<PAGE>   1
                                                                      EXHIBIT 13


MANAGEMENT'S DISCUSSION AND ANALYSIS
================================================================================

For the three years ended December 31, 2000
In millions

   Management's Discussion and Analysis should be read in conjunction with the
Consolidated Financial Statements and related Notes beginning on page 38.

                              CONSOLIDATED RESULTS

                            Summary Income Statement

<TABLE>
<CAPTION>

                                  2000           1999           1998
                                --------       --------       --------
<S>                             <C>            <C>            <C>
Retirement Services             $    661       $    564       $    466
Life Insurance                       770            721            674
Consumer Finance                     247            226            201
                                --------       --------       --------
Business division earnings         1,678          1,511          1,341
Corporate capital costs             (258)          (228)          (216)
Corporate expense                    (62)           (56)           (32)
Goodwill amortization                (48)           (48)           (45)
                                --------       --------       --------
OPERATING EARNINGS                 1,310          1,179          1,048
Investment gains (losses)           (114)           (12)             4
Non-recurring items*                (193)           (36)          (288)
                                --------       --------       --------
Net income                      $  1,003       $  1,131       $    764
                                --------       --------       --------
</TABLE>

*Includes litigation settlements, other charges, and certain Y2K costs.


OPERATING EARNINGS
PER SHARE

<TABLE>
<CAPTION>

     Year      $ per share
     ----      -----------
<S>            <C>
      98           2.02
      99           2.30
      00           2.58
</TABLE>



ASSETS*

<TABLE>
<CAPTION>

     Year      $ in billions
     ----      -------------
<S>            <C>
      98         102.662

      99         116.876

      00         120.360
</TABLE>

*Excludes fair value adjustment.

[Pie Chart]

BUSINESS DIVISION EARNINGS

<TABLE>

<S>                      <C>
Retirement Services      39%

Life Insurance           46%

Consumer Finance         15%
</TABLE>

[Pie Chart]

BUSINESS DIVISION ASSETS

<TABLE>

<S>                      <C>
Retirement Services      57%

Life Insurance           32%

Consumer Finance         11%
</TABLE>

   Overview. American General Corporation (American General) and its
subsidiaries (collectively, the company or we) is a diversified financial
services organization with assets in excess of $120 billion and a market
capitalization of $21 billion at December 31, 2000. We are a leading provider of
retirement services, life insurance, consumer loans, and investments to over 12
million customers.

   Our operating earnings per share increased 12% to $2.58 in 2000, which is
within our long-term objective of 12%-14% growth. We anticipate a comparable
increase in operating earnings per share in 2001. Our financial highlights for
the three years ended December 31, 2000, restated to reflect a two-for-one stock
split subsequent to year end, were as follows:

<TABLE>
<CAPTION>

                                2000           1999           1998
                             ---------       --------       ---------
<S>                          <C>             <C>            <C>
Revenues and deposits        $  22,368       $ 20,232       $  17,653
Operating earnings               1,310          1,179           1,048
Per share
  Operating earnings              2.58           2.30            2.02
  Shareholders' equity*          16.07          15.43           14.36
Assets*                        120,360        116,876         102,662
Return on equity*                 16.7%          16.0%           15.4%
</TABLE>

*Excludes fair value adjustment under accounting standard SFAS 115.

   Reporting Structure. During the three years ended December 31, 2000, we
managed our business operations in three divisions - retirement services, life
insurance, and consumer finance - based on products and services offered.
Consistent with the manner in which we review and evaluate the divisions,
results of each division include earnings from its operations and earnings on
the amount of equity we consider necessary to support its business. Corporate
capital costs, goodwill amortization, investment gains (losses), and
non-recurring items are excluded from division results. Division assets and
liabilities exclude the fair value adjustment under Statement of Financial
Accounting Standards (SFAS) 115 and goodwill.

   To better respond to market demands and capitalize on opportunities for
growth, we recently announced the realignment of our organization into two
strategic business groups - Financial Services and Asset Accumulation. Our new
Financial Services group will include the life insurance and consumer finance
businesses, while the Asset Accumulation group will encompass our retirement
services and asset management businesses. During first quarter 2001, we will
finalize our reporting structure for the two business groups.





                                                    2000 ANNUAL REPORT   page 23



<PAGE>   2



MANAGEMENT'S DISCUSSION AND ANALYSIS
In millions

                               RETIREMENT SERVICES

                         Retirement Services Highlights


                            Summary Income Statement

<TABLE>
<CAPTION>

                                 2000           1999           1998
                               --------       --------       --------
<S>                            <C>            <C>            <C>
Fixed margin                   $  1,009       $    938       $    792
Variable fees                       239            185            136
Asset management fees                59             36             25
Other revenue                        73             34             28
                               --------       --------       --------
Net revenues                      1,380          1,193            981
                               --------       --------       --------
Operating expenses                  378            332            247
Commissions                         414            366            258
Change in DPAC/CIP                 (414)          (360)          (223)
                               --------       --------       --------
Total expenses                      378            338            282
                               --------       --------       --------
Pretax earnings                   1,002            855            699
Income taxes                        341            291            233
                               --------       --------       --------
DIVISION EARNINGS              $    661       $    564       $    466
                               --------       --------       --------
</TABLE>

EARNINGS

<TABLE>
<CAPTION>

Year      $ in millions
----      -------------
<S>       <C>
 98            466

 99            564

 00            661
</TABLE>

ASSETS UNDER MANAGEMENT
Average, $ in billions

<TABLE>
<CAPTION>


Year      Invested Assets      Separate Accounts       Mutual Funds
----      ---------------      -----------------       ------------
<S>       <C>                  <C>                     <C>
98             33.90                  12.60                 .2

99             39.80                  17.50                 .8

00             43.0                   22.20                2.400
</TABLE>

NET REVENUES

<TABLE>
<CAPTION>

Year           $ in billions
----           -------------
<S>                 <C>
 98                 .981

 99                1.193

 00                1.380
</TABLE>


DEPOSITS
$ in billions

<TABLE>
<CAPTION>

Year          Fixed         Variable        Mutual Funds
----          -----         --------        ------------
<S>            <C>            <C>              <C>
98             3.9            2.50             0.00

99             5.00           3.00             0.30

00             5.60           3.30             0.90
</TABLE>

   Our retirement services division is a leading provider of retirement products
and services, and ranks as the nation's third-largest writer of annuities. We
market our products through two major distribution systems. Tax-qualified
annuities and mutual funds are sold by our 1,900 financial advisors to employees
of educational, health care, and government entities and other not-for-profit
organizations. Non-qualified annuities are sold through 37,000 representatives
of over 300 banks and other financial institutions, as well as through 22,000
agents, including 15,000 in our life insurance division.

   We classify annuity receipts as fixed or variable deposits depending on the
investment option selected by the customer. Fixed deposits are invested in our
general account investment portfolio. The difference between investment income
we earn on these invested assets and interest credited to the policyholder
accounts is our fixed margin. Fixed investment spread measures this difference
in terms of interest rates.

   Variable deposits are invested in separate account mutual funds in accordance
with the policyholder's instructions. A key feature of these deposits is that
the investment risk lies predominantly with the policyholder, rather than the
company. Separate accounts fluctuate as a result of deposits, surrenders,
benefits, and changes in market value of the underlying mutual funds. Separate
accounts generate earnings through variable fees, primarily mortality and
expense charges, and asset management fees. These fees are based on the account
balances.

   We also sell mutual funds to group retirement plans, as well as to
individuals on a retail basis. Although these assets are not on our balance
sheet, they generate asset management and plan administration fees. We earn
gross dealer concessions from distributing retail mutual funds.

   Earnings. Retirement services earnings are a function of the level of our
managed assets, fixed margin, variable fees, asset management fees, and
operating expenses. Division earnings increased 17% in 2000 and 21% in 1999 due
to growth in assets under management, as well as wider fixed investment spread
and higher asset management fee rates.

   Assets Under Management. The division's assets under management include
invested assets, separate accounts, and mutual funds. Average assets under
management increased 16% in 2000 and 25% in 1999. Assets under management were
as follows:

<TABLE>
<CAPTION>

                              2000          1999          1998
                            --------      --------      --------
<S>                         <C>           <C>           <C>
Average
 Invested assets            $ 43,056      $ 39,819      $ 33,929
 Separate accounts            22,170        17,545        12,578
 Mutual funds                  2,364           766           166
                            --------      --------      --------
 Total                      $ 67,590      $ 58,130      $ 46,673
                            --------      --------      --------
Balance at December 31      $ 66,602      $ 63,552      $ 53,346
                            --------      --------      --------
</TABLE>


page 24    AMERICAN GENERAL



<PAGE>   3




   General Account. Activity in our general account reserves was as follows:

<TABLE>
<CAPTION>

                              2000           1999           1998
                            --------       --------       --------
<S>                         <C>            <C>            <C>
Balance at January 1        $ 39,714       $ 36,792       $ 32,233
Deposits                       5,558          5,011          3,909
Interest credited              2,209          2,034          1,962
Surrenders                    (3,559)        (2,715)        (2,153)
Benefits and other            (1,720)        (1,408)           841
                            --------       --------       --------
Balance at December 31      $ 42,202       $ 39,714       $ 36,792
                            --------       --------       --------
</TABLE>

   Fixed deposits grew 11% in 2000, despite the competitive interest rate
environment. The 28% growth in fixed deposits in 1999 resulted from exceptional
growth in sales of fixed annuities through banks.

   Fixed Margin. Net investment income and the components of fixed investment
spread were as follows:

<TABLE>
<CAPTION>

                                  2000            1999            1998
                                ---------       ---------       ---------
<S>                             <C>             <C>             <C>
Net investment income           $   3,218       $   2,972       $   2,753
                                ---------       ---------       ---------
Average investment yield             7.80%           7.72%           7.96%
Average crediting rate               5.39            5.35            5.87
                                ---------       ---------       ---------
  Fixed investment spread            2.41%           2.37%           2.09%
                                ---------       ---------       ---------
</TABLE>

   The higher level of invested assets in 2000 generated 8% growth in net
investment income and a $71 million increase in fixed margin. The fluctuations
in investment yield reflected changes in market interest rates and investment
mix, as well as lower prepayment-related income. Crediting rates were adjusted
to reflect changes in market conditions, including both interest rates and the
competitive environment.

   Separate Accounts. Activity in the separate accounts was as follows:

<TABLE>
<CAPTION>

                                  2000           1999           1998
                                --------       --------       --------
<S>                             <C>            <C>            <C>
Balance at January 1            $ 21,594       $ 14,794       $ 10,599
Deposits                           3,329          2,982          2,451
Change in market value            (3,394)         4,533          2,043
Surrenders                        (1,242)          (821)          (530)
Benefits and other                  (203)           106            231
                                --------       --------       --------
Balance at December 31          $ 20,084       $ 21,594       $ 14,794
                                --------       --------       --------
</TABLE>

   Variable deposits grew 12% in 2000 and 22% in 1999, reflecting the continuing
popularity of variable investment options provided through our group retirement
plans. Average separate account assets increased 26% in 2000 and 39% in 1999.
These strong returns were moderated by a $3.1 billion decline in market value in
fourth quarter 2000.

   Mutual Funds. Our acquisition of the North American Funds retail mutual fund
operation in March 2000 increased our mutual funds under management $1.1
billion. Deposits in 2000 increased $678 million to $955 million due to the
acquisition and growth in our group mutual fund business.

   Variable and Asset Management Fees. Variable fees as a percentage of average
separate account assets were 1.08%, 1.06%, and 1.08% in 2000, 1999, and 1998,
respectively. Asset management fees as a percentage of average separate account
and mutual fund assets under management increased to .24% in 2000 from .19% in
1999 and .20% in 1998, reflecting more favorable revenue-sharing agreements with
third-party asset managers.

   Other Revenue. Surrender charges and surrender ratios were as follows:

<TABLE>
<CAPTION>

                               2000         1999         1998
                              ------       ------       ------
<S>                           <C>          <C>          <C>
Surrender charges             $   40       $   30       $   25
                              ------       ------       ------
Surrender ratio
  Fixed                         9.67%        7.86%        7.15%
  Variable                      5.73         4.78         4.20

</TABLE>

   Increases in surrender charges and surrender ratios were due to competitive
factors and the expiration of surrender charge periods for a growing number of
policies. Gross dealer concessions, which represent distribution fees we receive
primarily from third-party retail mutual funds, were $14 million in 2000.

   Operating Expenses. Operating expenses included a $43 million software
write-off in 2000. The operating expense ratio, excluding this write-off, was
 .50% of average assets under management in 2000, compared to .57% in 1999 and
 .52% in 1998. The 1999 expense ratio increased as a result of new marketing and
customer service initiatives.

   Deferred Policy Acquisition Costs. Deferred policy acquisition costs (DPAC)
and cost of insurance purchased (CIP) are amortized in proportion to current and
expected future gross profits. We recorded adjustments to DPAC and CIP in 2000
to reflect revisions to underlying interest spread and surrender assumptions to
more closely approximate past and expected future experience. These adjustments
reduced amortization expense $48 million.

   Outlook. Although the decline in the equity markets in fourth quarter 2000
may impact growth in variable fees and asset management fees, we expect growth
in sales and deposits, as well as operating efficiencies, to contribute to
continued strong earnings growth.

   As demographics change and more Americans approach retirement, we anticipate
a growing demand for our integrated retirement solutions. We are leveraging our
strong individual customer and group relationships to offer more comprehensive
financial planning services and products in the tax-qualified market. In
addition, we are positioning ourselves to be the premier provider in the
government market as individuals shift from defined benefit to defined
contribution plans. We are leveraging our position as the number one provider of
fixed annuities to financial institutions to expand the distribution of variable
annuities.


                                                   2000 ANNUAL REPORT   page 25


<PAGE>   4




MANAGEMENT'S DISCUSSION AND ANALYSIS
In millions


                                 LIFE INSURANCE

                           Life Insurance Highlights


                            Summary Income Statement
<TABLE>
<CAPTION>
                                    2000          1999          1998
                                   -------       -------       -------
<S>                                <C>           <C>           <C>
Premiums and insurance
 charges                           $ 3,014       $ 3,022       $ 3,113
Net investment income                2,198         2,199         2,240
Other income                           218           173           153
                                   -------       -------       -------
Total revenues                       5,430         5,394         5,506
                                   -------       -------       -------
Insurance and annuity
 benefits                            2,860         2,846         2,959
Operating expenses                     659           705           720
Commissions                            835           856           797
Change in DPAC/CIP                     (88)         (116)            9
                                   -------       -------       -------
Total expenses                       4,266         4,291         4,485
                                   -------       -------       -------
Pretax earnings                      1,164         1,103         1,021
Income taxes                           394           382           347
                                   -------       -------       -------
DIVISION EARNINGS                  $   770       $   721       $   674
                                   -------       -------       -------
</TABLE>

EARNINGS

<TABLE>
<CAPTION>

Year      $ in millions
----      -------------
<S>       <C>
 98            674

 99            721

 00            770
</TABLE>

ASSETS

<TABLE>
<CAPTION>

Year      $ in billions
----      -------------
<S>       <C>
98        34.354

99        36.401

00        37.308
</TABLE>


DIRECT PREMIUMS AND DEPOSITS
$ in billions

<TABLE>
<CAPTION>

Year       Life Insurance           Other
----       --------------           -----
<S>        <C>                      <C>
 98            3.188                1.289

 99            3.571                1.353

 00            3.615                1.435
</TABLE>


LIFE INSURANCE IN FORCE

<TABLE>
<CAPTION>

Year           $ in billions
----           -------------

<S>               <C>
 98               340.951

 99               364.104

 00               388.470
</TABLE>

   Our life insurance division is a leading provider of life insurance products
used for financial and estate planning and wealth transfer, and ranks as the
nation's second-largest issuer of life insurance policies. We distribute our
products and services through independent and career agent distribution systems.
Our primary focus is our independent distribution system, which includes 33,000
independent agents and strategic alliance partnerships with independent
broker/dealers, banks, and financial planners. We distribute a broad portfolio
of life insurance products, as well as fixed and variable annuities. Our
independent distribution channels market this portfolio to middle- and
upper-income individuals, small business owners, and corporations. Our 4,500
career agents market products to moderate- and middle-income customers.

   When interest-sensitive life insurance and annuities are sold, the premiums
and deposits we receive are invested in our general account investment
portfolio. We manage investment spread by seeking to optimize the return on
these invested assets and, when appropriate, resetting the interest rates
credited to policyholder liabilities.

   Deposits received on variable life and annuity products are held in separate
accounts. Revenues from these policies consist of mortality and expense charges
and asset management fees.

   Earnings. The division's profitability is driven by growth in insurance in
force and insurance and annuity liabilities, as well as interest spread,
mortality and persistency experience, and operating expenses. Division earnings
increased 7% in both 2000 and 1999. These increases reflected lower operating
expenses and higher insurance in force, which grew 7% each year to over $388
billion at year-end 2000.

   Sales. Sales, which represent annualized premium and deposits for new
products issued, were as follows:

<TABLE>
<CAPTION>

                                    2000      1999      1998
                                    ----      ----      ----
<S>                                 <C>       <C>       <C>
Individual life
 Independent distribution           $415      $371      $345
 Career agent distribution           119       163       164
Annuities                            837       659       523
Corporate markets                    275       385       103
Group and credit                     169       138       140

</TABLE>

   Individual life sales through our independent distribution channels increased
12% in 2000 and 8% in 1999 as we focused on making our interest-sensitive life,
term life, and variable life product lines more competitive.

   During 2000, we initiated a number of changes to reposition our career agent
distribution channel for future growth. We eliminated unproductive agents,
de-emphasized home collection of premiums for new sales, raised underwriting
standards, and introduced new life insurance products to this channel. We also
stopped selling certain less profitable


page 26    AMERICAN GENERAL


<PAGE>   5


lines of business. As expected, sales and premiums in the career agent channel
decreased during this period of transition.

   Annuity sales grew 27% and 26% in 2000 and 1999, respectively, driven by
sales of variable annuities through financial institutions. In addition, our
life insurance division sold $432 million of annuities manufactured and reported
by our retirement services division in 2000, up from $50 million in 1999.

   We market other products in addition to our core individual life and
annuities. Sales of bank-owned and corporate-owned life insurance products
fluctuated due to the large size of these cases. Group and credit sales
increased 23% in 2000 due to our expanding partnerships in employer and
financial institution markets.

   Policyholder Accounts. The balances in our customer account liabilities were
as follows:

<TABLE>
<CAPTION>

                                    2000         1999         1998
                                   -------      -------      -------
<S>                                <C>          <C>          <C>
General account                    $25,941      $26,303      $25,671
Separate accounts                    3,151        2,503        1,364
                                   -------      -------      -------
 Balance at December 31            $29,092      $28,806      $27,035
                                   -------      -------      -------
</TABLE>

   The decline in the general account liability in 2000 resulted from fixed
annuity surrenders, transfers to separate accounts, and run-off of discontinued
business lines. Separate accounts reflected strong sales of variable products
and transfers from the general account, as well as changes in market value.

   Direct premiums and deposits (before net reinsurance) were as follows:

<TABLE>
<CAPTION>

                               2000        1999        1998
                              ------      ------      ------
<S>                           <C>         <C>         <C>
Life insurance                $3,311      $3,141      $3,100
Annuities                        861         704         601
Corporate markets                304         430          88
Other                            574         649         688
                              ------      ------      ------
 Total                        $5,050      $4,924      $4,477
                              ------      ------      ------
</TABLE>

   Direct life insurance premiums and deposits increased 5% in 2000 due to
increased sales in our independent distribution channel. The increase in annuity
deposits arose primarily from sales of variable annuities through financial
institutions. Corporate market deposits fluctuated in line with sales. Other
direct premiums and deposits, which included discontinued lines, declined 11%.

   Investment Spread. We seek to maximize the return on invested assets, subject
to our asset/liability management and credit quality requirements. Investment
spread was as follows:

<TABLE>
<CAPTION>

                                      2000       1999       1998
                                      ----       ----       ----
<S>                                   <C>        <C>        <C>
Average investment yield              8.14%      8.21%      8.50%
Average crediting rate                5.89       5.90       5.96
                                      ----       ----       ----
 Fixed investment spread              2.25%      2.31%      2.54%
                                      ----       ----       ----
</TABLE>

   Investment yield decreased in 2000 and 1999, reflecting lower market interest
rates and reduced prepayment-related income. We decreased the rates credited to
policyholders' accounts in 2000 and 1999, partially reducing the effect of the
yield declines on the fixed investment spread. We have the ability, subject to
certain minimum rate guarantees, to adjust crediting rates on approximately 58%
of the division's insurance and annuity liabilities.

   Mortality and Persistency. We manage mortality and persistency through
product design, prudent underwriting, and our agent selection standards. Death
claims per $1,000 in force and premium termination rates were as follows:

<TABLE>
<CAPTION>

                                      2000         1999         1998
                                     ------       ------       ------
<S>                                  <C>          <C>          <C>
Death claims/$1,000 in force         $ 3.82       $ 3.66       $ 3.60
Premium termination rate              12.42%       12.71%       12.58%

</TABLE>

   The increase in death claims per $1,000 reflects the increasing average age
of the in force business and higher mortality on business in the career agent
channel. Mortality and persistency are expected to fluctuate and, overall,
experience remained within pricing assumptions.

   Operating Expenses. We improved the ratio of operating expenses to direct
premiums and deposits to 13.0% in 2000, compared to 14.3% in 1999 and 16.1% in
1998. Operating costs declined in 2000 as a result of our ongoing shared service
initiatives, reduction of certain postretirement benefits, and lower premium tax
expense. Operating expenses in 1999 included costs of terminating certain
reinsurance arrangements and Y2K initiatives, offset by lower pension and
employee benefit expenses.

   Deferred Policy Acquisition Costs. During 2000, we reduced the amortization
rate for certain deferred costs due to our revised assumptions about the
profitability of certain product lines. These revisions were required to reflect
lower expenses from improved operating efficiencies, better-than-expected
mortality and interest spreads, and higher surrenders in our career agent
channel. The 1999 change in DPAC/CIP reflected higher deferrals related to a
change in our agent compensation plan and strong corporate market sales.

   Outlook. We anticipate continued sales growth in 2001 through introduction of
new products and development of additional strategic alliance partnerships in
our independent distribution channels. We expect increasing business in the
upper-income markets through estate and wealth transfer planning and sales of
corporate and private placement life insurance.

   Our broad product portfolio provides solutions to meet customer needs,
regardless of the changing economic environment. We intend to maintain our focus
on operating efficiencies and cost control, while continuing to grow the level
of life insurance in force. We expect these activities to contribute to
continued earnings growth.

                                                      2000 ANNUAL REPORT page 27


<PAGE>   6
MANAGEMENT'S DISCUSSION AND ANALYSIS
In millions

                                CONSUMER FINANCE

                          Consumer Finance Highlights


                            Summary Income Statement

<TABLE>
<CAPTION>

                                      2000        1999        1998
                                     ------      ------      ------
<S>                                  <C>         <C>         <C>
Finance margin                       $  925      $  881      $  842
Other income, net*                      162         160         147
                                     ------      ------      ------
Net revenues                          1,087       1,041         989
                                     ------      ------      ------
Operating expenses                      496         483         465
Provision for loan losses               206         207         212
                                     ------      ------      ------
Total expenses                          702         690         677
                                     ------      ------      ------
Pretax earnings                         385         351         312
Income taxes                            138         125         111
                                     ------      ------      ------
DIVISION EARNINGS                    $  247      $  226      $  201
                                     ------      ------      ------
</TABLE>

*Primarily income from credit-related insurance products.

EARNINGS

<TABLE>
<CAPTION>

Year      $ in millions
----      -------------
<S>       <C>
 98            201

 99            226

 00            247
</TABLE>

FINANCE RECEIVABLES
Average, $ in billions

<TABLE>
<CAPTION>

Year         Real Estate           Other
----         -----------           -----
<S>          <C>                   <C>
 98            4.681               3.838

 99            6.228               3.781

 00            7.211               4.198
</TABLE>


FINANCE MARGIN

<TABLE>
<CAPTION>

Year      $ in billions
----      -------------
<S>       <C>
 98           0.842

 99           0.881

 00           0.925
</TABLE>

CHARGE-OFF RATIO

<TABLE>
<CAPTION>

Year      % of average finance receivables
----      --------------------------------
<S>       <C>
 98                   2.6

 99                  2.08

 00                  1.81
</TABLE>


   Our consumer finance division provides a wide variety of consumer finance
products, including mortgages, consumer loans, retail sales finance, and
credit-related insurance, to over 2 million customers. In addition to marketing
these products through our nationwide network of 1,340 branch offices, we
introduced an Internet-based lending system this year. We supplement receivables
growth from internally generated loans with bulk purchases of loan portfolios.
We fund our finance receivables primarily by issuing fixed-rate debt and
floating-rate commercial paper.

   Earnings. Division earnings are a function of the amount and mix of finance
receivables, interest spread, credit quality, and operating expenses. Earnings
increased 9% to $247 million in 2000 and 12% in 1999 as a result of growth in
our receivables portfolio, improved credit quality, and operating efficiencies,
partially offset by lower interest spread. The lower percentage increase in 2000
was due to higher borrowing costs and lower yields on finance receivables,
reflecting our continued focus on real estate loans as a significant portion of
our portfolio.

   Finance Receivables. Different types of loans have different degrees of risk,
which are reflected in the finance charges we earn. For example, loans secured
by real estate have less risk and generally carry lower interest rates. Over the
past five years, we increased the percentage of real estate loans in our
portfolio from 35% to 62%.

   The mix of finance receivables at December 31 was as follows:

<TABLE>
<CAPTION>

                                       2000           1999           1998
                                     --------       --------       --------
<S>                                  <C>            <C>            <C>
Real estate loans                    $  7,280       $  7,104       $  5,757
Non-real estate loans                   3,027          2,576          2,560
Retail sales finance                    1,454          1,350          1,340
                                     --------       --------       --------
 Total finance receivables             11,761         11,030          9,657
Allowance for losses                     (383)          (396)          (382)
                                     --------       --------       --------
Finance receivables, net             $ 11,378       $ 10,634       $  9,275
                                     --------       --------       --------
Average finance receivables          $ 11,409       $ 10,009       $  8,519
                                     --------       --------       --------
</TABLE>

   Activity in our finance receivable portfolio was as follows:

<TABLE>
<CAPTION>

                                      2000           1999           1998
                                    --------       --------       --------
<S>                                 <C>            <C>            <C>
Balance at January 1                $ 11,030       $  9,657       $  8,012
Originations and renewals              6,732          6,208          5,790
Purchases, net of sales                  923          1,728          1,921
Repayments                            (6,718)        (6,356)        (5,846)
Charge offs, net of
 recoveries                             (206)          (207)          (220)
                                    --------       --------       --------
Balance at December 31              $ 11,761       $ 11,030       $  9,657
                                    ========       ========       ========

</TABLE>


page 28    AMERICAN GENERAL



<PAGE>   7



   Interest Spread. Finance margin is the difference between the finance charges
paid by our customers and interest expense on the debt required to fund finance
receivables. Interest spread measures this difference in terms of interest
rates. Finance margin and the components of interest spread were as follows:

<TABLE>
<CAPTION>

                                    2000            1999            1998
                                  ---------       ---------       ---------
<S>                               <C>             <C>             <C>
Finance charges                   $   1,619       $   1,455       $   1,354
Interest expense                        694             574             512
                                  ---------       ---------       ---------
 Finance margin                   $     925       $     881       $     842
                                  ---------       ---------       ---------
Average yield on finance
 receivables                          14.19%          14.54%          15.90%
Average borrowing cost                 6.59            6.23            6.55
                                  ---------       ---------       ---------
 Interest spread                       7.60%           8.31%           9.35%
                                  ---------       ---------       ---------
</TABLE>

   Finance charges increased 11% in 2000 and 7% in 1999 due to increases in our
average finance receivables, offset by declines in yield. The decline in yield
since 1998 resulted from the change in business mix, as well as a more
competitive environment. Increases in both average debt and our related
borrowing cost resulted in higher interest expense in 2000. Our average debt
grew to fund the increase in finance receivables.

   Credit Quality. We have improved the credit quality of our portfolio by
increasing the percentage of lower-risk real estate loans and enhancing credit
risk management systems. We conduct regular reviews of the systems, financial
models, and assumptions used in our risk management process, which includes
statistically-based risk scoring and prediction tools and early warning systems.
As a result, we have improved our underwriting process and our ability to
identify problem loans and to respond quickly with corrective action. We also
conduct an extensive review of the loan portfolios we purchase.

   Credit quality information for the past three years was as follows:

<TABLE>
<CAPTION>

                                 2000           1999          1998
                                -------       -------       -------
<S>                             <C>           <C>           <C>
Charge offs                     $   206       $   207       $   220
Delinquencies                       421           399           384
Allowance for losses                383           396           382
                                -------       -------       -------
Ratios
 Charge-off                        1.81%         2.08%         2.60%
 Delinquency                       3.41          3.46          3.75
 Allowance                         3.26          3.59          3.96
 Charge-off coverage               1.86x         1.91x         1.74x
                                -------       -------       -------
Risk-adjusted yield               12.38%        12.46%        13.30%
                                -------       -------       -------
</TABLE>

   Charge offs decreased in both 2000 and 1999, while average finance
receivables increased, reducing the charge-off ratio as a percentage of average
receivables. Delinquencies increased as a result of growth in finance
receivables and as a natural function of the aging of our acquired portfolios.
The 2000 delinquency ratio decreased, reflecting increased receivables, improved
credit quality, and the sale of $27 million of fully reserved receivables.

   The allowance for finance receivable losses is maintained at a level that we
consider adequate to absorb anticipated credit losses in our existing portfolio.
The allowance as a percentage of finance receivables declined, reflecting
improved credit quality and the portfolio mix. The charge-off coverage ratio,
which compares the allowance for finance receivable losses to charge offs,
remained at a conservative level.

   Risk-adjusted yield represents the yield on finance receivables less the
charge-off ratio. Risk-adjusted yield declined less than the yield on finance
receivables because of the improvement in the charge-off ratio.

   Operating Expenses. Our continued emphasis on cost control, in addition to
benefits realized from our investment in technology, has resulted in cost
savings and operating efficiencies. While our average finance receivables grew
14% in 2000 and 17% in 1999, we limited operating expense increases to 3% and 4%
in these years. Operating expenses as a percentage of average finance
receivables improved to 4.4% in 2000 from 4.8% in 1999 and 5.5% in 1998,
primarily as a result of branch productivity improvements. Net receivables per
employee improved 8% to $1.5 million in 2000 from $1.4 million in 1999.

   Outlook. Recent market interest rate decreases will lower our short-term
borrowing rate and ease the pressure on our interest spread. New loan
originations and portfolio acquisitions should also reflect the lower rates. In
addition, real estate loan liquidations should increase as more loans are
refinanced at lower rates. We anticipate continued growth in finance receivables
from marketing initiatives and portfolio acquisitions.

   In a deteriorating economy, the benefits of a decline in short-term interest
rates could be partially offset by an increase in delinquencies and charge offs.
Our strong credit risk management procedures and large percentage of real estate
loans should mitigate the impact of any resulting change in credit quality.


                                                    2000 ANNUAL REPORT   page 29


<PAGE>   8

MANAGEMENT'S DISCUSSION AND ANALYSIS
In millions


                                   INVESTMENTS

                              Investment Highlights

<TABLE>
<CAPTION>

                                2000            1999            1998
                              --------        --------        --------
<S>                           <C>             <C>             <C>
Average invested assets*      $ 72,596        $ 68,738        $ 64,848
Net investment income            5,453           5,232           5,095
Investment gains (losses)         (176)            (19)              6
Average investment yield*         7.83%           7.85%           8.16%
</TABLE>

*Excludes fair value adjustment under accounting standard SFAS 115.


INVESTED ASSETS*

<TABLE>
<CAPTION>

Year           Average $ in billions
----           ---------------------
<S>            <C>
 98                   64.848

 99                   68.738

 00                   72.596
</TABLE>

*Excludes fair value adjustment.


NET INVESTMENT INCOME

<TABLE>
<CAPTION>

Year           $ in billions
----           -------------
<S>            <C>
 98                5.095

 99                5.232

 00                5.453
</TABLE>

[Pie Chart]

2000 INVESTED ASSETS

<TABLE>

<S>                                                     <C>
Mortgage-backed securities                              19%

Private investment grade bonds                          16%

Below investment grade bonds                             5%

Other                                                    6%

Mortgage loans                                           5%

Public investment grade bonds                           49%
</TABLE>

[Pie Chart]

2000 FIXED MATURITY SECURITIES BY RATING

<TABLE>

<S>                                                    <C>
A                                                      32%

BBB                                                    27%

Below investment grade                                  6%

AAA                                                    25%

AA                                                     10%
</TABLE>


   Investment activities are an integral part of our operations. Our investment
strategy is twofold: (1) maintain a predominantly investment-grade, fixed-income
portfolio that provides adequate liquidity and cash flow to meet our general
account liability requirements and (2) optimize investment return through active
investment management. We had $72.6 billion of investments supporting our
general account insurance and annuity liabilities at year-end 2000. Fixed
maturity securities accounted for approximately 90% of these investments. We
also provided investment management, advisory, and administrative services for
$23.2 billion of separate account assets.

   In addition to the investments and separate account assets on our balance
sheet, we have built a significant fee-based asset management capability. Mutual
funds under management increased $1.8 billion to $2.8 billion, primarily from
our acquisition of the North American Funds, a family of 16 sub-advised mutual
funds, in first quarter 2000. We also managed $3.8 billion in third-party and
collateralized bond obligation amounts. Collateralized bond obligations under
management increased $1.7 billion as a result of four new offerings during 2000.

INVESTMENT RESULTS

   Net Investment Income. Net investment income increased 4% in 2000 and 3% in
1999, while average invested assets increased 6% for each year. Higher
reinvestment rates were more than offset by lower prepayment-related income
resulting in a two basis point decline in investment yield for 2000. The 1999
investment yield was 31 basis points lower due to reduced prepayment-related
income.

   Investment Gains (Losses). Investment gains (losses) include the pretax
realized gains or losses and any related DPAC amortization associated with the
disposition of securities, the write-down of securities for other than temporary
declines in value, and our share of changes in fair value of the underlying
equity investments held by equity partnerships. Investment losses during 2000
reflected our ongoing active management of the investment portfolio to maximize
relative value and to optimize our tax position. Investment losses during 2000
were also impacted by the deteriorating corporate credit cycle in the economy.
These losses were partially offset by a $22 million increase in fair value of
the underlying equity investments held by equity partnerships.

FAIR VALUE OF SECURITIES

   We report our fixed maturity and equity securities at fair value in
accordance with SFAS 115. Accounting rules do not permit us to report the
insurance and annuity liabilities supported by these securities at fair value.
As a result, changes in interest rates create volatility in shareholders'


page 30     AMERICAN GENERAL


<PAGE>   9




equity since only unrealized gains (losses) on fixed maturity and equity
securities are reported on the balance sheet. The components of the fair value
adjustment at December 31 were as follows:

<TABLE>
<CAPTION>

                                          2000          1999          1998
                                        -------       -------       -------
<S>                                     <C>           <C>           <C>
Fair value adjustment to
 fixed maturity securities              $  (328)      $(1,750)      $ 3,519
Related increase (decrease)
 in DPAC/CIP                                 88           347        (1,073)
Related decrease (increase)
 in deferred income taxes                    85           495          (863)
Valuation allowance on
 deferred tax asset                        (130)         (381)           --
                                        -------       -------       -------
Net unrealized gains (losses)
 Fixed maturity securities                 (285)       (1,289)        1,583
 Other, net                                 (19)           11            16
                                        -------       -------       -------
   Net unrealized gains
    (losses) on securities              $  (304)      $(1,278)      $ 1,599
                                        -------       -------       -------
</TABLE>

   During 2000, the Federal Reserve Board increased the federal funds rate, its
key short-term interest rate, 100 basis points to 6.50% at year end. During the
same period, the ten-year treasury bond yield declined 133 basis points to
5.11%, compared to a 180 basis point increase in 1999. As measured by the
Salomon Brothers Broad Investment Grade Bond Index, the 2000 decrease in yield
resulted in average bond prices increasing almost 5% during the year, compared
to a 7% decrease in 1999.

   At December 31, 2000, the market value of our fixed maturity securities was
99% of amortized cost, compared to 97% of amortized cost at year-end 1999. The
negative fair value adjustment to our fixed maturity securities portfolio
decreased $1.4 billion, with a related $1.0 billion positive change in
shareholders' equity, during 2000.

   We established a valuation allowance on the deferred tax asset related to the
unrealized losses on fixed maturity securities at December 31, 1999 because a
portion of the deferred tax asset may not be realized. This valuation allowance
had no impact on earnings.

FIXED MATURITY SECURITIES

   At year-end 2000, fixed maturity securities included $48.1 billion of
corporate bonds and $14.0 billion of mortgage-backed securities. The average
credit ratings of our fixed maturity securities by category at December 31, 2000
were as follows:

<TABLE>
<CAPTION>

                                                                 Average
                                     2000                        Rating
                                    -------          ---         -------
<S>                                 <C>              <C>         <C>
Investment grade                    $46,960           73%            A
Mortgage-backed                      13,964           22           AAA
Below investment grade                3,208            5            B+
                                    -------          ---           ---
 Total fixed maturity
  securities                        $64,132          100%            A
                                    -------          ---           ---
</TABLE>

   We have a well-diversified portfolio with no exposure to any non-government
issuer exceeding .6% of total invested assets. The mix of our fixed maturity
securities portfolio at December 31 was as follows:

<TABLE>
<CAPTION>

                               2000      1999      1998
                               ----      ----      ----
<S>                            <C>       <C>       <C>
Corporates
 Industrial                     39%       41%       40%
 Financial services             22        22        21
 Utilities                      14        13        13
                               ---       ---       ---
   Total corporates             75        76        74
Mortgage-backed                 22        21        21
Governments                      3         3         5
                               ---       ---       ---
   Total portfolio             100%      100%      100%
                               ---       ---       ---
</TABLE>

   Mortgage-Backed Securities. We invest in mortgage-backed securities (MBSs) to
diversify our portfolio risk characteristics from primarily corporate credit
risk to a mix of credit and cash flow risk. The majority of our MBSs have
relatively low cash flow variability. In addition, 88% of our MBSs are
residential with minimal credit risk because the underlying collateral is
guaranteed by Federal agencies. These MBSs are highly liquid and offer higher
yields than corporate debt securities of similar credit quality and expected
average lives. Our MBSs at December 31 were as follows:

<TABLE>
<CAPTION>

                                       2000         1999          1998
                                      -------      -------      -------
<S>                                   <C>          <C>          <C>
Collateralized mortgage
 obligations (CMOs)
  Planned amortization
   class                              $ 3,619      $ 3,765      $ 4,622
  Sequential                            2,812        2,851        3,948
  Other                                   960        1,087          828
                                      -------      -------      -------
    Total CMOs                          7,391        7,703        9,398
Pass-through securities                 4,948        3,955        3,013
Commercial MBSs                         1,625        1,235          608
                                      -------      -------      -------
     Total MBSs                       $13,964      $12,893      $13,019
                                      -------      -------      -------
</TABLE>

   The principal risks inherent in holding MBSs are prepayment and extension
risks arising from changes in market interest rates. In rising interest rate
environments, underlying mortgages are prepaid at a slower rate, causing MBS
principal payments to be extended. In declining interest rate environments, the
mortgages underlying MBSs are prepaid more rapidly, causing early repayment of
MBSs. Although early MBS repayments may result in acceleration of income from
recognition of any unamortized discount, we typically have to reinvest the
proceeds at lower current yields, resulting in a net reduction of future
investment income.

   We manage our prepayment and extension risks by actively managing our
portfolio of pass-through securities to focus on current coupon collateral,
investing in commercial mortgage-backed securities with fixed payment terms, and
investing in CMO tranches that provide greater


                                                    2000 ANNUAL REPORT   page 31


<PAGE>   10




MANAGEMENT'S DISCUSSION AND ANALYSIS
In millions

stability of cash flows. The planned amortization class tranche is structured to
give the investor more certain cash flows; therefore, this tranche is subject to
less prepayment and extension risk than other CMO tranches. Sequentials allocate
all principal payments to tranches based on maturity, retiring the shortest
maturity tranches first.

   Below Investment Grade Securities. We invest in below investment grade
securities to enhance the overall yield of our portfolio. Below investment grade
securities have credit ratings below BBB- and represented less than 6% of fixed
maturity securities at each year end. Earnings from below investment grade
securities were as follows:

<TABLE>
<CAPTION>

                                  2000         1999          1998
                                  -----        -----        -----
<S>                               <C>          <C>          <C>
Average investment yield           10.5%        10.4%         9.8%
Investment income                 $ 396        $ 371        $ 287
Realized gains (losses)            (138)         (79)         (42)
</TABLE>

   Surveillance List. We actively manage our fixed maturity security portfolio
to minimize our risk by limiting our exposure to any one issuer, monitoring
collateral performance, analyzing the impact of general economic conditions, and
conducting ongoing surveillance of high-risk securities. Below investment grade
bond issuers are generally more sensitive to changes in their competitive
position and the economic climate than more highly-rated issuers. The securities
on our surveillance list, which totaled $1.4 billion or 2% of fixed maturity
securities at December 31, 2000, are closely monitored in terms of their
vulnerability to such external changes. While default rates in the below
investment grade portfolio increased in 2000, defaults have not had a
significant impact on our results in the past three years.

   Non-Performing Bonds. We classify bonds as non-performing when the payment of
interest is sufficiently uncertain as to preclude the accrual of interest.
Non-performing bonds were less than .2% of total fixed maturity securities at
each of the prior three year ends.

MORTGAGE LOANS

   Mortgage loans on real estate, consisting primarily of loans on office and
retail properties, represented 5% of our invested assets at year-end 2000.
Mortgage loan statistics at December 31 were as follows:

<TABLE>
<CAPTION>

                                        2000            1999            1998
                                      --------        --------        --------
<S>                                   <C>             <C>             <C>
Mortgage loans                        $  3,937        $  3,712        $  3,402
Allowance for losses                       (17)            (26)            (34)
                                      --------        --------        --------
  Mortgage loans, net                 $  3,920        $  3,686        $  3,368
                                      --------        --------        --------
Yield on total loans                       8.2%            8.3%            8.6%
Yield on restructured loans                7.9             7.8             7.9
Percentage of total loans
  Restructured                             1.3             1.7             2.1
  Delinquent (60+ days)                     --              .6              .6
  Watchlist                                 .8              .9             2.4
                                      --------        --------        --------
</TABLE>

OUTLOOK

   We expect the economy to slow during the first half of 2001, followed by
modest growth later in the year. We anticipate the corporate credit outlook will
remain weak overall, particularly in the high yield market. Continued Federal
Reserve Board actions during the first half of 2001 should minimize any
significant rise in long-term interest rates. We expect our average investment
yield to remain near its current level.

                           ASSET/LIABILITY MANAGEMENT

   We manage our exposure to fluctuations in interest rates through an
asset/liability management program designed to achieve our liquidity and
profitability objectives by maintaining a reasonable balance in the durations of
assets and liabilities. We perform asset/liability management on an ongoing
basis for each operating company, as well as on an aggregate basis.

RETIREMENT SERVICES AND LIFE INSURANCE

   General Account. The earnings of our retirement services and life insurance
divisions are largely driven by the spread between the yields on our investments
and the rates credited to policyholders on general account liabilities. We
respond to fluctuations in interest rates through pricing of new products and
periodic adjustment of interest crediting rates on existing products, where
possible. We have been able to manage the investment spread to maintain overall
margins on interest-sensitive products despite wide swings in market interest
rates over the past several years.

   Our ability to manage interest crediting rates and durations is largely due
to the nature of our insurance and annuity products. We had the ability, subject
to certain minimum rate guarantees, to adjust interest crediting rates on
approximately 84% of our insurance and annuity liabilities at December 31, 2000.
Additionally, we use swaptions (options to enter into swap agreements) to limit
our exposure to reduced spreads between investment yields and interest crediting
rates during prolonged periods of significant increases or decreases in market
interest rates.

   We manage our investment portfolio by purchasing investments that are aligned
with our specific portfolio objectives and, to a lesser extent, by restructuring
the


page 32    AMERICAN GENERAL

<PAGE>   11




portfolio. We also use derivative financial instruments on a very limited and
selective basis. We establish investment portfolio objectives that maximize
investment returns consistent with the duration and cash flow characteristics of
the insurance and annuity liabilities being supported. The estimated duration of
the company's insurance and annuity liabilities was in the range of 4.9 to 5.9
years at year-end 2000, while the estimated duration of the assets supporting
these liabilities was 5.2 years.

   We perform simulations of the cash flows generated by our businesses under
various interest rate scenarios to manage the gap between our interest
rate-sensitive assets and liabilities. Our cash flow testing performed as of
December 31, 2000 indicated that our insurance companies would have sufficient
cash flows to meet their insurance obligations under the broad range of selected
scenarios.

   Separate Accounts. Because the investment risk on separate account assets
lies predominantly with the policyholder, our liability is equal to the value of
the account assets. Fees earned on separate accounts are a function of the value
of the assets, rather than interest rates. Therefore, asset/liability management
is not a material issue for separate accounts.

CONSUMER FINANCE

   The primary products offered by our consumer finance division are real estate
loans, which have an expected life of 3.7 years (although this can change in
response to interest rate changes); consumer loans, which have an average term
of 1.5 years; and retail sales finance with average terms of 9 months. We fund
these receivables with a combination of fixed-rate and floating-rate debt
(typically 88%) and equity (typically 12%). We use interest rate swap agreements
to convert a portion of floating-rate debt to a fixed rate. The weighted-average
years to maturity for our fixed-rate debt was 2.5 years at December 31, 2000.

   We determine the mix of fixed-rate and floating-rate debt based in part on
the nature of the receivables being supported. Generally, floating-rate assets
are funded with floating-rate debt, fixed-rate assets are funded with 20% to 30%
floating-rate debt, and the remainder is funded with fixed-rate debt.

CORPORATE

   The primary assets of our parent company are long-term investments in its
subsidiaries. These assets are supported by our corporate capital structure
consisting of corporate debt, redeemable equity, and shareholders' equity. The
average lives of our long-term corporate debt and redeemable equity are 11 and
39 years, respectively.

   To reduce the earnings impact of a change in interest rates, we limit
floating-rate debt to 10% to 12% of our target capital. Floating-rate debt was
11.3% of total capital at December 31, 2000. This percentage included the effect
of interest rate swap agreements that convert floating-rate debt to a fixed
rate.

SENSITIVITY ANALYSIS

   The fair values of certain of our assets and liabilities are sensitive to
changes in market interest rates. The impact of changes in interest rates would
be reduced by the fact that increases (decreases) in fair values of assets would
be partially offset by corresponding changes in fair values of liabilities. In
aggregate, the estimated impact of an immediate and sustained 100 basis point
increase or decrease in interest rates on the fair values of our interest
rate-sensitive financial instruments would not be material to our financial
position. The estimated increases (decreases) in fair values of interest
rate-sensitive financial instruments at December 31, 2000 were as follows:

<TABLE>
<CAPTION>

                                            +100 bp       -100 bp
                                           --------       -------
<S>                                        <C>           <C>
Assets
 Fixed maturity securities                 $(3,737)      $ 3,096
 Mortgage loans                               (186)          143
 Policy loans                                 (117)          135
 Finance receivables                          (322)          349
Liabilities
 Insurance investment contracts             (1,927)        2,069
 Long-term debt
  Corporate                                   (104)          116
  Consumer finance                            (187)          195
Redeemable equity                             (216)          271
</TABLE>

   These estimated changes in fair values were not materially different from the
changes we estimated at December 31, 1999 or 1998. At each year end, we derived
the changes in fair values by modeling estimated cash flows of certain of the
company's assets and liabilities. The assumptions we used adjusted cash flows to
reflect changes in prepayments, calls, surrenders, and interest crediting rates
in response to the changes in interest rates, as well as the effects of
derivative financial instruments used as hedges. These cash flows did not
consider new investment purchases, loan originations, product sales, or debt
issuances.

   Readers should exercise care in drawing conclusions based on the above
analysis. While these changes in fair values provide a measure of interest rate
sensitivity, they do not represent our expectations about the impact of interest
rate changes. A meaningful assessment of our net interest rate exposure cannot
be made without a revaluation of our other insurance and annuity liabilities,
which are not considered to be interest rate-sensitive financial instruments
under current accounting standards.

   This analysis was also based on our exposure at a particular point in time
and incorporated numerous


                                                    2000 ANNUAL REPORT   page 33



<PAGE>   12




MANAGEMENT'S DISCUSSION AND ANALYSIS
In millions

assumptions and estimates. It also assumed an immediate change in interest
rates, without regard to the impact of certain business decisions or initiatives
that we would likely undertake to mitigate or eliminate some or all of the
adverse effects of the modeled scenarios. Additionally, this analysis did not
reflect the impact of fair value fluctuations on deferred income taxes, deferred
policy acquisition costs, or cost of insurance purchased. Adjustments to these
accounts would partially offset the changes to the fair values of interest
rate-sensitive financial instruments.

                                CAPITAL RESOURCES

   The level of our corporate capital is determined primarily by the required
equity of our business divisions. We have established target levels of equity
for each division, based on their targeted ratings, differing operations, and
regulatory requirements.

RETIREMENT SERVICES AND LIFE INSURANCE

   Risk-Based Capital. The amount of statutory equity required to support the
business of our retirement services and life insurance companies is principally
a function of four factors: (1) the quality of assets invested to support
insurance and annuity reserves, (2) mortality and other insurance-related risks,
(3) interest-rate risk resulting from potential mismatching of asset and
liability durations, and (4) general business risks. Each of these items is a
key factor in the National Association of Insurance Commissioners' (NAIC)
risk-based capital (RBC) formula, used to evaluate the adequacy of a life
insurance company's statutory equity.

   Financial Strength Ratings. Rating agencies use the RBC approach as a factor
in assigning an insurance company its financial strength rating. This rating
serves as an indicator of the insurance company's ability to meet its future
obligations to policyholders. At December 31, 2000, our principal retirement
services and life insurance companies were rated as follows:

<TABLE>
<CAPTION>

                                    Rating         Description
                                    ------         -----------
<S>                                 <C>            <C>
Standard & Poor's                     AA+          Very Strong
Fitch                                 AA+          Very Strong
Moody's                             Aa2/Aa3         Excellent
A.M. Best                             A+            Superior
</TABLE>

   To maintain our very high financial strength ratings, we manage the statutory
equity of our principal retirement services and life insurance companies to a
target that is significantly more than the equity required by insurance
regulators. During the past three years, our target was 2.5 times the Company
Action Level RBC (or 5.0 times the Authorized Control Level RBC). We adjust
dividends from, or contributions to, these companies to maintain this target. At
December 31, 2000, our principal retirement services and life insurance
companies had statutory equity with a weighted-average of 2.79 times the Company
Action Level RBC.

   The NAIC has issued the Codification of Statutory Accounting Principles that
prescribes certain changes in statutory accounting practices effective January
1, 2001. While codification may change reported statutory equity, we intend to
continue managing our insurance and annuity companies' statutory equity at
levels necessary to maintain our very high financial strength ratings.

CONSUMER FINANCE

   The capital of our consumer finance division varies directly with the level
of its finance receivables. This capital, totaling $12.3 billion at year-end
2000, consisted of $1.5 billion of equity and $10.8 billion of consumer finance
debt, which was not guaranteed by American General.

   The capital mix of consumer finance debt and equity is based upon maintaining
leverage at a level that supports cost-effective funding. The consumer finance
division's target ratio of debt to tangible net worth, a standard measure of
financial risk in the consumer finance industry, is currently 7.5 to 1. This
ratio was 7.5 to 1 at year-end 2000, 7.6 to 1 at year-end 1999, and 7.5 to 1 at
year-end 1998.

   Consumer finance debt ratings at December 31, 2000 were as follows:

<TABLE>
<CAPTION>

                              Commercial Paper               Long-term Debt
                           ----------------------         --------------------
                           Rating     Description         Rating   Description
                           ------     -----------         ------   -----------
<S>                        <C>        <C>                 <C>      <C>
Standard & Poor's            A-1         Strong             A+         Strong
Fitch                        F1+        Highest             A+           High
Moody's                      P-1        Highest             A2      Favorable
</TABLE>


page 34    AMERICAN GENERAL


<PAGE>   13


   The weighted-average interest rates on consumer finance debt, including the
effect of interest rate swap agreements, were as follows:

<TABLE>
<CAPTION>

                                 2000       1999       1998
                                 ----       ----       ----
<S>                              <C>        <C>        <C>
Floating-rate debt               6.47%      5.28%      5.60%
Fixed-rate debt                  6.67       6.68       7.05
Total consumer finance debt      6.59       6.23       6.55
</TABLE>

CORPORATE

   The mix of corporate capital between debt and equity is influenced by our
overall corporate strategy and structure. Our target capital structure consists
of 25% corporate debt, 15% redeemable equity, and 60% shareholders' equity. The
amount and mix of our corporate capital at December 31 were as follows:

<TABLE>
<CAPTION>

                                    2000         1999           1998
                                  -------       -------       -------
<S>                               <C>           <C>           <C>
Corporate capital*                $13,449       $12,768       $11,767
                                  -------       -------       -------
Corporate debt                         24%           24%           23%
Redeemable equity                      15            15            15
Shareholders' equity                   61            61            62
                                  -------       -------       -------
</TABLE>

*Excludes fair value adjustment under accounting standard SFAS 115

   Capital Costs. Corporate capital costs consist of interest on corporate debt
and dividends on preferred securities. Corporate capital costs were as follows:

<TABLE>
<CAPTION>

                                     2000        1999        1998
                                    -----       -----       -----
<S>                                 <C>         <C>         <C>
Interest on corporate debt          $ 239       $ 210       $ 196
Dividends on preferred
 securities                           158         142         137
Tax benefit                          (139)       (124)       (117)
                                    -----       -----       -----
 Corporate capital costs            $ 258       $ 228       $ 216
                                    -----       -----       -----
</TABLE>

   The increases in corporate capital costs reflect the growth in corporate
capital, in addition to higher market rates on new issuances of debt and
preferred securities.

   Corporate Debt. Our corporate debt ratings at December 31, 2000 were as
follows:

<TABLE>
<CAPTION>

                          Commercial Paper                 Long-term Debt
                      -----------------------          ----------------------
                      Rating      Description          Rating     Description
                      ------      -----------          ------     -----------
<S>                   <C>         <C>                  <C>        <C>
Standard & Poor's      A-1+         Highest              AA-      Very Strong
Fitch                  F1+          Highest              AA-       Very High
Moody's                P-1          Highest              A2        Favorable
</TABLE>

   The weighted-average interest rates on corporate debt, including the effect
of interest rate swap agreements, were as follows:

<TABLE>
<CAPTION>

                               2000       1999       1998
                               ----       ----       ----
<S>                            <C>        <C>        <C>
Floating-rate debt             6.57%      6.03%      5.54%
Fixed-rate debt                7.40       7.62       7.77
Total corporate debt           6.91       6.63       6.46
</TABLE>

   Redeemable Equity. During the last three years, we issued $600 million of
preferred securities, which are recorded on our balance sheet as redeemable
equity. We used the proceeds primarily to reduce short-term debt. The
weighted-average dividend rate on our redeemable equity was 7.7% in 2000.
Current ratings on our redeemable equity are as follows:

<TABLE>
<CAPTION>

                              Rating    Description
                              ------    -----------
<S>                           <C>       <C>
Standard & Poor's                A        Strong
Fitch                            A+        High
Moody's                          a2      Favorable
                              ------     ---------
</TABLE>

   In 2000, holders of $250 million of 6% convertible preferred securities
issued by American General Delaware, L.L.C. converted their securities into 12.3
million shares of American General common stock.

   Shareholders' Equity. During the last three years, we issued $623 million of
common stock in connection with acquisitions. During 2000, all $85 million of
our mandatorily convertible preferred stock was converted into 3.8 million
shares of American General common stock.

   Since 1987, American General has repurchased 259.1 million common shares for
an aggregate cost of $3.7 billion. Our share repurchases for the past three
years were as follows:

<TABLE>
<CAPTION>

                                 2000        1999        1998
                                ------      ------      ------
<S>                             <C>         <C>         <C>
Shares repurchased                14.0        11.8         5.9
Cost of shares repurchased      $  460      $  425      $  195
</TABLE>

   We use share repurchases as a means of maintaining our target capital
structure. Our future repurchase activity will be based on the company's
corporate development activities, capital management strategy, corporate growth
rates, and fluctuations in our common stock price.



                                                   2000 ANNUAL REPORT   page 35


<PAGE>   14
MANAGEMENT'S DISCUSSION AND ANALYSIS
In millions


                                   LIQUIDITY

   Our overall liquidity is based on cash flows from the business divisions and
our ability to borrow in both the long-term and short-term markets at
competitive rates. We believe that our overall sources of liquidity will
continue to be sufficient to satisfy our foreseeable financial obligations.

RETIREMENT SERVICES

   Principal sources of cash for our retirement services division were as
follows:

<TABLE>
<CAPTION>

                                       2000        1999        1998
                                      ------      ------      ------
<S>                                   <C>         <C>         <C>
Cash from operating activities        $1,953      $1,570      $1,625
Deposits, net of withdrawals
 Fixed                                   852       1,532         626
 Variable                              2,477       2,465       2,294
 Mutual funds                            420         212          --

</TABLE>

   The 2000 decline in net fixed deposits reflected the expiration of surrender
charge periods for a growing number of policies, as well as increased
competition. The 1999 increase in net fixed deposits was due to exceptional
growth in fixed annuities sold through financial institutions. The increase in
net mutual fund deposits resulted from the division's increased concentration on
sales of these products.

   Because the investment risk on variable and mutual fund products lies
predominantly with the policyholder, deposits and withdrawals related to
separate accounts and mutual funds are not included in the company's cash flow
statement.

   The division's major use of cash was the net purchase of investments
necessary to support increases in its insurance and annuity liabilities.

LIFE INSURANCE

   Principal sources of cash for our life insurance division were as follows:

<TABLE>
<CAPTION>

                                      2000        1999        1998
                                      -----       -----      -----
<S>                                   <C>         <C>        <C>
Cash from operating activities        $ 142       $ 155      $ 361
Deposits, net of withdrawals
 Fixed                                 (108)        394         57
 Variable                               899         643        356

</TABLE>

   Operating cash flows declined from 1998 as a result of fluctuations in
assumed reinsurance activity.

   The $502 million decline in net fixed deposits and the $256 million increase
in net variable deposits in 2000 resulted from the transfer of lump sum fixed
deposits to separate accounts and higher withdrawals.

   The division's major uses of cash were the net purchase of investments
necessary to support increases in insurance and annuity liabilities and net
dividends paid to the parent company.

CONSUMER FINANCE

   Principal sources of cash for our consumer finance division were as follows:

<TABLE>
<CAPTION>

                               2000          1999          1998
                              ------        ------        ------
<S>                           <C>           <C>           <C>
Cash from operating
 activities                   $  620        $  494        $  439
Increase in debt                 623         1,295         1,593
                              ------        ------        ------
</TABLE>

   Net cash provided by operating activities increased in 2000 due to an
increase in finance charges from higher average net receivables. Cash generated
by borrowings did not increase as much in 2000 as in 1999 and 1998 due to lower
growth in finance receivables, principally from the reduced level of bulk
purchases in 2000.

   The division's major use of cash was to fund finance receivables growth. Net
cash used to fund finance receivables was $1.0 billion in 2000, down from $1.6
billion in 1999 and $1.8 billion in 1998.

CORPORATE

   The primary sources of cash for corporate operations include net dividends
from our business divisions and the proceeds from issuances of debt and
redeemable equity.

   Our subsidiary capitalization targets are the major factor in determining the
amount of dividends paid by our operating companies. Additionally, state
insurance regulations for insurance and annuity companies and long-term debt
covenants for our consumer finance operations restrict the amount of dividends
our business divisions may pay. These restrictions are not expected to affect
American General's ability to meet its cash obligations in 2001.


page 36     AMERICAN GENERAL


<PAGE>   15



   Net dividends received from our business divisions were as follows:


<TABLE>
<CAPTION>
                          2000      1999      1998
                          ----      ----      ----
<S>                       <C>       <C>       <C>
Dividends received
 Retirement Services      $211      $124      $182
 Life Insurance            466       599       599
 Consumer Finance          107       110        --
                          ----      ----      ----
  Total received           784       833       781
                          ----      ----      ----
Contributions paid
  Retirement Services      132       119       281
  Life Insurance           141       230        --
  Consumer Finance          --       --         47
                          ----      ----      ----
   Total paid              273       349       328
                          ----      ----      ----
   Net dividends
     received             $511      $484      $453
                          ----      ----      ----
</TABLE>

   Net dividends from our retirement services division were lower in 1999 and
1998 because additional capital was required to support target capital levels
and new business growth. The life insurance division received contributions in
2000 and 1999 to partially fund industrial life and market conduct litigation
settlements.

   Corporate operations use cash to pay dividends to shareholders, to pay
interest on corporate debt and dividends on preferred securities, to repurchase
common stock, and to pay corporate expenses not allocated to the business
divisions. We expect to fund maturities of debt and preferred securities and
potential future acquisitions through external sources, while maintaining our
capital mix.


                              REGULATION AND OTHER

REGULATION

   On November 12, 1999, the Financial Services Modernization Act became federal
law, eliminating regulatory barriers between banks, insurance companies, and
securities firms that had existed for over 60 years. This act provides new
opportunities and increased competition among diversified financial services
companies and will hasten the pace of consolidation in the financial services
industry.

   Insurance regulators monitor capital adequacy and market conduct to protect
policyholders. Market conduct includes sales and advertising practices, agent
licensing and compensation, policyholder service, complaint handling,
underwriting, and claims practices. As a result of increased regulatory
scrutiny, market conduct compliance costs for our insurance subsidiaries have
increased in recent years.

   Market conduct issues are also a concern for our consumer finance business.
State legislators and consumer groups have raised concerns that some subprime
lenders may be charging excessive rates. While some predatory lending proposals
under consideration are appropriate, others are excessive and could adversely
impact lenders and reduce availability of credit for borrowers.

   Federal and state laws and regulations have been enacted, and others are
likely to be enacted in the near future, to protect the privacy of certain types
of customer information. These laws and regulations include requirements for
financial services companies to disclose their privacy policy and, in certain
circumstances and with respect to certain types of information, to obtain
customer consent before information could be shared with affiliates or third
parties. We are monitoring both state and federal legislative and regulatory
activities to ensure the company's continued adherence to privacy rules.

   We are monitoring proposals to repeal or reform the federal estate tax. While
there is general agreement in Congress that the current estate tax should be
reformed, there is no clear consensus on how it should be reformed. Any changes
in tax laws or regulations could adversely affect the sale and/or profitability
of some of our products.

LITIGATION SETTLEMENTS AND OTHER CHARGES

   We report significant litigation settlements and other non-recurring charges
as a component of corporate operations. In 2000, we recorded charges of $265
million ($175 million aftertax) for the settlement of class action litigation
and regulatory inquiries concerning sales of industrial life insurance and $50
million ($32 million aftertax) for a loss related to fraud committed against one
of our subsidiaries that conducts mortgage warehouse lending activities. In
1999, we recorded a charge of $57 million ($36 million aftertax) for the
settlement of litigation related to the financing of satellite dishes. In 1998,
we recorded a charge of $378 million ($246 million aftertax) related to the
settlement of market conduct class action lawsuits. These charges are discussed
in Note 17 to our financial statements.

   We are currently in arbitration to rescind a quota share reinsurance
agreement covering workers' compensation claims, as discussed in Note 17.1 to
our financial statements. We believe that our ultimate loss, if any, related to
our workers' compensation business will not have a material adverse effect on
our future results of operations and financial position.

FORWARD-LOOKING STATEMENTS

   All statements, trend analyses, and other information contained herein
relative to markets for our products and trends in our operations or financial
results, as well as other statements including words such as "anticipate,"
"believe," "plan," "estimate," "expect," "intend," and other similar
expressions, constitute forward-looking statements under the Private Securities
Litigation Reform Act of 1995. We have made these forward-looking statements
based upon our current expectations and beliefs concerning future developments
and their potential effects on the company. There can be no assurance that
future developments affecting the company will be those we anticipated. Actual
results may differ materially from those included in the forward-looking
statements.

   These forward-looking statements involve risks and uncertainties including,
but not limited to, the following: (1) changes in general economic conditions,
including the performance of financial markets and interest rates; (2) customer
responsiveness to both products and distribution channels; (3) competitive,
regulatory, accounting, or tax changes that affect the cost of, or demand for,
our products; (4) our ability to secure necessary regulatory approvals,
including approvals for dividends and products; (5) our ability to realize
projected expense savings; (6) adverse litigation or arbitration results or
resolution of litigation or arbitration, including proceedings related to
satellite dish financing and workers' compensation insurance; and (7) the
formation of strategic alliances or business combinations among our competitors
or our business partners. Investors are also directed to other risks and
uncertainties discussed in documents we filed with the Securities and Exchange
Commission. We undertake no obligation to update or revise any forward-looking
information, whether as a result of new information, future developments, or
otherwise.

                                                    2000 ANNUAL REPORT   page 37
<PAGE>   16

CONSOLIDATED INCOME STATEMENT


AMERICAN GENERAL CORPORATION

<TABLE>
<CAPTION>
For the years ended December 31
In millions, except per share data                                                   2000              1999                1998
                                                                                   --------           --------           --------
<S>                    <C>                                                         <C>                <C>                <C>
REVENUES               Premiums and other considerations                           $  3,839           $  3,772           $  3,605
                       Net investment income                                          5,453              5,232              5,095
                       Finance charges                                                1,619              1,455              1,354
                       Investment gains (losses)                                       (176)               (19)                 6
                       Other revenues                                                   328                239                191
                                                                                   --------           --------           --------
                             Total revenues                                          11,063             10,679             10,251
                                                                                   --------           --------           --------

BENEFITS               Insurance and annuity benefits                                 5,500              5,313              5,159
AND                    Operating costs and expenses                                   1,647              1,643              1,608
EXPENSES               Commissions                                                    1,258              1,230              1,063
                       Change in deferred policy acquisition costs and
                          cost of insurance purchased                                  (504)              (477)              (213)
                       Provision for finance receivable losses                          206                207                212
                       Goodwill amortization                                             48                 48                 45
                       Interest expense
                          Corporate                                                     225                197                181
                          Consumer Finance                                              694                574                512
                       Litigation settlements and other charges                         315                 57                378
                                                                                   --------           --------           --------
                             Total benefits and expenses                              9,389              8,792              8,945
                                                                                   --------           --------           --------
NET INCOME             Income before income tax expense                               1,674              1,887              1,306
                       Income tax expense                                               568                664                453
                                                                                   --------           --------           --------
                       Income before net dividends on preferred
                          securities of subsidiaries                                  1,106              1,223                853
                       Net dividends on preferred securities of subsidiaries            103                 92                 89
                                                                                   --------           --------           --------
                             Net income                                            $  1,003           $  1,131           $    764
                                                                                   --------           --------           --------
PER SHARE              Net income per share
(Post-split)              Basic                                                    $   2.01           $   2.26           $   1.51
                          Diluted                                                      1.98               2.20               1.48
                                                                                   --------           --------           --------
</TABLE>

                See Notes to Financial Statements.


page 38     AMERICAN GENERAL
<PAGE>   17




CONSOLIDATED BALANCE SHEET


AMERICAN GENERAL CORPORATION

<TABLE>
<CAPTION>
At December 31
In millions                                                                      2000                1999                1998
                                                                               ---------           ---------           ---------
<S>                    <C>                                                     <C>                 <C>                 <C>
ASSETS                 Investments
                          Fixed maturity securities (amortized cost:
                             $64,460; $62,375; $59,212)                        $  64,132           $  60,625           $  62,731
                          Mortgage loans on real estate                            3,920               3,686               3,368
                          Equity securities (cost: $832; $633; $444)                 831                 673                 481
                          Policy loans                                             2,433               2,375               2,329
                          Real estate and other long-term investments                306                 300                 300
                          Short-term investments                                     671                 676                 654
                                                                               ---------           ---------           ---------
                                Total investments                                 72,293              68,335              69,863
                                                                               ---------           ---------           ---------
                       Assets held in separate accounts                           23,234              24,097              16,158
                       Finance receivables, net                                   11,378              10,634               9,275
                       Deferred policy acquisition costs                           5,464               4,980               3,253
                       Cost of insurance purchased                                   994               1,170                 956
                       Goodwill                                                    1,448               1,501               1,590
                       Other assets                                                5,283               4,730               4,012
                                                                               ---------           ---------           ---------
                                Total assets                                   $ 120,094           $ 115,447           $ 105,107
                                                                               ---------           ---------           ---------
LIABILITIES            Insurance and annuity liabilities                       $  68,309           $  66,401           $  62,844
                       Liabilities related to separate accounts                   23,234              24,097              16,158
                       Debt (short-term)
                          Corporate ($1,921; $1,932; $1,607)                       3,259               3,120               2,743
                          Consumer Finance ($5,162; $4,489; $3,686)               10,833              10,206               8,863
                       Income tax liabilities                                      1,151                 833               1,543
                       Other liabilities                                           3,421               2,446               2,357
                                                                               ---------           ---------           ---------
                                Total liabilities                                110,207             107,103              94,508
                                                                               ---------           ---------           ---------
REDEEMABLE             Company-obligated mandatorily redeemable
EQUITY                    preferred securities of subsidiaries holding
                          solely company subordinated notes                        2,067               1,924               1,728
                                                                               ---------           ---------           ---------

SHAREHOLDERS'          Convertible preferred stock                                    --                  85                  85
EQUITY                 Common stock (post-split)
                          Shares issued: 538.6; 538.6; 538.6
                          Shares outstanding: 500.7; 496.1; 503.6                    887                 962                 939
                       Retained earnings                                           8,294               7,732               7,007
                       Accumulated other comprehensive income (loss)                (304)             (1,278)              1,599
                       Cost of treasury stock                                     (1,057)             (1,081)               (759)
                                                                               ---------           ---------           ---------
                                Total shareholders' equity                         7,820               6,420               8,871
                                                                               ---------           ---------           ---------
                                Total liabilities and equity                   $ 120,094           $ 115,447           $ 105,107
                                                                               ---------           ---------           ---------
</TABLE>



                       See Notes to Financial Statements.



                                                    2000 ANNUAL REPORT   page 39
<PAGE>   18




CONSOLIDATED STATEMENT OF SHAREHOLDERS' EQUITY


AMERICAN GENERAL CORPORATION

<TABLE>
<CAPTION>
For the years ended December 31
In millions, except per share data                                                     2000              1999              1998
                                                                                      -------           -------           -------
<S>                   <C>                                                             <C>               <C>               <C>
PREFERRED             Balance at beginning of year                                    $    85           $    85           $    85
STOCK                 Conversion into common shares                                       (85)               --                --
                                                                                      -------           -------           -------
                         Balance at end of year                                            --                85                85
                                                                                      -------           -------           -------
COMMON                Balance at beginning of year                                        962               939               326
STOCK                 Conversion of preferred stock and preferred securities              (83)               --                --
                      Issuance of common shares for acquisition                            --                --               580
                      Issuance of stock options for acquisition                            --                --                37
                      Issuance of treasury shares for acquisition and other                 8                23                (4)
                                                                                      -------           -------           -------
                         Balance at end of year                                           887               962               939
                                                                                      -------           -------           -------
RETAINED              Balance at beginning of year                                      7,732             7,007             6,624
EARNINGS              Net income                                                        1,003             1,131               764
                      Cash dividends (per share)
                         Common ($.88; $.80; $.75)                                       (440)             (400)             (375)
                         Preferred ($.64; $2.57; $2.57)                                    (1)               (6)               (6)
                                                                                      -------           -------           -------
                         Balance at end of year                                         8,294             7,732             7,007
                                                                                      -------           -------           -------
ACCUMULATED           Balance at beginning of year                                     (1,278)            1,599             1,169
OTHER                 Change in net unrealized gains (losses) on securities               974            (2,877)              430
COMPREHENSIVE                                                                         -------           -------           -------
INCOME (LOSS)            Balance at end of year                                          (304)           (1,278)            1,599
                                                                                      -------           -------           -------
TREASURY              Balance at beginning of year                                     (1,081)             (759)             (621)
STOCK                 Repurchase of common shares                                        (460)             (425)             (195)
                      Conversion of preferred stock and preferred securities              418                --                --
                      Issuance for acquisition                                             --                43                --
                      Issuance under employee benefit plans and other                      66                60                57
                                                                                      -------           -------           -------
                         Balance at end of year                                        (1,057)           (1,081)             (759)
                                                                                      -------           -------           -------
SHAREHOLDERS'
EQUITY                   Balance at end of year                                       $ 7,820           $ 6,420           $ 8,871
                                                                                      -------           -------           -------
</TABLE>

CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME

<TABLE>
<CAPTION>
                                                                                        2000              1999              1998
                                                                                      -------           -------           -------
<S>                                                                                   <C>               <C>               <C>
NET INCOME            Net income                                                      $ 1,003           $ 1,131           $   764
                                                                                      -------           -------           -------
OTHER                 Change in net unrealized gains (losses) on securities
COMPREHENSIVE            Fair value of fixed maturity securities                        1,422            (5,269)              733
INCOME                   Deferred policy acquisition costs and
                           cost of insurance purchased                                   (259)            1,420               (21)
                         Deferred income taxes                                           (159)              977              (253)
                                                                                      -------           -------           -------
                         Change in fixed maturity securities                            1,004            (2,872)              459
                         Change in equity securities and other                            (30)               (5)              (29)
                                                                                      -------           -------           -------
                            Total                                                         974            (2,877)              430
                                                                                      -------           -------           -------
COMPREHENSIVE            Comprehensive income (loss)                                  $ 1,977           $(1,746)          $ 1,194
INCOME (LOSS)                                                                         -------           -------           -------

</TABLE>

                         See Notes to Financial Statements.



page 40     AMERICAN GENERAL
<PAGE>   19
CONSOLIDATED STATEMENT OF CASH FLOWS


AMERICAN GENERAL CORPORATION

<TABLE>
<CAPTION>
At December 31
In millions                                                                          2000                1999               1998
                                                                                    --------           --------           --------
<S>                   <C>                                                           <C>                <C>                <C>
OPERATING             Net income                                                    $  1,003           $  1,131           $    764
ACTIVITIES            Reconciling adjustments
                         Insurance and annuity liabilities                             1,440              1,206              1,619
                         Deferred policy acquisition costs and
                           cost of insurance purchased                                  (504)              (477)              (213)
                         Deferred income taxes                                           198                267                (30)
                         Provision for finance receivable losses                         206                207                212
                         Investment losses (gains)                                       176                 19                 (6)
                         Other, net                                                       (9)              (324)              (135)
                                                                                    --------           --------           --------
                               Net cash provided by operating activities               2,510              2,029              2,211
                                                                                    --------           --------           --------
INVESTING             Investment purchases                                           (17,772)           (22,804)           (14,504)
ACTIVITIES            Investment dispositions and repayments                          15,304             19,062             12,155
                      Finance receivable originations and purchases                   (6,282)            (6,654)            (6,589)
                      Finance receivable principal payments received                   5,314              5,102              4,775
                      Net (increase) decrease in short-term investments                    5                (14)               444
                      Acquisitions                                                       (17)               (29)              (591)
                      Other, net                                                        (168)              (167)              (252)
                                                                                    --------           --------           --------
                               Net cash used for investing activities                 (3,616)            (5,504)            (4,562)
                                                                                    --------           --------           --------
FINANCING             Retirement Services and Life Insurance
ACTIVITIES               Policyholder account deposits                                 7,197              6,648              4,981
                         Policyholder account withdrawals                             (6,453)            (4,722)            (4,298)
                                                                                    --------           --------           --------
                            Total Retirement Services and Life Insurance                 744              1,926                683
                                                                                    --------           --------           --------
                      Consumer Finance
                         Net increase in short-term debt                                 673                758                431
                         Long-term debt issuances                                      1,240              1,108              2,028
                         Long-term debt redemptions                                   (1,290)              (571)              (866)
                                                                                    --------           --------           --------
                            Total Consumer Finance                                       623              1,295              1,593
                                                                                    --------           --------           --------
                      Corporate
                         Net increase (decrease) in short-term debt                      (11)               325                937
                         Long-term debt issuances                                        495                150                 --
                         Long-term debt redemptions                                     (350)              (100)              (354)
                         Issuances of preferred securities of subsidiaries               392                194                 --
                         Common stock repurchases                                       (455)              (425)              (195)
                         Dividends on common stock                                      (440)              (400)              (375)
                         Non-recourse obligation collateralized by bonds                  --                483                 --
                         Other, net                                                       80                (20)               140
                                                                                    --------           --------           --------
                            Total Corporate                                             (289)               207                153
                                                                                    --------           --------           --------
                               Net cash provided by financing activities               1,078              3,428              2,429
                                                                                    --------           --------           --------
NET CHANGE            Net increase (decrease) in cash                                    (28)               (47)                78
IN CASH               Cash at beginning of year                                          294                341                263
                                                                                    --------           --------           --------
                               Cash at end of year                                  $    266           $    294           $    341
                                                                                    --------           --------           --------
</TABLE>


                      See Notes to Financial Statements.


                                                    2000 ANNUAL REPORT   page 41

<PAGE>   20
NOTES TO FINANCIAL STATEMENTS

1. SIGNIFICANT 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
American General Corporation (American General) and its subsidiaries
(collectively, the company or we). All material intercompany transactions have
been eliminated in consolidation.

   All share amounts have been restated to reflect a two-for-one stock split
effective March 1, 2001. To conform with the 2000 presentation, certain items in
the prior year financial statements have been reclassified.

   Management must make estimates and assumptions that affect amounts reported
in the financial statements and in disclosures of contingent assets and
liabilities. Ultimate results could differ from our estimates.

1.2 Investments

   Fixed Maturity and Equity Securities. Substantially all fixed maturity and
equity securities held at December 31, 2000, 1999, and 1998 were classified as
available-for-sale and reported at fair value. We adjust related balance sheet
accounts as if the unrealized gains (losses) had been realized, and record the
net adjustment in accumulated other comprehensive income (loss) in shareholders'
equity. If the fair value of a security classified as available-for-sale
declines below its cost and we consider the decline to be other than temporary,
we reduce the security's amortized cost to its fair value and recognize a
realized loss.

   At various times, we hold trading securities and report them at fair value.
Our trading security portfolio was immaterial at year-end 2000, 1999, and 1998.
Realized and unrealized gains (losses) related to trading securities are
included in net investment income; however, trading securities did not have a
material effect on net investment income in 2000, 1999, or 1998.

   Equity partnerships, which are reported in equity securities, are accounted
for under the equity method of accounting. For those partnerships that report
changes in the fair value of underlying equity investments in earnings, we
record our proportionate interest in investment gains (losses).

   Mortgage Loans. Mortgage loans are reported at amortized cost, net of an
allowance for losses. The allowance covers estimated losses based on our
assessment of risk factors such as potential non-payment or non-monetary
default. The allowance is primarily based on a loan-specific review.

   We consider loans to be impaired when collection of all amounts due under the
contractual terms is not probable. The company generally looks to the underlying
collateral for repayment of these loans. Therefore, impaired loans are reported
at the lower of amortized cost or fair value of the underlying collateral, less
estimated cost to sell.

   Policy Loans. Policy loans are reported at unpaid principal balance.

   Real Estate. We classify real estate as held for investment or available for
sale, based on management's intent. Real estate held for investment is carried
at cost, less accumulated depreciation and impairment write-downs. Real estate
available for sale is carried at the lower of cost (less accumulated
depreciation, if applicable) or fair value less cost to sell.

   Dollar Roll Agreements. Dollar rolls are agreements to sell mortgage-backed
securities and to repurchase substantially the same securities at a specified
price and date in the future. We account for dollar rolls as short-term
collateralized financings and include the repurchase obligation in other
liabilities. There were no dollar rolls outstanding at December 31, 2000, 1999,
or 1998.

   Investment Income. Interest on fixed maturity securities and performing
mortgage loans is recorded as income when earned and is adjusted for any
amortization of premium or discount. Interest on delinquent mortgage loans is
recorded as income when received. Dividends are recorded as income on
ex-dividend dates.

   We recognize income on mortgage-backed securities using a constant effective
yield based on estimated prepayments of the underlying mortgages. If actual
prepayments differ from estimated prepayments, we calculate a new effective
yield and adjust the net investment in the security accordingly. The adjustment
is recognized in net investment income.

   Realized Investment Gains (Losses). We recognize realized investment gains
(losses) using the specific identification method and report them in investment
gains (losses).

1.3 Separate Accounts

   Separate accounts are assets and liabilities associated with certain
contracts, principally annuities, for which the investment risk lies
predominantly with the contract holder. The liability for these accounts equals
the value of the account assets. Investment income, investment gains (losses),
and policyholder account deposits and withdrawals related to separate accounts
are excluded from the statements of income and cash flows. Assets held in
separate accounts are primarily shares in mutual funds, which are carried at
fair value, based on the quoted net asset value per share.

1.4 Finance Receivables

   Finance Charges. Finance charges are recognized as revenue using the interest
method. We stop accruing revenue when contractual payments are not received for
four

page 42  AMERICAN GENERAL

<PAGE>   21
consecutive months for loans and retail sales contracts, and for six months for
revolving retail accounts and private label receivables. Extension fees, late
charges, and prepayment penalties are recognized as revenue when received.

   Direct costs of originating loans, net of non-refundable points and fees, are
deferred and included in the carrying amount of the related loans. The amount
deferred is recognized as an adjustment to finance charge revenues, using the
interest method over the lesser of the contractual term or the expected life
based on prepayment experience. If loans are prepaid, any remaining deferral is
charged or credited to revenue.

   Losses on Finance Receivables. We charge off finance receivables, except real
estate loans, when minimal or no collections have been made for six months. For
real estate loans, we initiate foreclosure proceedings when four monthly
installments are past due. The carrying amount of a loan in excess of the fair
value of the underlying real estate is charged off at foreclosure.

   The allowance for finance receivable losses is maintained at a level that we
consider adequate to absorb anticipated credit losses in our existing portfolio.
We periodically evaluate the portfolio on a pooled basis and consider factors
such as economic conditions, portfolio composition, and loss and delinquency
experience in our evaluation of the allowance.

1.5 Deferred Policy Acquisition Costs (DPAC)

   Certain costs of writing an insurance policy, including 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 is charged to
expense in relation to the estimated gross profits of those contracts. If our
estimate of future gross profits changes significantly, we recalculate DPAC
balances using the new assumptions. Any resulting adjustment is included in
current earnings as an adjustment to DPAC amortization. DPAC associated with all
other insurance contracts is charged to expense over the premium-paying period
or as the premiums are earned over the life of the contract. Interest is
accreted on the unamortized balance of DPAC at rates used to compute
policyholder reserves.

   DPAC also is adjusted for the impact on estimated future gross profits as if
net unrealized gains (losses) on securities had been realized at the balance
sheet date. The impact of this adjustment is included in accumulated other
comprehensive income (loss) in shareholders' equity.

   We review the carrying amount of DPAC on at least an annual basis. We
consider estimated future gross profits or future premiums, expected mortality,
interest earned and credited rates, persistency, and expenses to determine
whether the carrying amount is recoverable. Any amounts deemed unrecoverable are
charged to expense.

1.6 Cost of Insurance Purchased (CIP)

   The cost assigned to certain acquired subsidiaries' insurance contracts in
force at the acquisition date is reported as CIP. Interest is accreted on the
unamortized balance of CIP at rates of 4.0% to 8.5%. CIP is charged to expense,
including adjustments for revised assumptions, and adjusted for the impact of
net unrealized gains (losses) on securities in the same manner as DPAC. We
review the carrying amount of CIP on at least an annual basis using the same
methods used to evaluate DPAC.

1.7 Goodwill

   Goodwill is charged to expense in equal amounts, generally over 40 years. We
review goodwill for indicators of impairment in value which we believe are other
than temporary, including unexpected or adverse changes in the following: (1)
the economic or competitive environments in which the company operates, (2)
profitability analyses, (3) cash flow analyses, and (4) the fair value of the
relevant subsidiary. If facts and circumstances suggest that a subsidiary's
goodwill is impaired, we assess the fair value of the underlying business based
on an independent appraisal and reduce goodwill to an amount that results in the
book value of the subsidiary approximating fair value.

1.8 Insurance and Annuity Liabilities

   Substantially all of the company's insurance and annuity liabilities relate
to long-duration contracts. The company normally cannot change or cancel these
contracts.

   For interest-sensitive life and insurance investment contracts, reserves
equal the sum of the policy account balance and deferred revenue charges.

   Reserves for other contracts are based on our estimates of the cost of future
policy benefits, using the net level premium method. Interest assumptions used
to compute reserves ranged from 2.0% to 13.5% at December 31, 2000.

1.9 Premium Recognition

   Most receipts for annuities and interest-sensitive life insurance policies
are classified as deposits instead of revenues. Revenues for these contracts
include mortality, expense, and surrender charges. Policy charges that
compensate the company for future services are deferred and recognized over the
period earned, using the same assumptions used to amortize DPAC.

   For limited-payment contracts, net premiums are recorded as revenue, and the
difference between the gross premium received and the net premium is deferred
and recognized in a constant relationship to insurance in force. For all other
contracts, premiums are recognized when due.


                                                     2000 ANNUAL REPORT  page 43
<PAGE>   22
NOTES TO FINANCIAL STATEMENTS
In millions


1.10 Participating Life Insurance

   Participating life insurance accounted for less than 10% of life insurance in
force and premiums and other considerations in 2000, 1999, and 1998. The portion
of earnings allocated to participating policyholders is excluded from net income
and shareholders' equity.

   We determine annual dividends to be paid on participating life insurance
contracts based on estimates of the contracts' earnings. Policyholder dividends
were $84 million in 2000 and 1999 and $90 million in 1998.

1.11 Reinsurance

   The company limits its exposure to loss on any individual life to $2.5
million by ceding additional risks through reinsurance contracts with other
insurers. If a reinsurer is not able to meet its obligations, we remain liable.

   We record a receivable for the portion of benefits paid and insurance
liabilities that have been reinsured. The cost of reinsurance is recognized over
the life of the reinsured policies using assumptions consistent with those used
to account for the underlying policies.

1.12 Stock-Based Compensation

   The company's long-term incentive plans provide for the award of stock
options, restricted stock awards, and performance awards to key employees and
directors. Stock options constitute the majority of awards. We recognize no
expense for stock options since the market price equals the exercise price at
the grant date.

   For restricted stock and performance awards, the grant date market value is
amortized to expense over the vesting period. We adjust the expense to reflect
changes in market value of our stock and anticipated performance levels for
those awards with performance criteria.

1.13 Income Taxes

   Deferred tax assets and liabilities are established for temporary differences
between the financial reporting basis and the tax basis of assets and
liabilities, using the enacted tax rates expected to be in effect when the
temporary differences reverse. State income taxes are included in income tax
expense.

   We provide a valuation allowance for deferred tax assets if it is more likely
than not that some portion of the deferred tax asset will not be realized. We
include in income any increase or decrease in a valuation allowance that results
from a change in circumstances that causes a change in judgment about the
realizability of the related deferred tax asset. We include in accumulated other
comprehensive income (loss) in shareholders' equity any changes in a valuation
allowance related to fluctuations in fair value of available-for-sale
securities.

1.14 Earnings Per Share

   Basic earnings per share is computed by dividing earnings available to common
shareholders by average common shares outstanding. Diluted earnings per share is
computed assuming the conversion of dilutive convertible preferred securities
and the exercise of dilutive stock options.

1.15 Derivative Financial Instruments

   Use of Derivatives. The company's use of derivative financial instruments is
generally limited to reducing our exposure to interest rate and currency
exchange risk. We use interest rate and currency swap agreements, treasury rate
lock agreements, and options to enter into interest rate swap agreements. We
account for these derivative financial instruments as hedges. Hedge accounting
requires a high correlation between changes in fair values or cash flows of the
derivative financial instrument and the specific item being hedged, both at
inception and throughout the life of the hedge.

   Interest Rate and Currency Swap Agreements. Interest rate swap agreements
convert specific investment securities from a floating-rate to a fixed-rate
basis, or vice versa, and hedge against the risk of declining interest rates on
anticipated security purchases. Interest rate swap agreements also convert a
portion of floating-rate borrowings to a fixed rate and hedge against the risk
of rising interest rates on anticipated debt issuances.

   Currency swap agreements convert cash flows from specific investment
securities denominated in foreign currencies into U.S. dollars at specified
exchange rates and hedge against currency rate fluctuations on anticipated
security purchases.

   We record the difference between amounts paid and received on swap agreements
as an adjustment to net investment income or interest expense, as appropriate,
on an accrual basis over the periods covered by the agreements. The related
amounts payable to, or receivable from, counterparties are included in other
liabilities or other assets.

   The fair values of swap agreements are recognized in the balance sheet if
they hedge investments carried at fair value or if they hedge anticipated
purchases of such investments. Changes in the fair value of these swap
agreements are reported in accumulated other comprehensive income (loss) in
shareholders' equity, consistent with the treatment of the related investment
security. The fair values of swap agreements hedging debt are not recognized in
the balance sheet.

   For swap agreements hedging anticipated investment purchases or debt
issuances, we defer the net swap settlement amount or unrealized gain or loss
and include it in the recorded amount of the anticipated transaction when it
occurs.


page 44  AMERICAN GENERAL
<PAGE>   23
   Swap agreements generally have terms of two to ten years. Gains or losses
from early termination of a swap agreement are deferred and amortized into
income over the remaining term of the related investment or debt. If the
underlying investment or debt is extinguished or sold, any related gain or loss
on swap agreements is recognized in income.

   Treasury Rate Lock Agreements. Treasury rate lock agreements hedge against
the risk of rising interest rates on anticipated debt issuances. These
agreements provide for future cash settlements that are a function of specified
U.S. Treasury rates. We account for treasury rate lock agreements in the same
manner as interest rate swap agreements that hedge anticipated debt issuances.

   Swaptions. Options to enter into interest rate swap agreements limit the
company's exposure to reduced spreads between investment yields and interest
rates credited to policyholders should interest rates decrease or increase
significantly over prolonged periods.

   During prolonged periods of decreasing interest rates, the spread between
investment yields and interest crediting rates may be reduced as a result of
minimum rate guarantees on certain insurance and annuity contracts, which limit
our ability to reduce interest crediting rates. Call swaptions, which allow the
company to enter into interest rate swap agreements to receive fixed rates and
pay lower floating rates, effectively maintain the spread between investment
yields and interest crediting rates during such periods.

   During prolonged periods of increasing interest rates, the spread between
investment yields and interest crediting rates may be reduced if the company
decides to increase interest crediting rates to limit surrenders. Put swaptions,
which allow the company to enter into interest rate swap agreements to pay fixed
rates and receive higher floating rates, effectively maintain the spread between
investment yields and interest crediting rates during such periods.

   Premiums paid to purchase swaptions are included in investments and are
amortized to net investment income over the exercise period of the swaptions. If
a swaption is terminated, any gain is deferred and amortized to insurance and
annuity benefits over the expected life of the related contracts and any
unamortized premium is charged to income. If a swaption ceases to be an
effective hedge, we recognize any related gain or loss in income.

1.16 Future Accounting Change

   On January 1, 2001, we will adopt Statement of Financial Accounting Standards
(SFAS) 133, "Accounting for Derivative Instruments and Hedging Activities,"
which requires all derivative instruments to be recognized at fair value in the
balance sheet. Changes in the fair value of a derivative instrument will be
reported in net income or other comprehensive income, depending upon the
intended use of the derivative instrument.

   Upon adoption, we will record aftertax cumulative adjustments to reduce other
comprehensive income in shareholders' equity $29 million and to reduce net
income $1 million. The reduction of other comprehensive income is primarily the
result of recognizing the fair value of interest rate swaps related to debt on
the balance sheet. Since we anticipate holding the swaps for their full term, we
do not expect this amount to impact earnings in future periods. The reduction of
net income relates to the company's use of swaptions, which do not meet the new
requirements for hedge accounting.

   We do not expect SFAS 133 to have a material impact on the company's results
of operations and financial position in future periods. The impact of the fair
value adjustments on derivatives which do not qualify for hedge accounting and
any ineffectiveness resulting from hedging activities will be recorded in
investment gains (losses).

2. ACQUISITIONS

2.1 Accounting for Acquisitions

   The company's acquisitions during the past three years have been accounted
for using the purchase method. Under this method, the results of operations for
each acquisition were included in our income statement from the acquisition
date. We allocated the purchase price of each acquisition to specific assets and
liabilities based on our best estimate of their fair values at the acquisition
date. The difference between the aggregate purchase price and the net assets
acquired was recorded as goodwill.

2.2 2000 Acquisition

   On March 10, 2000, we acquired the North American Funds retail mutual fund
operation through our acquisition of CypressTree Investments, Inc. The purchase
price was $17 million.

2.3 1999 Acquisitions

   On November 12, 1999, we acquired North Central Life Insurance Company, a
credit life insurance company. On May 31, 1999, we acquired Standard Pacific
Savings, F.A., which we renamed American General Bank, FSB. The combined
purchase price of these acquisitions was $95 million.

2.4 1998 Acquisitions

   Western National. Prior to 1997, the company acquired a 46% investment in
Western National Corporation (Western National), the holding company of Western
National Life Insurance Company, for $400 million. This investment was recorded
on an equity basis.



                                                     2000 ANNUAL REPORT  page 45
<PAGE>   24
NOTES TO FINANCIAL STATEMENTS
In millions


   On February 25, 1998, we acquired the remaining 54% equity interest for $1.2
billion. The purchase price consisted of $580 million cash and 20.3 million
shares (post-split) of our common stock. We consolidated Western National's
assets, liabilities, and results of operations in our financial statements
effective January 1, 1998. Pretax earnings of $17 million attributable to
minority interests through February 25, 1998 were reflected as a charge against
1998 income. During 1998, we changed Western National Life Insurance Company's
name to American General Annuity Insurance Company.

   Coinsurance Transaction. On May 21, 1998, we acquired a block of individual
annuity business in a coinsurance transaction. This transaction increased
invested assets and annuity liabilities of our retirement services division by
$2.4 billion.

2.5 Non-Cash Activities

   Non-cash activities related to the above acquisitions that are not reflected
in the cash flow statements were as follows:

<TABLE>
<CAPTION>
                                     2000              1999               1998
                                   -------           -------            -------
<S>                                <C>               <C>                <C>
Fair value of assets
 acquired                          $    19           $   396*           $ 9,732
Liabilities assumed                     (2)             (301)            (8,524)
Issuance of common
 stock                                  --               (66)              (580)
Issuance of stock options               --                --                (37)
                                   -------           -------            -------
 Net cash paid                     $    17           $    29            $   591
                                   -------           -------            -------
</TABLE>

* Includes $55 million of cash equivalents.

3. INVESTMENTS

3.1 Fixed Maturity and Equity Securities

   Valuation. Amortized cost and fair value of fixed maturity and equity
securities at December 31 were as follows:

<TABLE>
<CAPTION>

                                                                    Gross                      Gross
                                      Amortized Cost          Unrealized Gains          Unrealized Losses
                                -------------------------  ----------------------  ---------------------------
                                  2000     1999     1998    2000    1999    1998     2000      1999      1998
                                -------  -------  -------  ------  ------  ------  -------   -------   -------
<S>                             <C>      <C>      <C>      <C>      <C>      <C>      <C>     <C>      <C>
Fixed maturity securities
 Corporate bonds
  Investment grade              $45,020  $43,644  $41,019  $1,112    $353  $2,809  $(1,218)  $(1,756)   $(137)
  Below investment grade          3,836    3,542    3,286      --      33      93     (628)     (281)    (106)
 Mortgage-backed                 13,652   13,013   12,422     344     117     605      (32)     (237)      (8)
 States/political subdivisions      710      809      627      27      10      44       (6)      (23)      --
 U.S. government                    623      661      899      43      32     121       (1)       (8)      (1)
 Foreign governments                549      562      843      29      14      99       (4)       (7)      (2)
 Redeemable preferred stocks         70      144      116       7       7       2       (1)       (4)      --
                                -------  -------  -------  ------    ----  ------  -------   -------    -----
  Total fixed maturity
   securities                   $64,460  $62,375  $59,212  $1,562    $566  $3,773  $(1,890)  $(2,316)   $(254)
                                -------  -------  -------  ------    ----  ------  -------   -------    -----
Equity securities               $   832  $   633  $   444  $   17    $ 47  $   38  $   (18)  $    (7)   $  (1)
                                -------  -------  -------  ------    ----  ------  -------   -------    -----
<CAPTION>
                                      Fair Value
                               -------------------------
                                 2000     1999     1998
                               -------  -------  -------
<S>                            <C>      <C>      <C>
Fixed maturity securities
 Corporate bonds
  Investment grade             $44,914  $42,241  $43,691
  Below investment grade         3,208    3,294    3,273
 Mortgage-backed                13,964   12,893   13,019
 States/political subdivisions     731      796      671
 U.S. government                   665      685    1,019
 Foreign governments               574      569      940
 Redeemable preferred stocks        76      147      118
                               -------  -------  -------
  Total fixed maturity
   securities                  $64,132  $60,625  $62,731
                               -------  -------  -------
Equity securities              $   831  $   673  $   481
                               -------  -------  -------
</TABLE>

   Maturities. The contractual maturities of fixed maturity securities at
December 31, 2000 were as follows:

<TABLE>
<CAPTION>
                                                             Amortized    Fair
                                                               Cost       Value
                                                             ---------   -------
<S>                                                           <C>        <C>
Fixed maturity securities, excluding
 mortgage-backed securities, due
  In one year or less                                         $ 1,415    $ 1,414
  In years two through five                                    11,224     11,243
  In years six through ten                                     17,903     17,639
  After ten years                                              20,266     19,872
Mortgage-backed securities                                     13,652     13,964
                                                              -------    -------
    Total fixed maturity securities                           $64,460    $64,132
                                                              -------    -------
</TABLE>

   Actual maturities may differ from contractual maturities since borrowers may
have the right to call or prepay obligations. The company may sell investments
before maturity to achieve corporate requirements and investment strategies.

   Net Unrealized Gains (Losses). Net unrealized gains (losses) on fixed
maturity and equity securities included in accumulated other comprehensive
income (loss) at December 31 were as follows:

<TABLE>
<CAPTION>
                                             2000          1999          1998
                                            -------       -------       -------
<S>                                         <C>           <C>           <C>
Gross unrealized gains                      $ 1,579       $   613       $ 3,811
Gross unrealized losses                      (1,908)       (2,323)         (255)
DPAC and CIP fair value
 adjustments                                     88           347        (1,073)
Deferred income taxes                           (35)          107          (874)
Other, net                                      (28)          (22)          (10)
                                            -------       -------       -------
  Net unrealized gains
    (losses) on securities                  $  (304)      $(1,278)      $ 1,599
                                            -------       -------       -------
</TABLE>


page 46  AMERICAN GENERAL
<PAGE>   25

3.2 Mortgage Loans on Real Estate

   Diversification. Diversification of the geographic location and type of
property collateralizing mortgage loans reduces the concentration of credit
risk. For new loans, the company generally requires loan-to-value ratios of 75%
or less, based on our credit assessment of the borrower. At December 31, the
mortgage loan portfolio was distributed as follows:

<TABLE>
<CAPTION>
                                                         2000     1999     1998
                                                         ----     ----     ----
<S>                                                      <C>      <C>      <C>
Geographic distribution
 Atlantic                                                  45%      46%      51%
 Central                                                   34       31       27
 Pacific and Mountain                                      21       23       22
                                                         ----     ----     ----
  Total mortgage loans                                    100%     100%     100%
                                                         ----     ----     ----
Property type
 Office                                                    39%      34%      32%
 Retail                                                    35       39       39
 Industrial                                                13       14       15
 Apartments                                                 7        8        9
 Other                                                      6        5        5
                                                         ----     ----     ----
  Total mortgage loans                                    100%     100%     100%
                                                         ----     ----     ----
</TABLE>

   Allowance. Activity in the allowance for mortgage loan losses was as follows:

<TABLE>
<CAPTION>
                                                           2000    1999    1998
                                                           ----    ----    ----
<S>                                                        <C>     <C>     <C>
Balance at January 1                                       $ 26    $ 34    $ 54
Provision for mortgage loan losses                           --      (3)    (15)
Deductions                                                   (9)     (5)     (5)
                                                           ----    ----    ----
Balance at December 31                                     $ 17    $ 26    $ 34
                                                           ----    ----    ----
</TABLE>

   Impaired Loans. Impaired mortgage loans were $3 million, $24 million, and $28
million at December 31, 2000, 1999, and 1998, respectively. Interest income
related to impaired loans was $1 million in 2000 and 1999 and $3 million in
1998.

3.3 Investment Income

   Investment income was as follows:

<TABLE>
<CAPTION>
                                             2000          1999          1998
                                            -------       -------       -------
<S>                                         <C>           <C>           <C>
Fixed maturity securities                   $ 4,783       $ 4,676       $ 4,513
Mortgage loans on real estate                   313           293           326
Other                                           443           331           307
                                            -------       -------       -------
  Investment income                           5,539         5,300         5,146
  Investment expense                            (86)          (68)          (51)
                                            -------       -------       -------
    Net investment income                   $ 5,453       $ 5,232       $ 5,095
                                            -------       -------       -------
</TABLE>

   The carrying amount of investments that produced no investment income during
2000 was less than 1% of total invested assets. The ultimate disposition of
these investments is not expected to have a material effect on our results of
operations and financial position.

   Derivative financial instruments related to investment securities did not
have a material effect on net investment income in 2000, 1999, or 1998.

3.4 Investment Gains (Losses)

   Investment gains (losses) were as follows:

<TABLE>
<CAPTION>
                                               2000          1999          1998
                                              -----         -----         -----
<S>                                           <C>           <C>           <C>
Fixed maturity securities
 Gross gains                                  $ 142         $ 251         $  64
 Gross losses                                  (380)         (267)         (137)
                                              -----         -----         -----
    Total fixed maturity
     securities                                (238)          (16)          (73)
                                              -----         -----         -----
Equity securities
  Gross gains                                    37             7             8
  Gross losses                                  (25)           (1)           --
                                              -----         -----         -----
    Total equity securities                      12             6             8
                                              -----         -----         -----
Mortgage loans on real estate                     5             4            16
Other long-term investments                     (29)            4            83
Fair value adjustments
  in equity partnerships                         22            --            --
DPAC/CIP amortization
  and investment expense                         52           (17)          (28)
                                              -----         -----         -----
    Investment gains (losses)                 $(176)        $ (19)        $   6
                                              -----         -----         -----
</TABLE>

3.5 Cash Flows from Investing Activities

   Uses of cash for investment purchases were as follows:

<TABLE>
<CAPTION>
                                              2000          1999          1998
                                             -------       -------       -------
<S>                                          <C>           <C>           <C>
Fixed maturity securities                    $16,905       $21,894       $13,809
Other                                            867           910           695
                                             -------       -------       -------
 Total                                       $17,772       $22,804       $14,504
                                             -------       -------       -------
</TABLE>

   Sources of cash from investment dispositions and repayments were as follows:

<TABLE>
<CAPTION>
                                              2000          1999          1998
                                             -------       -------       -------
<S>                                          <C>           <C>           <C>
Fixed maturity securities
 Sales                                       $10,915       $14,042       $ 7,535
 Maturities                                    1,777         1,875           613
 Calls and tenders                             1,227         1,335         1,808
 Repayments of mortgage-backed securities        806         1,277         1,248
Mortgage loans                                   384           345           667
Equity securities                                 99            59            41
Other                                             96           129           243
                                             -------       -------       -------
 Total                                       $15,304       $19,062       $12,155
                                             -------       -------       -------
</TABLE>


                                                     2000 ANNUAL REPORT  page 47
<PAGE>   26
NOTES TO FINANCIAL STATEMENTS
In millions


4. FINANCE RECEIVABLES

4.1 Detail of Finance Receivables

   Finance receivables, which we report net of unearned finance charges, were as
follows at December 31:

<TABLE>
<CAPTION>
                                                 2000        1999        1998
                                               --------    --------    --------
<S>                                            <C>         <C>         <C>
Real estate loans                              $  7,280    $  7,104    $  5,757
Non-real estate loans                             3,027       2,576       2,560
Retail sales finance                              1,454       1,350       1,340
                                               --------    --------    --------
 Total finance receivables                       11,761      11,030       9,657
 Allowance for losses                              (383)       (396)       (382)
                                               --------    --------    --------
  Finance receivables, net                     $ 11,378    $ 10,634    $  9,275
                                               --------    --------    --------
</TABLE>

4.2 Allowance for Finance Receivable Losses

   Activity in the allowance for finance receivable losses was as follows:

<TABLE>
<CAPTION>
                                                      2000      1999      1998
                                                     ------    ------    ------
<S>                                                  <C>       <C>       <C>
Balance at January 1                                 $  396    $  382    $  373
Provision for finance receivable losses                 206       207       212
Charge offs, net of recoveries                         (206)     (207)     (220)
Acquired (sold) receivables                             (13)       14        17
                                                     ------    ------    ------
Balance at December 31                               $  383    $  396    $  382
                                                     ------    ------    ------
</TABLE>

4.3 Contractual Maturities

   Contractual maturities of finance receivables at December 31, 2000 were as
follows:

<TABLE>
<CAPTION>
                                                                   After
                   2001      2002      2003      2004     2005     2005
                  ------    ------    ------    -----    -----    ------
<S>               <C>       <C>       <C>       <C>      <C>      <C>
Maturities        $1,331    $1,597    $1,179    $ 708    $ 437    $6,509
</TABLE>

   Contractual maturities are not a forecast of future cash collections. A
substantial portion of finance receivables may be renewed, converted, or repaid
prior to maturity.

4.4 Cash Collections

   Cash collections of principal were as follows:

<TABLE>
<CAPTION>
                                              2000          1999          1998
                                             ------        ------        ------
<S>                                          <C>           <C>           <C>
Real estate loans
 Cash collections                            $1,855        $1,886        $1,553
 % of average balances                           26%           30%           33%
Non-real estate loans
 Cash collections                            $1,610        $1,519        $1,569
 % of average balances                           57%           61%           62%
Retail sales finance
 Cash collections                            $1,849        $1,697        $1,653
 % of average balances                          132%          133%          127%
</TABLE>

4.5 Geographic Concentration

   The geographic concentration of finance receivables at December 31 was as
follows:

<TABLE>
<CAPTION>
                                                   2000        1999        1998
                                                   ----        ----        ----
<S>                                                <C>         <C>         <C>
California                                           13%         14%         15%
North Carolina                                        7           7           8
Florida                                               6           6           6
Illinois                                              6           6           6
Ohio                                                  6           6           6
Indiana                                               5           5           5
Other                                                57          56          54
                                                    ---         ---         ---
   Total finance receivables                        100%        100%        100%
                                                    ---         ---         ---
</TABLE>

5. DEFERRED POLICY ACQUISITION COSTS (DPAC)

   Activity in DPAC was as follows:

<TABLE>
<CAPTION>
                                             2000          1999          1998
                                            -------       -------       -------
<S>                                         <C>           <C>           <C>
Balance at January 1                        $ 4,980       $ 3,253       $ 2,718
Deferrals                                     1,145         1,125           880
Accretion of interest                           300           264           242
Consolidation of Western National                --            --           157
Amortization                                   (805)         (771)         (761)
Effect of net unrealized gains
 (losses) on securities                        (200)        1,119            41
Other                                            44           (10)          (24)
                                            -------       -------       -------
Balance at December 31                      $ 5,464       $ 4,980       $ 3,253
                                            -------       -------       -------
</TABLE>

6. COST OF INSURANCE PURCHASED (CIP)

   Activity in CIP was as follows:

<TABLE>
<CAPTION>
                                                   2000       1999       1998
                                                  -------    -------    -------
<S>                                               <C>        <C>        <C>
Balance at January 1                              $ 1,170    $   956    $   680
Accretion of interest                                  74         81         88
Additions from acquisitions                            --         49        359
Consolidation of Western National                      --         --        125
Amortization                                         (220)      (233)      (249)
Effect of net unrealized gains
 (losses) on securities                               (59)       301        (62)
Other                                                  29         16         15
                                                  -------    -------    -------
Balance at December 31                            $   994    $ 1,170    $   956
                                                  -------    -------    -------
</TABLE>

   CIP amortization, net of accretion, expected to be recorded in each of the
next five years is $112 million, $95 million, $83 million, $75 million, and $68
million.


page 48  AMERICAN GENERAL

<PAGE>   27
7. DEBT

7.1 Short-Term Debt and Credit Facilities

   Short-term debt consists primarily of commercial paper. The weighted-average
interest rates on short-term borrowings at December 31 were as follows:

<TABLE>
<CAPTION>
                                          2000            1999            1998
                                         ------          ------          ------
<S>                                      <C>             <C>             <C>
Corporate                                   6.7%            6.0%            5.3%
Consumer Finance                            6.7             6.0             5.4
</TABLE>

   The company uses unsecured bank credit facilities to support commercial paper
borrowings. At December 31, 2000, we maintained unsecured committed credit
facilities of $6.2 billion with 57 domestic and foreign banks. There were no
borrowings under these facilities during 2000. Annual commitment fees range from
five to seven basis points.

7.2 Long-Term Debt

   Long-term debt at December 31 was as follows:

<TABLE>
<CAPTION>
                                             2000           1999           1998
                                            ------         ------         ------
<S>                                         <C>            <C>            <C>
Corporate
 6.3% - 7.8%, through 2029                  $1,338         $1,188         $1,136

Consumer Finance
 5.4% - 8.5%, through 2009                  $5,671         $5,717         $5,177
</TABLE>

7.3 Long-Term Debt Maturities

   Scheduled maturities of long-term debt for each of the next five years at
December 31, 2000 were as follows:

<TABLE>
<CAPTION>
                                       2001     2002     2003     2004     2005
                                      ------   ------   ------   ------   ------
<S>                                   <C>      <C>      <C>      <C>      <C>
Corporate                             $   --   $   --   $  100   $  149   $  294
Consumer Finance                       1,265    1,389    1,572      376      722
</TABLE>

7.4 Interest

   Interest paid was as follows:

<TABLE>
<CAPTION>
                                                2000          1999          1998
                                                ----          ----          ----
<S>                                             <C>           <C>           <C>
Corporate                                       $205          $193          $186
Consumer Finance                                 685           553           493
</TABLE>

   Derivative financial instruments related to debt securities did not have a
material effect on reported interest expense or the weighted-average borrowing
rate in 2000, 1999, or 1998.

8. INCOME TAXES

8.1 Tax Expense

   Components of income tax expense were as follows:

<TABLE>
<CAPTION>
                                                       2000      1999      1998
                                                       ----      ----      ----
<S>                                                   <C>       <C>       <C>
Current
 Federal                                              $ 400     $ 379     $ 458
 State                                                   12         9        14
                                                      -----     -----     -----
  Total current                                         412       388       472
  Deferred                                              156       276       (19)
                                                      -----     -----     -----
   Income tax expense*                                $ 568     $ 664     $ 453
                                                      -----     -----     -----
</TABLE>

*  Excludes tax benefit of $55 million, $50 million, and $48 million,
   respectively, related to preferred securities of subsidiaries.

   A reconciliation between the Federal income tax rate and the effective tax
rate follows:

<TABLE>
<CAPTION>
                                                    2000       1999       1998
                                                    ----       ----       ----
<S>                                                 <C>        <C>        <C>
Federal income tax rate                               35%        35%        35%
Tax-exempt investments                                (1)        (1)        (2)
Tax credits                                           (1)        --         --
Utilization of operating loss carryovers              (1)        --         --
Goodwill                                               1          1          1
State taxes                                            1         --          1
                                                    ----       ----       ----
 Effective tax rate                                   34%        35%        35%
                                                    ----       ----       ----
</TABLE>

8.2 Deferred Tax Liabilities

   Components of deferred tax liabilities and assets, included in income tax
liabilities on the balance sheet, at December 31 were as follows:

<TABLE>
<CAPTION>
                                                                    2000          1999          1998
                                                                   -------       -------       -------
<S>                                                                <C>           <C>           <C>
Deferred tax liabilities, applicable to
   Basis differential of investments                               $    --       $    --       $ 1,303
   DPAC and CIP                                                      1,776         1,701         1,025
   Prepaid pension expense                                             135           112            96
   Other                                                               500           484           455
                                                                   -------       -------       -------
    Total deferred tax liabilities                                   2,411         2,297         2,879
                                                                   -------       -------       -------
Deferred tax assets, applicable to
    Basis differential of investments                                  (47)         (493)           --
    Policy reserves                                                   (924)         (998)         (839)
    Litigation settlements                                            (101)          (66)         (129)
    Other                                                             (367)         (369)         (389)
                                                                   -------       -------       -------
    Gross deferred tax assets                                       (1,439)       (1,926)       (1,357)
    Valuation allowance                                                187           448            69
                                                                   -------       -------       -------
      Total deferred tax assets, net                                (1,252)       (1,478)       (1,288)
                                                                   -------       -------       -------
       Net deferred tax liabilities                                $ 1,159       $   819       $ 1,591
                                                                   -------       -------       -------
</TABLE>


                                                      2000 ANNUAL REPORT page 49

<PAGE>   28
NOTES TO FINANCIAL STATEMENT
In millions

   The deferred tax assets applicable to basis differential of investments at
year-end 2000 and 1999 were due to recognition of unrealized losses on
available-for-sale securities on the balance sheet. Since a portion of these
deferred tax assets may not be realized, we established valuation allowances of
$130 million in 2000 and $381 million in 1999. These balance sheet adjustments
had no income statement impact.

   The remaining deferred tax asset valuation allowances at year-end 2000, 1999,
and 1998 were related to Federal and state income tax operating loss carryovers
that we do not expect to utilize. At December 31, 2000, the company had
operating loss carryovers for Federal income tax purposes of $57 million, which
are available to offset future taxable income through 2012. The operating loss
carryovers are predominantly associated with acquired companies; therefore, they
are subject to certain limitations.

   A component of life insurance surplus accumulated prior to 1984 is not
taxable unless it exceeds certain statutory limitations or is distributed to
shareholders. This surplus, accumulated in policyholder surplus accounts,
totaled $912 million at December 31, 2000. We have not recorded deferred income
taxes of $319 million on this surplus since future distributions are not
anticipated.

8.3 Taxes Paid

   Income taxes paid were as follows:

<TABLE>
<CAPTION>
                                            2000            1999            1998
                                            ----            ----            ----
<S>                                         <C>             <C>             <C>
Federal                                     $320            $245            $361
State                                         11               8              17
</TABLE>

8.4 Tax Return Examinations

   American General and the majority of its subsidiaries file a consolidated
Federal income tax return. The Internal Revenue Service (IRS) has completed
examinations of our tax returns through 1992. During 2000, we finalized certain
tax issues associated with our tax returns for 1989 through 1992 under
examination by the IRS. As a result, we reduced goodwill by $27 million and
recognized a $14 million tax benefit to reflect the use of acquired operating
loss carryovers.

   The IRS is currently examining our tax returns for 1993 through 1999.
Although the final outcome of any issues raised is uncertain, we believe that
the ultimate liability, including interest, will not exceed amounts recorded in
the financial statements.

9. BENEFIT PLANS

9.1 Pension Plans

   The company has non-contributory defined benefit pension plans covering most
employees. Pension benefits are based on the participant's compensation and
length of credited service.

   At December 31, 2000, the plans' assets were invested as follows: (1) 65% in
equity mutual funds managed outside the company; (2) 28% in fixed income mutual
funds managed by one of our subsidiaries; and (3) 6% in our common stock. The
benefit plans have purchased annuity contracts from our subsidiaries to provide
approximately $58 million of future annual benefits to certain retirees.

   The company's funding policy is to contribute annually no more than the
maximum amount deductible for Federal income tax purposes. The funded status of
the plans and the prepaid pension expense included in other assets at December
31 were as follows:

<TABLE>
<CAPTION>
                                              2000          1999          1998
                                            -------       -------       -------
<S>                                         <C>           <C>           <C>
Projected benefit obligation (PBO)          $   825       $   740       $   750
Plan assets at fair value                     1,492         1,447         1,280
                                            -------       -------       -------
Plan assets at fair value in excess of PBO      667           707           530
Other unrecognized items, net                  (274)         (372)         (269)
                                            -------       -------       -------
     Prepaid pension expense                $   393       $   335       $   261
                                            -------       -------       -------
</TABLE>

   The components of pension expense and underlying assumptions were as follows:

<TABLE>
<CAPTION>
                                                 2000        1999        1998
                                               -------     -------     -------
<S>                                            <C>         <C>         <C>
Service cost (benefits earned)                 $    23     $    22     $    20
Interest cost                                       62          55          50
Expected return on plan assets                    (134)       (117)        (95)
Amortization                                        (8)         (1)         --
                                               -------     -------     -------
  Pension expense (income)                     $   (57)    $   (41)    $   (25)
                                               -------     -------     -------
Discount rate on benefit obligation               8.00%       7.75%       7.00%
Rate of increase in compensation levels           4.50%       4.25%       4.25%
Expected long-term rate of return on
  plan assets                                    10.35%      10.35%      10.25%
                                               -------     -------     -------
</TABLE>

9.2 Postretirement Benefits Other Than Pensions

   We provide life, medical, supplemental major medical, and dental benefits for
certain retired employees and agents. Most plans are contributory, with retiree
contributions adjusted annually to limit employer contributions to predetermined
amounts. The company reserves the right to change or eliminate these benefits at
any time.



page 50 AMERICAN GENERAL

<PAGE>   29
   The life plans are insured through December 31, 2001. The majority of the
retiree medical and dental plans are unfunded and self-insured. The accrued
liability for postretirement benefits was $134 million, $163 million, and $175
million at year-end 2000, 1999, and 1998, respectively. These liabilities were
discounted at the same rates used for the pension plans. Postretirement benefit
expense was immaterial in each of the three years.

10. STOCK AND INCENTIVE PLANS

10.1 Stock Options

   Stock option activity was as follows:

<TABLE>
<CAPTION>
                                        2000                 1999                 1998
                                 -------------------  -------------------  -------------------
                                            AVERAGE               Average             Average
Options in                                  EXERCISE             Exercise             Exercise
thousands                        OPTIONS     PRICE    Options     Price    Options     Price
                                 -------    --------  -------    --------  -------    --------
<S>                               <C>       <C>        <C>       <C>         <C>      <C>
Balance at January 1              19,698    $ 28.32    11,522    $ 22.41     7,275    $ 17.24
Granted                            9,389      32.03    10,318      34.15     5,039      29.91
For acquisition                       --         --        --         --     2,767      12.39
Exercised                         (1,873)     20.51    (1,164)     19.22    (2,989)     12.82
Forfeited                         (1,136)     32.66      (978)     30.89      (570)     24.35
                                 -------    -------   -------    -------   -------    -------
Balance at December 31            26,078    $ 30.03    19,698    $ 28.32    11,522    $ 22.41
                                 -------    -------   -------    -------   -------    -------
Exercisable at December 31        10,187    $ 25.98     6,738    $ 19.86     5,033    $ 15.68
                                 -------    -------   -------    -------   -------    -------
</TABLE>

   Options may not be exercised within at least six months of, nor after 10
years from, grant date. For certain stock options, one reload option is granted
for each previously-owned share of common stock tendered to exercise options.
Reload options vest immediately and are exercisable for the remaining term of
the original options. Information about options outstanding at December 31, 2000
was as follows:

<TABLE>
<CAPTION>
                         Outstanding                Exercisable
                 ------------------------------   -----------------
                            Average    Average             Average
   Range of      Options   Remaining   Exercise   Options  Exercise
Exercise Prices  (000's)     Life       Price     (000's)   Price
---------------  -------   ---------   --------   -------  --------
<S>              <C>        <C>        <C>        <C>      <C>
$ 9.36-$14.99     1,578          3     $11.45      1,578   $11.45
 15.00- 19.99     1,101          5      17.13      1,101    17.13
 20.00- 24.99     1,542          6      21.88      1,436    21.73
 25.00- 29.99     3,829          7      29.54      2,443    29.62
 30.00- 34.99    17,474          9      33.12      3,383    33.97
 35.00- 39.99       503          8      37.01        215    37.07
 40.00- 44.99        51          8      40.34         31    40.09
                 ------     ------     ------     ------   ------
  Total          26,078          8     $30.03     10,187   $25.98
                 ------     ------     ------     ------   ------
</TABLE>

10.2 Shares Available

   Shares available for issuance under our stock and incentive plans totaled
17.4 million, 26.2 million, and 12.5 million at December 31, 2000, 1999, and
1998, respectively.

10.3 Pro Forma Disclosures

   Under an alternative accounting method, compensation expense arising from
stock options would be measured at the estimated fair value of the options at
the grant date and recognized over the options' vesting period. Had we
determined compensation expense using this method, net income and net income per
share would have been as follows:

<TABLE>
<CAPTION>
                         2000        1999        1998
                       ---------   ---------   ---------
<S>                    <C>         <C>         <C>
Net income
  As reported          $   1,003   $   1,131   $     764
  Pro forma                  956       1,102         753
                       ---------   ---------   ---------
Net income per share
 Basic
  As reported          $    2.01   $    2.26   $    1.51
  Pro forma                 1.92        2.20        1.49
 Diluted
  As reported               1.98        2.20        1.48
  Pro forma                 1.89        2.15        1.46
                       ---------   ---------   ---------
</TABLE>

   The average fair values of the options granted were $9.80 in 2000, $8.45 in
1999, and $7.64 in 1998. We estimated the fair value of each option at the grant
date using a Black-Scholes option pricing model and the following assumptions:

<TABLE>
<CAPTION>
                                                  2000        1999        1998
                                                 ------      ------      ------
<S>                                              <C>         <C>         <C>
Dividend yield                                      2.5%        2.5%        2.5%
Expected volatility                                27.6%       24.4%       23.0%
Risk-free interest rate                             6.7%        4.9%        5.7%
Expected life                                   6 YEARS     6 years     6 years
</TABLE>

11. REDEEMABLE EQUITY

   One subsidiary and five subsidiary trusts (collectively, subsidiaries) have
issued preferred securities. The sole assets of these subsidiaries are Junior
Subordinated Debentures (Subordinated Debentures) issued by American General
and, in some cases, U.S. Treasury bonds. These subsidiaries have no independent
operations. The Subordinated Debentures are eliminated in the company's
consolidated financial statements.

   The interest terms and payment dates of the Subordinated Debentures held by
the subsidiaries correspond to those of the subsidiaries' preferred securities.
American General's obligations under the Subordinated Debentures and related
agreements, when taken together, constitute a full and unconditional guarantee
of payments due on the preferred securities. The Subordinated Debentures are
redeemable, under certain conditions, at the option of the company on a
proportionate basis.



                                                     2000 ANNUAL REPORT  page 51
<PAGE>   30

NOTES TO FINANCIAL STATEMENTS
In millions

   Dividends paid on the preferred securities totaled $137 million in 2000, $140
million in 1999, and $135 million in 1998. Additional information about the
preferred securities and the assets held by the issuing subsidiaries at December
31, 2000 was as follows:

<TABLE>
<CAPTION>
                                                                                 American       American     American     American
                                          American      American     American     General        General      General      General
                                           General      General      General   Institutional  Institutional   Capital,     Capital,
                                         Capital III   Capital II   Capital I    Capital B      Capital A      L.L.C.       L.L.C.
                                         -----------   ----------   ---------  -------------  -------------  ---------    ---------
<S>                                      <C>           <C>          <C>        <C>            <C>            <C>          <C>
Preferred securities
   Total par value outstanding            $     100    $     300    $     200    $     500      $     500    $     215    $     287
   Dividend rate                               8.05%        8.50%       7.875%       8.125%          7.57%       8.125%        8.45%
   Shares issued and outstanding                4.0           .3          8.0           .5             .5          8.6         11.5
   Date issued                              12/7/00      6/27/00       9/8/99      3/14/97        12/4/96      8/29/95       6/5/95
   Earliest/mandatory redemption date     2005/2049    2030/2030    2004/2048    2046/2046      2045/2045    2000/2025*   2000/2025*
                                          ---------    ---------    ---------    ---------      ---------    ---------    ---------
Subordinated Debentures held by
   issuing subsidiary
     Principal                            $     103    $     309    $     206    $     516      $     516    $     269    $     360
     Mandatory redemption date                 2049         2030         2048         2046           2045         2025         2025
                                          ---------    ---------    ---------    ---------      ---------    ---------    ---------
</TABLE>

* Subject to possible extension to 2044.

12. CAPITAL STOCK

12.1 Classes of Capital Stock

   American General has two classes of capital stock: preferred stock ($1.50 par
value, 60 million shares authorized) that may be issued in series with rights to
be determined by the board of directors, and common stock ($.50 par value, 800
million shares authorized). At December 31, 2000, approximately 26.9 million
shares of common stock were reserved for issuance of stock under employee stock
and incentive plans.

12.2 Stock Split

   On January 23, 2001, we declared a two-for-one stock split effected in the
form of a 100% common stock dividend, payable March 1, 2001 to holders of record
on February 8, 2001. The distribution, which will consist of 269.3 million newly
issued shares, has been reflected as of December 31, 2000 in these financial
statements. The distribution will have no impact on total shareholders' equity
or results of operations. All share amounts have been restated to reflect the
stock split on a retroactive basis.

12.3 Convertible Preferred Stock

   On March 1, 2000, we redeemed all 2.3 million shares, or $85 million, of our
7% convertible preferred stock by issuing 3.8 million shares (post-split) of
common stock.

12.4 Convertible Preferred Securities

   On June 30, 2000, holders of approximately 5 million shares, or $250 million,
of 6% convertible preferred securities issued by American General Delaware,
L.L.C. converted their securities into 12.3 million shares (post-split) of
American General common stock.

12.5 Common Stock Activity

   Common stock activity was as follows:

<TABLE>
<CAPTION>
In thousands                   2000      1999      1998
------------                 --------  --------  --------
<S>                          <C>       <C>       <C>
Shares issued
  Balance at January 1       269,298   269,298   259,135
  Issuance for acquisition        --        --    10,163
  Two-for-one stock split,
    post year end            269,299        --        --
                             -------   -------   -------
  Balance at December 31     538,597   269,298   269,298
                             -------   -------   -------
Treasury shares
  Balance at January 1       (21,238)  (17,494)  (15,929)
  Share repurchases           (7,004)   (5,885)   (2,971)
  Conversion of preferred
    stock and securities       8,046        --        --
  Issuance under employee
    benefit plans and other    1,236     1,302     1,406
  Issuance for acquisition        --       839        --
  Two-for-one stock split,
    post year end            (18,959)       --        --
                             -------   -------   -------
  Balance at December 31     (37,919)  (21,238)  (17,494)
                             -------   -------   -------
Outstanding at
  December 31                500,678   248,060   251,804
                             -------   -------   -------
Restated for two-for-one
  stock split                          496,121   503,609
                             -------   -------   -------
</TABLE>


page 52  AMERICAN GENERAL
<PAGE>   31


13. FAIR VALUE OF FINANCIAL INSTRUMENTS

   Carrying amounts and fair values for certain of the company's financial
instruments at December 31 are presented below. Care should be exercised in
drawing conclusions based on fair value, since (1) the fair values presented do
not include the value associated with all of the company's assets and
liabilities, including the values of underlying customer relationships and
distribution systems, and (2) the reporting of investments at fair value without
a corresponding revaluation of related policyholder liabilities can be
misinterpreted.

<TABLE>
<CAPTION>
                                                    2000               1999                 1998
                                             -----------------   ------------------  ------------------
                                              FAIR     CARRYING   Fair     Carrying  Fair      Carrying
                                              VALUE     AMOUNT    Value    Amount    Value     Amount
                                             -------   -------   -------   --------  -------   --------
<S>                                          <C>       <C>       <C>       <C>       <C>       <C>
Assets
  Fixed maturity and equity securities       $64,963   $64,963   $61,298   $61,298   $63,212   $63,212
  Mortgage loans on real estate                3,961     3,920     3,565     3,686     3,501     3,368
  Policy loans                                 2,492     2,433     2,283     2,375     2,448     2,329
  Short-term investments                         671       671       676       676       654       654
  Assets held in separate accounts            23,234    23,234    24,097    24,097    16,158    16,158
  Finance receivables, net                    10,897    11,378    10,570    10,634     9,325     9,275
Liabilities
  Insurance investment contracts              44,690    44,354    41,011    42,820    39,959    40,670
  Liabilities related to separate accounts    23,234    23,234    24,097    24,097    16,158    16,158
  Short-term debt                              7,083     7,083     6,421     6,421     5,293     5,293
  Long-term debt
    Corporate                                  1,381     1,338     1,168     1,188     1,222     1,136
    Consumer Finance                           5,736     5,671     5,641     5,717     5,342     5,177
Redeemable equity                              2,034     2,067     1,810     1,924     1,956     1,728
</TABLE>

   We used the following methods and assumptions to estimate the fair value of
our 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, we estimated the fair values 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 the investments.

   Mortgage Loans on Real Estate. We estimated the fair value of mortgage loans
primarily using discounted cash flows, based on contractual maturities and
risk-adjusted discount rates.

   Policy Loans. We valued policy loans using discounted cash flows and
actuarially determined assumptions, incorporating market rates.

   Assets and Liabilities Related to Separate Accounts. We valued separate
account assets and liabilities based on quoted net asset value per share of the
underlying mutual funds.

   Finance Receivables. We estimated the fair value of finance receivables using
projected cash flows discounted at the weighted-average rates currently being
offered for similar finance receivables.

   Insurance Investment Contracts. We estimated the fair value of insurance
investment contracts using cash flows discounted at market interest rates.

   Debt. The fair value of short-term debt approximated its carrying amount. We
estimated the fair value of long-term debt using cash flows discounted at
current borrowing rates.

   Redeemable Equity. We estimated the fair value of our redeemable equity based
on quoted market prices.

   Off-Balance Sheet Derivative Financial Instruments. Had we elected to
terminate our interest rate swap and treasury rate lock agreements related to
debt, we would have paid $44 million and $61 million at December 31, 2000 and
1998, respectively, and received $46 million at December 31, 1999. These fair
values were estimated using cash flows discounted at current market rates.


                                                     2000 ANNUAL REPORT  page 53
<PAGE>   32
NOTES TO FINANCIAL STATEMENTS
In millions

14. DERIVATIVE FINANCIAL INSTRUMENTS

14.1 Interest Rate and Currency Swap Agreements

   Interest rate and currency swap agreements related to investment securities
at December 31 were as follows:

<TABLE>
<CAPTION>
                                  2000        1999        1998
                                --------    --------    --------
<S>                             <C>         <C>         <C>
Interest rate swap agreements
  to receive fixed rate
    Notional amount             $    185    $    185    $    474
    Average receive rate            6.81%       6.81%       6.24%
    Average pay rate                6.98        6.59        5.48
Interest rate swap agreements
  to pay fixed rate
    Notional amount             $     50    $     55    $     55
    Average receive rate            8.50%       7.64%       6.73%
    Average pay rate                7.01        6.88        6.88
                                --------    --------    --------
Currency swap agreements
    Receive U.S. $/pay
      Canadian $
        Notional amount         $     74    $    124    $    124
        Average exchange rate       1.43        1.50        1.50
      Australian $
        Notional amount         $     23    $     23    $     --
        Average exchange rate       1.85        1.85          --
                                --------    --------    --------
</TABLE>

   Interest rate swap agreements related to debt at December 31 were as follows:

<TABLE>
<CAPTION>
                                  2000         1999         1998
                                --------    --------    --------
<S>                             <C>         <C>         <C>
Interest rate swap agreements
  to pay fixed rate
    Corporate
      Notional amount           $    400    $    400    $    400
      Average receive rate          6.51%       5.13%       4.90%
      Average pay rate              6.15        6.15        6.15
    Consumer Finance
      Notional amount           $  2,450    $  1,295    $    935
      Average receive rate          6.72%       5.40%       4.57%
      Average pay rate              6.71        6.70        6.94
</TABLE>

   Deferred settlement costs related to the termination of interest rate swaps
in conjunction with anticipated debt issuances were $7 million, $8 million, and
$9 million at December 31, 2000, 1999, and 1998, respectively.

14.2 Treasury Rate Lock Agreements

   In conjunction with an anticipated debt issuance, we entered into a treasury
rate lock agreement with a notional amount of $123 million in 1998. We settled
this agreement in 1999. Deferred settlement costs related to all treasury rate
lock agreements were $13 million, $16 million, and $17 million at December 31,
2000, 1999, and 1998, respectively. There were no treasury rate lock agreements
outstanding at year-end 2000 and 1999.

14.3 Swaptions

   Swaptions at December 31 were as follows:

<TABLE>
<CAPTION>
                          2000         1999         1998
                        --------     --------     --------
<S>                     <C>          <C>          <C>
Call swaptions
  Notional amount       $  3,000     $ 10,150     $  3,875
  Average strike rate       5.00%        4.64%        4.07%
Put swaptions
  Notional amount       $  2,300     $  6,600     $  4,200
  Average strike rate       8.72%        8.61%        8.33%
</TABLE>

   The swaptions outstanding at December 31, 2000 expire in 2001. Should the
strike rates remain below market rates (for call swaptions) and above market
rates (for put swaptions), the swaptions will expire and the company's exposure
would be limited to the premiums paid. These premiums were immaterial.

14.4 Credit and Market Risk

   Derivative financial instruments expose the company to credit risk in the
event of nonperformance by counterparties. We limit this exposure by entering
into agreements with counterparties having high credit ratings and by regularly
monitoring the ratings. We do not expect any counterparty to fail to meet its
obligation; however, nonperformance would not have a material impact on the
company's 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.

15. REINSURANCE

   Reinsurance premiums included in premiums and other considerations were as
follows:

<TABLE>
<CAPTION>
                           2000       1999       1998
                         -------    -------    -------
<S>                      <C>        <C>        <C>
Direct premiums and
  other considerations   $ 4,206    $ 4,023    $ 3,717
Reinsurance assumed           65        303        373
Reinsurance ceded           (432)      (554)      (485)
                         -------    -------    -------
  Premiums and other
    considerations       $ 3,839    $ 3,772    $ 3,605
                         -------    -------    -------
</TABLE>

   Reinsurance recoveries on ceded reinsurance contracts were $179 million in
2000, $348 million in 1999, and $251 million in 1998.

16. STATUTORY ACCOUNTING

   State insurance laws and regulations prescribe accounting practices for
calculating statutory net income and equity of insurance companies. In addition,
state regulators may permit statutory accounting practices that differ from


page 54 AMERICAN GENERAL
<PAGE>   33
prescribed practices. The use of such permitted practices by our insurance
subsidiaries did not have a material effect on their statutory equity at
December 31, 2000.

   Effective January 1, 2001, insurance companies are required to prepare
statutory financial statements in accordance with the National Association of
Insurance Commissioners' Codification of Statutory Accounting Principles. We do
not expect codification to have a material impact on our insurance companies'
statutory net income or equity.

   Significant differences between statutory accounting practices and GAAP for
our insurance subsidiaries for the three years ended December 31, 2000 were as
follows:


<TABLE>
<CAPTION>
                                   2000          1999          1998
                                 --------      --------      --------
<S>                              <C>           <C>           <C>
Statutory net income             $    936      $    996      $    760
Change in DPAC and CIP                502           476           213
Investment valuation
 differences                         (116)           (1)           87
Policy reserve adjustments              9          (105)          (33)
Deferred income taxes                (223)         (274)          (43)
Litigation settlements               (168)           --          (191)
Other, net                            169           115            12
                                 --------      --------      --------
 GAAP net income                 $  1,109      $  1,207      $    805
                                 --------      --------      --------
Statutory equity                 $  4,285      $  4,082      $  3,857
Asset valuation reserve               732           758           664
Investment valuation
 differences*                         (43)       (1,537)        3,450
DPAC and CIP                        6,446         6,139         4,198
Goodwill                            1,205         1,266         1,275
Non-admitted assets                   227           242           197
Policy reserve adjustments            (34)          136           180
Deferred income taxes              (1,168)         (906)       (1,582)
Other, net                            225            34          (125)
                                 --------      --------      --------
 GAAP equity                     $ 11,875      $ 10,214      $ 12,114
                                 --------      --------      --------
</TABLE>

* Primarily GAAP unrealized gains (losses) on securities.

17. LITIGATION, OTHER CHARGES, AND CONTINGENCIES

17.1 Litigation

   Satellite Dish. In the mid-1990s, one of our subsidiaries, A.G. Financial
Service Center, Inc. (formerly named American General Financial Center),
provided financing for satellite dishes sold by independent unaffiliated
dealers. On May 18, 1999, a Mississippi state court rendered a judgment against
A.G. Financial Service Center for approximately $500,000 in compensatory damages
and $167 million in punitive damages, in a lawsuit brought by 29 individuals who
had each purchased a satellite dish. In 1999, A.G. Financial Service Center
voluntarily filed for bankruptcy.

   As part of the resolution process, certain settlement agreements were
executed in January 2000. Accordingly, we recorded a charge of $57 million ($36
million aftertax) in fourth quarter 1999 to cover the proposed settlements of
this and other litigation. On September 1, 2000, payment was made as final
settlement of these agreements.

   In 2000, A.G. Financial Service Center filed a plan of reorganization to
resolve the remaining claims filed in the bankruptcy. In January 2001, A.G.
Financial Service Center and the creditors' committee in the bankruptcy entered
into a settlement that has been approved by the bankruptcy court. The plan of
reorganization was confirmed by the bankruptcy court in February 2001. Certain
creditors may appeal the confirmation of the plan, but we do not expect the
appeals to prevail. We expect our remaining recorded liability related to this
matter to be sufficient to cover the costs of the plan of reorganization.

   Workers' Compensation. Prior to our acquisition of USLIFE Corporation, one of
its subsidiaries entered the workers' compensation reinsurance business in 1997.
We discontinued writing new workers' compensation reinsurance business in 1998.
Our largest contract was a quota share reinsurance agreement with Superior
National Insurance Group, Inc. and its affiliates (collectively, Superior
National), effective May 1, 1998. On November 29, 1999, we initiated an
arbitration proceeding to rescind this contract from its inception, based in
part on misrepresentations and nondisclosures which we believe were made by
Superior National.

   In 2000, the California Department of Insurance ordered seizure of certain of
Superior National's insurance subsidiaries as a result of their financial
condition, and Superior National Insurance Group, Inc. voluntarily filed for
bankruptcy.

   Through the arbitration with Superior National, we plan to fully pursue all
remedies. Although we believe, based on the advice of counsel, that the company
will succeed in rescinding the contract, risks and uncertainties remain with
respect to the ultimate outcome. In the unlikely event the company does not
prevail in the arbitration, we do not expect the additional aftertax losses from
our workers' compensation business to exceed $85 million, after recoveries from
reinsurers. We believe that any ultimate loss related to our workers'
compensation business will not have a material adverse effect on our future
results of operations and financial position.

   Other. The company is also party to various other lawsuits and proceedings
arising in the ordinary course of business. These lawsuits and proceedings
include certain class action claims and claims filed by individuals who excluded
themselves from industrial life and market conduct settlements relating to life
insurance pricing and sales practices. In addition, many of these proceedings
are pending in jurisdictions that permit damage awards disproportionate to the
actual economic damages alleged to have been incurred. Based upon information
presently available,



                                                      2000 ANNUAL REPORT page 55


<PAGE>   34

NOTES TO FINANCIAL STATEMENTS
In millions


we believe that the total amounts that will ultimately be paid 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 some jurisdictions, continues to create the potential for an
unpredictable judgment in any given suit.

17.2 Other Charges

   Industrial Life. In second quarter 2000, we recorded a charge of $265 million
($175 million aftertax) for the settlement of class action litigation and
related regulatory inquiries primarily concerning sales of industrial life
insurance. The charge covered the cost of policyholder benefits, including
premium adjustments and benefit enhancements, and other charges and expenses
resulting from the settlements, as well as related administrative and legal
costs. The class action settlement became final and no longer subject to appeal
in fourth quarter 2000.

   Mortgage Warehouse Lending. In June 2000, we discovered a potential fraud
committed against one of our subsidiaries that conducts mortgage warehouse
lending activities. Mortgages processed by one originator allegedly had been
funded based on fraudulent information. In July 2000, the originator's license
was suspended and the originator and its parent company filed for bankruptcy.
Based on the available information, we recorded a charge of $50 million ($32
million aftertax) in second quarter 2000 for our loss related to this alleged
fraud. We are pursuing all appropriate remedies and believe our recorded
liability is sufficient to cover this loss.

   Market Conduct. In 1998, certain of our life insurance subsidiaries entered
into agreements to resolve substantially all material pending market conduct
class action lawsuits. Concurrently, we recorded a charge of $378 million ($246
million aftertax). The charge covered the cost of additional policyholder
benefits and other anticipated expenses resulting from the proposed settlements,
as well as other administrative and legal costs.

17.3 Subsidiary Dividend Restrictions

   Our insurance subsidiaries are restricted by state insurance laws as to the
amounts they may pay as shareholder dividends without prior approval from their
respective state insurance departments. Certain non-insurance subsidiaries are
similarly restricted in the payment of dividends by long-term debt agreements.
The amount of dividends available from subsidiaries during 2001 not limited by
such restrictions is approximately $1.4 billion.

18. EARNINGS PER SHARE

We calculate basic and diluted earnings per share as follows:

<TABLE>
<CAPTION>
                                                               2000         1999           1998
                                                            ---------     ---------      ---------

<S>                                                         <C>           <C>            <C>
Net income                                                  $   1,003     $   1,131      $     764
Net dividends on convertible preferred stock                       --            (6)            (6)
                                                            ---------     ---------      ---------
Basic earnings                                                  1,003         1,125            758
Net dividends on dilutive securities
 Convertible preferred securities of subsidiary                     5            11             11
 Convertible preferred stock                                       --             6              6
                                                            ---------     ---------      ---------
   Diluted earnings                                         $   1,008     $   1,142      $     775
                                                            ---------     ---------      ---------
Average basic shares outstanding                                498.6         498.1          502.4
Dilutive securities
 Convertible preferred securities of subsidiary                   6.1          12.3           12.3
 Convertible preferred stock                                       --           4.6            4.6
 Stock options                                                    2.5           2.7            3.3
 Restricted stock                                                 1.6            .7             .3
                                                            ---------     ---------      ---------
   Average diluted shares outstanding                           508.8         518.4          522.9
                                                            ---------     ---------      ---------
Net income per share
 Basic                                                      $    2.01     $    2.26      $    1.51
 Diluted                                                         1.98          2.20           1.48
                                                            ---------     ---------      ---------
</TABLE>




page 56 AMERICAN GENERAL

<PAGE>   35

19. DIVISION OPERATIONS

19.1 Nature of Operations

   During the last three years, we managed our business operations through three
divisions, which were based on products and services offered.

   Retirement Services. Our retirement services division markets retirement
products and services through two major distribution systems. Our financial
advisors sell tax-qualified annuities and mutual funds to employees of
educational, health care, and government entities and other not-for-profit
organizations. We also market non-qualified annuities through representatives of
banks and other financial institutions.

   Life Insurance. Our life insurance division provides life insurance products
used for financial and estate planning and wealth transfer. We distribute our
products and services through independent and career agent distribution systems.
We sell a broad portfolio of products, including interest-sensitive life,
variable life, term life, whole life, and fixed and variable annuities.

   Consumer Finance. Our consumer finance division provides a wide variety of
consumer finance products, including mortgages, consumer loans, retail sales
finance, and credit-related insurance. We market these products through a
nationwide network of branch offices.

19.2 Division Results

   Results of each division include earnings from its business operations and
earnings on that amount of equity considered necessary to support its business,
and exclude goodwill amortization, investment gains (losses), and non-recurring
items. Division assets and liabilities exclude the fair value adjustment under
accounting standard SFAS 115 and goodwill. This methodology is consistent with
the manner in which management reviews division results. Corporate operations
include parent company expenses, the cost of corporate borrowings, and earnings
on corporate assets. Division earnings information was as follows:

<TABLE>
<CAPTION>
                                          Revenues                    Income before Taxes                 Net Income
                               ------------------------------   ------------------------------   ------------------------------
                                 2000       1999       1998       2000       1999       1998       2000       1999      1998
                               --------   --------   --------   --------   --------   --------   --------   --------   --------
<S>                            <C>        <C>        <C>        <C>        <C>        <C>        <C>        <C>        <C>
Retirement Services            $  3,932   $  3,570   $  3,095   $  1,002   $    855   $    699   $    661   $    564   $    466
Life Insurance                    5,430      5,394      5,506      1,164      1,103      1,021        770        721        674
Consumer Finance                  1,902      1,729      1,609        385        351        312        247        226        201
                               --------   --------   --------   --------   --------   --------   --------   --------   --------
   Total divisions               11,264     10,693     10,210      2,551      2,309      2,032      1,678      1,511      1,341
                               --------   --------   --------   --------   --------   --------   --------   --------   --------
Corporate operations                (25)         5         35       (338)      (298)      (244)      (217)      (192)      (159)
Goodwill amortization                                                (48)       (48)       (45)       (48)       (48)       (45)
Net dividends on preferred
   securities of subsidiaries                                                                        (103)       (92)       (89)
                               --------   --------   --------   --------   --------   --------   --------   --------   --------
   Operating earnings                                                                               1,310      1,179      1,048
                               --------   --------   --------   --------   --------   --------   --------   --------   --------
Investment gains (losses)          (176)       (19)         6       (176)       (19)         6       (114)       (12)         4
Non-recurring items
   Litigation settlements
     and other charges(a)                                           (315)       (57)      (378)      (207)       (36)      (246)
   Other(b)                                                           --         --        (65)        14         --        (42)
                               --------   --------   --------   --------   --------   --------   --------   --------   --------
     Total                     $ 11,063   $ 10,679   $ 10,251   $  1,674   $  1,887   $  1,306   $  1,003   $  1,131   $    764
                               --------   --------   --------   --------   --------   --------   --------   --------   --------
</TABLE>

(a) See Note 17.

(b) Includes NOL tax benefit in 2000 and Y2K costs in 1998.

   Division balance sheet information was as follows:

<TABLE>
<CAPTION>
                                          Assets                            Liabilities
                           -----------------------------------   ----------------------------------
                             2000         1999         1998        2000        1999         1998
                           ---------    ---------    ---------   ---------   ---------    ---------
<S>                        <C>          <C>          <C>         <C>         <C>          <C>
Retirement Services        $  68,043    $  65,744    $  55,659   $  63,787   $  62,081    $  52,395
Life Insurance                37,308       36,404       34,345      30,893      30,329       28,701
Consumer Finance              13,153       12,311       10,807      11,709      10,975        9,619
                           ---------    ---------    ---------   ---------   ---------    ---------
  Total divisions            118,504      114,459      100,811     106,389     103,385       90,715
                           ---------    ---------    ---------   ---------   ---------    ---------
SFAS 115 adjustment             (266)      (1,429)       2,445          37        (125)         870
Corporate and other            1,856        2,417        1,851       3,781       3,843        2,923
                           ---------    ---------    ---------   ---------   ---------    ---------
  Total                    $ 120,094    $ 115,447    $ 105,107   $ 110,207   $ 107,103    $  94,508
                           ---------    ---------    ---------   ---------   ---------    ---------
</TABLE>



                                                      2000 ANNUAL REPORT page 57
<PAGE>   36
NOTES TO FINANCIAL STATEMENTS
In millions

20. QUARTERLY DATA (UNAUDITED)

    Selected quarterly financial data was as follows:

<TABLE>
<CAPTION>
                                               2000                                                 1999
                          ------------------------------------------------   ------------------------------------------------
                             4TH         3RD         2ND            1ST         4th            3rd         2nd         1st
                          ---------   ---------   ---------      ---------   ---------      ---------   ---------   ---------
<S>                       <C>         <C>         <C>            <C>         <C>            <C>         <C>         <C>
Premiums and other
  considerations          $     936   $     937   $     973      $     993   $     906      $     952   $     990   $     924
Net investment income         1,399       1,379       1,345          1,330       1,335          1,300       1,312       1,285
Total revenues                2,798       2,793       2,735          2,737       2,670          2,676       2,713       2,620
Insurance and annuity
  benefits                    1,372       1,377       1,367          1,384       1,293          1,329       1,378       1,313
Operating costs and
  expenses                      449         402         400            396         428            407         416         392
Total benefits and
  expenses                    2,299       2,260       2,571(a)       2,259       2,232(b)       2,188       2,229       2,143
Net income                      305         319          94(a)         285         257(b)         294         293         287
                          ---------   ---------   ---------      ---------   ---------      ---------   ---------   ---------
Per common share
  Net income
    Basic                 $     .61   $     .63   $     .19(a)   $     .57   $     .52(b)   $     .59   $     .58   $     .57
    Diluted                     .60         .63         .19(a)         .56         .50(b)         .57         .57         .55
  Dividends paid                .22         .22         .22            .22         .20            .20         .20         .20
  Market price
    High                      41.72       39.94       33.75          36.81       41.09          40.69       38.72       39.41
    Low                       35.63       30.56       25.84          22.81       30.94          31.50       34.69       32.41
    Close                     40.75       39.00       30.50          28.06       37.94          31.63       37.69       35.25
                          ---------   ---------   ---------      ---------   ---------      ---------   ---------   ---------
<CAPTION>
                                                  1998
                          ------------------------------------------------
                             4th            3rd         2nd         1st
                          ---------      ---------   ---------   ---------
<S>                       <C>            <C>         <C>         <C>
Premiums and other
  considerations          $     920      $     916   $     891   $     878
Net investment income         1,305          1,284       1,280       1,226
Total revenues                2,627          2,589       2,556       2,479
Insurance and annuity
  benefits                    1,312          1,337       1,286       1,224
Operating costs and
  expenses                      442            382         385         399
Total benefits and
  expenses                    2,600(c)       2,173       2,104       2,068
Net income                        1(c)         255         264         244
                          ---------      ---------   ---------   ---------
Per common share
  Net income
    Basic                 $     .00(c)   $     .50   $     .52   $     .49
    Diluted                     .00(c)         .49         .51         .48
  Dividends paid                .18            .19         .19         .19
  Market price
    High                      39.50          37.84       35.81       32.47
    Low                       26.28          29.94       31.53       26.16
    Close                     39.00          31.94       35.59       32.34
                          ---------      ---------   ---------   ---------
</TABLE>

(a)  Includes litigation settlements and other charges of $315 million
     pretax ($207 million aftertax or $.41 per share).

(b)  Includes litigation settlements of $57 million pretax ($36 million
     aftertax or $.07 per share).

(c)  Includes litigation settlements of $378 million pretax ($246 million
     aftertax or $.49 per share).

page 58  AMERICAN GENERAL
<PAGE>   37
REPORT OF INDEPENDENT AUDITORS

To the Board of Directors and Shareholders
American General Corporation

   We have audited the accompanying consolidated balance sheet of American
General Corporation and subsidiaries as of December 31, 2000, 1999, and 1998,
and the related consolidated statements of income, shareholders' equity,
comprehensive income, and cash flows for each of the three years in the period
ended December 31, 2000. These financial statements are the responsibility of
the company's management. Our responsibility is to express an opinion on these
financial statements based on our audits.

   We conducted our audits in accordance with auditing standards generally
accepted in the United States. Those standards require that we plan and perform
the audit to obtain reasonable assurance about whether the financial statements
are free of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements. An
audit also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.

   In our opinion, the financial statements referred to above present fairly, in
all material respects, the consolidated financial position of American General
Corporation and subsidiaries as of December 31, 2000, 1999, and 1998, and the
consolidated results of their operations and their cash flows for each of the
three years in the period ended December 31, 2000, in conformity with accounting
principles generally accepted in the United States.

/s/ ERNST & YOUNG LLP

Houston, Texas
January 23, 2001

                                                    2000 ANNUAL REPORT   page 59