Registration Nos. 33-44745
811-1491
As filed with the Commission on April 24, 1998
----------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM N-4
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933
Pre-Effective Amendment No. ___ ___
Post-Effective Amendment No. 7 X
and/or
REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY ACT OF 1940
Amendment No. 23 X
AMERICAN GENERAL LIFE INSURANCE COMPANY
SEPARATE ACCOUNT A
(Exact Name of Registrant)
AMERICAN GENERAL LIFE INSURANCE COMPANY
(Name of Depositor)
2727-A Allen Parkway
Houston, Texas 77019-2191
(Address of Depositor's Principal Executive Offices) (Zip Code)
(713) 831-8471
(Depositor's Telephone Number, including Area Code)
Pauletta P. Cohn, Esq.
Associate General Counsel
American General Independent Producer Division
2727-A Allen Parkway, Houston, Texas 77019
(Name and Address of Agent for Service)
Copies of all communications to Freedman, Levy, Kroll & Simonds
1050 Connecticut Avenue, N. W., Suite 825
Washington, D.C. 20036
Attention: Gary O. Cohen, Esq.
<PAGE>
Approximate Date of Proposed Public Offering: Continuous
It is proposed that the filing will become effective (check appropriate box)
[ ] immediately upon filing pursuant to paragraph (b) of Rule 485
[X] on May 1, 1998 pursuant to paragraph (b) of Rule 485
[ ] 60 days after filing pursuant to paragraph (a)(1) of Rule 485
[ ] on (date) pursuant to paragraph (a)(1) of Rule 485
[ ] 75 days after filing pursuant to paragraph (a)(2)
[ ] on (date) pursuant to paragraph (a)(3) of Rule 485.
If appropriate, check the following box:
[ ] this post-effective amendment designates a new effective date for a
previously filed post-effective amendment.
Title of Securities Being Registered:
Units of interest in American General Life Insurance Company
Separate Account D under variable annuity contracts
<PAGE>
AMERICAN GENERAL LIFE INSURANCE COMPANY
SEPARATE ACCOUNT A
FORM N-4
Cross Reference Sheet
Pursuant to Rule 495(a)
Under the Securities Act of 1933
<TABLE>
<CAPTION>
PART A
Form N-4
Item No. Prospectus Caption
- -------- ------------------
<S> <C>
1. Cover Page ..................................... Cover Page
2. Definitions..................................... Definitions
3. Synopsis........................................ Prospectus Summary
4. Condensed Financial Information................. Selected Accumulation
Unit Data
5. General Description of Registrant,
Depositor and Portfolio Companies............... AGL, Separate Account A
and Portfolio Company
6. Deductions...................................... Deductions and Charges
7. General Description of Variable
Annuity Contracts............................... The Contract
8. Annuity Period ................................. The Contract -- The
Annuity Period
9. Death Benefit................................... The Contract -- Death
Benefits
10. Purchases and Contract Value.................... The Contract; Deductions
and Charges
11. Redemptions..................................... The Contract
12. Taxes........................................... Federal Income Tax
Matters
13. Legal Proceedings............................... Not Applicable
14. Table of Contents of Statement
of Additional Information....................... Table of Contents of the
Statement of Additional
Information
</TABLE>
i
<PAGE>
<TABLE>
<CAPTION>
PART B
Caption in
Form N-4 Statement of
Item No. Additional Information
- -------- ----------------------
<S> <C>
15. Cover Page...................................... Cover Page
16. Table of Contents............................... Table of Contents
17. General Information and History................. General Information
18. Services........................................ Services; Independent
Auditors
19. Purchase of Securities Being Offered............ Distribution
20. Underwriters.................................... Distribution
21. Calculation of Performance Data................. Calculation of
Accumulation Unit Values
22. Annuity Payments................................ Annuity Payments
23. Financial Statements............................ Financial Statements
</TABLE>
PART C
Information required to be included in Part C is set forth under the
appropriate item so numbered in Part C of this Registration Statement.
ii
<PAGE>
AMERICAN GENERAL LIFE INSURANCE COMPANY SEPARATE ACCOUNT A
INDIVIDUAL VARIABLE RETIREMENT ANNUITY CONTRACT
OFFERED BY
AMERICAN GENERAL LIFE INSURANCE
COMPANY
ANNUITY ADMINISTRATION DEPARTMENT
P. O. BOX 1401, HOUSTON, TEXAS 77251-1401
1-800-247-6584 OR 713/831-3505
The individual variable retirement annuity contract (the "Contract") described
by this Prospectus is offered by American General Life Insurance Company
("AGL"), the successor to California- Western States Life Insurance Company
("Cal-Western"), for use in connection with certain tax-qualified plans
established under the Internal Revenue Code of 1986, as amended (the "Code").
Payments received with respect to a Contract (subject to certain deductions)
are deposited by AGL in the separate investment account entitled American
General Life Insurance Company Separate Account A ("Separate Account A") for
further investment.
Separate Account A is a unit investment trust separate account. Separate
Account A currently consists of six Divisions, each of which invests
exclusively in shares of one of the separate portfolios ("Funds") of American
General Series Portfolio Company ("Portfolio Company"). Portfolio Company
currently consists of 13 Funds. The Divisions of Separate Account A invest in
the following six Funds: MidCap Index Fund, Asset Allocation Fund, Money
Market Fund, Capital Conservation Fund, Government Securities Fund, and Stock
Index Fund.
This Prospectus contains information regarding the Contract that investors
should know before investing. It should be read and retained for future
reference. A Statement of Additional Information, incorporated herein by
reference and dated May 1, 1998, has been filed with the Securities and
Exchange Commission ("SEC"). Investors can obtain a free copy of the Statement
of Additional Information by contacting AGL at the address or telephone number
given above. The Table of Contents for the Statement of Additional Information
appears at the end of this Prospectus.
NO PERSON HAS BEEN AUTHORIZED TO GIVE ANY INFORMATION OR TO MAKE ANY
REPRESENTATIONS OTHER THAN THOSE CONTAINED IN THIS PROSPECTUS AND THE RELATED
STATEMENT (OR ANY SALES LITERATURE APPROVED BY AGL) IN CONNECTION WITH THE
OFFER CONTAINED IN THIS PROSPECTUS, AND, IF GIVEN OR MADE, SUCH INFORMATION OR
REPRESENTATIONS MUST NOT BE RELIED UPON AS HAVING BEEN AUTHORIZED. THE
CONTRACTS ARE NOT AVAILABLE IN ALL STATES AND THIS PROSPECTUS DOES NOT
CONSTITUTE AN OFFER IN ANY JURISDICTION TO ANY PERSON TO WHOM SUCH OFFER WOULD
BE UNLAWFUL THEREIN.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION NOR HAS THE COMMISSION PASSED ON THE ACCURACY OR ADEQUACY
OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
THIS PROSPECTUS IS VALID ONLY WHEN ACCOMPANIED BY THE CURRENT AMERICAN GENERAL
SERIES PORTFOLIO COMPANY PROSPECTUS.
INVESTORS ARE ADVISED TO RETAIN THIS PROSPECTUS FOR FUTURE REFERENCE.
PROSPECTUS DATED MAY 1, 1998
<PAGE>
<TABLE>
<CAPTION>
TABLE OF CONTENTS
Page
Number
------
<S> <C>
Definitions........................................................................ 3
Fee Table.......................................................................... 4
Prospectus Summary................................................................. 6
A. The Contract............................................................. 6
B. AGL...................................................................... 6
C. Separate Account A....................................................... 7
D. Sales Charges and Other Deductions....................................... 7
E. Free Look................................................................ 7
Selected Accumulation Unit Data.................................................... 7
AGL, Separate Account A and Portfolio Company...................................... 9
A. AGL and Separate Account A............................................... 9
B. Portfolio Company........................................................ 11
Deductions and Charges............................................................. 14
A. Deduction for Sales and Administrative Expenses.......................... 14
B. Deduction for Premium Taxes.............................................. 15
C. Withdrawal Charge........................................................ 15
D. Maintenance Charge....................................................... 16
E. Deduction for Mortality and Expense Risks................................ 16
F. Contract Expense Guarantee............................................... 17
G. Other Charges............................................................ 17
The Contract....................................................................... 18
A. General Description...................................................... 18
B. The Accumulation Period.................................................. 19
C. The Annuity Period....................................................... 21
D. Death Benefits........................................................... 26
Federal Income Tax Matters......................................................... 27
A. General.................................................................. 27
B. Qualified Contracts Purchased by Certain Tax-Exempt Employers............ 27
C. Individual Retirement Annuities.......................................... 28
D. Roth IRAs................................................................ 29
E. Simplified Employee Pension Plans........................................ 30
F. Simple Retirement Accounts............................................... 30
G. Other Qualified Plans.................................................... 30
H. Private Employer Unfunded Deferred Compensation Plans.................... 31
I. Federal Income Tax Withholding and Reporting............................. 32
Services Agreement................................................................. 32
Voting Rights...................................................................... 32
The Statement of Additional Information............................................ 33
Table of Contents of The Statement of Additional Information....................... 33
</TABLE>
2
<PAGE>
DEFINITIONS
ACCUMULATION PERIOD -- The period between the date of the first purchase
payment for a Variable Annuity contract and the Annuity Commencement Date.
ACCUMULATION UNIT -- An accounting unit of measure used to calculate the value
of a Contract before Annuity payments begin.
ACCUMULATED VALUE -- The dollar value of a Variable Account.
ANNUITANT -- A natural person upon whose life Annuity payments are based.
ANNUITY -- A series of payments for life or a designated period subject to the
terms of the Contract.
ANNUITY COMMENCEMENT DATE -- The date on which Annuity payments are to
commence, ordinarily the retirement date.
ANNUITY PERIOD -- The period during which Annuity payments are made.
ANNUITY UNIT -- An accounting unit of measure used to calculate the amount of
Annuity payments.
BENEFICIARY -- The person to whom death benefits will be paid upon death of
the Annuitant before the Annuity Period or the end of a guaranteed period.
CONTRACT OWNER -- The owner of the Contract, who may be the Annuitant or some
other person or entity.
DIVISION -- The particular Division of Separate Account A in which
Accumulation Units in Separate Account A are accumulated.
FUND -- A separate portfolio of American General Series Portfolio Company.
IRA CONTRACT -- An Individual Retirement Annuity meeting the requirements of
Section 408(b) of the Code.
PARTICIPANT -- A Contract Owner or person who has a fully vested (100%)
interest in benefits provided under a Contract.
PERIODIC PAYMENTS -- Amounts paid on a continuing basis to purchase an
Annuity.
SEPARATE ACCOUNT A -- The separate account of American General Life Insurance
Company used to fund the variable aspects of the Contract.
TERMINATION -- A total redemption of the Contract.
VALUATION PERIOD -- The interval between two consecutive Valuation Times.
Values within a Valuation Period are determined at the end of the Period.
3
<PAGE>
VALUATION TIME -- The time on any day as of which the Divisions of Separate
Account A are valued. VARIABLE ACCOUNT -- The account in which Accumulation
Units acquired under the Contract are kept in Separate Account A.
VARIABLE ANNUITY -- A series of Annuity payments, the amount of which will
increase or decrease to reflect the net investment experience of the Stock
Index Division of Separate Account A.
WITHDRAWAL -- Withdrawing (redeeming) a portion or all of the Accumulated
Value of the Contract without surrendering the Contract.
FEE TABLE
The purpose of the following Fee Table and Examples is to assist Contract
Owners and Participants in understanding the transaction and operating
expenses that a Contract Owner or Participant will bear directly or indirectly
under a Contract or participation. The Fee Table reflects expenses of Separate
Account A and of Portfolio Company's Funds. The Fee Table and Examples assume
the highest deductions possible under a Contract or participation, whether or
not such deductions actually would be made under such a Contract or
participation.
CONTRACT OWNER TRANSACTION EXPENSES(1)
Maximum Sales Expense Deduction Imposed on
Purchases (as a percentage of the aggregate
amount of purchase payments) . . . . . . . 4.5%
Maximum Withdrawal Charge . . $5.00 plus 2% of the net amount withdrawn
Maximum Administrative Expense Deduction
Imposed on Purchases (as a percentage of the
aggregate amount of purchase payments) . . . 0.5%
Maintenance Charge (assessed each month)(2) . . $0.75
DIVISION ANNUAL EXPENSES AFTER EXPENSE REIMBURSEMENTS
(AS A PERCENTAGE OF ANNUAL VALUE OF A DIVISION)
<TABLE>
<CAPTION>
MidCap Asset Money Capital Government Stock
Index Allocation Market Conservation Securities Index
Division Division Division Division Division Division(3)
-------- ---------- -------- ------------ ---------- -----------
<S> <C> <C> <C> <C> <C> <C>
Mortality Risk Fee .9000% .9000% .9000% .9000% .9000% .9000%
Expense Risk Fee .1017% .1017% .1017% .1017% .1017% .1017%
------- ------- ------- ------- ------- -------
Total Division
Annual Expenses 1.0017% 1.0017% 1.0017% 1.0017% 1.0017% 1.0017%
Division Expense
Reimbursement(4) (.0767)% (.2467)% (.2467)% (.2467)% (.2367)% (.0167)%
Total Division
Annual Expenses
After Expense
Reimbursement .9250% .7550% .7550% .7550% .7650% .9850%
</TABLE>
(Footnotes are on the next page.)
4
<PAGE>
FUND ANNUAL EXPENSES
(AS A PERCENTAGE OF AVERAGE NET ASSETS)
<TABLE>
<CAPTION>
Midcap Asset Money Capital Government Stock
Index Allocation Market Conservation Securities Index
Division Division Division Division Division Division(3)
-------- ---------- -------- ------------ ---------- -----------
<S> <C> <C> <C> <C> <C> <C>
Management Fees .3400% .5000% .5000% .5000% .5000% .2700%
Other Expenses .0600% .0700% .0700% .0700% .0600% .0700%
Total Fund
Annual Expenses(5) .4000% .5700% .5700% .5700% .5600% .3400%
Combined Total Annual
Expenses (Separate
Account A plus
applicable Fund) 1.3250% 1.3250% 1.3250% 1.3250% 1.3250% 1.3250%
<FN>
- -------------------
(1) Premium taxes are not shown. AGL postpones the computation and deduction
of premium taxes until the Annuity Commencement Date, whenever permitted
by state law. If a state so requires, the amount of the tax may be
deducted from Periodic or single Payments when received. (See "Deduction
for Premium Taxes.")
(2) The Maintenance Charge is assessed for each month after AGL's receipt of
the first purchase payment and prior to the Annuity Commencement Date.
(See "Maintenance Charge.")
(3) Effective with the merger of Quality Growth Fund into Stock Index Fund
on May 1, 1992, Quality Growth Division was renamed the Stock Index
Division.
(4) Contracts funded through Separate Account A are subject to a Contract
Expense Guarantee. (See "Contract Expense Guarantee.")
(5) Expenses have been restated to reflect current charges.
</FN>
</TABLE>
-----------------------------------------------
Example 1 -- Assuming total withdrawal at the end of the applicable
period. A $1,000 investment would be subject to the expenses
shown, assuming 5% return on assets.
<TABLE>
<CAPTION>
1 Year 3 Years 5 Years 10 Years
------ ------- ------- --------
<S> <C> <C> <C> <C>
MidCap Index Division $88 $117 $148 $222
Asset Allocation Division $88 $117 $148 $222
Money Market Division $88 $117 $148 $222
Capital Conservation Division $88 $117 $148 $222
Government Securities Division $88 $117 $148 $222
Stock Index Division $88 $117 $148 $222
</TABLE>
Example 2 -- Assuming a Participant annuitizes at the end of the
applicable period, or does not make a total withdrawal. A
$1,000 investment would be subject to the expenses shown,
assuming 5% return on assets.
<TABLE>
<CAPTION>
1 Year 3 Years 5 Years 10 Years
------ ------- ------- --------
<S> <C> <C> <C> <C>
MidCap Index Division $63 $90 $120 $204
Asset Allocation Division $63 $90 $120 $204
Money Market Division $63 $90 $120 $204
Capital Conservation Division $63 $90 $120 $204
Government Securities Division $63 $90 $120 $204
Stock Index Division $63 $90 $120 $204
</TABLE>
5
<PAGE>
The Examples should not be considered a representation of past or future
expenses and charges. Actual expenses may be greater or less than those shown.
Similarly, the assumed 5% annual rate of return is not an estimate or a
guarantee of future investment performance. (See "Deductions and Charges" in
this Prospectus and "Investment Management" in Portfolio Company's
prospectus.)
PROSPECTUS SUMMARY
A. THE CONTRACT
The Contract offered by this Prospectus is designed to provide individuals
with retirement benefits through the investment of Periodic Payments in
Separate Account A, and by the application of Accumulated Values to provide
Fixed or Variable Annuity payments.
The Contract may be used in connection with pension and profit sharing plans
established by partnerships and sole proprietors and qualified under Section
401 of the Code ("Qualified Plans"). Qualified Plans also include plans which
have been referred to as H.R. 10 plans. In addition, the Contract may be used
in Annuity purchase plans adopted by public school systems and certain
tax-exempt organizations under Section 403(b) of the Code. Employees and
self-employed individuals participating in these plans may take advantage of
certain federal income tax benefits incidental to the plans. (See "Federal
Income Tax Matters.")
This Prospectus describes only the Variable Annuity provisions of the
Contract, except where the Fixed Annuity provisions are specifically
mentioned.
The Accumulated Value of the Variable Account will vary up or down to reflect
the investment performance of the Division of Separate Account A in which a
Contract Owner or Participant is invested and the amount of each Variable
Annuity payment will vary up or down to reflect the investment performance of
the Stock Index Division of Separate Account A. This is the basic difference
between a Variable Annuity and a Fixed Annuity. Under a Fixed Annuity,AGL
assumes the risk of investment gain or loss, specifying a minimum interest
rate and minimum payment amount. Under a Variable Annuity, the Contract Owner,
Participant or Annuitant assumes the investment risk. There is no assurance
that the value of the Variable Account or the amount of Annuity payments
received will equal or exceed the payments made under the Contract. Upon the
death of the Annuitant before the Annuity Commencement Date, the Accumulated
Value of the Variable Account minus any applicable premium taxes is paid as a
death benefit. (See "Death Benefits.")
The Contracts provide a life Annuity with 120 monthly payments guaranteed
("Basic Annuity" starting on a selected Annuity Commencement date. In place of
the Basic Annuity, various settlement options are available. (See "The Annuity
Period.")
B. AGL
AGL, the issuer of the Contract, is a stock life insurance company organized
under the laws of the State of Texas and an indirect wholly-owned subsidiary
of American General Corporation ("AGC"). AGL is the successor to Cal-Western,
a California corporation organized in 1910. AGL's principal
6
<PAGE>
business office and principal executive office are both located at 2727-A
Allen Parkway, Houston, Texas 77019-2191. All inquiries regarding
Participants' accounts, the Contracts or any related matter should be directed
to AGL's Annuity Administration Department at the address and phone number
shown on the cover of this Prospectus.
C. SEPARATE ACCOUNT A
Separate Account A is a separate investment account of AGL originally created
in 1966 under the laws of California, and currently established under the laws
of Texas. Separate Account A consists of six Divisions each of which
corresponds to one of the Funds of Portfolio Company. The Divisions of
Separate Account A serve as investment vehicles for Periodic Payments made
pursuant to the Contracts and certain other variable annuity contracts issued
by AGL.
D. SALES CHARGES AND OTHER DEDUCTIONS
Contracts may be purchased with a single payment or Periodic Payments.
Deductions are made from purchase payments under the Contracts for sales,
administrative expenses and premium taxes. For sales and administrative
expenses, the deduction ranges from a maximum of 5% to a minimum of 2% (5.26%
to 2.04% of the amount invested after the deduction). No deduction for sales
or administrative expenses will be made from amounts accumulated under the
fixed Annuity provisions of the Contract. The current range of premium taxes
is 0% to 3.5%.
A maintenance charge of $.75 per month is made against each Contract prior to
the Annuity Commencement date. In addition, a deduction of 1.0017% of the
value of its assets annually is made daily from the assets of Separate Account
A. The deduction consists of .9000% for mortality risk charges and .1017% for
expense risk charges.
A charge is made for each Withdrawal made before the Annuitant reaches age 59
1/2, ranging from a maximum of $5.00 plus 2% of the net amount withdrawn to a
minimum of $5.00 depending on the date of Withdrawal.
In addition to the above, an investor should be aware that certain withdrawal
amounts may be subject to a 10% penalty tax under Section 72(t) of the Code.
(See "Federal Income Tax Matters.")
E. FREE LOOK
The Contracts allow the Contract Owner to revoke the Contract by returning it
to AGL within ten days of delivery, or such longer period as may be required
by state law. AGL will refund an amount equal to all payments received with
respect to the Contract, unless a larger refund is required by state law. The
Withdrawal Charge will not apply. (See "General Description" under "The
Contract.")
SELECTED ACCUMULATION UNIT DATA (UNAUDITED)
The information presented below shows Accumulation Unit information for the
Divisions of Separate Account A which, since the date of the Reorganization
(as described below) on April 28, 1989, have
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<PAGE>
either received transfers or had purchase payments allocated to them:
<TABLE>
<CAPTION>
Midcap Asset Capital Money Government Stock
Index Allocation Conservation Market Securities Index
Division Division(1) Division Division Division Division(2)
------------- ------------- ------------- ------------- -------------- -------------
<S> <C> <C> <C> <C> <C> <C>
Accumulation Unit
Values (Beginning
of Period) $1.0000000(3) $1.0000000(4) N/A $1.0000000(5) $1.0000000(6) $6.9470360(7)
Accumulation Unit
Values
December 31, 1989 $1.0134730 $1.0812680 $ .9998910(8) $1.0296560 $1.0559270(9) $7.7152130
Accumulation Unit
Values
December 31, 1990 $0.9126050 $1.0505840 $.973388010 $1.1056810 $1.0965370 $7.3784390
Accumulation Unit
Values
December 31, 1991 $1.1056860 $1.2698210 N/A $1.1593620 $1.1190530(11) $8.8973800
Accumulation Unit
Values
December 31, 1992 $1.2069730 $1.2542540 N/A $1.1908650 $1.1228330 $9.1473900
Accumulation Unit
Values
December 31, 1993 $1.3479390 $1.3605550 $0.9744070 $1.2080010 $1.2351960 $9.9586940
Accumulation Unit
Values
December 31, 1994 $1.2805490 $1.3328710 $0.9061820 $1.2374450 $1.1727330 $9.9346370
Accumulation Unit
Values
December 31, 1995 $1.649419 $1.650376 $1.085475 $1.289176 $1.369542 $13.510035
Accumulation Unit
Values
December 31, 1996 $1.933369 $1.819376 $1.096382 $1.339458 $1.377319 $16.419594
Accumulation Unit
Values
December 31, 1997 $2.513934 $2.213944 $1.180098 $1.355329 $1.480310 $21.636223
Accumulation Units
Outstanding
December 31, 1989 29,943.336 219,709.968 N/A 1,724.450 None 4,471,463.930
Accumulation Units
Outstanding
December 31, 1990 8,102.959 159,097.692 None 296,290.126 846.475 3,997,653.793
Accumulation Units
Outstanding
December 31, 1991 8,236.542 161,357.448 None 307,629.955 None 3,669,344.228
Accumulation Units
Outstanding
December 31, 1992 8,216.123 84,319.784 None 266,737.523 98,507.318 3,378,291.884
Accumulation Units
Outstanding
December 31, 1993 2,019.323 46,273.447 291.931 1,724.450 127,898.948 3,132,368.242
Accumulation Units
Outstanding
December 31, 1994 2,002.000 52,685.052 2,855.740 1,724.450 2,390.642 2,925,664.920
8
<PAGE>
Accumulation Units
Outstanding
December 31, 1995 1,986.413 50,691.625 5,330.601 1,724.450 2,380.042 2,595,596.122
Accumulation Units
Outstanding
December 31, 1996 1,055.932 40,744.069 7,757.918 80,561.157 2,370.225 2,411,116.122
Accumulation Units
Outstanding
December 31, 1997 9,327.907 41,787.393 9,964.962 None 2,361.798 2,259,376.335
<FN>
---------------------
(1) Effective October 1, 1997, the Timed Opportunity Fund was renamed the
Asset Allocation Fund.
(2) Effective with the merger of Quality Growth Fund into Stock Index Fund
on May 1, 1992, Quality Growth Division was renamed the Stock Index
Division and its investment objective, investment program, and
investment restrictions were changed to those of the Stock Index
Division.
(3) Accumulation Unit Value as of September 14, 1989 (the first date the
Division received a transfer or had a purchase payment allocated).
Effective October 1, 1991, the Fund underlying this Division changed its
name from the Capital Accumulation Fund to the MidCap Index Fund and
amended its investment objective, investment program, and investment
restrictions accordingly. Historical Accumulation Unit Values prior to
October 1, 1991 reflect investment performance prior to these changes.
(4) Accumulation Unit Value as of May 23, 1989 (the first date the Division
received a transfer or had a purchase payment allocated).
(5) Accumulation Unit Value as of August 15, 1989 (the first date the
Division received a transfer or had a purchase payment allocated).
(6) Accumulation Unit Value as of May 17, 1989 (the first date the Division
received a transfer or had a purchase payment allocated).
(7) Accumulation Unit Value as of April 28, 1989 (at which date the Division
had 4,953,797.742 Accumulation Units outstanding following the
reorganization).
(8) Accumulation Unit Value as of July 5, 1990 (the first date the Division
received a transfer or had a purchase payment allocated).
(9) Accumulation Unit Value as of October 23, 1989, the date on which all
Accumulation Units were transferred from the Government Securities
Division.
(10) Accumulation Unit Value as of December 26, 1990, the date on which all
Accumulation Units were transferred from the Capital Conservation
Division.
(11) Accumulation Unit Value as of July 8, 1991, the date on which all
Accumulation Units were transferred from the Government Securities
Division.
</FN>
</TABLE>
------------------------------
AGL, SEPARATE ACCOUNT A AND PORTFOLIO COMPANY
A. AGL AND SEPARATE ACCOUNT A
AGL, the successor to Cal-Western, is licensed to engage in the life insurance
and annuity business in 49 states and the District of Columbia. AGL is an
indirect wholly-owned subsidiary of AGC, an insurance-based diversified
financial services holding company whose various subsidiaries operate in each
of the 50 states, the District of Columbia, and Canada.
AGL is the single life insurance company created by the merger, effective
December 31, 1991, of Cal-Western, a California corporation, and American
General Life Insurance Company, a Texas corporation ("AG Texas"), into
American General Life Insurance Company of Delaware, a Delaware corporation
9
<PAGE>
("AG Delaware"). In connection with the merger ("Merger"), AG Delaware changed
its domicile to Texas ("Redomestication") and changed its name to American
General Life Insurance Company. The Merger resulted in a single insurer having
the combined capital and resources of all three of the constituent companies.
As a result of the Merger and Redomestication, Separate Account A became part
of AGL. However, Separate Account A has remained intact and its assets are
legally separated from any other business of AGL. Accordingly, the Contracts
funded by Separate Account A prior to the Merger and Redomestication continue
to be supported by the same pool of assets. Separate Account A also continues
to invest in shares of the same Funds.
Following the Merger and Redomestication, AGL, among other things, issued
assumption certificates to Contract Owners and Participants under the
Contracts, previously issued by Cal- Western, to reflect the change in the
identity of the insurance company sponsoring the Contracts and guaranteeing
rights under the Contracts.
The financial statements of AGL included in the Statement of Additional
Information should be considered only as bearing upon the ability of AGL to
meet its obligations under the Contracts. Neither the assets of AGC nor those
of any other affiliated company supports AGL's obligations under the
Contracts. As of December 31, 1997, AGL, on a consolidated basis, had total
assets of $43,564,720,000 and total shareholder's equity of $3,061,614,000.
Separate Account A, originally established in 1966 under California law, is
registered with the SEC as a unit investment trust under the Investment
Company Act of 1940, as amended ("1940 Act").
Separate Account A was previously organized as a management separate account
investing directly in securities. On April 28, 1989, Separate Account A and
Variable Fund C, a former separate account of Cal-Western, were combined and
restructured into a single unit investment trust separate account, Separate
Account A, investing exclusively in shares of the Funds of Portfolio Company
(the "Reorganization"). In connection with the Reorganization, all of the
portfolio assets of Separate Account A (including those of Variable Fund C)
were sold, assigned, and transferred to the Quality Growth Fund of Portfolio
Company in exchange for shares of that Fund, which were in turn issued to the
newly created Quality Growth Division of Separate Account A. (As described
more fully below, the Quality Growth Division was renamed the Stock Index
Division on May 1, 1992.) The Reorganization, among other things, enabled
Contract Owners and Participants during the Accumulation Period to invest
through Divisions of Separate Account A in any one of the corresponding
available Funds.
Separate Account A invests in shares of six of the thirteen Funds of Portfolio
Company, which, in turn, invest in diversified portfolios of securities, as
described in Portfolio Company's prospectus and statement of additional
information. Separate Account A currently consists of the following Divisions:
MidCap Index Division,Asset Allocation Division, Money Market Division,
Capital Conservation Division, Government Securities Division, and Stock Index
Division. CONTRACT OWNERS AND PARTICIPANTS ARE REQUIRED TO MAINTAIN THEIR
ENTIRE INVESTMENT ALLOCATED TO SEPARATE ACCOUNT A UNDER A CONTRACT AT ANY
GIVEN TIME IN ONLY ONE OF THE AVAILABLE DIVISIONS; ALLOCATIONS BETWEEN TWO OR
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<PAGE>
MORE DIVISIONS ARE NOT PERMITTED.
Under the provisions of the Texas Insurance Code and the terms of the
Contracts, assets of Separate Account A will not be chargeable with
liabilities arising out of any other business AGL may conduct but will be held
exclusively to meet AGL's obligations under variable annuity contracts. In
addition, any income, gains or losses, realized or unrealized, on assets of
Separate Account A are credited to or charged against Separate Account A
without regard to other income, gains or losses of AGL. Nevertheless,
obligations arising under the Contracts are obligations of AGL.
In addition to the net assets and other liabilities for variable annuity
contracts, Separate Account A's assets include assets derived from charges
made by AGL. AGL may transfer out to its general account any of Separate
Account A's assets that are in excess of the reserves and other liabilities
relating to the Contracts.
Separate Account A is regulated by the Texas Insurance Department. Regulation
by the state, however, does not involve any supervision of Separate Account A
except to determine compliance with broad statutory criteria.
B. PORTFOLIO COMPANY
Portfolio Company was incorporated in Maryland on December 7, 1984. It is an
open-end management investment company registered under the 1940 Act. As of
December 31, 1997, Portfolio Company had $7,070,501,631 of net assets.
Additional information about Portfolio Company is contained in Portfolio
Company's prospectus, which accompanies this Prospectus, and in its statement
of additional information referred to therein, copies of which may be obtained
from AGL's Annuity Administration Department. Shares of Portfolio Company are
currently sold to Separate Account A,AGL's Separate Account B,AGL's Separate
Account D, and The Variable Annuity Life Insurance Company ("VALIC") Separate
Account A, which also fund variable annuity contracts. VALIC also owns shares
of certain funds of the Portfolio Company directly. Retirement Plans
maintained by VALIC and AGC may own shares of certain funds.
Portfolio Company's shares are purchased and redeemed by The Variable Annuity
Marketing Company ("VAMCO"), principal underwriter for shares of Portfolio
Company, at net asset value without sales or redemption charges. VAMCO is a
wholly-owned subsidiary of VALIC.
Overall responsibility for managing the affairs of Portfolio Company and
overseeing its investment adviser rests with its elected board of directors.
Portfolio Company consists of thirteen Funds, as follows: Stock Index Fund,
MidCap Index Fund, Small Cap Index Fund, International Equities Fund, Growth
Fund, Growth & Income Fund, Science & Technology Fund, Social Awareness Fund,
Asset Allocation Fund, Capital Conservation Fund, Government Securities Fund,
International Government Bond Fund, and Money Market Fund. Each Fund has
different investment objectives and is, in effect, a separate portfolio
represented by a separate class of common stock. MidCap Index Fund, formerly
the Capital Accumulation Fund, effected a change in its name and its
investment objective, investment program and one of its restrictions as of
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<PAGE>
October 1, 1991. The Asset Allocation Fund, formerly the Timed Opportunity
Fund, effected a change in its name as of October 1, 1997.
On January 8, 1992, Portfolio Company's Board of Directors approved the
combination of the Quality Growth Fund into the Stock Index Fund by means of a
reclassification of shares ("Reclassification"). On April 28, 1992, persons
invested in the Quality Growth Fund approved the Reclassification, which was
consummated on May 1, 1992.
It is intended that, during the Accumulation Period, only the MidCap Index
Fund, Asset Allocation Fund, Money Market Fund, Capital Conservation Fund,
Government Securities Fund, and Stock Index Fund, will be available in
connection with each type of Contract issued by AGL and funded through
Separate Account A.
However, if Portfolio Company reasonably determines that the tax status under
the Code of a particular Fund may be adversely affected by investments in that
Fund's shares which are attributable to purchase payments received under a
Contract that is not tax favored under the Code, or may be so affected for any
other reason, Portfolio Company will have the right not to make such a Fund
available under such Contract.
VALIC serves as investment adviser to each of the Funds pursuant to investment
advisory agreements with Portfolio Company. VALIC is registered with the SEC
as an investment adviser under the Investment Advisers Act of 1940 ("Advisers
Act"), as amended. VALIC is also the depositor of VALIC's Separate Account A.
For serving as investment adviser, each Fund pays VALIC a monthly fee based on
that Fund's average monthly net asset value as set forth in Portfolio
Company's prospectus under "Investment Management."
Bankers Trust Company ("Bankers") serves as investment sub-adviser to the
Stock Index Fund, MidCap Index Fund, and Small Cap Index Fund (the Small Cap
Index Fund is not available under the Contracts) pursuant to an investment
sub-advisory agreement with Portfolio Company. For serving as investment
sub-adviser to these Funds, VALIC pays Bankers a monthly fee based on each of
these Fund's average monthly net asset value as set forth in Portfolio
Company's prospectus under "Investment Management."
The investment advisory agreements between Portfolio Company and VALIC do not
contain limits on the expenses of Portfolio Company or of any Fund. However,
to the extent that any Fund's accrued expenses for a given month exceed, on an
annualized basis, 2% of a Fund's estimated average monthly net assets, VALIC
has voluntarily agreed to reduce expenses of any such Fund in an amount equal
to the difference between such accrued expenses and 2% of the Fund's average
net assets for that month. VALIC has reserved the right to withdraw this
undertaking upon 30 days' written notice to Portfolio Company.
AGL reserves the right, subject to compliance with applicable law, including
approval of Contract Owners and Participants, if required, to make
substitutions of other open-end management investment company shares for the
shares of any Fund of Portfolio Company or which any Division may purchase, or
to eliminate the shares of any Fund of Portfolio Company held by a Division
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<PAGE>
and substitute shares of another Fund of Portfolio Company or of any other
registered open-end management investment company.
A brief description of each of the Funds of Portfolio Company in which the
Divisions of Separate Account A may invest appears below. The current
prospectus of Portfolio Company contains more detailed information about each
of the Funds in which the Divisions invest, including investment objectives
and policies, charges and expenses. Additional copies of the current
prospectus of Portfolio Company may be obtained from AGL's Annuity
Administration Department. Read the prospectus carefully before investing.
MIDCAP INDEX FUND
This Fund seeks to provide growth of capital through investments primarily in
a diversified portfolio of common stocks that, as a group, are expected to
provide investment results closely corresponding to the performance of the
Standard & Poor's ("S&P") MidCap 400 Index.
ASSET ALLOCATION FUND
This Fund seeks maximum aggregate rate of return over the long-term through
controlled investment risk by adjusting its investment mix among stocks,
long-term debt securities and short-term money market securities.
MONEY MARKET FUND
This Fund seeks liquidity, protection of capital and current income through
investments in short-term money market instruments.
CAPITAL CONSERVATION FUND
This Fund seeks the highest possible total return consistent with preservation
of capital through current income and capital gains on investments in
intermediate and long-term debt instruments and other income producing
securities.
GOVERNMENT SECURITIES FUND
This Fund seeks high current income and protection of capital through
investments in intermediate and long-term U.S. Government debt securities.
STOCK INDEX FUND
This Fund seeks long-term capital growth through investment in common stocks
that, as a group, are expected to provide investment results closely
corresponding to the performance of the S&P 500 Index.
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<PAGE>
DEDUCTIONS AND CHARGES
A. DEDUCTION FOR SALES AND ADMINISTRATIVE EXPENSES
American General Securities Incorporated ("AGSI") acts as principal
underwriter and performs sales functions with respect to the Contracts. AGSI
is a wholly owned subsidiary of AGL and its principal business address is2727
Allen Parkway, Houston, Texas 77019. AGL performs all administrative functions
and pays all administrative expenses with respect to the Contracts. These
expenses include but are not limited to salaries, rents, postage, telephone,
travel, legal, actuarial and accounting fees, office equipment and stationery.
For these services, AGL makes a deduction from purchase payments based on the
aggregate amount of all purchase payments made to date under the Contracts as
shown in the following schedules. These deductions are made pursuant to the
Contracts and, therefore, are not subject to change. Schedule A, below,
indicates the deduction amounts used in connection with Qualified Plans which
were formerly referred to as H.R. 10 plans. Schedule B, below, indicates the
deduction amounts used when the Contract is sold for other tax-favored
arrangements. Charges for administrative expenses are not expected to exceed
administrative costs.
<TABLE>
<CAPTION>
SCHEDULE A
Total Sales Administrative
Aggregate Deductions Expenses Expenses
Amount Of Payment % % %
- ----------------- ---------- -------- --------------
<S> <C> <C> <C>
First $25,000............................ 5 4.5 .5
Next 25,000.............................. 4 3.6 .4
Next 50,000.............................. 3 2.7 .3
All Additional........................... 2 1.8 .2
</TABLE>
<TABLE>
<CAPTION>
SCHEDULE B
Total Sales Administrative
Aggregate Deductions Expenses Expenses
Amount Of Payment % % %
- ----------------- ---------- -------- --------------
<S> <C> <C> <C>
First $ 5,000............................ 5 4.5 .5
Next 5,000............................ 4 3.6 .4
Next 15,000............................ 3 2.7 .3
All Additional........................... 2 1.8 .2
</TABLE>
For example, assume that a single lump payment of $12,000 is made under a
Contract sold for other than Qualified Plan (H.R. 10 Plan) purposes. In
accordance with Schedule B, the deduction from the payment would be 5% of the
first $5,000, 4% of the next $5,000, and 3% of the remaining $2,000. If a
series of Periodic Payments are made, the total amount of all Payments, i.e.,
all past Payments plus the Payment being made, is used to determine the amount
of the deduction. Additional deductions may be made from each payment for
premium taxes, if any (see "Deduction for Premium Taxes.")
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<PAGE>
The deduction for sales expenses reimburses AGL for part of its expenses
related to distributing the Contracts. AGL believes, however, that the amount
of such expenses will exceed the amount of revenue generated by the sales
expenses. AGL will pay such excess out of its general surplus, which might
include profits from the charge for the assumption of mortality and expense
risks.
No deduction for sales or administrative expenses will be made from amounts
accumulated under the fixed Annuity provisions of the Contract which are
transferred to Separate Account A or amounts transferred from Separate Account
A to fund the fixed Annuity.
The Contracts may be sold without charges for sales and administrative
expenses to officers and full-time employees of Separate Account A; to any
trust, pension, profit-sharing or other benefit plan for these people; and to
certain employees and sales representatives of AGL or AGSI. To be eligible AGL
or AGSI employees and sales representatives must spend one-half of their
working time (1) rendering investment advice to AGL accounts, (2) offering for
sale Contracts funded through Separate Account A or other AGL accounts, and
(3) supervising or assisting people who do either. Sales of Contracts without
administrative and sales expense deductions will be made only on the buyer's
written assurance that the purchase is made for investment purposes and that
the Contract will not be resold or assigned except through surrender to AGL.
When permitted by AGL, a Contract may be purchased with proceeds from death
benefits, maturity values, policy dividends or surrender values of
conventional insurance or Annuity Contracts issued by AGL, without charges for
administrative and sales expenses. Certain fixed Annuity Contracts issued by
AGL provide for transfer of cash value into Separate Account A without the
deduction for administrative and sales expenses.
B. DEDUCTION FOR PREMIUM TAXES
Certain states impose premium taxes, currently ranging from 0% to 3.5% of
purchase payments. Any deduction for applicable premium taxes is in addition
to the deductions for sales and administrative expenses. Premium tax
deductions are only made when purchase payments are subject to the tax.
It is AGL's policy to postpone the computation and deduction until the Annuity
Commencement Date whenever permitted by state law. The deduction is then made
from the Variable Account. If postponement is not permitted by state law, the
amount of the tax is deducted from Periodic, or single Payments when received.
If premium taxes are deducted, but subsequently are determined not due, AGL,
at the time of the determination, will apply the amount of the deduction to
increase the number of Accumulation or Annuity Units under the Contract.
Conversely, if no deductions are made for premium taxes, but subsequently are
determined due, AGL reserves the right to reduce the number of Accumulation or
Annuity Units by the amount due.
C. WITHDRAWAL CHARGE
At any time while a Contract is in force, prior to the Annuity Commencement
Date or the death of the Annuitant, the Company will, upon written application
by a Contract Owner, allow the Contract Owner to withdraw (redeem) a portion
or all of the Accumulated Value of the Contract less withdrawal charges and
15
<PAGE>
any applicable premium taxes. A withdrawal charge will be made equal to $5
plus 2% of the net amount withdrawn if the withdrawal is made prior to the end
of the fifth anniversary of the contract date, $5 plus 1% if the withdrawal is
made between the fifth and the end of the tenth anniversary of the contract
date, $5 if the withdrawal is made after the tenth anniversary of the contract
date. No withdrawal charge will be made after the date the Annuitant attains
age 59 1/2. The sum of any sales expense deduction and any applicable
withdrawal charge will not exceed 8.5% of total purchase payments under a
Contract.
If amounts are withdrawn from both the fixed and Variable Account
simultaneously the applicable withdrawal charges will be prorated between the
two accounts based on the amount withdrawn from each account. A withdrawal
from the Variable Account will result in the surrender of a number of
Accumulation Units of the Division in which a Contract Owner is invested
which, when multiplied by the value of an Accumulation Unit of such Division
at the Valuation Time next succeeding the time of receipt of the request,
equals the amount withdrawn plus withdrawal charges and any applicable premium
taxes.
D. MAINTENANCE CHARGE
A maintenance charge of $.75 per month is assessed for each month after AGL's
receipt of the first Periodic Payment and prior to the Annuity Commencement
Date. No maintenance charge is deducted in any month in which there is no
Accumulated Value under a Contract. The charge is designed only to reimburse
AGL for the costs of maintaining the Contract and it is not expected to exceed
such maintenance costs.
E. DEDUCTION FOR MORTALITY AND EXPENSE RISKS
AGL assumes the mortality risk incident to the Contract and receives, for
assuming the risk, an amount each Valuation Period equal to .9000% of the
value of the assets of each Division of Separate Account A annually. The
amounts are deducted from the assets of Separate Account A in accordance with
the Contract.
Each Variable Annuity payment made under a Contract varies with net investment
performance of the Stock Index Division of Separate Account A, but is not
affected by AGL's actual mortality experience among Annuitants. The life span
of the Annuitant, or changes in life expectancy in general, do not affect the
monthly Annuity payments payable under the Contract. If Annuitants live longer
than the life expectancy determined by AGL, AGL will provide funds from its
general funds to make Annuity payments. Conversely, if longevity among
Annuitants is lower than AGL determined, AGL will realize a gain.
AGL also assumes the expense risk that deductions provided for in the Contract
for sales and administrative expenses may not be enough to cover actual costs.
Where the deductions are not adequate, AGL will pay the amount of any
shortfall from its general funds. Any amounts paid by AGL may consist of,
among other things, proceeds derived from mortality and expense risk charges.
(See "Deduction for Sales and Administrative Expenses.")
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<PAGE>
For assuming the expense risk, AGL receives an amount each Valuation Period
which totals .1017% of the value of the assets of Separate Account A annually.
The deductions are made from the assets of Separate Account A as provided in
the Contract and other contracts participating in Separate Account A.
F. CONTRACT EXPENSE GUARANTEE
Pursuant to the Reorganization, Cal-Western (the predecessor to AGL) issued an
amendment, with respect to each existing Contract that was outstanding
immediately prior to the effective time of the Reorganization, that guarantees
that the total of the advisory fees charged against any of Portfolio Company's
Funds whose shares were purchased by Separate Account A, plus the mortality
and expense risk, administrative and any other charges imposed upon the assets
of the corresponding Divisions of Separate Account A, will never exceed an
amount that is equal to the total amount of the same charges that would have
been imposed under the Contracts had the Reorganization not occurred (the
"Contract Expense Guarantee"). Accordingly, AGL will, in effect, reimburse to
the appropriate Division of Separate Account A an amount that represents the
difference between the investment advisory fee charged Separate Account A or
Variable Fund C, as applicable, prior to the Reorganization and the amount of
the advisory fee charged to Portfolio Company's Funds plus any other charges
in excess of those that would have been incurred if the Reorganization had not
taken place. The mortality and expense risk and administrative charges did not
change as a result of the Reorganization, and any other charges imposed on the
assets of Separate Account A are not expected to be more than before the
Reorganization. AGL, however, will not assume extraordinary or nonrecurring
expenses of Portfolio Company, such as legal claims and liabilities,
litigation costs and indemnification payments in connection with litigation.
Also, the Contract Expense Guarantee will not apply to any federal income tax
if Portfolio Company or any Fund fails to qualify as a "regulated investment
company" under applicable provisions of the Code. As an administrative
convenience to AGL, the Contract Expense Guarantee, described above, also
applies to Contracts issued after the Reorganization. AGL, however, may amend
the Contract to eliminate the Contract Expense Guarantee regarding Contracts
issued thereafter.
G. OTHER CHARGES
Currently, no charge is made against Separate Account A for AGL's federal
income taxes, or provisions for such taxes, that may be attributable to
Separate Account A. AGL may charge each Division of Separate Account A for its
portion of any income tax charged to the Division or its assets. Under present
laws, AGL may incur state and local taxes (in addition to premium taxes) in
several states. At present, these taxes are not significant. If they increase,
however, AGL may decide to make charges for such taxes or provisions for such
taxes against Separate Account A. Any such charges against Separate Account A
or its Divisions could have an adverse effect on the investment experience of
such Division.
As discussed under "Portfolio Company" above, Portfolio Company pays VALIC a
monthly fee based on each Fund's average monthly net asset value for serving
as investment adviser for each of the Funds. The fees are reflected in the
Funds' net asset values. The investment advisory compensation arrangements as
well as the expenses of Portfolio Company are more fully described under
17
<PAGE>
"Investment Management" in Portfolio Company's prospectus. (See also "Fee
Table.")
THE CONTRACT
A. GENERAL DESCRIPTION
The Contract provides for deferred Annuities issued by AGL upon acceptance of
an application. If an application is accompanied by an initial purchase
payment, the application will be tendered to AGL, reviewed, and, if complete,
either accepted or rejected within two calendar days. If accepted, the initial
purchase payment will be applied under a Contract not later than two business
days after receipt. If the application is not complete or is incorrectly
completed when received by AGL, AGL will request additional documents or
information within five business days after receipt of the application. If the
application is not made complete within five days of receipt, the prospective
purchaser will be informed of the reasons for the delay and the initial
purchase payment will be returned immediately, and in full, unless the
prospective purchaser specifically consents to AGL retaining the purchase
payment until the application is made complete, in which event the initial
purchase payment will be applied not later than two business days after an
application is made complete. No payments received with the application will
be invested in Separate Account A until AGL signifies acceptance by written
endorsement on the application. Payments received subsequently will not be
applied under the Contract until they are received at AGL's Annuity
Administration Department. Payments received before the close of regular
trading on the New York Stock Exchange on any day when the Exchange is open
will be applied under the Contract as of the same date. Payments received
after the close of regular trading on the Exchange will be applied based upon
the Accumulation Unit Value next computed after receipt of a payment.
A Contract issued as an Individual Retirement Annuity will be accompanied by a
disclosure statement, required by the Internal Revenue Service Rules. The
Contract Owner of an Individual Retirement Annuity may surrender the Contract
within ten days of receipt for a full refund.
The Contracts allow a "free look," wherein the Contract Owner may revoke the
Contract by returning it to either a AGL sales representative or to the AGL
Annuity Administration Department within ten days of delivery of the Contract,
or such longer period as may be required by state law. If the Contract is
returned under the terms of the free look, AGL will refund to the Contract
Owner an amount equal to all payments received with respect to the Contract,
unless a larger refund is required by state law. The Withdrawal Charge will
not apply.
Periodic Payments must be made at regular intervals and in amounts indicated
on the application. The interval or amount of Periodic Payments may be changed
on any Contract Anniversary by written notice to AGL at its Annuity
Administration Department. No Periodic Payment may be less than $10. Periodic
Payments may be increased to, but not to more than, three times the amount of
the first annualized Periodic Payments. In other words, the total amount of
Periodic Payments made during the year following the date of any change cannot
be more than three times the aggregate amount of Periodic Payments made during
the first year following the Issue Date. Any increase greater than this is
only accepted upon written consent by AGL. If a Periodic Payment is not paid
by the due date, the number of Accumulation Units in the Variable Account will
remain fixed until the next payment is made, reduced only by maintenance
18
<PAGE>
charges, Withdrawals, and transfers of funds for the purchase of a fixed
annuity.
The Contracts described herein generally may not be assigned by the Contract
Owner.
The provisions of the Contracts may be changed, modified, or waived only by
certain officers of the Company acting on its behalf, and then only in
writing. In addition, the Company reserves the right, subject to compliance
with applicable law, including approval of Contract Owners if required, (1) to
add, change, or remove Divisions of the Separate Account, (2) to combine any
two or more Divisions, (3) to transfer assets from any one of the Divisions to
another Division, (4) to make additions to, deletions from, or substitutions
of other open-end management investment company shares for the shares of any
open-end management investment company held by any Division of the Separate
Account, or which any Division may purchase, and (5) to eliminate the shares
of any series of any open-end management company held by a Division and
substitute shares of another series of such open-end management investment
company, or of any other open-end management investment company.
B. THE ACCUMULATION PERIOD
The Accumulation Period is the period before commencement of Annuity payments.
During this period, AGL deducts from payments charges for sales and
administrative expenses and any premium taxes. The balance of the payments are
credited to the Variable Account in the form of Accumulation Units.
1. Accumulation Units
Purchase payments allocated to a Division of Separate Account A will be used
to purchase Accumulation Units in that Division. Each Division will then
invest in shares of a corresponding Fund of Portfolio Company.
The value of a Variable Account can be determined at any time during the
Accumulation Period by multiplying the total number of Accumulation Units in a
Division attributable to such Variable Account by the then-current value of an
Accumulation Unit in such Division. Because the value of Accumulation Units
fluctuates, there is no assurance that the value of the Accumulation Units in
a Variable Account will equal or exceed the amount of purchase payments made.
As described above, following the merger of the Quality Growth Fund into the
Stock Index Fund on May 1, 1992, the Quality Growth Division was renamed the
Stock Index Division. (See "Portfolio Company.") The value of an Accumulation
Unit for the Stock Index Division of Separate Account A solely with respect to
the first day purchase payments were allocated to the Division, known at that
time as the Quality Growth Division, following the Reorganization was equal to
the value of an Accumulation Unit of Separate Account A for the immediately
preceding valuation period multiplied by the "net investment factor"
applicable at that time to the Stock Index Division.
The initial value of an Accumulation Unit for each of the other Divisions of
Separate Account A, on the first day that purchase payments are allocated, or
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<PAGE>
transfers are made to each of such Divisions, is equal to the per share value
of a share of the corresponding Fund of Portfolio Company for the immediately
preceding valuation period multiplied by the "net investment factor" for such
Division. Once the initial Accumulation Unit value is established, the value
of an Accumulation Unit for each of the Divisions of Separate Account A for
any subsequent Valuation Period is determined by multiplying the Accumulation
Unit value for the immediately preceding Valuation Period by the net
investment factor for the subsequent Valuation Period.
The "net investment factor" for a Division is the sum of 1 plus the net
investment rate for such Division. The net investment rate for any Valuation
Period for a Division of Separate Account A is equal to the gross investment
rate for that Division for the Valuation Period, less a factor representing
charges for mortality and expense risks plus a reimbursement factor
representing the expenses which the Contract Owners would not have borne had
the Reorganization not occurred. The gross investment rate is computed on each
day during which the New York Stock Exchange is open for trading, not less
frequently than once daily as of the time of the close of regular trading on
such Exchange, and covers the Valuation Period since the next prior
computation. The gross investment rate is equal to (i) the investment income
and capital gains and losses, both realized and unrealized, on the assets of
that Division of Separate Account A during said period, divided by (ii) the
amount of such assets at the beginning of the period. The gross investment
rate may be either positive or negative. (See "Calculation of Accumulation
Unit Values" in the Statement of Additional Information.)
A Contract described in this Prospectus may be issued for use as an Internal
Revenue Code Section 403(b) "Tax Sheltered Annuity" in connection with the
Optional Retirement Program (ORP) for faculty members of Texas state-supported
institutions of higher education (see Chapter 36 of Title 110B, Texas Revised
Civil Statutes). In this situation, the application for the Contract contains
an undertaking by the applicant to be bound by all provisions of Texas law and
regulations governing the ORP.
Accordingly, the benefits of a Contract issued to a Participant in the Texas
ORP program will be payable, in compliance with Texas law and pursuant to an
SEC order of exemption, only upon (1) retirement; (2) death; or (3)
termination of employment in all Texas institutions of higher education.
2. Allocation of Purchase Payments and Transfers
Purchase payments under a Contract are allocable to one of the Divisions of
Separate Account A investing exclusively in the shares of a corresponding Fund
of Portfolio Company or, if available under a Contract, to a fixed
accumulation option. Thus, a Contract Owner or Participant has the option of
investing in either the MidCap Index Division, Asset Allocation Division,
Money Market Division, Capital Conservation Division, Government Securities
Division, or Stock Index Division subject to limitations with regard to the
availability of a Fund under a Contract, discussed above. (See "Portfolio
Company.") If a fixed accumulation option is available under a Contract,
purchase payments allocated by a Contract Owner or Participant to such option
will be placed in AGL's general account, which supports AGL's insurance and
fixed annuity obligations.
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<PAGE>
Purchase payments under a Contract are applied when they are received at AGL's
Annuity Administration Department. At that time, they are allocated to the
applicable Division of Separate Account A, as selected by a Participant. A
Participant may, once every 90 days, transfer the full amount of his or her
accumulation value from the Division in which he or she is fully invested to
any one of the other available Divisions of Separate Account A and allocate
purchase payments to such other Division or to any available fixed
accumulation option.
3. Withdrawals
The Contract Owner may withdraw (redeem) a portion or all of the value of the
Variable Account at any time prior to the Annuity Commencement Date. Upon
receipt of a written request for Withdrawal, AGL surrenders the number of
Accumulation Units, the value of which equals the requested amount plus any
amount necessary for payment of premium taxes. The amount withdrawn may be
subject to a withdrawal charge. (See "Withdrawal Charge.") The value of the
Accumulation Units is determined as of the Valuation Period immediately after
receipt of the request. Payment of the withdrawn amount is made within seven
days after receipt of the request at AGL's Annuity Administration Department.
If the entire value of the Variable Account is withdrawn and no payments are
made for two years following Withdrawal, AGL may consider the Contract
terminated. Withdrawals may be subject to penalties for premature withdrawals,
or may be restricted or have special federal tax consequences because the
Contract is used in connection with tax-favored retirement programs. (See
"Federal Income Tax Matters.")
4. Termination
At any time prior to the Annuity Commencement Date, a Contract Owner may
surrender the Contract for its Accumulated Value less any applicable premium
taxes. Surrender is effected upon receipt by AGL at its Annuity Administration
Department of a written request by the Contract Owner and the Contract.
Payment of the Accumulated Value will be made within seven days after
surrender. Surrender may be restricted or have special federal tax
consequences, because the Contract is used in connection with tax-favored
retirement programs. (See "Federal Income Tax Matters.")
Payment may be suspended or postponed at any time Portfolio Company's shares
are suspended or postponed.
C. THE ANNUITY PERIOD
Annuity payments begin on the Annuity Commencement Date. The Contract Owner
selects the Annuity Commencement Date before the issuance of the Contract and
can select any date prior to the Annuitant's 75th birthday. (But see current
required distribution rules under "Federal Income Tax Matters.") The Contract
Owner also has the right to change the Annuity Commencement Date at any time
during the Accumulation Period by 30 days' written notice to AGL at its
Annuity Administration Department. If the Contract Owner defers the Annuity
Commencement Date, he can either continue making Periodic Payments or cease
Periodic Payments on the originally selected date.
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FOLLOWING THE ANNUITY COMMENCEMENT DATE, WHEN VARIABLE ANNUITY PAYMENTS ARE TO
BE MADE, ONLY THE STOCK INDEX DIVISION IS AVAILABLE TO A CONTRACT OWNER OR
PARTICIPANT UNDER A CONTRACT. However, AGL reserves the right to change the
Division available under a Contract for Variable Annuity payments or to add
Divisions with respect to Contract Owners or Participants who have not yet
commenced receiving Variable Annuity payments.
The Contract Owner elects how Annuity payments will be made. The Contract
automatically provides the Basic Annuity, a life Annuity with 120 payments
guaranteed. In place of the Basic Annuity, the Contract Owner can elect an
optional Annuity with payments made under one of the following settlement
Options. The election must be made in writing to AGL at its Annuity
Administration Department. The written notification must also include the
selected Annuity Commencement Date. Election must be made at least 30 days
before the Annuity Commencement Date but can be changed at any time on 30
days' written notice.
The election provisions of the Contract are, however, subject to both
applicable law and terms of the particular retirement plan in connection with
which the Contract is issued. In particular, the federal tax rules governing
certain retirement plans ordinarily limit the ability of a Contract Owner to
defer payment beyond April 1 of the calendar year following the calendar year
in which the Contract Owner attains age 70 1/2 or retires, whichever is later,
in connection with most tax-qualified plans (age 70 1/2 in the case of
Individual Retirement Annuities; no limit in the case of Roth IRAs) and may
also limit the election of certain settlement options. (See "Federal Income
Tax Matters.") Unless otherwise elected, amounts accumulated in a Division of
Separate Account A will be applied to purchase a Variable Annuity.
1. Settlement Options
An AGL Annuity Contract or the following Settlement Options are also available
to a Beneficiary. The Beneficiary can make the election as an alternative to a
lump sum payment at the Annuitant's death before the Annuity Commencement
Date. When the Beneficiary makes the election, the Beneficiary becomes the
Payee, the person receiving the payments. The Beneficiary also becomes the
measuring life, in place of the deceased Annuitant, for purposes of the
Settlement Options. The Contract Owner also has the right to name himself as
Payee.
OPTION 1 -- LIFE ANNUITY -- An Annuity payable monthly during the lifetime of
the Annuitant (or Beneficiary, if applicable) and terminating with the last
payment preceding his death. There is no provision for payment of a death
benefit on the Annuitant's death and no guarantee of a minimum number of
payments.
OPTION 2 -- JOINT AND SURVIVOR ANNUITY -- An Annuity payable during the joint
lifetime of the Annuitant (or Beneficiary, if applicable) and another person
chosen by the Contract Owner, the Annuitant in the absence of the Contract
Owner or the Beneficiary, if applicable. After the selected joint lifetime,
payments continue during the remaining lifetime of the survivor. It is
possible under this option for the Annuitant or other payee to receive only
one annuity payment if both die before the second annuity payment, since no
minimum number of payments is guaranteed. If one of these persons dies before
the Annuity Commencement Date, the election of this option is revoked, the
survivor becomes the sole Annuitant, and no death proceeds are payable by
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virtue of the death of the other Annuitant.
OPTION 3 -- LIFE ANNUITY WITH 60, 120, 180 OR 240 MONTHLY PAYMENTS GUARANTEED
- -- An Annuity payable monthly during the lifetime of the Annuitant (or
Beneficiary, if applicable). This Option guarantees that if, at the death of
the Annuitant (or Beneficiary, if applicable), payments have been made for
less than 60, 120, 180 or 240 months, as selected, payments will continue for
the remainder of the designated period.
Where the measuring life is that of the Annuitant, payments after his death
are made to the designated Beneficiary. The Beneficiary, however, can elect at
any time to receive the present value of the guaranteed payments remaining in
a lump sum. When the measuring life is that of the Beneficiary, payments are
discontinued after the Beneficiary's death. The present value of the
guaranteed payments remaining is paid as a lump sum, in accordance with the
Contract.
The present value of the guaranteed payments remaining is calculated as of the
Valuation Period during which notice of death is received by AGL at its
Annuity Administration Department. At that time, the amount of the total
number of guaranteed Annuity payments remaining is computed at the net
investment rate, using the Annuity Unit value for the Stock Index Division for
the Valuation Period immediately succeeding receipt of the notice of death.
The resultant amount is paid as a lump sum.
OPTION 4 -- UNIT REFUND LIFE ANNUITY -- An Annuity payable monthly during the
lifetime of the Annuitant (or Beneficiary, if applicable) and terminating with
the last payment preceding his death. After his death, an additional payment
is made if the number of Annuity Units represented by the proceeds of the
Variable Account on the Annuity Commencement Date is greater than the number
of Annuity Units represented by the total amount of payments received during
the measuring lifetime. In other words, a payment is made in accordance with
the Contract when (a) below exceeds (b) below:
a = Total amount applied under the Option at the Annuity Commencement
Date
divided by
the Annuity Unit value for the Stock Index Division at the
Annuity Commencement Date
b = Number of Annuity Units in Stock Index Division represented by
each monthly Annuity payment made
multiplied by
the number of Annuity payments made.
When (a) is greater than (b), the excess amount is multiplied by the Annuity
Unit value for the Stock Index Division as of the Valuation Period during
which notice of death is received by AGL at its Annuity Administration
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Department. The resultant amount is paid as a lump sum.
OPTION 5 -- INSTALLMENTS FOR A DESIGNATED PERIOD -- A series of monthly
payments to the payee over a period of one to twenty years, as elected. At the
death of the payee, the guaranteed payments remaining are paid in accordance
with the Contract. If the Annuitant is the payee, any guaranteed payments
remaining are made to the designated Beneficiary. The Beneficiary can, at any
time, elect to receive the present value of any guaranteed payments remaining
as a lump sum.
If a Beneficiary is the payee, the present value of the amount of any
guaranteed payments remaining is calculated and the resultant amount paid as a
lump sum. If the Contract Owner is the Payee, payments continue after the
Annuitant's death for the remainder of the designated period.
The Contract Owner may at any time elect, however, to receive the present
value of the remaining payments paid as a lump sum. Payments made under this
Option are increased in amount by a factor which offsets the charge for
mortality risk.
OPTION 6 -- INSTALLMENTS OF A DESIGNATED AMOUNT -- A series of equal payments
of a designated amount to the payee made as annual, semiannual, quarterly or
monthly installments. The value of the Variable Account, less any applicable
premium taxes, is used to make the payments, and the payments continue until
the proceeds, adjusted by the investment experience of the Stock Index
Division of Separate Account A, are exhausted. The payee may at any time
receive the remaining amount of the proceeds by submitting a written request
to AGL at its Annuity Administration Department. At the death of the payee,
payments continue to his designated Beneficiary. If a
Beneficiary is the payee, and dies before the proceeds are exhausted, the
balance of the proceeds is paid as a lump sum in accordance with the Contract.
Payments made under this Option are increased by a factor which offsets the
charge for mortality risk.
OPTION 7 -- INTEREST INCOME -- Interest of 3% on the investment of the
proceeds of the Variable Account outside of the Stock Index Division of
Separate Account A is paid to the payee in monthly, quarterly, semiannual or
annual installments. The value of the Variable Account is automatically
removed from the Stock Index Division of Separate Account A and deposited with
AGL at a fixed rate of interest. The payee may, at any time, withdraw (redeem)
all or a portion of the remaining balance of the Variable Account in a lump
sum by submitting a written request to AGL at its Annuity Administration
Department. If the payee dies while receiving installments, the principal to
which the Payee would be entitled to if alive is paid as a lump sum in
accordance with the Contract. This Option is in any event subject to the
minimum distribution rules under the Code, which are described under "Federal
Income Tax Matters."
If Option 5, Option 6 or Option 7 is elected by a person other than the
Contract Owner, the payee may be considered for federal income tax purposes to
have received the proceeds of the Variable Account in a lump sum. The amount
of the proceeds which exceeds the amount of total payments made by the
Contract Owner may be considered ordinary income to the payee in the year of
election. This could result in taxable income in the year of election even
though payments are not received until subsequent years. Anyone electing these
Options should consult a qualified tax adviser. (See "Federal Income Tax
Matters.")
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Under Settlement Options 1 through 5, the amount of the first
monthly payment is calculated as of the Annuity Commencement Date. The number
of Accumulation Units credited to the Variable Account is multiplied by the
value of an Accumulation Unit for the applicable Division of Separate Account
A for the Valuation Period immediately preceding two weeks before the Annuity
Commencement Date. The resulting value is called the Accumulated Value. Tables
in the Contracts indicate the amount of the first monthly payment for each
$1000 of Accumulated Value, minus any applicable premium taxes. The tables are
based on Progressive Annuity Tables with interest at the rate of 3 1/2% per
annum and assume births in 1900. Under Settlement Options 1 through 4, payment
amounts illustrated vary with the sex of the Annuitant. Amounts under any of
the first five Settlement Options vary with the adjusted age of the Annuitant,
determined using formulas provided by the Contracts.
Under Settlement Options 6 and 7, the amount of the first payment is
prescribed by the Contracts. Under Settlement Option 7, however, AGL may
increase the net investment rate above the guaranteed rate.
Under all of the Settlement Options, AGL bases the payment calculations on the
same mortality basis used for individual single premium Annuity contracts
issued to the same class of Annuitants, when doing so results in a larger
first payment. If, however, the dollar value of the Variable Account is less
than $2,000 at the Annuity Commencement Date, AGL may pay the amount out in a
lump sum, regardless of the Settlement Option chosen.
Second and subsequent payments under the Basic Annuity and Settlement Options
1 through 5 are determined using the Annuity Unit value for the Stock Index
Division for the Valuation Period when the payment is due. The Annuity Unit
value for the Stock Index Division for any Valuation Period is determined by
multiplying the value for the immediately preceding Valuation Period by the
product of (I) the net investment factor for the Valuation Period two weeks
immediately preceding the Valuation Period when payment is due, and (ii) a
factor to neutralize the assumed net interest rate of 3 1/2% per annum built
into the Annuity tables contained in the Contracts. This produces the value of
the Annuity Unit for the Stock Index Division for the current Valuation
Period. (See "Annuity Payments" in the Statement of Additional Information.)
2. Annuity Payments.
The amount of the first payment is divided by the Annuity Unit value for the
Stock Index Division for the Valuation Period when payment is due. This
determines the number of Annuity Units in the Stock Index Division represented
by the first payment. The number of Annuity Units remains constant throughout
the Annuity Period. Each subsequent payment is determined by multiplying the
number of Annuity Units in the Stock Index Division by the value of the
Annuity Unit in the Stock Index Division for the Valuation Period when payment
is due. Under Settlement Options 5, 6, and 7, the Contract may be surrendered
for a lump sum payment in lieu of Annuity payments once Annuity payments have
started.
The amount of the first payment is determined using an assumed interest rate
of 3 1/2% per annum. The amount of subsequent payments will vary in amount in
accordance with the actual net investment rate. If the actual net investment
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rate is less than 3 1/2%, the amount of the payment is less; if greater than 3
1/2%, the amount of the payment is greater. Whenever the amounts of payments
becomes less than $20, AGL can change the frequency of payments to intervals
which result in payments of at least $20.
D. DEATH BENEFITS
1. Death Benefits Prior to the Annuity Commencement Date
If the Participant dies prior to the Annuity Commencement Date, AGL will pay
the death benefits to the Beneficiary. The death benefit will equal the
Accumulated Value of a Variable Account as of the Valuation Period in which
written proof of death is received by AGL at its Annuity Administration
Department, less any applicable premium taxes.
If the Participant has not already done so, the Beneficiary may, within sixty
days after the date of death, elect to receive the death proceeds as a lump
sum or in the form of one of the annuity payment options provided in the
Contract. See "The Contract -- The Annuity Period." If no request is received
as to the manner of payment, AGL will make a lump-sum payment, based on values
determined at that time.
If the Participant under a Contract dies prior to the Annuity Commencement
Date, the Code requires that all amounts payable under the Contract be
distributed (a) within five years of the date of death or (b) as annuity
payments beginning within one year of the date of death and continuing over a
period not extending beyond the life or life expectancy of the Beneficiary. If
the Beneficiary is the Participant's surviving spouse, distributions need not
begin until the date the Participant would have attained age of 70 1/2.
Failure to satisfy these Code distribution requirements may result in serious
adverse tax consequences.
2. Death Proceeds After the Annuity Commencement Date
If the Participant dies following the Annuity Commencement Date, the only
amounts payable to the Beneficiary are any continuing payments provided for
under the annuity payment option selected, which must be distributed at least
as rapidly as under that option. Failure to satisfy these requirements of the
Code may result in serious adverse tax consequences. See "Annuity Payment
Options." In such a case, the Payee will have all the remaining rights and
powers under a Contract and be subject to all the terms and conditions
thereof.
3. Proof of Death
AGL will accept the following as proof of any person's death: a copy of a
certified death certificate; a copy of a certified decree of a court of
competent jurisdiction as to the finding of death; a written statement by a
medical doctor who attended the deceased at the time of death; or any other
proof satisfactory to AGL.
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Once AGL has paid the death proceeds, the Contract terminates and AGL has no
further obligations thereunder.
FEDERAL INCOME TAX MATTERS
A. GENERAL
It is not possible to comment on all of the federal income tax consequences
associated with the Contracts. Federal income tax law is complex and its
application to a particular person may vary according to facts peculiar to
such person. Consequently, this discussion is not intended as tax advice, and
you should consult with a competent tax adviser before purchasing a Contract.
The discussion is based on the law, regulations and interpretations existing
on the date of this Prospectus. Congress has in the past and may again in the
future enact legislation changing the tax treatment of annuities in both the
Qualified and the Non-Qualified markets. The Treasury Department may issue new
or amended regulations or other interpretations of existing tax law. Judicial
interpretations may also affect the tax treatment of annuities. It is possible
that such changes could have a retroactive effect. We suggest that you consult
your legal or tax adviser on these issues.
The discussion does not address state or local tax or estate and gift tax
consequences associated with the Contracts.
B. QUALIFIED CONTRACTS PURCHASED BY CERTAIN TAX-EXEMPT EMPLOYERS
PURCHASE PAYMENTS. Purchase payments made by certain tax-exempt employers or
by public educational institutions on behalf of an employee are not included
in the employee's income under Code Section 403(b) if the Contract meets
certain requirements. Under such a Section 403(b) Qualified Contract, purchase
payments may be made as elective deferrals through a salary reduction
agreement with an employee, but these payments are generally limited after
1986 to a maximum of $9,500 per year (and possibly less depending on the
employee's years of service, compensation and prior elective deferrals).
Purchase payments that are not elective deferrals are subject to other limits.
DISTRIBUTIONS DURING THE ACCUMULATION PERIOD. Under the Code, amounts received
by an Annuitant upon a partial or total surrender of a Section 403(b)
Qualified Contract are generally allocated on a pro rata basis between the
employee's after tax investment in the Contract (if any) and other amounts. A
10 percent penalty tax is imposed on the amount includible in gross income
from distributions that occur before age 59 1/2 and that are not made on
account of death or disability, with certain exceptions. These exceptions
include distributions that are (1) part of a series of substantially equal
periodic payments beginning after the employee separates from service and made
over the life (or life expectancy) of the employee or the joint lives (or
joint life expectancies) of the employee and his or her beneficiary, (2) made
after separation from service following attainment of age 55, or (3) made to
an alternate payee under a qualified domestic relations order. Post-1988
elective deferrals (made under a salary reduction agreement) and the earnings
thereon may not be distributed prior to age 59 1/2, separation from service,
death or disability. Distributions of elective deferrals (but not any income
earned thereon) made after 1988 are permissible in the case of hardship; the
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distribution, however, may be subject to a 10% penalty tax as a premature
distribution, as described above. Unless certain term and amount requirements
are met, loans from section 403(b) Qualified Contracts will be treated as
distributions.
A distribution from a Section 403(b) Qualified Contract is an eligible
rollover distribution. If any amount of the distribution is not paid as a
direct rollover, such amount will be subject to 20% income tax withholding.
See "Tax Free Rollovers."
ANNUITY PAYMENTS. Annuity Payments received under a Section 403(b) Qualified
Contract by an Annuitant are generally taxed in the same manner as Annuity
payments under Non-Qualified Contracts. In the case of benefits accrued after
December 31, 1986 under a Section 403(b) Qualified Contract, distributions of
minimum amounts specified by the Code must commence by April 1 of the calendar
year following the calendar year in which the Annuitant attains age 70 1/2,
regard-less of whether he has retired, except for employees covered by a
governmental or church plan. Additional distribution requirements apply to
beneficiaries of deceased Annuitants. Failure to comply with the distribution
rules will result in the imposition of a penalty tax of 50 percent of the
amount by which the minimum distribution required exceeds the actual
distribution.
C. INDIVIDUAL RETIREMENT ANNUITIES ("IRAS")
PURCHASE PAYMENTS. Individuals who are not active participants in a tax
qualified retirement plan may, in any year, deduct from their taxable income
purchase payments for an IRA equal to the lesser of $2,000 or 100% of the
individual's earned income. In the case of married individuals filing a joint
return, the deduction will, in general, be the lesser of $4,000 or 100% of the
combined earned income of both spouses, reduced by any deduction for an IRA
purchase payment allowed to the spouse. Single persons who participate in a
tax-qualified retirement plan and who have adjusted gross income not in excess
of $30,000 may fully deduct their IRA purchase payments. Those who have
adjusted gross income in excess of $40,000 will not be able to deduct purchase
payments, and for those with adjusted gross income between $30,000 and $40,000
the deduction is phased out based on the amount of income. Beginning in 1999,
the income range over which the otherwise deductible portion of an IRA
purchase payment will be phased out for single persons will increase, as
follows: 1999--$31,000 to $41,000; 2000--$32,000 to $42,000; 2001--$33,000 to
$43,000; 2002--$34,000 to $44,000; 2003--$40,000 to $50,000; 2004-- $45,000 to
$55,000; and 2005 and thereafter--$50,000 to $60,000.
Similarly, the otherwise deductible portion of an IRA purchase payment will be
phased out, in the case of married individuals filing joint tax returns, with
adjusted gross income between $50,000 and $60,000, and in the case of married
individuals filing separately, with adjusted gross income between $0 and
$10,000. Beginning in 1999, the income range over which the otherwise
deductible portion of an IRA purchase payment will be phased out for married
individuals filing joint tax returns will increase as follows: 1999--$51,000
to $61,000; 2000--$52,000 to $62,000; 2001--$53,000 to $63,000; 2002-- $54,000
to $64,000; 2003--$60,000 to $70,000; 2004-- $65,000 to $75,000; 2005--$70,000
to $80,000; 2006--$75,000 to $85,000; and 2007 and thereafter--$80,000 to
$100,000.
A married individual filing a joint tax return, who is not an active
participant in a tax qualified retirement plan, but whose spouse is an active
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participant in such a plan, may, in any year, deduct from his or her taxable
income purchase payments for an IRA equal to the lesser of $2,000 or 100% of
the individual's earned income. For such an individual, the income range over
which the otherwise deductible portion of an IRA purchase payment will be
phased out is $150,000 to $160,000.
TAX FREE ROLLOVERS. Amounts may be transferred in a tax-free rollover from a
tax-qualified plan to an IRA (and from one IRA to another IRA) if certain
conditions are met. All taxable distributions ("eligible rollover
distributions") from tax qualified plans are eligible to be rolled over with
the exception of (1) annuities paid over a life or life expectancy, (2)
installments for a period of ten years or more, and (3) required minimum
distributions under section 401(a)(9) of the Code.
Rollovers may be accomplished in two ways. First, an eligible rollover
distribution may be paid directly to an IRA (a "direct rollover"). Second, the
distribution may be paid directly to the Annuitant and then, within 60 days of
receipt, the amount may be rolled over to an IRA. However, any amount that was
not distributed as a direct rollover will be subject to 20% income tax
withholding
DISTRIBUTIONS FROM AN IRA. Amounts received under an IRA as annuity payments,
upon partial withdrawal or total surrender, or on the death of the Annuitant,
are included in the Annuitant's or other recipient's income. If nondeductible
purchase payments have been made, a pro rata portion of such distributions may
not be included in income. A 10% penalty tax is imposed on the amount
includible in gross income from distributions that occur before the Annuitant
attains age 59 1/2 and that are not made on account of death or disability,
with certain exceptions, including distributions for qualified first-time home
purchases for the individual, a spouse, children, grandchildren or ancestor,
subject to a $10,000 lifetime maximum, and distributions for higher education
expenses for the individual, a spouse, children, or grandchildren. These
exceptions include distributions that are part of a series of substantially
equal periodic payments made over the life (or life expectancy) of the
Annuitant or the joint lives (or joint life expectancies) of the Annuitant and
the Beneficiary. Distributions of minimum amounts specified by the Code must
commence by April 1 of the calendar year following the calendar year in which
the Annuitant attains age 70 1/2. Additional distribution rules apply after
the death of the Annuitant. These rules are similar to those governing
distributions on the death of an Owner (or other payee during the Annuity
Period) under a Non-Qualified Contract. See "Death Proceeds." Failure to
comply with the minimum distribution rules will result in the imposition of a
penalty tax of 50% of the amount by which the minimum distribution required
exceeds the actual distribution.
D. ROTH IRAS
Beginning in 1998, individuals may purchase a new type of non-deductible IRA,
known as a Roth IRA. Purchase payments for a Roth IRA are limited to $2,000
per year. This limitation is reduced for adjusted gross income beginning at
$95,000 and is eliminated at $110,000 in the case of single taxpayers, between
$150,000 and $160,000 in the case of married taxpayers filing joint returns,
and between $0 and $15,000 in the case of married taxpayers filing separately.
An overall $2,000 annual limitation continues to apply to all of a taxpayer's
IRA contributions, including Roth IRAs and non- Roth IRAs.
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An individual may make a rollover contribution from a non-Roth IRA to a Roth
IRA, unless the individual has adjusted gross income over $100,000 or the
individual is a married taxpayer filing a separate return. The individual must
pay tax on any portion of the IRA being rolled over that represents income or
a previously deductible IRA contribution. For rollovers in 1998, the
individual may pay that tax ratably in 1998 and over the succeeding three
years. There are no similar limitations on rollovers from a Roth IRA to
another Roth IRA.
Qualified distributions from Roth IRAs are entirely tax free. A qualified
distribution requires that the individual has held the Roth IRA for at least
five years and, in addition, that the distribution is made either after the
individual reaches age 59 1/2 on the individual's death or disability, or as a
qualified first-time home purchase, subject to a $10,000 lifetime maximum, for
the individual, a spouse, child, grandchild, or ancestor.
E. SIMPLIFIED EMPLOYEE PENSION PLANS
Employees and employers may establish an IRA plan known as a simplified
employee pension plan ("SEP") if certain requirements are met. An employee may
make contributions to a SEP in accordance with the rules applicable to IRAs
discussed above. Employer contributions to an employee's SEP are deductible by
the employer and are not currently includible in the taxable income of the
employee. However, total employer contributions are limited to 15% of an
employee's compensation or $30,000, whichever is less.
F. SIMPLE RETIREMENT ACCOUNTS
Employees and employers may establish an IRA plan known as a simple retirement
account ("SRA"), if certain requirements are met. Under an SRA, the employer
contributes elective employee compensation deferrals up to a maximum of $6,000
a year. The employer must, in general, make a fully vested matching
contribution for employee deferrals up to 3% of compensation.
G. OTHER QUALIFIED PLANS
PURCHASE PAYMENTS. Purchase payments made by an employer under a pension,
profit-sharing, or annuity plan qualified under section 401 or 403(a) of the
Code, not in excess of certain limits, are deductible by the employer. Such
purchase payments are also excluded from the current income of the employee.
DISTRIBUTIONS PRIOR TO THE ANNUITY COMMENCEMENT DATE. To the extent that
purchase payments are includible in an employee's taxable income, they (less
any amounts previously received that were not includible in the employee's
taxable income) represent his or her "investment in the Contract." Amounts
received prior to the Annuity Commencement Date under a Contract in connection
with a section 401 or 403(a) plan are generally allocated on a pro-rata basis
between the employee's investment in the Contract and other amounts. With
respect to the taxable portion of a lump-sum distribution (as defined in the
Code), an averaging rule may be applicable that allows computation of tax as
if the amount were received over a period of five years. A lump-sum
distribution will not be includible in income in the year of distribution if
the employee transfers, within 60 days of receipt, all amounts received, less
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the employee's investment in the Contract, to another tax-qualified plan or to
an individual retirement account or an IRA in accordance with the rollover
rules under the Code. However, any amount that is not distributed as a direct
rollover will be subject to 20% income tax withholding. See "Tax Free
Rollovers." Special tax treatment may be available in the case of certain
lump-sum distributions that are not rolled over to another plan or IRA.
A 10% penalty tax is imposed on the amount includible in gross income from
distributions that occur before the employee's attaining age 59 1/2 and that
are not made on account of death or disability, with certain exceptions. These
exceptions include distributions that are (1) part of a series of
substantially equal periodic payments beginning after the employee separates
from service and made over the life (or life expectancy) of the employee or
the joint lives (or joint life expectancies) of the employee and the
Beneficiary, (2) made after the employee's separation from service on account
of early retirement after age 55, or (3) made to an alternate payee pursuant
to a qualified domestic relations order.
ANNUITY PAYMENTS. A portion of annuity payments received under Contracts in
connection with section 401 and 403(a) plans after the Annuity Commencement
Date may be excludible from the employee's income, in the manner discussed
above, in connection with Variable Annuity Payments under "Non-Qualified
Contracts - Taxation of Annuity Payments", except that the number of expected
payments is determined under a provision in the Code. Distributions of minimum
amounts specified by the Code generally must commence by April 1 of the
calendar year following the calendar year in which the employee attains age 70
1/2 or retires, if later. Failure to comply with the minimum distribution
rules will result in the imposition of a penalty tax of 50% of the amount by
which the minimum distribution required exceeds the actual distribution.
SELF-EMPLOYED INDIVIDUALS. Various special rules apply to tax-qualified plans
established by self- employed individuals.
H. PRIVATE EMPLOYER UNFUNDED DEFERRED COMPENSATION PLANS
PURCHASE PAYMENTS. Private taxable employers may establish unfunded,
Non-Qualified deferred compensation plans for a select group of management or
highly compensated employees and/or for independent contractors. These types
of programs allow individuals to defer receipt of up to 100% of compensation
that would otherwise be includible in income and therefore to defer the
payment of federal income taxes on such amounts, as well as earnings thereon.
Purchase payments made by the employer, however, are not immediately
deductible by the employer, and the employer is currently taxed on any
increase in Account Value.
Deferred compensation plans represent a contractual promise on the part of the
employer to pay current compensation at some future time. The Contract is
owned by the employer and is subject to the claims of the employer's
creditors. The individual has no right or interest in the Contract and is
entitled only to payment from the employer's general assets in accordance with
plan provisions.
TAXATION OF DISTRIBUTIONS. Amounts received by an individual from a private
employer deferred compensation plan are includible in gross income for the
taxable year in which such amounts are paid or otherwise made available.
31
<PAGE>
I. FEDERAL INCOME TAX WITHHOLDING AND REPORTING
Amounts distributed from a Contract, to the extent includible in taxable
income, are subject to federal income tax withholding. The payee may, however,
elect to have no income tax withheld by submitting a withholding exemption
certificate to us.
In some cases, if you own more than one Qualified annuity contract, such
contracts may be aggregated for purposes of determining whether the federal
tax law requirement for minimum distributions after age 70 1/2, or retirement,
in appropriate circumstances, has been satisfied. If, under this aggregation
procedure, you are relying on distributions pursuant to another annuity
contract to satisfy the minimum distribution requirement under a Qualified
Contract issued by us, you must sign a waiver releasing us from any liability
to you for not calculating and reporting the amount of taxes and penalties
payable for failure to make required minimum distributions under the Contract.
SERVICES AGREEMENT
American General Independent Producer Division ("AGIPD") is party to a general
services agreement with AGL. AGIPD, an affiliate of AGL, is a corporation
incorporated in Delaware on November 24, 1997. Its Home Address is 2727-A
Allen Parkway, Houston, Texas 77019. Pursuant to this agreement, AGIPD
provides services to AGL, including most of the administrative, data
processing, systems, customer services, product development, actuarial,
auditing, accounting and legal services for AGL and the Contracts.
VOTING RIGHTS
Participants prior to the Annuity Commencement Date, and Annuitants or other
payees during the Annuity Period, may instruct AGL as to the voting of
Portfolio Company shares attributable to their respective interests under the
Contracts at meetings of shareholders of Portfolio Company. Those persons
entitled to vote will receive proxy material and a form on which voting
instructions may be given. AGL will vote the shares of each Fund of Portfolio
Company held by the corresponding Division of Separate Account A, attributable
to the Contracts, in accordance with instructions received with respect to all
Contracts. Shares held in each Division for which timely instructions have not
been received will be voted by AGL for or against any proposition, or AGL will
abstain, in the same proportion as shares in that Division for which
instructions are received. AGL will vote, or abstain from voting, any
Portfolio Company shares that are not attributable to the Contracts in the
same proportion as all Participants in Separate Account A vote or abstain.
However, if AGL determines that it is permitted to vote such shares of
Portfolio Company in its own right, it may elect to do so, subject to the
then-current interpretation of the 1940 Act and the rules thereunder.
Unless the Contract has been issued in connection with a deferred compensation
plan, individuals participating under a Contract Owner's retirement plan have
the right to instruct the owner with respect to shares attributable to their
contributions and to such additional extent as the owner's retirement plan may
permit.
The number of shares of Portfolio Company held in a Division deemed
attributable to a Participant's interest under a Contract prior to the Annuity
32
<PAGE>
Commencement Date will be determined on the basis of the value of the
Accumulation Units credited to the Participant's account as of the record
date. On or after the Annuity Commencement Date, the number of attributable
shares will be based on the amount of assets held to meet Annuity obligations
to the payee under the Contract as of the record date. During the Annuity
Period, the number of votes attributable to a Contract or participation will
generally decrease since funds set aside for an Annuitant will decrease.
Because Portfolio Company is organized as a corporation under Maryland law, it
is not required to hold regular annual shareholder meetings to elect members
of the board of directors and it does not expect to hold annual meetings for
any other purpose. If members of the board of directors of Portfolio Company
are required to be elected or any other action is required to be taken at any
special or annual meeting of Portfolio Company, instructions for voting shares
underlying the interests of Participants will, as indicated above, be
solicited by means of proxy materials.
Matters pertaining to all of the Funds, such as the election of directors or
the ratification of independent auditors, will be submitted to a vote of the
shareholders of all of the Funds. However, matters pertaining to only certain
Funds will be submitted to a vote of the shareholders of only those Funds.
THE STATEMENT OF ADDITIONAL INFORMATION
This Prospectus contains information concerning Separate Account A, AGL and
the Contracts, but does not contain all of the information set forth in the
Registration Statement and all exhibits and schedules relating thereto which
AGL has filed with the SEC.
Additional information may be obtained from AGL by requesting from AGL's
Annuity Administration Department a Statement of Additional Information.
Please use the address or telephone number on the first page of this
prospectus. For convenience, the Table of Contents of the Statement of
Additional Information is provided below:
TABLE OF CONTENTS
OF THE STATEMENT OF ADDITIONAL INFORMATION
General Information..........................................................2
Regulation and Reserves......................................................2
Independent Auditors.........................................................3
Distribution.................................................................3
Underwriters.................................................................3
Services.....................................................................3
Gender of Annuitant..........................................................4
Misstatement of Age or Sex and Other Errors..................................4
Change of Investment Adviser or Investment Policy............................4
Calculation of Accumulation Unit Values......................................4
Annuity Payments.............................................................6
Index to Financial Statements................................................8
Financial Statements.........................................................9
33
<PAGE>
AMERICAN GENERAL LIFE INSURANCE COMPANY SEPARATE ACCOUNT A
INDIVIDUAL VARIABLE RETIREMENT ANNUITY
CONTRACTS
OFFERED BY
AMERICAN GENERAL LIFE INSURANCE COMPANY
ANNUITY ADMINISTRATION DEPARTMENT
P. O. BOX 1401, HOUSTON, TEXAS 77251-1401
1-800-247-6584 OR 713/831-3505
The individual variable retirement annuity contracts (the "Contracts") offered
by American General Life Insurance Company ("AGL"), the successor to
California-Western States Life Insurance Company ("Cal-Western"), in
connection with this Prospectus are designed for use in connection with
certain tax-qualified plans established under the Internal Revenue Code of
1986, as amended (the "Code"). Payments received with respect to a Contract
(subject to certain deductions) are deposited by AGL in the separate
investment account entitled American General Life Insurance Company Separate
Account A ("Separate Account A") for further investment.
Separate Account A is a unit investment trust separate account. Separate
Account A currently consists of six Divisions, each of which invests
exclusively in shares of one of the separate portfolios ("Funds") of American
General Series Portfolio Company ("Portfolio Company"). Portfolio Company
currently consists of 13 Funds. The Divisions of Separate Account A invest in
the following six Funds: MidCap Index Fund, Asset Allocation Fund, Money
Market Fund, Capital Conservation Fund, Government Securities Fund, and Stock
Index Fund.
This Prospectus contains information regarding the Contracts that investors
should know before investing. It should be read and retained for future
reference. A Statement of Additional Information, incorporated herein by
reference and dated May 1, 1998, has been filed with the Securities and
Exchange Commission ("SEC"). Investors can obtain a free copy of the Statement
of Additional Information by contacting AGL at the address or telephone number
given above. The Table of Contents for the Statement of Additional Information
appears at the end of this Prospectus.
NO PERSON HAS BEEN AUTHORIZED TO GIVE ANY INFORMATION OR TO MAKE ANY
REPRESENTATIONS OTHER THAN THOSE CONTAINED IN THIS PROSPECTUS AND THE RELATED
STATEMENT (OR ANY SALES LITERATURE APPROVED BY AGL) IN CONNECTION WITH THE
OFFER CONTAINED IN THIS PROSPECTUS, AND, IF GIVEN OR MADE, SUCH INFORMATION OR
REPRESENTATIONS MUST NOT BE RELIED UPON AS HAVING BEEN AUTHORIZED. THE
CONTRACTS ARE NOT AVAILABLE IN ALL STATES AND THIS PROSPECTUS DOES NOT
CONSTITUTE AN OFFER IN ANY JURISDICTION TO ANY PERSON TO WHOM SUCH OFFER WOULD
BE UNLAWFUL THEREIN.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION NOR HAS THE COMMISSION PASSED ON THE ACCURACY OR ADEQUACY
OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
THIS PROSPECTUS IS VALID ONLY WHEN ACCOMPANIED BY THE CURRENT AMERICAN GENERAL
SERIES PORTFOLIO COMPANY PROSPECTUS.
INVESTORS ARE ADVISED TO RETAIN THIS PROSPECTUS FOR FUTURE REFERENCE.
PROSPECTUS DATED MAY 1, 1998
<PAGE>
<TABLE>
<CAPTION>
TABLE OF CONTENTS
Page
Number
------
<S> <C>
Definitions...........................................................................3
Fee Table.............................................................................4
Prospectus Summary....................................................................5
A. The Contracts...............................................................5
B. AGL.........................................................................6
C. Separate Account A..........................................................6
D. Sales Charges and Other Deductions..........................................6
E. Free Look...................................................................7
Selected Accumulation Unit Data.......................................................7
AGL, Separate Account A and Portfolio Company.........................................9
A. AGL and Separate Account A..................................................9
B. Portfolio Company..........................................................13
Deductions and Charges...............................................................13
A. Deduction for Sales and Administrative Expenses............................13
B. Deduction for Premium Taxes................................................14
C. Deduction for Mortality and Expense Risks..................................14
D. Contract Expense Guarantee.................................................15
E. Other Charges..............................................................15
The Contract.........................................................................16
A. General Description........................................................16
B. The Accumulation Period....................................................17
C. The Annuity Period.........................................................19
D. Death Benefits.............................................................23
Federal Income Tax Matters...........................................................24
A. General....................................................................24
B. Qualified Contracts Purchased by Certain Tax-Exempt Employers..............25
C. Individual Retirement Annuities............................................26
D. Roth IRAs..................................................................27
E. Simplified Employee Pension Plans..........................................27
F. Simple Retirement Accounts.................................................28
G. Other Qualified Plans......................................................28
H. Private Employer Unfunded Deferred Compensation Plans......................29
I. Federal Income Tax Withholding and Reporting...............................29
Services Agreement...................................................................30
Voting Rights........................................................................30
The Statement of Additional Information..............................................31
Table of Contents of The Statement of Additional Information.........................31
</TABLE>
2
<PAGE>
DEFINITIONS
ACCUMULATION PERIOD -- The period between the date of the first purchase
payment for a Variable Annuity contract and the Annuity Commencement Date.
ACCUMULATION UNIT -- An accounting unit of measure used to calculate the value
of a Contract before Annuity payments begin.
ACCUMULATED VALUE -- The dollar value of a Variable Account.
ANNUITANT -- A natural person upon whose life Annuity payments are based.
ANNUITY -- A series of payments for life or a designated period subject to the
terms of the Contract.
ANNUITY COMMENCEMENT DATE -- The date on which Annuity payments are to
commence, ordinarily the retirement date.
ANNUITY PERIOD -- The period during which Annuity payments are made.
ANNUITY UNIT -- An accounting unit of measure used to calculate the amount of
Annuity payments.
BENEFICIARY -- The person to whom death benefits will be paid upon death of
the Annuitant before the Annuity Period or the end of a guaranteed period.
CONTRACT OWNER -- The owner of the Contract, who may be the Annuitant or some
other person or entity.
DIVISION -- The particular Division of Separate Account A in which
Accumulation Units in Separate Account A are accumulated.
FUND -- A separate portfolio of American General Series Portfolio Company.
PARTICIPANT -- A Contract Owner or person who has a fully (100%) vested
interest in benefits provided under a Contract.
PERIODIC PAYMENTS -- Amounts paid on a continuing basis to purchase an
Annuity.
SEPARATE ACCOUNT A -- The separate account of American General Life Insurance
Company used to fund the variable aspects of the Contracts so described in
this Prospectus.
TERMINATION -- A total redemption of the Contract.
VALUATION PERIOD -- The interval between two consecutive Valuation Times.
Values within a Valuation Period are determined at the end of the Period.
3
<PAGE>
VALUATION TIME -- The time on any day as of which the Divisions of Separate
Account A are valued.
VARIABLE ACCOUNT -- The account in which Accumulation Units acquired under the
Contract are kept in Separate Account A.
VARIABLE ANNUITY -- A series of Annuity payments, the amount of which will
increase or decrease to reflect the net investment experience of the Stock
Index Division of Separate Account A.
WITHDRAWAL -- Withdrawing (redeeming) a portion or all of the Accumulated
Value of the Contract without surrendering the Contract.
FEE TABLE
The purpose of the following Fee Table and Example is to assist Participants
in understanding the transaction and operating expenses that a Participant
will bear directly or indirectly under a participation. The Fee Table reflects
expenses of Separate Account A and of Portfolio Company's Funds. The Fee Table
and Example assume the highest deductions possible under a participation,
whether or not such deductions actually would be made under such a
participation.
CONTRACT OWNER TRANSACTION EXPENSES1
Maximum Sales Expense Deduction Imposed on
Purchases (as a percentage of the aggregate
amount of purchase payments).......................................6.75%
Maximum Administrative Expense Deduction
Imposed on Purchases (as a percentage of the
aggregate amount of purchase payments)................................2%
DIVISION ANNUAL EXPENSES AFTER EXPENSE REIMBURSEMENTS
(AS A PERCENTAGE OF ANNUAL VALUE OF A DIVISION)
<TABLE>
<CAPTION>
MidCap Asset Money Capital Government Stock
Index Allocation Market Conservation Securities Index
Division Division Division Division Division Division(2)
-------- ---------- -------- ------------ ---------- -----------
<S> <C> <C> <C> <C> <C> <C>
Mortality Risk Fee .9000% .9000% .9000% .9000% .9000% .9000%
Expense Risk Fee .1017% .1017% .1017% .1017% .1017% .1017%
------- ------- ------- ------- ------- -------
Total Division
Annual Expenses 1.0017% 1.0017% 1.0017% 1.0017% 1.0017% 1.0017%
Division Expense
Reimbursement(3) (.0767)% (.2467)% (.2467)% (.2467)% (.2367)% (.0167)%
Total Division
Annual Expenses
After Expense
Reimbursement .925% .755% .755% .755% .765% .985%
</TABLE>
(Footnotes on next page.)
4
<PAGE>
FUND ANNUAL EXPENSES
(AS A PERCENTAGE OF AVERAGE NET ASSETS)
<TABLE>
<CAPTION>
MidCap Asset Money Capital Government Stock
Index Allocation Market Conservation Securities Index
Division Division Division Division Division Fund
-------- ---------- -------- ------------ ---------- -----------
<S> <C> <C> <C> <C> <C> <C>
Management Fees .3400% .5000% .5000% .5000% .5000% .2700%
Other Expenses .0600% .0700% .0700% .0700% .0600% .0700%
Total Fund Annual .4000% .5700% .5700% .5700% .5600% .3400%
Expenses4
Combined Total Annual
Expenses (Separate
Account A plus
applicable Fund) 1.3250% 1.3250% 1.3250% 1.3250% 1.3250% 1.3250%
<FN>
-----------------
(1) Premium taxes are not shown. AGL postpones the computation and deduction
of premium taxes until the Annuity Commencement Date, whenever permitted
by state law. If a state so requires, the amount of the tax may be
deducted from Periodic or Single Payments when received. (See "Deduction
for Premium Taxes.")
(2) Effective with the merger of Quality Growth Fund into Stock Index Fund
on May 1, 1992, Quality Growth Division was renamed the Stock Index
Division.
(3) Contracts funded through Separate Account A are subject to a Contract
Expense Guarantee. (See "Contract Expense Guarantee.")
(4) Expenses have been restated to reflect current charges.
</FN>
</TABLE>
------------------------------
Example -- Assuming a Participant surrenders or annuitizes at the end of the
applicable period, or does not make a total withdrawal. A $1,000 investment
would be subject to the expenses shown, assuming 5% return on assets.
<TABLE>
<CAPTION>
1 YEAR 3 YEARS 5 YEARS 10 YEARS
------ ------- ------- --------
<S> <C> <C> <C> <C>
MidCap Index Division $100 $126 $154 $234
Asset Allocation Division $100 $126 $154 $234
Money Market Division $100 $126 $154 $234
Capital Conservation Division $100 $126 $154 $234
Government Securities Division $100 $126 $154 $234
Stock Index Division $100 $126 $154 $234
</TABLE>
The Example should not be considered a representation of past or future
expenses and charges. Actual expenses may be greater or less than those shown.
Similarly, the assumed 5% annual rate of return is not an estimate or a
guarantee of future investment performance. (See "Deductions and Charges" in
this Prospectus and "Investment Management" in Portfolio Company's
Prospectus.)
PROSPECTUS SUMMARY
A. THE CONTRACTS
The Contracts offered by this Prospectus are designed to provide individuals
with retirement benefits through the investment of Periodic Payments in
Separate Account A, and by the application of Accumulated Values to provide
fixed or variable annuity payments.
The Contracts may be used in connection with pension and profit sharing plans
established by partnerships and sole proprietors and qualified under Section
401 of the Code ("Qualified Plans").
5
<PAGE>
Qualified Plans also include plans which have been referred to as H.R. 10
plans. In addition, the Contract may be used in Annuity purchase plans adopted
by public school systems and certain tax-exempt organizations under Section
403(b) of the Code. Employees and self-employed individuals participating in
these plans may take advantage of certain federal income tax benefits
incidental to the plans. (See "Federal Income Tax Matters.")
The Accumulated Value of the Variable Account will vary up or down to reflect
the investment performance of the Division of Separate Account A in which a
Contract Owner or Participant is invested and the amount of each Variable
Annuity payment will vary up or down to reflect the investment performance of
the Stock Index Division of Separate Account A. This is the basic difference
between a Variable Annuity and a Fixed Annuity. Under a Fixed Annuity, AGL
assumes the risk of investment gain or loss, specifying a minimum interest
rate and minimum payment amount. Under a Variable Annuity, the Contract Owner,
Participant, or Annuitant assumes the investment risk. There is no assurance
that the value of the Variable Account or the amount of Annuity payments
received will equal or exceed the purchase payments made under the Contract.
Upon the death of the Annuitant before the Annuity Commencement Date, the
Accumulated Value of the Variable Account minus any applicable premium taxes
is paid as a death benefit. (See "Death Benefits.")
The Contract provides a life Annuity with 120 monthly payments guaranteed
("Basic Annuity") starting on a selected Annuity Commencement Date. In place
of the Basic Annuity, various settlement options are available. (See "The
Annuity Period.")
B. AGL
AGL, the issuer of the Contract, is a stock life insurance company organized
under the laws of the State of Texas an indirect wholly-owned subsidiary of
American General Corporation ("AGC"). AGL is the successor to Cal-Western, a
California corporation organized in 1910. AGL's principal business office and
principal executive office are both located at 2727-A Allen Parkway, Houston,
Texas 77019-2191. All inquiries regarding Participants' accounts, the
Contracts or any related matter should be directed to AGL's Annuity
Administration Department at the address and phone number shown on the cover
of this Prospectus.
C. SEPARATE ACCOUNT A
Separate Account A is a separate investment account of AGL originally created
in 1966 under the laws of California, and currently established under the laws
of Texas. Separate Account A consists of six Divisions each of which
corresponds to one of the Funds of Portfolio Company. The Divisions of
Separate Account A serve as investment vehicles for Periodic Payments made
pursuant to the Contracts and certain other variable annuity contracts issued
by AGL.
D. SALES CHARGES AND OTHER DEDUCTIONS
Deductions are made from purchase payments under the Contracts for sales,
administrative expenses and premium taxes. For sales and administrative
expenses and the minimum death benefit, the maximum deduction from Periodic
Payments is 8.75% (9.5890% of the amount invested after the deduction). The
6
<PAGE>
deduction from single payments is reduced as the amount of the payment
increases. The range is from a maximum of 8.75% to a minimum of 3.5% (9.5890
to 3.928% of the amount invested after the deduction). (See "Deduction for
Sales and Administrative Expenses.") The current range of premium taxes is 0%
to 3.5%.
A deduction of 1.0017% of the value of its assets annually is made daily from
the assets of Separate Account A. The deduction consists of .9000% for
mortality risk charges and .1017% for expense risk charges. In addition to the
above, an investor should be aware that certain Withdrawal amounts may be
subject to a 10% penalty tax under Section 72(t) of the Code. (See "Federal
Income Tax Matters.")
E. FREE LOOK
The Contracts allow the Contract Owner to revoke the Contract by returning it
to AGL within ten days of delivery, or such longer period as my be required by
state law. AGL will refund an amount equal to all payments received with
respect to the Contract, unless a larger refund is required by state law. (See
"General Description" under "The Contract.")
SELECTED ACCUMULATION UNIT DATA (UNAUDITED)
The information presented below shows Accumulation Unit information for the
Divisions of Separate Account A which, since the date of the Reorganization
(as described below) on April 28, 1989, have either received transfers or had
purchase payments allocated to them:
<TABLE>
<CAPTION>
Midcap Asset Capital Money Government Stock
Index Allocation Conservation Market Securities Index
Division Division(1) Division Division Division Division(2)
------------- ------------- ------------- ------------- -------------- -------------
<S> <C> <C> <C> <C> <C> <C>
Accumulation Unit
Values (Beginning
of Period) $1.0000000(3) $1.0000000(4) N/A $1.0000000(5) $1.0000000(6) $6.9470360(7)
Accumulation Unit
Values
December 31, 1989 $1.0134730 $1.0812680 $ .9998910(8) $1.0296560 $1.0559270(9) $7.7152130
Accumulation Unit
Values
December 31, 1990 $0.9126050 $1.0505840 $.973388010 $1.1056810 $1.0965370 $7.3784390
Accumulation Unit
Values
December 31, 1991 $1.1056860 $1.2698210 N/A $1.1593620 $1.1190530(11) $8.8973800
Accumulation Unit
Values
December 31, 1992 $1.2069730 $1.2542540 N/A $1.1908650 $1.1228330 $9.1473900
Accumulation Unit
Values
December 31, 1993 $1.3479390 $1.3605550 $0.9744070 $1.2080010 $1.2351960 $9.9586940
Accumulation Unit
Values
December 31, 1994 $1.2805490 $1.3328710 $0.9061820 $1.2374450 $1.1727330 $9.9346370
Accumulation Unit
Values
December 31, 1995 $1.649419 $1.650376 $1.085475 $1.289176 $1.369542 $13.510035
Accumulation Unit
Values
December 31, 1996 $1.933369 $1.819376 $1.096382 $1.339458 $1.377319 $16.419594
7
<PAGE>
Accumulation Unit
Values
December 31, 1997 $2.513934 $2.213944 $1.180098 $1.355329 $1.480310 $21.636223
Accumulation Units
Outstanding
December 31, 1989 29,943.336 219,709.968 N/A 1,724.450 None 4,471,463.930
Accumulation Units
Outstanding
December 31, 1990 8,102.959 159,097.692 None 296,290.126 846.475 3,997,653.793
Accumulation Units
Outstanding
December 31, 1991 8,236.542 161,357.448 None 307,629.955 None 3,669,344.228
Accumulation Units
Outstanding
December 31, 1992 8,216.123 84,319.784 None 266,737.523 98,507.318 3,378,291.884
Accumulation Units
Outstanding
December 31, 1993 2,019.323 46,273.447 291.931 1,724.450 127,898.948 3,132,368.242
Accumulation Units
Outstanding
December 31, 1994 2,002.000 52,685.052 2,855.740 1,724.450 2,390.642 2,925,664.920
Accumulation Units
Outstanding
December 31, 1995 1,986.413 50,691.625 5,330.601 1,724.450 2,380.042 2,595,596.122
Accumulation Units
Outstanding
December 31, 1996 1,055.932 40,744.069 7,757.918 80,561.157 2,370.225 2,411,116.122
Accumulation Units
Outstanding
December 31, 1997 9,327.907 41,787.393 9,964.962 None 2,361.798 2,259,376.335
<FN>
---------------------
(1) Effective October 1, 1997, the Timed Opportunity Fund was renamed the
Asset Allocation Fund.
(2) Effective with the merger of Quality Growth Fund into Stock Index Fund
on May 1, 1992, Quality Growth Division was renamed the Stock Index
Division and its investment objective, investment program, and
investment restrictions were changed to those of the Stock Index
Division.
(3) Accumulation Unit Value as of September 14, 1989 (the first date the
Division received a transfer or had a purchase payment allocated).
Effective October 1, 1991, the Fund underlying this Division changed its
name from the Capital Accumulation Fund to the MidCap Index Fund and
amended its investment objective, investment program, and investment
restrictions accordingly. Historical Accumulation Unit Values prior to
October 1, 1991 reflect investment performance prior to these changes.
(4) Accumulation Unit Value as of May 23, 1989 (the first date the Division
received a transfer or had a purchase payment allocated).
(5) Accumulation Unit Value as of August 15, 1989 (the first date the
Division received a transfer or had a purchase payment allocated).
(6) Accumulation Unit Value as of May 17, 1989 (the first date the Division
received a transfer or had a purchase payment allocated).
(7) Accumulation Unit Value as of April 28, 1989 (at which date the Division
had 4,953,797.742 Accumulation Units outstanding following the
reorganization).
(8) Accumulation Unit Value as of July 5, 1990 (the first date the Division
received a transfer or had a purchase payment allocated).
(9) Accumulation Unit Value as of October 23, 1989, the date on which all
Accumulation Units were transferred from the Government Securities
Division.
(10) Accumulation Unit Value as of December 26, 1990, the date on which all
Accumulation Units were transferred from the Capital Conservation
Division.
8
<PAGE>
(11) Accumulation Unit Value as of July 8, 1991, the date on which all
Accumulation Units were transferred from the Government Securities
Division.
</FN>
</TABLE>
------------------------------
AGL, SEPARATE ACCOUNT A AND PORTFOLIO COMPANY
A. AGL AND SEPARATE ACCOUNT A
AGL, the successor to Cal-Western, is licensed to engage in the life insurance
and annuity business in 49 states and the District of Columbia. AGL is an
indirect wholly-owned subsidiary of AGC, an insurance-based diversified
financial services holding company whose various subsidiaries operate in each
of the 50 states, the District of Columbia, and Canada.
AGL is the single life insurance company created by the merger, effective
December 31, 1991, of Cal-Western, a California corporation, and American
General Life Insurance Company, a Texas corporation ("AG Texas"), into
American General Life Insurance Company of Delaware, a Delaware corporation
("AG Delaware"). In connection with the merger ("Merger"), AG Delaware changed
its domicile to Texas ("Redomestication") and changed its name to American
General Life Insurance Company. The Merger resulted in a single insurer having
the combined capital and resources of all three of the constituent companies.
As a result of the Merger and Redomestication, Separate Account A became part
of AGL. However, Separate Account A has remained intact and its assets are
legally separated from any other business of AGL. Accordingly, the Contracts
funded by Separate Account A prior to the Merger and Redomestication continue
to be supported by the same pool of assets. Separate Account A also continues
to invest in shares of the same Funds.
Following the Merger and Redomestication, AGL, among other things, issued
assumption certificates to Contract Owners and Participants under the
Contracts, previously issued by Cal- Western, to reflect the change in the
identity of the insurance company sponsoring the Contracts and guaranteeing
rights under the Contracts.
The financial statements of AGL included in the Statement of Additional
Information should be considered only as bearing upon the ability of AGL to
meet its obligations under the Contracts.
Neither the assets of AGC nor those of any other affiliated company supports
AGL's obligations under the Contracts. As of December 31, 1997, AGL had total
assets of $43,564,720,000 and total shareholder's equity of $3,061,614,000.
Separate Account A, originally established in 1966 under California law, is
registered with the SEC as a unit investment trust under the Investment
Company Act of 1940, as amended ("1940 Act").
Separate Account A was previously organized as a management separate account
investing directly in securities. On April 28, 1989, Separate Account A and
Variable Fund C, a former separate account of Cal-Western, were combined and
restructured into a single unit investment trust separate account, Separate
Account A, investing exclusively in shares of the Funds of Portfolio Company
(the "Reorganization"). In connection with the Reorganization, all of the
portfolio assets of Separate Account A (including those of Variable Fund C)
were sold, assigned, and transferred to the Quality Growth Fund of Portfolio
Company in exchange for shares of that Fund, which were in turn issued to the
newly created Quality Growth Division of Separate Account A. (As described
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<PAGE>
more fully below, the Quality Growth Division was renamed the Stock Index
Division on May 1, 1992.) The Reorganization, among other things, enabled
Contract Owners and Participants during the Accumulation Period to invest
through Divisions of Separate Account A in any one of the corresponding
available Funds.
Separate Account A invests in shares of six of the thirteen Funds of Portfolio
Company, which, in turn, invest in diversified portfolios of securities, as
described in Portfolio Company's prospectus and statement of additional
information. Separate Account A currently consists of the following Divisions:
MidCap Index Division,Asset Allocation Division, Money Market Division,
Capital Conservation Division, Government Securities Division, and Stock Index
Division. CONTRACT OWNERS AND PARTICIPANTS ARE REQUIRED TO MAINTAIN THEIR
ENTIRE INVESTMENT ALLOCATED TO SEPARATE ACCOUNT A UNDER A CONTRACT AT ANY
GIVEN TIME IN ONLY ONE OF THE AVAILABLE DIVISIONS; ALLOCATIONS BETWEEN TWO OR
MORE DIVISIONS ARE NOT PERMITTED.
Under provisions of the Texas Insurance Code and the terms of the Contracts,
the assets of Separate Account A will not be chargeable with liabilities
arising out of any other business AGL may conduct but will be held exclusively
to meet AGL's obligations under variable annuity contracts. In addition, any
income, gains or losses, realized or unrealized on assets of Separate Account
A are credited to or charged against Separate Account A without regard to
other income, gains or losses of AGL. Nevertheless, obligations arising under
the Contracts are obligations of AGL.
In addition to the net assets and other liabilities for variable annuity
contracts, Separate Account A's assets include assets derived from charges
made by AGL. AGL may transfer out to its general account any of Separate
Account A's assets that are in excess of the reserves and other liabilities
relating to the Contracts.
Separate Account A is regulated by the Texas Insurance Department. Regulation
by the state, however, does not involve any supervision of Separate Account A
except to determine compliance with broad statutory criteria.
B. PORTFOLIO COMPANY
Portfolio Company was incorporated in Maryland on December 7, 1984. It is an
open-end management investment company registered under the 1940 Act. As of
December 31, 1997, Portfolio Company had $7,070,501,631 of net assets.
Additional information about Portfolio Company is contained in Portfolio
Company's prospectus which accompanies this Prospectus and in its statement of
additional information referred to therein copies of which may be obtained
from AGL's Annuity Administration Department. Shares of Portfolio Company are
currently sold to Separate Account A, AGL's Separate Account B, AGL's Separate
Account D, The Variable Annuity Life Insurance Company ("VALIC") Separate
Account A, and American General Life Insurance Company of New York Separate
Account E, which also fund variable annuity contracts. VALIC also owns shares
of certain funds of the Portfolio Company directly. Retirement Plans
maintained by VALIC and AGC may also own shares of certain funds.
Portfolio Company's shares are purchased and redeemed by The Variable Annuity
Marketing Company ("VAMCO"), principal underwriter for shares of Portfolio
Company, at net asset value without sales or redemption charges. VAMCO is a
wholly-owned subsidiary of VALIC.
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<PAGE>
Overall responsibility for managing the affairs of Portfolio Company and
overseeing its investment adviser rests with its elected board of directors.
Portfolio Company consists of thirteen Funds, as follows: Stock Index Fund,
MidCap Index Fund, Small Cap Index Fund, International Equities Fund, Growth
Fund, Growth & Income Fund, Science & Technology Fund, Social Awareness
Fund,Asset Allocation Fund, Capital Conservation Fund, Government Securities
Fund, International Government Bond Fund, and Money Market Fund. Each Fund has
different investment objectives and is, in effect, a separate portfolio
represented by a separate class of common stock. MidCap Index Fund, formerly
the Capital Accumulation Fund, effected a change in its name and its
investment objective, investment program and one of its restrictions as of
October 1, 1991. The Asset Allocation Fund, formerly the Timed Opportunity
Fund, effected a change in its name as of October 1, 1997.
On January 8, 1992, Portfolio Company's Board of Directors approved the
combination of the Quality Growth Fund into the Stock Index Fund by means of a
reclassification of shares ("Reclassification"). On April 28, 1992, persons
invested in the Quality Growth Fund approved the Reclassification, which was
consummated on May 1, 1992.
It is intended that, during the Accumulation Period, only the MidCap Index
Fund, Asset Allocation Fund, Money Market Fund, Capital Conservation Fund,
Government Securities Fund, and Stock Index Fund, will be available in
connection with each type of Contract issued by AGL and funded through
Separate Account A. However, if Portfolio Company reasonably determines that
the tax status under the Code of a particular Fund may be adversely affected
by investments in that Fund's shares which are attributable to purchase
payments received under a Contract that is not tax favored under the Code, or
may be so affected for any other reason, Portfolio Company will have the right
not to make such a Fund available under such Contract.
VALIC serves as investment adviser to each of the Funds pursuant to investment
advisory agreements with Portfolio Company. VALIC is registered with the SEC
as an investment adviser under the Investment Advisers Act of 1940 ("Advisers
Act"), as amended. VALIC is also the depositor of VALIC's Separate Account A.
For serving as investment adviser, each Fund pays VALIC a monthly fee based on
that Fund's average monthly net asset value as set forth in Portfolio
Company's prospectus under "Investment Management."
Bankers Trust Company ("Bankers") serves as investment sub-adviser to the
Stock Index Fund, MidCap Index Fund, and Small Cap Index Fund (the Small Cap
Index Fund is not available under the Contracts) pursuant to an investment
sub-advisory agreement with Portfolio Company. For serving as investment
sub-adviser to these Funds, VALIC pays Bankers a monthly fee based on each of
these Fund's average monthly net asset value as set forth in Portfolio
Company's prospectus under "Investment Management."
The investment advisory agreements between Portfolio Company and VALIC do not
contain limits on the expenses of Portfolio Company or of any Fund. However,
to the extent that any Fund's accrued expenses for a given month exceed, on an
annualized basis, 2% of a Fund's estimated average monthly net assets, VALIC
has voluntarily agreed to reduce expenses of any such Fund in an amount equal
to the difference between such accrued expenses and 2% of the Fund's average
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<PAGE>
net assets for that month. VALIC has reserved the right to withdraw this
undertaking upon 30 days' written notice to Portfolio Company.
AGL reserves the right, subject to compliance with applicable law, including
approval of Contract Owners and Participants, if required, to make
substitutions of other open-end management investment company shares for the
shares of any Fund of Portfolio Company or which any Division may purchase, or
to eliminate the shares of any Fund of Portfolio Company held by a Division
and substitute shares of another Fund of Portfolio Company or of any other
registered open-end management investment company.
A brief description of each of the Funds of Portfolio Company in which the
Divisions of Separate Account A may invest appears below. The current
prospectus of Portfolio Company contains more detailed information about each
of the Funds in which the Divisions invest, including investment objectives
and policies, charges and expenses. Additional copies of the current
prospectus of Portfolio Company may be obtained from AGL's Annuity
Administration Department. Read the prospectus carefully before investing.
MIDCAP INDEX FUND
This Fund seeks to provide growth of capital through investments primarily in
a diversified portfolio of common stocks that, as a group, are expected to
provide investment results closely corresponding to the performance of the
Standard & Poor's ("S&P") MidCap 400 Index.
ASSET ALLOCATION FUND
This Fund seeks maximum aggregate rate of return over the long-term through
controlled investment risk by adjusting its investment mix among stocks,
long-term debt securities and short-term money market securities.
MONEY MARKET FUND
This Fund seeks liquidity, protection of capital and current income through
investments in short-term money market instruments.
CAPITAL CONSERVATION FUND
This Fund seeks the highest possible total return consistent with preservation
of capital through current income and capital gain on investments in
intermediate and long-term debt instruments and other income producing
securities.
GOVERNMENT SECURITIES FUND
This Fund seeks high current income and protection of capital through
investments in intermediate and long-term U.S. Government debt securities.
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<PAGE>
STOCK INDEX FUND
This Fund seeks long-term capital growth through investment in common stocks
that, as a group, are expected to provide investment results closely
corresponding to the performance of the S&P 500 Index.
DEDUCTIONS AND CHARGES
A. DEDUCTION FOR SALES AND ADMINISTRATIVE EXPENSES
American General Securities Incorporated ("AGSI") acts as principal
underwriter and performs sales functions with respect to the Contracts. AGSI
is a wholly-owned subsidiary of AGL and its principal business address is 2727
Allen Parkway, Houston, Texas 77019.. AGL performs all administrative
functions and pays all administrative expenses with respect to the Contracts.
These expenses include but are not limited to salaries, rents, postage,
telephone, travel, legal, actuarial and accounting fees, office equipment and
stationery. For these services, AGL deducts a maximum fee equal to 8.75% of
each Periodic Payment received. This deduction consists of 6.75% for sales
expenses and 2% for administrative expenses.
In the case of a single payment the deductions for sales and administrative
expenses, not including any applicable premium taxes, are:
<TABLE>
<CAPTION>
Total
Amount Sales Administrative
Total Amount Of Deduction Expenses Expenses
Of Payment % % %
------------ ------------ -------- --------------
<S> <C> <C> <C>
$ 0 - 14,999...... 8.75 6.75 2.00
15,000 - 24,999. 8.00 6.25 1.75
25,000 - 49,000. 7.00 5.50 1.50
50,000 - 99,999. 5.00 3.75 1.25
100,000 -249,999 4.00 3.00 1.00
250,000 and over 3.00 2.25 0.75
</TABLE>
These deductions are made pursuant to the Contracts and are therefore not
subject to change.
The deduction for sales expenses reimburses AGL for part of its expenses
related to distributing the Contracts. AGL believes, however, that the amount
of such expenses will exceed the amount of revenue generated by the sales
expenses. AGL will pay such excess out of its general surplus, which might
include profits from the charge for the assumption of mortality and expense
risks.
Individual Variable Annuity Contracts may be sold without charges for sales
and administrative expenses to officers and full-time employees of Separate
Account A; to any trust, pension, profit sharing or other benefit plan for
these people; and to certain employees and sales representatives of AGL or
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<PAGE>
AGSI. To be eligible, AGL or AGSI employees and sales representatives must
spend one-half of their working time 1) rendering investment advice to AGL
accounts, 2) offering for sale Contracts issued through Separate Account A or
other AGL accounts, or 3) supervising or assisting people who do either. Sales
without sales and administrative expenses will be made only for the buyer's
written assurance that the purchase is made for investment purposes and that
the Contract will not be resold or assigned except through surrender to AGL.
A Contract may also be issued as a supplement to a fixed annuity contract
issued by AGL. When permitted by AGL, a Contract may be purchased with
proceeds from death benefits, maturity values, policy dividends or surrender
values of conventional insurance or Annuity Contracts issued by AGL, without
charges for sales expenses and administrative.
B. DEDUCTION FOR PREMIUM TAXES
Certain states impose premium taxes, currently ranging from 0% to 3.5%, on
purchase payments. Any deduction for applicable premium taxes is in addition
to the deductions for sales and administrative expenses and the minimum death
benefit. Premium tax deductions are only made when purchase payments are
subject to the tax.
It is AGL's policy to postpone the computation and deductions until the
Annuity Commencement Date, whenever permitted by state law. The deduction is
then made from the Variable Account. If postponement is not permitted by state
law, the amount of the tax is deducted from Periodic, or single, Payments when
received. If premium taxes are deducted, but subsequently determined not due,
AGL, at the time of the determination, will apply the amount of the deduction
to increase the number of Accumulation or Annuity Units under the Contract.
Conversely, if no deductions are made for premium taxes, but subsequently are
determined due, AGL reserves the right to reduce the number of Accumulation or
Annuity Units by the amount due.
C. DEDUCTION FOR MORTALITY AND EXPENSE RISKS
AGL assumes the mortality risk incident to the Contract and receives for
assuming the risk an amount each Valuation Period equal to .9000% of the value
of the assets of each Division of Separate Account A annually. The amounts are
deducted from the assets of Separate Account A in accordance with the
Contract.
Each Variable Annuity payment made under a Contract varies with net investment
performance of the Stock Index Division of Separate Account A, but is not
affected by AGL's actual mortality experience among Annuitants. The life span
of the Annuitant, or changes in life expectancy in general, do not affect the
monthly Annuity payments payable under the Contracts. If Annuitants live
longer than the life expectancy determined by AGL, AGL will provide funds from
its general funds to make Annuity payments. Conversely, if longevity among
Annuitants is lower than AGL determined, AGL will realize again.
AGL also assumes the expense risk that deductions provided for in the Contract
for sales and administrative expenses may not be enough to cover actual costs.
Where the deductions are not adequate, AGL will pay the amount of any
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<PAGE>
shortfall from its general funds. Any amounts paid by AGL may consist of,
among other things, proceeds derived from mortality and expense risk charges.
(See "Deduction for Sales and Administrative Expenses.")
For assuming the expense risk, AGL receives an amount each Valuation Period
which totals .1017% of the value of the assets of Separate Account A annually.
The deductions are made from the assets of Separate Account A as provided in
the Contract and other contracts participating in Separate Account A.
D. CONTRACT EXPENSE GUARANTEE
Pursuant to the Reorganization, Cal-Western (the predecessor of AGL) issued an
amendment, with respect to each existing Contract that was outstanding
immediately prior to the effective time of the Reorganization, that guarantees
that the total of the advisory fees charged against any of Portfolio Company's
Funds whose shares were purchased by Separate Account A, plus the mortality
and expense risk, administrative and any other charges imposed upon the assets
of the corresponding Divisions of Separate Account A, will never exceed an
amount that is equal to the total amount of the same charges that would have
been imposed under the Contracts had the Reorganization not occurred (the
"Contract Expense Guarantee"). Accordingly, AGL will, in effect, reimburse to
the appropriate Division of Separate Account A an amount that represents the
difference between the investment advisory fee charged Separate Account A or
Variable Fund C, as applicable, prior to the Reorganization and the amount of
the advisory fee charged to Portfolio Company's Funds plus any other charges
in excess of those that would have been incurred if the Reorganization had not
taken place. The mortality and expense risk and administrative charges did not
change as a result of the Reorganization, and any other charges imposed on the
assets of Separate Account A are not expected to be more than before the
Reorganization. AGL, however, will not assume extraordinary or nonrecurring
expenses of Portfolio Company, such as legal claims and liabilities,
litigation costs and indemnification payments in connection with litigation.
Also, the Contract Expense Guarantee will not apply to any federal income tax
if Portfolio Company or any Fund fails to qualify as a "regulated investment
company" under applicable provisions of the Code. As an administrative
convenience to AGL, the Contract Expense Guarantee, described above, also
applies to Contracts issued after the Reorganization. AGL, however, may amend
the Contract to eliminate the Contract Expense Guarantee regarding Contracts
issued thereafter.
E. OTHER CHARGES
Currently, no charge is made against Separate Account A for AGL's federal
income taxes, or provisions for such taxes, that may be attributable to
Separate Account A. AGL may charge each Division of Separate Account A for its
portion of any income tax charged to the Division or its assets. Under present
laws, AGL may incur state and local taxes (in addition to premium taxes) in
several states. At present, these taxes are not significant. If they increase,
however, AGL may decide to make charges for such taxes or provisions for such
taxes against Separate Account A. Any such charges against Separate Account A
or its Divisions could have an adverse effect on the investment experience of
such Division.
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<PAGE>
As discussed under "Portfolio Company" above, Portfolio Company pays VALIC a
monthly fee based on each Fund's average monthly net asset value for serving
as investment adviser of each of the Funds. The fees are reflected in the
Funds' net asset values. The investment advisory compensation arrangements as
well as the expenses of Portfolio Company are more fully described under
"Investment Management" in Portfolio Company's prospectus. (See also "Fee
Table.")
THE CONTRACT
A. GENERAL DESCRIPTION
The Contract provides for deferred Annuities, issued by AGL upon acceptance of
an application. If the application is accompanied by an initial purchase
payment, the application will be tendered to AGL, reviewed, and if complete,
either will be accepted or rejected within two calendar days. If accepted, the
initial purchase payment will be applied under a Contract not later than two
business days after receipt. If the application is not complete or is
incorrectly completed when received by AGL, AGL will request additional
documents or information within five business days after receipt of the
application. If the application is not made complete within five days of
receipt, the prospective purchaser will be informed of the reasons for the
delay and the initial purchase payment will be returned immediately and in
full, unless the prospective purchaser specifically consents to AGL retaining
the purchase payment until the application is made complete, in which event
the initial purchase payment will be applied not later than two business days
after an application is made complete. No payments received with the
application will be invested in Separate Account A until AGL signifies
acceptance by written endorsement on the application.
Subsequent payments will not be applied under the Contract until they are
received at AGL's Annuity Administration Department. Payments received before
the close of regular trading on the New York Stock Exchange on any day when
the Exchange is open will be applied under the Contract as of the same date.
Payments received after the close of regular trading on the Exchange will be
applied based upon the Accumulation Unit value next computed after receipt of
a payment.
The Contracts allow a "free look," wherein the Contract Owner may revoke the
Contract by returning it to either a AGL sales representative or to the AGL
Annuity Administration Department within ten days of delivery of the Contract,
or such longer period as may be required by state law. If the Contract is
returned under the terms of the free look, AGL will refund to the Contract
Owner an amount equal to all payments received with respect to the Contract,
unless a larger refund is required by state law.
Periodic Payments must be made at regular intervals and in amounts indicated
on the application. The interval or amount of Periodic Payments may be changed
on any Contract Anniversary by written notice to AGL at its Annuity
Administration Department. Payments on a periodic basis may not be less than
$240 dollars a year. Periodic Payments may be increased to, but not to more
than, three times the amount of the first annualized Periodic Payments. In
other words, the total amount of payments made during the year following the
date of any change cannot be more than three times the aggregate amount of
Periodic Payments made during the first year following the Issue Date. Any
increase greater than this is only accepted upon written consent by AGL. If a
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<PAGE>
Periodic Payment is not paid by the due date, the number of Accumulation Units
in the Variable Account will remain fixed until the next payment is made,
reduced only by Withdrawals and transfers of funds for the purchase of a fixed
annuity.
The Contract described herein generally may not be assigned by the Contract
Owner.
The provisions of the Contracts may be changed, modified, or waived only by
certain officers of the Company acting on its behalf, and then only in
writing. In addition, the Company reserves the right, subject to compliance
with applicable law, including approval of Contract Owners if required, (1) to
add, change, or remove Divisions of the Separate Account, (2) to combine any
two or more Divisions, (3) to transfer assets from any one of the Divisions to
another Division, (4) to make additions to, deletions from, or substitutions
of other open-end management investment company shares for the shares of any
open-end management investment company held by any Division of the Separate
Account, or which any Division may purchase, and (5) to eliminate the shares
of any series of any open-end management company held by a Division and
substitute shares of another series of such open-end management investment
company, or of any other open-end management investment company.
B. THE ACCUMULATION PERIOD
The Accumulation Period is the period before commencement of Annuity payments.
During this period, AGL deducts from payments charges for sales and
administrative expenses and any premium taxes. The balance of the payments are
credited to the Variable Account in the form of Accumulation Units.
1. ACCUMULATION UNITS
Purchase payments allocated to a Division of Separate Account A will be used
to purchase Accumulation Units in that Division. Each Division will then
invest in shares of a corresponding Fund of Portfolio Company.
The value of a Variable Account can be determined at any time during the
Accumulation Period by multiplying the total number of Accumulation Units in a
Division attributable to such Variable Account by the then-current value of an
Accumulation Unit in such Division. Because the value of Accumulation Units
fluctuates, there is no assurance that the value of the Accumulation Units in
a Variable Account will equal or exceed the amounts of purchase payments made.
As described above, following the merger of the Quality Growth Fund into the
Stock Index Fund on May 1, 1992, the Quality Growth Division was renamed the
Stock Index Division. (See "Portfolio Company.") The value of an Accumulation
Unit for the Stock Index Division of Separate Account A solely with respect to
the first day purchase payments were allocated to the Division, known at that
time as the Quality Growth Division, following the Reorganization was equal to
the value of an Accumulation Unit of Separate Account A for the immediately
preceding valuation period multiplied by the "net investment factor"
applicable at that time for the Stock Index Division.
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<PAGE>
The initial value of an Accumulation Unit for each of the other Divisions of
Separate Account A on the first day that purchase payments are allocated, or
transfers are made, to each of such Divisions is equal to the per share value
of a share of the corresponding Fund of Portfolio Company for the immediately
preceding Valuation Period multiplied by the "net investment factor" for such
Division.
Once the initial Accumulation Unit value is established, the value of an
Accumulation Unit for each of the Divisions of Separate Account A for any
subsequent Valuation Period is determined by multiplying the Accumulation Unit
value for the immediately preceding Valuation Period by the net investment
factor for the subsequent Valuation Period.
The "net investment factor" for a Division is the sum of 1 plus the net
investment rate for such Division. The net investment rate for any Valuation
Period for a Division of Separate Account A is equal to the gross investment
rate for that Division for the Valuation Period, less a factor representing
charges for mortality and expense risks plus a reimbursement factor
representing the expenses which the Contract Owners would not have borne had
the Reorganization not occurred. The gross investment rate is computed on each
day during which the New York Stock Exchange is open for trading, not less
frequently than once daily as of the time of close of regular trading on such
Exchange, and covers the Valuation Period since the next prior computation.
The gross investment rate is equal to (i) the investment income and capital
gains and losses, both realized and unrealized, on the assets of that Division
of Separate Account A during said period, divided by (ii) the amount of such
assets at the beginning of the period. The gross investment rate may be either
positive or negative. (See "Calculation of Accumulation Unit Values" in the
Statement of Additional Information.)
2. ALLOCATION OF PURCHASE PAYMENTS AND TRANSFERS
Purchase payments under a Contract are allocable to one of the Divisions of
Separate Account A investing exclusively in the shares of a corresponding Fund
of Portfolio Company, or, if available under a Contract, to a fixed
accumulation option. Thus, a Contract Owner or Participant has the option of
investing in either the MidCap Index Division, Asset Allocation Division,
Money Market Division, Capital Conservation Division, Government Securities
Division, or Stock Index Division subject to limitations with regard to the
availability of shares of a Fund under a Contract, discussed above. (See
"Portfolio Company.") If a fixed accumulation option is available under a
Contract, purchase payments allocated by a Contract Owner or Participant to
such option will be placed in AGL's general account, which supports AGL's
insurance and fixed annuity obligations.
Purchase payments under a Contract are applied when they are received at AGL's
Annuity Administration Department. At that time, they are allocated to the
applicable Division of Separate Account A, as selected by a Participant. A
Participant may, once every ninety days, transfer the full amount of his or
her accumulation value from the Division in which he or she is fully invested
to any one of the other available Divisions of Separate Account A and allocate
purchase payments to such other Division or to any available fixed
accumulation option.
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<PAGE>
3. WITHDRAWALS
The Contract Owner may withdraw (redeem) a portion or all of the value of the
Variable Account at any time prior to the Annuity Commencement Date. Upon
receipt of a written request for Withdrawal, AGL surrenders the number of
Accumulation Units, the value of which equals the requested amount plus any
amount necessary for payment of premium taxes. The value of the Accumulation
Units is determined as of the Valuation Period immediately after receipt of
the request. Payment of the withdrawn amount is made within seven days after
receipt of the request at AGL's Annuity Administration Department. If the
entire value of the Variable Account is withdrawn and no payments are made for
two years following Withdrawal, AGL may consider the Contract terminated.
Withdrawals may be subject to penalties for premature withdrawals, or may be
restricted or have special federal tax consequences because the Contract is
issued in connection with tax-favored retirement programs. (See "Federal
Income Tax Matters.")
4. TERMINATION
At any time prior to the Annuity Commencement Date, the Contract Owner may
surrender the Contract for its Accumulated Value less any applicable premium
taxes. Surrender is effected upon receipt by AGL at its Annuity Administration
Department of a written request by the Contract Owner and the Contract.
Payment of the Accumulated Value will be determined as of the Valuation Time
next succeeding the time of receipt of surrender. Payment will be made within
seven days after surrender. Surrender may be restricted or have special
federal tax consequences because the Contract is used in connection with
tax-favored retirement programs.
(See "Federal Income Tax Matters.")
Payment may be suspended or postponed at any time Portfolio Company's shares
are suspended or postponed.
C. THE ANNUITY PERIOD
Annuity payments begin on the Annuity Commencement Date. The Contract Owner
selects the Annuity Commencement Date before the issuance of the Contract and
can select any date prior to the Annuitant's 75th birthday. (But see current
required distribution rules under "Federal Income Tax Matters.") The Contract
Owner also has the right to change the Annuity Commencement Date at any time
during the Accumulation Period by 30 days' written notice to AGL at its
Annuity Administration Department. If the Contract Owner defers the Annuity
Commencement Date, he can either continue making Periodic Payments or cease
Periodic Payments on the originally selected date.
FOLLOWING THE ANNUITY COMMENCEMENT DATE, WHEN VARIABLE ANNUITY PAYMENTS ARE TO
BE MADE, ONLY THE STOCK INDEX DIVISION IS AVAILABLE TO A CONTRACT OWNER OR
PARTICIPANT UNDER A CONTRACT. However, AGL reserves the right to change the
Divisions available under a Contract for Variable Annuity payments or to add
Divisions with respect to Participants who have not yet commenced receiving
Variable Annuity payments.
The Contract Owner elects how Annuity payments will be made. The Contract
automatically provides the Basic Annuity, a life Annuity with 120 payments
guaranteed. In place of the Basic Annuity, the Contract Owner can elect an
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<PAGE>
optional Annuity with payments made under one of the following settlement
Options. The election must be made in writing to AGL at its Annuity
Administration Department. The written notification must also include the
selected Annuity Commencement Date. Election must be made at least 30 days
before the Annuity Commencement Date but can be changed at any time on 30
days' written notice. The election provisions of the Contract are, however,
subject to both applicable law and terms of the particular retirement plan in
connection with which the Contract is issued. In particular, the federal tax
rules governing certain retirement plans ordinarily limit the ability of a
Contract Owner to defer payment beyond April 1 of the calendar year following
the calendar year in which the Contract Owner attains age 70 1/2 or retires,
whichever is later, in connection with most tax-qualified plans (age 70 1/2 in
the case of Individual Retirement Annuities; no limit in the case of Roth
IRAs) and may also limit the election of certain settlement options. (See
"Federal Income Tax Matters.")
1. SETTLEMENT OPTIONS
An AGL Annuity Contract or the following Settlement Options are also available
to a Beneficiary. The Beneficiary can make the election as an alternative to a
lump sum payment at the Annuitant's death before the Annuity Commencement
Date. When the Beneficiary makes the election, the Beneficiary becomes the
Payee, the person receiving the payments. The Beneficiary also becomes the
measuring life, in place of the deceased Annuitant, for purposes of the
Settlement Options. The Contract Owner also has the right to name itself as
Payee.
OPTION 1 -- LIFE ANNUITY -- An Annuity payable monthly during the lifetime of
the Annuitant (or Beneficiary, if applicable) and terminating with the last
payment preceding his death. There is no provision for payment of a death
benefit on the Annuitant's death and no guarantee of a minimum number of
payments.
OPTION 2 -- JOINT AND SURVIVOR ANNUITY -- An Annuity payable during the joint
lifetime of the Annuitant (or Beneficiary, if applicable) and another person
chosen by the Contract Owner, the Annuitant in the absence of the Contract
Owner or the Beneficiary, if applicable. After the selected joint lifetime,
payments continue during the remaining lifetime of the survivor. It is
possible under this option for the Annuitant or other payee to receive only
one annuity payment if both die before the second annuity payment, since no
minimum number of payments is guaranteed. If one of these persons dies before
the Annuity Commencement Date, the election of this option is revoked, the
survivor becomes the sole Annuitant, and no death proceeds are payable by
virtue of the death of the other Annuitant.
OPTION 3 -- LIFE ANNUITY WITH 60, 120, 180 OR 240 MONTHLY PAYMENTS GUARANTEED
- -- An Annuity payable monthly during the lifetime of the Annuitant (or
Beneficiary, if applicable). This Option guarantees that if, at the death of
the Annuitant (or Beneficiary, if applicable), payments have been made for
less than 60, 120, 180 or 240 months, as selected, payments will continue for
the remainder of the designated period.
Where the measuring life is that of the Annuitant, payments after his death
are made to the designated Beneficiary. The Beneficiary, however, can elect at
any time to receive the present value of the guaranteed payments remaining in
a lump sum. When the measuring life is that of the Beneficiary, payments are
discontinued after the Beneficiary's death. The present value of the
guaranteed payments remaining is paid as a lump sum, in accordance with the
Contract.
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The present value of the guaranteed payments remaining is calculated as of the
Valuation Period during which notice of death is received by AGL at its
Annuity Administration Department. At that time, the amount of the total
number of guaranteed Annuity payments remaining is computed at the net
investment rate, using the Annuity Unit value for the Stock Index Division for
the Valuation the Period immediately succeeding receipt of the notice of
death. The resultant amount is paid as a lump sum.
OPTION 4 -- UNIT REFUND LIFE ANNUITY -- An Annuity payable monthly during the
lifetime of the Annuitant (or Beneficiary, if applicable) and terminating with
the last payment preceding his death. After his death, an additional payment
is made if the number of Annuity Units represented by the proceeds of the
Variable Account on the Annuity Commencement Date is greater than the number
of Annuity Units represented by the total amount of payments received during
the measuring lifetime. In other words, a payment is made in accordance with
the Contract when (a) below exceeds (b) below:
a = Total amount applied under the Option at the Annuity Commencement
Date
divided by
the Annuity Unit value for the Stock Index Division at the Annuity
Commencement Date
b = Number of Annuity Units in the Stock Index Division represented by
each monthly Annuity payment made
multiplied by
the number of Annuity payments made.
When (a) is greater than (b), the excess amount is multiplied by the Annuity
Unit value for the Stock Index Division as of the Valuation Period during
which notice of death is received by AGL at its Annuity Administration
Department. The resultant amount is paid as a lump sum.
OPTION 5 - INSTALLMENTS FOR A DESIGNATED PERIOD -- A series of monthly
payments to the payee over a period of one to twenty years, as elected. At the
death of the payee, the guaranteed payments remaining are paid in accordance
with the Contract. If the Annuitant is the payee, any guaranteed payments
remaining are made to the designated Beneficiary. The Beneficiary can, at any
time, elect to receive the present value of any guaranteed payments remaining
as a lump sum.
If a Beneficiary is the payee, the present value of the amount of any
guaranteed payments remaining is calculated and the resultant amount paid as a
lump sum. If the Contract Owner is the Payee, payments continue after the
Annuitant's death for the remainder of the designated period.
The Contract Owner may at any time elect, however, to receive the present
value of the remaining payments paid as a lump sum. Payments made under this
Option are increased in amount by a factor which offsets the charge for
mortality risk.
OPTION 6 -- INSTALLMENTS OF A DESIGNATED AMOUNT -- A series of equal payments
of a designated amount to the payee made as annual, semiannual, quarterly or
monthly installments. The value of the Variable Account, less any applicable
premium taxes, is used to make the payments, and the payments continue until
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the proceeds, adjusted by the investment experience of the Stock Index
Division of Separate Account A, are exhausted. The payee may at any time
receive the remaining amount of the proceeds by submitting a written request
to AGL at its Annuity Administration Department. At the death of the payee,
payments continue to his designated Beneficiary. If a Beneficiary is the
payee, and dies before the proceeds are exhausted, the balance of the proceeds
is paid as a lump sum in accordance with the Contract. Payments made under
this Option are increased by a factor which offsets the charge for mortality
risk.
OPTION 7 -- INTEREST INCOME -- Interest of 3% on the investment of the
proceeds of the Variable Account outside of the Stock Index Division of
Separate Account A is paid to the payee in monthly, quarterly, semiannual or
annual installments. The value of the Variable Account is automatically
removed from the Stock Index Division of Separate Account A and deposited with
AGL at a fixed rate of interest. The payee may, at any time, withdraw (redeem)
all or a portion of the remaining balance of the Variable Account in a lump
sum by submitting a written request to AGL at its Annuity Administration
Department. If the payee dies while receiving installments, the principal to
which the payee would be entitled to if alive, is paid as a lump sum, in
accordance with the Contract. This Option is in any event subject to the
minimum distribution rules under the Code, which are described under "Federal
Income Tax Matters."
If Option 5, Option 6 or Option 7 is elected by a person other than the
Contract Owner, the payee may be considered for federal income tax purposes to
have received the proceeds of the Variable Account in a lump sum. The amount
of the proceeds which exceeds the amount of total payments made by the
Contract Owner may be considered ordinary income to the payee in the year of
election. This could result in taxable income in the year of election even
though payments are not received until subsequent years. Anyone electing these
Options should consult a qualified tax adviser. (See "Federal Income Tax
Matters.")
Under Settlement Options 1 through 5, the amount of the first monthly payment
is calculated as of the Annuity Commencement Date. The number of Accumulation
Units for the applicable Division of Separate Account A credited to the
Variable Account is multiplied by the value of an Accumulation Unit for such
Division for the Valuation Period immediately two weeks before the Annuity
Commencement Date. The resulting value is called the Accumulated Value. Tables
in the Contracts indicate the amount of the first monthly payment for each
$1,000 of Accumulated Value, minus any applicable premium taxes. The tables
are based on Progressive Annuity Tables with interest at the rate of 3% per
annum and assume births in 1900. Under Settlement Options 1 through 4, payment
amounts illustrated vary with the sex. Amounts under any of the first five
Settlement Options vary with the adjusted age of the Annuitant, determined
using formulas provided by the Contracts.
Under Settlement Options 6 and 7, the amount of the first payment is
prescribed by the Contracts. Under Settlement Option 7, however, AGL may
increase the net investment rate above the guaranteed rate.
Under all of the Settlement Options, AGL bases the payment calculations on the
same mortality basis used for individual single premium Annuity contracts
issued to the same class of Annuitants, when doing so results in a larger
first payment. If, however, the dollar value of the Variable Account is less
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than $2,000 at the Annuity Commencement Date, AGL may pay the amount out in a
lump sum, regardless of the Settlement Option chosen.
Second and subsequent payments under the Basic Annuity and Settlement Option 1
through 5 are determined using the Annuity Unit value for the Stock Index
Division for the Valuation Period when the payment is due. The Annuity Unit
value for the Stock Index Division for any Valuation Period is determined by
multiplying the value of the immediately preceding Valuation Period by the
product of (I) the net investment factor for the Valuation Period two weeks
immediately preceding the Valuation Period when payment is due, and (ii) a
factor to neutralize the assumed net interest rate of 3 1/2% per annum built
into the Annuity tables contained in the Contracts. This produces the value of
the Annuity Unit for the Stock Index Division for the current Valuation
Period. (See "Annuity Payments" in the Statement of Additional Information.)
2. ANNUITY PAYMENTS
The amount of the first payment is divided by the Annuity Unit value for the
Stock Index Division for the Valuation Period when payment is due. This
determines the number of Annuity Units in the Stock Index Division represented
by the first payment. The number of Annuity Units remains constant throughout
the Annuity Period. Each subsequent payment is determined by multiplying the
number of Annuity Units in the Stock Index Division by the value of the
Annuity Unit in the Stock Index Division for the Valuation Period when payment
is due. Under Settlement Options 5, 6 and 7, the Contract may be surrendered
for a lump sum payment in lieu of Annuity payments once Annuity payments have
started.
The amount of the first payment is determined using an assumed interest rate
of 3 1/2% per annum. The amount of subsequent payments will vary in amount in
accordance with the actual net investment rate. If the actual net investment
rate is less than 3 1/2%, the amount of the payment is less; if greater than 3
1/2%, the amount of the payment is greater. Whenever the amounts of payments
becomes less than $20, AGL can change the frequency of payments to intervals
which result in payments of at least $20.
D. DEATH BENEFITS
1. DEATH BENEFITS PRIOR TO THE ANNUITY COMMENCEMENT DATE
If the Participant dies prior to the Annuity Commencement Date, AGL will pay
the death benefits to the Beneficiary. The death benefit will equal the
Accumulated Value of a Variable Account as of the Valuation Period in which
written proof of death is received by AGL at its Annuity Administration
Department, less any applicable premium taxes.
If the Participant has not already done so, the Beneficiary may, within sixty
days after the date of death, elect to receive the death proceeds as a lump
sum or in the form of one of the annuity payment options provided in the
Contract. See "The Contract -- The Annuity Period." If no request is received
as to the manner of payment, AGL will make a lump-sum payment, based on values
determined at that time.
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If the Participant under a Contract dies prior to the Annuity Commencement
Date, the Code requires that all amounts payable under the Contract be
distributed (a) within five years of the date of death or (b) as annuity
payments beginning within one year of the date of death and continuing over a
period not extending beyond the life or life expectancy of the Beneficiary. If
the Beneficiary is the Participant's surviving spouse, distributions need not
begin until the date the Participant would have attained the age of 70 1/2.
Failure to satisfy these Code distribution requirements may result in serious
adverse tax consequences.
2. DEATH PROCEEDS AFTER THE ANNUITY COMMENCEMENT DATE
If the Participant dies following the Annuity Commencement Date, the only
amounts payable to the Beneficiary are any continuing payments provided for
under the annuity payment option selected, which must be distributed at least
as rapidly as under that option. Failure to satisfy these requirements of the
Code may result in serious adverse tax consequences. See "Annuity Payment
Options." In such a case, the Payee will have all the remaining rights and
powers under a Contract and be subject to all the terms and conditions
thereof.
3. PROOF OF DEATH
AGL will accept the following as proof of any person's death: a copy of a
certified death certificate; a copy of a certified decree of a court of
competent jurisdiction as to the finding of death; a written statement by a
medical doctor who attended the deceased at the time of death; or any other
proof satisfactory to AGL.
Once AGL has paid the death proceeds, the Contract terminates and AGL has no
further obligations thereunder.
FEDERAL INCOME TAX MATTERS
A. GENERAL
It is not possible to comment on all of the federal income tax consequences
associated with the Contracts. Federal income tax law is complex and its
application to a particular person may vary according to facts peculiar to
such person. Consequently, this discussion is not intended as tax advice, and
you should consult with a competent tax adviser before purchasing a Contract.
The discussion is based on the law, regulations and interpretations existing
on the date of this Prospectus. Congress has in the past and may again in the
future enact legislation changing the tax treatment of annuities in both the
Qualified and the Non-Qualified markets. The Treasury Department may issue new
or amended regulations or other interpretations of existing tax law. Judicial
interpretations may also affect the tax treatment of annuities. It is possible
that such changes could have a retroactive effect. We suggest that you consult
your legal or tax adviser on these issues. The discussion does not address
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state or local tax or estate and gift tax consequences associated with the
Contracts.
B. QUALIFIED CONTRACTS PURCHASED BY CERTAIN TAX-EXEMPT EMPLOYERS
PURCHASE PAYMENTS. Purchase payments made by certain tax-exempt employers or
by public educational institutions on behalf of an employee are not included
in the employee's income under Code Section 403(b) if the Contract meets
certain requirements. Under such a Section 403(b) Qualified Contract, purchase
payments may be made as elective deferrals through a salary reduction
agreement with an employee, but these payments are generally limited after
1986 to a maximum of $9,500 per year (and possibly less depending on the
employee's years of service, compensation and prior elective deferrals).
Purchase payments that are not elective deferrals are subject to other limits.
DISTRIBUTIONS DURING THE ACCUMULATION PERIOD. Under the Code, amounts received
by an Annuitant upon a partial or total surrender of a Section 403(b)
Qualified Contract are generally allocated on a pro rata basis between the
employee's after tax investment in the Contract (if any) and other amounts. A
10 percent penalty tax is imposed on the amount includible in gross income
from distributions that occur before age 59 1/2 and that are not made on
account of death or disability, with certain exceptions. These exceptions
include distributions that are (1) part of a series of substantially equal
periodic payments beginning after the employee separates from service and made
over the life (or life expectancies) of the employee and his or beneficiary,
(2) made after separation from service following attainment of age 55, or (3)
made to an alternate payee under a qualified domestic relations order.
Post-1988 elective deferrals (made under a salary reduction agreement) and the
earnings thereon may not be distributed prior to age 59 1/2, separation from
service, death or disability. Distributions of elective deferrals (but not any
income earned thereon) made after 1988 are permissible in the case of
hardship; the distribution, however, may be subject to a 10% penalty tax as a
premature distribution, as described above. Unless certain term and amount
requirements are met, loans from section 403(b) Qualified Contracts will be
treated as distributions.
A distribution from a Section 403(b) Qualified Contract is an eligible
rollover distribution. If any amount of the distribution is not paid as a
direct rollover, such amount will be subject to 20% income tax withholding.
See "Tax Free Rollovers."
ANNUITY PAYMENTS. Annuity Payments received under a Section 403(b) Qualified
Contract by an Annuitant are generally taxed in the same manner as Annuity
payments under Non-Qualified Contracts. In the case of benefits accrued after
December 31, 1986 under a Section 403(b) Qualified Contract, distributions of
minimum amounts specified by the Code must commence by April 1 of the calendar
year following the calendar year in which the Annuitant attains age 70 1/2,
regardless of whether he has retired except for employees covered by a
governmental or church plan. Additional distribution requirements apply to
beneficiaries of deceased Annuitants. Failure to comply with the distribution
rules will result in the imposition of a penalty tax of 50 percent of the
amount by which the minimum distribution required exceeds the actual
distribution.
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C. INDIVIDUAL RETIREMENT ANNUITIES ("IRAS")
PURCHASE PAYMENTS. Individuals who are not active participants in a tax
qualified retirement plan may, in any year, deduct from their taxable income
purchase payments for an IRA equal to the lesser of $2,000 or 100% of the
individual's earned income. In the case of married individuals filing a joint
return, the deduction will, in general, be the lesser of $4,000 or 100% of the
combined earned income of both spouses, reduced by any deduction for an IRA
purchase payment allowed to the spouse. Single persons who participate in a
tax-qualified retirement plan and who have adjusted gross income not in excess
of $30,000 may fully deduct their IRA purchase payments. Those who have
adjusted gross income in excess of $40,000 will not be able to deduct purchase
payments, and for those with adjusted gross income between $30,000 and $40,000
the deduction is phased out based on the amount of income. Beginning in 1999,
the income range over which the otherwise deductible portion of an IRA
purchase payment will be phased out for single persons will increase, as
follows: 1999--$31,000 to $41,000; 2000--$32,000 to $42,000; 2001--$33,000 to
$43,000; 2002--$34,000 to $44,000; 2003--$40,000 to $50,000; 2004-- $45,000 to
$55,000; and 2005 and thereafter--$50,000 to $60,000.
Similarly, the otherwise deductible portion of an IRA purchase payment will be
phased out, in the case of married individuals filing joint tax returns, with
adjusted gross income between $50,000 and $60,000, and in the case of married
individuals filing separately, with adjusted gross income between $0 and
$10,000. Beginning in 1999, the income range over which the otherwise
deductible portion of an IRA purchase payment will be phased out for married
individuals filing joint tax returns will increase as follows: 1999--$51,000
to $61,000; 2000--$52,000 to $62,000; 2001--$53,000 to $63,000; 2002-- $54,000
to $64,000; 2003--$60,000 to $70,000; 2004--$65,000 to $75,000; 2005--$70,000
to $80,000; 2006--$75,000 to $85,000; and 2007 and thereafter--$80,000 to
$100,000.
A married individual filing a joint tax return, who is not an active
participant in a tax qualified retirement plan, but whose spouse is an active
participant in such a plan, may, in any year, deduct from his or her taxable
income purchase payments for an IRA equal to the lesser of $2,000 or 100% of
the individual's earned income. For such an individual, the income range over
which the otherwise deductible portion of an IRA purchase payment will be
phased out is $150,000 to $160,000.
DISTRIBUTIONS FROM AN IRA. Amounts received under an IRA as annuity payments,
upon partial withdrawal or total surrender, or on the death of the Annuitant,
are included in the Annuitant's or other recipient's income. If nondeductible
purchase payments have been made, a pro rata portion of such distributions may
not be included in income. A 10% penalty tax is imposed on the amount
includible in gross income from distributions that occur before the Annuitant
attains age 59 1/2 and that are not made on account of death or disability,
with certain exceptions, including distributions for qualified first-time home
purchases for the individual, a spouse, children, grandchildren or ancestor,
subject to a $10,000 lifetime maximum, and distributions for higher education
expenses for the individual, a spouse, children, or grandchildren. These
exceptions include distributions that are part of a series of substantially
equal periodic payments made over the life (or life expectancy) of the
Annuitant or the joint lives (or joint life expectancies) of the Annuitant and
the Beneficiary. Distributions of minimum amounts specified by the Code must
commence by April 1 of the calendar year following the calendar year in which
the Annuitant attains age 70 1/2. Additional distribution rules apply after
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the death of the Annuitant. These rules are similar to those governing
distributions on the death of an Owner (or other payee during the Annuity
Period) under a Non-Qualified Contract. See "Death Proceeds." Failure to
comply with the minimum distribution rules will result in the imposition of a
penalty tax of 50% of the amount by which the minimum distribution required
exceeds the actual distribution.
TAX FREE ROLLOVERS. Amounts may be transferred in a tax-free rollover from a
tax-qualified plan to an IRA (and from one IRA to another IRA) if certain
conditions are met. All taxable distributions ("eligible rollover
distributions") from tax qualified plans are eligible to be rolled over with
the exception of (1) annuities paid over a life or life expectancy, (2)
installments for a period of ten years or more, and (3) required minimum
distributions under section 401(a)(9) of the Code.
Rollovers may be accomplished in two ways. First, an eligible rollover
distribution may be paid directly to an IRA (a "direct rollover"). Second, the
distribution may be paid directly to the Annuitant and then, within 60 days of
receipt, the amount may be rolled over to an IRA. However, any amount that was
not distributed as a direct rollover will be subject to 20% income tax
withholding.
D. ROTH IRAS
Beginning in 1998, individuals may purchase a new type of non-deductible IRA,
known as a Roth IRA. Purchase payments for a Roth IRA are limited to $2,000
per year. This limitation is reduced for adjusted gross income beginning at
$95,000 and is eliminated at $110,000 in the case of single taxpayers, between
$150,000 and $160,000 in the case of married taxpayers filing joint returns,
and between $0 and $15,000 in the case of married taxpayers filing separately.
An overall $2,000 annual limitation continues to apply to all of a taxpayer's
IRA contributions, including Roth IRAs and non-Roth IRAs.
An individual may make a rollover contribution from a non-Roth IRA to a Roth
IRA, unless the individual has adjusted gross income over $100,000 or the
individual is a married taxpayer filing a separate return. The individual must
pay tax on any portion of the IRA being rolled over that represents income or
a previously deductible IRA contribution. For rollovers in 1998, the
individual may pay that tax ratably in 1998 and over the succeeding three
years. There are no similar limitations on rollovers from a Roth IRA to
another Roth IRA.
Qualified distributions from Roth IRAs are entirely tax free. A qualified
distribution requires that the individual has held the Roth IRA for at least
five years and, in addition, that the distribution is made either after the
individual reaches age 59 1/2 on the individual's death or disability, or as a
qualified first-time home purchase, subject to a $10,000 lifetime maximum, for
the individual, a spouse, child, grandchild, or ancestor.
E. SIMPLIFIED EMPLOYEE PENSION PLANS
Employees and employers may establish an IRA plan known as a simplified
employee pension plan ("SEP") if certain requirements are met. An employee may
make contributions to a SEP in accordance with the rules applicable to IRAs
discussed above. Employer contributions to an employee's SEP are deductible by
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the employer and are not currently includible in the taxable income of the
employee. However, total employer contributions are limited to 15% of an
employee's compensation or $30,000, whichever is less.
F. SIMPLE RETIREMENT ACCOUNTs
Employees and employers may establish an IRA plan known as a simple retirement
account ("SRA"), if certain requirements are met. Under an SRA, the employer
contributes elective employee compensation deferrals up to a maximum of $6,000
a year. The employer must, in general, make a fully vested matching
contribution for employee deferrals up to 3% of compensation.
G. OTHER QUALIFIED PLANS
PURCHASE PAYMENTS. Purchase payments made by an employer under a pension,
profit-sharing, or annuity plan qualified under section 401 or 403(a) of the
Code, not in excess of certain limits, are deductible by the employer. Such
purchase payments are also excluded from the current income of the employee.
DISTRIBUTIONS PRIOR TO THE ANNUITY COMMENCEMENT DATE. To the extent that
purchase payments are includible in an employee's taxable income, they (less
any amounts previously received that were not includible in the employee's
taxable income) represent his or her "investment in the Contract." Amounts
received prior to the Annuity Commencement Date under a Contract in connection
with a section 401 or 403(a) plan are generally allocated on a pro-rata basis
between the employee's investment in the Contract and other amounts. With
respect to the taxable portion of a lump-sum distribution (as defined in the
Code), an averaging rule may be applicable that allows computation of tax as
if the amount were received over a period of five years. A lump-sum
distribution will not be includible in income in the year of distribution if
the employee transfers, within 60 days of receipt, all amounts received, less
the employee's investment in the Contract, to another tax-qualified plan or to
an individual retirement account or an IRA in accordance with the rollover
rules under the Code. However, any amount that is not distributed as a direct
rollover will be subject to 20% income tax withholding. See "Tax Free
Rollovers." Special tax treatment may be available in the case of certain
lump-sum distributions that are not rolled over to another plan or IRA.
A 10% penalty tax is imposed on the amount includible in gross income from
distributions that occur before the employee's attaining age 59 1/2 and that
are not made on account of death or disability, with certain exceptions. These
exceptions include distributions that are (1) part of a series of
substantially equal periodic payments beginning after the employee separates
from service and made over the life (or life expectancy) of the employee or
the joint lives (or joint life expectancies) of the employee and the
Beneficiary, (2) made after the employee's separation from service on account
of early retirement after age 55, or (3) made to an alternate payee pursuant
to a qualified domestic relations order.
ANNUITY PAYMENTS. A portion of annuity payments received under Contracts in
connection with section 401 and 403(a) plans after the Annuity Commencement
Date may be excludible from the employee's income, in the manner discussed
above, in connection with Variable Annuity Payments under "Non-Qualified
Contracts - Taxation of Annuity Payments", except that the number of expected
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payments is determined under a provision in the Code. Distributions of minimum
amounts specified by the Code generally must commence by April 1 of the
calendar year following the calendar year in which the employee attains age 70
1/2 or retires, if later. Failure to comply with the minimum distribution
rules will result in the imposition of a penalty tax of 50% of the amount by
which the minimum distribution required exceeds the actual distribution.
SELF-EMPLOYED INDIVIDUALS. Various special rules apply to tax-qualified plans
established by self- employed individuals.
H. PRIVATE EMPLOYER UNFUNDED DEFERRED COMPENSATION PLANS
PURCHASE PAYMENTS. Private taxable employers may establish unfunded,
Non-Qualified deferred compensation plans for a select group of management or
highly compensated employees and/or for independent contractors. These types
of programs allow individuals to defer receipt of up to 100% of compensation
that would otherwise be includible in income and therefore to defer the
payment of federal income taxes on such amounts, as well as earnings thereon.
Purchase payments made by the employer, however, are not immediately
deductible by the employer, and the employer is currently taxed on any
increase in Account Value.
Deferred compensation plans represent a contractual promise on the part of the
employer to pay current compensation at some future time. The Contract is
owned by the employer and is subject to the claims of the employer's
creditors. The individual has no right or interest in the Contract and is
entitled only to payment from the employer's general assets in accordance with
plan provisions.
TAXATION OF DISTRIBUTIONS. Amounts received by an individual from a private
employer deferred compensation plan are includible in gross income for the
taxable year in which such amounts are paid or otherwise made available.
I. FEDERAL INCOME TAX WITHHOLDING AND REPORTING
Amounts distributed from a Contract, to the extent includible in taxable
income, are subject to federal income tax withholding. The payee may, however,
elect to have no income tax withheld by submitting a withholding exemption
certificate to us.
In some cases, if you own more than one Qualified annuity contract, such
contracts may be aggregated for purposes of determining whether the federal
tax law requirement for minimum distributions after age 70 1/2, or retirement,
in appropriate circumstances, has been satisfied. If, under this aggregation
procedure, you are relying on distributions pursuant to another annuity
contract to satisfy the minimum distribution requirement under a Qualified
Contract issued by us, you must sign a waiver releasing us from any liability
to you for not calculating and reporting the amount of taxes and penalties
payable for failure to make required minimum distributions under the Contract.
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SERVICES AGREEMENT
American General Independent Producer Division ("AGIPD") is party to a general
services agreement with AGL. AGIPD, an affiliate of AGL, is a corporation
incorporated in Delaware on November 24, 1997. Its Home Address is 2727-A
Allen Parkway, Houston, Texas 77019. Pursuant to this agreement, AGIPD
provides services to AGL, including most of the administrative, data
processing, systems, customer services, product development, actuarial,
auditing, accounting and legal services for AGL and the Contracts.
VOTING RIGHTS
Participants prior to the Annuity Commencement Date, and Annuitants or other
payees during the Annuity Period, may instruct AGL as to the voting of
Portfolio Company shares attributable to their respective interests under the
Contracts at meetings of shareholders of Portfolio Company. Those persons
entitled to vote will receive proxy material and a form on which voting
instructions may be given. AGL will vote the shares of each Fund of Portfolio
Company held by the corresponding Division of Separate Account A, attributable
to the Contracts, in accordance with instructions received with respect to all
Contracts. Shares held in each Division for which timely instructions have not
been received will be voted by AGL for or against any proposition, or AGL will
abstain, in the same proportion as shares in that Division for which
instructions are received. AGL will vote, or abstain from voting, any
Portfolio Company shares that are not attributable to the Contracts in the
same proportion as all Participants in Separate Account A vote or abstain.
However, if AGL determines that it is permitted to vote such shares of
Portfolio Company in its own right, it may elect to do so, subject to the
then-current interpretation of the 1940 Act and the rules thereunder.
Unless the Contract has been issued in connection with a deferred compensation
plan, individuals participating under a Contract Owner's retirement plan have
the right to instruct the owner with respect to shares attributable to their
contributions and to such additional extent as the owner's retirement plan may
permit.
The number of shares of Portfolio Company held in a Division deemed
attributable to a Participant's interest under a Contract prior to the Annuity
Commencement Date will be determined on the basis of the value of the
Accumulation Units credited to the Participant's account as of the record
date. On or after the Annuity Commencement Date, the number of attributable
shares will be based on the amount of assets held to meet annuity obligations
to the payee under the Contract as of the record date. During the annuity
period, the number of votes attributable to a Contract or participation will
generally decrease since funds set aside for an Annuitant will decrease.
Because Portfolio Company is organized as a corporation under Maryland law, it
is not required to hold regular annual shareholder meetings to elect members
of the board of directors and it does not expect to hold annual meetings for
any other purpose. If members of the board of directors of Portfolio Company
are required to be elected or any other action is required to be taken at any
special or annual meeting of Portfolio Company, instructions for voting shares
underlying the interests of Participants will, as indicated above, be
solicited by means of proxy materials.
30
<PAGE>
Matters pertaining to all of the Funds, such as the election of directors or
the ratification of independent auditors, will be submitted to a vote of the
shareholders of all the Funds. However, matters pertaining to only certain of
the Funds will be submitted to a vote of the shareholders of only those Funds.
THE STATEMENT OF ADDITIONAL INFORMATION
This Prospectus contains information concerning Separate Account A,AGL and the
Contracts, but does not contain all of the information set forth in the
Registration Statement and all exhibits and schedules relating thereto, which
AGL has filed with the SEC.
Additional information may be obtained from AGL by requesting from AGL's
Annuity Administration Department a Statement of Additional Information.
Please use the address or telephone number on the first page of this
prospectus. For convenience, the Table of Contents of the Statement of
Additional Information is provided below:
TABLE OF CONTENTS
OF THE STATEMENT OF ADDITIONAL INFORMATION
General Information..........................................................2
Regulation and Reserves......................................................2
Independent Auditors.........................................................3
Distribution.................................................................3
Underwriters.................................................................3
Services.....................................................................3
Gender of Annuitant..........................................................4
Misstatement of Age or Sex and Other Errors..................................4
Change of Investment Adviser or Investment Policy............................4
Calculation of Accumulation Unit Values......................................4
Annuity Payments.............................................................6
Index to Financial Statements................................................8
Financial Statements.........................................................9
<PAGE>
Reg. No. 33-44745
AMERICAN GENERAL LIFE INSURANCE COMPANY SEPARATE ACCOUNT A
INDIVIDUAL VARIABLE RETIREMENT ANNUITY CONTRACTS
OFFERED BY
AMERICAN GENERAL LIFE INSURANCE COMPANY
ANNUITY ADMINISTRATION DEPARTMENT
P. O. BOX 1401, HOUSTON, TEXAS 77251-1401
1-800-247-6584 or 713-831-3505 (IN TEXAS)
STATEMENT OF ADDITIONAL INFORMATION
Dated May 1, 1998
This Statement of Additional Information is not a prospectus. It should
be read with the prospectuses, dated May 1,1998, for the Individual Variable
Retirement Annuity Contracts (the "Contracts"). You can obtain a copy of the
applicable prospectus by contacting American General Life Insurance Company
("AGL"), the successor to California-Western States Life Insurance Company
("Cal-Western"), at the address or telephone number given above.
<TABLE>
<CAPTION>
TABLE OF CONTENTS
Page No.
--------
<S> <C>
General Information.......................................................2
Regulation and Reserves...................................................2
Independent Auditors......................................................3
Distribution..............................................................3
Underwriters .............................................................3
Services. . . . . ........................................................3
Gender of Annuitant.......................................................4
Misstatement of Age or Gender and Other Errors............................4
Change of Investment Adviser or Investment Policy.........................4
Calculation of Accumulation Unit Values...................................4
Annuity Payments..........................................................6
Index to Financial Statements.............................................8
Financial Statements......................................................9
</TABLE>
<PAGE>
GENERAL INFORMATION
AGL, a Texas corporation, is a wholly-owned subsidiary of AGC Life Insurance
Company, a Missouri corporation ("AG Missouri") engaged primarily in the life
insurance business and annuity business. AG Missouri, in turn, is a
wholly-owned subsidiary of American General Corporation (" AGC"), a Texas
holding corporation engaged primarily in the insurance business.
AGL is the single life insurance company resulting from the merger, effective
December 31, 1991, of Cal-Western, a California corporation, and American
General Life Insurance Company, a Texas corporation ("AG Texas"), into AGL's
predecessor, American General Life Insurance Company of Delaware, a Delaware
corporation organized in 1917 ("AG Delaware"). In connection with the merger,
AG Delaware redomesticated as a Texas insurer and changed its name to American
General Life Insurance Company.
REGULATION AND RESERVES
AGL is subject to regulation and supervision by the insurance departments of
the states in which it is licensed to do business. This regulation covers a
variety of areas, including benefit reserve requirements, adequacy of
insurance company capital and surplus, various operational standards, and
accounting and financial reporting procedures. AGL's operations and accounts
are subject to periodic examination by insurance regulatory authorities.
Under insurance guaranty fund laws in most states, insurers doing business
therein can be assessed up to prescribed limits for insurance contract losses,
if covered, incurred by insolvent companies. The amount of any future
assessments of AGL under these laws cannot be reasonably estimated. Most of
these laws do provide, however, that an assessment may be excused or deferred
if it would threaten an insurer's own financial strength.
Although the federal government generally has not directly regulated the
business of insurance, federal initiatives often have an impact on the
business in a variety of ways. Federal measures that may adversely affect the
insurance business include employee benefit regulation, tax law changes
affecting the taxation of insurance companies or of insurance products,
changes in the relative desirability of various personal investment vehicles,
and removal of impediments on the entry of banking institutions into the
business of insurance. Also, both the executive and legislative branches of
the federal government have under consideration various insurance regulatory
matters, which could ultimately result in direct federal regulation of some
aspects of the insurance business. It is not possible to predict whether this
will occur or, if so, what the effect on AGL would be.
Pursuant to state insurance laws and regulations,AGL is obligated to carry on
its books, as liabilities, reserves to meet its obligations under outstanding
insurance contracts. These reserves are based on assumptions about, among
other things, future claims experience and investment returns. Neither the
reserve requirements nor the other aspects of state insurance regulation
provide absolute protection to holders of insurance contracts, including the
Contracts, if AGL were to incur claims or expenses at rates significantly
higher than expected, for example, due to acquired immune deficiency syndrome
or other infectious diseases or catastrophes, or significant unexpected losses
on its investments.
2
<PAGE>
INDEPENDENT AUDITORS
The consolidated financial statements of AGL and the financial statements of
Separate Account A, appearing in this Statement of Additional Information,
have been audited by Ernst & Young LLP, independent auditors, as set forth in
their respective reports thereon and appearing elsewhere herein. The financial
statements have been included in this Statement of Additional Information in
reliance upon such reports of Ernst & Young LLP, given upon their authority as
experts in accounting and auditing. The offices of Ernst & Young LLP are
located at One Houston Center, Suite 2400, 1221 McKinney Street, Houston,
Texas 77010-2007.
DISTRIBUTION
The Individual Variable Retirement Annuity Contracts that are currently being
offered by AGL are sold by licensed insurance agents and insurance brokers of
AGL who are registered representatives of American General Securities
Incorporated ("AGSI"), a National Association of Securities Dealers, Inc.
member firm. AGSI, a broker-dealer registered with the Securities and Exchange
Commission, is wholly-owned by AGL and was incorporated in Texas in 1983.
UNDERWRITERS
AGSI is the principal underwriter with respect to the Contracts. AGSI also
serves as principal underwriter to AGL Separate Account D, AGL Separate
Account VL-R and American General Life Insurance Company of New York Separate
Account E, all of which are unit investment trusts registered under the
Investment Company Act of 1940. AGSI, a Texas corporation, is a wholly owned
subsidiary of AGL. The Home Office for AGSI is 2727 Allen Parkway, Houston,
Texas 77019.
As principal underwriter of the Contracts, AGSI received from AGL less than
$1,000 of compensation for each of the last three fiscal years. No other
affiliate of AGL receives any profit or benefit in connection with the
purchase or sale of shares of the underlying mutual fund, American General
Series Portfolio Company ("Portfolio Company"), by Separate Account A.
The securities offered pursuant to the Contracts are offered on a continuous
basis.
SERVICES
A Service Agreement exists between AGL and CSC Continuum, Inc. ("Continuum")
to provide certain services in connection with Separate Account A. Continuum
has developed a computerized data processing record keeping system for annuity
accounting and has the necessary data processing equipment and personnel to
provide and support remote terminal access to its system for the maintenance
of annuity records, processing information, and the generation of output with
respect to the records and information. AGL has contracted with Continuum for
the right to use Continuum's system. For these services, Continuum received
$64,800 in 1997, $64,800 in 1996 and $65,280 in 1995.
3
<PAGE>
AGL and American General Independent Producer Division ("AGIPD") are parties
to a services agreement which has been entered into among most of the
affiliated companies within the American General Corporation holding company
system, including certain life insurance companies. AGIPD is a corporation
incorporated in Delaware on November 24, 1997, with its home office located at
2727-A Allen Parkway, Houston, Texas 77019. AGIPD provides shared services
including data processing, systems, customer services, product development,
actuarial, auditing, accounting and legal to AGL and certain other life
insurance companies at cost. AGL did not pay any fees to AGIPD in 1997 because
no services were performed.
GENDER OF ANNUITANT
When annuity payments are based on life expectancy, the amount of each annuity
payment ordinarily will be higher if the Annuitant or other measuring life is
a male, as compared with a female under an otherwise identical Contract. This
is because, statistically, females tend to have longer life expectancies than
males. However, there will be no differences between males and females in any
jurisdiction, including Montana, where such differences are not permitted. AGL
will also make available Contracts with no such differences in connection with
certain employer-sponsored benefit plans. Employers should be aware that,
under most such plans, Contracts that make distinctions based on gender are
prohibited by law.
MISSTATEMENT OF AGE OR GENDER AND OTHER ERRORS
If the age or gender of an Annuitant has been misstated, any amount payable
will be that which the purchase payments paid would have purchased at the
correct age and sex. If any overpayments have been because of incorrect
information about age or sex, or any error or miscalculation, the amount of
the overpayment will be deducted from the next payment or payments due.
Conversely, any underpayments will be added to the next payment. The amount of
any adjustment will be credited or charged with interest at the effective
annual rate of 4% per year.
CHANGE OF INVESTMENT ADVISER OR INVESTMENT POLICY
Unless otherwise required by law or regulation, neither the investment adviser
to the Portfolio Company (or any series thereof) nor any investment policy may
be changed without the consent of AGL. If required, approval of or change of
any investment objective will be filed with the insurance department of each
state where a Contract has been delivered. Contract Owners and Participants,
as defined in the Contracts, (or, after annuity payments start, the payee)
will be notified of any material investment policy change that has been
approved. Contract Owners and Participants will be notified of an investment
policy change prior to its implementation by Separate Account A if the comment
or vote of such Contract Owners or Participants is required for such change.
CALCULATION OF ACCUMULATION UNIT VALUES
The method of calculating accumulation unit values is described in the
Prospectus under the caption "The Accumulation Period." Set forth below are
formulas and illustrations for determining: (a) the gross investment rate; (b)
the net investment factor; and (c) accumulation unit value.
4
<PAGE>
(a) FORMULA AND ILLUSTRATION FOR DETERMINING GROSS INVESTMENT
RATE
The following formula sets out the method of computing the Gross Investment
Rate:
Gross Investment Rate = a + b + c
---------
d
Where a = Investment income during Valuation
Period. Assume "a" = $9,000
b = Unrealized capital gains or losses
during Valuation period. Assume "b" = $4,000
c = Realized Capital gains or losses
during Valuation Period. Assume "c" = $0
d = Value of Separate Account A's assets
at the beginning of the Valuation
Period. Assume "d" = $9,000,000
Then, Gross Investment Rate = $9,000 + $4,000 + 0
-------------------
$9,000,000 = .001444
(.1444%)
(b) FORMULA AND ILLUSTRATION FOR DETERMINING NET INVESTMENT
FACTOR
Net Investment Rate = a - b + c
Where
a = Gross Investment Rate. Assume "a",
as calculated above = .00144
b = A factor representing charges for
mortality and expense risks which
totals 1.0017% on annual basis. On
daily basis, assume "b" = .0000274
c = A factor representing the
reimbursement of fund expenses
deducted from the Net Asset Value of
AGSPC assets. Assume $88.77 expenses
deducted. Then factor = $88.77
---------
9,000,000 = .00000986
Then, Net Investment Rate = .00144 - .0000274 + .00000986 = .00142246
Net Investment Factor = 1.00000 + Net Investment Rate
= 1.00000 + .00142246 = 1.00142246
(c) FORMULA AND ILLUSTRATION FOR DETERMINING ACCUMULATION UNIT
VALUE
Accumulation Unit value = a x b
5
<PAGE>
Where
a = Accumulation Unit value for the
previous Valuation Period. Assume "a" = $1.12500
b = Net Investment Factor. Assume "b", as = 1.00142246
calculated above
Then, Accumulation Unit value = $1.12500 X 1.00142246 = $1.126600
ANNUITY PAYMENTS
The method of calculating annuity payments is described in the Prospectus
under the caption "The Annuity Period." Set forth below are formulas and
illustrations for determining: (a) annuity unit value; (b) the amount of the
first monthly annuity payment; (c) the number of annuity units; and (d)
subsequent monthly annuity payments.
(a) FORMULA AND ILLUSTRATION FOR DETERMINING ANNUITY UNIT VALUE
Annuity Unit value = a x (b x c)
Where a = Annuity Unit value for the immediately
preceding Valuation Period. Assume "a" = $1.070000
b = Net Investment Factor for the
Valuation Period two weeks immediately
preceding the Valuation Period for
which the Annuity Unit value is being
calculated. Assume "b" = 1.005000
c = A factor to neutralize the assumed
interest rate of 3 1/2%. Assume "c" = .999906
Then, the Annuity Unit value =
$1.070000 X (1.0050000 X .999906) = $1.075249
(b) FORMULA AND ILLUSTRATION FOR DETERMINING AMOUNT OF FIRST
MONTHLY ANNUITY PAYMENT
The first monthly Annuity payment based on 3 1/2% assumed interest rate, the
value of the Variable Account, less any applicable premium taxes, the sex and
adjusted age of the Payee, and the Settlement Option elected (assume for each
case a male, adjusted age 65, Option 3 with 120 monthly payments guaranteed).
First monthly Annuity payment = a x b
Where a = Value of the Variable Account, less
6
<PAGE>
any applicable premium taxes, as of
the Valuation Period two weeks
immediately preceding the Annuity
Commencement Date. Assume "a" = $10,000
b = A factor per $1,000 appropriate to the
Payee's sex and adjusted age and to
the Settlement Option elected (shown
in the tables contained in the
Contracts). Assume "b" = $6.57
Then, the first monthly Annuity payment = $65.70
(c) FORMULA AND ILLUSTRATION FOR DETERMINING THE NUMBER OF
ANNUITY UNITS
Number of Annuity Units represented by
the first monthly Annuity payment = a/b
Where a = Dollar amount of first monthly Annuity
payment. Assume "a", as calculated
above = $65.70
b = Annuity Unit value for the Valuation
Period in which the first monthly
Annuity payment is due. Assume "b", as
calculated above = $1.075249
Then, the number of Annuity Units =
$65.70
---------
$1.075249 = 61.102126
units
(d) FORMULA FOR DETERMINING AMOUNT OF SECOND AND SUBSEQUENT
MONTHLY ANNUITY PAYMENTS
The number of Annuity Units in Example 3 remains fixed during the Annuity
Period. To determine the second monthly Annuity payment for this illustration,
assume a thirty-day period between Annuity payments and assume that a 6% yield
is reflected in the current Annuity Unit value since the prior payment. Then
the second monthly Annuity payment = a X b
Where a = Fixed number of Annuity Units. Assume = 61.102126
"a", as calculated above units
b = Annuity Unit value for the Valuation
Period in which the payment is due.
Assume "b" = $1.136554
Then, the second monthly Annuity payment=
61.102126 units X $1.136554 = $69.45
7
<PAGE>
Note that the payments have increased due to the favorable investment
experience of Separate Account A. If the investment experience is not
favorable, then the payments will decrease. Assuming a 30 day period between
Annuity payments, and assuming a minus 6% yield is reflected in the current
Annuity Unit value since the prior payment:
Then, b = Annuity Unit value for the Valuation
Period in which the payment is due = $1.007888
Then, the second monthly Annuity
payment = 61.102126 units X $1.007888 = $61.58
INDEX TO
FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
Page No.
--------
<S> <C>
I. Separate Account A Financial Statements
Report of Ernst & Young LLP, Independent Auditors.............. 9
Statement of Net Assets........................................ 10
Statement of Operations........................................ 10
Statement of Changes in Net Assets............................. 11
Notes to Financial Statements................................. 12
II. AGL Consolidated Financial Statements
Report of Ernst & Young LLP, Independent Auditors.............. 18
Consolidated Balance Sheets.................................... 19
Consolidated Income Statements ................................ 21
Consolidated Statements of Shareholders' Equity................ 22
Consolidated Statements of Cash Flows.......................... 23
Notes to Consolidated Financial Statements..................... 24
</TABLE>
8
<PAGE>
ERNST & YOUNG LLP One Houston Center Phone: 713 750 1500
Suite 2400 Fax: 713 750 1501
1221 McKinney Street
Houston, Texas 77010-2007
Report of Independent Auditors
Board of Directors
American General Life Insurance Company
and Contract Owners
American General Life Insurance Company
Separate Account A
We have audited the accompanying statement of net assets of American General
Life Insurance Company (the "Company") Separate Account A as of December 31,
1997, the related statement of operations for the year then ended, and the
statement of changes in net assets for each of the two years in the period
then ended. These financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these financial
statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. Our
procedures included confirmation of securities owned as of December 31,1997,
by correspondence with the transfer agents. An audit also includes assessing
the accounting principles used and significant estimates made by management,
as well as evaluating the overall financial statement presentation. We believe
that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of American General Life
Insurance Company Separate Account A at December 31, 1997, the results of its
operations for the year then ended, and the changes in its net assets for each
of the two years in the period then ended, in conformity with generally
accepted accounting principles.
/s/ERNST & YOUNG LLP
--------------------
Ernst & Young LLP
Houston, Texas
February 20, 1998
9
<PAGE>
AMERICAN GENERAL LIFE INSURANCE COMPANY
SEPARATE ACCOUNT A
STATEMENT OF NET ASSETS
DECEMBER 31, 1997
<TABLE>
<S> <C>
ASSETS:
Investment securities - at market (cost $27,263,777) ........................ $ 53,589,524
Due from American General Life Insurance Company ............................ 8,299
--------------
NET ASSETS ............................................................... $ 53,597,823
==============
CONTRACT OWNER RESERVES:
Reserves for redeemable annuity contracts ................................... $ 49,015,592
Reserves for annuity contracts on benefit ................................... 4,582,231
--------------
TOTAL CONTRACT OWNER RESERVES ......................................... $ 53,597,823
==============
</TABLE>
STATEMENT OF OPERATIONS
YEAR ENDED DECEMBER 31, 1997
<TABLE>
<S> <C> <C>
INVESTMENT INCOME:
Dividends from mutual funds ................................................. $ 733,161
EXPENSES:
Expense and mortality fee .................................... $ 507,312
Fund advisory fee reimbursement .............................. $ (7,573) 499,739
-------------- --------------
NET INVESTMENT INCOME ............................................................233,422
--------------
REALIZED AND UNREALIZED GAIN ON INVESTMENTS:
Net realized gain on investments ............................................ 2,112,804
Capital gain distributions from mutual funds ................................ 275,397
Net unrealized gain on investments .......................................... 10,796,479
--------------
NET REALIZED AND UNREALIZED GAIN ON INVESTMENTS .......................... 13,184,680
--------------
INCREASE IN NET ASSETS RESULTING FROM OPERATIONS ......................... $ 13,418,102
==============
</TABLE>
SEE ACCOMPANYING NOTES.
Page 10
<PAGE>
AMERICAN GENERAL LIFE INSURANCE COMPANY
SEPARATE ACCOUNT A
STATEMENT OF CHANGES IN NET ASSETS
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
1997 1996
<S> <C> <C>
OPERATIONS:
Net investment income ........................................ $ 233,422 $ 367,860
Net realized gain on investments ............................. 2,112,804 1,320,715
Capital gain distributions from mutual funds ................. 275,397 321,359
Net unrealized gain on investments ........................... 10,796,479 5,901,608
-------------- --------------
Increase in net assets resulting from operations .......... 13,418,102 7,911,542
-------------- --------------
PRINCIPAL TRANSACTIONS:
Contract purchase payments, less sales and administrative
expenses and premium taxes ................................ 576,513 633,569
Mortality reserve transfers .................................. 254,636 331,485
Payments to contract owners:
Annuity benefits .......................................... (610,400) (500,865)
Terminations and withdrawals .............................. (3,520,839) (3,247,174)*
-------------- --------------
Decrease in net assets resulting from principal transactions . (3,300,090) (2,782,985)
-------------- --------------
TOTAL INCREASE IN NET ASSETS ................................. 10,118,012 5,128,557
NET ASSETS:
Beginning of year ............................................ 43,479,811 38,351,254
-------------- --------------
End of year ................................................. $ 53,597,823 $ 43,479,811
============== ==============
</TABLE>
* Includes 1996 death benefits of $10,913; reclassified from annuity benefits.
SEE ACCOMPANYING NOTES.
Page 11
<PAGE>
NOTES TO FINANCIAL STATEMENTS
SEPARATE ACCOUNT A
NOTE A - ORGANIZATION
Separate Account A (the "Separate Account") was established by American
General Life Insurance Company (the "Company") on August 14, 1967. The
Separate Account is registered as a unit investment trust under the Investment
Company Act of 1940, as amended, and contract purchase payments were first
received on January 12, 1968. On April 28, 1989, the Separate Account was
reorganized as a multi-division unit investment trust investing in American
General Series Portfolio Company ("AGSPC"). The Separate Account is comprised
of six subaccounts or "divisions" which are available to contract holders
through American General annuity contracts. The subaccount formerly named
Timed Opportunity Fund has been renamed Asset Allocation Fund.
NOTE B - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES & BASIS OF PRESENTATION
The accompanying financial statements of the Separate Account have been
prepared on the basis of generally accepted accounting principles ("GAAP").
The accounting principles followed by the Separate Account and the methods of
applying those principles are presented below or in the footnotes which
follow:
SECURITY VALUATION - The investment in shares of mutual funds managed by
AGSPC are valued at the closing net asset value (market) per share as
determined by the fund on the day of measurement.
SECURITY TRANSACTIONS AND RELATED INVESTMENT INCOME - Security
transactions are accounted for on the date the order to buy or sell is
executed (trade date). Dividend income and distributions of capital gains are
recorded on the ex- dividend date and reinvested upon receipt. Realized gains
and losses from security transactions are determined on the basis of
identified cost.
ADMINISTRATIVE EXPENSES AND MORTALITY AND EXPENSE RISK CHARGE - Fund
advisory fees, mortality and expense risk charges, and deductions from
contract purchase payments for sales and administrative expenses are paid to
the Company. Agreements with the Company include fees at an annual rate of
0.3233% and 1.0017% of the average daily net assets of the Separate Account
for fund advisory fees and mortality and expense risk charges assumed by the
Company, respectively. Pursuant to a contract expense guarantee, the Company
reimburses the Separate Account for any advisory fees charged by AGSPC in
excess of an annual rate of 0.3233% and for any additional charges resulting
from the April 28, 1989 Reorganization. The total reimbursements by the
company were $7,573 for the year ended December 31, 1997.
Varying deductions of up to 6% from each group (group contracts are no longer
offered) and 8.75% from each individual variable annuity contract purchase
payment (plus applicable premium taxes) are made for sales and administrative
expenses and minimum death benefits. These deductions made by the Company were
$7,152 for the year ended December 31, 1997.
ANNUITY RESERVES - Annuity reserves are computed for currently payable
contracts according to the Progressive Annuity Mortality Table. The assumed
interest rate is 3.5% unless the participant elects otherwise, in which case
the rate is 5%. Charges to annuity reserves for mortality and expense risk
experience are reimbursed to the Company if the reserves required are less
than originally estimated. If additional reserves are required, the Company
reimburses the Separate Account.
NOTE C - FEDERAL INCOME TAXES
The Company is taxed as a life insurance company under the Internal
Revenue Code and includes the operations of the Separate Account in
determining its federal income tax liability. Under existing federal income
tax law, the investment income and capital gains from sale of investments
realized by the Separate Account are not taxable. Therefore, no federal income
tax provision has been made.
Page 12
<PAGE>
NOTE D - INVESTMENTS
Fund shares are purchased at net asset value with net contract payments
(contract purchase payments less surrenders and amounts payable to the Company
for sales, administrative and surrender charges) and reinvestment of
distributions made by the funds. The following is a summary of fund shares
owned as of December 31, 1997.
<TABLE>
<CAPTION>
Net Value of
Asset Shares Cost of Unrealized
Fund Shares Value at Market Shares Held Appreciation/
(Depreciation)
<S> <C> <C> <C> <C> <C>
Stock Index Fund ............. 1,799,963.525 $ 29.70 $ 53,458,917 $ 27,143,185 $ 26,315,732
MidCap Index Fund ............ 999.325 23.51 23,494 24,328 (834)
Asset Allocation Fund ........ 7,084.446 13.02 92,239 81,781 10,458
Government Securities Fund ... 354.475 10.04 3,559 3,412 147
Capital Conservation Fund .... 1,177.361 9.61 11,315 11,071 244
------------- ------------- -------------
$ 53,589,524 $ 27,263,777 $ 26,325,747
</TABLE>
The aggregate cost of purchases and proceeds from sales of investments
for the period ended December 31, 1997 were $1,722,831 and $4,522,316,
respectively. The cost of the securities at December 31, 1997 was the same for
financial reporting and federal income tax purposes. Gross unrealized
appreciation and gross unrealized depreciation as of December 31, 1997 were
$26,326,581 and $834, respectively.
NOTE E - SUMMARY OF CHANGES IN UNITS
SUMMARY OF CHANGES IN UNITS FOR THE YEAR ENDED DECEMBER 31, 1997
CONTRACTS IN ACCUMULATION PERIOD:
<TABLE>
<CAPTION>
Asset Money Government Capital
Stock MidCap Allocation Market Securities Conservation
Index Fund Index Fund Fund Fund Fund Fund
<S> <C> <C> <C> <C> <C> <C>
Outstanding at beginning of period .... 2,411,116.122 1,055.932 40,744.069 80,561.157 2,370.225 7,757.918
Purchase payments ..................... 20,281.928 0.000 1,061.821 0.000 0.000 2,214.362
Surrenders ............................ (174,747.533) (395.506) (18.497) (2.228) (8.427) (7.318)
Transfers to annuity .................. (5,848.140) 0.000 0.000 0.000 0.000 0.000
Transfers between funds ............... 8,573.958 8,667.481 0.000 (80,558.929) 0.000 0.000
-------------- ---------- ----------- ------------ ---------- ----------
Outstanding at end of period .......... 2,259,376.335 9,327.907 41,787.393 0.000 2,361.798 9,964.962
============== ========== =========== ============ ========== ==========
</TABLE>
<TABLE>
<CAPTION>
CONTRACTS IN ANNUITY PERIOD:
<S> <C>
Outstanding at beginning of period ..... 225,000.376
Transfers from accumulation ............ 5,741.938
Mortality Reserve Transfers ............ 12,348.262
Annuity benefits ....................... (31,305.436)
------------
Outstanding at end of period ........... 211,785.140
============
</TABLE>
Page 13
<PAGE>
SEPARATE ACCOUNT A
NOTES TO FINANCIAL STATEMENTS - CONTINUED
NOTE E - SUMMARY OF CHANGES IN UNITS - CONTINUED
SUMMARY OF CHANGES IN UNITS FOR THE YEAR ENDED DECEMBER 31, 1996
CONTRACTS IN ACCUMULATION PERIOD:
<TABLE>
<CAPTION>
Timed Money Government Capital
Stock MidCap Opportunity Market Securities Conservation
Index Fund Index Fund Fund Fund Fund Fund
<S> <C> <C> <C> <C> <C> <C>
Outstanding at beginning of period .... 2,595,596.122 1,986.413 50,691.625 1,724.450 2,380.042 5,330.601
Purchase payments ..................... 21,247.287 0.000 2,039.903 0.000 0.000 2,435.768
Surrenders ............................ (213,506.439) (930.481) (11,987.459) (1,727.280) (9.817) (8.451)
Transfers to annuity .................. (2,328.377) 0.000 0.000 0.000 0.000 0.000
Transfers between funds ............... 10,107.529 0.000 0.000 80,563.987 0.000 0.000
-------------- ---------- ----------- ------------ ---------- ----------
Outstanding at end of period .......... 2,411,116.122 1,055.932 40,744.069 80,561.157 2,370.225 7,757.918
============== ========== =========== ============ ========== ==========
</TABLE>
<TABLE>
<CAPTION>
CONTRACTS IN ANNUITY PERIOD:
<S> <C>
Outstanding at beginning of period ..... 235,858.346
Transfers from accumulation ............ 2,328.377
Mortality Reserve Transfers ............ 21,300.059
Annuity benefits ....................... (34,486.406)
------------
Outstanding at end of period ........... 225,000.376
============
</TABLE>
NOTE F - NET ASSETS REPRESENTED BY:
<TABLE>
<CAPTION>
DECEMBER 31, 1997
CONTRACTS IN ACCUMULATION PERIOD:
Units Unit Value Amount
<S> <C> <C> <C>
Stock Index Fund .................. 2,259,376.335 $ 21.636223 $ 48,884,371
MidCap Index Fund ................. 9,327.907 2.513934 23,450
Asset Allocation Fund ............. 41,787.393 2.213944 92,515
Government Securities Fund ........ 2,361.798 1.480310 3,496
Capital Conservation Fund ......... 9,964.962 1.180098 11,760
-------------
49,015,592
-------------
CONTRACTS IN ANNUITY PERIOD:
Stock Index Fund .................. 211,785.140 21.636223 4,582,231
-------------
TOTAL CONTRACT OWNER RESERVES ..... $ 53,597,822
=============
</TABLE>
Page 14
<PAGE>
NOTE F - NET ASSETS REPRESENTED BY: - CONTINUED
<TABLE>
<CAPTION>
DECEMBER 31, 1996
CONTRACTS IN ACCUMULATION PERIOD:
Units Unit Value Amount
<S> <C> <C> <C>
Stock Index Fund .................. 2,411,116.122 $ 16.419594 $ 39,589,548
MidCap Index Fund ................. 1,055.932 1.933369 2,041
Timed Opportunity Fund ............ 40,744.069 1.819376 74,129
Money Market Fund ................. 80,561.157 1.339458 107,908
Government Securities Fund ........ 2,370.225 1.377319 3,264
Capital Conservation Fund ......... 7,757.918 1.096382 8,506
-------------
39,785,396
-------------
CONTRACTS IN ANNUITY PERIOD:
Stock Index Fund .................. 225,000.376 16.419594 3,694,415
-------------
TOTAL CONTRACT OWNER RESERVES $ 43,479,811
=============
</TABLE>
NOTE G - YEAR 2000 CONTINGENCY
The Company is in the process of modifying its information technology to
be ready for the Year 2000. The Company expects the project to be
substantially complete by 1998. All costs associated with required
modifications will be paid for by the Company.
Page 15
<PAGE>
CONSOLIDATED FINANCIAL STATEMENTS
AMERICAN GENERAL LIFE INSURANCE COMPANY
YEARS ENDED DECEMBER 31, 1997 AND 1996
<PAGE>
AMERICAN GENERAL LIFE INSURANCE COMPANY
CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 1997 AND 1996
CONTENTS
Report of Independent Auditors.........................................
Audited Consolidated Financial Statements
Consolidated Balance Sheets............................................
Consolidated Income Statements.........................................
Consolidated Statements of Shareholders' Equity........................
Consolidated Statements of Cash Flows..................................
Notes to Consolidated Financial Statements.............................
<PAGE>
ERNST & YOUNG LLP One Houston Center Phone: 713 750 1500
Suite 2400 Fax: 713 750 1501
1221 McKinney Street
Houston, Texas 77010-2007
Report of Independent Auditors
Board of Directors and Stockholders
American General Life Insurance Company
We have audited the accompanying consolidated balance sheets of American
General Life Insurance Company (an indirectly wholly owned subsidiary of
American General Corporation) and subsidiaries as of December 31, 1997 and ,
and the related consolidated statements of income, shareholders' equity, and
cash flows for each of the three years in the period ended December 31, 1997.
These financial statements are the responsibility of the Company's management.
Our responsibility is to express an opinion on these financial statements
based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the consolidated financial position of American General
Life Insurance Company and subsidiaries at December 31, 1997 and , and the
consolidated results of their operations and their cash flows for each of the
three years in the period ended December 31, 1997, in conformity with
generally accepted accounting principles.
/s/ERNST & YOUNG LLP
--------------------
Ernst & Young LLP
February 23, 1998
Ernst & Young LLP is a member of Ernst & Young International, Ltd.
18
<PAGE>
AMERICAN GENERAL LIFE INSURANCE COMPANY
Consolidated Balance Sheets
<TABLE>
<CAPTION>
December 31
1997 1996
---------------------------------
(IN THOUSANDS)
<S> <C> <C>
ASSETS
Investments:
Fixed maturity securities, at fair value (amortized cost -
$26,131,207 in 1997 and $24,762,134 in 1996) $ 27,386,715 $ 25,395,381
Equity securities, at fair value (cost - $19,208 in 1997
and $17,642 in 1996) 21,114 20,555
Mortgage loans on real estate 1,659,921 1,707,843
Policy loans 1,093,694 1,006,137
Investment real estate 129,364 145,442
Other long-term investments 55,118 43,344
Short-term investments 100,061 94,882
---------------------------------
Total investments 30,445,987 28,413,584
Cash 99,284 33,550
Investment in Parent Company (cost - $8,597 in 1997
and 1996) 37,823 28,597
Indebtedness from affiliates 96,519 86,488
Accrued investment income 433,111 392,058
Accounts receivable 208,209 170,457
Deferred policy acquisition costs 835,031 1,042,783
Property and equipment 33,827 35,414
Other assets 132,659 134,289
Assets held in separate accounts 11,242,270 7,727,189
---------------------------------
Total assets $ 43,564,720 $ 38,064,409
=================================
</TABLE>
SEE ACCOMPANYING NOTES.
19
<PAGE>
<TABLE>
<CAPTION>
December 31
1997 1996
---------------------------------
(IN THOUSANDS)
<S> <C> <C>
LIABILITIES AND SHAREHOLDERS' EQUITY
Liabilities:
Future policy benefits $ 27,849,893 $ 26,558,538
Other policy claims and benefits payable 42,677 41,679
Other policyholders' funds 398,314 376,675
Federal income taxes 543,379 402,361
Indebtedness to affiliates 4,712 3,376
Other liabilities 421,861 325,630
Liabilities related to separate accounts 11,242,270 7,727,189
---------------------------------
Total liabilities 40,503,106 35,435,448
Shareholders' equity:
Common stock, $10 par value, 600,000 shares authorized,
issued, and outstanding 6,000 6,000
Preferred stock, $100 par value, 8,500 shares authorized,
issued, and outstanding 850 850
Additional paid-in capital 1,184,743 933,342
Net unrealized investment gains 427,526 219,151
Retained earnings 1,442,495 1,469,618
---------------------------------
Total shareholders' equity 3,061,614 2,628,961
---------------------------------
Total liabilities and shareholders' $ 43,564,720 $ 38,064,409
equity =================================
</TABLE>
SEE ACCOMPANYING NOTES.
20
<PAGE>
AMERICAN GENERAL LIFE INSURANCE COMPANY
Consolidated Income Statements
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31
1997 1996 1995
---------------------------------------------
(IN THOUSANDS)
Revenues:
<S> <C> <C> <C>
Revenues:
Premiums and other considerations $ 428,721 $ 382,923 $ 342,420
Net investment income 2,198,623 2,095,072 2,011,088
Net realized investment gains (losses) 29,865 28,502 (1,942)
Other 53,370 41,968 27,172
---------------------------------------------
Total revenues 2,710,579 2,548,465 2,378,738
Benefits and expenses:
Benefits 1,757,504 1,689,011 1,641,206
Operating costs and expenses 379,012 347,369 309,110
Interest expense 782 830 2,180
---------------------------------------------
Total benefits and expenses 2,137,298 2,037,210 1,952,496
---------------------------------------------
Income before income tax expense 573,281 511,255 426,242
Income tax expense 198,724 176,660 143,947
---------------------------------------------
Net income $ 374,557 $ 334,595 $ 282,295
=============================================
</TABLE>
SEE ACCOMPANYING NOTES.
21
<PAGE>
AMERICAN GENERAL LIFE INSURANCE COMPANY
Consolidated Statements of Shareholders' Equity
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31
1997 1996 1995
--------------------------------------------
(IN THOUSANDS)
<S> <C> <C> <C>
Common stock:
Balance at beginning of year $ 6,000 $ 6,000 $ 6,000
Change during year - - -
--------------------------------------------
Balance at end of year 6,000 6,000 6,000
Preferred stock:
Balance at beginning of year 850 850 -
Change during year - - 850
--------------------------------------------
Balance at end of year 850 850 850
Additional paid-in capital:
Balance at beginning of year 933,342 858,075 850,358
Capital contribution from Parent Company 250,000 75,000 -
--------------------------------------------
Other changes during year 1,401 267 7,717
--------------------------------------------
Balance at end of year 1,184,743 933,342 858,075
Net unrealized investment gains (losses):
Balance at beginning of year 219,151 493,594 (730,900)
Change during year 208,375 (274,443) 1,224,494
--------------------------------------------
Balance at end of year 427,526 219,151 493,594
Retained earnings:
Balance at beginning of year 1,469,618 1,324,703 1,249,109
Net income 374,557 334,595 282,295
Dividends paid (401,680) (189,680) (206,701)
--------------------------------------------
Balance at end of year 1,442,495 1,469,618 1,324,703
--------------------------------------------
Total shareholders' equity $ 3,061,614 $ 2,628,961 $ 2,683,222
=============================================
</TABLE>
SEE ACCOMPANYING NOTES.
22
<PAGE>
AMERICAN GENERAL LIFE INSURANCE COMPANY
<TABLE>
Consolidated Statements of Cash Flows
<CAPTION>
YEAR ENDED DECEMBER 31
1997 1996 1995
-----------------------------------------------
(IN THOUSANDS)
<S> <C> <C> <C>
OPERATING ACTIVITIES
Net income $ 374,557 $ 334,595 $ 282,295
Adjustments to reconcile net income to net cash
(used in) provided by operating activities:
Change in accounts receivable (37,752) 3,846 (18,654)
Change in future policy benefits and other
policy claims (1,143,736) (543,193) (70,383)
Amortization of policy acquisition costs 115,467 102,189 68,295
Policy acquisition costs deferred (219,339) (188,001) (203,607)
Change in other policyholders' funds 21,639 63,174 (69,126)
Provision for deferred income tax expense 13,264 12,388 (9,773)
Depreciation 16,893 16,993 18,119
Amortization (28,276) (30,758) (35,825)
Change in indebtedness to/from affiliates (8,695) 4,432 7,596
Change in amounts payable to brokers 31,769 (25,260) 30,964
Net (gain) loss on sale of investments (29,865) (28,502) 1,942
Other, net 30,409 32,111 46,863
-----------------------------------------------
Net cash (used in) provided by operating activities (863,665) (378,286) 181,006
INVESTING ACTIVITIES
Purchases of investments and loans made (29,638,861) (27,245,453) (14,573,323)
Sales or maturities of investments and receipts
from repayment of loans 28,300,238 25,889,422 12,528,185
Sales and purchases of property and equipment, net (9,230) (8,057) (12,114)
-----------------------------------------------
Net cash used in investing activities (1,347,853) (1,364,088) (2,057,252)
FINANCING ACTIVITIES
Policyholder account deposits 4,187,191 3,593,380 3,372,522
Policyholder account withdrawals (1,759,660) (1,746,987) (1,258,560)
Dividends paid (401,680) (189,680) (206,701)
Capital contribution from Parent 250,000 75,000 -
Other 1,401 267 67
-----------------------------------------------
Net cash provided by financing activities 2,277,252 1,731,980 1,907,328
-----------------------------------------------
Increase (decrease) in cash 65,734 (10,394) 31,082
Cash at beginning of year 33,550 43,944 12,862
Cash at end of year $ 99,284 $ 33,550 $ 43,944
===============================================
</TABLE>
Interest paid amounted to approximately $1,004,000, $1,080,000, and $1,933,000
in 1997, 1996, and 1995, respectively.
SEE ACCOMPANYING NOTES.
23
<PAGE>
AMERICAN GENERAL LIFE INSURANCE COMPANY
Notes to Consolidated Financial Statements
DECEMBER 31, 1997
NATURE OF OPERATIONS
AMERICAN GENERAL LIFE INSURANCE COMPANY (the "Company") is a wholly owned
subsidiary of AGC Life Insurance Company, which is a wholly owned subsidiary
of American General Corporation (the "Parent Company"). The Company's wholly
owned life insurance subsidiaries are American General Life Insurance Company
of New York (AGNY) and The Variable Annuity Life Insurance Company (VALIC).
The Company offers a complete portfolio of the standard forms of universal
life, interest-sensitive whole life, term life, structured settlements, and
fixed and variable annuities throughout the United States. In addition, a
variety of equity products is sold through its broker/dealer, American General
Securities, Inc. The Company serves the estate planning needs of middle- and
upper-income households and the insurance needs of small-to medium-sized
businesses. AGNY offers a broad array of traditional and interest-sensitive
insurance, in addition to individual annuity products. VALIC provides
tax-deferred retirement annuities and employer-sponsored retirement plans to
employees of health care, educational, public sector, and other not-for-profit
organizations throughout the United States.
1. ACCOUNTING POLICIES
1.1 PREPARATION OF FINANCIAL STATEMENTS
The consolidated financial statements have been prepared in accordance with
generally accepted accounting principles ("GAAP") and include the accounts of
the Company and its wholly owned life insurance subsidiaries, AGNY and VALIC.
Transactions with the Parent Company and other subsidiaries of the Parent
Company are not eliminated from the financial statements of the Company. All
other material intercompany transactions have been eliminated in
consolidation.
The preparation of financial statements requires management to make estimates
and assumptions that affect amounts reported in the financial statements and
disclosures of contingent assets and liabilities. Ultimate results could
differ from those estimates.
24
<PAGE>
1. ACCOUNTING POLICIES (CONTINUED)
1.2 STATUTORY ACCOUNTING
The Company and its wholly owned life insurance subsidiaries are required to
file financial statements with state regulatory authorities. State insurance
laws and regulations prescribe accounting practices for calculating statutory
net income and equity. In addition, state regulators may permit statutory
accounting practices that differ from prescribed practices. The use of such
permitted practices by the Company and its wholly owned life insurance
subsidiaries did not have a material effect on statutory equity at
December 31, 1997.
Statutory financial statements differ from GAAP. Significant differences were
as follows (in thousands):
<TABLE>
<CAPTION>
1997 1996 1995
-----------------------------------------------
<S> <C> <C> <C>
Net income:
Statutory net income (1997 balance is
unaudited) $ 327,813 $ 284,070 $ 197,769
Deferred policy acquisition costs 103,872 85,812 135,312
Deferred income taxes (13,264) (12,388) 9,773
Adjustments to policy reserves (30,162) (19,954) (77,591)
Goodwill amortization (2,067) (2,169) (2,195)
Net realized gain on investments 20,139 14,140 22,874
Gain on sale of subsidiary - - 661
Other, net (31,774) (14,916) (4,308)
-----------------------------------------------
GAAP net income $ 374,557 $ 334,595 $ 282,295
===============================================
Shareholders' equity:
Statutory capital and surplus (1997 balance
is unaudited) $ 1,636,327 $ 1,441,768 $ 1,298,323
Deferred policy acquisition costs 835,031 1,042,783 605,501
Deferred income taxes (535,703) (410,007) (549,663)
Adjustments to policy reserves (319,680) (297,434) (311,065)
Acquisition-related goodwill 51,424 55,626 57,795
Asset valuation reserve ("AVR") 255,975 291,205 263,295
Interest maintenance reserve ("IMR") 9,596 63 3,114
Investment valuation differences 1,272,339 643,289 1,417,775
Benefit plans, pretax 6,103 6,749 6,023
Surplus from separate accounts (150,928) (106,026) (76,645)
Other, net 1,130 (39,055) (31,231)
-----------------------------------------------
Total GAAP shareholders' equity $ 3,061,614 $ 2,628,961 $ 2,683,222
================================================
</TABLE>
25
<PAGE>
1. ACCOUNTING POLICIES (CONTINUED)
1.2 STATUTORY ACCOUNTING (CONTINUED)
The more significant differences between GAAP and statutory accounting
principles are that under GAAP: (a) acquisition costs related to acquiring new
business are deferred and amortized (generally in proportion to the present
value of expected gross profits from surrender charges and investment,
mortality, and expense margins), rather than being charged to operations as
incurred; (b) future policy benefits are based on estimates of mortality,
interest, and withdrawals generally representing the Company's experience,
which may differ from those based on statutory mortality and interest
requirements without consideration of withdrawals; (c) deferred federal income
taxes are provided for significant timing differences between income reported
for financial reporting purposes and income reported for federal income tax
purposes; (d) certain assets (principally furniture and equipment, agents'
debit balances, computer software, and certain other receivables) are reported
as assets rather than being charged to retained earnings; (e) acquisitions are
accounted for using the purchase method of accounting rather than being
accounted for as equity investments; and (f) fixed maturity investments are
carried at fair value rather than amortized cost. In addition, statutory
accounting principles require life insurance companies to establish an AVR and
an IMR. The AVR is designed to address the credit-related risk for bonds,
preferred stocks, derivative instruments, and mortgages and market risk for
common stocks, real estate, and other invested assets. The IMR is composed of
investment- and liability-related realized gains and losses that result from
interest rate fluctuations. These realized gains and losses, net of tax, are
amortized into income over the expected remaining life of the asset sold or
the liability released.
1.3 INSURANCE CONTRACTS
The insurance contracts accounted for in these financial statements include
primarily long-duration contracts. Long-duration contracts include traditional
whole life, endowment, guaranteed renewable term life, universal life, limited
payment, and investment contracts. Long-duration contracts generally require
the performance of various functions and services over a period of more than
one year. The contract provisions generally cannot be changed or canceled by
the insurer during the contract period; however, most new contracts written by
the Company allow the insurer to revise certain elements used in determining
premium rates or policy benefits, subject to guarantees stated in the
contracts.
26
<PAGE>
1. ACCOUNTING POLICIES (CONTINUED)
1.4 INVESTMENTS
FIXED MATURITY AND EQUITY SECURITIES
All fixed maturity and equity securities are currently classified as
available-for-sale and recorded at fair value. After adjusting related balance
sheet accounts as if the unrealized gains (losses) had been realized, the net
adjustment is recorded in net unrealized gains (losses) on securities within
shareholders' equity. If the fair value of a security classified as
available-for-sale declines below its cost and this decline is considered to
be other than temporary, the security is reduced to its fair value, and the
reduction is recorded as a realized loss.
MORTGAGE LOANS
Mortgage loans are reported at amortized cost, net of an allowance for losses.
The allowance for losses covers all nonperforming loans, consisting of loans
restructured or delinquent 60-days or more, and loans for which management has
a concern based on its assessment of risk factors, such as potential
nonpayment or nonmonetary default. The allowance is based on a loan-specific
review and a formula that reflects past results and current trends.
Impaired loans, those for which the Company determines it is probable that all
amounts due under the contractual terms will not be collected, are reported at
the lower of amortized cost or fair value of the underlying collateral, less
estimated costs to sell.
POLICY LOANS
Policy loans are reported at unpaid principal balances adjusted periodically
for uncollectible amounts.
INVESTMENT REAL ESTATE
Investment real estate consists of income-producing real estate, foreclosed
real estate, and the American General Center, an office complex in Houston.
The Company classifies all investment real estate, except the American General
Center, as available-for-sale. Real estate available-for-sale is carried at
the lower of cost less accumulated depreciation, if applicable, or fair value
less costs to sell. Changes in estimates of fair value less costs to sell are
recognized as realized gains (losses) through a valuation allowance.
27
<PAGE>
1. ACCOUNTING POLICIES (CONTINUED)
1.4 INVESTMENTS (CONTINUED)
Real estate held-for-investment is carried at cost less accumulated
depreciation and impairment reserves and write-downs, if applicable.
Impairment losses are recorded whenever circumstances indicate that a property
might be impaired and the estimated undiscounted future cash flows of the
property are less than the carrying amount. In such event, the property is
written down to fair value, determined by market prices, third-party
appraisals, or expected future cash flows discounted at market rates. Any
write-down is recognized as a realized loss, and a new cost basis is
established.
INVESTMENT INCOME
Interest on fixed maturity securities, performing and restructured mortgage
loans, and policy loans is recorded as income when earned and is adjusted for
any amortization of premium or discount. Interest on impaired mortgage loans
is recorded as income when received. Dividends are recorded as income on
ex-dividend dates.
REALIZED INVESTMENT GAINS (LOSSES)
Realized investment gains (losses) are recognized using the
specific-identification method and include declines in fair value of
investments below cost that are considered to be other than temporary.
1.5 SEPARATE ACCOUNTS
Separate accounts are assets and liabilities associated with certain
contracts, principally annuities; the investment risk lies solely with the
contract holder rather than the Company. Consequently, the Company's liability
for these accounts equals the value of the account assets. Investment income,
realized investment gains (losses), and policyholder account deposits and
withdrawals related to separate accounts are excluded from the consolidated
statements of income and cash flows. Assets held in separate accounts are
primarily shares in mutual funds, which are carried at fair value based on the
quoted net asset value per share.
28
<PAGE>
1. ACCOUNTING POLICIES (CONTINUED)
1.6 DEFERRED POLICY ACQUISITION COSTS ("DPAC")
Certain costs of writing an insurance policy, including agents' commissions,
underwriting and marketing expenses, are deferred and reported as DPAC.
DPAC associated with interest-sensitive life insurance contracts, insurance
investment contracts, and participating life insurance contracts, to the
extent recoverable from expected future gross profits, is deferred and
amortized generally in proportion to the present value of expected future
gross profits from surrender charges and investment, mortality, and expense
margins. Expected future gross profits are adjusted to include the impact of
realized and unrealized gains (losses) as if net unrealized investment gains
(losses) had been realized at the balance sheet date. The impact of this
adjustment is included in the net unrealized gains (losses) on securities
within shareholders' equity. DPAC associated with all other insurance
contracts, to the extent recoverable from future policy revenues, is amortized
over the premium-paying period of the related contracts using assumptions that
are consistent with those used in computing policy benefit reserves.
The Company reviews the carrying value of DPAC on at least an annual basis. In
determining whether the carrying amount is appropriate, the Company considers
estimated future gross profits or future premiums, as applicable for the type
of contract. In all cases, the Company considers expected mortality, interest
earned and credited rates, persistency, and expenses.
1.7 PREMIUM RECOGNITION
Most receipts for annuities and interest-sensitive life insurance policies are
classified as deposits instead of revenue. Revenues for these contracts
consist of mortality, expense, and surrender charges assessed against the
account balance. Policy charges that compensate the Company for future
services are deferred and recognized in income over the period earned, using
the same assumptions used to amortize DPAC (see Note 1.6).
For limited-payment contracts, net premiums are recorded as revenue, and the
difference between the gross premium received and the net premium is deferred
and recognized in income in a constant relationship to insurance in force. For
all other contracts, premiums are recognized when due. When the revenue is
recorded, an estimate of the cost of the
29
<PAGE>
1. ACCOUNTING POLICIES (CONTINUED)
1.7 PREMIUM RECOGNITION (CONTINUED)
related benefit is recorded in the future policy benefits account on the
consolidated balance sheet. Also, this cost is recorded in the consolidated
statement of income as a benefit in the current year and in all future years
during which the policy is expected to be renewed.
1.8 OTHER ASSETS
Acquisition-related goodwill, which is included in other assets, is charged to
expense in equal amounts over 40 years. The carrying value of goodwill is
regularly reviewed for indicators of impairment in value.
1.9 DEPRECIATION
Provision for depreciation of American General Center, data processing
equipment, and furniture and fixtures is computed on the straight-line method
over the estimated useful lives of the assets.
1.10 POLICY AND CONTRACT CLAIMS RESERVES
Substantially all of the Company's insurance and annuity liabilities relate to
long-duration contracts which generally require performance over a period of
more than one year. The contract provisions normally cannot be changed or
canceled by the Company during the contract period.
For interest-sensitive and investment contracts, reserves equal the sum of the
policy account balance and deferred revenue charges. In establishing reserves
for limited payment and other long-duration contracts, an estimate is made of
the cost of future policy benefits to be paid as a result of present and
future claims due to death, disability, surrender of a policy, and payment of
an endowment. Reserves for traditional insurance products are determined using
the net level premium method. Based on past experience, consideration is given
to expected policyholder deaths, policy lapses, surrenders, and terminations.
Consideration is also given to the possibility that the Company's experience
with policyholders will be worse than expected. Interest assumptions used to
compute reserves ranged from 2.0% to 13.5% at December 31, 1997.
30
<PAGE>
1. ACCOUNTING POLICIES (CONTINUED)
1.10 POLICY AND CONTRACT CLAIMS RESERVES (CONTINUED)
The claims reserves are determined using case-basis evaluation and statistical
analyses and represent estimates of the ultimate net cost of unpaid claims.
These estimates are reviewed; and as adjustments become necessary, such
adjustments are reflected in current operations. Since these reserves are
based on estimates, the ultimate settlement of claims may vary from the
amounts included in the accompanying financial statements. Although it is not
possible to measure the degree of variability inherent in such estimates,
management believes claim reserves are reasonable.
1.11 REINSURANCE
The Company limits its exposure to loss on any single insured to $1.5 million
by ceding additional risks through reinsurance contracts with other insurers.
Ceded reinsurance becomes a liability of the reinsurer assuming the risk. The
Company diversifies its risk of exposure to reinsurance loss by using several
reinsurers that have strong claims-paying ability ratings. If a reinsurer
could not meet its obligations, the Company would reassume the liability. The
likelihood of a material reinsurance liability being reassumed by the Company
is considered to be remote.
Benefits paid and future policy benefits related to ceded reinsurance
contracts are recorded as reinsurance receivables. The cost of reinsurance is
recognized over the life of the underlying reinsured policies using
assumptions consistent with those used to account for the underlying policies.
31
<PAGE>
1. ACCOUNTING POLICIES (CONTINUED)
1.12 PARTICIPATING POLICY CONTRACTS
Participating life insurance contracts contain dividend payment provisions
that entitle the policyholder to participate in the earnings of the contracts.
Participating life insurance contracts accounted for 2.22% and 2.47% of life
insurance in force at December 31, 1997 and 1996, respectively. Such business
is accounted for in accordance with Statement of Financial Accounting
Standards ("SFAS") No. 120.
1.13 INCOME TAXES
The Company and its life insurance subsidiaries, together with certain other
life insurance subsidiaries of the Parent Company, are included in a
life/non-life consolidated tax return with the Parent Company and its
noninsurance subsidiaries. The Company participates in a tax sharing agreement
with other companies included in the consolidated tax return. Under this
agreement, tax payments are made to the Parent Company as if the companies
filed separate tax returns; and companies incurring operating and/or capital
losses are reimbursed for the use of these losses by the consolidated return
group.
Income taxes are provided for in accordance with SFAS No. 109. Under this
standard, deferred tax assets and liabilities are calculated using the
differences between the financial reporting basis and the tax basis of assets
and liabilities, using the enacted tax rate. The effect of a tax rate change
is recognized in income in the period of enactment. Under SFAS No. 109, state
income taxes are included in income tax expense.
1.14 NEW ACCOUNTING STANDARD NOT YET ADOPTED
In June 1997, the Financial Accounting Standards Board issued SFAS No. 130,
REPORTING COMPREHENSIVE INCOME, which establishes standards for reporting and
displaying comprehensive income and its components in the financial
statements. Beginning in 1998, the Company must adopt this statement for all
periods presented. Application of this statement will not change recognition
or measurement of net income and, therefore, will not impact the Company's
consolidated results of operations or financial position.
32
<PAGE>
2. INVESTMENTS
2.1 INVESTMENT INCOME
Investment income by type of investment was as follows:
<TABLE>
<CAPTION>
1997 1996 1995
-----------------------------------------------
(IN THOUSANDS)
<S> <C> <C> <C>
Investment income:
Fixed maturities $ 1,966,528 $ 1,846,549 $ 1,759,358
Equity securities 1,067 1,842 6,773
Mortgage loans on real estate 157,035 175,833 185,022
Investment real estate 22,157 22,752 16,397
Policy loans 62,939 58,211 52,939
Other long-term investments 3,135 2,328 1,996
Short-term investments 8,626 9,280 6,234
Investment income from affiliates 11,094 11,502 12,570
-----------------------------------------------
Gross investment income 2,232,581 2,128,297 2,041,289
Investment expenses 33,958 33,225 30,201
-----------------------------------------------
Net investment income $ 2,198,623 $ 2,095,072 $ 2,011,088
===============================================
</TABLE>
The carrying value of investments that have produced no investment income
during 1997 was less than 1% of total invested assets. The ultimate
disposition of these investments is not expected to have a material effect on
the Company's results of operations and financial position.
33
<PAGE>
2. INVESTMENTS (CONTINUED)
2.2 NET REALIZED INVESTMENT GAINS (LOSSES)
Realized gains (losses) by type of investment were as follows:
<TABLE>
<CAPTION>
1997 1996 1995
-----------------------------------------------
(IN THOUSANDS)
<S> <C> <C> <C>
Fixed maturities:
Gross gains $ 42,966 $ 46,498 $ 38,657
Gross losses (34,456) (47,29 (41,022)
-----------------------------------------------
Total fixed maturities 8,510 (795) (2,365)
Equity securities 1,971 18,304 9,710
Other investments 19,384 10,993 (9,287)
-----------------------------------------------
Net realized investment gains (losses)
before tax 29,865 28,502 (1,942)
Income tax expense 10,452 9,976 547
-----------------------------------------------
Net realized investment gains (losses)
after tax $ 19,413 $ 18,526 $ (2,489)
================================================
</TABLE>
34
<PAGE>
2. INVESTMENTS (CONTINUED)
2.3 FIXED MATURITY AND EQUITY SECURITIES
All fixed maturity and equity securities are classified as available-for-sale
and reported at fair value (see Note 1.4). Amortized cost and fair value at
December 31, 1997 and 1996 were as follows:
<TABLE>
<CAPTION>
GROSS GROSS
AMORTIZED COST UNREALIZED UNREALIZED FAIR
GAIN LOSS VALUE
-------------------------------------------------------------------
(IN THOUSANDS)
<S> <C> <C> <C> <C>
DECEMBER 31, 1997
Fixed maturity securities:
Corporate securities:
Investment-grade $ 17,913,942 $ 906,235 $ 17,551 $ 18,802,626
Below investment-grade 950,438 34,290 4,032 980,696
-------------------------------------------------------------------
Mortgage-backed securities* 6,614,704 278,143 4,260 6,888,587
U.S. government obligations 289,406 46,529 74 335,861
Foreign governments 318,212 18,076 3,534 332,754
State and political subdivisions 44,505 1,686 - 46,191
-------------------------------------------------------------------
Total fixed maturity securities $ 26,131,207 $ 1,284,959 $ 29,451 $ 27,386,715
===================================================================
Equity securities $ 19,208 $ 2,145 $ 239 $ 21,114
===================================================================
Investment in Parent Company $ 8,597 $ 29,226 $ - $ 37,823
===================================================================
</TABLE>
35
<PAGE>
2. INVESTMENTS (CONTINUED)
2.3 FIXED MATURITY AND EQUITY SECURITIES (CONTINUED)
<TABLE>
<CAPTION>
GROSS GROSS
AMORTIZED COST UNREALIZED UNREALIZED FAIR
GAIN LOSS VALUE
-------------------------------------------------------------------
(IN THOUSANDS)
<S> <C> <C> <C> <C>
DECEMBER 31, 1996
Fixed maturity securities:
Corporate securities:
Investment grade $ 15,639,170 $ 528,602 $ 90,379 $ 16,077,393
Below investment grade 898,187 29,384 5,999 921,572
Mortgage-backed securities* 7,547,616 186,743 54,543 7,679,816
U.S. government obligations 313,759 26,597 1,050 339,306
Foreign governments 313,655 13,255 248 326,662
State and political subdivisions 48,553 1,003 226 49,330
Redeemable preferred stocks 1,194 108 - 1,302
-------------------------------------------------------------------
Total fixed maturity securities $ 24,762,134 $ 785,692 $ 152,445 $ 25,395,381
===================================================================
Equity securities $ 17,642 $ 3,021 $ 108 $ 20,555
===================================================================
Investment in Parent Company $ 8,597 $ 20,000 $ - $ 28,597
===================================================================
<FN>
* Primarily include pass-through securities guaranteed by and mortgage
obligations ("CMOs") collateralized by the U.S. government and
government agencies.
</FN>
</TABLE>
36
<PAGE>
2. INVESTMENTS (CONTINUED)
2.3 FIXED MATURITY AND EQUITY SECURITIES (CONTINUED)
Net unrealized gains (losses) on securities included in shareholders' equity
at December 31 were as follows:
<TABLE>
<CAPTION>
1997 1996
------------------------------------
(IN THOUSANDS)
<S> <C> <C>
Gross unrealized gains $ 1,316,330 $ 808,713
Gross unrealized losses (29,690) (152,553)
DPAC and other fair value adjustments (621,867) (315,117)
Deferred federal income taxes (237,247) (121,892)
------------------------------------
Net unrealized gains on securities $ 427,526 219,151
====================================
</TABLE>
The contractual maturities of fixed maturity securities at December 31, 1997
were as follows:
<TABLE>
<CAPTION>
AMORTIZED FAIR
COST VALUE
------------------------------------
(IN THOUSANDS)
<S> <C> <C>
Fixed maturity securities, excluding mortgage-backed securities:
Due in one year or less $ 205,719 $ 207,364
Due after one year through five years 5,008,933 5,216,174
Due after five years through ten years 9,163,681 9,604,447
Due after ten years 5,138,169 5,470,143
Mortgage-backed securities 6,614,705 6,888,587
------------------------------------
Total fixed maturity securities $ 26,131,207 $ 27,386,715
====================================
</TABLE>
Actual maturities may differ from contractual maturities, since borrowers may
have the right to call or prepay obligations. In addition, corporate
requirements and investment strategies may result in the sale of investments
before maturity. Proceeds from sales of fixed maturities were $14.8 billion,
$16.2 billion, and $7.3 billion during 1997, 1996, and 1995, respectively.
37
<PAGE>
2. INVESTMENTS (CONTINUED)
2.4 MORTGAGE LOANS ON REAL ESTATE
Diversification of the geographic location and type of property
collateralizing mortgage loans reduces the concentration of credit risk. For
new loans, the Company requires loan-to-value ratios of 75% or less, based on
management's credit assessment of the borrower. The mortgage loan portfolio
was distributed as follows at DECEMBER 31, 1997 and :
<TABLE>
<CAPTION>
OUTSTANDING PERCENT OF PERCENT
AMOUNT TOTAL NONPERFORMING
-----------------------------------------------------
(IN MILLIONS)
<S> <C> <C> <C>
DECEMBER 31, 1997
Geographic distribution:
South Atlantic $ 456 27.5% 1.8%
Pacific 340 20.5 14.4
Mid-Atlantic 288 17.3 -
East North Central 186 11.2 -
Mountain 151 9.1 2.7
West South Central 132 7.9 .1
East South Central 94 5.7 -
West North Central 19 1.1 -
New England 17 1.1 -
Allowance for losses (23) (1.4) -
-------------------------------
Total $ 1,660 100.0% 3.6%
===============================
Property type:
Office $ 622 37.5% 4.6%
Retail 463 27.9 3.0
Industrial 324 19.5 1.8
Apartments 223 13.4 6.1
Hotel/motel 40 2.4 -
Other 11 .7 -
Allowance for losses (23) (1.4) -
-------------------------------
Total $ 1,660 100.0% 3.6%
===============================
</TABLE>
38
<PAGE>
2. Investments (continued)
2.4 Mortgage Loans on Real Estate (continued)
<TABLE>
<CAPTION>
OUTSTANDING PERCENT OF PERCENT
AMOUNT TOTAL NONPERFORMING
-----------------------------------------------------
(IN MILLIONS)
<S> <C> <C> <C>
DECEMBER 31, 1996
Geographic distribution:
South Atlantic $ 522 30.6% 8.1%
Pacific 407 23.8 8.1
Mid-Atlantic 231 13.5 -
East North Central 168 9.8 -
Mountain 153 9.0 2.8
West South Central 141 8.2 5.3
East South Central 109 6.4 -
West North Central 13 0.8 -
New England 13 0.8 -
Allowance for losses (49) (2.9) -
-------------------------------
Total $ 1,708 100.0% 5.0%
===============================
Property type:
Office $ 590 34.5% -%
Retail 502 29.4 2.5
Industrial 304 17.8 6.0
Apartments 264 15.5 8.3
Hotel/motel 54 3.2 -
Other 43 2.5 78.8
Allowance for losses (49) (2.9) -
-------------------------------
Total $ 1,708 100.0% 5.0%
===============================
</TABLE>
39
<PAGE>
2. INVESTMENTS (CONTINUED)
2.4 MORTGAGE LOANS ON REAL ESTATE (CONTINUED)
Impaired mortgage loans on real estate and related interest income were as
follows:
<TABLE>
<CAPTION>
DECEMBER 31
1997 1996
------------------------------------
(IN MILLIONS)
<S> <C> <C>
Impaired loans:
With allowance* $ 35 $ 60
Without allowance - -
------------------------------------
Total impaired loans $ 35 $ 60
====================================
<FN>
* Represents gross amounts before allowance for mortgage loan losses of
$10 million and $9 million, respectively.
</FN>
</TABLE>
<TABLE>
<CAPTION>
1997 1996 1995
------------------------------------------------------
(IN MILLIONS)
<S> <C> <C> <C>
Average investment $ 48 $ 72 $ 102
Interest income earned $ 3 $ 6 $ 8
Interest income -- cash basis $ - $ 6 $ 8
</TABLE>
40
<PAGE>
2. INVESTMENTS (CONTINUED)
2.5 INVESTMENT SUMMARY
Investments of the Company were as follows:
<TABLE>
<CAPTION>
December 31, 1997
-----------------------------------------------------
FAIR CARRYING
COST VALUE AMOUNT
-----------------------------------------------------
(IN THOUSANDS)
<S> <C> <C> <C>
Fixed maturities:
Bonds:
United States government and government
agencies and authorities $ 289,406 $ 335,861 $ 335,861
States, municipalities, and political
subdivisions 44,505 46,191 46,191
Foreign governments 318,212 332,754 332,754
Public utilities 1,848,546 1,952,724 1,952,724
Mortgage-backed securities 6,614,704 6,888,587 6,888,587
All other corporate bonds 17,015,834 17,830,598 17,830,598
-----------------------------------------------------
Total fixed maturities 26,131,207 27,386,715 27,386,715
Equity securities:
Common stocks:
Industrial, miscellaneous, and other 5,604 5,785 5,785
Nonredeemable preferred stocks 13,604 15,329 15,329
-----------------------------------------------------
Total equity securities 19,208 21,114 21,114
Mortgage loans on real estate* 1,659,921 xxx 1,659,921
Investment real estate 129,364 xxx 129,364
Policy loans 1,093,694 xxx 1,093,694
Other long-term investments 55,118 xxx 55,118
Short-term investments 100,061 xxx 100,061
-----------------------------------------------------
Total investments $ 29,188,573 $ xxx $ 30,445,987
=====================================================
<FN>
* Amount is net of a $23 million allowance for losses.
</FN>
</TABLE>
41
<PAGE>
3. DEFERRED POLICY ACQUISITION COSTS
The balance of DPAC at DECEMBER 31 and the components of the change reported
in operating costs and expenses for the years then ended were as follows:
<TABLE>
<CAPTION>
1997 1996 1995
------------------------------------------------------
(IN THOUSANDS)
<S> <C> <C> <C>
Balance at January 1 $ 1,042,783 $ 605,501 $ 1,479,115
Capitalization 219,339 188,001 203,607
Amortization (115,467) (102,189) (68,295)
Change in the effect of SFAS No. 115 (311,624) 351,470 (1,008,926)
------------------------------------------------------
Balance at December 31 $ 835,031 $ 1,042,783 $ 605,501
======================================================
</TABLE>
4. OTHER ASSETS
Other assets consisted of the following:
<TABLE>
<CAPTION>
December 31
1997 1996
------------------------------------
(IN THOUSANDS)
<S> <C> <C>
Goodwill $ 51,424 $ 55,626
Other 81,235 78,663
------------------------------------
Total other assets $ 132,659 $ 134,289
====================================
</TABLE>
42
<PAGE>
5. FEDERAL INCOME TAXES
5.1 TAX LIABILITIES
Income tax liabilities were as follows:
<TABLE>
<CAPTION>
December 31
1997 1996
------------------------------------
(IN THOUSANDS)
<S> <C> <C>
Current tax (receivable) payable $ 7,676 $ (7,646)
Deferred tax liabilities, applicable to:
Net income 298,456 288,115
Net unrealized investment gains 237,247 121,892
------------------------------------
Total deferred tax liabilities 535,703 410,007
------------------------------------
Total current and deferred tax liabilities $ 543,379 $ 402,361
====================================
</TABLE>
Components of deferred tax liabilities and assets at December 31 were as
follows:
<TABLE>
<CAPTION>
1997 1996
------------------------------------
(IN THOUSANDS)
<S> <C> <C>
Deferred tax liabilities applicable to:
Deferred policy acquisition costs $ 226,653 $ 308,802
Basis differential of investments 486,194 254,402
------------------------------------
Other 139,298 130,423
------------------------------------
Total deferred tax liabilities 852,145 693,627
Deferred tax assets applicable to:
Policy reserves (232,539) (219,677)
Other (83,903) (63,943)
------------------------------------
Total deferred tax assets before valuation
allowance (316,442) (283,620)
Valuation allowance - -
------------------------------------
Total deferred tax assets, net of valuation
allowance (316,442) (283,620)
------------------------------------
Net deferred tax liabilities $ 535,703 $ 410,007
====================================
</TABLE>
43
<PAGE>
5. FEDERAL INCOME TAXES (CONTINUED)
5.1 TAX LIABILITIES (CONTINUED)
A portion of life insurance income earned prior to 1984 is not taxable unless
it exceeds certain statutory limitations or is distributed as dividends. Such
income, accumulated in policyholders' surplus accounts, totaled $93.6 million
at December 31, 1997. At current corporate rates, the maximum amount of tax on
such income is approximately $32.8 million. Deferred income taxes on these
accumulations are not required because no distributions are expected.
5.2 TAX EXPENSE
Components of income tax expense for the year were as follows:
<TABLE>
<CAPTION>
1997 1996 1995
------------------------------------------------------
(IN THOUSANDS)
<S> <C> <C> <C>
Current expense $ 185,460 $ 164,272 $ 153,720
Deferred expense (benefit):
Deferred policy acquisition cost 27,644 21,628 38,275
Policy reserves (27,496) (27,460) (49,177)
Basis differential of investments 3,769 4,129 3,710
Other, net 9,347 14,091 (2,581)
------------------------------------------------------
Total deferred expense (benefit) 13,264 12,388 (9,773)
------------------------------------------------------
Income tax expense $ 198,724 $ 176,660 $ 143,947
======================================================
</TABLE>
A reconciliation between the income tax expense computed by applying the
federal income tax rate (35%) to income before taxes and the income tax
expense reported in the financial statement is presented below.
<TABLE>
<CAPTION>
1997 1996 1995
------------------------------------------------------
(IN THOUSANDS)
<S> <C> <C> <C>
Income tax at statutory percentage of GAAP
pretax income $ 200,649 $ 178,939 $ 149,185
Tax-exempt investment income (9,493) (9,347) (10,185)
Goodwill 723 759 768
Tax on sale of subsidiary - - (661)
Other 6,845 6,309 4,840
------------------------------------------------------
Income tax expense $ 198,724 $ 176,660 143,947
======================================================
</TABLE>
44
<PAGE>
5. FEDERAL INCOME TAXES (CONTINUED)
5.3 TAXES PAID
Income taxes paid amounted to approximately $168 million, $182 million, and
$90 million in 1997, 1996, and 1995, respectively.
5.4 TAX RETURN EXAMINATIONS
The Parent Company and the majority of its subsidiaries file a consolidated
federal income tax return. The Internal Revenue Service has completed
examinations of the Company's tax returns through 1988 and is currently
examining tax returns for 1989 through 1996. In addition, the tax returns of
companies recently acquired are also being examined. Although the final
outcome of any issues raised in examination is uncertain, the Company believes
that the ultimate liability, including interest, will not exceed amounts
recorded in the consolidated financial statements.
6. TRANSACTIONS WITH AFFILIATES
Affiliated notes and accounts receivable were as follows:
<TABLE>
<CAPTION>
December 31, 1997 December 31, 1996
-----------------------------------------------------------------------
PAR VALUE BOOK VALUE PAR VALUE BOOK VALUE
-----------------------------------------------------------------------
(IN THOUSANDS)
<S> <C> <C> <C> <C>
American General Corporation,
9 3/8%, due 2008 $ 4,725 $ 3,288 $ 4,725 $ 3,239
American General Corporation,
8 1/4%, due 2004 17,125 32,953 19,572 19,572
American General Corporation,
Restricted Subordinated Note,
13 1/2%, due 2002 31,494 31,494 33,550 33,550
-----------------------------------------------------------------------
Total notes receivable from
affiliates 53,344 67,735 57,847 56,361
Accounts receivable from affiliates - 28,784 - 30,127
-----------------------------------------------------------------------
Indebtedness from affiliates $ 53,344 $ 96,519 $ 57,847 $ 86,488
=======================================================================
</TABLE>
45
<PAGE>
6. TRANSACTIONS WITH AFFILIATES (CONTINUED)
Various American General companies provide services to the Company,
principally mortgage servicing and investment advisory services. The Company
paid approximately $33,916,000, $22,083,000, and $21,006,000 for such services
in 1997, 1996, and 1995, respectively. Accounts payable for such services at
December 31, 1997 and were not material. In addition, the Company rents
facilities and provides services to various American General companies. The
Company received approximately $6,455,000, $1,255,000, and $2,086,000 for such
services and rent in 1997, 1996, and 1995, respectively. Accounts receivable
for rent and services at December 31, 1997 and were not material.
The Company has 8,500 shares of $100 par value cumulative preferred stock
authorized and outstanding with an $80 dividend rate, redeemable at $1,000 per
share after December 31, 2000. The holder of this stock, the Franklin Life
Insurance Company ("Franklin"), an affiliated company, is entitled to one vote
per share, voting together with the holders of common stock.
During 1996, the Company's residential mortgage loan portfolio of $42 million
was sold to American General Finance at carrying value plus accrued interest.
7. STOCK-BASED COMPENSATION
Certain officers of the Company participate in American General Corporation's
stock and incentive plans which provide for the award of stock options,
restricted stock awards, performance awards, and incentive awards to key
employees. Stock options constitute the majority of such awards. Expense
related to stock options is measured as the excess of the market price of the
stock at the measurement date over the exercise price. The measurement date is
the first date on which both the number of shares that the employee is
entitled to receive and the exercise price are known. Under the stock option
plans, no expense is recognized, since the market price equals the exercise
price at the measurement date.
46
<PAGE>
7. STOCK-BASED COMPENSATION (CONTINUED)
Under an alternative accounting method, compensation expense arising from
stock options would be measured at the estimated fair value of the options at
the date of grant. Had compensation expense for the stock options been
determined using this method, net income would have been as follows:
<TABLE>
<CAPTION>
1997 1996 1995
------------------------------------------------------
(IN THOUSANDS)
<S> <C> <C> <C>
Net income as reported $ 374,557 $ 334,595 $ 282,295
Net income pro forma 373,328 334,029 281,821
</TABLE>
The average fair values of the options granted during 1997, 1996, and 1995
were $10.33, $7.07, and $6.93, respectively. The fair value of each option was
estimated at the date of grant using a Black-Scholes option pricing model. The
weighted average assumptions used to estimate the fair value of the stock
options were as follows:
<TABLE>
<CAPTION>
1997 1996 1995
------------------------------------------------------
<S> <C> <C> <C>
Dividend yield 3.0% 4.0% 4.0%
Expected volatility 22.0% 22.3% 23.0%
Risk-free interest rate 6.4% 6.2% 6.9%
Expected life 6 YEARS 6 years 6 years
</TABLE>
8. BENEFIT PLANS
8.1 PENSION PLANS
The Company has noncontributory, defined benefit pension plans covering most
employees. Pension benefits are based on the participant's average monthly
compensation and length of credited service offset by an amount that complies
with federal regulations. The Company's funding policy is to contribute
annually no more than the maximum amount deductible for federal income tax
purposes. The Company uses the projected unit credit method for computing
pension expense.
47
<PAGE>
8. BENEFIT PLANS (CONTINUED)
8.1 PENSION PLANS (CONTINUED)
The components of pension expense and underlying assumptions were as follows:
<TABLE>
<CAPTION>
1997 1996 1995
------------------------------------------------------
(IN THOUSANDS)
<S> <C> <C> <C>
Service cost - benefits earned during period $ 1,891 $ 1,826 $ 1,346
Interest cost on projected benefit obligation 2,929 2,660 2,215
Actual return on plan assets (15,617) (9,087) (10,178)
Amortization of unrecognized net asset - (261) (888)
Amortization of unrecognized prior service cost 195 197 197
Deferral of net asset gain 10,148 4,060 5,724
Amortization of gain - 68 38
------------------------------------------------------
Total pension income $ (454) $ (537) $ (1,546)
======================================================
Assumptions:
Weighted average discount rate on benefit
obligation 7.25% 7.50% 7.25%
Rate of increase in compensation levels 4.00% 4.00% 4.00%
Expected long-term rate of return on plan assets 10.00% 10.00% 10.00%
</TABLE>
48
<PAGE>
8. BENEFIT PLANS (CONTINUED)
8.1 PENSION PLANS (CONTINUED)
The funded status of the plans and the prepaid pension expenses included in
other assets at DECEMBER 31 were as follows:
<TABLE>
<CAPTION>
December 31
1997 1996
------------------------------------
(IN THOUSANDS)
<S> <C> <C>
Actuarial present value of benefit obligation:
Vested $ 32,926 $ 27,558
Nonvested 3,465 4,000
Additional minimum liability - 205
------------------------------------
Accumulated benefit obligation 36,391 31,763
Effect of increase in compensation levels 7,002 5,831
------------------------------------
Projected benefit obligation 43,393 37,594
Plan assets at fair value 80,102 65,159
------------------------------------
Plan assets in excess of projected benefit obligation 36,709 27,565
Unrecognized net gain (23,548) (15,881)
Unrecognized prior service cost 78 274
------------------------------------
Prepaid pension expense $ 13,239 $ 11,958
====================================
</TABLE>
More than 85% of the plan assets were invested in fixed maturity and equity
securities at the plan's most recent balance sheet date.
8.2 POSTRETIREMENT BENEFITS OTHER THAN PENSIONS
The Company and its life insurance subsidiaries, together with certain other
insurance subsidiaries of the Parent Company, have life, medical, supplemental
major medical, and dental plans for certain retired employees and agents. Most
plans are contributory, with retiree contributions adjusted annually to limit
employer contributions to predetermined amounts. The Company has reserved the
right to change or eliminate these benefits at any time.
49
<PAGE>
8. BENEFIT PLANS (CONTINUED)
8.2 POSTRETIREMENT BENEFITS OTHER THAN PENSIONS (CONTINUED)
The life plans are fully insured. A portion of the retiree medical and dental
plans are funded through a voluntary employees' beneficiary association
("VEBA") established in 1994; the remainder is unfunded and self-insured. All
of the retiree medical and dental plans assets held in the VEBA were invested
in readily marketable securities at its most recent balance sheet date.
The plans' combined funded status and the accrued postretirement benefit cost
included in other liabilities were as follows:
<TABLE>
<CAPTION>
December 31
1997 1996
------------------------------------
(IN THOUSANDS)
<S> <C> <C>
Actuarial present value of benefit obligation:
Retirees $ 2,469 $ 5,199
Fully eligible active plan participants 259 251
Other active plan participants 3,214 2,465
------------------------------------
Accumulated postretirement benefit obligation 5,942 7,915
Plan assets at fair value 159 106
------------------------------------
Accumulated postretirement benefit obligation in excess
of plan assets at fair value 5,783 7,809
Unrecognized net gain (1,950) (243)
------------------------------------
Accrued postretirement benefit cost $ 3,833 $ 7,566
====================================
Weighted-average discount rate on postretirement benefit
obligation 7.25% 7.50%
</TABLE>
The components of postretirement benefit expense were as follows:
<TABLE>
<CAPTION>
1997 1996 1995
------------------------------------------------------
(IN THOUSANDS)
<S> <C> <C> <C>
Service cost-- benefits earned $ 211 $ 218 $ 171
Interest cost on accumulated postretirement
benefit obligation 390 626 638
------------------------------------------------------
Postretirement benefit expense $ 601 $ 844 $ 809
======================================================
</TABLE>
50
<PAGE>
9. DERIVATIVE FINANCIAL INSTRUMENTS
9.1 USE OF DERIVATIVE FINANCIAL INSTRUMENTS
The Company's use of derivative financial instruments is generally limited to
interest rate and currency swap agreements, and options to enter into interest
rate swap agreements (call swaptions). The Company accounts for its derivative
financial instruments as hedges. Hedge accounting requires a high correlation
between changes in fair values or cash flows or the derivative financial
instruments and the specific items being hedged, both at inception and
throughout the life of the hedge.
9.2 INTEREST RATE AND CURRENCY SWAP AGREEMENTS
Interest rate swap agreements are used to convert specific investment
securities from a floating to a fixed-rate basis, or vice versa, and to hedge
against the risk of rising prices on anticipated investment security
purchases. Currency swap agreements are infrequently used to effectively
convert cash flows from specific investment securities denominated in foreign
currencies into U.S. dollars at specified exchange rates, and to hedge against
currency rate fluctuations on anticipated investment security purchases.
The difference between amounts paid and received on swap agreements is
recorded on an accrual basis as an adjustment to net investment income or
interest expense, as appropriate, over the periods covered by the agreements.
The related amount payable to or receivable from counterparties is included in
other liabilities or assets.
The fair values of swap agreements are recognized in the consolidated balance
sheet if they hedge investments carried at fair value or if they hedge
anticipated purchases of such investments. In this event, changes in the fair
value of a swap agreement are reported in net unrealized gains on securities
included in shareholders' equity, consistent with the treatment of the related
investment security. For swap agreements hedging anticipated investment
purchases, the net swap settlement amount or unrealized gain or loss is
deferred and included in the measurement of the anticipated transaction when
it occurs.
Swap agreements generally have terms of two to ten years. Any gain or loss
from early termination of a swap agreement is deferred and amortized into
income over the remaining term of the related investment. If the underlying
investment is extinguished or sold, any related gain or loss on swap
agreements is recognized in income. Average floating rates may change
significantly, thereby affecting future cash flows.
51
<PAGE>
9. DERIVATIVE FINANCIAL INSTRUMENTS (CONTINUED)
9.2 INTEREST RATE AND CURRENCY SWAP AGREEMENTS (CONTINUED)
Interest rate and currency swap agreements related to investment securities at
December 31 were as follows:
<TABLE>
<CAPTION>
1997 1996
------------------------------------
(DOLLARS IN MILLIONS)
<S> <C> <C>
Interest rate swap agreements to pay fixed rate:
Notional amount $ 15 $ 60
Average receive rate 6.74% 6.19%
Average pay rate 6.48% 6.42%
Interest rate swap agreements to receive fixed rate:
Notional amount $144 $ 44
Average receive rate 6.89% 6.84%
Average pay rate 6.37% 6.01%
Currency swap agreements (receive U.S. dollars/pay Canadian
dollars):
Notional amount (in U.S. dollars) $139 $ 99
Average exchange rate 1.50 1.57
</TABLE>
9.3 CALL SWAPTIONS
Options to enter into interest rate swap agreements are used to limit the
Company's exposure to reduced spreads between investment yields and interest
crediting rates should interest rates decline significantly over prolonged
periods. During such periods, the spread between investment yields and
interest crediting rates may be reduced as a result of certain limitations on
the Company's ability to manage interest crediting rates. Call swaptions allow
the Company to enter into interest rate swap agreements to receive fixed rates
and pay lower floating rates, effectively increasing the spread between
investment yields and interest crediting rates.
Premiums paid to purchase call swaptions are included in investments and are
amortized to net investment income over the exercise period of the swaptions.
If a call swaption is terminated, any gain is deferred and amortized to
insurance and annuity benefits over the expected life of the insurance and
annuity contracts and any unamortized premium is charged to income. If a call
swaption ceases to be an effective hedge, any related gain or loss is
recognized in income.
52
<PAGE>
9. DERIVATIVE FINANCIAL INSTRUMENTS (CONTINUED)
9.3 CALL SWAPTIONS (CONTINUED)
During 1997, the Company purchased call swaptions which expire in 1998. These
call swaptions had a notional amount of $1.35 billion and strike rates ranging
from 4.5% to 5.5% at December 31, 1997. Should the strike rates remain below
market rates, the call swaptions will expire and the Company's exposure would
be limited to the premiums paid.
9.4 CREDIT AND MARKET RISK
Derivative financial instruments expose the Company to credit risk in the
event of non-performance by counterparties. The Company limits this exposure
by entering into agreements with counterparties having high credit ratings and
by regularly monitoring the ratings. The Company does not expect any
counterparty to fail to meet its obligation; however, non-performance would
not have a material impact on the Company's consolidated results of operations
and financial position.
The Company's exposure to market risk is mitigated by the offsetting effects
of changes in the value of the agreements and the related items being hedged.
Derivative financial instruments related to investment securities did not have
a material effect on net investment income in 1997, 1996 or 1995.
10. FAIR VALUE OF FINANCIAL INSTRUMENTS
SFAS No. 107, DISCLOSURES ABOUT FAIR VALUE OF FINANCIAL INSTRUMENTS, requires
disclosure of the fair value of financial instruments. This standard excludes
certain financial instruments and all nonfinancial instruments, including
policyholder liabilities for life insurance contracts from its disclosure
requirements. Care should be exercised in drawing conclusions based on fair
value, since (1) the fair values presented do not include the value associated
with all of the Company's assets and liabilities and (2) the reporting of
investments at fair value without a corresponding revaluation of related
policyholder liabilities can be misinterpreted.
53
<PAGE>
10. FAIR VALUE OF FINANCIAL INSTRUMENTS (CONTINUED)
Carrying amounts and fair values for those financial instruments covered by
SFAS 107 at DECEMBER 31, 1997 are presented below:
<TABLE>
<CAPTION>
FAIR CARRYING
VALUE AMOUNT
------------------------------------
(IN MILLIONS)
<S> <C> <C>
Assets:
Fixed maturity and equity securities * $ 27,408 $ 27,408
Mortgage loans on real estate $ 1,702 $ 1,660
Policy loans $ 1,127 $ 1,094
Investment in parent company $ 38 $ 38
Indebtedness from affiliates $ 97 $ 97
Liabilities:
Insurance investment contracts $ 24,011 $ 24,497
<FN>
* Includes derivative financial instruments with negative fair value of
$4.2 million and $10.8 million and positive fair value of $7.2 million
and $.6 million at December 31, 1997 and 1996, respectively.
</FN>
</TABLE>
The following methods and assumptions were used to estimate the fair values of
financial instruments:
FIXED MATURITY AND EQUITY SECURITIES
Fair values of fixed maturity and equity securities were based on quoted
market prices, where available. For investments not actively traded,
fair values were estimated using values obtained from independent
pricing services or, in the case of some private placements, by
discounting expected future cash flows using a current market rate
applicable to yield, credit quality, and average life of investments.
MORTGAGE LOANS ON REAL ESTATE
Fair value of mortgage loans was estimated primarily using discounted
cash flows based on contractual maturities and risk-adjusted discount
rates.
54
<PAGE>
10. FAIR VALUE OF FINANCIAL INSTRUMENTS (CONTINUED)
POLICY LOANS
Fair value of policy loans was estimated using discounted cash flows and
actuarially determined assumptions incorporating market rates.
INVESTMENT IN PARENT COMPANY
The fair value of the investment in Parent Company is based on quoted
market prices of American General Corporation common stock.
INSURANCE INVESTMENT CONTRACTS
Insurance investment contracts do not subject the Company to significant
risks arising from policyholder mortality or morbidity. The majority of
the Company's annuity products are considered insurance investment
contracts. Fair value of insurance investment contracts was estimated
using cash flows discounted at market interest rates.
INDEBTEDNESS FROM AFFILIATES
Indebtedness from affiliates is composed of accounts receivable and
notes receivable from affiliates. Due to the short-term nature of
accounts receivable, fair value is assumed to equal carrying value. Fair
value of notes receivable was estimated using discounted cash flows
based on contractual maturities and discount rates that were based on
U.S. Treasury rates for similar maturity ranges.
11. DIVIDENDS PAID
American General Life Insurance Company paid $402 million, $189 million, and
$207 million in dividends on common stock to AGC Life Insurance Company in
1997, 1996, and 1995, respectively. The 1995 dividends included $701 thousand
in the form of furniture and equipment. In addition, in 1996, the Company paid
$680 thousand in dividends on preferred stock to Franklin.
55
<PAGE>
12. RESTRICTIONS, COMMITMENTS, AND CONTINGENCIES
The Company and its insurance subsidiaries are restricted by state insurance
laws as to the amounts they may pay as dividends without prior approval from
their respective state insurance departments. At December 31, 1997,
approximately $2.6 billion of consolidated shareholders' equity represents net
assets of the Company which cannot be transferred, in the form of dividends,
loans, or advances to the Parent Company. Approximately $2.0 billion of
consolidated shareholders' equity is similarly restricted as to transfer from
its subsidiaries to the Company.
Generally, the net assets of the Company's subsidiaries available for transfer
to the Parent are limited to the amounts that the subsidiaries' net assets, as
determined in accordance with statutory accounting practices, exceed minimum
statutory capital requirements. However, payments of such amounts as dividends
may be subject to approval by regulatory authorities and are generally limited
to the greater of 10% of policyholders' surplus or the previous year's
statutory net gain from operations.
The Company has various leases, substantially all of which are for office
space and facilities. Rentals under financing leases, contingent rentals, and
future minimum rental commitments and rental expense under operating leases
are not material.
In recent years, various life insurance companies have been named as
defendants in class action lawsuits relating, to life insurance pricing and
sales practices, and a number of these lawsuits has resulted in substantial
settlements. The Company is a defendant in such purported class action
lawsuits, asserting claims related to pricing and sales practices. These
claims are being defended vigorously by the Company. Given the uncertain
nature of litigation and the early stages of this litigation, the outcome of
these actions cannot be predicted at this time. The Company nevertheless
believes that the ultimate outcome of all such pending litigation should not
have a material adverse effect on the Company's financial position; however,
it is possible that settlements or adverse determinations in one or more of
these actions or other future proceedings could have a material adverse effect
on results of operations for a given period. No provision has been made in the
consolidated financial statements related to this pending litigation because
the amount of loss, if any, from these actions cannot be reasonably estimated
at this time.
The Company is a party to various other lawsuits and proceedings arising in
the ordinary course of business. Many of these lawsuits and proceedings arise
in jurisdictions, such as Alabama, that permit damage awards disproportionate
to the actual economic damages
56
<PAGE>
12. RESTRICTIONS, COMMITMENTS, AND CONTINGENCIES (CONTINUED)
incurred. Based upon information presently available, the Company believes
that the total amounts that will ultimately be paid, if any, arising from
these lawsuits and proceedings will not have a material adverse effect on the
Company's results of operations and financial position. However, it should be
noted that the frequency of large damage awards, including large punitive
damage awards, that bear little or no relation to actual economic damages
incurred by plaintiffs in jurisdictions like Alabama continues to increase and
creates the potential for an unpredictable judgment in any given suit.
The increase in the number of insurance companies that are under regulatory
supervision has resulted, and is expected to continue to result, in increased
assessments by state guaranty funds to cover losses to policyholders of
insolvent or rehabilitated insurance companies. Those mandatory assessments
may be partially recovered through a reduction in future premium taxes in
certain states. At December 31, 1997 and , the Company has accrued $7.6
million and $16.1 million, respectively, for guaranty fund assessments, net of
$4.3 million and $4.1 million, respectively, of premium tax deductions. The
Company has recorded receivables of $9.7 million and $10.9 million at December
31, 1997 and 1996, respectively, for expected recoveries against the payment
of future premium taxes. Expenses incurred for guaranty fund assessments were
$2.1 million, $6.0 million, and $22.4 million in 1997, 1996, and 1995,
respectively.
57
<PAGE>
13. REINSURANCE
Reinsurance transactions for the years ended December 31, 1997, 1996, and 1995
were as follows:
<TABLE>
<CAPTION>
PERCENTAGE
CEDED TO OTHER ASSUMED FROM OF AMOUNT
GROSS AMOUNT COMPANIES OTHER COMPANIES NET AMOUNT ASSUMED TO NET
----------------------------------------------------------------------------------------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
December 31, 1997
Life insurance in force $ 45,963,710 $ 10,926,255 $ 4,997 $ 35,042,452 0.01%2
=======================================================================
Premiums:
Life insurance and annuities $ 100,357 $ 37,294 $ 75 $ 63,138 0.12%
Accident and health insurance 1,208 172 - 1,036 0.00%
-----------------------------------------------------------------------
Total premiums $ 101,565 $ 37,466 $ 75 $ 64,174 0.12%
=======================================================================
Premiums:
Life insurance and annuities $ 104,225 $ 34,451 $ 36 $ 69,810 0.05%
Accident and health insurance 1,426 64 - 1,362 0.00%
-----------------------------------------------------------------------
Total premiums $ 105,651 $ 34,515 $ 36 $ 71,172 0.05%
=======================================================================
December 31, 1995
Life insurance in force $ 44,637,599 $ 7,189,493 $ 5,771 $ 37,453,877 0.02%
=======================================================================
Premiums:
Life insurance and annuities $ 103,780 $ 26,875 $ 171 $ 77,076 0.22%
Accident and health insurance 1,510 82 - 1,428 0.00%
-----------------------------------------------------------------------
Total premiums $ 105,290 $ 26,957 $ 171 $ 78,504 0.22%
=======================================================================
</TABLE>
58
<PAGE>
13. REINSURANCE (CONTINUED)
Reinsurance recoverable on paid losses was approximately $2,278,000,
$6,904,000, and $6,190,000 at December 31, 1997, 1996, and 1995, respectively.
Reinsurance recoverable on unpaid losses was approximately $3,210,000,
$4,282,000, and $2,775,000 at December 31, 1997, 1996, and 1995, respectively.
14. ACQUISITIONS
Effective December 31, 1995, the Company purchased Franklin United Life
Insurance Company, a subsidiary of Franklin, which is a wholly owned
subsidiary of the Parent Company. This purchase was effected through issuance
of $8.5 million in preferred stock to Franklin. The acquisition was accounted
for using the purchase method of accounting and is not material to the
operations of the Company.
15. YEAR 2000 CONTINGENCY (UNAUDITED)
Management has been engaged in a program to render the Company's computer
systems (hardware and mainframe and personal applications software) Year 2000
compliant. The Company will incur internal staff costs as well as third-party
vendor and other expenses to prepare the systems for Year 2000. The cost of
testing and conversion of systems applications has not had, and is not
expected to have, a material adverse effect on the Company's results of
operations or financial condition. However, risks and uncertainties exist in
most significant systems development projects. If conversion of the Company's
systems is not completed on a timely basis, due to nonperformance by
third-party vendors or other unforeseen circumstances, the Year 2000 problem
could have a material adverse impact on the operations of the Company.
59
<PAGE>
PART C
OTHER INFORMATION
ITEM 24. FINANCIAL STATEMENTS AND EXHIBITS
(a) Financial Statements
PART A: None
PART B:
(1) Financial Statements of American General Life
Insurance Company Separate Account A ("Separate
Account A")
Report of Ernst & Young LLP, independent auditors
Statement of Net Assets as of December 31, 1997
Statement of Operations for the year ended December
31, 1997
Statements of Changes in Net Assets for the years
ended December 31, 1997 and 1996
Notes to Financial Statements
(2) Consolidated Financial Statements of American General
Life Insurance Company ("AGL") and Subsidiaries
Report of Ernst & Young LLP, independent auditors
Consolidated Balance Sheets as of December 31, 1997
and 1996
Consolidated Statements of Income for the years ended
December 31, 1997, 1996, and 1995.
Consolidated Statements of Shareholders' Equity for
the years ended December 31, 1997, 1996, and 1995.
Consolidated Statements of Cash Flows for the years
ended December 31, 1997, 1996, and 1995.
Notes to Consolidated Financial Statements
PART C: None
(b) Exhibits
(1)(a) California-Western States Life Insurance Company
("Cal-Western") Board of Directors resolution
authorizing the reorganization of Cal-Western Separate
Account A dated August 15, 1988.(1)
C-1
<PAGE>
ITEM 24 (CONT'D)
(b) Cal-Western Board of Directors final resolution
authorizing the reorganization of Cal-Western Separate
Account A, dated February 6, 1989.(1)
(c) Cal-Western Board of Directors resolution authorizing,
among other things, the merger of Cal-Western and
American General Life Insurance Company ("AGT") into
American General Life Insurance Company of Delaware
("AGD") and the redomestication of AGD in Texas and
renaming of AGD as American General Life Insurance
Company.(1)
(d) American General Life Insurance Company of Delaware
Board of Directors resolution providing, among other
things, for registered Separate Accounts' Standards of
Conduct, incorporated herein by reference to
Pre-Effective Amendment No. 1 to Form N-4 Registration
Statement of American General Life Insurance Company
of Delaware Separate Account D (File No. 33- 43390),
filed on December 31, 1991.(1)
(2) Not Applicable.
(3) Distribution Agreement between American General Life
Insurance Company of Delaware and American General
Securities Incorporated.(1)
(4)(a)(i) Form of Individual Variable and Fixed Retirement
Annuity Contract (Form No. 10154-2-1079).(1)
(ii) Form of Rider to Individual Variable and Fixed
Retirement Annuity Contract (Form No. 101541273).(1)
(iii) Form of Amendment to Individual Variable and Fixed
Retirement Annuity Contract (Form No. 101541273).(1)
(b)(i) Form of Individual Variable Annuity Contract (Form No.
8380-4-0571).(1)
(ii) Form of Amendment to Individual Variable Annuity
Contract (Form No. 8380, Ed. 4).(1)
(c)(i) Form of Group Variable Annuity Contract (Form No. 8515
Ed.2).(1)
(ii) Form of Amendment to Group Variable Annuity Contract
(Form No. 8815 Ed. 2).(1)
(d) Form of Assumption Certificate to Individual Variable
and Fixed Retirement Annuity Contract (Form No.
101541273), to Individual Variable Annuity Contract
(Form No. 8380, Ed. 4), and to Group Variable Annuity
Contract (Form No. 8515 Ed. 2).(1)
C-2
<PAGE>
ITEM 24 (CONT'D)
(5) Form of Application for use with Variable and Fixed
Retirement Annuity Contract (Form No. 10154-2-1079).(1)
(6) Amended and Restated Articles of Incorporation of AGL,
incorporated herein by reference to Exhibit 6(a) to
initial filing on Form N-4 Registration Statement
(File No. 33-43390), filed on October 16, 1991.
(7) Not Applicable.
(8)(a) Agreement and Plan of Merger.(1)
(b) Form of services agreement dated July 31, 1975,
(limited to introduction and first two recitals, and
sections 1-3) among various affiliates of American
General Corporation; including American General Life
Insurance Company and American General Independent
Producer Division.
(9)(a) Opinion and Consent of counsel as to legality of
securities in Separate Account A.(1)
(b) Opinion and consent of counsel as to legality of
securities in Separate Account A.(1)
(c) Opinion and Consent of counsel as to the legality of
securities to be issued by American General Life
Insurance Company Separate Account A, previously filed
as Exhibit 9(c) to Post-Effective Amendment No. 18 to
Form N-4 Registration Statement of American General
Life Insurance Company Separate Account A (File No.
33-44745), filed on April 30, 1992.
(10) Consent of Independent Auditors.
(11) Not Applicable.
(12) None.
(13) Not Applicable.
(14) Financial Data Schedule. (See Exhibit 27 below.)
(15)(a) Power of Attorney with respect to Registration
Statements and Amendments thereto signed by the
following persons in their capacity and directors,
and, where applicable, officers of American General
Life Insurance Company: Messrs. Devlin, Rashid, and
Luther.(1)
(b) Power of Attorney with respect to Registration
Statements and Amendments thereto signed by Robert S.
Cauthen, Jr. in his capacity as director and officer
of American General Life Insurance Company.(1)
C-3
<PAGE>
ITEM 24 (CONT'D)
(c) Power of Attorney with respect to Registration
Statements and Amendments thereto signed by James R.
Tuerff in his capacity as director or officer of
American General Life Insurance Company.(1)
(d) Power of Attorney with respect to Registration
Statements and Amendments thereto signed by Peter V.
Tuters in his capacity as a director or officer of
American General Life Insurance Company.(1)
(e) Power of Attorney with respect to Registration
Statements and Amendments thereto signed by the
following persons in their capacities as directors
and, where applicable, officers of American General
Life Insurance Company: Messrs. Kelley, Pullium, and
Young.(1)
(f) Power of Attorney with respect to Registration
Statements and Amendments thereto signed by the
following persons in their capacities as directors
and, where applicable, officers of American General
Life Insurance Company: Messrs. Atnip and Newton.(2)
(g) Power of Attorney with respect to Registration
Statements and Amendments thereto signed by the
following persons in their capacity as directors and
where applicable, officers of American General Life
Insurance Company: Messrs. Martin and Herbert.(2)
(h) Power of Attorney with respect to Registration
Statements and Amendments thereto signed by the
following persons in their capacity as directors and
where applicable, officers of American General Life
Insurance Company: Messrs. Fravel and LaGrasse.(2)
(i) Power of Attorney with respect to Registration
Statements and Amendments thereto signed by the
following persons in their capacities as directors
and, where applicable, officers of American General
Life Insurance Company: Messrs. D'Agostino, Imoff and
Polkinghorn.(3)
(27) (Inapplicable, because, notwithstanding Item 24.(b) as
to Exhibits, the Commission staff has advised that no
such schedule is required.)
-----------------
1 Previously filed in Post-Effective Amendment No. 4 to this Registration
Statement (File No. 33-44745) filed on April 28, 1995.
2 Previously filed in Post-Effective Amendment No. 6 to this Registration
Statement (File No. 33-44745) filed on April 18, 1997.
3 Incorporated herein by reference to Pre-Effective Amendment No. 1 to
AGL's Separate Account D Form N-4 Registration Statement (File No.
333-40637), filed on February 12, 1998.
C-4
<PAGE>
ITEM 25. DIRECTORS AND OFFICERS OF THE DEPOSITOR
<TABLE>
<CAPTION>
Name and Principal Positions and Offices
Business Address With The Depositor
------------------ ---------------------
<S> <C>
Rodney O. Martin, Jr. Chairman, President & Chief
2727-A Allen Parkway Executive Officer
Houston, TX 77019
James S. D'Agostino, Jr. Vice Chariman
2929 Allen Parkway
Houston, TX 77019
Jon P. Newton Vice Chairman
2929 Allen Parkway
Houston, TX 77019
David A. Fravel Director & Executive Vice President
2727-A Allen Parkway
Houston, TX. 77019
Robert F. Herbert, Jr. Director, Senior Vice President,
2727-A Allen Parkway Chief Financial Officer, Treasurer
Houston, TX 77019 & Controller
Royce G. Imhoff, II Director, Senior Vice President
2727-A Allen Parkway & Chief Marketing Officer
Houston, TX 77019
John V. LaGrasse Director, Senior Vice President
2727-A Allen Parkway & Chief Systems Officer
Houston, TX 77019
Philip K. Polkinghorn Director, Senior Vice President, Product
2727-A Allen Parkway Development Center
Houston, TX 77019
Gary D. Reddick Executive Vice President
#1 Franklin Square
Springfield, IL 62713
F. Paul Kovach, Jr. Senior Vice President, Broker Dealers
2727 Allen Parkway and Financial Institutions Marketing Group
Houston, TX 77019
C-5
<PAGE>
Wayne A. Barnard Senior Vice President & Chief Actuary
2727-A Allen Parkway
Houston, TX 77019
B. Shelby Baetz Senior Vice President, General Counsel
2727-A Allen Parkway & Secretary
Houston, TX 77019
Simon J. Leech Senior Vice President, Houston Service
Center
2727-A Allen Parkway
Houston, TX 77019
Bryan D. Murphy Senior Vice President, Insurance Operations
2727-A Allen Parkway
Houston, TX 77019
Robert A. Slepicka Senior Vice President, Corporate
2727-A Allen Parkway Markets Group
Houston, TX 77019
Don M. Ward Senior Vice President, Variable Products -
2727-A Allen Parkway Marketing
Houston, TX 77019
Farideh Farrokhi Vice President & Assistant Controller -
2727-A Allen Parkway Financial Reporting and Fund Accounting
Houston, TX 77019
Rosalia S. Nolan Vice President, Policy Administration
2727-A Allen Parkway
Houston, TX 77019
K. David Nunley Vice President & Tax Compliance Officer
2727-A Allen Parkway
Houston, TX 77019
Larry M. Robinson Vice President, Variable Products-Marketing
2727-A Allen Parkway
Houston, TX 77019
Richard W. Scott Vice President & Chief
2929 Allen Parkway Investment Officer
Houston, TX 77019
Pauletta P. Cohn Assistant Secretary
2727-A Allen Parkway
Houston, TX 77019
Steven A. Glover Assistant Secretary
2727-A Allen Parkway
Houston, TX 77019
Joyce R. Bilski Administrative Officer
2727-A Allen Parkway
Houston, TX 77019
Liza Glass Administrative Officer
2727-A Allen Parkway
Houston, TX 77019
Patricia L. Myles Administrative Officer
2727-A Allen Parkway
Houston, TX 77019
</TABLE>
ITEM 26. PERSONS CONTROLLED BY OR UNDER COMMON CONTROL WITH THE DEPOSITOR
OR REGISTRANT
The following is a list of American General Corporation's subsidiaries as of
March 31, 1998. All subsidiaries listed are corporations, unless otherwise
indicated. Subsidiaries of subsidiaries are indicated by indentations and
unless otherwise indicated, all subsidiaries are wholly owned. Inactive
subsidiaries are denoted by an asterisk (*).
<TABLE>
<CAPTION>
Jurisdiction of
Name Incorporation
------------------------------------------------------------------------------- ---------------
<S> <C>
AGC Life Insurance Company...................................................... Missouri
American General Life and Accident Insurance Company(6)...................... Tennessee
American General Exchange, Inc. .......................................... Tennessee
Independent Fire Insurance Company........................................ Florida
American General Property Insurance Company of Florida................. Florida
Old Faithful General Agency, Inc....................................... Texas
C-6
<PAGE>
Independent Life Insurance Company........................................ Georgia
American General Life Insurance Company(7)................................... Texas
(REGISTRANT IS A SEPARATE ACCOUNT OF AMERICAN GENERAL LIFE INSURANCE COMPANY, DEPOSITOR)
American General Annuity Service Corporation.............................. Texas
American General Life Insurance Company of New York....................... New York
The Winchester Agency Ltd.............................................. New York
The Variable Annuity Life Insurance Company............................... Texas
The Variable Annuity Marketing Company................................. Texas
VALIC Investment Services Company...................................... Texas
VALIC Retirement Services Company...................................... Texas
VALIC Trust Company.................................................... Texas
The Franklin Life Insurance Company ......................................... Illinois
The American Franklin Life Insurance Company.............................. Illinois
Franklin Financial Services Corporation .................................. Delaware
HBC Development Corporation ................................................. Virginia
Western National Corporation................................................. Delaware
WNL Holding Corp.......................................................... Delaware
American General Annuity Insurance Company(8).......................... Texas
Conseco Annuity Guarantee Company...................................... Texas
Independent Advantage Financial and Insurance Services, Inc............ California
Western National Financial Institution Group, Inc...................... Delaware
WNL Brokerage Services, Inc............................................ Delaware
WNL Insurance Services, Inc............................................ Delaware
WNL Investment Advisory Services, Inc.................................. Delaware
American General Capital Services, Inc. ........................................ Delaware
American General Corporation* .................................................. Delaware
American General Delaware Management Corporation(1)............................. Delaware
American General Finance, Inc. ................................................. Indiana
AGF Investment Corp. ........................................................ Indiana
American General Auto Finance, Inc. . ....................................... Delaware
American General Finance Corporation(9)...................................... Indiana
American General Finance Group, Inc. ..................................... Delaware
American General Financial Services, Inc.(10).......................... Delaware
The National Life and Accident Insurance Company.................... Texas
Merit Life Insurance Co. ................................................. Indiana
Yosemite Insurance Company ............................................... California
American General Finance, Inc................................................ Alabama
American General Financial Center ........................................... Utah
American General Financial Center, Inc.* .................................... Indiana
American General Financial Center, Incorporated*............................. Indiana
American General Financial Center Thrift Company*............................ California
Thrift, Incorporated* ....................................................... Indiana
American General Independent Producer Division Co............................... Delaware
American General Investment Advisory Services, Inc.*............................ Texas
American General Investment Holding Corporation(11)............................. Delaware
American General Investment Management Corporation(11).......................... Delaware
American General Realty Advisors, Inc. ......................................... Delaware
C-7
<PAGE>
American General Realty Investment Corporation.................................. Texas
AGLL Corporation(12)......................................................... Delaware
American General Land Holding Company ....................................... Delaware
AG Land Associates, LLC(12)............................................... California
GDI Holding, Inc.*(13)....................................................... California
Hunter's Creek Communications Corporation ................................... Florida
Pebble Creek Service Corporation ............................................ Florida
SR/HP/CM Corporation ........................................................ Texas
American General Property Insurance Company .................................... Tennessee
Green Hills Corporation ........................................................ Delaware
Knickerbocker Corporation ...................................................... Texas
American Athletic Club, Inc. ................................................ Texas
Pavilions Corporation........................................................... Delaware
USLIFE Corporation.............................................................. New York
All American Life Insurance Company.......................................... Illinois
1149 Investment Corp...................................................... Delaware
American General Life Insurance Company of Pennsylvania...................... Pennsylvania
New D Corporation*........................................................... Iowa
The Old Line Life Insurance Company of America............................... Wisconsin
The United States Life Insurance Company in the City of New York............. New York
USLIFE Advisers, Inc......................................................... New York
USLIFE Agency Services, Inc.................................................. Illinois
USLIFE Credit Life Insurance Company......................................... Illinois
USLIFE Credit Life Insurance Company of Arizona........................... Arizona
USLIFE Indemnity Company.................................................. Nebraska
USLIFE Financial Corporation of Delaware*.................................... Delaware
Midwest Holding Corporation............................................... Delaware
I.C. Cal*.............................................................. Nebraska
Midwest Property Management Co......................................... Nebraska
USLIFE Financial Institution Marketing Group, Inc............................ California
USLIFE Insurance Services Corporation........................................ Texas
USLIFE Realty Corporation.................................................... Texas
405 Leasehold Operating Corporation....................................... New York
405 Properties Corporation*............................................... New York
USLIFE Real Estate Services Corporation................................... Texas
USLIFE Realty Corporation of Florida...................................... Florida
USLIFE Systems Corporation................................................... Delaware
</TABLE>
American General Finance Foundation, Inc. is not included on this list. It is
a non-profit corporation.
NOTES
1 The following limited liability companies were formed in the State of
Delaware on March 28, 1995. The limited liability interests of each are
jointly owned by AGC and AGDMC and the business and affairs of each are
managed by AGDMC:
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American General Capital, L.L.C.
American General Delaware, L.L.C.
2 On November 26, 1996, American General Institutional Capital A ("AG Cap
Trust A"), a Delaware business trust, was created. On March 10, 1997,
American General Institutional Capital B ("AG Cap Trust B"), also a
Delaware business trust, was created. Both AG Cap Trust A's and AG Cap
Trust B's business and affairs are conducted through their trustees:
Bankers Trust Company and Bankers Trust (Delaware). Capital securities
of each are held by non- affiliated third party investors and common
securities of AG Cap Trust A and AG Cap Trust B are held by AGC.
3 On November 14, 1997, American General Capital I, American General
Capital II, American General Capital III, and American General Capital
IV (collectively, the "Trusts"), all Delaware business trusts, were
created. Each of the Trusts' business and affairs are conducted through
its trustees: Bankers Trust (Delaware) and James L. Gleaves (not in his
individual capacity but solely as Trustee).
4 On July 10, 1997, the following insurance subsidiaries of AGC became the
direct owners of the parenthetically indicated percentages of membership
units of SBIL B, L.L.C. ("SBIL B"), a U.S. limited liability company:
VALIC (22.6%), FL (8.1%), AGLA (4.8%) and AGL (4.8%).
Through its aggregate 40.3% interest in SBIL B, VALIC, FL, AGLA and AGL
indirectly own approximately 28% of the securities of SBI, an English
company, and 14% of the securities of ESBL, an English company, SBP, an
English company, and SBFL, a Cayman Islands company. These interests are
held for investment purposes only.
5 Effective December 5, 1997, AGC and Grupo Nacional Provincial, S.A.
("GNP") completed the purchase by AGC of a 40% interest in Grupo
Nacional Provincial Pensions S.A. de C.V., a new holding company formed
by GNP, one of Mexico's largest financial services companies.
6 AGLA owns approximately 11% of Whirlpool Financial Corp. ("Whirlpool")
on a fully diluted basis. The total investment of AGLA in Whirlpool
represents approximately 3% of the voting power of the capital stock of
Whirlpool, but approximately 11% of the Whirlpool stock which has voting
rights. The interests in Whirlpool (which is a corporations that is not
associated with AGC) are held for investment purposes only.
7 AGL owns 100% of the common stock of American General Securities
Incorporated ("AGSI"), a full-service NASD broker-dealer. AGSI, in turn,
owns 100% of the stock of the following insurance agencies:
American General Insurance Agency, Inc. (Missouri)
American General Insurance Agency of Hawaii, Inc. (Hawaii)
American General Insurance Agency of Massachusetts, Inc. (Massachusetts)
In addition, the following agencies are indirectly related to AGSI, but
not owned or controlled by AGSI:
American General Insurance Agency of Ohio, Inc. (Ohio)
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American General Insurance Agency of Texas, Inc. (Texas)
American General Insurance Agency of Oklahoma, Inc. (Oklahoma)
Insurance Masters Agency, Inc. (Texas)
AGSI and the foregoing agencies are not affiliates or subsidiaries of
AGL under applicable holding company laws, but they are part of the AGC
group of companies under other laws.
8 WNL Series Trust is a Massachusetts business trust, all of the shares of
which are held in the separate account of American General Annuity
Insurance Company ("AGAIC") for the benefit of AGAIC variable annuity
policyholders.
9 American General Finance Corporation is the parent of an additional 48
wholly owned subsidiaries incorporated in 30 states and Puerto Rico for
the purpose of conducting its consumer finance operations, INCLUDING
those noted in footnote 7 below.
10 American General Financial Services, Inc. is the parent of an additional
7 wholly owned subsidiaries incorporated in 4 states and Puerto Rico for
the purpose of conducting its consumer finance operations.
11 American General Investment Management, L.P. is jointly owned by AGIHC
and AGIMC. AGIHC holds a 99% limited partnership interest, and AGIMC
owns a 1% general partnership interest.
12 AG Land Associates, LLC is jointly owned by AGLH and AGLL. AGLH holds a
98.75% managing interest and AGLL owns a 1.25% managing interest.
13 AGRI owns only a 75% interest in GDI Holding, Inc.
All of the subsidiaries of AGL are included in its consolidated financial
statements, which are filed in Part B of this Registration Statement.
ITEM 27. NUMBER OF CONTRACT OWNERS
The total number of Contract Owners as of February 28, 1998 was 2594. The
Group Variable Retirement Annuity Contract, which accounts for 21 of the total
number of Contracts, is no longer offered for sale.
ITEM 28. INDEMNIFICATION
AGL's By-Laws, as amended, include provisions concerning the indemnification
of its officers and directors, and certain other persons. These provisions are
described below:
Article VII, section 1, of AGL's By-Laws provides, in part, that AGL shall
have power to indemnify any person who was or is a party or is threatened to
be made a party to any proceeding (other than an action by or in the right of
AGL) by reason of the fact that such person is or was serving at the request
of AGL, against expenses, judgments, fines, settlements, and other amounts
actually and reasonably incurred in connection with such proceeding if such
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<PAGE>
person acted in good faith and in a manner such person reasonably believed to
be in the best interests of AGL and, in the case of a criminal proceeding, had
no reasonable cause to believe the conduct of such person was unlawful.
Article VII, section 1 (in part), section 2 and section 3, provide that AGL
shall have power to indemnify any person who was or is a party or is
threatened to be made a party to any threatened, pending, or completed action
by or in the right of AGL to procure a judgment in its favor by reason of the
fact that such person is or was acting on behalf of AGL, against expenses
actually and reasonably incurred by such person in connection with the defense
or settlement of such action if such person acted in good faith, in a manner
such person believed to be in the best interests of AGL, and with such care,
including reasonable inquiry, as an ordinarily prudent person in a like
position would use under similar circumstances. No indemnification shall be
made under section 1: (a) in respect of any claim, issue, or matter as to
which such person shall have been adjudged to be liable to AGL, unless and
only to the extent that the court in which such action was brought shall
determine upon application that, in view of all the circumstances of the case,
such person is fairly and reasonably entitled to indemnity for the expenses
which such court shall determine; (b) of amounts paid in settling or otherwise
disposing of a threatened or pending action with or without court approval; or
(c) of expense incurred in defending a threatened or pending action which is
settled or otherwise disposed of without court approval.
Article VII, section 3, provides that, with certain exceptions, any
indemnification under Article VII shall be made by AGL only if authorized in
the specific case, upon a determination that indemnification of the person is
proper in the circumstances because the person has met the applicable standard
of conduct set forth in section 1 of Article VII by (a) a majority vote of a
quorum consisting of directors who are not parties to such proceeding; (b)
approval of the shareholders, with the shares owned by the person to be
indemnified not being entitled to vote thereon; or (c) the court in which such
proceeding is or was pending upon application made by AGL or the indemnified
agent or the attorney or other per-sons rendering services in connection with
the defense, whether or not such application by the attorney, or indemnified
person is opposed by AGL.
Article VII, section 7, provides that for purposes of Article VII, those
persons subject to indemnification include any person who is or was a
director, officer, or employee of AGL, or is or was serving at the request of
AGL as a director, officer, or employee of another foreign or domestic
corporation which was a predecessor corporation of AGL or of another
enterprise at the request of such predecessor corporation.
Insofar as indemnification for liability arising under the Securities Act of
1933 may be permitted to directors, officers and controlling persons of the
Registrant pursuant to the foregoing provisions, or otherwise, the Registrant
has been advised that in the opinion of the Securities and Exchange Commission
such indemnification is against public policy as expressed in the Act and is,
therefore, unenforceable.
In the event that a claim for indemnification against such liabilities (other
than the payment of expenses incurred or paid by a director, office or
controlling person of the Registrant in the successful defense of any action,
suit or proceeding) is asserted by such director, officer or controlling
person in connection with the securities being registered, the Registrant
will, unless in the opinion of its counsel the matter has been settled by
controlling precedent, submit to a court of appropriate jurisdiction the
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<PAGE>
question of whether such indemnification by it is against public policy as
expressed in the Act and will be governed by the final adjudication of such
issue.
Pursuant to the Distribution Agreement between AGL and AGSI, AGL agrees to
indemnify AGSI against damages arising out of material misstatements or
omissions in the registration statement of the related prospectus, and AGSI
agrees to indemnify AGL against damages arising out of any act of any employee
of AGSI.
ITEM 29. PRINCIPAL UNDERWRITERS
(a) Registrant's principal underwriter, American General Securities
Incorporated, also acts as principal underwriter for AGL Separate
Account D, AGL Separate Account VL-R, and American General Life
Insurance Company of New York Separate Account E.
(b) The directors and officers of the principal underwriter are:
<TABLE>
<CAPTION>
Position and Offices
with Underwriter,
Name and Principal American General
Business Address Securities Incorporated
------------------ ------------------------
<S> <C>
F. Paul Kovach, Jr. Director & President
American General Securities
Incorporated
2727 Allen Parkway
Houston, TX 77019
Royce G. Imoff, II Director
American General Life
2727-A Allen Parkway
Houston, TX 77019
Rodney O. Martin, Jr. Director
American General Life
2727-A Allen Parkway
Houston, Texas 77019
Robert F. Herbert & Associate Tax Officer
American General Life
2727-A Allen Parkway
Houston, Texas 77019
John V. LaGrasse Vice President
American General Life
2727-A Allen Parkway
Houston, TX 77019
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<PAGE>
Fred G. Fram Vice President
American General Securities
Incorporated
2727 Allen Parkway
Houston, TX 77019
Steven A. Glover Assistant Secretary
American General Life
2727-A Allen Parkway
Houston, TX 77019
Carole D. Hlozek Administrative Officer
American General Securities
Incorporated
2727 Allen Parkway
Houston, TX 77019
J. Andrew Kalbaugh Administrative Officer
American General Securities
Incorporated
2727 Allen Parkway
Houston, TX 77019
Kenneth D. Nunley Associate Tax Officer
2727-A Allen Parkway
Houston, TX 77019
</TABLE>
(c) American General Securities Incorporated is the principal underwriter
for Separate Account A. The licensed agents who sell the Individual
Variable Retirement Annuity Contracts are compensated for such sales by
commissions paid by AGL. These commissions do not result in any charge
to Separate Account A or to Contract Owners, Participants, Annuitants or
Beneficiaries, as those terms are defined in the Individual Variable
Retirement Annuity Contracts, in addition to the charges described in
the prospectuses for such Contracts.
ITEM 30. LOCATION OF ACCOUNTS AND RECORDS
All records required under Section 31 (a) of the 1940 Act, and Rules 31a-1
through 31a-3 thereunder, are maintained and in the custody of American
General Independent Producers Division, on behalf of AGL, at its principal
executive office located at 2727-A Allen Parkway, Houston, Texas 77019.
ITEM 31. MANAGEMENT SERVICES
Not Applicable
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<PAGE>
ITEM 32. UNDERTAKINGS
The Registrant undertakes: (A) to file a post-effective amendment to this
registration statement as frequently as is necessary to ensure that the
audited financial statements in the Registration Statement are never more than
16 months old for so long as payments under the Contracts may be accepted; (B)
to include either (1) as part of any application to purchase a Contract
offered by these prospectuses, a space that an applicant can check to request
a Statement of Additional Information, or (2) a toll-free number, post card or
similar written communication affixed to or included in the applicable
prospectus that the applicant can remove to send for a Statement of Additional
Information; (C) to deliver any Statement of Additional Information and any
financial statements required to be made available under this form promptly
upon written or oral request.
The Registrant hereby represents that it is relying on the November 28, 1988
no-action letter (Ref. No. IP-6-88) relating to variable annuity contracts
offered as funding vehicles for retirement plans meeting the requirements of
Section 403(b) of the Internal Revenue Code. Registrant further represents
that it intends to comply with provisions of paragraphs (1) - (4) of that
letter as follows:
Registrant will:
(1) Include appropriate disclosure regarding the redemption restrictions
imposed by Section 403(b)(11) in each Registration Statement, including
the prospectus, used in connection with the offer of the Contracts;
(2) Include appropriate disclosure regarding the redemption restrictions
imposed by Section 403(b)(11) in any sales literature used in connection
with the offer of the Contracts;
(3) Instruct sales representatives who solicit participants to purchase the
Contract specifically to bring the redemption restrictions imposed by
Section 403(b)(211) to the attention of the potential participants; and
(4) Obtain from each plan participant who purchases a Section 403(b) annuity
contract, prior to or at the time of such purchase, a signed statement
acknowledging the participant's understanding of (1) the restrictions on
redemption imposed by Section 403(b)(11), and (2) the investment
alternatives available under the employer's Section 403(b) arrangement,
to which the participant may elect to transfer his Contract value.
REPRESENTATION REGARDING REASONABLENESS OF AGGREGATE FEES AND CHARGES DEDUCTED
UNDER THE CONTRACTS PURSUANT TO SECTION 26(E)(2)(a) OF THE INVESTMENT COMPANY
ACT OF 1940
AGL represents that the fees and charges deducted under the Contracts
described in this Registration Statement, in the aggregate, are reasonable in
relation to the services rendered, the expenses expected to be incurred, and
the risks assumed by AGL under the Contracts. AGL bases its representation on
its assessment of all of the facts and circumstances, including such relevant
factors as: the nature and extent of such services, expenses and risks; the
need for AGL to earn a profit; the degree to which the Contracts include
innovative features; and the regulatory standards for exemptive relief under
the Investment Company Act of 1940 used prior to October 1996, including the
range of industry practice. This representation applies to all Contracts sold
pursuant to this Registration Statement, including those sold on the terms
specifically described in the prospectuses contained herein, or any variations
therein, based on supplements, endorsements, or riders to any Contracts or
prospectus, or otherwise.
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<PAGE>
SIGNATURES
As required by the Securities Act of 1933, and the Investment Company
Act of 1940, the Registrant, American General Life Insurance Company Separate
Account A, certifies that it meets the requirements of Securities Act Rule
485(b), for effectiveness of this Amendment to the Registration Statement and
has duly caused this Amendment to the Registration Statement to be signed on
its behalf, in the City of Houston and State of Texas on this day of April, 24
1998.
AMERICAN GENERAL LIFE INSURANCE
COMPANY SEPARATE ACCOUNT A
(Registrant)
BY: AMERICAN GENERAL LIFE
INSURANCE COMPANY
(On behalf of the Registrant and itself)
BY: /s/ ROBERT F. HERBERT, JR.
--------------------------
Robert F. Herbert, Jr.
Senior Vice President
ATTEST: /s/ STEVEN A. GLOVER
--------------------
Steven A. Glover
Assistant Secretary
Pursuant to the requirements of the Securities Act of 1933, this amended
Registration Statement has been signed by the following persons in the
capacities and on the dates indicated.
SIGNATURE TITLE
RODNEY O. MARTIN, JR.*
---------------------- Principal Executive Officer
Rodney O. Martin, Jr.
ROBERT F. HERBERT, JR.*
----------------------- Principal Financial and Accounting Officer
Robert F. Herbert, Jr.
DIRECTORS
JAMES S. D' AGOSTINO, JR.* JOHN V. LaGRASSE*
-------------------------- -----------------
James S. D' Agostino, Jr. John V. LaGrasse
DAVID A. FRAVEL* RODNEY O. MARTIN, JR.*
---------------- ----------------------
David A. Fravel Rodney O. Martin, Jr.
ROBERT F. HERBERT, JR.* JON P. NEWTON*
----------------------- --------------
Robert F. Herbert, Jr. Jon P. Newton
ROYCE G. IMHOFF, II* PHILIP K. POLKINGHORN*
-------------------- ----------------------
Royce G. Imofft, II Philip K. Polkinghorn
/s/RICHARD W. SCOTT
-------------------------
Richard W. Scott
/s/STEVEN A. GLOVER
--------------------
Steven A. Glover
*By: Steven A. Glover, Attorney-in-Fact April 24, 1998
<PAGE>
EXHIBIT INDEX
8(b) Form of services agreement dated July 31, 1975, (limited to introduction
and first two recitals, and sections 1-3) among various affiliates of
American General Corporation; including American General Life Insurance
Company and American General Independent Producer Division.
(10) Consent of Independent Auditors.
EXHIBIT (8)(b)
[SERVICES AGREEMENT]
This Agreement is entered into by and among AMERICAN GENERAL
[Corporation], a corporation duly organized and existing under the laws of the
State of Texas, and various of its subsidiaries named below, all of which
companies together constitute the AMERICAN GENERAL GROUP OF COMPANIES, such
companies being referred to hereinafter as "AFFILIATES" and the group as
"GROUP".
W I T N E S S E T H
WHEREAS, it has been a long-standing practice within the GROUP for each
AFFILIATE, when called upon by another AFFILIATE to provide a service which
the former is qualified to perform, to provide such requested service to such
AFFILIATE, and
WHEREAS, as part of that long-standing practice, the AFFILIATE providing
such service is reimbursed for the costs and expenses which it has incurred in
providing such service by the AFFILIATE receiving such service, so that
neither AFFILIATE incurs a loss nor realizes a profit at the expense of the
other AFFILIATE by reason of the providing of such service, . . .
NOW, THEREFORE, it is agreed among the AFFILIATES as follows:
1. Whenever any AFFILIATE shall perform a service at the request of
and for the benefit of another AFFILIATE, the AFFILIATE rendering
such service shall be reimbursed for the costs and expenses which
it incurs in providing such service by the AFFILIATE receiving
such service, so that neither AFFILIATE shall incur a loss nor
realize a profit at the expense of the other AFFILIATE by reason
thereof. The terms of such reimbursement are to be fair and
equitable.
2. Charges or fees for services performed by one AFFILIATE for
another shall be reasonable.
3. The books, accounts, and records of each AFFILIATE shall at all
times be so maintained as to disclose clearly and accurately the
precise nature and details of all transactions covered by this
agreement.
EXHIBIT (10)
CONSENT OF INDEPENDENT AUDITORS
We consent to the reference made to our firm under the caption "Independent
Auditors" and to the use of our report dated February 20, 1998, as to American
General Life Insurance Company Separate Account A, and February 23, 1998, as
to American General Life Insurance Company, in Post-Effective Amendment No. 7
to the Registration Statement (Form N-4 No. 33-44745) of American General Life
Insurance Company Separate Account A.
/s/ERNST & YOUNG LLP
--------------------
Ernst & Young LLP
Houston, Texas
April 20, 1998
