable AMERICAN GENERAL to obtain the authority needed to issue the Contracts in any applicable state. (b) AMERICAN GENERAL 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 Section 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. 8 (a) AMERICAN GENERAL 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 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) AMERICAN GENERAL 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. 9 4.4 NOTICE OF CERTAIN PROCEEDINGS AND OTHER CIRCUMSTANCES. (a) AVIF will immediately notify AMERICAN GENERAL of (i) the issuance by any court or regulatory body of any stop order, cease and desist order, or other similar order with respect to AVIF's registration statement under the 1933 Act or AVIF Prospectus, (ii) any request by the SEC for any amendment to such registration statement or AVIF Prospectus that may affect the offering of Shares of AVIF, (iii) the initiation of any proceedings for that purpose or for any other purpose relating to the registration or offering of AVIF's Shares, or (iv) any other action or circumstances that may prevent the lawful offer or sale of Shares of any Fund in any state or jurisdiction, including, without limitation, any circumstances in which (a) such Shares are not registered and, in all material respects, issued and sold in accordance with applicable state and federal law, or (b) such law precludes the use of such Shares as an underlying investment medium of the Contracts issued or to be issued by AMERICAN GENERAL. 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) AMERICAN GENERAL 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. AMERICAN GENERAL 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 AMERICAN GENERAL TO PROVIDE DOCUMENTS; INFORMATION ABOUT AVIF. (a) AMERICAN GENERAL 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) AMERICAN GENERAL 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 10 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 AMERICAN GENERAL in the manner required by Section 9 hereof. (c) Neither AMERICAN GENERAL nor any of its affiliates, will give any information or make any representations or statements on behalf of or concerning AVIF or its affiliates in connection with the sale of the Contracts other than (i) the information or representations contained in the registration statement, including the AVIF Prospectus contained therein, relating to Shares, as such registration statement and AVIF Prospectus may be amended from time to time; or (ii) in reports or proxy materials for AVIF; or (iii) in published reports for AVIF that are in the public domain and approved by AVIF for distribution; or (iv) in sales literature or other promotional material approved by AVIF, except with the express written permission of AVIF. (d) AMERICAN GENERAL 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 AMERICAN GENERAL. (a) AVIF will provide to AMERICAN GENERAL 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 AMERICAN GENERAL camera ready or computer diskette copies of all AVIF prospectuses and printed copies, in an amount specified by AMERICAN GENERAL, of AVIF statements of additional information, proxy materials, periodic reports to 11 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 AMERICAN GENERAL in a timely manner so as to enable AMERICAN GENERAL, 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 AMERICAN GENERAL or its designated agent at least one (1) complete copy of each piece of sales literature or other promotional material in which AMERICAN GENERAL, or any of its respective affiliates is named, or that refers to the Contracts, at least five (5) Business Days prior to its use or such shorter period as the Parties hereto may, from time to time, agree upon. No such material shall be used if AMERICAN GENERAL 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. AMERICAN GENERAL 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 AMERICAN GENERAL, 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 AMERICAN GENERAL for distribution; or (iii) in sales literature or other promotional material approved by AMERICAN GENERAL or its affiliates, except with the express written permission of AMERICAN GENERAL. (e) AVIF shall cause its principal underwriter to adopt and implement procedures reasonably designed to ensure that information concerning AMERICAN GENERAL, 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 AMERICAN GENERAL, 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. 12 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 AMERICAN GENERAL, 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 AMERICAN GENERAL 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"). AMERICAN GENERAL 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; 13 (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 (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, AMERICAN GENERAL 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 AMERICAN GENERAL to disregard voting instructions of Participants. AMERICAN GENERAL's responsibilities in connection with the foregoing shall be carried out with a view only to the interests of Participants. 5.4 CONFLICT REMEDIES. (a) It is agreed that if it is determined by a majority of the members of the Board of Directors or a majority of the Disinterested Directors that a material irreconcilable conflict exists, AMERICAN GENERAL 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. 14 (b) If the material irreconcilable conflict arises because of AMERICAN GENERAL's decision to disregard Participant voting instructions and that decision represents a minority position or would preclude a majority vote, AMERICAN GENERAL 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 AMERICAN GENERAL that this provision is being implemented, and until such withdrawal AVIF shall continue to accept and implement orders by AMERICAN GENERAL 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 AMERICAN GENERAL conflicts with the majority of other state regulators, then AMERICAN GENERAL will withdraw each Account's investment in AVIF within six (6) months after AVIF's Board of Directors informs AMERICAN GENERAL that it has determined that such decision has created a material irreconcilable conflict, and until such withdrawal AVIF shall continue to accept and implement orders by AMERICAN GENERAL for the purchase and redemption of Shares of AVIF. No charge or penalty will be imposed as a result of such withdrawal. (d) AMERICAN GENERAL 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. AMERICAN GENERAL 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. 15 5.5 NOTICE TO AMERICAN GENERAL. AVIF will promptly make known in writing to AMERICAN GENERAL 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. AMERICAN GENERAL 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. 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 16 (b) at the option of AVIF upon institution of formal proceedings against AMERICAN GENERAL or its affiliates by the NASD, the SEC, any state insurance regulator or any other regulatory body regarding AMERICAN GENERAL'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 AMERICAN GENERAL 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, AMERICAN GENERAL 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 AMERICAN GENERAL, 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 AMERICAN GENERAL; or (e) upon termination of the corresponding Subaccount's investment in the Fund pursuant to Section 5 hereof; or (f) at the option of AMERICAN GENERAL if the Fund ceases to qualify as a RIC under Subchapter M of the Code or under successor or similar provisions, or if AMERICAN GENERAL reasonably believes that the Fund may fail to so qualify; or (g) at the option of AMERICAN GENERAL if the Fund fails to comply with Section 817(h) of the Code or with successor or similar provisions, or if AMERICAN GENERAL reasonably believes that the Fund may fail to so comply; or (h) at the option of AVIF if the Contracts issued by AMERICAN GENERAL 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. 17 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 AMERICAN GENERAL, 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. 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 AMERICAN GENERAL 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). 18 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: AIM VARIABLE INSURANCE FUNDS, INC. 11 Greenway Plaza, Suite 100 Houston, Texas 77046 Facsimile: (713) 993-9185 Attn: Nancy L. Martin, Esq. AMERICAN GENERAL LIFE INSURANCE COMPANY AMERICAN GENERAL SECURITIES INCORPORATED c/o American Independent Producer Division 2727-A Allen Parkway Houston, Texas 77019 Facsimile: (713) 831-3071 Attn: Steven A. Glover, Esq. 19 SECTION 10. VOTING PROCEDURES Subject to the cost allocation procedures set forth in Section 3 hereof, AMERICAN GENERAL 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. AMERICAN GENERAL will vote Shares in accordance with timely instructions received from Participants. AMERICAN GENERAL 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 AMERICAN GENERAL 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. AMERICAN GENERAL reserves the right to vote shares held in any Account in its own right, to the extent permitted by law. AMERICAN GENERAL 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 AMERICAN GENERAL of any changes of interpretations or amendments to Mixed and Shared Funding exemptive order it has obtained. AVIF will comply with all provisions of the 1940 Act requiring voting by shareholders, and in particular, AVIF either will provide for annual meetings (except insofar as the SEC may interpret Section 16 of the 1940 Act not to require such meetings) or will comply with Section 16(c) of the 1940 Act (although AVIF is not one of the trusts described in Section 16(c) of that Act) as well as with Sections 16(a) and, if and when applicable, 16(b). Further, AVIF will act in accordance with the SEC's interpretation of the requirements of Section 16(a) with respect to periodic elections of directors and with whatever rules the SEC may promulgate with respect thereto. SECTION 11. FOREIGN TAX CREDITS AVIF agrees to consult in advance with AMERICAN GENERAL 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 AIM DISTRIBUTORS BY AMERICAN GENERAL AND UNDERWRITER. (a) Except to the extent provided in Sections 12.1(b) and 12.1(c), below, AMERICAN GENERAL and UNDERWRITER agree to indemnify and hold harmless AVIF, AIM Distributors, and their respective affiliates, and each person, if any, who controls AVIF, AIM Distributors, 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 20 Section 12.1) against any and all losses, claims, damages, liabilities (including amounts paid in settlement with the written consent of AMERICAN GENERAL 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 AMERICAN GENERAL 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 AMERICAN GENERAL, UNDERWRITER or their respective affiliates and on which such persons have reasonably relied) or the negligent, illegal or fraudulent conduct of AMERICAN GENERAL, 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 (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 AMERICAN GENERAL, UNDERWRITER or their respective affiliates 21 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 AMERICAN GENERAL 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 AMERICAN GENERAL or UNDERWRITER in this Agreement or arise out of or result from any other material breach of this Agreement by AMERICAN GENERAL or UNDERWRITER; or (v) arise as a result of failure by the Contracts issued by AMERICAN GENERAL 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 AMERICAN GENERAL 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 AMERICAN GENERAL nor UNDERWRITER shall be liable under this Section 12.1 with respect to any action against an Indemnified Party unless AVIF shall have notified AMERICAN GENERAL 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 AMERICAN GENERAL and UNDERWRITER of any such action shall not relieve AMERICAN GENERAL 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, AMERICAN GENERAL and UNDERWRITER shall be entitled to participate, at their own expense, in the defense of such action and also shall be entitled to assume the defense thereof, with counsel approved by the Indemnified Party named in the action, which approval shall not be unreasonably withheld. After notice from AMERICAN GENERAL or UNDERWRITER to such Indemnified Party of AMERICAN GENERAL's or UNDERWRITER's election to assume the defense thereof, the Indemnified Party will cooperate fully with AMERICAN GENERAL and UNDERWRITER and shall bear the fees and expenses of any additional counsel retained by it, and neither AMERICAN GENERAL 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. 22 12.2 OF AMERICAN GENERAL AND UNDERWRITER BY AVIF. (a) Except to the extent provided in Sections 12.2(c), 12.2(d) and 12.2(e), below, AVIF and AIM Distributors agrees to indemnify and hold harmless AMERICAN GENERAL, UNDERWRITER, their respective affiliates, and each person, if any, who controls AMERICAN GENERAL, 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 Distributors) 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 Distributors or their respective affiliates by or on behalf of AMERICAN GENERAL, 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 Distributors or their respective affiliates and on which such persons have reasonably relied) or the negligent, illegal or fraudulent conduct of AVIF and AIM Distributors 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 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 23 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 AMERICAN GENERAL, UNDERWRITER or their respective affiliates by or on behalf of AVIF and AIM Distributors or their respective affiliates 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 Distributors in this Agreement or arise out of or result from any other material breach of this Agreement by AVIF or AIM Distributors. (b) Except to the extent provided in Sections 12.2(c), 12.2(d) and 12.2(e) hereof, AVIF and AIM Distributors agrees 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 AMERICAN GENERAL 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 AMERICAN GENERAL of Shares of another investment company or portfolio for those of any adversely affected Fund as a funding medium for each Account that AMERICAN GENERAL reasonably deems necessary or appropriate as a result of the noncompliance. (c) Neither AVIF nor AIM Distributors 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 AMERICAN GENERAL, UNDERWRITER, each Account or Participants. (d) Neither AVIF nor AIM Distributors shall 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 Distributors in writing within a reasonable time after the summons or other first legal 24 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 Distributors of any such action shall not relieve AVIF and AIM Distributors 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 Distributors 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 Distributors to such Indemnified Party of AVIF's and/or AIM Distributor's election to assume the defense thereof, the Indemnified Party will cooperate fully with AVIF and/or AIM Distributors and shall bear the fees and expenses of any additional counsel retained by it, and neither AVIF nor AIM Distributors 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, AMERICAN GENERAL, 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 AMERICAN GENERAL or UNDERWRITER hereunder or by any Participating Insurance Company under an agreement containing substantially similar representations, warranties and covenants; (ii) the failure by AMERICAN GENERAL 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 AMERICAN GENERAL or any Participating Insurance Company to maintain its variable annuity or life insurance contracts (with respect to which any Fund serves as an underlying funding vehicle) as annuity contracts or life insurance contracts under applicable provisions of the Code. 12.3 EFFECT OF NOTICE. Any notice given by the indemnifying Party to an Indemnified Party referred to in Sections 12.1(c) or 12.2(d) above of participation in or control of any action by the indemnifying Party will in no event be deemed to be an admission by the indemnifying Party of liability, culpability or responsibility, and the indemnifying Party will remain free to contest liability with respect to the claim among the Parties or otherwise. 12.4 SUCCESSORS. A successor by law of any Party shall be entitled to the benefits of the indemnification contained in this Section 12. 25 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. SECTION 18. CONFIDENTIALITY AVIF acknowledges that the identities of the customers of AMERICAN GENERAL or any of its affiliates (collectively, the "AMERICAN GENERAL 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 AMERICAN GENERAL Protected Parties or any of their employees or agents in connection with AMERICAN GENERAL's performance of its duties under this Agreement are the valuable property of the AMERICAN GENERAL Protected Parties. AVIF agrees that if it comes into possession of any list or compilation of the identities of or other information about the AMERICAN GENERAL Protected Parties' customers, or any other information or property of the AMERICAN GENERAL Protected Parties, other than such information as may be independently developed or compiled by AVIF from information supplied to it by the AMERICAN GENERAL Protected Parties' customers who also maintain 26 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 AMERICAN GENERAL's prior written consent; or (b) as required by law or judicial process. AMERICAN GENERAL 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. AMERICAN GENERAL 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 AMERICAN GENERAL from information supplied to it by the AVIF Protected Parties' customers who also maintain accounts directly with AMERICAN GENERAL, AMERICAN GENERAL 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 AMERICAN GENERAL (the "AIM licensed marks" or the "licensor's licensed marks") and is authorized to use and to license other persons to use such marks. AMERICAN GENERAL and its affiliates are hereby granted a non-exclusive license to use the AIM licensed marks in connection with AMERICAN GENERAL'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 AMERICAN GENERAL 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 AMERICAN GENERAL 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, AMERICAN GENERAL 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 AMERICAN GENERAL shall have the right to continue to service outstanding Contracts bearing any of the AIM licensed marks. 27 (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. 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. ----------------------------------------- 28 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: _____________________________ Nancy L. Martin Name: Robert H. Graham Assistant Secretary Title: President AIM DISTRIBUTORS, INC. Attest: _____________________________ By: _____________________________ Nancy L. Martin Name: A.W. Gary Littlepage Assistant General Counsel Title: Sr. Vice President & Assistant Secretary AMERICAN GENERAL LIFE INSURANCE COMPANY, on behalf of itself and its separate accounts Attest: _____________________________ By: _____________________________ Steven A. Glover Name: Don M. Ward Assistant Secretary Title: Senior Vice President-Variable Products AMERICAN GENERAL SECURITIES INCORPORATED Attest: _____________________________ By: _____________________________ Steven A. Glover Name: F. Paul Kovach Assistant Secretary Title: President 29 SCHEDULE A FUNDS AVAILABLE UNDER THE CONTRACTS o AIM VARIABLE INSURANCE FUNDS, INC. V.I. International Equity V.I. Value SEPARATE ACCOUNTS UTILIZING THE FUNDS American General Life Insurance Company Separate Account VL-R CONTRACTS FUNDED BY THE SEPARATE ACCOUNTS Platinum Investor I Policy Form No. 97600 Platinum Investor II Policy Form No. 97610 30 SCHEDULE B o AIM VARIABLE INSURANCE FUNDS, INC. AIM __________________ Fund o AIM and Design [AIM GRAPHIC OMITTED] 31 EX-8.(C) 8 EXHIBIT 8(c) FUND PARTICIPATION AGREEMENT This Agreement is entered into as of the day of _________, 1998, between AMERICAN GENERAL LIFE INSURANCE COMPANY, a life insurance company organized under the laws of the State of Texas ("Insurance Company") (on behalf of itself and its Separate Account, as defined below), and each of DREYFUS VARIABLE INVESTMENT FUND, THE DREYFUS SOCIALLY RESPONSIBLE GROWTH FUND, INC. and DREYFUS LIFE AND ANNUITY INDEX FUND, INC. (d/b/a DREYFUS STOCK INDEX FUND) (each a "Fund"). 1.0 ARTICLE I DEFINITIONS 1.1 "Act" shall mean the Investment Company Act of 1940, as amended. 1.2 "Board" shall mean the Board of Directors or Trustees, as the case may be, of a Fund, which has the responsibility for management and control of the Fund. 1.3 "Business Day" shall mean any day for which a Fund calculates net asset value per share as described in the Fund's Prospectus. 1.4 "Commission" shall mean the Securities and Exchange Commission. 1.5 "Contract" shall mean a variable annuity or life insurance contract that uses any Participating Fund (as defined below) as an underlying investment medium. Individuals who participate under a group Contract are "Participants." 1.6 "Contractholder" shall mean any entity that is a party to a Contract with a Participating Company (as defined below). 1.7 "Disinterested Board Members" shall mean those members of the Board of a Fund that are not deemed to be "interested persons" of the Fund, as defined by the Act. 1.8 "Dreyfus" shall mean The Dreyfus Corporation and its affiliates, including Dreyfus Service Corporation. 1.9 "Participating Companies" shall mean any insurance company (including Insurance Company) that offers variable annuity and/or variable life insurance contracts to the public and that has entered into an agreement with one or more of the Funds. 1.10 "Participating Fund" shall mean each Fund, including, as applicable, only those series specified in Exhibit A, as such Exhibit may be amended from time to time by agreement of the parties hereto, the shares of which are available to serve as the underlying investment medium for the aforesaid Contracts. 1.11 "Prospectus" shall mean the current prospectus and statement of additional information of a Fund, as most recently filed with the Commission. 1.12 "Separate Account" shall mean American General Life Insurance Company Separate Account VL-R, a separate account established by Insurance Company in accordance with the laws of the State of Texas. 1.13 "Software Program" shall mean the software program used by a Fund for providing Fund and account balance information including net asset value per share. Such Program may include the Lion System. In situations where the Lion System or any other Software Program used by a Fund is not available, such information may be provided by telephone. The Lion System shall be provided to Insurance Company at no charge. 1.14 "Insurance Company's General Account(s)" shall mean the general account(s) of Insurance Company and its affiliates that invest in a Fund. 2.0 ARTICLE II REPRESENTATIONS 2.1 Insurance Company represents and warrants that (a) it is an insurance company duly organized and in good standing under applicable law; (b) it has legally and validly established the Separate Account pursuant to the Texas Insurance Code for the purpose of offering to the public certain individual and group variable annuity and life insurance contracts; (c) it has registered the Separate Account as a unit investment trust under the Act to serve as the segregated investment account for the Contracts; and (d) the Separate Account is eligible to invest in shares of each Participating Fund without such investment disqualifying any Participating Fund as an investment medium for insurance company separate accounts supporting variable annuity contracts or variable life insurance contracts. 2.2 Insurance Company represents and warrants that (a) the Contracts will be described in a registration statement filed under the Securities Act of 1933, as amended ("1933 Act"); (b) the Contracts will be issued and sold in compliance in all material respects with all applicable federal and state laws; and (c) the sale of the Contracts shall comply in all material respects with state insurance law requirements. Insurance Company agrees to notify each Participating Fund promptly of any investment restrictions imposed by state insurance law and applicable to the Participating Fund. 2.3 Insurance Company represents and warrants that the income, gains and losses, whether or not realized, from assets allocated to the Separate Account are, in accordance with the applicable Contracts, to be credited to or charged against such Separate Account without regard to other income, gains or losses from assets allocated to any other accounts of Insurance Company. Insurance Company represents and warrants that the assets of the Separate Account are and will be kept separate from Insurance Company's General Account and any other separate accounts Insurance Company may have, and such Separate Account will not be charged with liabilities from any business that Insurance Company may conduct or the liabilities of any companies affiliated with Insurance Company. -2- 2.4 Each Participating Fund represents that it is registered with the Commission under the Act as an open-end, management investment company and possesses, and shall maintain, all legal and regulatory licenses, approvals, consents and/or exemptions required for the Participating Fund to operate and offer its shares as an underlying investment medium for Participating Companies. 2.5 Each Participating Fund represents that it is currently qualified as a regulated investment company under Subchapter M of the Internal Revenue Code of 1986, as amended (the "Code"), and that it will make every effort to maintain such qualification (under Subchapter M or any successor or similar provision) and that it will notify Insurance Company immediately upon having a reasonable basis for believing that it has ceased to so qualify or that it might not so qualify in the future. 2.6 Insurance Company represents and agrees that the Contracts are currently, and at the time of issuance will be, treated as life insurance policies or annuity contracts, whichever is appropriate, under applicable provisions of the Code, and that it will make every effort to maintain such treatment and that it will notify each Participating Fund and Dreyfus immediately upon having a reasonable basis for believing that the Contracts have ceased to be so treated or that they might not be so treated in the future. Insurance Company agrees that any prospectus offering a Contract that is a "modified endowment contract," as that term is defined in Section 7702A of the Code, will identify such Contract as a modified endowment contract (or policy). 2.7 Each Participating Fund agrees that its assets shall be maintained, managed and invested in a manner that complies with the requirements of Section 817(h) of the Code. Each Participating Fund agrees to notify Insurance Company promptly upon having a reasonable basis for believing that the Participating Fund has ceased to so comply, or that the Participating Fund might not so comply in the future. In the event of a breach of this Section 2.7 by a Participating Fund, the Participating Fund shall take all reasonable steps to comply with the diversification requirements of Section 817(h) within the grace period specified under Section 817(h) of the Code. 2.8 Insurance Company agrees that each Participating Fund shall be permitted (subject to the other terms of this Agreement) to make its shares available to other Participating Companies and Contractholders. 2.9 Each Participating Fund represents and warrants that any of its directors, trustees, officers, employees, investment advisers, and other individuals/entities who deal with the money and/or securities of the Participating Fund are and shall continue to be at all times covered by a blanket fidelity bond or similar coverage for the benefit of the Participating Fund in an amount not less than that required by Rule 17g-1 under the Act. The aforesaid Bond shall include coverage for larceny and embezzlement and shall be issued by a reputable bonding company. 2.10 Insurance Company represents and warrants that all of its employees and agents who deal with the money and/or securities of each Participating Fund are and shall continue to be at all -3- times covered by a blanket fidelity bond or similar coverage in an amount not less than the coverage required to be maintained by the Participating Fund. The aforesaid Bond shall include coverage for larceny and embezzlement and shall be issued by a reputable bonding company. 2.11 Insurance Company agrees that Dreyfus shall be deemed a third party beneficiary under this Agreement and may enforce any and all rights conferred by virtue of this Agreement. 3.0 ARTICLE III FUND SHARES 3.1 The Contracts funded through the Separate Account will provide for the investment of certain amounts in shares of each Participating Fund. 3.2 Each Participating Fund agrees to make its shares available for purchase at the then applicable net asset value per share by Insurance Company and the Separate Account on each Business Day pursuant to rules of the Commission. Notwithstanding the foregoing, each Participating Fund may refuse to sell its shares to any person, or suspend or terminate the offering of its shares, if such action is required by law or by regulatory authorities having jurisdiction or is, in the sole discretion of its Board, acting in good faith and in light of its fiduciary duties under federal and any applicable state laws, necessary and in the best interests of the Participating Fund's shareholders. 3.3 Each Participating Fund agrees that shares of the Participating Fund will be sold only to (a) Participating Companies and their separate accounts or (b) "qualified pension or retirement plans" as determined under Section 817(h)(4) of the Code. Except as otherwise set forth in this Section 3.3, no shares of any Participating Fund will be sold to the general public. 3.4 Each Participating Fund shall use its best efforts to provide closing net asset value, dividend and capital gain information on a per-share basis to Insurance Company by 6:00 p.m. Eastern time on each Business Day. Any material errors in the calculation of net asset value, dividend and capital gain information shall be reported immediately upon discovery to Insurance Company. Non-material errors will be corrected in the next Business Day's net asset value per share. 3.5 At the end of each Business Day, Insurance Company will use the information described in Sections 3.2 and 3.4 to calculate the unit values of the Separate Account for the day. Using this unit value, Insurance Company will process the day's Separate Account transactions received by it by the close of trading on the floor of the New York Stock Exchange (currently 4:00 p.m. Eastern time) to determine the net dollar amount of each Participating Fund's shares that will be purchased or redeemed at that day's closing net asset value per share. Insurance Company will use all commercially reasonable efforts to transmit the net purchase or redemption orders to each Participating Fund by 11:00 a.m. Eastern time on the Business Day next following Insurance Company's receipt of that information. Subject to Sections 3.6 and 3.8, all purchase and redemption orders for Insurance Company's General Accounts shall be -4- effected at the net asset value per share of each Participating Fund next calculated after receipt of the order by the Participating Fund or its Transfer Agent. 3.6 Each Participating Fund appoints Insurance Company as its agent for the limited purpose of accepting orders for the purchase and redemption of Participating Fund shares for the Separate Account. Each Participating Fund will execute orders at the applicable net asset value per share determined as of the close of trading on the day of receipt of such orders by Insurance Company acting as agent ("effective trade date"), provided that the Participating Fund receives notice of such orders by 11:00 a.m. Eastern time on the next following Business Day and, if such orders request the purchase of Participating Fund shares, the conditions specified in Section 3.8, as applicable, are satisfied. A redemption or purchase request that does not satisfy the conditions specified above and in Section 3.8, as applicable, will be effected at the net asset value per share computed on the Business Day immediately preceding the next following Business Day upon which such conditions have been satisfied in accordance with the requirements of this Section and Section 3.8. Payment for the purchase or redemption of Participating Fund shares may be netted against one another on any Business Day for the purpose of determining the amount of any wire transfer on that Business Day. Insurance Company represents and warrants that all orders submitted by the Insurance Company for execution on the effective trade date shall represent purchase or redemption orders received from Contractholders prior to the close of trading on the New York Stock Exchange on the effective trade date. 3.7 Insurance Company will make its best efforts to notify each applicable Participating Fund in advance of any unusually large purchase or redemption orders. 3.8 If Insurance Company's order requests the purchase of a Participating Fund's shares, Insurance Company will pay for such purchases by wiring Federal Funds to the Participating Fund or its designated custodial account on the day the order is transmitted. Insurance Company shall make all commercially reasonable efforts to transmit to the applicable Participating Fund payment in Federal Funds by 12:00 noon Eastern time on the Business Day the Participating Fund receives the notice of the order pursuant to Section 3.5. Each applicable Participating Fund will execute such orders at the applicable net asset value per share determined as of the close of trading on the effective trade date if the Participating Fund receives payment in Federal Funds by 12:00 midnight Eastern time on the Business Day the Participating Fund receives the notice of the order pursuant to Section 3.5. If payment in Federal Funds for any purchase is not received or is received by a Participating Fund after 12:00 noon Eastern time on such Business Day, Insurance Company shall promptly, upon each applicable Participating Fund's request, reimburse the respective Participating Fund for any charges, costs, fees, interest or other expenses incurred by the Participating Fund in connection with any advances to, or borrowings or overdrafts by, the Participating Fund, or any similar expenses incurred by the Participating Fund, as a result of portfolio transactions effected by the Participating Fund based upon such purchase request. If Insurance Company's order requests the redemption of any Participating Fund's shares valued at or greater than $1 million dollars, the Participating Fund will wire such amount to Insurance Company within seven days of the order. -5- 3.9 Each Participating Fund has the obligation to ensure that its shares are registered with applicable federal agencies at all times. 3.10 Each Participating Fund will confirm each purchase or redemption order made by Insurance Company. Transfer of Participating Fund shares will be by book entry only. No share certificates will be issued to Insurance Company. Insurance Company will record shares ordered from a Participating Fund in an appropriate title for the corresponding account. 3.11 Each Participating Fund shall credit Insurance Company with the appropriate number of shares. 3.12 On each ex-dividend date of a Participating Fund or, if not a Business Day, on the first Business Day thereafter, each Participating Fund shall communicate to Insurance Company the amount of dividend and capital gain, if any, per share. All dividends and capital gains shall be automatically reinvested in additional shares of the applicable Participating Fund at the net asset value per share on the ex-dividend date. Each Participating Fund shall, on the day after the ex-dividend date or, if not a Business Day, on the first Business Day thereafter, notify Insurance Company of the number of shares so issued. Insurance Company reserves the right, on its behalf and on behalf of the Separate Account, to revoke this election and receive all such dividends in cash. 4.0 ARTICLE IV STATEMENTS AND REPORTS 4.1 Each Participating Fund shall provide monthly statements of account as of the end of each month for all of Insurance Company's accounts by the fifteenth (15th) Business Day of the following month. 4.2 Each Participating Fund shall distribute to Insurance Company copies of the Participating Fund's Prospectuses, proxy materials, notices, periodic reports and other printed materials (which the Participating Fund customarily provides to its shareholders) in quantities as Insurance Company may reasonably request for distribution to each Contractholder and Participant. 4.3 Each Participating Fund will provide to Insurance Company at least one complete copy of all registration statements, Prospectuses, reports, proxy statements, sales literature and other promotional materials, applications for exemptions, requests for no-action letters, and all amendments to any of the above, that relate to the Participating Fund or its shares, contemporaneously with the filing of such document with the Commission or other regulatory authorities. 4.4 Insurance Company will provide to each Participating Fund at least one copy of all registration statements, Prospectuses, reports, proxy statements, sales literature and other promotional materials, applications for exemptions, requests for no-action letters, and all amendments to any of the above, that relate to the Contracts or the Separate Account, contemporaneously with the filing of such document with the Commission. -6- 5.0 ARTICLE V EXPENSES 5.1 The charge to each Participating Fund for all expenses and costs of the Participating Fund, including but not limited to management fees, administrative expenses and legal and regulatory costs, will be made in the determination of the Participating Fund's daily net asset value per share so as to accumulate to an annual charge at the rate set forth in the Participating Fund's Prospectus. Excluded from the expense limitation described herein shall be brokerage commissions and transaction fees and extraordinary expenses. 5.2 Except as provided in this Article V and, in particular in the next sentence, Insurance Company shall not be required to pay directly any expenses of any Participating Fund or expenses relating to the distribution of its shares. Insurance Company shall pay the following expenses or costs: a. Such amount of the production expenses of any Participating Fund materials, including the cost of printing a Participating Fund's Prospectus, or marketing materials for prospective Insurance Company Contractholders and Participants as Dreyfus and Insurance Company shall agree from time to time. Each Participating Fund agrees to bear one-half of the expense of printing such Participating Fund's prospectus to be distributed to Contractholders. b. Distribution expenses of any Participating Fund materials or marketing materials for prospective Insurance Company Contractholders and Participants. c. Distribution expenses of any Participating Fund materials or marketing materials for Insurance Company Contractholders and Participants. Except as provided herein, all other expenses of each Participating Fund shall not be borne by Insurance Company. 6.0 ARTICLE VI EXEMPTIVE RELIEF 6.1 Insurance Company has reviewed a copy of (i) the amended order dated December 31, 1997 of the Securities and Exchange Commission under Section 6(c) of the Act with respect to Dreyfus Variable Investment Fund and Dreyfus Life and Annuity Index Fund, Inc.; and (ii) the order dated February 5, 1998 of the Securities and Exchange Commission under Section 6(c) of the Act with respect to The Dreyfus Socially Responsible Growth Fund, Inc., and, in particular, has reviewed the conditions to the relief set forth in each related Notice. As set forth therein, if Dreyfus Variable Investment Fund, Dreyfus Life and Annuity Index Fund, Inc. or The Dreyfus Socially Responsible Growth Fund, Inc. is a Participating Fund, Insurance Company agrees, as applicable, to report any potential or existing conflicts promptly to the respective Board of Dreyfus Variable Investment Fund, Dreyfus Life and Annuity Index Fund, Inc. and/or The Dreyfus Socially Responsible Growth Fund, Inc., and, in particular, whenever -7- contract voting instructions are disregarded, and recognizes that it will be responsible for assisting each applicable Board in carrying out its responsibilities under such application. Insurance Company agrees to carry out such responsibilities with a view to the interests of existing Contractholders. 6.2 If a majority of the Board, or a majority of Disinterested Board Members, determines that a material irreconcilable conflict exists with regard to Contractholder investments in a Participating Fund, the Board shall give prompt notice to all Participating Companies and any other Participating Fund. If the Board determines that Insurance Company is responsible for causing or creating said conflict, Insurance Company shall at its sole cost and expense, and to the extent reasonably practicable (as determined by a majority of the Disinterested Board Members), take such action as is necessary to remedy or eliminate the irreconcilable material conflict. Such necessary action may include, but shall not be limited to: a. Withdrawing the assets allocable to the Separate Account from the Participating Fund and reinvesting such assets in another Participating Fund (if applicable) or a different investment medium, or submitting the question of whether such segregation should be implemented to a vote of all affected Contractholders; and/or b. Establishing a new registered management investment company. 6.3 If a material irreconcilable conflict arises as a result of a decision by Insurance Company to disregard Contractholder voting instructions and said decision represents a minority position or would preclude a majority vote by all Contractholders having an interest in a Participating Fund, Insurance Company may be required, at the Board's election, to withdraw the investments of the Separate Account in that Participating Fund. 6.4 For the purpose of this Article, a majority of the Disinterested Board Members shall determine whether or not any proposed action adequately remedies any irreconcilable material conflict, but in no event will any Participating Fund be required to bear the expense of establishing a new funding medium for any Contract. Insurance Company shall not be required by this Article to establish a new funding medium for any Contract if an offer to do so has been declined by vote of a majority of the Contractholders materially adversely affected by the irreconcilable material conflict. 6.5 No action by Insurance Company taken or omitted, and no action by the Separate Account or any Participating Fund taken or omitted as a result of any act or failure to act by Insurance Company pursuant to this Article VI, shall relieve Insurance Company of its obligations under, or otherwise affect the operation of, Article V. 7.0 ARTICLE VII VOTING OF PARTICIPATING FUND SHARES 7.1 Each Participating Fund shall provide Insurance Company with copies, at no cost to Insurance Company, of the Participating Fund's proxy material, reports to shareholders and other -8- communications to shareholders in such quantity as Insurance Company shall reasonably require for distributing to Contractholders or Participants. Insurance Company shall: (a) solicit voting instructions from Contractholders or Participants on a timely basis and in accordance with applicable law; (b) vote the Participating Fund shares in accordance with instructions received from Contractholders or Participants; and (c) vote the Participating Fund shares for which no instructions have been received in the same proportion as Participating Fund shares for which instructions have been received. Insurance Company agrees at all times to vote its General Account shares in the same proportion as the Participating Fund shares for which instructions have been received from Contractholders or Participants. Insurance Company further agrees to be responsible for assuring that voting the Participating Fund shares for the Separate Account is conducted in a manner consistent with other Participating Companies. 7.2 Insurance Company agrees that it shall not, without the prior written consent of each applicable Participating Fund and Dreyfus, solicit, induce or encourage Contractholders to (a) change or supplement the Participating Fund's current investment adviser or (b) change, modify, substitute, add to or delete from the current investment media for the Contracts. 8.0 ARTICLE VIII MARKETING AND REPRESENTATIONS 8.1 Each Participating Fund or its underwriter shall periodically furnish Insurance Company with the following documents, in quantities as Insurance Company may reasonably request: a. Current Prospectus and any supplements thereto; and b. Other marketing materials. Expenses for the production of such documents shall be borne by Insurance Company in accordance with Section 5.2 of this Agreement. 8.2 Insurance Company shall designate certain persons or entities that shall have the requisite licenses to solicit applications for the sale of Contracts. No representation is made as to the number or amount of Contracts that are to be sold by Insurance Company. Insurance Company shall make reasonable efforts to market the Contracts and shall comply with all applicable federal and state laws in connection therewith. -9- 8.3 Insurance Company shall furnish, or shall cause to be furnished, to each applicable Participating Fund or its designee, each piece of sales literature or other promotional material in which the Participating Fund, its investment adviser or the administrator is named, at least fifteen Business Days prior to its use. No such material shall be used unless the Participating Fund or its designee approves such material. Such approval (if given) must be in writing and shall be presumed not given if not received within ten Business Days after receipt of such material. Each applicable Participating Fund or its designee, as the case may be, shall use all reasonable efforts to respond within ten days of receipt. 8.4 Insurance Company shall not give any information or make any representations or statements on behalf of a Participating Fund or concerning a Participating Fund in connection with the sale of the Contracts other than the information or representations contained in the registration statement or Prospectus of, as may be amended or supplemented from time to time, or in reports or proxy statements for, the applicable Participating Fund, or in sales literature or other promotional material approved by the applicable Participating Fund. 8.5 Each Participating Fund shall furnish, or shall cause to be furnished, to Insurance Company, each piece of the Participating Fund's sales literature or other promotional material in which Insurance Company or the Separate Account is named, at least fifteen Business Days prior to its use. No such material shall be used unless Insurance Company approves such material. Such approval (if given) must be in writing and shall be presumed not given if not received within ten Business Days after receipt of such material. Insurance Company shall use all reasonable efforts to respond within ten days of receipt. 8.6 Each Participating Fund shall not, in connection with the sale of Participating Fund shares, give any information or make any representations on behalf of Insurance Company or concerning Insurance Company, the Separate Account, or the Contracts other than the information or representations contained in a registration statement or prospectus for the Contracts, as may be amended or supplemented from time to time, or in published reports for the Separate Account that are in the public domain or approved by Insurance Company for distribution to Contractholders or Participants, or in sales literature or other promotional material approved by Insurance Company. 8.7 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 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. rules, the Act or the 1933 Act. -10- 9.0 ARTICLE IX INDEMNIFICATION 9.1 Insurance Company agrees to indemnify and hold harmless each Participating Fund, Dreyfus, each respective Participating Fund's investment adviser and sub-investment adviser (if applicable), each respective Participating Fund's distributor, and their respective affiliates, and each of their directors, trustees, officers, employees, agents and each person, if any, who controls or is associated with any of the foregoing entities or persons within the meaning of the 1933 Act (collectively, the "Indemnified Parties" for purposes of Section 9.1), against any and all losses, claims, damages or liabilities joint or several (including any investigative, legal and other expenses reasonably incurred in connection with, and any amounts paid in settlement of, any action, suit or proceeding or any claim asserted) for which the Indemnified Parties may become subject, under the 1933 Act or otherwise, insofar as such losses, claims, damages or liabilities (or actions in respect to thereof) (i) arise out of or are based upon any untrue statement or alleged untrue statement of any material fact contained in information furnished by Insurance Company for use in the registration statement or Prospectus or sales literature or advertisements of the respective Participating Fund or with respect to the Separate Account or Contracts, 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; (ii) arise out of or as a result of conduct, statements or representations (other than statements or representations contained in the Prospectus and sales literature or advertisements of the respective Participating Fund) of Insurance Company or its agents, with respect to the sale and distribution of Contracts for which the respective Participating Fund's shares are an underlying investment; (iii) arise out of the wrongful conduct of Insurance Company or persons under its control with respect to the sale or distribution of the Contracts or the respective Participating Fund's shares; (iv) arise out of Insurance Company's incorrect calculation and/or untimely reporting of net purchase or redemption orders; or (v) arise out of any breach by Insurance Company of a material term of this Agreement or as a result of any failure by Insurance Company to provide the services and furnish the materials or to make any payments provided for in this Agreement. Insurance Company will reimburse any Indemnified Party in connection with investigating or defending any such loss, claim, damage, liability or action; provided, however, that with respect to clauses (i) and (ii) above Insurance Company will not be liable in any such case to the extent that any such loss, claim, damage or liability arises out of or is based upon any untrue statement or omission or alleged omission made in such registration statement, prospectus, sales literature, or advertisement in conformity with written information furnished to Insurance Company by the respective Participating Fund specifically for use therein. This indemnity agreement will be in addition to any liability which Insurance Company may otherwise have. 9.2 Each Participating Fund severally agrees to indemnify and hold harmless Insurance Company, American General Securities Incorporated ("AGSI"), their respective affiliates, and each of their directors, officers, employees, agents and each person, if any, who controls Insurance Company and/or AGSI within the meaning of the 1933 Act (collectively, the "Indemnified Parties") against any losses, claims, damages or liabilities to which the Indemnified Parties may become subject, under the 1933 Act or otherwise, insofar as such losses, claims, damages -11- or liabilities (or actions in respect thereof) (1) 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 or advertisements of the respective Participating Fund; (2) arise out of or are based upon the omission to state in the registration statement or Prospectus or sales literature or advertisements of the respective Participating Fund any material fact required to be stated therein or necessary to make the statements therein not misleading; or (3) 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 or advertisements with respect to the Separate Account or the Contracts and such statements were based on information provided to Insurance Company by the respective Participating Fund; and the respective Participating Fund will reimburse any legal or other expenses reasonably incurred by the Indemnified Parties in connection with investigating or defending any such loss, claim, damage, liability or action; provided, however, that the respective Participating Fund will not be liable in any such case to the extent that any such loss, claim, damage or liability arises out of or is based upon an untrue statement or omission or alleged omission made in such registration statement, Prospectus, sales literature or advertisements in conformity with written information furnished to the respective Participating Fund by Insurance Company specifically for use therein. This indemnity agreement will be in addition to any liability which the respective Participating Fund may otherwise have. 9.3 Each Participating Fund severally shall indemnify and hold the Indemnified Parties harmless against any and all liability, loss, damages, costs or expenses which they may incur, suffer or be required to pay due to the respective Participating Fund's (1) incorrect calculation of the daily net asset value, dividend rate or capital gain distribution rate; (2) incorrect reporting of the daily net asset value, dividend rate or capital gain distribution rate; (3) untimely reporting of the net asset value, dividend rate or capital gain distribution rate; and (4) breach of a material term of this Agreement, or as a result of a failure by such Participating Fund to provide the services or furnish the materials or make the payments required by such Participating Fund under the Agreement; provided that the respective Participating Fund shall have no obligation to indemnify and hold harmless Insurance Company if the incorrect calculation or incorrect or untimely reporting was the result of incorrect information furnished by Insurance Company or information furnished untimely by Insurance Company or otherwise as a result of or relating to a breach of this Agreement by Insurance Company. 9.4 Promptly after receipt by an indemnified party under this Article of notice of the commencement of any action, such indemnified party will, if a claim in respect thereof is to be made against the indemnifying party under this Article, notify the indemnifying party of the commencement thereof. The omission to so notify the indemnifying party will not relieve the indemnifying party from any liability under this Article IX, except to the extent that the omission results in a failure of actual notice to the indemnifying party and such indemnifying party is damaged solely as a result of the failure to give such notice. In case any such action is brought against any indemnified party, and it notified the indemnifying party of the commencement thereof, the indemnifying party will be entitled to participate therein and, to the extent that it may wish, assume the defense thereof, with counsel satisfactory to such indemnified party, and to the extent that the indemnifying party has given notice to such effect -12- to the indemnified party and is performing its obligations under this Article, the indemnifying party shall not be liable for any legal or other expenses subsequently incurred by such indemnified party in connection with the defense thereof, other than reasonable costs of investigation. Notwithstanding the foregoing, in any such proceeding, any indemnified party shall have the right to retain its own counsel, but the fees and expenses of such counsel shall be at the expense of such indemnified party unless (i) the indemnifying party and the indemnified party shall have mutually agreed to the retention of such counsel or (ii) the named parties to any such proceeding (including any impleaded parties) include both the indemnifying party and the indemnified party and representation of both parties by the same counsel would be inappropriate due to actual or potential differing interests between them. The indemnifying party shall not be liable for any settlement of any proceeding effected without its written consent. A successor by law of the parties to this Agreement shall be entitled to the benefits of the indemnification contained in this Article IX. The provisions of this Article IX shall survive termination of this Agreement. 9.5 Insurance Company shall indemnify and hold each respective Participating Fund, Dreyfus and sub-investment adviser of the Participating Fund harmless against any tax liability incurred by the Participating Fund under Section 851 of the Code arising from purchases or redemptions by Insurance Company's General Accounts or the account of its affiliates. 10.0 ARTICLE X COMMENCEMENT AND TERMINATION 10.1 This Agreement shall be effective as of the date hereof and shall continue in force until terminated in accordance with the provisions herein. 10.2 This Agreement shall terminate without penalty: a. As to any Participating Fund, at the option of Insurance Company or the Participating Fund at any time from the date hereof upon twelve months' notice, unless a shorter time is agreed to by the respective Participating Fund and Insurance Company; b. As to any Participating Fund, at the option of Insurance Company, if shares of that Participating Fund are not reasonably available to meet the requirements of the Contracts as determined by Insurance Company. Prompt notice of election to terminate shall be furnished by Insurance Company, said termination to be effective ten days after receipt of notice unless the Participating Fund makes available a sufficient number of shares to meet the requirements of the Contracts within said ten- day period; c. As to a Participating Fund, at the option of Insurance Company, upon the institution of formal proceedings against that Participating Fund by the Commission, National Association of Securities Dealers or any other regulatory body, the expected or anticipated ruling, judgment or outcome of which would, in Insurance Company's -13- reasonable judgment, materially impair that Participating Fund's ability to meet and perform the Participating Fund's obligations and duties hereunder. Prompt notice of election to terminate shall be furnished by Insurance Company with said termination to be effective upon receipt of notice; d. As to a Participating Fund, at the option of each Participating Fund, upon the institution of formal proceedings against Insurance Company by the Commission, National Association of Securities Dealers or any other regulatory body, the expected or anticipated ruling, judgment or outcome of which would, in the Participating Fund's reasonable judgment, materially impair Insurance Company's ability to meet and perform Insurance Company's obligations and duties hereunder. Prompt notice of election to terminate shall be furnished by such Participating Fund with said termination to be effective upon receipt of notice; e. As to a Participating Fund, at the option of that Participating Fund, if the Participating Fund shall determine, in its sole judgment reasonably exercised in good faith, that Insurance Company has suffered a material adverse change in its business or financial condition or is the subject of material adverse publicity and such material adverse change or material adverse publicity is likely to have a material adverse impact upon the business and operation of that Participating Fund or Dreyfus, such Participating Fund shall notify Insurance Company in writing of such determination and its intent to terminate this Agreement, and after considering the actions taken by Insurance Company and any other changes in circumstances since the giving of such notice, such determination of the Participating Fund shall continue to apply on the sixtieth (60th) day following the giving of such notice, which sixtieth day shall be the effective date of termination; f. As to a Participating Fund, at the option of Insurance Company, if Insurance Company shall determine, in its sole judgment reasonably exercised in good faith, that the Participating Fund has suffered a material adverse change in its business or financial condition or is the subject of material adverse publicity and such material adverse change or material adverse publicity is likely to have a material adverse impact upon the business and operation of Insurance Company or its Separate Account, the Insurance Company shall notify the Participating Fund in writing of such determination and its intent to terminate this Agreement, and after considering the actions taken by the Participating Fund and any other changes in circumstances since the giving of such notice, such determination of Insurance Company shall continue to apply on the sixtieth (60th) day following the giving of such notice, which sixtieth day shall be the effective date of termination; g. As to a Participating Fund, upon termination of the Investment Advisory Agreement between that Participating Fund and Dreyfus or its successors unless Insurance Company specifically approves the selection of a new Participating Fund investment adviser. Such Participating Fund shall promptly furnish notice of such termination to Insurance Company; -14- h. As to a Participating Fund, in the event that Participating Fund's shares are not registered, issued or sold in accordance with applicable federal law, or such law precludes the use of such shares as the underlying investment medium of Contracts issued or to be issued by Insurance Company. Termination shall be effective immediately as to that Participating Fund only upon such occurrence without notice; i. At the option of a Participating Fund upon a determination by its Board in good faith that it is no longer advisable and in the best interests of shareholders of that Participating Fund to continue to operate pursuant to this Agreement. Termination pursuant to this Subsection (h) shall be effective upon notice by such Participating Fund to Insurance Company of such termination; j. At the option of a Participating Fund if the Contracts cease to qualify as annuity contracts or life insurance policies, as applicable, under the Code, or if such Participating Fund reasonably believes that the Contracts may fail to so qualify; k. At the option of any party to this Agreement, upon another party's breach of any material provision of this Agreement; l. At the option of a Participating Fund, if the Contracts are not registered, issued or sold in accordance with applicable federal and/or state law; or m. Upon assignment of this Agreement, unless made with the written consent of every other non-assigning party. Any such termination pursuant to Section 10.2a, 10.2d, 10.2e, 10.2f or 10.2k herein shall not affect the operation of Article V of this Agreement. Any termination of this Agreement shall not affect the operation of Article IX of this Agreement. 10.3 Notwithstanding any termination of this Agreement pursuant to Section 10.2 hereof, each Participating Fund and Dreyfus may, at the option of the Participating Fund, continue to make available additional shares of that Participating Fund for as long as the Participating Fund desires pursuant to the terms and conditions of this Agreement as provided below, for all Contracts in effect on the effective date of termination of this Agreement (hereinafter referred to as "Existing Contracts"). Specifically, without limitation, if that Participating Fund and Dreyfus so elect to make additional Participating Fund shares available, the owners of the Existing Contracts or Insurance Company, whichever shall have legal authority to do so, shall be permitted to reallocate investments in that Participating Fund, redeem investments in that Participating Fund and/or invest in that Participating Fund upon the making of additional purchase payments under the Existing Contracts. In the event of a termination of this Agreement pursuant to Section 10.2 hereof, such Participating Fund and Dreyfus, as promptly as is practicable under the circumstances, shall notify Insurance Company whether Dreyfus and that Participating Fund will continue to make that Participating Fund's shares available after such termination. If such Participating Fund shares continue to be made available after such termination, the provisions of this Agreement shall remain in effect and thereafter either of that Participating Fund or Insurance Company may terminate the Agreement as to that -15- Participating Fund, as so continued pursuant to this Section 10.3, upon prior written notice to the other party, such notice to be for a period that is reasonable under the circumstances but, if given by the Participating Fund, need not be for more than six months. 10.4 Termination of this Agreement as to any one Participating Fund shall not be deemed a termination as to any other Participating Fund unless Insurance Company or such other Participating Fund, as the case may be, terminates this Agreement as to such other Participating Fund in accordance with this Article X. 11.0 ARTICLE XI AMENDMENTS 11.1 Any other changes in the terms of this Agreement, except for the addition or deletion of any Participating Fund as specified in Exhibit A, shall be made by agreement in writing between Insurance Company and each respective Participating Fund. -16- 12.0 ARTICLE XII NOTICE 12.1 Each notice required by this Agreement shall be given by certified mail, return receipt requested, to the appropriate parties at the following addresses: Insurance Company: American General Life Insurance Company c/o American General Independent Producer Division 2727-A Allen Parkway Houston, Texas 77019 Facsimile: (713) 831-3071 Attn: Steven Glover, Esq. Participating Funds: [Name of Fund] c/o Premier Mutual Fund Services, Inc. 200 Park Avenue New York, New York 10166 Attn: Vice President and Assistant Secretary with copies to: [Name of Fund] c/o The Dreyfus Corporation 200 Park Avenue New York, New York 10166 Attn: Mark N. Jacobs, Esq. Lawrence B. Stoller, Esq. Stroock & Stroock & Lavan 180 Maiden Lane New York, New York 10038-4982 Attn: Lewis G. Cole, Esq. Stuart H. Coleman, Esq. Notice shall be deemed to be given on the date of receipt by the addresses as evidenced by the return receipt. 13.0 ARTICLE XIII MISCELLANEOUS 13.1 This Agreement has been executed on behalf of each Fund by the undersigned officer of the Fund in his capacity as an officer of the Fund. The obligations of this Agreement shall only be binding upon the assets and property of the Fund and shall not be binding upon any director, trustee, officer or shareholder of the Fund individually. It is agreed that the obligations of the Funds are several and not joint, that no Fund shall be liable for any amount -17- owing by another Fund and that the Funds have executed one instrument for convenience only. 13.2 Each Participating Fund agrees to consult in advance with Insurance Company concerning any decision to elect or not to pass through the benefit of any foreign tax credits to the Participating Fund's shareholders pursuant to Section 853 of the Code. 14.0 ARTICLE XIV LAW 14.1 This Agreement shall be construed in accordance with the internal laws of the State of New York, without giving effect to principles of conflict of laws. IN WITNESS WHEREOF, the parties hereto have executed this Agreement to be duly executed and attested as of the date first above written. AMERICAN GENERAL LIFE INSURANCE COMPANY By: ________________________ Its: _______________________ Attest: ________________________ DREYFUS LIFE AND ANNUITY INDEX FUND, INC. (d/b/a DREYFUS STOCK INDEX FUND) By: ________________________ Its: _______________________ Attest: ________________________ THE DREYFUS SOCIALLY RESPONSIBLE GROWTH FUND, INC. By: ________________________ Its: _______________________ -18- Attest: ________________________ DREYFUS VARIABLE INVESTMENT FUND By: ________________________ Its: _______________________ Attest: ________________________ -19- EXHIBIT A LIST OF PARTICIPATING FUNDS Dreyfus Variable Investment Fund: Small Cap Portfolio Quality Bond Portfolio -20- EX-8.(D) 9 EXHIBIT 8(d) PARTICIPATION AGREEMENT AMONG MFS VARIABLE INSURANCE TRUST, AMERICAN GENERAL LIFE INSURANCE COMPANY AND MASSACHUSETTS FINANCIAL SERVICES COMPANY THIS AGREEMENT, made and entered into this ____ day of March 1998, by and among MFS VARIABLE INSURANCE TRUST, a Massachusetts business trust (the "Trust"), AMERICAN GENERAL LIFE INSURANCE COMPANY, a Texas corporation (the "Company") on its own behalf and on behalf of each of the segregated asset accounts of the Company set forth in Schedule A hereto, as may be amended from time to time (the "Accounts"), and MASSACHUSETTS FINANCIAL SERVICES COMPANY, a Delaware corporation ("MFS"). WHEREAS, the Trust is registered as an open-end management investment company under the Investment Company Act of 1940, as amended (the "1940 Act"), and its shares are registered or will be registered under the Securities Act of 1933, as amended (the "1933 Act"); WHEREAS, shares of beneficial interest of the Trust are divided into several series of shares, each representing the interests in a particular managed pool of securities and other assets; WHEREAS, the series of shares of the Trust offered by the Trust to the Company and the Accounts are set forth on Schedule A attached hereto (each, a "Portfolio," and, collectively, the "Portfolios"); WHEREAS, MFS is duly registered as an investment adviser under the Investment Advisers Act of 1940, as amended, and any applicable state securities law, and is the Trust's investment adviser; WHEREAS, the Company will issue certain variable annuity and/or variable life insurance contracts (individually, the "Policy" or, collectively, the "Policies") which, if required by applicable law, will be registered under the 1933 Act; WHEREAS, the Accounts are duly organized, validly existing segregated asset accounts, established by resolution of the Board of Directors of the Company, to set aside and invest assets attributable to the aforesaid variable annuity and/or variable life insurance contracts that are allocated to the Accounts (the Policies and the Accounts covered by this Agreement, and each corresponding Portfolio covered by this Agreement in which the Accounts invest, is specified in Schedule A attached hereto as may be modified from time to time); WHEREAS, the Company has registered or will register the Accounts as unit investment trusts under the 1940 Act (unless exempt therefrom); WHEREAS, MFS Fund Distributors, Inc. (the "Underwriter") is registered as a broker-dealer with the Securities and Exchange Commission (the "SEC") under the Securities Exchange Act of 1934, as amended (hereinafter the "1934 Act"), and is a member in good standing of the National Association of Securities Dealers, Inc. (the "NASD"); WHEREAS, American General Securities Incorporated, an affiliate of the Company and the underwriter for the Policies, is registered as a broker-dealer with the SEC under the 1934 Act and is a member in good standing of the NASD; and WHEREAS, to the extent permitted by applicable insurance laws and regulations, the Company intends to purchase shares in one or more of the Portfolios specified in Schedule A attached hereto (the "Shares") on behalf of the Accounts to fund the Policies, and the Trust intends to sell such Shares to the Accounts at net asset value; NOW, THEREFORE, in consideration of their mutual promises, the Trust, MFS, and the Company agree as follows: ARTICLE I. SALE OF TRUST SHARES 1.1. The Trust agrees to sell to the Company those Shares which the Accounts order (based on orders placed by Policy holders on that Business Day, as defined below) and which are available for purchase by such Accounts, executing such orders on a daily basis at the net asset value next computed after receipt by the Trust or its designee of the order for the Shares. For purposes of this Section 1.1, the Company shall be the designee of the Trust for receipt of such orders from Policy owners and receipt by such designee shall constitute receipt by the Trust. In this regard, the Company shall use its best efforts to notify the Trust of such orders by 9:30 a.m. New York time on the next following Business Day, provided that in any event the Company will so notify the Trust by 10:30 a.m. New York time on the next following Business Day. "Business Day" shall mean any day on which the New York Stock Exchange, Inc. (the "NYSE") is open for trading and on which the Trust calculates its net asset value pursuant to the rules of the SEC. 1.2. The Trust agrees to make the Shares available indefinitely for purchase at the applicable net asset value per share by the Company and the Accounts on those days on which the Trust calculates its net asset value pursuant to rules of the SEC and the Trust shall calculate such net asset value on each day which the NYSE is open for trading. Notwithstanding the foregoing, the Board of Trustees of the Trust (the "Board") may refuse to sell any Shares to the Company and the Accounts, or suspend or terminate the offering of the Shares if such action is required by law or by regulatory authorities having jurisdiction or is, in the sole discretion of the Board acting in good faith and in light of its fiduciary duties under federal and any applicable state laws, necessary in the best interest of the Shareholders of such Portfolio. 1.3. The Trust and MFS agree that the Shares will be sold only to insurance companies which have entered into participation agreements with the Trust and MFS (the "Participating Insurance Companies") and their separate accounts, qualified pension and retirement plans and MFS or its affiliates. The Trust and MFS will not sell Trust shares to any insurance company or separate account unless an agreement containing provisions substantially the same as Articles III and VII of this Agreement is in effect to govern such sales. The Company will not resell the Shares except to the Trust or its agents. 1.4. The Trust agrees to redeem for cash, on the Company's request, any full or fractional Shares held by the Accounts (based on orders placed by Policy owners on that Business Day), executing such requests on a daily basis at the net asset value next computed after receipt by the Trust or its designee of the request for redemption. For purposes of this Section 1.4, the Company shall be the designee of the Trust for receipt of requests for redemption from Policy owners and receipt by such designee shall constitute receipt by the Trust. In this regard, the Company shall use its best efforts to notify the Trust of such request for redemption by 9:30 a.m. New York time on the next following Business Day, provided that in any event the Company will so notify the Trust by 10:30 a.m. New York time the next following Business Day. 1.5. Each purchase, redemption and exchange order placed by the Company shall be placed separately for each Portfolio and shall not be netted with respect to any Portfolio. However, with respect to payment of the purchase price by the Company and of redemption proceeds by the Trust, the Company and the Trust shall net purchase and redemption orders with respect to each Portfolio and shall transmit one net payment for all of the Portfolios in accordance with Section 1.6 hereof. 1.6. In the event of net purchases, the Company shall pay for the Shares by 2:00 p.m. New York time on the next Business Day after an order to purchase the Shares is made in accordance with the provisions of Section 1.1. hereof. In the event of net redemptions, the Trust shall pay the redemption proceeds by 2:00 p.m. New York time on the next Business Day after an order to redeem the shares is made in accordance with the provisions of Section 1.4. hereof. All such payments shall be in federal funds transmitted by wire. 1.7. Issuance and transfer of the Shares will be by book entry only. Stock certificates will not be issued to the Company or the Accounts. The Shares ordered from the Trust will be recorded in an appropriate title for the Accounts or the appropriate subaccounts of the Accounts. 1.8. The Trust shall furnish notice to the Company (by facsimile copy, followed by telephone confirmation), on or prior to the payment date of any dividends or capital gain distributions payable on the Shares. The Company hereby elects to receive all such dividends and distributions as are payable on a Portfolio's Shares in additional Shares of that Portfolio. The Trust shall notify the Company of the number of Shares so issued as payment of such dividends and distributions. 1.9. The Trust or its custodian shall make the net asset value per share for each Portfolio available to the Company on each Business Day as soon as reasonably practical after the net asset value per share is calculated and shall use its best efforts to make such net asset value per share available by 6:30 p.m. New York time. In the event that the Trust is unable to meet the 6:30 p.m. time stated herein, it shall provide additional time for the Company to place orders for the purchase and redemption of Shares. Such additional time shall be equal to the additional time which the Trust takes to make the net asset value available to the Company. If the Trust provides materially incorrect share net asset value information, the Trust shall make an adjustment to the number of shares purchased or redeemed for the Accounts 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 gains information shall be reported promptly upon discovery to the Company. ARTICLE II. CERTAIN REPRESENTATIONS, WARRANTIES AND COVENANTS 2.1. The Company represents and warrants that the Policies are or will be registered under the 1933 Act or are exempt from or not subject to registration thereunder, and that the Policies will be issued, sold, and distributed in compliance in all material respects with all applicable state and federal laws, including without limitation the 1933 Act, the Securities Exchange Act of 1934, as amended (the "1934 Act"), and the 1940 Act. The Company further represents and warrants that it is an insurance company duly organized and in good standing under applicable law and that it has legally and validly established the Account as a segregated asset account under applicable law and has registered or, prior to any issuance or sale of the Policies, will register the Accounts as unit investment trusts in accordance with the provisions of the 1940 Act (unless exempt therefrom) to serve as segregated investment accounts for the Policies, and that it will maintain such registration for so long as any Policies are outstanding. The Company shall amend the registration statements under the 1933 Act for the Policies and the registration statements under the 1940 Act for the Accounts from time to time as required in order to effect the continuous offering of the Policies or as may otherwise be required by applicable law. The Company shall register and qualify the Policies for sales in accordance with the securities laws of the various states only if and to the extent deemed necessary by the Company. 2.2. The Company represents and warrants that the Policies are currently and at the time of issuance will be treated as life insurance, endowment or annuity contract under applicable provisions of the Internal Revenue Code of 1986, as amended (the "Code"), that it will maintain such treatment and that it will notify the Trust or MFS immediately upon having a reasonable basis for believing that the Policies have ceased to be so treated or that they might not be so treated in the future. 2.3. The Company represents and warrants that American General Securities Incorporated, the underwriter for the Policies, is a member in good standing of the NASD and is a registered broker-dealer with the SEC. The Company represents and warrants that the Company and American General Securities Incorporated will sell and distribute such policies in accordance in all material respects with all applicable state and federal securities laws, including without limitation the 1933 Act, the 1934 Act, and the 1940 Act. 2.4. The Trust and MFS represent and warrant that the Shares sold pursuant to this Agreement shall be registered under the 1933 Act, duly authorized for issuance and sold in compliance with the laws of The Commonwealth of Massachusetts and all applicable federal and state securities laws and that the Trust is and shall remain registered under the 1940 Act. The Trust shall amend the registration statement for its Shares under the 1933 Act and the 1940 Act from time to time as required in order to effect the continuous offering of its Shares. The Trust shall register and qualify the Shares for sale in accordance with the laws of the various states only if and to the extent deemed necessary by the Trust. 2.5. MFS represents and warrants that the Underwriter is a member in good standing of the NASD and is registered as a broker-dealer with the SEC. The Trust and MFS represent that the Trust and the Underwriter will sell and distribute the Shares in accordance in all material respects with all applicable state and federal securities laws, including without limitation the 1933 Act, the 1934 Act, and the 1940 Act. 2.6. The Trust represents that it is lawfully organized and validly existing under the laws of The Commonwealth of Massachusetts and that it does and will comply in all material respects with the 1940 Act and any applicable regulations thereunder. 2.7. MFS represents and warrants that it is and shall remain duly registered under all applicable federal securities laws and that it shall perform its obligations for the Trust in compliance in all material respects with any applicable federal securities laws and with the securities laws of The Commonwealth of Massachusetts. MFS represents and warrants that it is not subject to state securities laws other than the securities laws of The Commonwealth of Massachusetts and that it is exempt from registration as an investment adviser under the securities laws of The Commonwealth of Massachusetts. 2.8. No less frequently than annually, the Company shall submit to the Board such reports, material or data as the Board may reasonably request so that it may carry out fully the obligations imposed upon it by the conditions contained in the exemptive application pursuant to which the SEC has granted exemptive relief to permit mixed and shared funding (the "Mixed and Shared Funding Exemptive Order"). ARTICLE III. PROSPECTUS AND PROXY STATEMENTS; VOTING 3.1. At least annually, the Trust or its designee shall provide the Company, free of charge, with as many copies of the current prospectus (describing only the Portfolios listed in Schedule A hereto) for the Shares as the Company may reasonably request for distribution to existing Policy owners whose Policies are funded by such Shares. The Trust or its designee shall provide the Company, at the Company's expense, with as many copies of the current prospectus for the Shares as the Company may reasonably request for distribution to prospective purchasers of Policies. If requested by the Company in lieu thereof, the Trust or its designee shall provide such documentation (including a "camera ready" copy of the new prospectus as set in type or, at the request of the 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 each year (or more frequently if the prospectus for the Shares is supplemented or amended) to have the prospectus for the Policies and the prospectus for the Shares printed together in one document; the expenses of such printing to be apportioned between (a) the Company and (b) the Trust or its designee in proportion to the number of pages of the Policy and Shares' prospectuses, taking account of other relevant factors affecting the expense of printing, such as covers, columns, graphs and charts; the Trust or its designee to bear the cost of printing the Shares' prospectus portion of such document for distribution to owners of existing Policies funded by the Shares and the Company to bear the expenses of printing the portion of such document relating to the Accounts; PROVIDED, however, that the Company shall bear all printing expenses of such combined documents where used for distribution to prospective purchasers or to owners of existing Policies not funded by the Shares. In the event that the Company requests that the Trust or its designee provides the Trust's prospectus in a "camera ready" or diskette format, the Trust shall be responsible for providing the prospectus in the format in which it or MFS is accustomed to formatting prospectuses and shall bear the expense of providing the prospectus in such format (E.G., typesetting expenses), and the Company shall bear the expense of adjusting or changing the format to conform with any of its prospectuses. 3.2. The prospectus for the Shares shall state that the statement of additional information for the Shares is available from the Trust or its designee. The Trust or its designee, at its expense, shall print and provide such statement of additional information to the Company (or a master of such statement suitable for duplication by the Company) for distribution to any owner of a Policy funded by the Shares. The Trust or its designee, at the Company's expense, shall print and provide such statement to the Company (or a master of such statement suitable for duplication by the Company) for distribution to a prospective purchaser who requests such statement or to an owner of a Policy not funded by the Shares. 3.3. The Trust or its designee shall provide the Company free of charge copies, if and to the extent applicable to the Shares, of the Trust's proxy materials, reports to Shareholders and other communications to Shareholders in such quantity as the Company shall reasonably require for distribution to Policy owners. 3.4. Notwithstanding the provisions of Sections 3.1, 3.2, and 3.3 above, or of Article V below, the Company shall pay the expense of printing or providing documents to the extent such cost is considered a distribution expense. Distribution expenses would include by way of illustration, but are not limited to, the printing of the Shares' prospectus or prospectuses for distribution to prospective purchasers or to owners of existing Policies not funded by such Shares. 3.5. The Trust hereby notifies the Company that it may be appropriate to include in the prospectus pursuant to which a Policy is offered disclosure regarding the potential risks of mixed and shared funding. 3.6. If and to the extent required by law, the Company shall: (a) solicit voting instructions from Policy owners; (b) vote the Shares in accordance with instructions received from Policy owners; and (c) vote the Shares for which no instructions have been received in the same proportion as the Shares of such Portfolio for which instructions have been received from Policy owners; so long as and to the extent that the SEC continues to interpret the 1940 Act to require pass through voting privileges for variable contract owners. The Company will in no way recommend action in connection with or oppose or interfere with the solicitation of proxies for the Shares held for such Policy owners. The Company reserves the right to vote shares held in any segregated asset account in its own right, to the extent permitted by law. Participating Insurance Companies shall be responsible for assuring that each of their separate accounts holding Shares calculates voting privileges in the manner required by the Mixed and Shared Funding Exemptive Order. The Trust and MFS will notify the Company of any changes of interpretations or amendments to the Mixed and Shared Funding Exemptive Order. ARTICLE IV. SALES MATERIAL AND INFORMATION 4.1. The Company shall furnish, or shall cause to be furnished, to the Trust or its designee, each piece of sales literature or other promotional material in which the Trust, MFS, any other investment adviser to the Trust, or any affiliate of MFS are named, at least three (3) Business Days prior to its use. No such material shall be used if the Trust, MFS, or their respective designees reasonably objects to such use within three (3) Business Days after receipt of such material. 4.2. The Company shall not give any information or make any representations or statement on behalf of the Trust, MFS, any other investment adviser to the Trust, or any affiliate of MFS or concerning the Trust or any other such entity in connection with the sale of the Policies other than the information or representations contained in the registration statement, prospectus or statement of additional information for the Shares, as such registration statement, prospectus and statement of additional information may be amended or supplemented from time to time, or in reports or proxy statements for the Trust, or in sales literature or other promotional material approved by the Trust, MFS or their respective designees, except with the permission of the Trust, MFS or their respective designees. The Trust, MFS or their respective designees each agrees to respond to any request for approval on a prompt and timely basis. The Company shall adopt and implement procedures reasonably designed to ensure that information concerning the Trust, MFS or any of their affiliates which is intended for use only by brokers or agents selling the Policies (I.E., information that is not intended for distribution to Policy owners or prospective Policy owners) is so used, and neither the Trust, MFS nor any of their affiliates shall be liable for any losses, damages or expenses relating to the improper use of such broker only materials. 4.3. The Trust or its designee shall furnish, or shall cause to be furnished, to the Company or its designee, each piece of sales literature or other promotional material in which the Company and/or the Accounts is named, at least three (3) Business Days prior to its use. No such material shall be used if the Company or its designee reasonably objects to such use within three (3) Business Days after receipt of such material. 4.4. The Trust and MFS shall not give, and agree that the Underwriter shall not give, any information or make any representations on behalf of the Company or concerning the Company, the Accounts, or the Policies in connection with the sale of the Policies other than the information or representations contained in a registration statement, prospectus, or statement of additional information for the Policies, as such registration statement, prospectus and statement of additional information may be amended or supplemented from time to time, or in reports for the Accounts, or in sales literature or other promotional material approved by the Company or its designee, except with the permission of the Company. The Company or its designee agrees to respond to any request for approval on a prompt and timely basis. The parties hereto agree that this Section 4.4. is neither intended to designate nor otherwise imply that MFS is an underwriter or distributor of the Policies. 4.5. The Company and the Trust (or its designee in lieu of the Company or the Trust, as appropriate) will each provide to the other at least one complete copy of all registration statements, prospectuses, statements of additional information, reports, proxy statements, sales literature and other promotional materials, applications for exemptions, requests for no-action letters, and all amendments to any of the above, that relate to the Policies, or to the Trust or its Shares, prior to or contemporaneously with the filing of such document with the SEC or other regulatory authorities. The Company and the Trust shall also each promptly inform the other of the results of any examination by the SEC (or other regulatory authorities) that relates to the Policies, the Trust or its Shares, and the party that was the subject of the examination shall provide the other party with a copy of relevant portions of any "deficiency letter" or other correspondence or written report regarding any such examination. 4.6. The Trust and MFS will provide the Company with as much notice as is reasonably practicable of any proxy solicitation for any Portfolio, and of any material change in the Trust's registration statement, particularly any change resulting in change to the registration statement or prospectus or statement of additional information for any Account. The Trust and MFS will cooperate with the Company so as to enable the Company to solicit proxies from Policy owners or to make changes to its prospectus, statement of additional information or registration statement, in an orderly manner. The Trust and MFS will make reasonable efforts to attempt to have changes affecting Policy prospectuses become effective simultaneously with the annual updates for such prospectuses. 4.7. For purpose of this Article IV and Article VIII, 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), and sales literature (such as brochures, circulars, reprints or excerpts or any other advertisement, sales literature, or published articles), distributed or made generally available to customers or the public, educational or training materials or communications distributed or made generally available to some or all agents or employees. ARTICLE V. FEES AND EXPENSES 5.1. The Trust shall pay no fee or other compensation to the Company under this Agreement, and the Company shall pay no fee or other compensation to the Trust, except that if the Trust or any Portfolio adopts and implements a plan pursuant to Rule 12b-1 under the 1940 Act to finance distribution and Shareholder servicing expenses, then, subject to obtaining any required exemptive orders or regulatory approvals, the Trust may make payments to the Company or to the underwriter for the Policies if and in amounts agreed to by the Trust in writing. Each party, however, shall, in accordance with the allocation of expenses specified in Articles III and V hereof, reimburse other parties for expenses initially paid by one party but allocated to another party. In addition, nothing herein shall prevent the parties hereto from otherwise agreeing to perform, and arranging for appropriate compensation for, other services relating to the Trust and/or to the Accounts. 5.2. The Trust or its designee shall bear the expenses for the cost of registration and qualification of the Shares under all applicable federal and state laws, including preparation and filing of the Trust's registration statement, and payment of filing fees and registration fees; preparation and filing of the Trust's proxy materials and reports to Shareholders; setting in type and printing its prospectus and statement of additional information (to the extent provided by and as determined in accordance with Article III above); setting in type and printing the proxy materials and reports to Shareholders (to the extent provided by and as determined in accordance with Article III above); the preparation of all statements and notices required of the Trust by any federal or state law with respect to its Shares; all taxes on the issuance or transfer of the Shares; and the costs of distributing the Trust's prospectuses and proxy materials to owners of Policies funded by the Shares and any expenses permitted to be paid or assumed by the Trust pursuant to a plan, if any, under Rule 12b-1 under the 1940 Act. The Trust shall not bear any expenses of marketing the Policies. 5.3. The Company or its designee shall bear the expenses of distributing the Shares' prospectus or prospectuses in connection with new sales of the Policies and of distributing the Trust's Shareholder reports to Policy owners. The Company shall bear all expenses associated with the registration, qualification, and filing of the Policies under applicable federal securities and state insurance laws; the cost of preparing, printing and distributing the Policy prospectus and statement of additional information; and the cost of preparing, printing and distributing annual individual account statements for Policy owners as required by state insurance laws. 5.4 MFS will quarterly reimburse the Company certain of the administrative costs and expenses incurred by the Company as a result of operations necessitated by the beneficial ownership by Policy owners of shares of the Portfolios of the Trust, equal to ___% per annum of the net assets of the Trust attributable to variable life or variable annuity contracts offered by the Company or its affiliates. In no event shall such fee be paid by the Trust, its shareholders or by the Policy holders. ARTICLE VI. DIVERSIFICATION AND RELATED LIMITATIONS 6.1. The Trust and MFS represent and warrant that each Portfolio of the Trust will meet the diversification requirements of Section 817 (h) (1) of the Code and Treas. Reg. 1.817-5, relating to the diversification requirements for variable annuity, endowment, or life insurance contracts, as they may be amended from time to time (and any revenue rulings, revenue procedures, notices, and other published announcements of the Internal Revenue Service interpreting these sections), as if those requirements applied directly to each such Portfolio. 6.2. In the event of a breach of Section 6.1 above by the Trust and MFS, the Trust and MFS will take reasonable steps to adequately diversify each Portfolio of the Trust so as to achieve compliance within the grace period afforded by Treas. Reg. 1.817-5. ARTICLE VII. POTENTIAL MATERIAL CONFLICTS 7.1. The Trust agrees that the Board, constituted with a majority of disinterested trustees, will monitor each Portfolio of the Trust for the existence of any material irreconcilable conflict between the interests of the variable annuity contract owners and the variable life insurance policy owners of the Company and/or affiliated companies ("contract owners") investing in the Trust. The Board shall have the sole authority to determine if a material irreconcilable conflict exists, and such determination shall be binding on the Company only if approved in the form of a resolution by a majority of the Board, or a majority of the disinterested trustees of the Board. The Board will give prompt notice of any such determination to the Company. 7.2. The Company agrees that it will be responsible for assisting the Board in carrying out its responsibilities under the conditions set forth in the Trust's exemptive application pursuant to which the SEC has granted the Mixed and Shared Funding Exemptive Order by providing the Board, as it may reasonably request, with all information necessary for the Board to consider any issues raised and agrees that it will be responsible for promptly reporting any potential or existing conflicts of which it is aware to the Board including, but not limited to, an obligation by the Company to inform the Board whenever contract owner voting instructions are disregarded. The Company also agrees that, if a material irreconcilable conflict arises, it will at its own cost remedy such conflict up to and including (a) withdrawing the assets allocable to some or all of the Accounts from the Trust or any Portfolio and reinvesting such assets in a different investment medium, including (but not limited to) another Portfolio of the Trust, or submitting to a vote of all affected contract owners whether to withdraw assets from the Trust or any Portfolio and reinvesting such assets in a different investment medium and, as appropriate, segregating the assets attributable to any appropriate group of contract owners that votes in favor of such segregation, or offering to any of the affected contract owners the option of segregating the assets attributable to their contracts or policies, and (b) establishing a new registered management investment company and segregating the assets underlying the Policies, unless a majority of Policy owners materially adversely affected by the conflict have voted to decline the offer to establish a new registered management investment company. 7.3. A majority of the disinterested trustees of the Board shall determine whether any proposed action by the Company adequately remedies any material irreconcilable conflict. In the event that the Board determines that any proposed action does not adequately remedy any material irreconcilable conflict, the Company will withdraw from investment in the Trust each of the Accounts designated by the disinterested trustees and terminate this Agreement within six (6) months after the Board informs the Company in writing of the foregoing determination; PROVIDED, HOWEVER, that such withdrawal and termination shall be limited to the extent required to remedy any such material irreconcilable conflict as determined by a majority of the disinterested trustees of the Board. 7.4. If and to the extent that Rule 6e-2 and Rule 6e-3(T) are amended, or Rule 6e-3 is adopted, to provide exemptive relief from any provision of the 1940 Act or the rules promulgated thereunder with respect to mixed or shared funding (as defined in the Mixed and Shared Funding Exemptive Order) on terms and conditions materially different from those contained in the Mixed and Shared Funding Exemptive Order, then (a) the Trust and/or the Participating Insurance Companies, as appropriate, shall take such steps as may be necessary to comply with Rule 6e-2 and 6e-3(T), as amended, and Rule 6e-3, as adopted, to the extent such rules are applicable; and (b) Sections 3.5, 3.6, 7.1, 7.2, 7.3 and 7.4 of this Agreement shall continue in effect only to the extent that terms and conditions substantially identical to such Sections are contained in such Rule(s) as so amended or adopted. ARTICLE VIII. INDEMNIFICATION 8.1. INDEMNIFICATION BY THE COMPANY The Company agrees to indemnify and hold harmless the Trust, MFS, any affiliates of MFS, and each of their respective directors/trustees, officers and each person, if any, who controls the Trust or MFS within the meaning of Section 15 of the 1933 Act, and any agents or employees of the foregoing (each an "Indemnified Party," or collectively, the "Indemnified Parties" for purposes of this Section 8.1) against any and all losses, claims, damages, liabilities (including amounts paid in settlement with the written consent of the Company) or expenses (including reasonable counsel fees) to which any Indemnified Party 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 the Shares or the Policies 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, prospectus or statement of additional information for the Policies or contained in the Policies or sales literature or other promotional material for the Policies (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 reasonable reliance upon and in conformity with information furnished to the Company or its designee by or on behalf of the Trust or MFS for use in the registration statement, prospectus or statement of additional information for the Policies or in the Policies or sales literature or other promotional material (or any amendment or supplement) or otherwise for use in connection with the sale of the Policies or Shares; or (b) arise out of or as a result of statements or representations (other than statements or representations contained in the registration statement, prospectus, statement of additional information or sales literature or other promotional material of the Trust not supplied by the Company or its designee, or persons under its control and on which the Company has reasonably relied) or wrongful conduct of the Company or persons under its control, with respect to the sale or distribution of the Policies or Shares; or (c) arise out of any untrue statement or alleged untrue statement of a material fact contained in the registration statement, prospectus, statement of additional information, or sales literature or other promotional literature of the 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 statement or statements therein not misleading, if such statement or omission was made in reliance upon information furnished to the Trust by or on behalf of the Company; or (d) arise out of or result from any material breach of any representation and/or warranty made by the Company in this Agreement or arise out of or result from any other material breach of this Agreement by the Company; or (e) arise as a result of any failure by the Company to provide the services and furnish the materials under the terms of this Agreement; as limited by and in accordance with the provisions of this Article VIII. 8.2. INDEMNIFICATION BY THE TRUST AND MFS The Trust agrees to indemnify and hold harmless the Company, American General Securities Incorporated, their respective affiliates and each of their respective directors and officers and each person, if any, who controls the Company or American General Securities Incorporated within the meaning of Section 15 of the 1933 Act, and any agents or employees of the foregoing (each an "Indemnified Party," or collectively, the "Indemnified Parties" for purposes of this Section 8.2) against any and all losses, claims, damages, liabilities (including amounts paid in settlement with the written consent of the Trust) or expenses (including reasonable counsel fees) to which any Indemnified Party may become subject under any statute, at common law or otherwise, insofar as such losses, claims, damages, liabilities or expenses (or actions in respect thereof) or settlements are related to the sale or acquisition of the Shares or the Policies 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, prospectus, statement of additional information or sales literature or other promotional material of the 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 statement 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 reasonable reliance upon and in conformity with information furnished to the Trust, MFS, the Underwriter or their respective designees by or on behalf of the Company for use in the registration statement, prospectus or statement of additional information for the Trust or in sales literature or other promotional material for the Trust (or any amendment or supplement) or otherwise for use in connection with the sale of the Policies or Shares; or (b) arise out of or as a result of statements or representations (other than statements or representations contained in the registration statement, prospectus, statement of additional information or sales literature or other promotional material for the Policies not supplied by the Trust, MFS, the Underwriter or any of their respective designees or persons under their respective control and on which any such entity has reasonably relied) or wrongful conduct of the Trust or persons under its control, with respect to the sale or distribution of the Policies or Shares; or (c) arise out of any untrue statement or alleged untrue statement of a material fact contained in the registration statement, prospectus, statement of additional information, or sales literature or other promotional literature of the Accounts or relating to the Policies, or any amendment thereof or supplement thereto, or the omission or alleged omission to state therein a material fact required to be stated therein or necessary to make the statement or statements therein not misleading, if such statement or omission was made in reliance upon information furnished to the Company by or on behalf of the Trust, MFS or the Underwriter; or (d) arise out of or result from any material breach of any representation and/or warranty made by the Trust in this Agreement (including a failure, whether unintentional or in good faith or otherwise, to comply with the diversification requirements specified in Article VI of this Agreement) or arise out of or result from any other material breach of this Agreement by the Trust; or (e) arise out of or result from the materially incorrect or untimely calculation or reporting of the daily net asset value per share or dividend or capital gain distribution rate; or (f) arise as a result of any failure by the Trust to provide the services and furnish the materials under the terms of the Agreement; as limited by and in accordance with the provisions of this Article VIII. 8.3. In no event shall the Trust be liable under the indemnification provisions contained in this Agreement to any individual or entity, including without limitation, the Company, or any Participating Insurance Company or any Policy holder, 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 the Company hereunder or by any Participating Insurance Company under an agreement containing substantially similar representations, warranties and covenants; (ii) the failure by the Company or any Participating Insurance Company to maintain its segregated asset account (which invests in any Portfolio) 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 the Company or any Participating Insurance Company to maintain its variable annuity and/or variable life insurance contracts (with respect to which any Portfolio serves as an underlying funding vehicle) as life insurance, endowment or annuity contracts under applicable provisions of the Code. 8.4. Neither the Company nor the Trust shall be liable under the indemnification provisions contained in this Agreement with respect to any losses, claims, damages, liabilities or expenses to which an Indemnified Party would otherwise be subject by reason of such Indemnified Party's willful misfeasance, willful misconduct, or gross negligence in the performance of such Indemnified Party's duties or by reason of such Indemnified Party's reckless disregard of obligations and duties under this Agreement. 8.5. Promptly after receipt by an Indemnified Party under this Section 8.5. of notice of commencement of any action, such Indemnified Party will, if a claim in respect thereof is to be made against the indemnifying party under this section, notify the indemnifying party of the commencement thereof; but the omission so to notify the indemnifying party will not relieve it from any liability which it may have to any Indemnified Party otherwise than under this section. In case any such action is brought against any Indemnified Party, and it notified the indemnifying party of the commencement thereof, the indemnifying party will be entitled to participate therein and, to the extent that it may wish, assume the defense thereof, with counsel satisfactory to such Indemnified Party. After notice from the indemnifying party of its intention to assume the defense of an action, the Indemnified Party shall bear the expenses of any additional counsel obtained by it, and the indemnifying party shall not be liable to such Indemnified Party under this section for any legal or other expenses subsequently incurred by such Indemnified Party in connection with the defense thereof other than reasonable costs of investigation. 8.6. Each of the parties agrees promptly to notify the other parties of the commencement of any litigation or proceeding against it or any of its respective officers, directors, trustees, employees or 1933 Act control persons in connection with the Agreement, the issuance or sale of the Policies, the operation of the Accounts, or the sale or acquisition of Shares. 8.7. A successor by law of the parties to this Agreement shall be entitled to the benefits of the indemnification contained in this Article VIII. The indemnification provisions contained in this Article VIII shall survive any termination of this Agreement. ARTICLE IX. APPLICABLE LAW 9.1. This Agreement shall be construed and the provisions hereof interpreted under and in accordance with the laws of The Commonwealth of Massachusetts. 9.2. This Agreement shall be subject to the provisions of the 1933, 1934 and 1940 Acts, and the rules and regulations and rulings thereunder, including such exemptions from those statutes, rules and regulations as the SEC may grant and the terms hereof shall be interpreted and construed in accordance therewith. ARTICLE X. NOTICE OF FORMAL PROCEEDINGS The Trust, MFS, and the Company agree that each such party shall promptly notify the other parties to this Agreement, in writing, of the institution of any formal proceedings brought against such party or its designees by the NASD, the SEC, or any insurance department or any other regulatory body regarding such party's duties under this Agreement or related to the sale of the Policies, the operation of the Accounts, or the purchase of the Shares. ARTICLE XI. TERMINATION 11.1. This Agreement shall terminate with respect to the Accounts, or one, some, or all Portfolios: (a) at the option of any party upon twelve (12) months' advance written notice to the other parties; or (b) at the option of the Company to the extent that the Shares of Portfolios are not reasonably available to meet the requirements of the Policies or are not "appropriate funding vehicles" for the Policies, as reasonably determined by the Company. Without limiting the generality of the foregoing, the Shares of a Portfolio would not be "appropriate funding vehicles" if, for example, such Shares did not meet the diversification or other requirements referred to in Article VI hereof; or if the Company would be permitted to disregard Policy owner voting instructions pursuant to Rule 6e-2 or 6e-3(T) under the 1940 Act. Prompt notice of the election to terminate for such cause and an explanation of such cause shall be furnished to the Trust by the Company; or (c) at the option of the Trust or MFS upon institution of formal proceedings against the Company or American General Securities Incorporated by the NASD, the SEC, or any insurance department or any other regulatory body regarding the Company's duties under this Agreement or related to the sale of the Policies, the operation of the Accounts, or the purchase of the Shares; or (d) at the option of the Company upon institution of formal proceedings against the Trust or the Underwriter by the NASD, the SEC, or any state securities or insurance department or any other regulatory body regarding the Trust's or MFS' duties under this Agreement or related to the sale of the Shares; or (e) at the option of the Company, the Trust or MFS upon receipt of any necessary regulatory approvals and/or the vote of the Policy owners having an interest in the Accounts (or any subaccounts) to substitute the shares of another investment company for the corresponding Portfolio Shares in accordance with the terms of the Policies for which those Portfolio Shares had been selected to serve as the underlying investment media. The Company will give thirty (30) days' prior written notice to the Trust of the Date of any proposed vote or other action taken to replace the Shares; or (f) termination by either the Trust or MFS by written notice to the Company, if either one or both of the Trust or MFS respectively, shall determine, in their sole judgment exercised in good faith, that the Company has suffered a material adverse change in its business, operations, financial condition, or prospects since the date of this Agreement or is the subject of material adverse publicity; or (g) termination by the Company by written notice to the Trust and MFS, if the Company shall determine, in its sole judgment exercised in good faith, that the Trust or MFS has suffered a material adverse change in this business, operations, financial condition or prospects since the date of this Agreement or is the subject of material adverse publicity; or (h) at the option of any party to this Agreement, upon another party's material breach of any provision of this Agreement; or (i) upon assignment of this Agreement, unless made with the written consent of the parties hereto. 11.2. The notice shall specify the Portfolio or Portfolios, Policies and, if applicable, the Accounts as to which the Agreement is to be terminated. 11.3. It is understood and agreed that the right of any party hereto to terminate this Agreement pursuant to Section 11.1(a) may be exercised for cause or for no cause. 11.4. Except as necessary to implement Policy owner initiated transactions, or as required by state insurance laws or regulations, the Company shall not redeem the Shares attributable to the Policies (as opposed to the Shares attributable to the Company's assets held in the Accounts), and the Company shall not prevent Policy owners from allocating payments to a Portfolio that was otherwise available under the Policies, until thirty (30) days after the Company shall have notified the Trust of its intention to do so. 11.5. Notwithstanding any termination of this Agreement, the Trust and MFS shall, at the option of the Company, continue to make available additional shares of the Portfolios pursuant to the terms and conditions of this Agreement, for all Policies in effect on the effective date of termination of this Agreement (the "Existing Policies"), except as otherwise provided under Article VII of this Agreement. Specifically, without limitation, the owners of the Existing Policies shall be permitted to transfer or reallocate investment under the Policies, redeem investments in any Portfolio and/or invest in the Trust upon the making of additional purchase payments under the Existing Policies. ARTICLE XII. NOTICES Any notice shall be sufficiently given when sent by registered or certified mail, overnight courier or facsimile to the other party at the address of such party set forth below or at such other address as such party may from time to time specify in writing to the other party. If to the Trust: MFS VARIABLE INSURANCE TRUST 500 Boylston Street Boston, Massachusetts 02116 Facsimile No.: (617) 954-6624 Attn: Stephen E. Cavan, Secretary If to the Company: AMERICAN GENERAL LIFE INSURANCE COMPANY c/o American General Independent Producer Division 2727-A Allen Parkway Houston, Texas 77019 Facsimile No.: (STILL NEED FAX) Attn: Steven Glover, Esq. If to MFS: MASSACHUSETTS FINANCIAL SERVICES COMPANY 500 Boylston Street Boston, Massachusetts 02116 Facsimile No.: (617) 954-6624 Attn: Stephen E. Cavan, General Counsel ARTICLE XIII. FOREIGN TAX CREDITS 13.1 The Trust agrees to consult in advance with the Company concerning any decision to elect or not to pass through the benefit of any foreign tax credits to the Trust's shareholders pursuant to Section 853 of the Code. ARTICLE XIV. MISCELLANEOUS 14.1. Subject to the requirement of legal process and regulatory authority, each party hereto shall treat as confidential the names and addresses of the owners of the Policies and all information reasonably identified as confidential in writing by any other party hereto and, except as permitted by this Agreement or as otherwise required by applicable law or regulation, shall not disclose, disseminate or utilize such names and addresses and other confidential information without the express written consent of the affected party until such time as it may come into the public domain. 14.2. The captions in this Agreement are included for convenience of reference only and in no way define or delineate any of the provisions hereof or otherwise affect their construction or effect. 14.3. This Agreement may be executed simultaneously in one or more counterparts, each of which taken together shall constitute one and the same instrument. 14.4. If any provision of this Agreement shall be held or made invalid by a court decision, statute, rule or otherwise, the remainder of the Agreement shall not be affected thereby. 14.5. The Schedule attached hereto, as modified from time to time, is incorporated herein by reference and is part of this Agreement. 14.6. Each party hereto shall cooperate with each other party in connection with inquiries by appropriate governmental authorities (including without limitation the SEC, the NASD, and state insurance regulators) relating to this Agreement or the transactions contemplated hereby. 14.7. 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. 14.8. A copy of the Trust's Declaration of Trust is on file with the Secretary of State of The Commonwealth of Massachusetts. The Company acknowledges that the obligations of or arising out of this instrument are not binding upon any of the Trust's trustees, officers, employees, agents or shareholders individually, but are binding solely upon the assets and property of the Trust in accordance with its proportionate interest hereunder. The Company further acknowledges that the assets and liabilities of each Portfolio are separate and distinct and that the obligations of or arising out of this instrument are binding solely upon the assets or property of the Portfolio on whose behalf the Trust has executed this instrument. The Company also agrees that the obligations of each Portfolio hereunder shall be several and not joint, in accordance with its proportionate interest hereunder, and the Company agrees not to proceed against any Portfolio for the obligations of another Portfolio. IN WITNESS WHEREOF, each of the parties hereto has caused this Agreement to be executed in its name and on its behalf by its duly authorized representative and its seal to be hereunder affixed hereto as of the date specified above. AMERICAN GENERAL LIFE INSURANCE COMPANY By its authorized officer, By: ____________________________________ Title: _________________________________ MFS VARIABLE INSURANCE TRUST, ON BEHALF OF THE PORTFOLIOS By its authorized officer and not individually, By: ____________________________________ James R. Bordewick, Jr. Assistant Secretary MASSACHUSETTS FINANCIAL SERVICES COMPANY By its authorized officer, By: ____________________________________ Jeffrey L. Shames Chairman and Chief Executive Officer As of ____________________ SCHEDULE A ACCOUNTS, POLICIES AND PORTFOLIOS SUBJECT TO THE PARTICIPATION AGREEMENT
NAME OF SEPARATE ACCOUNT AND DATE POLICIES FUNDED PORTFOLIOS ESTABLISHED BY BOARD OF BY SEPARATE ACCOUNT APPLICABLE TO POLICIES DIRECTORS ----------------------- ------------------- ----------------------- American General Life Platinum Investor I Flexible Insurance Company Separate Premium Life Insurance Policy Account Vl-r Policy Form No. 97600 (May 6, 1998) Platinum Investor Ii Flexible Premium Life Insurance Policy Policy Form No. 97610
EX-8.(E) 10 EXHIBIT 8(e) AMENDMENT NUMBER 2 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. 2 ("Amendment") executed as of the 4th day of November, 1997 to the Participation Agreement dated as of January 24, 1997, as amended (the "Agreement"), among Morgan Stanley Universal Funds, Inc. (the "Fund"), Van Kampen American Capital Distributors, Inc., Morgan Stanley Asset Management Inc., Miller Anderson & Sherrerd, LLP, American General Life Insurance Company (the "Company"), and American General Securities Incorporated. 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 PLATINUM INVESTOR I AND PLATINUM INVESTOR II FLEXIBLE PREMIUM VARIABLE LIFE INSURANCE POLICIES ("Platinum Contracts"), (ii) solely to the extent the Agreement relates to the Platinum Contracts, amend the provisions of Article III of the Agreement as described below, and (iii) add to Schedule A of the Agreement the Fund's Equity Growth Portfolio. 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 to add the Equity Growth Portfolio. 2. Schedule B to the Agreement, a revised copy of which is attached hereto, is hereby amended to add the Platinum Contracts. 3. Solely to the extent the Agreement relates to the Platinum 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 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, 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 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:______________________________________ MORGAN STANLEY UNIVERSAL FUNDS, INC. VAN KAMPEN AMERICAN CAPITAL DISTRIBUTORS, INC. By:______________________________________ By:______________________________________ MORGAN STANLEY ASSET MANAGEMENT, INC. MILLER ANDERSON & SHERRERD, LLP 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 Growth Mid Cap Value Value International Magnum Emerging Markets Equity Global Equity Equity Growth SCHEDULE B SEPARATE ACCOUNTS AND CONTRACTS Name of Separate Account and Date Established by Board of Directors Form Numbers and Names of 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 CONTRACT FORM NUMBERS: Company Separate Account VL-R 97600 Established: May 6, 1997 97610 NAME OF CONTRACT: Platinum I and Platinum II Flexible Premium Variable Life Insurance Policies EX-8.(F) 11 EXHIBIT 8(f) PARTICIPATION AGREEMENT AMONG PUTNAM VARIABLE TRUST PUTNAM MUTUAL FUNDS CORP. AND AMERICAN GENERAL LIFE INSURANCE COMPANY THIS AGREEMENT, made and entered into as of this ________ day of __________, 1998, among American General Life Insurance Company] (the "Company"), a Texas corporation, on its own behalf and on behalf of each separate account of the Company set forth on Schedule A hereto, as such Schedule may be amended from time to time (each such account hereinafter referred to as the "Account"), PUTNAM VARIABLE TRUST (the "Trust"), a Massachusetts business trust, and PUTNAM MUTUAL FUNDS CORP. (the "Underwriter"), a Massachusetts corporation. WHEREAS, the Trust is an open-end diversified management investment company and is available to act as the investment vehicle for separate accounts established for variable life insurance policies and variable annuity contracts (collectively, the "Variable Insurance Products") to be offered by insurance companies which have entered into Participation Agreements with the Trust and the Underwriter (the "Participating Insurance Companies"); and WHEREAS, the beneficial interest in the Trust is divided into several series of shares, each designated a "Fund" and representing the interest in a particular managed portfolio of securities and other assets; and WHEREAS, the Trust has obtained an order from the Securities and Exchange Commission, dated December 29, 1993 (File No. 812-8612), granting the variable annuity and variable life insurance separate accounts participating in the Trust exemptions from the provisions of sections 9(a), 13(a), 15(a) and 15(b) of the Investment Company Act of 1940, as amended (the "1940 Act"), and Rules 6e-2(b)(15) and 6e-3(T)(b)(15) thereunder, to the extent necessary to permit shares of the Trust to be sold to and held by variable annuity and variable life insurance separate accounts of the Participating Insurance Companies (the "Shared Funding Exemptive Order"); and WHEREAS, the Trust is registered as an open-end management investment company under the 1940 Act and the sale of its shares is registered under the Securities Act of 1933, as amended (the " 1933 Act"); and WHEREAS, the Company has registered or will register certain variable life and/or variable annuity contracts under the 1933 Act and any applicable state securities and insurance law; and 1 WHEREAS, each Account is a duly organized, validly existing separate account, established by resolution of the Board of Directors of the Company, on the date shown for such Account on Schedule A hereto, to set aside and invest assets attributable to one or more variable insurance contracts (the "Contracts"); and WHEREAS, the Company has registered or will register the Account as a unit investment trust under the 1940 Act; and WHEREAS, the Underwriter is registered as a broker dealer with the Securities and Exchange Commission under the Securities Exchange Act of 1934, as amended (the " 1934 Act"), and is a member in good standing of the National Association of Securities Dealers, Inc. (the "NASD"); and WHEREAS, to the extent permitted by applicable insurance laws and regulations, the Company intends to purchase shares in certain Funds ("Authorized Funds") on behalf of each Account to fund certain of the Contracts and the Underwriter is authorized to sell such shares to unit investment trusts such as each Account at net asset value; NOW, THEREFORE, in consideration of the promises herein, the Company, the Trust and the Underwriter agree as follows: ARTICLE 1. SALE OF TRUST SHARES 1.1 The Underwriter agrees, subject to the Trust's rights under Section 1.2 and otherwise under this Agreement, to sell to the Company those Trust shares representing interests in Authorized Funds which each Account orders, executing such orders on a daily basis at the net asset value next computed after receipt by the Trust or its designee of the order for the shares of the Trust. For purposes of this Section 1. 1, the Company shall be the designee of the Trust for receipt of such orders from each Account and receipt by such designee shall constitute receipt by the Trust; provided that the Trust receives notice of such order by 9:30 a.m. Eastern time on the next following Business Day. "Business Day" shall mean any day on which the New York Stock Exchange is open for trading and on which the Trust calculates its net asset value pursuant to the rules of the Securities and Exchange Commission. The initial Authorized Funds are set forth in Schedule B, as such schedule is amended from time to time. 1.2 The Trust agrees to make its shares available indefinitely for purchase at the applicable net asset value per share by the Company and its Accounts on those days on which the Trust calculates its net asset value pursuant to rules of the Securities and Exchange Commission and the Trust shall use reasonable efforts to calculate such net asset value on each day on which the New York Stock Exchange is open for trading. Notwithstanding the foregoing, the Trustees of the Trust (the "Trustees") may refuse to sell shares of any Fund to the Company or any other 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 over the Trust or if the Trustees determine, in the exercise of their fiduciary responsibilities, that to do so would be in 2 the best interests of shareholders. 1.3 The Trust and the Underwriter agree that shares of the Trust will be sold only to Participating Insurance Companies and their separate accounts. No shares of any Fund will be sold to the general public. 1.4 The Trust shall redeem its shares in accordance with the terms of its then current prospectus. For purposes of this Section 1.4, the Company shall be the designee of the Trust for receipt of requests for redemption from each Account and receipt by such designee shall constitute receipt by the Trust; provided that the Trust receives notice of such request for redemption by 9:30 a.m., Eastern time, on the next following Business Day. 1.5 The Company shall purchase and redeem the shares of Authorized Funds offered by the then current prospectus of the Trust in accordance with the provisions of such prospectus. 1.6 The Company shall pay for Trust shares on the next Business Day after an order to purchase Trust shares is made in accordance with the provisions of Section 1.1 hereof. Payment shall be in federal funds transmitted by wire. 1.7 Issuance and transfer of the Trust's shares will be by book entry only. Share certificates will not be issued to the Company or any Account. Shares ordered from the Trust will be recorded as instructed by the Company to the Underwriter in an appropriate title for each Account or the appropriate sub-account of each Account. 1.8 The Underwriter shall furnish prompt notice (by wire or telephone, followed by written confirmation) to the Company of the declaration of any income, dividends or capital gain distributions payable on the Trust's shares. The Company hereby elects to receive all such income dividends and capital gain distributions as are payable on the Fund shares in additional shares of that Fund. The Company reserves the right to revoke this election and to receive all such income dividends and capital gain distributions in cash. The Underwriter shall notify the Company of the number of shares so issued as payment of such dividends and distributions. 1.9 The Underwriter shall make the net asset value per share for each Fund available to the Company on a daily basis as soon as reasonably practical after the Trust calculates its net asset value per share and each of the Trust and the Underwriter shall use its best efforts to make such net asset value per share available by 7:00 p.m. Eastern time. ARTICLE II. REPRESENTATIONS AND WARRANTIES 2.1 The Company represents and warrants that (a) at all times during the term of this Agreement the Contracts are or will be registered under 3 the 1933 Act; the Contracts will be issued and sold in compliance in all material respects with all applicable laws and the sale of the Contracts shall comply in all material respects with state insurance suitability requirements. The Company further represents and warrants that it is an insurance company duly organized and in good standing under applicable law and that it has legally and validly established each Account prior to any issuance or sale thereof as a separate account under applicable law and has registered or, prior to any issuance or sale of the Contracts, will register each Account as a unit investment trust in accordance with the provisions of the 1940 Act to serve as a segregated investment account for the Contracts; and (b) the Contracts are currently treated as endowment, annuity or life insurance contracts, under applicable provisions of the Internal Revenue Code of 1986, as amended (the "Code"), and that it will make every effort to maintain such treatment and that it will notify the Trust and the Underwriter immediately upon having a reasonable basis for believing that the Contracts have ceased to be so treated or that they might not be so treated in the future. 2.2 The Trust represents and warrants that (a) at all times during the term of this Agreement Trust shares sold pursuant to this Agreement shall be registered under the 1933 Act, duly authorized for issuance and sold by the Trust to the Company in compliance with all applicable laws, subject to the terms of Section 2.4 below, and the Trust is and shall remain registered under the 1940 Act. The Trust shall amend the Registration Statement for its shares under the 1933 Act and the 1940 Act from time to time as required in order to effect the continuous offering of its shares. The Trust shall register and qualify the shares for sale in accordance with the laws of the various states only if and to the extent deemed advisable by the Trust or the Underwriter in connection with their sale by the Trust to the Company and only as required by Section 2.4; (b) it is currently qualified as a Regulated Investment Company under Subchapter M of the Code, and that it will use its best efforts to maintain such qualification (under Subchapter M or any successor provision) and that it will notify the Company immediately upon having a reasonable basis for believing that it has ceased to so qualify or that it might not so qualify in the future; and (c) it is lawfully organized and validly existing under the laws of the Commonwealth of Massachusetts and that it does and will comply in all material respects with the 1940 Act. 2.3 The Underwriter represents and warrants that it is a member in good standing of the NASD and is registered as a broker-dealer with the SEC. The Underwriter further represents that it will sell and distribute the Trust shares in accordance with all applicable securities laws applicable to it, including without limitation the 1933 Act, the 1934 Act, and the 1940 Act. 4 2.4 Notwithstanding any other provision of this Agreement, the Trust shall be responsible for the registration and qualification of its shares and of the Trust itself under the laws of any jurisdiction only in connection with the sales of shares directly to the Company through the Underwriter. The Trust shall not be responsible, and the Company shall take full responsibility, for determining any jurisdiction in which any qualification or registration of Trust shares or the Trust by the Trust may be required in connection with the sale of the Contracts or the indirect interest of any Contract in any shares of the Trust and advising the Trust thereof at such time and in such manner as is necessary to permit the Trust to comply. 2.5 The Trust makes no representation as to whether any aspect of its operations (including, but not limited to, fees and expenses and investment policies) complies with the insurance laws or regulations of the various states. 5 ARTICLE III. PROSPECTUSES AND PROXY STATEMENTS; VOTING 3.1 The Trust shall provide such documentation (including a camera-ready copy of its prospectus) and other assistance as is reasonably necessary in order for the Company once each year (or more frequently if the prospectus for the Trust is amended) to have the prospectus for the Contracts and the Trust's prospectus printed together in one or more documents (such printing to be at the Company's expense). 3.2 The Trust's Prospectus shall state that the Statement of Additional Information for the Trust is available from the Underwriter or its designee (or in the Trust's discretion, the Prospectus shall state that such Statement is available from the Trust), and the Underwriter (or the Trust), at its expense, shall print and provide such Statement free of charge to the Company and to any owner of a Contract or prospective owner who requests such Statement. 3.3 The Trust, at its expense, shall provide the Company with copies of its reports to shareholders, proxy material and other communications to shareholders in such quantity as the Company shall reasonably require for distribution to the Contract owners, such distribution to be at the expense of the Company. 3.4 The Company shall vote all Trust shares as required by law and the Shared Funding Exemptive Order. The Company reserves the right to vote Trust shares held in any separate account in its own right, to the extent permitted by law and the Shared Funding Exemptive Order. The Company shall be responsible for assuring that each of its separate accounts participating in the Trust calculates voting privileges in a manner consistent with all legal requirements and the Shared Funding Exemptive Order. 3.5 The Trust will comply with all applicable provisions of the 1940 Act requiring voting by shareholders, and in particular the Trust will either provide for annual meetings or comply with Section 16(c) of the 1940 Act (although the Trust 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 Trust will act in accordance with the Securities and Exchange Commission's interpretation of the requirements of Section 16(a) with respect to periodic elections of trustees and with whatever rules the Commission may promulgate with respect thereto. ARTICLE IV. SALES MATERIAL AND INFORMATION 4.1 Without limiting the scope or effect of Section 4.2 hereof, the Company shall furnish, or shall cause to be furnished, to the Underwriter each piece of sales literature or other promotional material (as defined hereafter) in which the Trust, its investment adviser or the Underwriter is named at least 15 days prior to its use. No such material shall be used if the Underwriter objects to such use within five Business Days after receipt of such 6 material. 4.2 The Company shall not give any information or make any representations or statements on behalf of the Trust or concerning the Trust in connection with the sale of the Contracts other than the information or representations contained in the registration statement or prospectus for the Trust shares, as such registration statement and prospectus may be amended or supplemented from time to time, or in annual or semi-annual reports or proxy statements for the Trust, or in sales literature or other promotional material approved by the Trust or its designee or by the Underwriter, except with the written permission of the Trust or the Underwriter or the designee of either or as is required by law. 4.3 The Underwriter or its designee shall furnish, or shall cause to be furnished, to the Company or its designee, each piece of sales literature or other promotional material prepared by the Underwriter in which the Company and/or its separate account(s) is named at least 15 days prior to its use. No such material shall be used if the Company or its designee objects to such use within five Business Days after receipt of such material. 4.4 Neither the Trust nor the Underwriter shall give any information or make any representations on behalf of the Company or concerning the Company, each Account, or the Contracts other than the information or representations contained in a registration statement or prospectus for the Contracts, as such registration statement and prospectus may be amended or supplemented from time to time, or in published reports for each Account which are in the public domain or approved by the Company for distribution to Contract owners, or in sales literature or other promotional material approved by the Company or its designee, except with the written permission of the Company or as is required by law. 4.5 For purposes of this Article IV, 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), 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 registered representatives. ARTICLE V. FEES AND EXPENSES 5.1 Except as provided in Article VI, the Trust and Underwriter shall pay no fee or other compensation to the Company under this agreement. 5.2 All expenses incident to performance by the Trust under this Agreement shall be paid by the Trust. The Trust shall bear the expenses for the cost of registration and 7 qualification of the Trust's shares, preparation and filing of the Trust's prospectus and registration statement, proxy materials and reports, setting the prospectus and shareholder reports in type, setting in type and printing the proxy materials, and the preparation of all statements and notices required by any federal or state law, in each case as may reasonably be necessary for the performance by it of its obligations under this Agreement. 5.3 The Company shall bear the expenses of (a) printing and distributing the Trust's prospectus in connection with sales of the Contracts and (b) distributing the reports to Trust's Shareholders and (c) of distributing the Trust's proxy materials to owners of the Contracts. ARTICLE VI. SERVICE FEES 6.1 Provided the Company complies with its obligations under this Agreement, the Underwriter shall pay the Company a service fee (the "Service Fee") on shares of the Funds held in the Accounts at the annual rates specified in Schedule B (excluding any accounts for the Company's own corporate retirement plans), subject to Section 6.2 hereof. 6.2 The Company understands and agrees that all Service Fee payments are subject to the limitations contained in each Fund's Distribution Plan, which may be varied or discontinued at any time, and understands and agrees that it will cease to receive such Service Fee payments with respect to a Fund if the Fund ceases to pay fees to the Underwriter pursuant to its Distribution Plan. 6.3 (a) The Company's failure to provide the services described in Section 6.4 or otherwise to comply with the terms of this Agreement will render it ineligible to receive Service Fees; and (b) the Underwriter may, without the consent of the Company, amend this Article VI to change the amount of Service Fees or the terms on which Service Fees are paid or to terminate further payments of Service Fees upon written notice to the Company. 6.4 The Company will provide the following services to the Contract Owners purchasing Fund shares: (i) Maintaining regular contact with Contract owners and assisting in answering inquiries concerning the Funds; (ii) Assisting in printing and distributing shareholder reports, prospectuses and other sale and service literature provided by the Underwriter; (iii) Assisting the Underwriter and its affiliates in the establishment and maintenance of Contract owner and shareholder accounts and records; 8 (iv) Assisting Contract owners in effecting administrative changes, such as exchanging shares in or out of the Funds; (v) Assisting in processing purchasing purchase and redemption transactions; and (vi) Providing any other information or services as the Contract owners or the Underwriter may reasonably request. The Company will support the Underwriter's marketing and servicing efforts by granting reasonable requests for visits to the Company's offices by representatives of the Underwriter. 6.5 The Company's compliance with the service requirement set forth in this Agreement will be evaluated from time to time by the Underwriter's monitoring of redemption levels of Fund shares held in any Account and by such other methods as the Underwriter deems appropriate. ARTICLE VII. DIVERSIFICATION 7.1 The Trust shall use its best efforts to cause each Authorized Fund to maintain a diversified pool of investments that would, if such Fund were a segregated asset account, satisfy the diversification provisions of Treas. Reg. ss. 1.817-5(b)(1) or (2). ARTICLE VIII. POTENTIAL CONFLICTS 8.1 The Trustees will monitor the Trust for the existence of any material irreconcilable conflict between the interests of the contract owners of all separate accounts investing in the Trust. A material irreconcilable conflict may arise for a variety of reasons, including: (a) an action by any state insurance regulatory authority; (b) a change in applicable federal or state insurance, tax, or securities law 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 owners; or (f) a decision by an insurer to disregard the voting instructions of contract owners. The Trust shall promptly inform the Company if the Trustees determine that a material irreconcilable conflict exists and the implications thereof. 8.2 The Company will report any potential or existing conflicts of which it is aware to the Trustees. The Company will assist the Trustees in carrying out their responsibilities under the Shared Funding Exemptive Order, by providing the Trustees with all information reasonably necessary for the Trustees to consider any issues raised. This includes, but is not limited to, an obligation by the Company to inform the Trustees whenever Contract owner voting instructions are disregarded. 8.3 If it is determined by a majority of the Trustees, or a majority of the 9 disinterested Trustees, that a material irreconcilable conflict exists, the Company shall to the extent reasonably practicable (as determined by a majority of the disinterested Trustees), take, at the Company's expense, whatever steps are necessary to remedy or eliminate the material irreconcilable conflict, up to and including: (1) withdrawing the assets allocable to some or all of the separate accounts from the Trust or any Fund and reinvesting such assets in a different investment medium, including (but not limited to) another Fund of the Trust, or submitting the question whether such segregation should be implemented to a vote of all affected contract owners and, as appropriate, segregating the assets of any appropriate group (i.e., annuity contract owners, life insurance contract owners, or variable contract owners of one or more Participating Insurance Companies) that votes in favor of such segregation, or offering to the affected contract owners the option of making such a change; and (2) establishing a new registered management investment company or managed separate account. 8.4 If a material irreconcilable conflict arises because of a decision by the Company to disregard Contract owner voting instructions and that decision represents a minority position or would preclude a majority vote, the Company may be required, at the Trust's election, to withdraw the affected Account's investment in one or more portfolios of the Trust and terminate this Agreement with respect to such Account; provided, however, that such withdrawal and termination shall be limited to the extent required by the foregoing material irreconcilable conflict as determined by a majority of the disinterested Trustees. No charge or penalty shall be imposed as a result of such withdrawal. Any such withdrawal and termination must take place within six (6) months after the Trust gives written notice that this provision is being implemented, and until the end of that six month period the Underwriter and Trust shall, to the extent permitted by law and any exemptive relief previously granted to the Trust, continue to accept and implement orders by the Company for the purchase (or redemption) of shares of the Trust. 8.5 If a material irreconcilable conflict arises because of a particular state insurance regulator's decision applicable to the Company to disregard Contract owner voting instructions and that decision represents a minority position that would preclude a majority vote, then the Company may be required, at the Trust's direction, to withdraw the affected Account's investment in one or more Authorized Funds of the Trust; provided, however, that such withdrawal and termination shall be limited to the extent required by the foregoing material irreconcilable conflict as determined by a majority of the disinterested Trustees. Any such withdrawal and termination must take place within six (6) months after the Trust gives written notice that this provision is being implemented, unless a shorter period is required by law, and until the end of the foregoing six month period (or such shorter period if required by law), the Underwriter and Trust shall, to the extent permitted by law and any exemptive relief previously granted to the Trust, continue to accept and implement orders by the Company for the purchase (and redemption) of shares of the Trust. No charge or penalty will be imposed as a result of such withdrawal. 10 8.6 For purposes of Sections 8.3 through 8.6 of this Agreement, a majority of the disinterested Trustees shall determine whether any proposed action adequately remedies any material irreconcilable conflict. Neither the Trust nor the Underwriter shall be required to establish a new finding medium for the Contracts, nor shall the Company be required to do so, if an offer to do so has been declined by vote of a majority of Contract owners materially adversely affected by the material irreconcilable conflict. In the event that the Trustees determine that any proposed action does not adequately remedy any material irreconcilable conflict, then the Company will withdraw the Account's investment in one or more Authorized Funds of the Trust and terminate this Agreement within six (6) months (or such shorter period as may be required by law or any exemptive relief previously granted to the Trust) after the Trustees inform the Company in writing of the foregoing determination; provided, however, that such withdrawal and termination shall be limited to the extent required by any such material irreconcilable conflict as determined by a majority of the disinterested Trustees. No charge or penalty will be imposed as a result of such withdrawal. 8.7 The responsibility to take remedial action in the event of the Trustees' determination of a material irreconcilable conflict and to bear the cost of such remedial action shall be the obligation of the Company, and the obligation of the Company set forth in this Article VII shall be carried out with a view only to the interests of Contract owners. 8.8 If and to the extent that Rule 6e-2 and Rule 6e-3(T) are amended, or Rule 6e-3 is adopted, to provide exemptive relief from any provision of the 1940 Act or the rules promulgated thereunder with respect to mixed or shared funding (as defined in the Shared Funding Exemptive Order) on terms and conditions materially different from those contained in the Shared Funding Exemptive Order, then (a) the Trust and/or the Participating Insurance Companies, as appropriate, shall take such steps as may be necessary to comply with Rules 6e-2 and 6e-3(T), as amended, and Rule 6e-3, as adopted, to the extent such rules are applicable; and (b) Sections 3.4, 3.5, 8.1, 8.2, 8.3, 8.4 and 8.5 of this Agreement shall continue in effect only to the extent that terms and conditions substantially identical to such Sections are contained in such Rule(s) as so amended or adopted. 8.9 The Company has reviewed the Shared Funding Exemption Order and hereby assumes all obligations referred to therein which are required, including, without limitation, the obligation to provide reports, material or data as the Trustees may request as conditions to such Order, to be assumed or undertaken by the Company. ARTICLE IX. INDEMNIFICATION 9.1. INDEMNIFICATION BY THE COMPANY 9.1 (a). The Company shall indemnify and hold harmless the Trust and the Underwriter and each of the Trustees, directors of the Underwriter, officers, employees or agents of the Trust or the Underwriter and each person, if any, who controls the Trust or the Underwriter within the 11 meaning of Section 15 of the 1933 Act (collectively, the "Indemnified Parties" for purposes of this Section 9.1) against any and all losses, claims, damages, liabilities (including amounts paid in settlement with the written consent of the Company which consent may not be unreasonably withheld) or litigation (including reasonable legal and other expenses), to which the Indemnified Parties may become subject under any statute, regulation, at common law or otherwise, insofar as such losses, claims, damages, liabilities or expenses (or actions in respect thereof) or settlements are related to the sale or acquisition of the Trust's shares or the Contracts or the performance by the parties of their obligations hereunder and: (i) arise out of or are based upon any untrue statements or alleged untrue statements of any material fact contained in a Registration Statement, Prospectus or Statement of Additional Information for the Contracts or contained in the Contracts or sales literature for the Contracts (or any amendment or supplement to any of the foregoing), or arise out of or are based upon the omission or the alleged omission to state therein a material fact required to be stated therein or necessary to make the statements therein not misleading, provided that this agreement to indemnify shall not apply as to any Indemnified Party if such statement or omission or such alleged statement or omission was made in reliance upon and in conformity with information furnished to the Company by or on behalf of the Trust for use in the Registration Statement, Prospectus or Statement of Additional Information for the Contracts or in the Contracts or sales literature (or any amendment or supplement) or otherwise for use in connection with the sale of the Contracts or Trust shares; or (ii) arise out of or as a result of written statements or representations (other than statements or representations contained in the Trust's Registration Statement or Prospectus, or in sales literature for Trust shares not supplied by the Company, or persons under its control) or wrongful conduct of the Company or persons under its control, with respect to the sale or distribution of the Contracts or Trust shares; or (iii) arise out of any untrue statement or alleged untrue statement of a material fact contained in a Registration Statement, Prospectus, or sales literature of the 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 a statement or omission was made in reliance upon information furnished to the Trust or the Underwriter by or on behalf of the Company; or (iv) arise out of or result from any breach of any representation and/or warranty made by the Company in this Agreement or arise out of or result from any other breach of this Agreement by the Company, as limited by and in accordance with the provisions of Sections 9.1(b) and 9.1(c) hereof. 9.1 (b) The 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 12 Party to the extent such may arise from such Indemnified Party's willful misfeasance, bad faith, or gross negligence in the performance of such Indemnified Party's duties or by reason of such Indemnified Party's reckless disregard of obligations or duties under this Agreement or to the Trust, whichever is applicable. 9.1 (c) The 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 the 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), on the basis of which the Indemnified Party should reasonably know of the availability of indemnity hereunder in respect of such claim but failure to notify the Company of any such claim shall not relieve the Company from any liability which it may have to the Indemnified Party against whom such action is brought otherwise than on account of this indemnification provision. In case any such action is brought against the Indemnified Parties, the Company shall be entitled to participate, at its own expense, in the defense of such action. The Company also shall be entitled to assume the defense thereof, with counsel satisfactory to the Indemnified Party named in the action. After notice from the Company to such Indemnified Party of the Company's election to assume the defense thereof the Indemnified Party shall bear the fees and expenses of any additional counsel retained by it, and the Company will not be liable to such 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. 9.1 (d) The Underwriter shall promptly notify the Company of the commencement of any litigation or proceedings against the Trust or the Underwriter in connection with the issuance or sale of the Trust Shares or the Contracts or the operation of the Trust. 9.1 (e) The provisions of this Section 9.1 shall survive any termination of this Agreement. 9.2 INDEMNIFICATION BY THE UNDERWRITER 9.2 (a) The Underwriter shall indemnify and hold harmless the Company and each person, if any, who controls the Company within the meaning of Section 15 of the 1933 Act and any director, officer, employee or agent of the foregoing (collectively, the "Indemnified Parties" for purposes of this Section 9.2) against any and all losses, claims, damages, liabilities (including amounts paid in settlement with the written consent of the Underwriter which consent may not be unreasonably withheld) or litigation (including reasonable legal and other expenses) to which the Indemnified Parties may become subject under any statute, at common law or otherwise, insofar as such losses, claims, damages, liabilities or expenses (or actions in respect thereof) or settlements are related to the sale or acquisition of the Trust's shares or the 13 Contracts or the performance by the parties of their obligations hereunder and: (i) arise out of or are based upon any untrue statement or alleged untrue statement of any material fact contained in the sales literature of the Trust prepared by or approved by the Trust or Underwriter (or any amendment or supplement to any of the foregoing), or arise out of or are based upon the omission or the alleged omission to state therein a material fact required to be stated therein or necessary to make the statements therein not misleading, provided that this agreement to indemnify shall not apply as to any Indemnified Party if such statement or omission or such alleged statement or omission was made in reliance upon and in conformity with information furnished to the Underwriter or Trust by or on behalf of the Company for use in sales literature (or any amendment or supplement) or otherwise for use in connection with the sale of the Contracts or Trust shares; or (ii) arise out of or as a result of written statements or representations (other than statements or representations contained in the Registration Statement, Prospectus, Statement of Additional Information or sales literature for the Contracts not supplied by the Underwriter or persons under its control) of the Underwriter or persons under its control, with respect to the sale or distribution of the Contracts or Trust shares; or (iii) arise out of any untrue statement or alleged untrue statement of a material fact contained in a Registration Statement, Prospectus, Statement of Additional Information or sales literature covering the Contracts, or any amendment thereof or supplement thereto, or the omission or alleged omission to state therein a material fact required to be stated therein or necessary to make the statement or statements therein not misleading, if such statement or omission was made in reliance upon information furnished to the Company by or on behalf of the Underwriter; or (iv) arise out of or result from any breach of any representation and/or warranty made by the Underwriter in this Agreement or arise out of or result from any other breach of this Agreement by the Underwriter; as limited by and in accordance with the provisions of Sections 9.2(b) and 9.2(c) hereof. 9.2 (b) The Underwriter shall not be liable under this indemnification provision with respect to any losses, claims, damages, liabilities or litigation incurred or assessed against an Indemnified Party as such may arise from such Indemnified Party's willful misfeasance, bad faith, or gross negligence in the performance of such Indemnified Party's duties or by reason of such Indemnified Party's reckless disregard of obligations and duties under this Agreement or to each Company or the Account, whichever is applicable. 9.2 (c) The Underwriter shall not be liable under this indemnification provision with respect to any claim made against an Indemnified Party unless such Indemnified Party shall 14 have notified the Underwriter in writing within a reasonable time after the summons or other first legal process giving information of the nature of the claim shall have been served upon such Indemnified Party (or after such Indemnified Party shall have received notice of such service on any designated agent) on the basis of which the Indemnified Party should reasonably know of the availability of indemnity hereunder in respect of such claim, but failure to notify the Underwriter of any such claim shall not relieve the Underwriter from any liability which it may have to the Indemnified Party against whom such action is brought otherwise than on account of this indemnification provision. In case any such action is brought against the Indemnified Parties, the Underwriter will be entitled to participate, at its own expense, in the defense thereof. The Underwriter also shall be entitled to assume the defense thereof, with counsel satisfactory to the Indemnified Party named in the action. After notice from the Underwriter to such Indemnified Party of the Underwriter's election to assume the defense thereof, the Indemnified Party shall bear the fees and expenses of any additional counsel retained by it, and the Underwriter 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. 9.2 (d) The Company shall promptly notify the Underwriter of the Trust of the commencement of any litigation or proceedings against it or any of its officers or directors, in connection with the issuance or sale of the Contracts or the operation of each Account. 9.2 (e) The provisions of this Section 9.2 shall survive any termination of this Agreement. 9.3 INDEMNIFICATION BY THE TRUST 9.3 (a) The Trust shall indemnify and hold harmless the Company, and each person, if any, who controls the Company within the meaning of Section 15 of the 1933 Act and any director, officer, employee or agent of the foregoing (collectively, the "Indemnified Parties" for purposes of this Section 9.3) against any and all losses, claims, damages, liabilities (including amounts paid in settlement with the written consent of the Trust which consent may not be unreasonably withheld) or litigation (including reasonable legal and other expenses) to which the Indemnified Parties may become subject under any statute, at common law or otherwise, insofar as such losses, claims, damages, liabilities or expenses (or actions in respect thereof) or settlements are related to the operations of the Trust and: (i) arise out of or are based upon any untrue statement or alleged untrue statement of any material fact contained in a Registration Statement, Prospectus and Statement of Additional Information of the 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 15 apply as to any Indemnified Party if such statement or omission or such alleged statement or omission was made in reliance upon and in conformity with information furnished to the Underwriter or Trust by or on behalf of the Company for use in the Registration Statement, Prospectus, or Statement of Additional Information for the Trust (or any amendment or supplement) or otherwise for use in connection with the sale of the Contracts or Trust shares; or (ii) arise out of or result from any material breach of any representation and/or warranty made by the Trust in this Agreement or arise out of or result from any other material breach of this Agreement by the Trust, as limited by and in accordance with the provisions of Sections 9.3(b) and 9.3(c) hereof. 9.3 (b) The Trust shall not be liable under the indemnification provision with respect to any losses, claims, damages, liabilities or litigation incurred or assessed against an Indemnified Party as such may arise from such Indemnified Party s willful misfeasance, bad faith, or gross negligence or by reason of such Indemnified Party's reckless disregard of obligations and duties under this Agreement or to the Company, the Trust, the Underwriter or each Account, whichever is applicable. 9.3 (c) The Trust shall not be liable under this indemnification provision with respect to any claim made against any Indemnified Party unless such Indemnified Party shall have notified the Trust in writing within a reasonable time after the summons or other first legal process giving information of the nature of the 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) on the basis of which the Indemnified Party should reasonably know of the availability of indemnity hereunder in respect of such claim, but failure to notify the Trust of any such claim shall not relieve the Trust from any liability which it may have to the Indemnified Party against whom such action is brought otherwise than on account of this indemnification provision. In case any such action is brought against the Indemnified Parties, the Trust will be entitled to participate, at its own expense, in the defense thereof. The Trust also shall be entitled to assume the defense thereof, with counsel reasonably satisfactory to the Indemnified Party named in the action. After notice from the Trust to such Indemnified Party of the Trust's election to assume the defense thereof, the Indemnified Party shall bear the fees and expenses of any additional counsel retained by it, and the Trust will not be liable to such 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. 9.3 (d) The Company agrees promptly to notify the Trust of the commencement of any litigation or proceedings against it or any of its officers or, directors, in connection with this Agreement, the issuance or sale of the Contracts or the sale or acquisition of shares of the Trust. 16 9.3 (e) The provisions of this Section 9.3 shall survive any termination of this Agreement. ARTICLE X. APPLICABLE LAW 10.1 This Agreement shall be construed and the provisions hereof interpreted under and in accordance with the laws of the Commonwealth of Massachusetts. 10.2 This Agreement shall be subject to the provisions of the 1933, 1934 and 1940 acts, and the rules and regulations and rulings thereunder, including such exemptions from those statutes, rules and regulations as the Securities and Exchange Commission may grant (including, but not limited to, the Shared Funding Exemptive Order) and the terms hereof shall be interpreted and construed in accordance therewith. ARTICLE XI. TERMINATION 11.1. This Agreement shall terminate: (a) at the option of any party upon 90 days advance written notice to the other parties; or (b) at the option of the Trust or the Underwriter in the event that formal administrative proceedings are instituted against the Company by the NASD, the Securities and Exchange Commission, the Insurance Commissioner of the State of Missouri or any other regulatory body regarding the Company's duties under this Agreement or related to the sales of the Contracts, with respect to the operation of any Account, or the purchase of the Trust shares, provided, however, that the Trust or the Underwriter determines in its sole judgment exercised in good faith, that any such administrative proceedings will have a material adverse effect upon the ability of the Company to perform its obligations under this Agreement; or (c) at the option of the Company in the event that formal administrative proceedings are instituted against the Trust or Underwriter by the NASD, the Securities and Exchange Commission, or any state securities or insurance department or any other regulatory body in respect of the sale of shares of the Trust to the Company, provided, however, that the Company determines in its sole judgment exercised in good faith, that any such administrative proceedings will have a material adverse effect upon the ability of the Trust or Underwriter to perform its obligations under this Agreement; or (d) with respect to any Account, upon requisite vote of the Contract owners having an interest in such Account (or any subaccount) to substitute the shares of another investment company for the corresponding Fund shares of the Trust in accordance with the terms of the Contracts for which those Fund shares had been selected to serve as the underlying investment 17 media. The Company will give 30 days' prior written notice to the Trust of the date of any proposed vote to replace the Trust's shares; or (e) with respect to any Authorized Fund, upon 30 days advance written notice from the Underwriter to the Company, upon a decision by the Underwriter to cease offering shares of the Fund for sale. 11.2. It is understood and agreed that the right of any party hereto to terminate this Agreement pursuant to Section 11.1 (a) may be exercised for any reason or for no reason. 11.3 No termination of this Agreement shall be effective unless and until the party terminating this Agreement gives prior written notice to all other parties to this Agreement of its intent to terminate, which notice shall set forth the basis for such termination. Such prior written notice shall be given in advance of the effective date of termination as required by this Article XI. 11.4 Notwithstanding any termination of this Agreement, subject to Section 1.2 of this Agreement, the Trust and the Underwriter shall, at the option of the Company, continue to make available additional shares of the Trust 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, subject to Section 1.2 of this Agreement, the owners of the Existing Contracts shall be permitted to reallocate investments in the Trust, redeem investments in the Trust and/or invest in the Trust upon the making of additional purchase payments under the Existing Contracts. The parties agree that this Section 11.4 shall not apply to any termination under Article VIII and the effect of such Article VIII termination shall be governed by Article VIII of this Agreement. 11.5 The Company shall not redeem Trust shares attributable to the Contracts (as opposed to Trust shares attributable to the Company's assets held in either Account) except (i) as necessary to implement Contract owner initiated transactions, or (ii) as required by state and/or federal laws or regulations or judicial or other legal precedent of general application (hereinafter referred to as a "Legally required Redemption"). Upon request, the Company will promptly furnish to the Trust and the Underwriter an opinion of counsel for the Company, reasonably satisfactory to the Trust, to the effect that any redemption pursuant to clause (ii) above is a Legally Required Redemption. Furthermore, except in cases where permitted under the terms of the Contracts, subject to Section 1.2 of this Agreement, the Company shall not prevent Contract owners from allocating payments to an Authorized Fund that was otherwise available under the Contracts without first giving the Trust or the Underwriter 90 days notice of its intention to do. ARTICLE XII. NOTICES Any notice shall be sufficiently given when sent by registered or certified mail to the 18 other party at the address of such party set forth below or at such other address as such party may from time to time specify in writing to the other party. If to the Trust: One Post Office Square Boston, MA 02109 Attention: John R. Verani If to the Underwriter: One Post Office Square Boston, MA 02109 Attention: General Counsel If to the Company: 2727-A Allen Parkway Houston, Tx 77019 Attention: Steven A. Glover 19 ARTICLE XIII. MISCELLANEOUS 13.1 A copy of the Agreement and Declaration of Trust of the Trust is on file with the Secretary of State of the Commonwealth of Massachusetts, and notice is hereby given that this instrument is executed on behalf of the Trustees of the Trust as Trustees and not individually and that the obligations of or arising out of this instrument, including without limitation Article VII, are not binding upon any of the Trustees or shareholders individually but binding only upon the assets and property of the Trust. 13.2 The captions in this Agreement are included for convenience of reference only and in no way define or delineate any of the provisions hereof or otherwise affect their construction or effect. 13.3 This Agreement may be executed simultaneously in two or more counterparts, each of which taken together shall constitute one and the same instrument. 13.4 If any provision of this Agreement shall be held or made invalid by a court decision, statute, rule or otherwise, the remainder of the Agreement shall not be affected thereby. 13.5 Each party hereto shall cooperate with each other party and all appropriate governmental authorities (including without limitation the Securities and Exchange Commission, the NASD and state insurance regulators) and shall pertmit such authorities reasonable access to its books and records in connection with any investigation or inquiry relating to this Agreement or the transactions contemplated hereby. 13.6 The rights, remedies and obligations contained in this Agreement are cumulative and are in addition to any and all rights, remedies and obligations, at law or in equity, which the parties hereto are entitled to under state and federal laws. 13.7 Notwithstanding any other provision of this Agreement, the obligations of the Trust and the Underwriter are several and, without limiting in any way the generality of the foregoing, neither such party shall have any liability for any action or failure to act by the other party, or any person acting on such other party's behalf. 20 IN WITNESS WHEREOF, each of the parties hereto has caused this Agreement to be executed in its name and on its behalf by its duly authorized representative and its seal to be hereunder affixed hereto as of the date specified below. AMERICAN GENERAL LIFE INSURANCE COMPANY By its authorized officer, Name: _________________________________________ Don M. Ward Title: Senior Vice President - Variable Products PUTNAM VARIABLE TRUST By its authorized officer, Name: _________________________________________ Title: ________________________________________ PUTNAM MUTUAL FUNDS CORP. By its authorized officer, Name: _________________________________________ Title: ________________________________________ 21 SCHEDULE A 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 CONTRACT FORM NUMBERS: Company Separate Account VL-R 97600 Established: May 6, 1997 97610 NAME OF CONTRACT: Platinum Investor I and Platinum Investor II Flexible Premium Variable Life Insurance Policies
SCHEDULE B FUNDS OF PUTNAM VARIABLE TRUST AVAILABLE FOR PURCHASE BY AMERICAN GENERAL LIFE INSURANCE COMPANY UNDER THIS AGREEMENT Putnam VT Diversified Income Putnam VT Growth and Income Putnam VT International Growth and Income EX-8.(G) 12 EXHIBIT 8(g) PARTICIPATION AGREEMENT AMONG AMERICAN GENERAL LIFE INSURANCE COMPANY, AMERICAN GENERAL SECURITIES INCORPORATED, SAFECO RESOURCE SERIES TRUST AND SAFECO SECURITIES, INC. DATED AS OF __________, 1998 i PARTICIPATION AGREEMENT THIS AGREEMENT, made and entered into as of the day of , 199 8 ("Agreement"), by and among American General Life Insurance Company, a Texas life insurance company ("AGL") (on behalf of itself and its "Separate Account," defined below), American General Securities Incorporated, a Texas corporation ("AGSI"), the principal underwriter and distributor with respect to the Policies referred to below, [SAFECO RESOURCE SERIES TRUST, AN UNINCORPORATED BUSINESS TRUST ORGANIZED UNDER THE LAWS OF THE STATE OF DELAWARE, (THE "FUND"), AND SAFECO SECURITIES, INC., A WASHINGTON CORPORATION, (the "Distributor"), the Fund's principal underwriter (collectively, the "Parties"). WITNESSETH THAT: WHEREAS the Distributor and the Fund desire that shares of the Fund's Equity Portfolio and Growth Portfolio (the "Series"; reference herein to the "Fund" includes reference to each of the foregoingSeries to the extent the context requires) be made available by the Distributor to serve as underlying investment media for those variable life insurance policies of AGL that are the subject of AGL's Form S-6 registration statement filed with the Securities and Exchange Commission (the "SEC"), File No. 333-42567 and 811-08561 (the "Policies") and to be offered through AGSI. NOW, THEREFORE, in consideration of the mutual benefits and promises contained herein, the Fund and the Distributor will make shares in the Series available to AGL for this purpose at net asset value and with no sales charges, all subject to the following provisions: SECTION 1. INTRODUCTION 1.1 AVAILABILITY OF SEPARATE ACCOUNT DIVISIONS. AGL represents that American General Life Insurance Company Separate Account VL-R (the "Separate Account") is and will continue to be available to serve as an investment vehicle for its Policies. The Policies provide for the allocation of net amounts received by AGL to separate series 1 (the "Divisions"; reference herein to the "Separate Account" includes reference to each Division to the extent the context requires) of the Separate Account for investment in the shares of corresponding Series of the Fund that are made available through the Separate Account to act as underlying investment media. Other series of the Fund may become subject to this Agreement, upon mutual agreement of the parties. AGL will not unreasonably deny any request by the Distributor to create new Divisions corresponding to such other Series. 1.2 BROKER-DEALER REGISTRATION. The Distributor and AGSI each represents and warrants that it is and will remain duly registered as a broker-dealer with the SEC under the Securities Exchange Act of 1934, as amended (the "1934 Act"), and is a member in good standing of the National Association of Securities Dealers, Inc. (the "NASD"). SECTION 2. PROCESSING TRANSACTIONS 2.1 The Fund agrees, as provided in its Registration Statement, to make available to the Separate Account, and any Division, shares of the Series for investment of purchase payments of the Policies allocated to the Separate Account. 2.2 The Fund agrees to sell to AGL those shares of the Series which AGL orders. Orders which are sent by AGL to the Fund and received by the Fund by 8:00 a.m. Pacific time, will be executed by the Fund at the net asset value determined on the prior Business Day. Any orders received by the Fund after 8:00 a.m. and prior to 1:00 p.m. Pacific time, will be executed by the Fund at the net asset value next computed pursuant to the rules of the SEC. For purposes of this Section 2.2, the Fund hereby appoints AGL as its designee for receipt of such orders from the Separate Account and receipt by such designee shall constitute receipt by the Fund; provided that the Fund receives notice from AGL by telephone or facsimile (or by such other means as the Fund and AGL may agree in writing) of receipt of such orders by 8:00 a.m. Pacific time on the next following Business Day. "Business Day" shall mean any day on which the New York Stock Exchange is open for trading and on which the Fund calculates its net asset value pursuant to the rules of the SEC. 2 2.3 The Fund agrees to redeem, on AGL's request, any full or fractional shares of the Fund held by AGL, executing such requests on each Business Day at the net asset value next computed after receipt by the Fund or its designee of the request for redemption, in accordance with the provisions of this Agreement and the Fund's Registration Statement. For purposes of this Section 2.3, AGL hereby appoints the Fund as its designee for receipt of requests for redemption from the Separate Account and receipt by such designee shall constitute receipt by the Fund; provided that the Fund receives notice from AGL by telephone or facsimile (or by such other means as the Fund and AGL may agree in writing) of receipt of such request for redemption by 8:00 a.m. Pacific time on the next following Business Day. 2.4 In the event that AGL's order results in a net purchase of Series shares, AGL shall use its best efforts to pay for Series shares by 11:00 a.m. Pacific time on the same Business Day that the notice of order to purchase the Fund shares is made in accordance with the provisions of this section. If AGL's order requests a net redemption resulting in a payment of redemption proceeds to AGL, the Fund shall normally pay and transmit the proceeds of redemptions of Series shares by 11:00 a.m. Pacific time on the same Business Day that the notice of a redemption order is received in accordance with the provisions of this Agreement, unless doing so would require the Fund to dispose of Series securities or otherwise incur additional costs. In any event, proceeds shall be wired to AGL within three (3) Business Days or such longer period permitted by the Investment Company Act of 1940, as amended (the "1940 Act") or the rules, orders or regulations thereunder, and the Fund shall notify the person designated in writing by AGL as the recipient for such notice of such delay by 1:00 p.m. Pacific time the same Business Day that AGL transmits the redemption order to the Fund. If AGL's order requests the application of redemption proceeds from the redemption of shares to the purchase of shares of another fund advised by Adviser (as defined below), the Fund shall so apply such proceeds the same Business Day that AGL transmits such order to the Fund. Any payment made pursuant to this Section 2.4 shall be in federal funds transmitted by wire. 2.5 The Fund will provide to AGL closing net asset value per share for the Series at the close of trading each Business Day. In any event, the Fund shall use its best efforts to make the net 3 asset value per share for each Series available by 3:30 p.m. Pacific time each Business Day, and as soon as reasonably practicable after the net asset value per share for each Series is calculated, and shall calculate such net asset value in accordance with the Fund's Registration Statement. Any material error in the calculation of the net asset value of the Series shall be reported immediately to AGL. 2.6 At the end of each Business Day, AGL shall use the information described in Section 2.5 to calculate Separate Account unit values for the day. Using these unit values, AGL 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 the Fund 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 the Fund by AGL by 8:00 a.m. Pacific time on the Business Day next following AGL's receipt of such requests and premiums in accordance with the terms of Sections 2.2 and 2.3 hereof. Orders will be sent directly, via facsimile (or by such other means as the Fund and AGL may agree in writing), to the Fund or such other person as the Fund may designate. 2.7 The Fund shall furnish, on or before the exdividend date, notice to AGL of any income dividends or capital gain distributions payable on the shares of any Series. AGL hereby elects to receive all such income dividends and capital gain distributions as are payable on a Series' shares in additional shares of the Series, but reserves the right to revoke the election and to receive all such income dividends and capital gain distributions in cash. The Fund shall notify AGL or its designee of the number of shares so issued as payment of such dividends and distributions. 2.8 The Fund may refuse to sell shares of any Series to any person or suspend or terminate the offering of the shares of or liquidate any Series 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 Fund (the "Board of Trustees"), 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 4 of such Series. The Fund further reserves the right to pay any portion of a redemption in kind of portfolio securities of any Series if the Fund's Board of Trustees determines that it would be detrimental to the best interests of the shareholders to make a redemption wholly in cash. 2.9 Issuance and transfer of Series shares will be by book entry only. Stock certificates will not be issued to AGL or the Separate Account. Shares ordered from the Series will be recorded in appropriate book entry titles for the Separate Account. 2.10 Each Party has the right to rely on information or confirmations provided by each other Party (or by any affiliate of each other Party) and shall not be liable in the event that an error is a result of any misinformation supplied by any other Party or any such affiliate. If a mistake is caused in supplying such information or confirmations, which results in a reconciliation with incorrect information, the amount required to make a Policy owner's or participant's account whole shall be borne by the Party providing the incorrect information. SECTION 3. COSTS AND EXPENSES 3.1 GENERAL. Except as otherwise specifically provided herein, each Party will bear all expenses incident to its performance under this Agreement. 3.2 EXPENSE ALLOCATIONS. (a) The Fund will pay the cost of keeping its registration of shares under the Securities Act of 1933, as amended (the "1933 Act") and its registration as a management investment company under the 1940 Act, current and effective. AGL will pay the cost of registering the Separate Account as a unit investment trust under the 1940 Act and registering units of interest under the Policies under the 1933 Act and keeping such registrations current and effective. (b) At least annually, the Fund or its designee shall provide AGL with the current 5 prospectus, statement of additional information and any supplements thereto for the shares of the Series in the form of "camera ready" copy as set in type or, at the request of AGL, as a diskette in the form sent to the financial printer. The prospectuses provided by the Fund shall be limited to only those Series of the Fund that are made available through the Separate Account to serve as underlying investments. The Fund shall be responsible for providing the prospectus and/or statement of additional information in the format (i.e., "camera ready" or diskette) in which it is accustomed to formatting prospectuses and/or statements of additional information and shall bear the expense of providing the prospectus and/or statement of additional information, and any supplements thereto, in such format (e.g. typesetting expenses), and AGL shall bear the expense of adjusting or changing the format to conform with any of its prospectuses and/or statements of additional information. At AGL's option and expense, once a year (or more frequently if the prospectus and/or statement of additional information for the shares is supplemented or amended), AGL may cause the Fund's prospectus and/or statement of additional information to be printed separately and/or together in one document with the prospectus and/or statement of additional information for other investment companies and/or for the Policies. AGL shall be responsible for the costs of printing the Fund's prospectus and/or statement of additional information, either separately or in combination as aforesaid, and distribution to existing Policy owners whose Policies are funded by such shares and to prospective purchasers of Policies; provided that the Fund shall be responsible for one-half of the cost of printing the Fund's prospectus in a quantity sufficient to provide each existing Policy owner with a copy. (c) The Fund will bear the costs of preparing, filing with the SEC and setting for printing the Fund's periodic reports to shareholders, the Fund proxy material and other shareholder communications (collectively "Fund Reports") and AGL will bear the costs delivering the Fund Reports to existing owners under the Policies (collectively, "Participants"). (d) AGL will bear the costs of preparing, filing with the SEC, setting for printing, printing and delivering to Participants the Separate Account's prospectus, statement of additional information and any supplements thereto (collectively, the "Separate Account Prospectus"), periodic 6 reports to Participants, voting instruction solicitation material, and other Participant communications. 3.3 PARTIES TO COOPERATE. The Fund, AGL, AGSI and the Distributor each agrees to cooperate with the others, as applicable, in arranging to print, mail and/or deliver combined or coordinated prospectuses or other materials of the Fund and Separate Account. SECTION 4. LEGAL COMPLIANCE 4.1 TAX LAWS. (a) The Fund represents and warrants that each Series 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 make every effort to qualify and to maintain qualification of each Series as a RIC. The Fund or the Distributor will notify AGL immediately upon having a reasonable basis for believing that a Series has ceased to so qualify or that it might not so qualify in the future. (b) AGL represents and warrants that the Policies are currently and at the time of issuance will be treated as life insurance policies under applicable provisions of the Code and that it will make every effort to maintain such treatment. AGL will notify the Fund and the Distributor immediately upon having a reasonable basis for believing that any of the Policies have ceased to be so treated or that they might not be so treated in the future. (c) The Fund represents and warrants that each Series is currently in compliance with the diversification requirements set forth in Section 817(h) of the Code and Section 1.817-5 of the regulations under the Code, and the Fund represents that it will make every effort to maintain each Series' compliance with such diversification requirements. The Fund or the Distributor will notify AGL immediately upon having a reasonable basis for believing that a Series has ceased to so comply or that a Series might not so comply in the future. 7 (d) AGL represents and warrants that that the Separate Account is a "segregated asset account" and that interests in the Separate Account are offered exclusively through the purchase of or transfer into a "variable contract," within the meaning of such terms under Section 817(h) of the Code and the regulations thereunder. AGL will make every effort to continue to meet such definitional requirements, and it will notify the Fund and the Distributor immediately upon having a reasonable basis for believing that such requirements have ceased to be met or that they might not be met in the future. quarter. (e) The Fund represents that, under the terms of its investment advisory agreements with SAFECO Asset Management Company (the "Adviser"), the Adviser is and will be responsible for managing the Fund in compliance with the Fund's investment objectives, policies and restrictions as set forth in the Fund Prospectus. The Fund represents that these objectives, policies and restrictions do and will include operating as a RIC in compliance with Subchapter M of the Code and Section 817(h) of the Code and regulations thereunder. The Fund has adopted and will maintain procedures for ensuring that the Fund is managed in compliance with Subchapter M and Section 817(h) and regulations thereunder. On request, the Fund shall also provide AGL with such materials, cooperation and assistance as may be reasonably necessary for AGL or any appropriate person designated by AGL to review from time to time the procedures and practices of the Adviser or each sub-investment adviser to the Fund for ensuring that the Fund is managed in compliance with Subchapter M and Section 817(h) and regulations thereunder. In the event of any noncompliance regarding its status as a RIC, the Fund will pursue those efforts necessary to enable each affected Series to qualify once again for treatment as a RIC in compliance with Subchapter M, including cooperation in good faith with AGL. If the Fund does not so cure the noncompliance regarding its status under Section 817(h), the Fund will cooperate in good faith with AGL's efforts to obtain a ruling and closing agreement, as provided in Revenue Procedure 92-25 issued by the Internal Revenue Service (or any applicable ruling or procedure subsequently issued by the Internal Revenue Service), that the Series satisfies Section 817(h) for the period or periods of 8 non-compliance. 4.2 INSURANCE AND CERTAIN OTHER LAWS. (a) The Distributor and the Fund make no representation as to whether any aspect of the Fund's operations complies with the insurance laws or regulations of the various states. The Fund will use reasonable efforts to comply with any applicable state insurance laws or regulations, to the extent specifically requested in writing by AGL. (b) AGL represents and warrants that (i) it is an insurance company duly organized, validly existing and in good standing under the laws of the State of Texas and has full corporate power, authority and legal right to execute, deliver and perform its duties and comply with its obligations under this Agreement, (ii) it has legally and validly established and maintains the Separate Account as a segregated asset account under Article 3.75 of the Texas Insurance Code, and (iii) the Policies comply in all material respects with all other applicable federal and state laws and regulations. (c) AGL and AGSI represent and warrant that AGSI is a business corporation duly organized, validly existing, and in good standing under the laws of the State of Texas and has full corporate power, authority and legal right to execute, deliver, and perform its duties and comply with its obligations under this Agreement. (d) The Distributor represents and warrants that it is a business corporation duly organized, validly existing, and in good standing under the laws of the State of Washington and has full corporate power, authority and legal right to execute, deliver, and perform its duties and comply with its obligations under this Agreement. (e) The Distributor and the Fund represent and warrant that the Fund is a business trust duly organized, validly existing, and in good standing under the laws of the state of Delaware and has full power, authority, and legal right to execute, deliver, and perform its duties and comply 9 with its obligations under this Agreement. 4.3 SECURITIES LAWS. (a) AGL represents and warrants that (i) it has registered the Separate Account as a unit investment trust in accordance with the provisions of the 1940 Act to serve as a segregated investment account for its variable life insurance policies, including the Policies, (ii) the Separate Account does and will comply in all material respects with the requirements of the 1940 Act and the rules thereunder, (iii) the Separate Account's 1933 Act registration statement relating to the Policies, 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,(iv) the Separate Account Prospectus will at all times comply in all material respects with the requirements of the 1933 Act and the rules thereunder; and (v) interests in the Separate Account pursuant to the Policies will be registered under the 1933 Act to the extent required by the 1933 Act and the Policies will be duly authorized for issuance and sold in compliance with all applicable federal and state laws and that the sale of the Policies will comply in all material respects with state insurance suitability requirements. (b) The Fund and the Distributor represent and warrant that (i) Fund 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 Washington law, (ii) the Fund is and will remain registered under the 1940 Act to the extent required by the 1940 Act, and (iii) the Fund will amend the registration statement for its shares under the 1933 Act and itself under the 1940 Act from time to time as required in order to effect the continuous offering of its shares. (c) The Fund represents and warrants that (i) the Fund does and will comply in all material respects with the requirements of the 1940 Act and the rules thereunder, (ii) its 1933 Act registration statement, together with any amendments thereto, will at all times comply in all material respects with the requirements of the 1933 Act and rules thereunder, and (iii) the Fund Prospectus will at all times comply in all material respects with the requirements of the 1933 Act and the rules thereunder. (d) The Fund will register and qualify its shares for sale in accordance with the laws of any state or other jurisdiction only if and to the extent reasonably deemed advisable by the 10 Fund, AGL or any other life insurance company utilizing the Fund. (e) AGL represents and warrants that its directors, officers, and employees, if any, dealing with the money and/or securities of the Fund are and shall continue to be at all times covered by a blanket fidelity bond or similar coverage in an amount not less than $2 million. The aforesaid bond shall include coverage for larceny and embezzlement and shall be issued by a reputable bonding company. (f) The Fund represents and warrants that its directors, officers, and employees, if any, dealing with the money and/or securities of the Fund are and shall continue to be at all times covered by a blanket fidelity bond or similar coverage 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 shall include coverage for larceny and embezzlement and shall be issued by a reputable bonding company. The Fund agrees that any amounts received under such bond that arise from the arrangements contemplated by this Agreement shall be held by them for the benefit of the Fund. 4.4 NOTICE OF CERTAIN PROCEEDINGS AND OTHER CIRCUMSTANCES. (a) The Distributor or the Fund shall promptly notify AGL of (i) the issuance by any court or regulatory body of any stop order, cease and desist order, or other similar order with respect to the Fund's registration statement under the 1933 Act or the Fund Prospectus, (ii) any request by the SEC for any amendment to such registration statement or Fund Prospectus, (iii) the initiation of any proceedings for that purpose or for any other purpose relating to the registration or offering of the Fund's shares, or (iv) any other action or circumstances that may prevent the lawful offer or sale of Fund shares in any state or jurisdiction, including, without limitation, any circumstances in which (x) the Fund's shares are not registered and, in all material respects, issued and sold in accordance with applicable state and federal law or (y) such law precludes the use of such shares as an underlying investment medium of the Policies issued or to be issued by AGL. The Distributor and the Fund will make every reasonable effort to prevent the issuance of any stop order, cease and desist order or similar order and, if any such order is issued, to obtain the lifting thereof at 11 the earliest possible time. (b) AGL or AGSI shall promptly notify the Fund of (i) the issuance by any court or regulatory body of any stop order, cease and desist order, or other similar order with respect to the Separate Account's registration statement under the 1933 Act relating to the Policies or the Separate Account Prospectus, (ii) any request by the SEC for any amendment to such registration statement or Separate Account prospectus, (iii) the initiation of any proceedings for that purpose or for any other purpose relating to the registration or offering of the Separate Account interests pursuant to the Policies, (iv) any other action or circumstances that 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. AGL and AGSI will make every reasonable effort to prevent the issuance of any 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 AGL TO PROVIDE DOCUMENTS. AGL will provide to the Fund one complete copy of all SEC registration statements, Separate Account Prospectuses, annual and semi-annual reports, any preliminary and final voting instruction solicitation material, applications for exemptions, requests for no-action letters, and all amendments to any of the above, that relate to the Separate Account or the Policies, contemporaneously with the filing of such document with the SEC or other regulatory authorities. 4.6 FUND TO PROVIDE DOCUMENTS. The Fund will provide to AGL one complete copy of all SEC registration statements, Fund Prospectuses, annual and semi-annual reports, any preliminary and final proxy material, applications for exemptions, requests for no-action letters, and all amendments to any of the above, that relate to the Fund or its shares, contemporaneously with the filing of such document with the SEC or other regulatory authorities. 12 4.7 SALES LITERATURE (a) AGL will furnish, or will cause to be furnished, to the Fund and Distributor for review, each piece of sales literature or other promotional material in which the Fund, or any Series thereof, or Adviser is named, before such material is submitted to any regulatory body for review, and in any event, at least fifteen (15) Business Days prior to its use. No such material will be used if the Fund or Distributor objects to its use in writing within fifteen (15) Business Days after receipt of such material. (b) Advertising and sales literature with respect to AGL, the Separate Account and/or the Policies prepared by the Fund, Distributor or any affiliate thereof will be submitted to AGL for review before such material is submitted to any regulatory body for review, and in any event, at least fifteen (15) Business Days prior to its use. No such material will be used if AGL objects to its use in writing within fifteen (15) Business Days after receipt of such material. (c) The Fund and its affiliates and agents shall not give any information or make any representations on behalf of AGL or concerning AGL, the Separate Account or the Policies issued by AGL, other than the information or representations contained in a registration statement or prospectus for such Policies, as such registration statement and prospectus may be amended or supplemented from time to time, or in reports of the Separate Account or reports prepared for distribution to owners of such Policies, or in sales literature or other promotional material approved by AGL or its designee, without the written permission of AGL. (d) AGL and its affiliates and agents shall not give any information or make any representations on behalf of the Fund or concerning the Fund other than the information or representations contained in a Registration Statement or prospectus for the Fund, as such Registration Statement and prospectus may be amended or supplemented from time to time, or in reports of the Fund or reports prepared for distribution to owners of shares of the Fund or for owners of the Policies, or in sales literature or other promotional material approved by the Fund or its designee, without the written permission of the Fund. 13 (e) 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, electronic media, 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 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 1940 Act or the 1933 Act. (f) AGL will bear the cost of printing and delivering to prospective purchasers of the Policies Fund and Separate Account sales literature or other promotional material and the cost of filing any such materials with, and obtaining approval from, any state insurance regulatory authorities. SECTION 5. MIXED AND SHARED FUNDING 5.1 GENERAL. The order Fund has obtained, and AGL has received and reviewed, a copy of the amended and restated application for exemptive relief filed by the Fund and certain affiliates on December 20, 1995 with the SEC and the Exemptive Order issued by the SEC on January 17, 1996 in response thereto (Securities and Exchange Commission Release No. IC-21608 the "Mixed and Shared Funding Order") exempting it from certain provisions of the 1940 Act and rules thereunder so that the Fund may be available for investment by certain other entities, including, without limitation, separate accounts funding variable life insurance policies and variable annuity contracts, separate accounts of insurance companies unaffiliated with AGL and trustees of qualified pension and 14 retirement plans ("Mixed and Shared Funding"). The Parties recognize that the SEC has imposed terms and conditions for such orders that are substantially identical to many of the provisions of this Section 5. The Parties represent and warrant that they will comply with the terms and conditions of the SEC order, whether or not recited in this Section 5. 5.2 DISINTERESTED DIRECTORS. The Fund agrees that the Board of Trustees shall at all times consist of Trustees, a majority of whom (the "Disinterested Directors") are not interested persons of the Adviser or the Distributor 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 Trustee or Trustees, then the operation of this condition shall be suspended (a) for a period of 45 days if the vacancy or vacancies may be filled by the Board of Trustees; (b) for a period of 60 days if a vote of shareholders is permitted to fill the vacancy or vacancies; or (c) for such longer period as the SEC may permit. 5.3 MONITORING FOR MATERIAL IRRECONCILABLE CONFLICTS. The Fund agrees that the Board of Trustees will monitor for the existence of any material irreconcilable conflict between the interests of the Participants of all separate accounts of life insurance companies utilizing the Fund, including the Separate Account. 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; 15 (d) the manner in which the investments of any Series are being managed; (e) a difference in voting instructions given by variable insurancelife insurance policy and variable annuity contract participants or by participants of different life insurance companies utilizing the Fund; or (f) a decision by a life insurance company utilizing the Fund to disregard the voting instructions of participants. AGL will report any potential or existing conflicts of which it becomes aware to the Fund's Board of Trustees. AGL will assist the Board in carrying out its responsibilities under the Mixed and Shared Funding Order by providing the Board with all information reasonably necessary for the Board to consider any issues raised. This assistance shall include, but is not limited to, an obligation by AGL to (i) inform the Board whenever the voting instructions of the Policy owners or Participants are disregarded, and (ii) to submit to the Board such reports, materials or data as the Board may reasonably request so that the Board may fully carry out the obligations imposed upon it by the Mixed and Shared Funding Order, and such reports, materials and data shall be submitted more frequently if deemed appropriate by the Board. AGL will carry out its responsibilities under this paragraph with a view only to the interests of the Policy owners and Participants. 5.4 CONFLICT REMEDIES. (a) It is agreed that if it is determined by a majority of the members of the Board of Trustees or a majority of the Disinterested Trustees that a material irreconcilable conflict exists affecting AGL, AGL will, at theirits own expense and to the extent reasonably practicable (as determined by a majority of the Disinterested Trustees), take whatever steps are necessary to remedy or eliminate the material irreconcilable conflict, which steps may include, but are not limited to: (i) withdrawing the assets allocable to the separate account from the Fund or any series and reinvesting such assets in a different investment medium, including another series of the Fund or another investment company, or submitting the question whether such 16 segregation should be implemented to a vote of all affected Participants and, as appropriate, segregating the assets of any particular group (E.G., variable life insurance contract owners, variable annuity contract owners or all variable contract owners and participants of one or more life insurance companies utilizing the Fund) that votes in favor of such segregation, or offering to the affected variable contract owners or participants the option of making such a change; and (ii) establishing a new registered investment company of the type defined as a "Management Company" in Section 4(3) of the 1940 Act or a new separate account that is operated as a Management Company. (b) If the material irreconcilable conflict arises because of AGL's decision to disregard Participant voting instructions and that decision represents a minority position or would preclude a majority vote, AGL may be required, at the Fund's election, to withdraw the Separate Account's investment in the Fund. No charge or penalty will be imposed as a result of such withdrawal. Any such withdrawal must take place within six months after the Fund gives notice to AGL that this provision is being implemented, and until such withdrawal the Distributor and Fund shall continue to accept and implement orders by AGL for the purchase and redemption of shares of the Fund. (c) If a material irreconcilable conflict arises because a particular state insurance regulator's decision applicable to AGL conflicts with the majority of other state regulators, then AGL will withdraw the Separate Account's investment in the Fund within six months after the Fund's Board of Directors informs AGL that it has determined that such decision has created a material irreconcilable conflict, and until such withdrawal the Distributor and Fund shall continue to accept and implement orders by AGL for the purchase and redemption of shares of the Fund. 17 (d) AGL agrees that any remedial action taken by it in resolving any material irreconcilable conflict will be carried out at its expense and with a view only to the interests of Participants. (e) For purposes hereof, a majority of the Disinterested Directors will determine whether or not any proposed action adequately remedies any material irreconcilable conflict. In no event, however, will the Fund or the Distributor be required to establish a new funding medium for any Policies. AGL will not be required by the terms hereof to establish a new funding medium for any Policies if any offer to do so has been declined by vote of a majority of Participants materially adversely affected by the material irreconcilable conflict. 5.5 NOTICE TO AGL. The Fund will promptly make known in writing to AGL the Board of Trustees' determination of the existence of a material irreconcilable conflict, a description of the facts that give rise to such conflict and the implications of such conflict. 5.6 INFORMATION REQUESTED BY BOARD OF TRUSTEES. AGL will at least annually submit to the Board of Trustees of the Fund such reports, materials or data as the Board of Trustees may reasonably request so that the Board of Trustees may fully carry out the obligations imposed upon it by the provisions hereof, and said reports, materials and data will be submitted at any reasonable time deemed appropriate by the Board of Trustees. All reports received by the Board of Trustees of potential or existing conflicts, and all Board of Trustees actions with regard to determining the existence of a conflict, notifying life insurance companies utilizing the Fund of a conflict, and determining whether any proposed action adequately remedies a conflict, will be properly recorded in the minutes of the Board of Trustees or other appropriate records, and such minutes or other records will be made available to the SEC upon request. 5.7 COMPLIANCE WITH SEC RULES. 18 If, at any time during which the Fund is serving an investment medium for variable life insurance policies, 1940 Act Rules 6e-3(T) or, if applicable, 6e-2 are amended or Rule 6e-3 is adopted to provide exemptive relief with respect to mixed and shared funding, the Parties agree that they will comply with the terms and conditions thereof and that the terms of this Section 5 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. SECTION 6. TERMINATION 6.1 EVENTS OF TERMINATION. Subject to Section 6.4 below, this Agreement will terminate as to a Series: (a) at the option of AGL, the Distributor or the Fund upon (i) at least six months' advance written notice to the other Parties unless a shorter time period is agreed to by the parties, (b) at the option of the Fund upon (i) at least sixty days advance written notice to the other parties, and (ii) the approval by (x) a majority of the Disinterested Directors or (y) a majority vote of the shares of the affected Series that are held in the corresponding Divisions of the Separate Account (pursuant to the procedures set forth in Section 10 of this Agreement for voting Series shares in accordance with Participant instructions);or (c) at the option of the Fund upon written notice upon institution of formal proceedings against AGL or AGSI by the SEC, the NASD, any state insurance regulator or any other regulatory body regarding AGL's duties under this Agreement or related to the sale of the Policies, the operation of the Separate Account, or the purchase of the Fund shares, if, in each case, the Fund reasonably determines that such proceedings, or the facts on which such proceedings may be based, have a material likelihood of imposing material adverse consequences on the Series to be terminated; or 19 (d) at the option of AGL upon written notice upon institution of formal proceedings against the Fund, the Adviser or any sub-investment adviser to the Fund, or the Distributor by the NASD, the SEC, or any state securities or insurance department or any other regulatory body, if, in each case, AGL reasonably determines that such proceedings, or the facts on which such proceedings may be based, have a material likelihood of imposing material adverse consequences on AGL, AGSI or the Division corresponding to the Series to be terminated; or (e) at the option of any Party upon occurrence without written notice in the event that (i) the Series's shares are not registered and, in all material respects, issued and sold in accordance with applicable state and federal law or (ii) such law precludes the use of such shares as an underlying investment medium of the Policies issued or to be issued by AGL; or (f) upon termination of the corresponding Division's investment in the Series pursuant to Section 5 hereof; or (g) at the option of AGL upon written notice if the Series ceases to qualify as a RIC under Subchapter M of the Code or under successor or similar provisions, or if AGL reasonably believes that the Series may fail to so qualify; or (h) at the option of AGL upon written notice if the Series fails to comply with Section 817(h) of the Code or with successor or similar provisions, or if AGL reasonably believes that the Series may fail to so comply. (i) at the option of the Fund upon written notice if the Policies cease to qualify as annuity contracts or life insurance contracts, as applicable, under the Code, or if the Fund reasonably believes that the Policies may fail to so qualify; or (j) at the option of the Fund, upon AGL's breach of any material provision of this Agreement, which breach has not been cured to the satisfaction of the Fund within thirty (30) days 20 after written notice of such breach is delivered to AGL; or (k) at the option of AGL, upon the Fund's breach of any material provision of this Agreement, which breach has not been cured to the satisfaction of AGL within thirty (30) days after written notice of such breach is delivered to the Fund; or (l) at the option of the Fund upon written notice, if the Policies are not registered, issued or sold in accordance with applicable federal and/or state law and any applicable rules and regulations thereunder; or (m) effective immediately in the event the agreement is assigned without the prior written consent of all parties. 6.2 SERIES TO REMAIN AVAILABLE. Except (i) as necessary to implement Participant initiated transactions, (ii) as required by state insurance laws or regulations, (iii) as required pursuant to Section 5 of this Agreement, or (iv) with respect to any Series as to which this Agreement has terminated, AGL shall not (x) redeem Fund shares attributable to the Policies (as opposed to Fund shares attributable to AGL's assets held in the Separate Account), or (y) prevent Participants from allocating payments to or transferring amounts from a Series that was otherwise available under the Policies, until, in either case, 90 calendar days after AGL shall have notified the Fund or Distributor of its intention to do so. 6.3 SURVIVAL OF WARRANTIES AND INDEMNIFICATIONS. All warranties and indemnifications will survive the termination of this Agreement. 6.4 CONTINUANCE OF AGREEMENT FOR CERTAIN PURPOSES. If any Party terminates this Agreement with respect to any Series pursuant to Section 6.1 hereof, this Agreement shall nevertheless continue in effect as to any shares of that Series that are 21 outstanding as of the date of such termination (the "Initial Termination Date"). This continuation shall extend to the earlier of the date as of which the Separate Account owns no shares of the affected Series or a date (the "Final Termination Date") six months following the Initial Termination Date, except that (i) AGL may, by written notice to the other Parties, shorten said six month period in the case of a termination pursuant to Sections 6.1(d), 6.1(e) 6.1(g) 6.1(k) or 6.1(m) and (ii) the Fund may, by written notice to the other Parties, shorten said 6 month period in the case of a termination pursuant to Sections 6.1(b), 6.1(c), 6.1(f), 6.1(h), 6.1(i), 6.1(j) 6.1(l) or 6.1(m). SECTION 7. PARTIES TO COOPERATE RESPECTING TERMINATION The Parties agree to cooperate and give reasonable assistance to one another in taking all necessary and appropriate steps for the purpose of ensuring that the Separate Account owns no shares of a Series after the Final Termination Date with respect thereto, or, in the case of a termination pursuant to Section 6.1(a), the termination date specified in the notice of termination. SECTION 8. ASSIGNMENT This Agreement may not be assigned, except with the written consent of each other Party. SECTION 9. NOTICES Notices and communications required or permitted by Section 2 hereof will be given by means mutually acceptable to the Parties concerned. Each other notice or communication required or permitted by this Agreement will be given to the following persons at the following addresses and facsimile numbers, or such other persons, addresses or facsimile numbers as the Party receiving such notices or communications may subsequently direct in writing: 22 American General Life Insurance Company 2727-A Allen Parkway Houston, Texas 77019 Attn: Steven A. Glover FAX: 713-831-3071 American General Securities Incorporated 2727 Allen Parkway Houston, Texas 77019 Attn: Steven A. Glover FAX: 713-831-3071 SAFECO Resource Series Trust 4333 Brooklyn Avenue N.E. Seattle, Washington 98185 Attn: Neal A. Fuller FAX: 206-548- 7150 SAFECO Securities, Inc. 4333 Brooklyn Avenue N.E. Seattle, Washington 98185 Attn: Neal A. Fuller FAX: 206-548- 7150 SECTION 10. VOTING PROCEDURES Subject to the cost allocation procedures set forth in Section 3 hereof, AGL will distribute all proxy material furnished by the Fund to Participants and will vote Fund shares in accordance with instructions received from Participants. AGL will vote Fund shares that are (a) not attributable to Participants or (b) attributable to Participants, but for which no instructions have been received, in the same proportion as Fund shares for which said instructions have been received from Participants. AGL agrees that it will disregard Participant voting instructions only to the extent (i) it would be permitted to do so pursuant to Rule 6e-3(T)(b)(15)(iii) under the 1940 Act if the Policies were variable life insurance policies subject to that rule or (ii) it is permitted under applicable state 23 insurance laws affecting the Fund. AGL will be responsible for assuring that the Separate Account calculates voting privileges in a manner consistent with that of other participating life insurance companies that utilize the Fund. SECTION 11. FOREIGN TAX CREDITS The Fund agrees to consult in advance with AGL concerning any decision to elect or not to elect pursuant to Section 853 of the Code to pass through the benefit of any foreign tax credits to its shareholders. SECTION 12. INDEMNIFICATION 12.1 OF FUND AND DISTRIBUTOR BY AGL. (a) Except to the extent provided in Sections 12.1(b) and 12.1(c), below, AGL agrees to indemnify and hold harmless the Fund and the Distributor, each of their respective affiliates, and each of their directors and officers, employees and agents, and each person, if any, who controls the Fund or the Distributor within the meaning of Section 15 of the 1933 Act (collectively, the "Indemnified Parties" for purposes of this Section 12.1) against any and all losses, claims, damages, liabilities (including amounts paid in settlement with the written consent of AGL) or actions in respect thereof (including, to the extent reasonable, legal and other expenses), to which the Indemnified Parties may become subject under any statute, regulation, at common law or otherwise, insofar as such losses, claims, damages, liabilities, actions, or settlements are related to the sale or acquisition of the Fund's shares or the Policies and: (i) arise out of or are based upon any untrue statement or alleged untrue statement of any material fact contained in the Separate Account's 1933 Act registration statement, the Separate Account Prospectus, the Policies or, to the extent prepared by AGL or AGSI, or agents thereof, sales literature or advertising for the Policies (or any 24 amendment or supplement to any of the foregoing), or arise out of or are based upon the omission or the alleged omission to state therein a material fact required to be stated therein or necessary to make the statements therein not misleading; provided that this agreement to indemnify shall not apply as to any Indemnified Party if such statement or omission or such alleged statement or omission was made in reliance upon and in conformity with information furnished to AGL or AGSI, or agents thereof by or on behalf of the Fund, the Distributor or the Adviser for use in the Separate Account's 1933 Act registration statement, the Separate Account Prospectus, the Policies, or sales literature or advertising (or any amendment or supplement to any of the foregoing) or otherwise for use in connection with the sale of the Policies or Fund shares; or (ii) arise out of or as a result of any other statements or representations (other than statements or representations contained in the Fund's 1933 Act registration statement, Fund Prospectus, sales literature or advertising of the Fund, or any amendment or supplement to any of the foregoing, not supplied for use therein by or on behalf of AGL or AGSI) or wrongful conduct of AGL or AGSI or persons under their control (including, without limitation, their employees and "Associated Persons," as that term is defined in paragraph (m) of Article I of the NASD's By-Laws), in connection with the sale or distribution of the Policies or Fund shares; or (iii) arise out of or are based upon any untrue statement or alleged untrue statement of any material fact contained in the Fund's 1933 Act registration statement, Fund Prospectus, sales literature or advertising of the Fund, or any amendment or supplement to any of the foregoing, 25 or the omission or alleged omission to state therein a material fact required to be stated therein or necessary to make the statements therein not misleading if such a statement or omission was made in reliance upon and in conformity with information furnished to the Fund by or on behalf of AGL or AGSI for use in the Fund's 1933 Act registration statement, Fund Prospectus, sales literature or advertising of the Fund, or any amendment or supplement to any of the foregoing; or (iv) arise as a result of any failure by AGL or AGSI to perform the obligations, provide the services and furnish the materials required of them under the terms of this Agreement, or any material breach of any representation and/or warranty made by the AGL or AGSI in this Agreement or arise out of or result from any other material breach of this Agreement by AGL or AGSI. (b) AGL shall not be liable under this indemnification provision with respect to any losses, claims, damages, liabilities or actions to which an Indemnified Party would otherwise be subject by reason of willful misfeasance, bad faith, or gross negligence in the performance by that Indemnified Party of its duties or by reason of its reckless disregard of obligations or duties under this Agreement or to the Distributor or to the Fund. (c) AGL shall not be liable under this indemnification provision with respect to any action against an Indemnified Party unless such Indemnified Party shall have notified AGL in writing within a reasonable time after the summons or other first legal process giving information of the nature of the action shall have been served upon such Indemnified Party (or after such Indemnified Party shall have received notice of such service on any designated agent), but failure to notify AGL of any such action shall not relieve AGL from any liability which it may have to the Indemnified Party against whom such action is brought otherwise than on account of this indemnification provision. 26 In case any such action is brought against an Indemnified Party, AGL shall be entitled to participate, at its own expense, in the defense of such action. AGL also shall be entitled to assume the defense thereof, with counsel approved by the Indemnified Party named in the action, which approval shall not be unreasonably withheld. After notice from AGL to such Indemnified Party of AGL's election to assume the defense thereof, the Indemnified Party will cooperate fully with AGL and shall bear the fees and expenses of any additional counsel retained by it, and AGL will not be liable to such Indemnified Party under this Agreement for any legal or other expenses subsequently incurred by such Indemnified Party independently in connection with the defense thereof, other than reasonable costs of investigation. 12.2 OF AGL AND AGSI BY DISTRIBUTOR. (a) Except to the extent provided in Sections 12.2(b) and 12.2(c) hereof, the Distributor agrees to indemnify and hold harmless AGL, AGSI, each of their respective affiliates, and each of their directors and officers, employees and agents, and each person, if any, who controls AGL or AGSI, within the meaning of Section 15 of the 1933 Act (collectively, the "Indemnified Parties" for purposes of this Section 12.2) against any and all losses, claims, damages, liabilities (including amounts paid in settlement with the written consent of the Distributor) or actions in respect thereof (including, to the extent reasonable, legal and other expenses) to which the Indemnified Parties may become subject under any statute, regulation, at common law or otherwise, insofar as such losses, claims, damages, liabilities, actions, or settlements are related to the sale or acquisition of the Fund's shares or the Policies and: (i) arise out of or are based upon any untrue statement or alleged untrue statement of any material fact contained in the Fund's 1933 Act registration statement, Fund Prospectus, sales literature or advertising of the Fund or, to the extent not prepared by AGL or AGSI or agents thereof, sales literature or advertising for the Policies (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 27 a material fact required to be stated therein or necessary to make the statements therein not misleading; provided that this agreement to indemnify shall not apply as to any Indemnified Party if such statement or omission or such alleged statement or omission was made in reliance upon and in conformity with information furnished to the Distributor or Fund or agents thereof by or on behalf of AGL or AGSI for use in the Fund's 1933 Act registration statement, Fund Prospectus, or in sales literature or advertising (or any amendment or supplement to any of the foregoing) or otherwise for use in connection with the sale of the Policies or Fund shares; or (ii) arise out of or as a result of any other statements or representations (other than statements or representations contained in the Separate Account's 1933 Act registration statement, Separate Account Prospectus, sales literature or advertising for the Policies, or any amendment or supplement to any of the foregoing, not supplied for use therein by or on behalf of the Distributor, Fund or Adviser) or the wrongful conduct of the Fund or Distributor, or persons under their control (including, without limitation, their employees and Associated Persons), in connection with the sale or distribution of the Policies or Fund shares; or (iii) arise out of or are based upon any untrue statement or alleged untrue statement of any material fact contained in the Separate Account's 1933 Act registration statement, Separate Account Prospectus, sales literature or advertising covering the Policies, 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 28 statement or omission was made in reliance upon and in conformity with information furnished to AGL or AGSI by or on behalf of the Fund, the Adviser or the Distributor for use in the Separate Account's 1933 Act registration statement, Separate Account Prospectus, sales literature or advertising covering the Policies, or any amendment or supplement to any of the foregoing; or arise as a result of any failure by the Fund or the Distributor 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 the Fund or the Distributor in this Agreement or arise out of or result from any other material breach of this Agreement by the Fund or the Distributor; (b) Except to the extent provided in Sections 12.2(c) and 12.2(d) hereof, the Distributor agrees 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 the Fund) 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 Series 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 AGL or AGSI pursuant to the Policies, the costs of any ruling and closing agreement or other settlement with the IRS, and the cost of any substitution by AGL of shares of another investment company or portfolio for those of any adversely affected Series as a funding medium for each Separate Account that AGL reasonably deems necessary or appropriate as a result of the noncompliance. 29 (c) The Fund and the Distributor shall not be liable under this indemnification provision with respect to any losses, claims, damages, liabilities or actions to which an Indemnified Party would otherwise be subject by reason of willful misfeasance, bad faith, or gross negligence in the performance by that Indemnified Party of its duties or by reason of its reckless disregard of obligations and duties under this Agreement or to AGL, AGSI or the Separate Account. (d) The Fund and the Distributor shall not be liable under this indemnification provision with respect to any action against an Indemnified Party unless such Indemnified Party shall have notified the Fund and the Distributor in writing within a reasonable time after the summons or other first legal process giving information of the nature of the action shall have been served upon such Indemnified Party (or after such Indemnified Party shall have received notice of such service on any designated agent), but failure to notify the Distributor of any such action shall not relieve the Distributor from any liability which it may have to the Indemnified Party against whom such action is brought otherwise than on account of this indemnification provision. In case any such action is brought against an Indemnified Party, the Distributor will be entitled to participate, at its own expense, in the defense of such action. The Distributor also shall be entitled to assume the defense thereof, with counsel approved by the Indemnified Party named in the action, which approval shall not be unreasonably withheld. After notice from the Distributor to such Indemnified Party of the Distributor's election to assume the defense thereof, the Indemnified Party will cooperate fully with the Distributor and shall bear the fees and expenses of any additional counsel retained by it, and the Distributor will not be liable to such Indemnified Party under this Agreement for any legal or other expenses subsequently incurred by such Indemnified Party independently in connection with the defense thereof, other than reasonable costs of investigation. 12.3 EFFECT OF NOTICE. Any notice given by the indemnifying Party to an Indemnified Party referred to in Section 12.1 or 12.2 above of participation in or control of any action by the indemnifying Party will in no event be deemed to be an admission by the indemnifying Party of liability, culpability or responsibility, and the indemnifying Party will remain free to contest liability with respect to the claim among the Parties 30 or otherwise. 12.4 SUCCESSORS. A successor by law of any Party shall be entitled to the benefits of the indemnification contained in this Section 12. SECTION 13. APPLICABLE LAW This Agreement will be construed and the provisions hereof interpreted under and in accordance with Delaware 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 31 The Table of Contents and headings used in this Agreement are for purposes of reference only and shall not limit or define the meaning of the provisions of this Agreement. SECTION 18. LIMITATION OF LIABILITY It is understood and expressly stipulated that neither the shareholders of shares of any Series nor the Trustees or officers of the Fund or any Series shall be personally liable hereunder. No Series shall be liable for the liabilities of any other Series. All persons dealing with the Fund or a Series must look solely to the property of the Fund or that Series, respectively, for enforcement of any claims against the Fund or that Series. It is also understood that each of the Series shall be deemed to be entering into a separate Agreement with AGL so that it is as if each of the Series had signed a separate Agreement with AGL and that a single document is being signed simply to facilitate the execution and administration of the Agreement. SECTION 19 No provision of this Agreement may be amended or modified in any manner except by a written agreement properly authorized and executed by all Parties. 32 IN WITNESS WHEREOF, the Parties have caused this Agreement to be executed in their names and on their behalf by and through their duly authorized officers signing below. AMERICAN GENERAL LIFE INSURANCE COMPANY By __________________________________ Don M. Ward Title SENIOR VICE PRESIDENT-VARIABLE PRODUCTS AMERICAN GENERAL SECURITIES INCORPORATED By __________________________________ F. Paul Kovach Title PRESIDENT SAFECO RESOURCE SERIES TRUST By __________________________________ Neal A. Fuller Title VICE PRESIDENT & CONTROLLER SAFECO SECURITIES, INC. By __________________________________ Neal A. Fuller Title VICE PRESIDENT & CONTROLLER EX-8.(H) 13 EXHIBIT 8(h) AMENDMENT NUMBER 2 TO AMENDED AND RESTATED PARTICIPATION AGREEMENT AMONG VAN KAMPEN AMERICAN CAPITAL LIFE INVESTMENT TRUST, VAN KAMPEN AMERICAN CAPITAL DISTRIBUTORS, INC., VAN KAMPEN AMERICAN CAPITAL ASSET MANAGEMENT, INC., AMERICAN GENERAL LIFE INSURANCE COMPANY, AND AMERICAN GENERAL SECURITIES INCORPORATED This Amendment No. 2 ("Amendment") executed as of the 4th day of November, 1997 to the Amended and Restated Participation Agreement dated as of January 24, 1997, as amended (the "Agreement"), among Van Kampen American Capital Life Investment Trust (the "Fund"), Van Kampen American Capital Distributors, Inc., Van Kampen American Capital Asset Management, Inc., American General Life Insurance Company (the "Company"), and American General Securities Incorporated. 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 PLATINUM INVESTOR I AND PLATINUM INVESTOR II FLEXIBLE PREMIUM VARIABLE LIFE INSURANCE POLICIES ("Platinum Contracts"), (ii) solely to the extent the Agreement relates to the Platinum Contracts, amend the provisions of Article III of the Agreement as described below, and (iii) add to Schedule B of the Agreement the Fund's Strategic Stock Portfolio. 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 to add the Platinum Contracts. 2. Schedule B to the Agreement, a revised copy of which is attached hereto, is hereby amended to add the Strategic Stock Portfolio. 3. Solely to the extent the Agreement relates to the Platinum 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 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 1 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 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 owners of the Contracts, 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 Contract owners. 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 Contract owners. The Fund shall not pay any costs of distributing such proxy-related material, reports to shareholders, and other communications to prospective Contract owners. 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 Contract owners. 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 2 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. 3 IN WITNESS WHEREOF, the parties hereto execute this Amendment as of the date first written above. AMERICAN GENERAL LIFE INSURANCE AMERICAN GENERAL SECURITIES COMPANY INCORPORATED on behalf of itself and each of its Accounts named in Schedule A to the Agreement, as amended from time to time By: ______________________________ By: ______________________________ Don M. Ward F. Paul Kovach, Jr. Senior Vice President - President Variable Products VAN KAMPEN AMERICAN CAPITAL VAN KAMPEN AMERICAN CAPITAL LIFE INVESTMENT TRUST DISTRIBUTORS, INC. By: ______________________________ By: ______________________________ Dennis J. McDonnell John H. Zimmermann III President President VAN KAMPEN AMERICAN CAPITAL ASSET MANAGEMENT, INC. By: ______________________________ Dennis J. McDonnell President 4 SCHEDULE A SEPARATE ACCOUNTS AND CONTRACTS
Name of Separate Account and Form Numbers and Names of Contracts Date Established by Board Of Directors Funded by Separate Account -------------------------------------- ----------------------------------- American General Life Insurance CONTRACT FORM NOS.: Company 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 NOS.: 91010 91011 93020 93021 NAME OF CONTRACT: Variety Plus Combination Fixed and Variable Annuity Contract CONTRACT FORM NOS.: 74010 74011 76010 76011 80010 80011 81010 81011 83010 83011 NAME OF CONTRACT: None American General Life Insurance CONTRACT FORM NOS.: Company Separate Account VL-R 97600 Established: May 6, 1997 97610 NAME OF CONTRACT: Platinum I and Platinum II Flexible Premium Variable Life Insurance Policies
5 SCHEDULE B PARTICIPATING LIFE INVESTMENT TRUST PORTFOLIOS Emerging Growth Portfolio Enterprise Portfolio Growth and Income Portfolio Domestic Income Portfolio Government Portfolio Money Market Portfolio Morgan Stanley Real Estate Securities Portfolio Strategic Stock Portfolio 6 EX-8.(I) 14 EXHIBIT 8(i) AGREEMENT AGREEMENT made as of the _____ day of _______________, 1998 by and between ("Distributor"), a _______________ corporation and American General Life Insurance Company ("Company"), a Texas corporation. WITNESSETH: WHEREAS, each of the investment companies listed on Schedule A hereto as such Schedule may be amended from time to time (collectively the "Funds," each a "Fund") are investment companies registered under the Investment Company Act of 1940, as amended (the "Act"); and WHEREAS, Company has entered into a Participation Agreement with each of the Funds listed on Schedule A hereto; and WHEREAS, _______________ ("Adviser") provides investment advisory and/or administrative services to the Funds; and WHEREAS, Distributor is the distributor for the Funds; and WHEREAS, the parties hereto have agreed to arrange separately for the performance of administrative services (the "Administrative Services") for owners of shares of the Funds who maintain their shares in a variable annuity and/or variable life separate account with Company; and WHEREAS, Distributor desires Company to perform such services and Company is willing and able to furnish such 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. Company agrees to perform the Administrative Services specified in Exhibit A hereto for the benefit of the shareholders of the Funds who maintain their shares of any such Funds in variable annuity and/or variable life insurance separate accounts with Company and whose shares are included in the master account ("Master Account") referred to in paragraph 1 of Exhibit A (collectively, the Company Customers"). 2. Company 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. Upon the request of Distributor or its representatives, Company shall provide copies of all the historical records relating to transactions between the Funds and Company Customers, and written communications regarding the Fund(s) to or from such Customers and other materials, in each case as may reasonably be requested to enable Distributor or its representatives, including without limitation its auditors, legal counsel or distributor, to monitor and review the Administrative Services, or to 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 a shareholder. Company agrees that it will permit Distributor, 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 services. 3. Company may, with the consent of Distributor, contract with or establish relationships with other parties for the provision of the Administrative Services or other activities of Company required by the Agreement, provided that Company shall be fully responsible for the acts and omissions of such other parties. 4. Company hereby agrees to notify Distributor promptly if for any reason it is unable to perform fully and promptly any of its obligations under this Agreement. 5. Company 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 Company or the name of its nominee and which are maintained in Company variable annuity accounts. Company 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. 6. The provisions of the Agreement shall in no way limit the authority of Distributor, 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. 7. In consideration of the performance of the Administrative Services by Client, Distributor agrees to pay Company 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 Company Customers. The foregoing payment may be paid by Distributor to Company annually. Such payment will be made within thirty (30) days following the end of each calendar year. The payments by Distributor to Company relate solely to Administrative Services only and do not constitute payment in any manner for Administrative Services provided by Company to Company Customers or any separate account organized by Company for any investment advisory services or for costs of distribution of any variable insurance contracts. 8. Company shall indemnify and hold harmless each of the Funds, Distributor 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 of Company of its responsibilities under this Agreement. 2 9. This Agreement may be terminated without penalty at any time by Company or by Distributor as to all of the Funds collectively, upon 180 days written notice to the other party. The provisions of paragraphs 2, 8 and 10 shall continue in full force and effect after termination of this Agreement. Notwithstanding the foregoing, this Agreement shall not require Company to preserve any records (in any medium or format) relating to this Agreement beyond the time periods otherwise required by the laws to which Company or the Funds are subject provided that such records shall be offered to the Funds in the event Company decides to no longer preserve such records following such time periods. 10. After the date of any termination of this Agreement in accordance with paragraph 9, no fee will be due with respect to any amounts first placed in the Master Account for Company Customers after the date of such termination. However, notwithstanding any such termination, Distributor will remain obligated to pay Company the fee specified in paragraph 7 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 Company 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. 11. Company understands and agrees that the obligations of Distributor 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. 12. It is understood and agreed that in performing the services under this Agreement Company, acting in its capacity described herein, shall at no time be acting as an agent for Distributor, Distributor or any of the Funds. Company 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, Distributor or Distributor to Company; in the then current prospectus for a variable annuity contract or variable life insurance policy issued by Company or then current sales literature with respect to such variable annuity contract or variable life insurance policy, approved by Distributor. 13. This Agreement, including the provisions set forth herein in Section 7, 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. 14. 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. 3 15. This Agreement, including its Exhibit and Schedule, 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. 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 A
INVESTMENT COMPANY NAME: FND NAME(S):
5 EXHIBIT A Pursuant to the Agreement by and among the parties hereto, Company shall perform the following Administrative Services: 1. Maintain separate records for each Company Customer, which records shall reflect shares purchased and redeemed and share balances. Company shall maintain the Master Account with the transfer agent of the Fund on behalf of Company Customers and such Master Account shall be in the name of Company or its nominee as the record owner of the shares owned by such Company Customers. 2. For each Fund, disburse or credit to Company Customers 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 Customers' interests. 3. Prepare and transmit to Company Customers periodic account statements showing the total number of shares owned by the Customer as of the statement closing date, purchases and redemptions of Fund shares by the Customer during the period covered by the statement, and the dividends and other distributions paid to the Customer during the statement period (whether paid in cash or reinvested in Fund shares). 4. Transmit to Company Customers proxy materials and reports and other information received by Company 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 Company Customers 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 Company Customers. 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 State Blue Sky requirements. 6 -----END PRIVACY-ENHANCED MESSAGE-----