<PAGE>
Registration Nos. 33-44745
811-1491
As filed with the Commission on April 3, 2000
______________________________________
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. 9 X
---- -----
and/or
REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY ACT OF 1940
Amendment No. 25 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) 831-1230
(Depositor's Telephone Number, including Area Code)
Pauletta P. Cohn, Esq.
Deputy General Counsel
American General Life Companies
2929 Allen Parkway, Houston, Texas 77019
(Name and Address of Agent for Service)
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 April 7, 2000 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 A under variable annuity contracts
<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 contracts (the "Contracts") described
by this Prospectus are offered by American General Life Insurance Company
("AGL"), the successor to California-Western States Life Insurance Company
("Cal-Western").
You may use AGL's Separate Account A ("Separate Account") for a variable
investment return under the Contracts based on one or more of the following
mutual fund series of American General Series Portfolio Company ("Portfolio
Company"):
. American General Series Portfolio Company
. MidCap Index Fund
. Asset Allocation Fund
. Money Market Fund
. Capital Conservation Fund
. Government Securities Fund
. Stock Index Fund
We have designed this Prospectus to provide you with information that you should
have before investing in the Contracts. Please read the Prospectus carefully and
keep it for future reference.
For additional information about the Contracts, you may request a copy of the
Statement of Additional Information (the "Statement"), dated April 7, 2000. We
have filed the Statement with the Securities and Exchange Commission ("SEC") and
have incorporated it by reference into this Prospectus. The "Table of Contents"
of the Statement appears at page 44 of this Prospectus. You may obtain a free
copy of the Statement if you write or call AGL's Annuity Administration
Department, in our Home Office, which is located at 2727-A Allen Parkway,
Houston, Texas 77019-2191. The telephone number is 1-800-247-6584. You may also
obtain the Statement through the SEC's Web site at http://www.sec.gov.
You should rely only on the information contained in this document or that we
have referred you to. We have not authorized anyone to provide you with
information that is different.
Neither the Securities and Exchange Commission nor any state securities
commission has approved or disapproved of these securities or passed upon the
adequacy or accuracy of this Prospectus. Any representation to the contrary is a
criminal offense. The Contracts are not available in all states.
This Prospectus is valid only if you also receive the current American General
Series Portfolio Company prospectus.
This Prospectus is dated April 7, 2000.
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
----
<S> <C>
Definitions................................................................. 4
Fee Table................................................................... 6
Contract Owner Transaction Expenses.................................... 6
Division Annual Expenses After Expense Reimbursements.................. 7
Fund Annual Expenses................................................... 7
Synopsis of Contract Provisions............................................. 9
General Description.................................................... 9
Sales Charges and Other Deductions..................................... 9
Periodic Payments...................................................... 10
Purchase Payment Accumulation.......................................... 10
Fixed and Variable Annuity Payments.................................... 10
Changes in Allocations Among Divisions and Fixed Accumulation.......... 11
Surrenders, Withdrawals and Cancellations.............................. 11
Death Proceeds......................................................... 11
Limitations Imposed by Retirement Plans and Employers.................. 11
Communications to Us................................................... 12
Selected Accumulation Unit Data (Unaudited)................................. 13
Financial Information....................................................... 16
AGL......................................................................... 16
Separate Account A.......................................................... 16
Portfolio Company........................................................... 17
Voting Privileges........................................................... 18
Contract Issuance and Purchase Payments..................................... 19
General Description.................................................... 19
Payments............................................................... 20
Variable Account Value...................................................... 20
Transfer and Surrender of Contract Owner Variable Account Value............. 22
Transfers.............................................................. 22
Surrenders............................................................. 22
Annuity Period and Annuity Payment Options.................................. 23
Annuity Commencement Date.............................................. 23
Annuity Payment Options................................................ 23
Annuity Payments....................................................... 26
</TABLE>
2
<PAGE>
<TABLE>
Page
----
<S> <C>
Death Proceeds.............................................................. 26
Death Proceeds Before the Annuity Commencement Date.................... 26
Death Proceeds After the Annuity Commencement Date..................... 27
Proof of Death......................................................... 28
Charges Under the Contract.................................................. 28
Sales and Administrative Expenses...................................... 28
Premium Taxes.......................................................... 30
Surrender Charge....................................................... 30
Maintenance Charge..................................................... 31
Charge to the Separate Account......................................... 31
Contract Expense Guarantee............................................. 31
Other Charges.......................................................... 32
Other Aspects of the Contracts.............................................. 33
Contract Owners, Participants, Annuitants, and Beneficiaries;
Assignments.......................................................... 33
Reports................................................................ 33
Rights Reserved by Us.................................................. 33
Payment and Deferment.................................................. 34
Federal Income Tax Matters.................................................. 35
General................................................................ 35
Non-Qualified Contracts................................................ 35
Individual Retirement Annuities ("IRAs")............................... 37
Roth IRAs.............................................................. 39
Simplified Employee Pension Plans...................................... 40
Simple Retirement Accounts............................................. 40
Other Qualified Plans.................................................. 40
Private Employer Unfunded Deferred Compensation Plans.................. 41
Federal Income Tax Withholding and Reporting........................... 42
Taxes Payable by AGL and the Separate Account.......................... 42
Distribution Arrangements................................................... 42
Services Agreement.......................................................... 43
Legal Matters............................................................... 43
Year 2000 Considerations.................................................... 43
Other Information on File................................................... 43
Contents of Statement of Additional Information............................. 44
</TABLE>
3
<PAGE>
DEFINITIONS
We, our and us -- American General Life Insurance Company ("AGL")
You and your -- a reader of this Prospectus who is contemplating making purchase
payments or taking any other action in connection with a Contract. This is
generally the Contract Owner.
Accumulation Period -- the period between the date of the first purchase payment
for a Variable Annuity contract and the Annuity Commencement Date.
Accumulation Unit -- a measuring unit used in calculating your interest in a
Division of Separate Account A before the Annuity Commencement Date.
Accumulated Value -- the dollar value of a Variable Account.
Annuitant -- the person named as annuitant in the application for a Contract and
on whose life annuity payments may be based.
Annuity -- a series of payments for life or a designated period subject to the
terms of the Contract.
Annuity Administration Department -- our annuity service center in our Home
Office to which you should direct all purchase payments, requests, instructions
and other communications. Our Annuity Administration Department is located at
2727-A Allen Parkway, Houston, Texas 77019-2191. The mailing address is P.O.
Box 1401, Houston, Texas 77251-1401.
Annuity Commencement Date -- the date on which we begin making payments under an
Annuity Payment Option.
Annuity Payment Option -- one of the ways in which you can request us to make
annuity payments to you. An Annuity Payment Option will control the amount of
each payment, how often we make payments, and for how long we make payments.
Annuity Period -- the period of time during which we make annuity payments
under an Annuity Payment Option.
Annuity Unit -- a measuring unit used to calculate the amount of Annuity
payments.
Beneficiary -- the person who will receive any proceeds due under a Contract
following the death of a Contract Owner or the Annuitant.
Code -- the Internal Revenue Code of 1986, as amended.
Contingent Beneficiary -- a person you designate to receive any proceeds due
under a Contract following the death of a Contract Owner or an Annuitant, if
the Beneficiary has died but the Contingent Beneficiary is alive when the
proceeds become payable.
Contract -- an individual annuity Contract offered by this Prospectus.
4
<PAGE>
Contract Owner -- the owner of the Contract, who may be the Annuitant or some
other person or entity.
Division -- one of the several different investment options into which Separate
Account A is divided. Each Division invests in shares of a Fund.
Fixed Annuity Payments -- annuity payments that are fixed in amount and do not
vary with the investment experience of any Division of Separate Account A.
Fund -- a separate portfolio of American General Series Portfolio Company.
Home Office -- our office at the following address and phone number: American
General Life Insurance Company, Annuity Administration Department, 2727-A Allen
Parkway, Houston, Texas 77019-2191; Mailing address -- P.O. Box 1401, Houston,
Texas 77251-1401; 1-800-247-6584 or 713-831-3505.
Investment Company Act of 1940 ("1940 Act") -- a federal law governing the
operations of investment companies such as the Funds and the Separate Account.
Non-Qualified -- not eligible for the kind of federal income tax treatment that
occurs with retirement plans allowed by Sections 401, 403, 408 or 408A 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.
Qualified -- eligible for the kind of federal income tax treatment that occurs
with retirement plans allowed by Sections 401, 403, 408 or 408A of the Code.
Separate Account A -- the segregated asset account of AGL named Separate Account
A which receives and invests purchase payments under the Contracts.
Surrender Charge -- a charge for sales expenses that we may assess when you
surrender a Contract or receive payment of certain other amounts from a
Contract.
Valuation Date -- a day when we are open for business. However, a day is not a
Valuation Date if the Fund in which a Division invests does not calculate the
value of its shares on that day.
Valuation Period -- the period that starts at the close of regular trading on
the New York Stock Exchange on a Valuation Date and ends at the close of regular
trading on the New York Stock Exchange on the next Valuation Date.
Variable Account -- the account in which Accumulation Units acquired under the
Contract are kept in Separate Account A.
5
<PAGE>
Variable Account Value -- the sum of your account values in the Separate Account
Division. Your account value in a Separate Account Division equals the value of
a Division's Accumulation Unit multiplied by the number of Accumulation Units
you have in that Division.
Variable Annuity Payments -- annuity payments that vary in amount based on the
investment earnings and losses of one or more of the Divisions.
Withdrawal -- Withdrawing (redeeming) a portion or all of the Accumulated Value
of the Contract without surrendering the Contract.
FEE TABLE
The purpose of this Fee Table and the examples is to assist you in understanding
the various costs and expenses that you 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 the examples assume the
highest deductions possible under a Contract or participation. We may also
deduct amounts for state premium taxes or similar assessments, where applicable.
Contract Owner Transaction Expenses
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)/1/ $0.75
(Footnote on next page)
6
<PAGE>
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/ (.0567) (.2467) (.2467) (.2767) (.2667) .0000
Total Division
Annual Expenses
After Expense
Reimbursement .9450 .7550 .7550 .7250 .7350 1.0017
Fund Annual Expenses
(as a percentage of average net assets)
<CAPTION>
MidCap Asset Money Capital Government Stock
Index Allocation Market Conservation Securities Index
Fund Fund Fund Fund Fund Fund
---- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C>
Management Fees .3100 .5000 .5000 .5000 .5000 .2600
Other Expenses .0700 .0700 .0700 .1000 .0900 .0600
Total Fund
Annual Expenses/4/ .3800 .5700 .5700 .6000 .5900 .3200
Combined Total Annual
Expenses (Separate
Account A plus
applicable Fund) 1.3250 1.3250 1.3250 1.3250 1.3250 1.3217
</TABLE>
- ------------------------
/1/ The Maintenance Charge is assessed for each month after we receive the
first purchase payment and before the Annuity Commencement Date. (See
"Maintenance Charge.")
/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.
(Footnotes continue on next page)
7
<PAGE>
/3/ Contracts funded through Separate Account A are subject to a Contract
Expense Guarantee. (See "Contract Expense Guarantee.")
/4/ Expenses are restated to reflect current charges.
Example 1 -- Assuming a Participant makes a 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.
1 Year 3 Years 5 Years 10 Years
------ ------- ------- --------
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 $116 $147 $222
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.
1 Year 3 Years 5 Years 10 Years
------ ------- ------- --------
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 $203
The examples are not a representation of past or future expenses. Actual
expenses may be greater or less than those shown. The assumed 5% annual rate of
return is not an estimate or a guarantee of future investment performance.
8
<PAGE>
SYNOPSIS OF CONTRACT PROVISIONS
You should read this summary together with the other information in this
Prospectus.
The purpose of the Contract is to provide retirement benefits through
. the investment of Periodic Payments, and
. the application of Accumulated Values to provide Fixed or Variable Annuity
Payments.
General Description
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, and
. 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.")
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 before 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 592,
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, you should be aware that certain withdrawal amounts
may be subject to a 10% penalty tax under the Code. (See "Federal Income Tax
Matters.")
9
<PAGE>
Periodic Payments
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
your Contract's anniversary date by written notice to us at our Annuity
Administration Department. No Periodic Payment may be less than $10. Periodic
Payments may be increased to, but not 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 charges, Withdrawals, and
transfers of funds for the purchase of a fixed annuity.
Purchase Payment Accumulation
Purchase payments will accumulate on a variable basis until the Annuity
Commencement Date. Some Contracts also permit accumulation on a fixed basis.
For variable accumulation, you may allocate part or all of your Variable Account
to one of the six available Divisions of Separate Account A. Each Division
invests solely in shares of one of six Funds of Portfolio Company. (See
"Portfolio Company.") The value of accumulated purchase payments allocated to a
Division increases or decreases, as the value of the investments in a Fund's
shares increases or decreases, subject to reduction by charges and deductions.
(See "Variable Account Value.") AGL places purchase payments allocated to the
fixed accumulation option in its general account.
Fixed and Variable Annuity Payments
You may elect to receive Fixed or Variable Annuity Payments. Fixed Annuity
Payments are periodic payments from AGL in a fixed amount guaranteed by AGL.
The amount of the payments will depend on the Annuity Payment Option chosen, the
age and, in some cases, the gender of the Annuitant, and the total amount of
Account Value applied to the fixed Annuity Payment Option.
Variable Annuity Payments are similar to Fixed Annuity Payments, except that the
amount of each periodic payment from AGL will vary reflecting the net investment
return of the Division or Divisions you selected under your Variable Annuity
Payment Option. The payment for a given month will exceed the previous month's
payment if the net investment return for a given month exceeds the assumed
interest rate used in the Contract's annuity tables. The monthly payment will
be less than the previous payment if the net investment return for a month is
less than the assumed interest rate. The assumed interest rate used in the
Contract's annuity tables is 3.5%. (See "Annuity Period and Annuity Payment
Options.") The Contracts provide a life Annuity with 120 monthly
10
<PAGE>
payments guaranteed ("Basic Annuity") starting on a selected Annuity
Commencement Date. In place of the Basic Annuity, various settlement options are
available. (See "Annuity Period and Payment Options.")
Changes in Allocations Among Divisions and Fixed Accumulation
Before the Annuity Commencement Date, you may change your allocation of future
purchase payments to another Division or a fixed accumulation option, without
charge.
In addition, you may once every 90 days reallocate your Accumulated Value to
another Division before the Annuity Commencement Date.
Surrenders, Withdrawals and Cancellations
You may make a total surrender of or partial withdrawal from your Contract at
any time before the Annuity Commencement Date by written request to us. A
surrender or partial withdrawal may require you to pay a Surrender Charge, and
some surrenders and partial withdrawals may require you to pay tax penalties.
(See "Surrenders.")
You may cancel your Contract by delivering it or mailing it with a written
cancellation request to our Home Office or to your sales representative, before
the close of business on the 10th day after you receive the Contract. In some
states, the Contract provides for a 20 or 30-day period.
We will refund to you, in most states, the sum of:
. your Account Value, and
. any premium taxes that have been deducted.
Some states require us to refund the sum of your purchase payments only if it is
larger than the amount just described. Other states allow us to refund only the
sum of your purchase payments.
Death Proceeds
If the Annuitant or Contract Owner dies before the Annuity Commencement Date,
we will pay a benefit to the Beneficiary. (See "Death Proceeds Before the
Annuity Commencement Date.")
Limitations Imposed by Retirement Plans and Employers
An employer or trustee who is the Contract Owner under a retirement plan may
limit certain rights you would otherwise have under a Contract. These
limitations may restrict total and partial withdrawals, the amount or timing of
purchase payments, the start of annuity payments, and the type of annuity
options that you may select. You should familiarize yourself with the
provisions of any
11
<PAGE>
retirement plan in which a Contract is used. We are not responsible for
monitoring or assuring compliance with the provisions of any retirement plan.
Communications to Us
You should include, in communications to us, your Contract number, your name,
and, if different, the Annuitant's name. You may direct communications to the
addresses and phone numbers on the first page of this Prospectus.
Unless the Prospectus states differently, we will consider purchase payments or
other communications to be received at our Home Office on the date we actually
receive them, if they are in proper form. However, we will consider purchase
payments to be received on the next Valuation Date if we receive them (1) after
the close of regular trading on The New York Stock Exchange or (2) on a date
that is not a Valuation Date.
12
<PAGE>
SELECTED ACCUMULATION UNIT DATA (unaudited)
The following tables show the Accumulation Unit Values and the Accumulation
Units Outstanding for the Divisions of Separate Account A for each of the
last ten fiscal years:
A. Accumulation Unit Values
<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, 1990 $ 0.9126050 $ 1.0505840 $0.9733880/8/ $ 1.1056810 $ 1.0965370 $ 7.3784390
Accumulation Unit
Values
December 31, 1991 $ 1.1056860 $ 1.2698210 N/A $ 1.1593620 $ 1.1190530/9/ $ 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
</TABLE>
(Footnotes are on page 15)
13
<PAGE>
<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
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 Unit
Values
December 31, 1998 $ 2.952069 $ 2.600638 $ 1.185152 $ 1.011450 $ 1.591685 $ 27.507790
Accumulation Unit
Values
December 31, 1999 $ 3.348223 $ 2.883696 $ 1.185152 $ 1.024631 $ 1.527152 $ 32.838548
</TABLE>
B. Accumulation Units Outstanding
<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 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
</TABLE>
(Footnotes are on page 15)
14
<PAGE>
<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 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
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
Accumulation Units
Outstanding
December 31, 1998 10,460.901 40,499.767 None None 923.091 2,050,512.154
Accumulation Units
Outstanding
December 31, 1999 10,041.432 40,486.495 None None 917.284 1,853,134.081
</TABLE>
/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 before
October 1, 1991 reflect investment performance before 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).
(Footnotes continued page 16)
15
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/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 December 26, 1990, the date on which all
Accumulation Units were transferred from the Capital Conservation Division.
/9/ Accumulation Unit Value as of July 8, 1991, the date on which all
Accumulation Units were transferred from the Government Securities
Division.
FINANCIAL INFORMATION
The financial statements of AGL appear in the Statement. Please see the first
page of this Prospectus for information on how to obtain a copy of the
Statement. You should consider the financial statements of AGL only as bearing
on the ability of AGL to meet its contractual obligations under the Contracts.
The financial statements do not bear on the investment performance of the
Separate Account. (See "Contents of Statement of Additional Information.")
The financial statements of Separate Account A also appear in the Statement.
They provide financial information about the Divisions which invest in the Funds
of the Portfolio Company. (See "Contents of Statement of Additional
Information.")
AGL
AGL, the successor to Cal-Western, is a stock life insurance company organized
under the laws of the State of Texas, which is a successor in interest to a
company originally organized under the laws of the State of Delaware in 1917.
AGL is an indirect, wholly-owned subsidiary of American General Corporation, a
diversified financial services holding company engaged primarily in the
insurance business. American General Financial Group is the marketing name for
American General Corporation and its subsidiaries. The commitments under the
Contracts are AGL's, and American General Corporation has no legal obligation to
back those commitments.
Following the merger with Cal-Western, 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.
SEPARATE ACCOUNT A
Separate Account A was originally established in 1966 under California law. The
Separate Account has six Divisions. The Separate Account is registered with the
SEC as a unit investment trust under the 1940 Act.
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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. 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.
Each Division of the Separate Account is part of AGL's general business. The
assets of Separate Account A belong to AGL. Under Texas law 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. These assets
will be held exclusively to meet AGL's obligations under variable annuity
contracts. Furthermore, AGL credits or charges the Separate Account with the
income, gains, and losses from the Separate Account's assets, whether or not
realized, without regard to other income, gains, or losses of AGL.
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, 1999, Portfolio Company had $13.5 billion 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
our Annuity Administration Department. Portfolio Company, as of October 1,
1999, consists of 13 Funds. Shares of Portfolio Company are currently sold to
Separate Account A, AGL's Separate Account B, AGL's Separate Account D, AGL's
Separate Account VL-R, The United States Life Insurance Company in the City of
New York's ("AUSL") Separate Account USL VL-R, USL's Separate Account USL VA-R,
American General Annuity Insurance Company's A.G. Separate Account A and The
Variable Annuity Life Insurance Company ("AVALIC") 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
American General Corporation may own shares of certain funds.
We do not foresee any disadvantage to you arising out of these arrangements.
Nevertheless, differences in treatment under tax and other laws, as well as
other considerations, could cause the interests of various owners to conflict.
For example, violation of the federal tax laws by one separate account investing
in Portfolio Company could cause the contracts funded through another separate
account to lose their tax deferred status. Such a result might require us to
take remedial action. A separate account may have to withdraw its participation
in Portfolio Company if a material irreconcilable conflict arises among separate
accounts. In such event, Portfolio Company may have to liquidate portfolio
securities at a loss to pay for a
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separate account's redemption of Portfolio Company shares. At the same time,
Portfolio Company, the Funds' Board of Directors and we will monitor events for
any material irreconcilable conflicts that may possibly arise and determine what
action, if any, to take to remedy or eliminate the conflict.
We automatically reinvest any dividends or capital gain distributions that we
receive on shares of the Funds held under Contracts. We reinvest at the Funds'
net asset value on the date payable. Dividends and distributions will reduce
the net asset value of each share of the corresponding Fund and increase the
number of shares outstanding of the Fund by an equivalent value. However, these
dividends and distributions do not change your Accumulated Value.
Portfolio Company's shares are purchased and redeemed by American General
Distributors, Inc., principal underwriter for shares of Portfolio Company, at
net asset value without sales or redemption charges.
Overall responsibility for managing the affairs of Portfolio Company and
overseeing its investment adviser rests with its elected board of directors.
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, 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."
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. You may obtain additional copies
of the current prospectus of Portfolio Company by contacting our Annuity
Administration Department. You should read the prospectus carefully before
investing.
VOTING PRIVILEGES
The following people may give us voting instructions for Fund shares held in the
Separate Account Divisions attributable to their Contract:
. You, as the Contract Owner, before the Annuity Commencement Date, and
. The Annuitant or other payee, during the Annuity Period.
We will vote according to such instructions at meetings of shareholders of the
Fund.
We will determine who can give voting instructions and the number of votes for
which they may give directions as of the record date for a meeting. We will
calculate the number of votes in fractions. We will calculate the number of
votes for any Fund as follows:
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. For each Contract Owner before the Annuity Commencement Date, we will
divide (1) the Contract Owner's Variable Account Value invested in the
corresponding Division by (2) the net asset value of one share of that
Fund.
. For each Annuitant or payee during the Annuity Period, we will divide (1)
our liability for future Variable Annuity Payments to the Annuitant or
payee by (2) the value of an Annuity Unit. We will calculate our
liability for future Variable Annuity Payments based on the mortality
assumptions and the assumed interest rate that we use in determining the
number of Annuity Units under a Contract and the value of an Annuity
Unit.
We will vote all shares of each Fund owned by the Separate Account as follows:
. Shares for which we receive instructions, in accordance with those
instructions, and
. Shares for which we receive no instructions, including any shares we own
on our own behalf, in the same proportion as the shares for which we
receive instructions.
Shares of each Fund may be owned by separate accounts of insurance companies
other than us. We understand that each Fund will see that all insurance
companies vote shares uniformly.
We believe that our voting instruction procedures comply with current federal
securities law requirements. However, we reserve the right to modify these
procedures to conform with legal requirements and interpretations that are put
in effect or modified from time to time.
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.
Portfolio Company is not required to hold regular annual shareholder meetings to
elect members of the board of directors. 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 be solicited by
means of proxy materials.
CONTRACT ISSUANCE AND PURCHASE PAYMENTS
General Description
Your application to purchase a Contract must be on a written application that we
provide and that you sign. When a purchase payment accompanies an application
to purchase a Contract and you have properly completed the application, we will
either
. process the application, credit the purchase payment, and issue the
Contract, or
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. reject the application and return the purchase payment within two
Valuation Dates after receipt of the application at our Annuity
Administration Department.
If you have not completed the application or have not completed it correctly, we
will request additional documents or information within five Valuation Dates
after receipt of the application at our Annuity Administration Department.
If we have not received a correctly completed application within five Valuation
Dates after receipt of the purchase payment at our Annuity Administration
Department, we will return the purchase payment immediately. However, you may
specifically consent to our retaining the purchase payment until you complete
the application. In that case, we will credit the initial purchase payment as
of the end of the Valuation Period in which we receive, at our Annuity
Administration Department, the last information required to process the
application.
We will credit subsequent purchase payments as of the end of the Valuation
Period in which we receive them and any required written information at our
Annuity Administration Department.
We reserve the right to reject any application or purchase payment for any
reason.
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.
Payments
You should make checks for subsequent purchase payments payable to American
General Life Insurance Company and forward them directly to our Annuity
Administration Department. We also accept purchase payments by wire or by
exchange from another insurance company. You may obtain further information
about how to make purchase payments by either of these methods from your sales
representative or from us at the addresses and telephone numbers on the first
page of this Prospectus.
Your purchase payments are allocated to a Division of the Separate Account or
fixed accumulation option (if available) as of the date we credit the purchase
payments to your Contract.
The Contracts described herein generally may not be assigned by the Contract
Owner.
VARIABLE ACCOUNT VALUE
Before the Annuity Commencement Date, we determine your Variable Account Value
under a Contract as discussed below.
As of any Valuation Date before the Annuity Commencement Date
. Your Variable Account Value is your Accumulated Value in the Division of
the Separate Account in which you invest.
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. Your Variable Account Value in a Division is the product of the number
of your Accumulation Units in that Division multiplied by the value of
one such Accumulation Unit as of that Valuation Date.
There is no guaranteed minimum Variable Account Value. To the extent that your
Contract value is allocated to the Separate Account, you bear the entire
investment risk.
We credit Accumulation Units in a Division to you when you allocate purchase
payments or transfer your Accumulated Value to that Division. Similarly, we
redeem Accumulation Units when you transfer or withdraw amounts from a Division
or when we pay certain charges under the Contract. We determine the value of
these Accumulation Units at the end of the Valuation Date on which we make the
credit or charge.
The value of an Accumulation Unit for a Division on any Valuation Date is equal
to the previous value of that Division's Accumulation Unit multiplied by that
Division's net investment factor for the Valuation Period ending on that
Valuation Date.
The net investment factor for a Division is determined by dividing (1) the net
asset value per share of the Fund shares held by the Division, determined at the
end of the current Valuation Date, plus the per share amount of any dividend or
capital gains distribution made for the Fund shares held by the Division during
the current Valuation Date, by (2) the net asset value per share of the Fund
shares held in the Division determined at the end of the previous Valuation
Period. We then subtract from that result a factor representing the maintenance
charge.
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
. retirement;
. death; or
. termination of employment in all Texas institutions of higher education.
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TRANSFER AND SURRENDER OF CONTRACT
OWNER VARIABLE ACCOUNT VALUE
Transfers
You can transfer the entire amount of your Accumulated Value once every 90 days
and before the Annuity Commencement Date. You must transfer the entire amount
from the Division in which you are fully invested to one of the other Divisions
and allocate new purchase payments to the same Division or to any available
fixed accumulation option.
Market timing. The Contracts are not designed for professional market timing
organizations or other entities using programmed and frequent transfers. We
reserve the right at any time and without prior notice to any party to
terminate, suspend, or modify our policies or procedures regarding telephone
requests or to stop permitting telephone requests altogether.
Surrenders
At any time before the Annuity Commencement Date and while the Annuitant is
still living, the Contract Owner may make a full surrender from a Contract, or
make a partial withdrawal from a Contract.
We will pay you the following upon full surrender:
. your Accumulated Value at the end of the Valuation Period in which we
receive a written surrender request,
. minus any applicable Surrender Charge.
The Contract Owner may withdraw a portion or surrender all of the value of the
Variable Account at any time before 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 "Surrender 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 our Annuity Administration Department. If you
withdraw the entire value of the Variable Account and no payments are made for
two years following withdrawal, AGL may consider the Contract terminated. You
may be subject to penalties for premature withdrawals. Withdrawals 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.")
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ANNUITY PERIOD AND ANNUITY PAYMENT OPTIONS
Annuity Commencement Date
The Annuity Commencement Date may be any day of any month up to the Annuitant's
75th birthday. You may select the Annuity Commencement Date in the Contract
application. You may also change a previously selected date any time before
that date by submitting a written request 30 days in advance, subject to our
approval.
See "Federal Income Tax Matters" for a discussion of the penalties that may
result from distributions before the Annuitant's reaching age 59 1/2 under any
Contract or after April 1 of the year following the calendar year in which the
Annuitant reaches age 70 1/2 under certain Qualified Contracts.
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, we reserve 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 us at our 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) 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.
Annuity Payment Options
An AGL Annuity Contract or the following Annuity Payment 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 Annuity Payment Options. The Contract Owner also has the right to name
himself as Payee.
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Option 1 - Life Annuity - We make annuity payments monthly during the lifetime
of the Annuitant. These payments stop with the last payment due before the
death of the Annuitant. We do not guarantee a minimum number of payments under
this arrangement. For example, the Annuitant or other payee might receive only
one annuity payment if the Annuitant dies before the second annuity payment.
Option 2 - Life Annuity with 60, 120, 180, or 240 Monthly Payments Certain - We
make annuity payments monthly during the lifetime of an Annuitant. In addition,
we guarantee that the Beneficiary will receive monthly payments for the
remainder of the period certain if the Annuitant dies during that period.
Option 3 - Joint and Last Survivor Life Annuity - We make annuity payments
monthly during the lifetime of the Annuitant and another payee and during the
lifetime of the survivor of the two. We stop making payments with the last
payment before the death of the survivor. We do not guarantee a minimum number
of payments under this arrangement. For example, the Annuitant or other payee
might receive only one annuity payment if both die before the second annuity
payment. The election of this option is ineffective if either one dies before
the Annuity Commencement Date. In that case, the survivor becomes the sole
Annuitant, and we do not pay death proceeds because of the death of the other
Annuitant.
Option 4 - Payments for a Designated Period - We pay 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 5 - Payments of a Specific Dollar Amount - We make 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
us at our 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 6 - Interest Income - We pay 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,
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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 us at our 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 us at our 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."
Option 7 - Unit Refund Life Annuity - We make annuity payments 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 us at our Annuity Administration Department. The
result is paid as a lump sum.
The Code may treat the election of Option 4, Option 5, or Option 6 in the same
manner as a surrender of the total account. For tax consequences of such
treatment, see "Federal Income Tax Matters." In addition, the Code may not give
tax-deferred treatment to subsequent earnings.
Under Settlement Options 1, 2, 3, 4 and 7, 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, 2, 3 and 7, payment amounts
illustrated vary with the sex of the Annuitant. Amounts under any of the first
four Settlement Options and Option 7 vary with the adjusted age of the
Annuitant, determined using formulas provided by the Contracts.
Under Settlement Options 5 and 6, the amount of the first payment is prescribed
by the Contracts. Under Settlement Option 6, however, we may increase the net
investment rate above the guaranteed rate.
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Under all of the Settlement Options, we base 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, we 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,
2, 3 4 and 7 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.)
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 4, 5 and 6, 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, we can change the frequency of payments to intervals
which result in payments of at least $20.
DEATH PROCEEDS
Death Proceeds Before the Annuity Commencement Date
The death proceeds described below are payable to the Beneficiary under the
Contract if the Participant dies before the Annuity Commencement Date.
The death proceeds, before deduction of any applicable premium taxes and other
applicable taxes, will equal the Accumulated Value as of the end of the
Valuation Period in which we receive, at our Annuity Administration Department,
proof of death and the written request as to the manner of payment.
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The death proceeds become payable to the Beneficiary when we receive--
. proof of the Participant's death, and
. a written request from the Beneficiary specifying the manner of payment.
If the Participant has not already done so, the Beneficiary may, within 60 days
after the date the death proceeds become payable, elect to receive the death
proceeds as (1) a single sum or (2) in the form of one of the Annuity Payment
Options provided in the Contract. (See "Annuity Payment Options.") If we do
not receive a request specifying the manner of payment, we will make a single
sum payment, based on values we determine at that time.
If the Participant dies before the Annuity Commencement Date, we will distribute
all amounts payable under the Contract in accordance with the following rules:
. We will distribute all amounts--
(a) within five years of the date of death, or
(b) if the Beneficiary elects, 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, the spouse may
elect to delay distributions under the Contract until the date the
Participant would have reached age 70 1/2.
Failure to satisfy the requirements described in this section may result in
serious adverse tax consequences.
Death Proceeds After the Annuity Commencement Date
If the Participant dies on or after the Annuity Commencement Date, the amounts
payable to the Beneficiary or other properly designated payee are any continuing
payments under the Annuity Payment Option in effect. (See "Annuity Payment
Options.") In such case, the payee will:
. have all the remaining rights and powers under a Contract, and
. be subject to all the terms and conditions of the Contract.
If the payee dies after the Annuity Commencement Date, we will distribute any
remaining amounts payable under the terms of the Annuity Payment Option at least
as rapidly as under the method of distribution in effect when the payee dies.
Failure to satisfy requirements described in this section may result in serious
adverse tax consequences.
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Proof of Death
We accept the following as proof of any person's death:
. a certified death certificate;
. 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 us.
Once we have paid the death proceeds, the Contract ends, and our obligations are
complete.
CHARGES UNDER THE CONTRACT
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. 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
are not subject to change. Schedule A, below, shows the deduction amounts used
with Qualified Plans which were formerly referred to as H.R. 10 plans. Schedule
B, below, shows 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.
SCHEDULE A
Total Sales Administrative
Aggregate Deductions Expenses Expenses
Amount of Payment % % %
- ----------------- ---------- --------- --------------
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
28
<PAGE>
SCHEDULE B
Total Sales Administrative
Aggregate Deductions Expenses Expenses
Amount of Payment % % %
- ----------------- ---------- -------- --------
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
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 "Premium Taxes" below.)
The deduction for sales expenses reimburses us for part of our expenses related
to distributing the Contracts. We believe, 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 our 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:
. giving investment advice to AGL
. offering for sale Contracts funded through Separate Account A or other
AGL accounts, and
. 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
29
<PAGE>
issued by AGL provide for transfer of cash value into Separate Account A without
the deduction for administrative and sales expenses.
Premium Taxes
When applicable, we will deduct premium taxes imposed by certain states. We may
deduct such amount either at the time the tax is imposed or later. We may
deduct the amount as follows:
. from purchase payment(s) when received;
. from the Contract Owner's Account Value at the time annuity payments
Begin;
. from the amount of any partial withdrawal; or
. from proceeds payable upon termination of the Contract for any other
reason, including death of the Contract Owner or Annuitant, or surrender
of the Contract.
If premium tax is paid, AGL may reimburse itself for the tax when making the
deduction under the second, third, and fourth items on the list immediately
above, by multiplying the sum of purchase payments being withdrawn by the
applicable premium tax percentage.
Applicable premium tax rates depend upon the Contract Owner's then-current place
of residence. Applicable rates currently range from 0% to 3.5%. The rates are
subject to change by legislation, administrative interpretations, or judicial
acts. We will not make a profit on this charge.
Surrender Charge
The Surrender Charge reimburses us for part of our expenses in distributing the
Contract. At any time while a Contract is in force, before the Annuity
Commencement Date or the death of the Annuitant, we will, upon written
application by you, allow you to withdraw (redeem) a part or all of the
Accumulated Value of the Contract less withdrawal charges and 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 before
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 at the same
time, the applicable withdrawal charges will be prorated between the two
accounts based on the amount withdrawn from
30
<PAGE>
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 Date next succeeding the time of receipt of the
request, equals the amount withdrawn plus withdrawal charges and any applicable
premium taxes.
Maintenance Charge
A maintenance charge of $.75 per month is assessed for each month after we
receive the first Periodic Payment and before 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 us for the
costs of maintaining the Contract and it is not expected to exceed such
maintenance costs.
Charge to the Separate Account
We deduct from Separate Account assets a daily charge at an annualized rate of
1.0017% of the average daily net asset value of the Separate Account
attributable to the Contracts. This charge (1) offsets the Sales and
Administrative Expenses discussed above and (2) compensates us for assuming
mortality and expense risks under the Contracts. The 1.0017% charge divides
into .1017% for administrative expenses and .90% for the assumption of mortality
and expense risks.
We do not expect to earn a profit on that portion of the charge that is for
administrative expenses. However, we do expect to derive a profit from the
portion that is for the assumption of mortality and expense risks. There is no
necessary relationship between the amount of administrative charges deducted for
a given Contract and the amount of expenses actually attributable to that
Contract.
In assuming the mortality risk, we incur the risks that
. our actuarial estimate of mortality rates may prove erroneous,
. Annuitants will live longer than expected, and
. more Contract Owners or Annuitants than expected will die at a time
when the death benefit we guarantee is higher than the net surrender
value of their interests in the Contracts.
In assuming the expense risk, we incur the risk that the revenues from the
expense charges under the Contracts (charges that we guarantee will not
increase) will not cover our expense of administering the Contracts.
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 before the effective time of the Reorganization. This amendment
guarantees that:
31
<PAGE>
. 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"). 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, before 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.
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. We 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, we
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 "Investment
Management" in Portfolio Company's prospectus. (See also "Fee Table.")
32
<PAGE>
OTHER ASPECTS OF THE CONTRACTS
Only an officer of AGL can agree to change or waive the provisions of any
Contract. The Contracts are non-participating, which means they are not
entitled to share in any dividends, profits or surplus of AGL.
Contract Owners, Participants, Annuitants, and Beneficiaries; Assignments
You, as the Contract Owner or the Participant, will be the same as the
Annuitant.
You choose the Beneficiary and any Contingent Beneficiary when you purchase a
Contract. You may change a Beneficiary or Contingent Beneficiary before the
Annuity Commencement Date while the Annuitant is still alive. The payee may
make this change after the Annuity Commencement Date.
We will make any designation of a new Beneficiary or Contingent Beneficiary
effective as of the date it is signed. However, the change in designation will
not affect any payments we make or action we take before we receive written
request. We also need written consent of any irrevocably-named Beneficiary or
Contingent Beneficiary before we make a change. Under certain retirement
programs, the law may require spousal consent to name or change a Beneficiary to
a person other than the spouse. We are not responsible for the validity of any
designation of a Beneficiary or Contingent Beneficiary.
If the Beneficiary or Contingent Beneficiary is not living at the time we are to
make any payment, you as the Contract Owner will be the Beneficiary. If you are
not then living, your estate will be the Beneficiary.
Contract Owners and other payees may assign their rights under Qualified
Contracts only in certain narrow circumstances referred to in the Contracts.
Contract Owners and other payees may assign their rights under Non-Qualified
Contracts, including their ownership rights. We take no responsibility for the
validity of any assignment. Contract Owners must make a change in ownership
rights in Writing and send a copy to our Home Office. We will make the change
effective on the date it was made. However, we are not bound by a change until
the date we record it. The rights under a Contract are subject to any
assignment of record at our Home Office. An assignment or pledge of a Contract
may have adverse tax consequences. (See "Federal Income Tax Matters.")
Reports
We will mail to Contract Owners (or anyone receiving payments following the
Annuity Commencement Date), any reports and communications required by
applicable law. We will mail to the last known address of record. You should
give us prompt written notice of any address change.
Rights Reserved by Us
Upon notice to the Contract Owner, we may modify a Contract to the extent
necessary to:
33
<PAGE>
. transfer any assets in any Division to another Division, or to one or
more separate accounts;
. add, combine or remove Divisions in the Separate Account, or combine
the Separate Account with another separate account;
. 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; or
. eliminate the shares of any fund of any open-end management company
held by a Division and substitute shares of another fund of such open-
end management investment company, or of any other open-end management
investment company.
When required by law, we will obtain (1) your approval of changes and (2) the
approval of any appropriate regulatory authority.
In addition, upon notice to the Contract Owners, we may waive certain charges
and restrictions under the Contract.
Payment and Deferment
We will normally pay amounts surrendered or withdrawn from a Contract within
seven calendar days after the end of the Valuation Period in which we receive
written surrender or withdrawal request at our Home Office. A Beneficiary may
request the manner of payment of death proceeds within 60 days after the death
proceeds become payable. If we do not receive a written request specifying the
manner of payment, we will pay the death benefit as a single sum, normally
within seven calendar days after the end of the Valuation Period that contains
the last day of the 60 day period. Also, we reserve the right to defer payment
of that portion of your Account Value that is attributable to a purchase payment
made by check for a reasonable period of time (not to exceed 15 days) to allow
the check to clear the banking system.
Finally, we reserve the right to defer payment of any surrender, annuity
payment, or death proceeds out of the Variable Account Value if:
. the New York Stock Exchange is closed other than customary weekend and
holiday closings, or trading on the New York Stock Exchange is
restricted as determined by the SEC;
. the SEC determines that an emergency exists, as a result of which
disposal of securities held in a Division is not reasonably
practicable or it is not reasonably practicable to fairly determine
the Variable Account Value; or
. the SEC by order permits the delay for the protection of Contract
Owners.
34
<PAGE>
We may also postpone transfers and allocations of Account Value among the
Divisions under these circumstances.
FEDERAL INCOME TAX MATTERS
General
We cannot comment on all of the federal income tax consequences associated with
the Contracts. Federal income tax law is complex. Its application to a
particular person may vary according to facts peculiar to the person.
Consequently, we do not intend for you to take this discussion as tax advice.
You should consult with a competent tax adviser before purchasing a Contract.
We base this discussion on our understanding of the law, regulations and
interpretations existing on the date of this Prospectus. Congress, in the past,
has enacted legislation changing the tax treatment of annuities in both the
Qualified and the Non-Qualified markets and may do so again in the future. The
Treasury Department may issue new or amended regulations or other
interpretations of existing tax law. The courts may also interpret the tax law
in ways that affect the tax treatment of annuities. Any such change could have
a retroactive effect. We suggest that you consult your legal or tax adviser on
these issues.
The discussion does not address federal estate and gift tax, or social security
tax, or any state or local tax consequences associated with the Contracts.
Non-Qualified Contracts
Purchase Payments. Purchasers of a Contract that does not qualify for special
- -----------------
tax treatment and is "Non-Qualified" may not deduct from their gross income the
amount of purchase payments made.
Tax Deferral Before Annuity Commencement Date. Owners who are natural persons
- ---------------------------------------------
are not taxed currently on (1) increases in their Account Value resulting from
interest earned in the Fixed Account, or (2) the investment experience of the
Separate Account so long as the Separate Account complies with certain
diversification requirements. These requirements mean that the Separate Account
must invest in Series that are "adequately diversified" in accordance with
Treasury Department regulations. We do not control the Series, but we have
received commitments from the investment advisers to the Series to use their
best efforts to operate the Series in compliance with these diversification
requirements. A Contract investing in a Series that failed to meet the
diversification requirements would subject Owners to current taxation of income
in the Contract for the period of such diversification failure (and any
subsequent period). Income means the excess of the Account Value over the
Owner's investment in the Contract (discussed below).
35
<PAGE>
Control over allocation of values among different investment alternatives may
cause Owners or persons receiving annuity payments to be treated as the owners
of the Separate Account's assets for tax purposes. However, current regulations
do not provide guidance as to how to avoid this result. We reserve the right to
amend the Contracts in any way necessary to avoid this result. The Treasury
Department has stated that it may establish standards through regulations or
rulings. These standards may apply only prospectively, although they could
apply retroactively if the Treasury Department considers the standards not to
reflect a new position.
Owners that are not natural persons -- that is, Owners such as corporations --
are taxed currently on annual increases in their Account Value, unless an
exception applies. Exceptions apply for, among other things, Owners that are
not natural persons but that hold a Contract as an agent for a natural person.
Taxation of Annuity Payments. Part of each annuity payment received after the
- ----------------------------
Annuity Commencement Date is excludible from gross income through the use of an
exclusion ratio.
In the case of Fixed Annuity Payments, the excludible portion of each payment is
found by multiplying:
. the amount paid, by
. the ratio of the investment in the Contract (discussed below) to the
expected return under the Fixed Annuity Payment Option.
In the case of Variable Annuity Payments, the excludible portion of each payment
is the investment in the Contract divided by the number of expected payments.
In both cases, the remaining portion of each annuity payment, and all payments
made after the investment in the Contract has been reduced to zero, are included
in the payee's income. Should annuity payments stop on account of the death of
the Annuitant before the investment in the Contract has been fully paid out, the
payee is allowed a deduction for the unpaid amount. If the payee is the
Annuitant, the deduction is taken on the final tax return. If the payee is a
Beneficiary, that Beneficiary may receive the balance of the total investment as
payments are made or on the Beneficiary's final tax return. An Owner's
investment in the Contract" is the amount equal to the portion of purchase
payments made by or on behalf of the Owner that have not been excluded or
deducted from the individual's gross income, less amounts previously received
under the Contract that were not included in income.
Taxation of Partial Withdrawals and Total Surrenders. Partial withdrawals from
- ----------------------------------------------------
a Contract are includible in income to the extent that the Owner's Account Value
exceeds the investment in the Contract. In the event you surrender a Contract
in its entirety, the amount of your investment in the Contract is excludible
from income, and any amount you receive in excess of your investment in the
Contract is includible in income. All annuity contracts or contracts we issue
to the same Owner during any calendar year are aggregated for purposes of
determining the amount of any distribution that is includible in gross income.
36
<PAGE>
Penalty Tax on Premature Distributions. In the case of such a distribution,
- --------------------------------------
there may be imposed a federal tax penalty equal to 10% of the amount treated as
taxable income. The penalty tax will not apply, however, to distributions:
. made on or after the recipient reaches age 592,
. made on account of the recipient's becoming disabled,
. that are made after the death of the Owner before the Annuity
Commencement Date or of the payee after the Annuity Commencement Date
(or if such person is not a natural person, that are made after the
death of the primary Annuitant, as defined in the Code), or
. that are part of a series of substantially equal periodic payments
made at least annually over the life (or life expectancy) of the
Annuitant or the joint life (or joint life expectancies) of the
Annuitant and the Beneficiary, provided such payments are made for a
minimum of 5 years and the distribution method is not changed before
the recipient reaches age 592 (except in the case of death or
disability).
Premature distributions may result from an early Annuity Commencement Date, an
early surrender, partial withdrawal from or assignment of a Contract, or the
early death of an Annuitant, unless the third clause listed above applies.
Payment of Death Proceeds. Special rules apply to the distribution of any death
- -------------------------
proceeds payable under the Contract. (See "Death Proceeds.")
Assignments and Loans. An assignment, loan, or pledge under a Non-Qualified
- ---------------------
Contract is taxed in the same manner as a partial withdrawal, as described
above. Repayment of a loan or release of an assignment or pledge is treated as
a new purchase payment.
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 made to 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 $31,000 for 1999 may fully deduct their IRA purchase payments. Those who
have adjusted gross income in excess of $41,000 for 1999 will not be able to
deduct purchase payments. For those with adjusted gross income in the range
between $31,000 and $41,000 in 1999, the deduction decreases to zero, based on
the amount of income. Beginning in 2000, that income range will increase, as
follows:
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<PAGE>
-----------------------------------------------------------------------------
2000 2001 2002 2003 2004 2005 and
thereafter
-----------------------------------------------------------------------------
$32,000 $33,000 $34,000 $40,000 $45,000 $50,000
to to to to to to
$42,000 $43,000 $44,000 $50,000 $55,000 $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 $51,000 and $61,000 in 1999, and in the case of
married individuals filing separately, with adjusted gross income between $0 and
$10,000 in 1999. (A husband and wife who file separate returns and live apart
at all times during the taxable year are not treated as married individuals.)
Beginning in 2000, 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:
<TABLE>
- ------------------------------------------------------------------------------------------------
2000 2001 2002 2003 2004 2005 2006 2007 and
thereafter
- ------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
$52,000 $53,000 $54,000 $60,000 $65,000 $70,000 $75,000 $ 80,000
to to to to to to to to
$62,000 $63,000 $64,000 $70,000 $75,000 $80,000 $85,000 $100,000
- -------------------------------------------------------------------------------------------------
</TABLE>
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 the individual, the adjusted gross 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
- ------------------
(1) a tax-qualified plan to an IRA or (2) from one IRA to another IRA if the
transfer meets certain conditions. All taxable distributions ("eligible
rollover distributions") from tax qualified plans are eligible to be rolled over
with the exception of:
. annuities paid over a life or life expectancy,
. installments for a period of ten years or more, and
. required minimum distributions under section 401(a)(9) of the Code.
Rollovers may be accomplished in two ways. First, we may pay an eligible
rollover distribution directly to an IRA (a "direct rollover"). Second, we may
pay the distribution directly to the Annuitant and then, within 60 days of
receipt, the Annuitant may roll the amount 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 recipients' income. If nondeductible
purchase payments have been made, a pro rata portion of such
38
<PAGE>
distributions may not be includible in income. A 10% penalty tax is imposed on
the amount includible in gross income from distributions that occur before the
Annuitant reaches age 59 1/2 and that are not made on account of death or
disability, with certain exceptions. These exceptions include:
. distributions that are part of a series of substantially equal
periodic payments made at least annually over the life (or life
expectancy) of the Annuitant or the joint lives (or joint life
expectancies) of the Annuitant and the Beneficiary; provided such
payments are made for a minimum of 5 years and the distribution method
is not changed before the recipient reaches age 59 1/2 (except in the
case of death or disability);
. distributions for medical expenses in excess of 7.5% of the
Annuitant's adjusted gross income without regard to whether the
Annuitant itemizes deductions on his or her tax return;
. distributions for health insurance premiums to an unemployed
individual who has received unemployment compensation for at least 12
consecutive weeks;
. distributions for qualified first-time home purchases for the
individual, a spouse, children, grandchildren, or ancestor of the
individual or the individual's spouse, subject to a $10,000 lifetime
maximum; and
. distributions for higher education expenses for the individual, a
spouse, children, or grandchildren.
Distributions of minimum amounts required by the Code must commence by April 1
of the calendar year following the calendar year in which the Annuitant reaches
age 70 1/2 or retires (whichever is later). 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 a penalty tax of 50%
of the amount by which the minimum distribution required exceeds the actual
distribution.
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 permitted contribution is phased out for adjusted gross income
between $95,000 and $110,000 in the case of single taxpayers, between $150,000
and $160,000 in the case of married taxpayers filing joint returns, and between
$0 and $10,000 in the case of married taxpayers filing separately. An overall
$2,000 annual limitation continues to apply to all of a taxpayer's IRA
contributions, including Roth 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. There are no similar limitations on
rollovers from a Roth IRA to another Roth IRA.
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<PAGE>
Qualified distributions from Roth IRAs are entirely tax-free. A qualified
distribution requires that (1) the individual has held the Roth IRA for at least
five years and (2) the distribution is made either after the individual reaches
age 59 1/2, on the individual's death or disability, or as qualified first-time
home purchase. Qualified Distributions for a qualified first-time home
purchase, are subject to a $10,000 lifetime maximum for the individual, a
spouse, child, grandchild, or ancestor of such individual or the individual's
spouse.
Simplified Employee Pension Plans
Eligible 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,
provided that total employer contributions do not exceed the lesser of 15% of an
employee's compensation or $30,000.
Simple Retirement Accounts
Eligible employers may establish an IRA plan known as a simple retirement
account ("SRA"), if they meet certain requirements. Under an SRA, the employer
contributes elective employee compensation deferrals up to a maximum of $7,000 a
year for 1999 to the employee's SRA. The employer must, in general, make a
fully vested matching contribution for employee deferrals up to a maximum of 3%
of compensation.
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. The
purchase payments are also excluded from the current income of the employee.
Distributions Before the Annuity Commencement Date. Purchase payments
- --------------------------------------------------
includible in an employee's taxable income (less any amounts previously received
that were not includible in the employee's taxable income) represent the
employee's "investment in the Contract." Amounts received before 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. 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, 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, for tax years beginning before December 31, 1999, in
the case of certain lump-sum distributions that are not rolled over to another
plan or IRA.
40
<PAGE>
A 10% penalty tax is imposed on the amount includible in gross income from
distributions that occur before the employee reaches age 59 1/2 and that are not
made on account of death or disability, with certain exceptions. These
exceptions include distributions that are:
. part of a series of substantially equal periodic payments made at
least annually 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, provided such payments are made for at least 5 years and
the distribution method is not changed before the recipient reaches
age 59 1/2 (except in the case of death or disability);
. made after the employee's separation from service on account of early
retirement after attaining age 55;
. made to pay for qualified higher education or first-time home buyer
expenses;
. made to an alternate payee pursuant to a qualified domestic relations
order, if the alternate payee is the spouse or former spouse of the
employee; or
. distributions for medical expenses in excess of 7.5% of the
Annuitant's adjusted gross income without regard to whether the
Annuitant itemizes deductions on his or her tax return; or
. distributions for health insurance premiums to an unemployed
individual who has received unemployment compensation for at least 12
consecutive weeks.
Annuity Payments. A portion of annuity payments received under Contracts for
- ----------------
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." The difference is that, here, the number of
expected payments is determined under a provision in the Code. Distributions of
minimum amounts required by the Code generally must commence by April 1 of the
calendar year following the calendar year in which the employee reaches age
70 1/2 (or retires, if later). Failure to comply with the minimum distribution
rules will result in 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.
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. To avoid current
taxation, these benefits must be subject to a substantial risk of forfeiture.
41
<PAGE>
These types of programs allow individuals to defer (1) receipt of up to 100% of
compensation that would otherwise be includible in income and (2) payment of
federal income taxes on the amounts.
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.
Purchase payments are not currently deductible by the employer until benefits
are included in the taxable income of the employee.
Taxation of Distributions. Amounts that an individual receives 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.
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.
In some cases, if you own more than one Qualified annuity contract, the
contracts may be considered together to determine whether the federal tax law
requirement for minimum distributions after age 70 1/2, or retirement in
appropriate circumstances, has been satisfied. You may rely on distributions
from another annuity contract to satisfy the minimum distribution requirement
under a Qualified Contract we issued. However, 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.
Taxes Payable by AGL and the Separate Account
AGL is taxed as a life insurance company under the Code. The operations of the
Separate Account are part of the total operations of AGL and are not taxed
separately. Under existing federal income tax laws, AGL is not taxed on
investment income derived by the Separate Account (including realized and
unrealized capital gains) with respect to the Contracts. AGL reserves the right
to allocate to the Contracts any federal, state or other tax liability that may
result in the future from maintenance of the Separate Account or the Contracts.
DISTRIBUTION ARRANGEMENTS
AGL offers the Contracts on a continuous basis. American General Securities
Incorporated ("AGSI") is the principal underwriter of the Contracts. AGSI is a
wholly-owned subsidiary of AGL. AGL, in turn, is an indirect, wholly-owned
subsidiary of American General Corporation, a diversified financial services
holding company engaged primarily in the insurance business. American General
Financial Group is the marketing name for American General Corporation and its
subsidiaries. AGSI's principal office is 2727 Allen Parkway, Houston, Texas
77019. AGSI was organized as a Texas corporation on March 8, 1983 and is a
registered broker-dealer under the Securities Exchange Act of 1934, as amended
("1934 Act") and is a member of the National Association of Securities Dealers,
42
<PAGE>
Inc. ("NASD"). AGSI is also the principal underwriter for AGL's Separate
Accounts D and VL-R, and Separate Accounts USL VL-R and USL VA-R of The United
States Life Insurance Company in the City of New York, which is an affiliate of
AGL. These separate accounts are registered investment companies.
SERVICES AGREEMENT
American General Life Companies ("AGLC") is party to a general services
agreement with AGL. AGLC, an affiliate of AGL, is a corporation incorporated in
Delaware on November 24, 1997. Its address is 2727-A Allen Parkway, Houston,
Texas 77019. Under this agreement, AGLC 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.
LEGAL MATTERS
We are not involved in any legal matter about the Separate Account that would be
considered material to the interests of Contract Owners. Steven A. Glover,
Senior Counsel of AGLC has passed upon the legality of the Contracts described
in this Prospectus.
YEAR 2000 CONSIDERATIONS
As of March 10, 2000, all of our ultimate parent, American General Corporation's
("AGC") major technology systems, programs, and applications, including those
which rely on third parties, are operating smoothly following our transition
into 2000. We have experienced no interruptions to normal business operations,
including the processing of customer account data and transactions. We will
continue to monitor our technology systems, including critical third party
dependencies, as necessary to maintain our Year 2000 readiness. We do not
expect any future disruptions, if they occur, to have a material effect on the
company's results of operations, liquidity, or financial condition.
Through December 31, 1999, AGC incurred and expensed pretax costs of $98 million
related to Year 2000 readiness, including $18 million in 1999 and $65 million in
1998. In 1999, Year 2000 readiness expenses were included in division earnings.
The 1998 expenses were excluded from division earnings, consistent with the
manner in which we reviewed division results. In addition, we accelerated the
planned replacement of certain systems as part of our Year 2000 plans. The cost
of these replacement systems was immaterial. We do not anticipate incurring any
significant costs in the future to maintain Year 2000 readiness.
OTHER INFORMATION ON FILE
We have filed a Registration Statement with the Securities and Exchange
Commission under the Securities Act of 1933 for the Contracts discussed in this
Prospectus. We have not included all of the information in the Registration
Statement and its exhibits. Statements contained in this Prospectus
43
<PAGE>
concerning the Contracts and other legal instruments are intended to be
summaries. For a complete statement of terms, you should refer to the documents
that we filed with the Securities and Exchange Commission.
We will send you a Statement on request without charge. Its contents are as
follows:
CONTENTS OF STATEMENT OF ADDITIONAL INFORMATION
<TABLE>
<S> <C>
General Information........................................................ 2
Regulation and Reserves.................................................... 2
Independent Auditors....................................................... 3
Services................................................................... 3
Principal Underwriter...................................................... 4
Annuity Payments........................................................... 4
Gender of Annuitant........................................................ 6
Misstatement of Age or Gender and Other Errors............................. 7
Change of Investment Adviser or Investment Policy.......................... 7
Calculation of Accumulation Unit Values.................................... 7
Financial Statements....................................................... 8
Index to Financial Statements.............................................. 9
</TABLE>
44
<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 contracts (the "Contracts") described
by this Prospectus are offered by American General Life Insurance Company
("AGL"), the successor to California-Western States Life Insurance Company
("Cal-Western").
You may use AGL's Separate Account A ("Separate Account") for a variable
investment return under the Contracts based on one or more of the following
mutual fund series of American General Series Portfolio Company ("Portfolio
Company"):
. American General Series Portfolio Company
. MidCap Index Fund
. Asset Allocation Fund
. Money Market Fund
. Capital Conservation Fund
. Government Securities Fund
. Stock Index Fund
We have designed this Prospectus to provide you with information that you should
have before investing in the Contracts. Please read the Prospectus carefully
and keep it for future reference.
For additional information about the Contracts, you may request a copy of the
Statement of Additional Information (the "Statement"), dated April 7, 2000. We
have filed the Statement with the Securities and Exchange Commission ("SEC") and
have incorporated it by reference into this Prospectus. The "Table of Contents"
of the Statement appears at page 41 of this Prospectus. You may obtain a free
copy of the Statement if you write or call AGL's Annuity Administration
Department, in our Home Office, which is located at 2727-A Allen Parkway,
Houston, Texas 77019-2191. The telephone number is 1-800-247-6584. You may
also obtain the Statement through the SEC's Web site at http://www.sec.gov.
You should rely only on the information contained in this document or that we
have referred you to. We have not authorized anyone to provide you with
information that is different.
Neither the Securities and Exchange Commission nor any state securities
commission has approved or disapproved of these securities or passed upon the
adequacy or accuracy of this Prospectus. Any representation to the contrary is
a criminal offense. The Contracts are not available in all states.
This Prospectus is valid only if you also receive the current American General
Series Portfolio Company prospectus.
This Prospectus is dated April 7, 2000.
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
----
<S> <C>
Definitions................................................................. 4
Fee Table................................................................... 6
Contract Owner Transaction Expenses........................................ 6
Division Annual Expenses After Expense Reimbursements...................... 7
Fund Annual Expenses....................................................... 7
Synopsis of Contract Provisions............................................. 8
General Description........................................................ 8
Sales Charges and Other Deductions......................................... 9
Periodic Payments.......................................................... 9
Purchase Payment Accumulation.............................................. 9
Fixed and Variable Annuity Payments........................................ 10
Changes in Allocations Among Divisions and Fixed Accumulation.............. 10
Surrenders, Withdrawals and Cancellations.................................. 10
Death Proceeds............................................................. 11
Limitations Imposed by Retirement Plans and Employers...................... 11
Communications to Us....................................................... 11
Selected Accumulation Unit Data (Unaudited)................................. 12
Financial Information....................................................... 15
AGL......................................................................... 15
Separate Account A.......................................................... 15
Portfolio Company........................................................... 16
Voting Privileges........................................................... 17
Contract Issuance and Purchase Payments..................................... 18
General Description........................................................ 18
Payments................................................................... 19
Variable Account Value...................................................... 19
Transfer and Surrender of Contract Owner Variable Account Value............. 20
Transfers.................................................................. 20
Surrenders................................................................. 20
Annuity Period and Annuity Payment Options.................................. 21
Annuity Commencement Date.................................................. 21
Annuity Payment Options.................................................... 21
Annuity Payments........................................................... 24
</TABLE>
2
<PAGE>
<TABLE>
<CAPTION>
Page
----
<S> <C>
Death Proceeds.............................................................. 24
Death Proceeds Before the Annuity Commencement Date........................ 24
Death Proceeds After the Annuity Commencement Date......................... 25
Proof of Death............................................................. 26
Charges Under the Contract.................................................. 26
Sales and Administrative Expenses.......................................... 26
Premium Taxes.............................................................. 27
Charge to the Separate Account............................................. 28
Contract Expense Guarantee................................................. 28
Other Charges.............................................................. 29
Other Aspects of the Contracts.............................................. 29
Contract Owners, Participants, Annuitants, and Beneficiaries; Assignments.. 29
Reports.................................................................... 30
Rights Reserved by Us...................................................... 30
Payment and Deferment...................................................... 31
Federal Income Tax Matters.................................................. 31
General.................................................................... 31
Non-Qualified Contracts.................................................... 32
Individual Retirement Annuities ("IRAs")................................... 34
Roth IRAs.................................................................. 36
Simplified Employee Pension Plans.......................................... 37
Simple Retirement Accounts................................................. 37
Other Qualified Plans...................................................... 37
Private Employer Unfunded Deferred Compensation Plans...................... 38
Federal Income Tax Withholding and Reporting............................... 39
Taxes Payable by AGL and the Separate Account.............................. 39
Distribution Arrangements................................................... 39
Services Agreement.......................................................... 40
Legal Matters............................................................... 40
Year 2000 Considerations.................................................... 40
Other Information on File................................................... 40
Contents of Statement of Additional Information............................. 41
</TABLE>
3
<PAGE>
DEFINITIONS
We, our and us -- American General Life Insurance Company ("AGL")
You and your -- a reader of this Prospectus who is contemplating making purchase
payments or taking any other action in connection with a Contract. This is
generally the Contract Owner.
Accumulation Period -- the period between the date of the first purchase payment
for a Variable Annuity contract and the Annuity Commencement Date.
Accumulation Unit -- a measuring unit used in calculating your interest in a
Division of Separate Account A before the Annuity Commencement Date.
Accumulated Value -- the dollar value of a Variable Account.
Annuitant -- the person named as annuitant in the application for a Contract and
on whose life annuity payments may be based.
Annuity -- a series of payments for life or a designated period subject to the
terms of the Contract.
Annuity Administration Department -- our annuity service center in our Home
Office to which you should direct all purchase payments, requests, instructions
and other communications. Our Annuity Administration Department is located at
2727-A Allen Parkway, Houston, Texas 77019-2191. The mailing address is P.O.
Box 1401, Houston, Texas 77251-1401.
Annuity Commencement Date -- the date on which we begin making payments under an
Annuity Payment Option.
Annuity Payment Option -- one of the ways in which you can request us to make
annuity payments to you. An Annuity Payment Option will control the amount of
each payment, how often we make payments, and for how long we make payments.
Annuity Period -- the period of time during which we make annuity payments
under an Annuity Payment Option.
Annuity Unit -- a measuring unit used to calculate the amount of Annuity
payments.
Beneficiary -- the person who will receive any proceeds due under a Contract
following the death of a Contract Owner or the Annuitant.
Code -- the Internal Revenue Code of 1986, as amended.
Contingent Beneficiary -- a person you designate to receive any proceeds due
under a Contract following the death of a Contract Owner or an Annuitant, if
the Beneficiary has died but the Contingent Beneficiary is alive when the
proceeds become payable.
Contract -- an individual annuity Contract offered by this Prospectus.
4
<PAGE>
Contract Owner -- the owner of the Contract, who may be the Annuitant or some
other person or entity.
Division -- one of the several different investment options into which Separate
Account A is divided. Each Division invests in shares of a Fund.
Fixed Annuity Payments -- annuity payments that are fixed in amount and do not
vary with the investment experience of any Division of Separate Account A.
Fund -- a separate portfolio of American General Series Portfolio Company.
Home Office -- our office at the following address and phone number: American
General Life Insurance Company, Annuity Administration Department, 2727-A Allen
Parkway, Houston, Texas 77019-2191; Mailing address -- P.O. Box 1401, Houston,
Texas 77251-1401; 1-800-247-6584 or 713-831-3505.
Investment Company Act of 1940 ("1940 Act") -- a federal law governing the
operations of investment companies such as the Funds and the Separate Account.
Non-Qualified -- not eligible for the kind of federal income tax treatment that
occurs with retirement plans allowed by Sections 401, 403, 408 or 408A 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.
Qualified -- eligible for the kind of federal income tax treatment that occurs
with retirement plans allowed by Sections 401, 403, 408 or 408A of the Code.
Separate Account A -- the segregated asset account of AGL named Separate Account
A which receives and invests purchase payments under the Contracts.
Valuation Date -- a day when we are open for business. However, a day is not a
Valuation Date if the Fund in which a Division invests does not calculate the
value of its shares on that day.
Valuation Period -- the period that starts at the close of regular trading on
the New York Stock Exchange on a Valuation Date and ends at the close of regular
trading on the New York Stock Exchange on the next Valuation Date.
Variable Account -- the account in which Accumulation Units acquired under the
Contract are kept in Separate Account A.
Variable Account Value -- the sum of your account values in the Separate Account
Division. Your account value in a Separate Account Division equals the value of
a Division's Accumulation Unit multiplied by the number of Accumulation Units
you have in that Division.
5
<PAGE>
Variable Annuity Payments -- annuity payments that vary in amount based on the
investment earnings and losses of one or more of the Divisions.
Withdrawal -- Withdrawing (redeeming) a portion or all of the Accumulated Value
of the Contract without surrendering the Contract.
FEE TABLE
The purpose of this Fee Table and the example is to assist you in understanding
the various costs and expenses that you 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 the example assume the
highest deductions possible under a Contract or participation. We may also
deduct amounts for state premium taxes or similar assessments, where applicable.
Contract Owner Transaction Expenses
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) .............. 2.00%
6
<PAGE>
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/1/
----------- ----------- --------- ------------- ----------- -----------
<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/2/ (.0567) (.2467) (.2467) (.2767) (.2667) .0000
Total Division
Annual Expenses
After Expense
Reimbursement .9450 .7550 .7550 .7250 .7350 1.0017
</TABLE>
Fund Annual Expenses
(as a percentage of average net assets)
<TABLE>
<CAPTION>
MidCap Asset Money Capital Government Stock
Index Allocation Market Conservation Securities Index
Fund Fund Fund Fund Fund Fund
---------- ---------- -------- ------------ ---------- ---------
<S> <C> <C> <C> <C> <C> <C>
Management Fees .3100 .5000 .5000 .5000 .5000 .2600
Other Expenses .0700 .0700 .0700 .1000 .0900 .0600
Total Fund
Annual Expenses/3/ .3800 .5700 .5700 .6000 .5900 .3200
Combined Total Annual
Expenses (Separate
Account A plus
applicable Fund) 1.3250 1.3250 1.3250 1.3250 1.3250 1.3217
</TABLE>
- ------------------------
1 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.
2 Contracts funded through Separate Account A are subject to a Contract Expense
Guarantee. (See "Contract Expense Guarantee.")
3 Expenses are restated to reflect current charges.
7
<PAGE>
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.
1 Year 3 Years 5 Years 10 Years
------ ------- ------- --------
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
The example is not a representation of past or future expenses. Actual expenses
may be greater or less than those shown. The assumed 5% annual rate of return
is not an estimate or a guarantee of future investment performance.
SYNOPSIS OF CONTRACT PROVISIONS
You should read this summary together with the other information in this
Prospectus.
The purpose of the Contract is to provide retirement benefits through
. the investment of Periodic Payments, and
. the application of Accumulated Values to provide Fixed or Variable Annuity
Payments.
General Description
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, and
. 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.")
8
<PAGE>
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
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). 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, you should be aware that certain withdrawal amounts
may be subject to a 10% penalty tax under the Code. (See "Federal Income Tax
Matters.")
Periodic Payments
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
your Contract's anniversary date by written notice to us at our Annuity
Administration Department. No Periodic Payment may be less than $20. Periodic
Payments may be increased to, but not 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 Withdrawals, and transfers
of funds for the purchase of a fixed annuity.
Purchase Payment Accumulation
Purchase payments will accumulate on a variable basis until the Annuity
Commencement Date. Some Contracts also permit accumulation on a fixed basis.
For variable accumulation, you may allocate part or all of your Variable Account
to one of the six available Divisions of Separate Account A. Each Division
invests solely in shares of one of six Funds of Portfolio Company. (See
"Portfolio Company.") The value of accumulated purchase payments allocated to a
Division increases or decreases, as the value of the investments in a Fund's
shares increases or decreases, subject to reduction by charges and deductions.
(See "Variable Account Value.") AGL places purchase payments allocated to the
fixed accumulation option in its general account.
9
<PAGE>
Fixed and Variable Annuity Payments
You may elect to receive Fixed or Variable Annuity Payments. Fixed Annuity
Payments are periodic payments from AGL in a fixed amount guaranteed by AGL.
The amount of the payments will depend on the Annuity Payment Option chosen, the
age and, in some cases, the gender of the Annuitant, and the total amount of
Account Value applied to the fixed Annuity Payment Option.
Variable Annuity Payments are similar to Fixed Annuity Payments, except that the
amount of each periodic payment from AGL will vary reflecting the net investment
return of the Division or Divisions you selected under your Variable Annuity
Payment Option. The payment for a given month will exceed the previous month's
payment if the net investment return for a given month exceeds the assumed
interest rate used in the Contract's annuity tables. The monthly payment will
be less than the previous payment if the net investment return for a month is
less than the assumed interest rate. The assumed interest rate used in the
Contract's annuity tables is 3.5%. (See "Annuity Period and Annuity Payment
Options.") 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
"Annuity Period and Payment Options.")
Changes in Allocations Among Divisions and Fixed Accumulation
Before the Annuity Commencement Date, you may change your allocation of future
purchase payments to another Division or a fixed accumulation option, without
charge.
In addition, you may once every 90 days reallocate your Accumulated Value to
another Division before the Annuity Commencement Date.
Surrenders, Withdrawals and Cancellations
You may make a total surrender of or partial withdrawal from your Contract at
any time before the Annuity Commencement Date by written request to us. A
surrender or partial withdrawal may require you to pay tax penalties. (See
"Surrenders.")
You may cancel your Contract by delivering it or mailing it with a written
cancellation request to our Home Office or to your sales representative, before
the close of business on the 10th day after you receive the Contract. In some
states, the Contract provides for a 20 or 30-day period.
We will refund to you, in most states, the sum of:
. your Account Value, and
. any premium taxes that have been deducted.
10
<PAGE>
Some states require us to refund the sum of your purchase payments only if it is
larger than the amount just described. Other states allow us to refund only the
sum of your purchase payments.
Death Proceeds
If the Annuitant or Contract Owner dies before the Annuity Commencement Date,
we will pay a benefit to the Beneficiary. (See "Death Proceeds Before the
Annuity Commencement Date.")
Limitations Imposed by Retirement Plans and Employers
An employer or trustee who is the Contract Owner under a retirement plan may
limit certain rights you would otherwise have under a Contract. These
limitations may restrict total and partial withdrawals, the amount or timing of
purchase payments, the start of annuity payments, and the type of annuity
options that you may select. You should familiarize yourself with the
provisions of any retirement plan in which a Contract is used. We are not
responsible for monitoring or assuring compliance with the provisions of any
retirement plan.
Communications to Us
You should include, in communications to us, your Contract number, your name,
and, if different, the Annuitant's name. You may direct communications to the
addresses and phone numbers on the first page of this Prospectus.
Unless the Prospectus states differently, we will consider purchase payments or
other communications to be received at our Home Office on the date we actually
receive them, if they are in proper form. However, we will consider purchase
payments to be received on the next Valuation Date if we receive them (1) after
the close of regular trading on The New York Stock Exchange or (2) on a date
that is not a Valuation Date.
11
<PAGE>
SELECTED ACCUMULATION UNIT DATA (unaudited)
The following tables show the Accumulation Unit Values and the Accumulation
Units Outstanding for the Divisions of Separate Account A for each of the last
ten fiscal years:
A. Accumulation Unit Values
<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, 1990 $0.9126050 $ 1.0505840 $0.9733880/8/ $ 1.1056810 $ 1.0965370 $ 7.3784390
Accumulation Unit
Values
December 31, 1991 $1.1056860 $ 1.2698210 N/A $ 1.1593620 $ 1.1190530/9/ $ 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
</TABLE>
(Footnotes are on page 14)
12
<PAGE>
<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
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 Unit
Values
December 31, 1998 $ 2.952069 $ 2.600638 $ 1.185152 $ 1.011450 $ 1.591685 $ 27.507790
Accumulation Unit
Values
December 31, 1999 $ 3.348223 $ 2.883696 $ 1.185152 $ 1.024631 $ 1.527152 $ 32.838548
</TABLE>
B. Accumulation Units Outstanding
<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 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
(Footnotes are on page 14)
</TABLE>
13
<PAGE>
<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 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
Accumulation Units
Outstanding
December 31, 1998 10,460.901 40,499.767 None None 923.091 2,050,512.154
Accumulation Units
Outstanding
December 31, 1999 10,041.432 40,486.495 None None 917.284 1,853,134.081
</TABLE>
____________________
/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 before
October 1, 1991 reflect investment performance before 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).
(Footnotes continued page 15)
14
<PAGE>
/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 December 26, 1990, the date on which all
Accumulation Units were transferred from the Capital Conservation Division.
/9/ Accumulation Unit Value as of July 8, 1991, the date on which all
Accumulation Units were transferred from the Government Securities
Division.
FINANCIAL INFORMATION
The financial statements of AGL appear in the Statement. Please see the first
page of this Prospectus for information on how to obtain a copy of the
Statement. You should consider the financial statements of AGL only as bearing
on the ability of AGL to meet its contractual obligations under the Contracts.
The financial statements do not bear on the investment performance of the
Separate Account. (See "Contents of Statement of Additional Information.")
The financial statements of Separate Account A also appear in the Statement.
They provide financial information about the Divisions which invest in the Funds
of the Portfolio Company. (See "Contents of Statement of Additional
Information.")
AGL
AGL, the successor to Cal-Western, is a stock life insurance company organized
under the laws of the State of Texas, which is a successor in interest to a
company originally organized under the laws of the State of Delaware in 1917.
AGL is an indirect, wholly-owned subsidiary of American General Corporation, a
diversified financial services holding company engaged primarily in the
insurance business. American General Financial Group is the marketing name for
American General Corporation and its subsidiaries. The commitments under the
Contracts are AGL's, and American General Corporation has no legal obligation to
back those commitments.
Following the merger with Cal-Western, 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.
SEPARATE ACCOUNT A
Separate Account A was originally established in 1966 under California law. The
Separate Account has six Divisions. The Separate Account is registered with the
SEC as a unit investment trust under the 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
15
<PAGE>
"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. 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.
Each Division of the Separate Account is part of AGL's general business. The
assets of Separate Account A belong to AGL. Under Texas law 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. These assets
will be held exclusively to meet AGL's obligations under variable annuity
contracts. Furthermore, AGL credits or charges the Separate Account with the
income, gains, and losses from the Separate Account's assets, whether or not
realized, without regard to other income, gains, or losses of AGL.
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, 1999, Portfolio Company had $13.5 billion 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
our Annuity Administration Department. Portfolio Company, as of October 1,
1999, consists of 13 Funds. Shares of Portfolio Company are currently sold to
Separate Account A, AGL's Separate Account B, AGL's Separate Account D, AGL's
Separate Account VL-R, The United States Life Insurance Company in the City of
New York's ("USL") Separate Account USL VL-R, USL's Separate Account USL VA-R,
American General Annuity Insurance Company's A.G. Separate Account A 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 American
General Corporation may own shares of certain funds.
We do not foresee any disadvantage to you arising out of these arrangements.
Nevertheless, differences in treatment under tax and other laws, as well as
other considerations, could cause the interests of various owners to conflict.
For example, violation of the federal tax laws by one separate account investing
in Portfolio Company could cause the contracts funded through another separate
account to lose their tax deferred status. Such a result might require us to
take remedial action. A separate account may have to withdraw its participation
in Portfolio Company if a material irreconcilable conflict arises among separate
accounts. In such event, Portfolio Company may have to liquidate portfolio
securities at a loss to pay for a separate account's redemption of Portfolio
Company shares. At the same time, Portfolio Company, the Funds' Board of
Directors and we will monitor events for any material irreconcilable conflicts
that may possibly arise and determine what action, if any, to take to remedy or
eliminate the conflict.
We automatically reinvest any dividends or capital gain distributions that we
receive on shares of the Funds held under Contracts. We reinvest at the Funds'
net asset value on the date payable. Dividends
16
<PAGE>
and distributions will reduce the net asset value of each share of the
corresponding Fund and increase the number of shares outstanding of the Fund by
an equivalent value. However, these dividends and distributions do not change
your Accumulated Value.
Portfolio Company's shares are purchased and redeemed by American General
Distributors, Inc., principal underwriter for shares of Portfolio Company, at
net asset value without sales or redemption charges.
Overall responsibility for managing the affairs of Portfolio Company and
overseeing its investment adviser rests with its elected board of directors.
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, 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."
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. You may obtain additional copies
of the current prospectus of Portfolio Company by contacting our Annuity
Administration Department. You should read the prospectus carefully before
investing.
VOTING PRIVILEGES
The following people may give us voting instructions for Fund shares held in the
Separate Account Divisions attributable to their Contract:
. You, as the Contract Owner, before the Annuity Commencement Date, and
. The Annuitant or other payee, during the Annuity Period.
We will vote according to such instructions at meetings of shareholders of the
Fund.
We will determine who can give voting instructions and the number of votes for
which they may give directions as of the record date for a meeting. We will
calculate the number of votes in fractions. We will calculate the number of
votes for any Fund as follows:
. For each Contract Owner before the Annuity Commencement Date, we will
divide (1) the Contract Owner's Variable Account Value invested in the
corresponding Division by (2) the net asset value of one share of that
Fund.
. For each Annuitant or payee during the Annuity Period, we will divide
(1) our liability for future Variable Annuity Payments to the
Annuitant or payee by (2) the value of an Annuity Unit. We will
calculate our liability for future Variable Annuity Payments based on
the
17
<PAGE>
mortality assumptions and the assumed interest rate that we use in
determining the number of Annuity Units under a Contract and the value
of an Annuity Unit.
We will vote all shares of each Fund owned by the Separate Account as follows:
. Shares for which we receive instructions, in accordance with those
instructions, and
. Shares for which we receive no instructions, including any shares we
own on our own behalf, in the same proportion as the shares for which
we receive instructions.
Shares of each Fund may be owned by separate accounts of insurance companies
other than us. We understand that each Fund will see that all insurance
companies vote shares uniformly.
We believe that our voting instruction procedures comply with current federal
securities law requirements. However, we reserve the right to modify these
procedures to conform with legal requirements and interpretations that are put
in effect or modified from time to time.
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.
Portfolio Company is not required to hold regular annual shareholder meetings to
elect members of the board of directors. 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 be solicited by
means of proxy materials.
CONTRACT ISSUANCE AND PURCHASE PAYMENTS
General Description
Your application to purchase a Contract must be on a written application that we
provide and that you sign. When a purchase payment accompanies an application
to purchase a Contract and you have properly completed the application, we will
either
. process the application, credit the purchase payment, and issue the
Contract, or
. reject the application and return the purchase payment within two
Valuation Dates after receipt of the application at our Annuity
Administration Department.
If you have not completed the application or have not completed it correctly, we
will request additional documents or information within five Valuation Dates
after receipt of the application at our Annuity Administration Department.
18
<PAGE>
If we have not received a correctly completed application within five Valuation
Dates after receipt of the purchase payment at our Annuity Administration
Department, we will return the purchase payment immediately. However, you may
specifically consent to our retaining the purchase payment until you complete
the application. In that case, we will credit the initial purchase payment as
of the end of the Valuation Period in which we receive, at our Annuity
Administration Department, the last information required to process the
application.
We will credit subsequent purchase payments as of the end of the Valuation
Period in which we receive them and any required written information at our
Annuity Administration Department.
We reserve the right to reject any application or purchase payment for any
reason.
Payments
You should make checks for subsequent purchase payments payable to American
General Life Insurance Company and forward them directly to our Annuity
Administration Department. We also accept purchase payments by wire or by
exchange from another insurance company. You may obtain further information
about how to make purchase payments by either of these methods from your sales
representative or from us at the addresses and telephone numbers on the first
page of this Prospectus.
Your purchase payments are allocated to a Division of the Separate Account or
fixed accumulation option (if available) as of the date we credit the purchase
payments to your Contract.
The Contracts described herein generally may not be assigned by the Contract
Owner.
VARIABLE ACCOUNT VALUE
Before the Annuity Commencement Date, we determine your Variable Account Value
under a Contract as discussed below.
As of any Valuation Date before the Annuity Commencement Date
. Your Variable Account Value is your Accumulated Value in the Division
of the Separate Account in which you invest.
. Your Variable Account Value in a Division is the product of the number
of your Accumulation Units in that Division multiplied by the value of
one such Accumulation Unit as of that Valuation Date.
There is no guaranteed minimum Variable Account Value. To the extent that your
Contract value is allocated to the Separate Account, you bear the entire
investment risk.
We credit Accumulation Units in a Division to you when you allocate purchase
payments or transfer your Accumulated Value to that Division. Similarly, we
redeem Accumulation Units when you transfer or withdraw amounts from a Division
or when we pay certain charges under the Contract. We determine the value of
these Accumulation Units at the end of the Valuation Date on which we make the
credit or charge.
19
<PAGE>
The value of an Accumulation Unit for a Division on any Valuation Date is equal
to the previous value of that Division's Accumulation Unit multiplied by that
Division's net investment factor for the Valuation Period ending on that
Valuation Date.
The net investment factor for a Division is determined by dividing (1) the net
asset value per share of the Fund shares held by the Division, determined at the
end of the current Valuation Date, plus the per share amount of any dividend or
capital gains distribution made for the Fund shares held by the Division during
the current Valuation Date, by (2) the net asset value per share of the Fund
shares held in the Division determined at the end of the previous Valuation
Period. We then subtract from that result a factor representing the maintenance
charge.
TRANSFER AND SURRENDER OF CONTRACT
OWNER VARIABLE ACCOUNT VALUE
Transfers
You can transfer the entire amount of your Accumulated Value once every 90 days
and before the Annuity Commencement Date. You must transfer the entire amount
from the Division in which you are fully invested to one of the other Divisions
and allocate new purchase payments to the same Division or to any available
fixed accumulation option.
Market timing. The Contracts are not designed for professional market timing
organizations or other entities using programmed and frequent transfers. We
reserve the right at any time and without prior notice to any party to
terminate, suspend, or modify our policies or procedures regarding telephone
requests or to stop permitting telephone requests altogether.
Surrenders
At any time before the Annuity Commencement Date and while the Annuitant is
still living, the Contract Owner may make a full surrender from a Contract, or
make a partial withdrawal from a Contract.
We will pay you, upon full surrender, your Accumulated Value at the end of the
Valuation Period in which we receive a written surrender request.
The Contract Owner may withdraw a portion or surrender all of the value of the
Variable Account at any time before 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
our Annuity Administration Department. If you withdraw the entire value of the
Variable Account and no payments are made for two years following withdrawal,
AGL may consider the Contract terminated. You may be subject to penalties for
premature withdrawals. Withdrawals 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.")
20
<PAGE>
ANNUITY PERIOD AND ANNUITY PAYMENT OPTIONS
Annuity Commencement Date
The Annuity Commencement Date may be any day of any month up to the Annuitant's
75th birthday. You may select the Annuity Commencement Date in the Contract
application. You may also change a previously selected date any time before
that date by submitting a written request 30 days in advance, subject to our
approval.
See "Federal Income Tax Matters" for a discussion of the penalties that may
result from distributions before the Annuitant's reaching age 59 1/2 under any
Contract or after April 1 of the year following the calendar year in which the
Annuitant reaches age 70 1/2 under certain Qualified Contracts.
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, we reserve 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 us at our 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) and may also limit the election of certain settlement
options. (See "Federal Income Tax Matters.")
Annuity Payment Options
An AGL Annuity Contract or the following Annuity Payment 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 Annuity Payment Options. The Contract Owner also has the right to name
himself as Payee.
21
<PAGE>
Option 1 - Life Annuity - We make annuity payments monthly during the lifetime
of the Annuitant. These payments stop with the last payment due before the death
of the Annuitant. We do not guarantee a minimum number of payments under this
arrangement. For example, the Annuitant or other payee might receive only one
annuity payment if the Annuitant dies before the second annuity payment.
Option 2 - Life Annuity with 60, 120, 180, or 240 Monthly Payments Certain - We
make annuity payments monthly during the lifetime of an Annuitant. In addition,
we guarantee that the Beneficiary will receive monthly payments for the
remainder of the period certain if the Annuitant dies during that period.
Option 3 - Joint and Last Survivor Life Annuity - We make annuity payments
monthly during the lifetime of the Annuitant and another payee and during the
lifetime of the survivor of the two. We stop making payments with the last
payment before the death of the survivor. We do not guarantee a minimum number
of payments under this arrangement. For example, the Annuitant or other payee
might receive only one annuity payment if both die before the second annuity
payment. The election of this option is ineffective if either one dies before
the Annuity Commencement Date. In that case, the survivor becomes the sole
Annuitant, and we do not pay death proceeds because of the death of the other
Annuitant.
Option 4 - Payments for a Designated Period - We pay 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 5 - Payments of a Specific Dollar Amount - We make 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
us at our 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.
22
<PAGE>
Option 6 - Interest Income - We pay 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 us at our
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 us at our 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."
Option 7 - Unit Refund Life Annuity - We make annuity payments 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 us at our Annuity Administration Department. The
result is paid as a lump sum.
The Code may treat the election of Option 4, Option 5, or Option 6 in the same
manner as a surrender of the total account. For tax consequences of such
treatment, see "Federal Income Tax Matters." In addition, the Code may not give
tax-deferred treatment to subsequent earnings.
Under Settlement Options 1, 2, 3, 4 and 7, 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 32% per annum and
assume births in 1900. Under Settlement Options 1, 2, 3 and 7, payment amounts
illustrated vary with the sex of the Annuitant. Amounts under any of the first
four Settlement Options and Option 7 vary with the adjusted age of the
Annuitant, determined using formulas provided by the Contracts.
23
<PAGE>
Under Settlement Options 5 and 6, the amount of the first payment is prescribed
by the Contracts. Under Settlement Option 6, however, we may increase the net
investment rate above the guaranteed rate.
Under all of the Settlement Options, we base 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, we 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,
2, 3, 4 and 7 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.)
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 4, 5 and 6, 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, we can change the frequency of payments to intervals
which result in payments of at least $20.
DEATH PROCEEDS
Death Proceeds Before the Annuity Commencement Date
The death proceeds described below are payable to the Beneficiary under the
Contract if the Participant dies before the Annuity Commencement Date.
24
<PAGE>
The death proceeds, before deduction of any applicable premium taxes and other
applicable taxes, will equal the Accumulated Value as of the end of the
Valuation Period in which we receive, at our Annuity Administration Department,
proof of death and the written request as to the manner of payment.
The death proceeds become payable to the Beneficiary when we receive
. proof of the Participant's death, and
. a written request from the Beneficiary specifying the manner of payment.
If the Participant has not already done so, the Beneficiary may, within 60 days
after the date the death proceeds become payable, elect to receive the death
proceeds as (1) a single sum or (2) in the form of one of the Annuity Payment
Options provided in the Contract. (See "Annuity Payment Options.") If we do not
receive a request specifying the manner of payment, we will make a single sum
payment, based on values we determine at that time.
If the Participant dies before the Annuity Commencement Date, we will distribute
all amounts payable under the Contract in accordance with the following rules:
. We will distribute all amounts
(a) within five years of the date of death, or
(b) if the Beneficiary elects, 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, the spouse may
elect to delay distributions under the Contract until the date the
Participant would have reached age 70 1/2.
Failure to satisfy the requirements described in this section may result in
serious adverse tax consequences.
Death Proceeds After the Annuity Commencement Date
If the Participant dies on or after the Annuity Commencement Date, the amounts
payable to the Beneficiary or other properly designated payee are any continuing
payments under the Annuity Payment Option in effect. (See "Annuity Payment
Options.") In such case, the payee will:
. have all the remaining rights and powers under a Contract, and
. be subject to all the terms and conditions of the Contract.
25
<PAGE>
If the payee dies after the Annuity Commencement Date, we will distribute any
remaining amounts payable under the terms of the Annuity Payment Option at least
as rapidly as under the method of distribution in effect when the payee dies.
Failure to satisfy requirements described in this section may result in serious
adverse tax consequences.
Proof of Death
We accept the following as proof of any person's death:
. a certified death certificate;
. 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 us.
Once we have paid the death proceeds, the Contract ends, and our obligations are
complete.
CHARGES UNDER THE CONTRACT
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. 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:
Total
Amount of Sales Administrative
Total Amount Deduction Expenses Expenses
of Payment % % %
---------- --------- -------- --------------
$ 0 - 14,999.... 8.75 6.75 2.00
15,000 - 24,999.... 8.00 6.25 1.75
25,000 - 49,999.... 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
26
<PAGE>
These deductions are made pursuant to the Contracts and are not subject to
change.
The deduction for sales expenses reimburses us for part of our expenses related
to distributing the Contracts. We believe, 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 our general surplus, which might include profits
from the charge for the assumption of mortality and expense risks.
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:
. giving investment advice to AGL
. offering for sale Contracts funded through Separate Account A or other AGL
accounts, and
. 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.
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
administrative and sales expenses.
Premium Taxes
When applicable, we will deduct premium taxes imposed by certain states. We may
deduct such amount either at the time the tax is imposed or later. We may deduct
the amount as follows:
. from purchase payment(s) when received;
. from the Contract Owner's Account Value at the time annuity payments begin;
. from the amount of any partial withdrawal; or
. from proceeds payable upon termination of the Contract for any other
reason, including death of the Contract Owner or Annuitant, or surrender of
the Contract.
If premium tax is paid, AGL may reimburse itself for the tax when making the
deduction under the second, third, and fourth items on the list immediately
above, by multiplying the sum of purchase payments being withdrawn by the
applicable premium tax percentage.
27
<PAGE>
Applicable premium tax rates depend upon the Contract Owner's then-current place
of residence. Applicable rates currently range from 0% to 3.5%. The rates are
subject to change by legislation, administrative interpretations, or judicial
acts. We will not make a profit on this charge.
Charge to the Separate Account
We deduct from Separate Account assets a daily charge at an annualized rate of
1.0017% of the average daily net asset value of the Separate Account
attributable to the Contracts. This charge (1) offsets the Sales and
Administrative Expenses discussed above and (2) compensates us for assuming
mortality and expense risks under the Contracts. The 1.0017% charge divides into
.1017% for administrative expenses and .90% for the assumption of mortality and
expense risks.
We do not expect to earn a profit on that portion of the charge that is for
administrative expenses. However, we do expect to derive a profit from the
portion that is for the assumption of mortality and expense risks. There is no
necessary relationship between the amount of administrative charges deducted for
a given Contract and the amount of expenses actually attributable to that
Contract.
In assuming the mortality risk, we incur the risks that
. our actuarial estimate of mortality rates may prove erroneous,
. Annuitants will live longer than expected, and
. more Contract Owners or Annuitants than expected will die at a time when
the death benefit we guarantee is higher than the net surrender value of
their interests in the Contracts.
In assuming the expense risk, we incur the risk that the revenues from the
expense charges under the Contracts (charges that we guarantee will not
increase) will not cover our expense of administering the Contracts.
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 before the effective time of the Reorganization. This amendment
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"). AGL will, in effect, reimburse
to the appropriate Division of Separate Account A an amount that represents the
difference between:
28
<PAGE>
. the investment advisory fee charged Separate Account A or Variable Fund C,
as applicable, before 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.
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. We 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, we 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 "Investment
Management" in Portfolio Company's prospectus. (See also "Fee Table.")
OTHER ASPECTS OF THE CONTRACTS
Only an officer of AGL can agree to change or waive the provisions of any
Contract. The Contracts are non-participating, which means they are not entitled
to share in any dividends, profits or surplus of AGL.
Contract Owners, Participants, Annuitants, and Beneficiaries; Assignments
You, as the Contract Owner or the Participant, will be the same as the
Annuitant.
29
<PAGE>
You choose the Beneficiary and any Contingent Beneficiary when you purchase a
Contract. You may change a Beneficiary or Contingent Beneficiary before the
Annuity Commencement Date while the Annuitant is still alive. The payee may make
this change after the Annuity Commencement Date.
We will make any designation of a new Beneficiary or Contingent Beneficiary
effective as of the date it is signed. However, the change in designation will
not affect any payments we make or action we take before we receive written
request. We also need written consent of any irrevocably-named Beneficiary or
Contingent Beneficiary before we make a change. Under certain retirement
programs, the law may require spousal consent to name or change a Beneficiary to
a person other than the spouse. We are not responsible for the validity of any
designation of a Beneficiary or Contingent Beneficiary.
If the Beneficiary or Contingent Beneficiary is not living at the time we are to
make any payment, you as the Contract Owner will be the Beneficiary. If you are
not then living, your estate will be the Beneficiary.
Contract Owners and other payees may assign their rights under Qualified
Contracts only in certain narrow circumstances referred to in the Contracts.
Contract Owners and other payees may assign their rights under Non-Qualified
Contracts, including their ownership rights. We take no responsibility for the
validity of any assignment. Contract Owners must make a change in ownership
rights in Writing and send a copy to our Home Office. We will make the change
effective on the date it was made. However, we are not bound by a change until
the date we record it. The rights under a Contract are subject to any assignment
of record at our Home Office. An assignment or pledge of a Contract may have
adverse tax consequences. (See "Federal Income Tax Matters.")
Reports
We will mail to Contract Owners (or anyone receiving payments following the
Annuity Commencement Date), any reports and communications required by
applicable law. We will mail to the last known address of record. You should
give us prompt written notice of any address change.
Rights Reserved by Us
Upon notice to the Contract Owner, we may modify a Contract to the extent
necessary to:
. transfer any assets in any Division to another Division, or to one or more
separate accounts;
. add, combine or remove Divisions in the Separate Account, or combine the
Separate Account with another separate account;
. 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; or
30
<PAGE>
. eliminate the shares of any fund of any open-end management company held by
a Division and substitute shares of another fund of such open-end
management investment company, or of any other open-end management
investment company.
When required by law, we will obtain (1) your approval of changes and (2) the
approval of any appropriate regulatory authority.
In addition, upon notice to the Contract Owners, we may waive certain charges
and restrictions under the Contract.
Payment and Deferment
We will normally pay amounts surrendered or withdrawn from a Contract within
seven calendar days after the end of the Valuation Period in which we receive
written surrender or withdrawal request at our Home Office. A Beneficiary may
request the manner of payment of death proceeds within 60 days after the death
proceeds become payable. If we do not receive a written request specifying the
manner of payment, we will pay the death benefit as a single sum, normally
within seven calendar days after the end of the Valuation Period that contains
the last day of the 60 day period. Also, we reserve the right to defer payment
of that portion of your Account Value that is attributable to a purchase payment
made by check for a reasonable period of time (not to exceed 15 days) to allow
the check to clear the banking system.
Finally, we reserve the right to defer payment of any surrender, annuity
payment, or death proceeds out of the Variable Account Value if:
. the New York Stock Exchange is closed other than customary weekend and
holiday closings, or trading on the New York Stock Exchange is restricted
as determined by the SEC;
. the SEC determines that an emergency exists, as a result of which disposal
of securities held in a Division is not reasonably practicable or it is not
reasonably practicable to fairly determine the Variable Account Value; or
. the SEC by order permits the delay for the protection of Contract Owners.
We may also postpone transfers and allocations of Account Value among the
Divisions under these circumstances.
FEDERAL INCOME TAX MATTERS
General
We cannot comment on all of the federal income tax consequences associated with
the Contracts. Federal income tax law is complex. Its application to a
particular person may vary according to facts peculiar to the person.
Consequently, we do not intend for you to take this discussion as tax advice.
You should consult with a competent tax adviser before purchasing a Contract.
31
<PAGE>
We base this discussion on our understanding of the law, regulations and
interpretations existing on the date of this Prospectus. Congress, in the past,
has enacted legislation changing the tax treatment of annuities in both the
Qualified and the Non-Qualified markets and may do so again in the future. The
Treasury Department may issue new or amended regulations or other
interpretations of existing tax law. The courts may also interpret the tax law
in ways that affect the tax treatment of annuities. Any such change could have a
retroactive effect. We suggest that you consult your legal or tax adviser on
these issues.
The discussion does not address federal estate and gift tax, or social security
tax, or any state or local tax consequences associated with the Contracts.
Non-Qualified Contracts
Purchase Payments. Purchasers of a Contract that does not qualify for special
- -----------------
tax treatment and is "Non-Qualified" may not deduct from their gross income the
amount of purchase payments made.
Tax Deferral Before Annuity Commencement Date. Owners who are natural persons
- ---------------------------------------------
are not taxed currently on (1) increases in their Account Value resulting from
interest earned in the Fixed Account, or (2) the investment experience of the
Separate Account so long as the Separate Account complies with certain
diversification requirements. These requirements mean that the Separate Account
must invest in Series that are "adequately diversified" in accordance with
Treasury Department regulations. We do not control the Series, but we have
received commitments from the investment advisers to the Series to use their
best efforts to operate the Series in compliance with these diversification
requirements. A Contract investing in a Series that failed to meet the
diversification requirements would subject Owners to current taxation of income
in the Contract for the period of such diversification failure (and any
subsequent period). Income means the excess of the Account Value over the
Owner's investment in the Contract (discussed below).
Control over allocation of values among different investment alternatives may
cause Owners or persons receiving annuity payments to be treated as the owners
of the Separate Account's assets for tax purposes. However, current regulations
do not provide guidance as to how to avoid this result. We reserve the right to
amend the Contracts in any way necessary to avoid this result. The Treasury
Department has stated that it may establish standards through regulations or
rulings. These standards may apply only prospectively, although they could apply
retroactively if the Treasury Department considers the standards not to reflect
a new position.
Owners that are not natural persons -- that is, Owners such as corporations --
are taxed currently on annual increases in their Account Value, unless an
exception applies. Exceptions apply for, among other things, Owners that are not
natural persons but that hold a Contract as an agent for a natural person.
Taxation of Annuity Payments. Part of each annuity payment received after the
- ----------------------------
Annuity Commencement Date is excludible from gross income through the use of an
exclusion ratio.
32
<PAGE>
In the case of Fixed Annuity Payments, the excludible portion of each payment is
found by multiplying:
. the amount paid, by
. the ratio of the investment in the Contract (discussed below) to the
expected return under the Fixed Annuity Payment Option.
In the case of Variable Annuity Payments, the excludible portion of each payment
is the investment in the Contract divided by the number of expected payments.
In both cases, the remaining portion of each annuity payment, and all payments
made after the investment in the Contract has been reduced to zero, are included
in the payee's income. Should annuity payments stop on account of the death of
the Annuitant before the investment in the Contract has been fully paid out, the
payee is allowed a deduction for the unpaid amount. If the payee is the
Annuitant, the deduction is taken on the final tax return. If the payee is a
Beneficiary, that Beneficiary may receive the balance of the total investment as
payments are made or on the Beneficiary's final tax return. An Owner's
"investment in the Contract" is the amount equal to the portion of purchase
payments made by or on behalf of the Owner that have not been excluded or
deducted from the individual's gross income, less amounts previously received
under the Contract that were not included in income.
Taxation of Partial Withdrawals and Total Surrenders. Partial withdrawals from
- ----------------------------------------------------
a Contract are includible in income to the extent that the Owner's Account Value
exceeds the investment in the Contract. In the event you surrender a Contract in
its entirety, the amount of your investment in the Contract is excludible from
income, and any amount you receive in excess of your investment in the Contract
is includible in income. All annuity contracts or contracts we issue to the same
Owner during any calendar year are aggregated for purposes of determining the
amount of any distribution that is includible in gross income.
Penalty Tax on Premature Distributions. In the case of such a distribution,
- --------------------------------------
there may be imposed a federal tax penalty equal to 10% of the amount treated as
taxable income. The penalty tax will not apply, however, to distributions:
. made on or after the recipient reaches age 59 1/2,
. made on account of the recipient's becoming disabled,
. that are made after the death of the Owner before the Annuity Commencement
Date or of the payee after the Annuity Commencement Date (or if such person
is not a natural person, that are made after the death of the primary
Annuitant, as defined in the Code), or
. that are part of a series of substantially equal periodic payments made at
least annually over the life (or life expectancy) of the Annuitant or the
joint life (or joint life expectancies) of the Annuitant and the
Beneficiary, provided such payments are made for a minimum of 5 years
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<PAGE>
and the distribution method is not changed before the recipient reaches age
59 1/2 (except in the case of death or disability).
Premature distributions may result from an early Annuity Commencement Date, an
early surrender, partial withdrawal from or assignment of a Contract, or the
early death of an Annuitant, unless the third clause listed above applies.
Payment of Death Proceeds. Special rules apply to the distribution of any death
- -------------------------
proceeds payable under the Contract. (See "Death Proceeds.")
Assignments and Loans. An assignment, loan, or pledge under a Non-Qualified
- ---------------------
Contract is taxed in the same manner as a partial withdrawal, as described
above. Repayment of a loan or release of an assignment or pledge is treated as a
new purchase payment.
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 made to 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
$31,000 for 1999 may fully deduct their IRA purchase payments. Those who have
adjusted gross income in excess of $41,000 for 1999 will not be able to deduct
purchase payments. For those with adjusted gross income in the range between
$31,000 and $41,000 in 1999, the deduction decreases to zero, based on the
amount of income. Beginning in 2000, that income range will increase, as
follows:
----------------------------------------------------------------------------
2000 2001 2002 2003 2004 2005 and
thereafter
----------------------------------------------------------------------------
$32,000 $33,000 $34,000 $40,000 $45,000 $50,000
to to to to to to
$42,000 $43,000 $44,000 $50,000 $55,000 $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 $51,000 and $61,000 in 1999, and in the case of
married individuals filing separately, with adjusted gross income between $0 and
$10,000 in 1999. (A husband and wife who file separate returns and live apart at
all times during the taxable year are not treated as married individuals.)
Beginning in 2000, 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:
34
<PAGE>
-------------------------------------------------------------------------
2000 2001 2002 2003 2004 2005 2006 2007 and
thereafter
-------------------------------------------------------------------------
$52,000 $53,000 $54,000 $60,000 $65,000 $70,000 $75,000 $ 80,000
to to to to to to to to
$62,000 $63,000 $64,000 $70,000 $75,000 $80,000 $85,000 $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 the individual, the adjusted gross 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
- ------------------
(1) a tax-qualified plan to an IRA or (2) from one IRA to another IRA if the
transfer meets certain conditions. All taxable distributions ("eligible rollover
distributions") from tax qualified plans are eligible to be rolled over with the
exception of:
. annuities paid over a life or life expectancy,
. installments for a period of ten years or more, and
. required minimum distributions under section 401(a)(9) of the Code.
Rollovers may be accomplished in two ways. First, we may pay an eligible
rollover distribution directly to an IRA (a "direct rollover"). Second, we may
pay the distribution directly to the Annuitant and then, within 60 days of
receipt, the Annuitant may roll the amount 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 recipients' income. If nondeductible
purchase payments have been made, a pro rata portion of such distributions may
not be includible in income. A 10% penalty tax is imposed on the amount
includible in gross income from distributions that occur before the Annuitant
reaches age 59 1/2 and that are not made on account of death or disability, with
certain exceptions. These exceptions include:
. distributions that are part of a series of substantially equal periodic
payments made at least annually over the life (or life expectancy) of the
Annuitant or the joint lives (or joint life expectancies) of the Annuitant
and the Beneficiary; provided such payments are made for a minimum of 5
years and the distribution method is not changed before the recipient
reaches age 59 1/2 (except in the case of death or disability);
. distributions for medical expenses in excess of 7.5% of the Annuitant's
adjusted gross income without regard to whether the Annuitant itemizes
deductions on his or her tax return;
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<PAGE>
. distributions for health insurance premiums to an unemployed individual who
has received unemployment compensation for at least 12 consecutive weeks;
. distributions for qualified first-time home purchases for the individual, a
spouse, children, grandchildren, or ancestor of the individual or the
individual's spouse, subject to a $10,000 lifetime maximum; and
. distributions for higher education expenses for the individual, a spouse,
children, or grandchildren.
Distributions of minimum amounts required by the Code must commence by April 1
of the calendar year following the calendar year in which the Annuitant reaches
age 70 1/2 or retires (whichever is later). 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 a penalty tax of 50%
of the amount by which the minimum distribution required exceeds the actual
distribution.
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 permitted contribution is phased out for adjusted gross income
between $95,000 and $110,000 in the case of single taxpayers, between $150,000
and $160,000 in the case of married taxpayers filing joint returns, and between
$0 and $10,000 in the case of married taxpayers filing separately. An overall
$2,000 annual limitation continues to apply to all of a taxpayer's IRA
contributions, including Roth 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. 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 (1) the individual has held the Roth IRA for at least
five years and (2) the distribution is made either after the individual reaches
age 59 1/2, on the individual's death or disability, or as qualified first-time
home purchase. Qualified Distributions for a qualified first-time home purchase,
are subject to a $10,000 lifetime maximum for the individual, a spouse, child,
grandchild, or ancestor of such individual or the individual's spouse.
36
<PAGE>
Simplified Employee Pension Plans
Eligible 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,
provided that total employer contributions do not exceed the lesser of 15% of an
employee's compensation or $30,000.
Simple Retirement Accounts
Eligible employers may establish an IRA plan known as a simple retirement
account ("SRA"), if they meet certain requirements. Under an SRA, the employer
contributes elective employee compensation deferrals up to a maximum of $7,000 a
year for 1999 to the employee's SRA. The employer must, in general, make a fully
vested matching contribution for employee deferrals up to a maximum of 3% of
compensation.
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. The
purchase payments are also excluded from the current income of the employee.
Distributions Before the Annuity Commencement Date. Purchase payments
- --------------------------------------------------
includible in an employee's taxable income (less any amounts previously received
that were not includible in the employee's taxable income) represent the
employee's "investment in the Contract." Amounts received before 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. 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, 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, for tax years beginning before December 31, 1999, 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 reaches age 592 and that are not
made on account of death or disability, with certain exceptions. These
exceptions include distributions that are:
. part of a series of substantially equal periodic payments made at least
annually 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,
37
<PAGE>
provided such payments are made for at least 5 years and the distribution
method is not changed before the recipient reaches age 59 1/2 (except in
the case of death or disability);
. made after the employee's separation from service on account of early
retirement after attaining age 55;
. made to pay for qualified higher education or first-time home buyer
expenses;
. made to an alternate payee pursuant to a qualified domestic relations
order, if the alternate payee is the spouse or former spouse of the
employee; or
. distributions for medical expenses in excess of 7.5% of the Annuitant's
adjusted gross income without regard to whether the Annuitant itemizes
deductions on his or her tax return; or
. distributions for health insurance premiums to an unemployed individual who
has received unemployment compensation for at least 12 consecutive weeks.
Annuity Payments. A portion of annuity payments received under Contracts for
- ----------------
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." The difference is that, here, the number of
expected payments is determined under a provision in the Code. Distributions of
minimum amounts required by the Code generally must commence by April 1 of the
calendar year following the calendar year in which the employee reaches age
70 1/2 (or retires, if later). Failure to comply with the minimum distribution
rules will result in 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.
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. To avoid current
taxation, these benefits must be subject to a substantial risk of forfeiture.
These types of programs allow individuals to defer (1) receipt of up to 100% of
compensation that would otherwise be includible in income and (2) payment of
federal income taxes on the amounts.
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.
Purchase payments are not currently deductible by the employer until benefits
are included in the taxable income of the employee.
38
<PAGE>
Taxation of Distributions. Amounts that an individual receives 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.
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.
In some cases, if you own more than one Qualified annuity contract, the
contracts may be considered together to determine whether the federal tax law
requirement for minimum distributions after age 70 1/2, or retirement in
appropriate circumstances, has been satisfied. You may rely on distributions
from another annuity contract to satisfy the minimum distribution requirement
under a Qualified Contract we issued. However, 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.
Taxes Payable by AGL and the Separate Account
AGL is taxed as a life insurance company under the Code. The operations of the
Separate Account are part of the total operations of AGL and are not taxed
separately. Under existing federal income tax laws, AGL is not taxed on
investment income derived by the Separate Account (including realized and
unrealized capital gains) with respect to the Contracts. AGL reserves the right
to allocate to the Contracts any federal, state or other tax liability that may
result in the future from maintenance of the Separate Account or the Contracts.
DISTRIBUTION ARRANGEMENTS
AGL offers the Contracts on a continuous basis. American General Securities
Incorporated ("AGSI") is the principal underwriter of the Contracts. AGSI is a
wholly-owned subsidiary of AGL. AGL, in turn, is an indirect, wholly-owned
subsidiary of American General Corporation, a diversified financial services
holding company engaged primarily in the insurance business. American General
Financial Group is the marketing name for American General Corporation and its
subsidiaries. AGSI's principal office is 2727 Allen Parkway, Houston, Texas
77019. AGSI was organized as a Texas corporation on March 8, 1983 and is a
registered broker-dealer under the Securities Exchange Act of 1934, as amended
("1934 Act") and is a member of the National Association of Securities Dealers,
Inc. ("NASD"). AGSI is also the principal underwriter for AGL's Separate
Accounts D and VL-R, and Separate Accounts USL VL-R and USL VA-R of The United
States Life Insurance Company in the City of New York, which is an affiliate of
AGL. These separate accounts are registered investment companies.
39
<PAGE>
SERVICES AGREEMENT
American General Life Companies ("AGLC") is party to a general services
agreement with AGL. AGLC, an affiliate of AGL, is a corporation incorporated in
Delaware on November 24, 1997. Its address is 2727-A Allen Parkway, Houston,
Texas 77019. Under this agreement, AGLC 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.
LEGAL MATTERS
We are not involved in any legal matter about the Separate Account that would be
considered material to the interests of Contract Owners. Steven A. Glover,
Senior Counsel of AGLC has passed upon the legality of the Contracts described
in this Prospectus.
YEAR 2000 CONSIDERATIONS
As of March 10, 2000, all of our ultimate parent, American General Corporation's
("AGC") major technology systems, programs, and applications, including those
which rely on third parties, are operating smoothly following our transition
into 2000. We have experienced no interruptions to normal business operations,
including the processing of customer account data and transactions. We will
continue to monitor our technology systems, including critical third party
dependencies, as necessary to maintain our Year 2000 readiness. We do not expect
any future disruptions, if they occur, to have a material effect on the
company's results of operations, liquidity, or financial condition.
Through December 31, 1999, AGC incurred and expensed pretax costs of $98 million
related to Year 2000 readiness, including $18 million in 1999 and $65 million in
1998. In 1999, Year 2000 readiness expenses were included in division earnings.
The 1998 expenses were excluded from division earnings, consistent with the
manner in which we reviewed division results. In addition, we accelerated the
planned replacement of certain systems as part of our Year 2000 plans. The cost
of these replacement systems was immaterial. We do not anticipate incurring any
significant costs in the future to maintain Year 2000 readiness.
OTHER INFORMATION ON FILE
We have filed a Registration Statement with the Securities and Exchange
Commission under the Securities Act of 1933 for the Contracts discussed in this
Prospectus. We have not included all of the information in the Registration
Statement and its exhibits. Statements contained in this Prospectus concerning
the Contracts and other legal instruments are intended to be summaries. For a
complete statement of terms, you should refer to the documents that we filed
with the Securities and Exchange Commission.
We will send you a Statement on request without charge. Its contents are as
follows:
40
<PAGE>
CONTENTS OF STATEMENT OF ADDITIONAL INFORMATION
<TABLE>
<S> <C>
General Information...................................................... 2
Regulation and Reserves.................................................. 2
Independent Auditors..................................................... 3
Services................................................................. 3
Principal Underwriter.................................................... 4
Annuity Payments......................................................... 4
Gender of Annuitant...................................................... 6
Misstatement of Age or Gender and Other Errors........................... 7
Change of Investment Adviser or Investment Policy........................ 7
Calculation of Accumulation Unit Values.................................. 7
Financial Statements..................................................... 8
Index to Financial Statements............................................ 9
</TABLE>
41
<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
STATEMENT OF ADDITIONAL INFORMATION
Dated April 7, 2000
This Statement of Additional Information ("Statement") is not a prospectus. You
should read it with the prospectuses for American General Life Insurance Company
Separate Account A (the "Separate Account"), dated April 7, 2000, for the
individual variable retirement annuity contracts (the "Contracts"). You can
obtain a copy of the applicable prospectus for the Contracts, and any prospectus
supplements, by contacting American General Life Insurance Company ("AGL") at
the address or telephone numbers given above. Terms used in this Statement have
the same meanings as are defined in the applicable prospectus under the heading
"Definitions."
TABLE OF CONTENTS
<TABLE>
<S> <C>
General Information................................................... 2
Regulation and Reserves............................................... 2
Independent Auditors.................................................. 3
Services.............................................................. 3
Principal Underwriter................................................. 4
Annuity Payments...................................................... 4
Gender of Annuitant................................................... 6
Misstatement of Age or Gender and Other Errors........................ 7
Change of Investment Adviser or Investment Policy..................... 7
Calculation of Accumulation Unit Values............................... 7
Financial Statements.................................................. 8
Index to Financial Statements......................................... 9
</TABLE>
<PAGE>
GENERAL INFORMATION
AGL (formerly American General Life Insurance Company of Delaware) is a
successor in interest to a company previously organized as a Delaware
corporation in 1917. AGL redomesticated as a Texas insurer effective December
31, 1991 and changed its name to American General Life Insurance Company. AGL is
a wholly-owned subsidiary of AGC Life Insurance Company, a Missouri corporation
("AG Missouri"). It is engaged primarily in the life insurance business and
annuity business. AGL is the single life insurance company resulting from the
merger, effective December 31, 1991, of California -Western States Life
Insurance Company, a California corporation, and AGL.
REGULATION AND RESERVES
AGL is subject to regulation and supervision by the insurance departments of the
states where 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 most insurance guaranty fund laws, a state can assess insurers doing
business in the state for covered insurance contract losses incurred by
insolvent companies. State laws set limits for these assessments. However, AGL
cannot reasonably estimate the amount of any future assessments of AGL under
these laws. Most states have the authority to excuse or defer an assessment, if
it would threaten an insurer's own financial strength. The account value held in
the Separate Account may not be covered by insurance guaranty fund laws. Account
value held in a fixed account of an insurance company is covered by the
insurance guaranty fund laws.
The federal government generally has not directly regulated the business of
insurance. However, 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.
2
<PAGE>
Also, both the executive and legislative branches of the federal government are
considering various insurance regulatory matters. This could ultimately result
in direct federal regulation of some aspects of the insurance business. AGL
cannot predict whether this will occur or, if it does, what the effect on AGL
would be.
State insurance law requires AGL to carry reserves on its books, as liabilities,
to meet its obligations under outstanding insurance contracts. AGL bases these
reserves on assumptions about future claims experience and investment returns,
among other things.
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. This might happen, for example, due to a
spread of acquired immune deficiency syndrome or other infectious diseases or
catastrophes, or significant unexpected losses on its investments.
INDEPENDENT AUDITORS
The 1999 consolidated financial statements of AGL and the financial statements
of Separate Account A included in this Statement were audited by Ernst & Young
LLP, independent auditors, as set forth in their reports. We include these
financial statements in this Statement in reliance upon the reports of Ernst &
Young LLP that appear later on in this Statement. Ernst & Young LLP gives its
reports upon their authority as experts in accounting and auditing. Ernst &
Young LLP is located at One Houston Center, 1221 McKinney, Suite 2400, Houston,
TX 77010-2007.
SERVICES
AGL and American General Life Companies ("AGLC") are parties to a services
agreement. Most of the affiliated companies within the American General
Corporation holding company system, including certain life insurance companies,
are also parties to the agreement. AGLC is a corporation incorporated in
Delaware on November 24, 1997, with its home office located at 2727-A Allen
Parkway, Houston, Texas 77019. AGLC provides shared services to AGL and certain
other life insurance companies at cost. These services include data processing,
systems, customer services, product development, actuarial, auditing,
accounting, and legal. AGL did not pay any fees to AGLC in 1997, because AGLC
performed no services under the agreement. AGL paid AGLC $70,431,229 in 1998 and
$63,794,324 in 1999.
There was a Service Agreement between AGL and CSC Continuum, Inc. ("Continuum")
for certain services in connection with Separate Account A. Continuum 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 contracted with Continuum for the right to use Continuum's
system. For these services, Continuum received $41,672.60 in 1998 and $64,800 in
1997 related to Separate Account A. This service agreement was terminated
October 30, 1998.
3
<PAGE>
PRINCIPAL UNDERWRITER
American General Securities Incorporated ("AGSI") is the principal underwriter
for the Contracts. AGSI also serves as principal underwriter to AGL's Separate
Account D and Separate Account VL-R, to The United States Life Insurance Company
in the City of New York's Separate Account USL VL-R and Separate Account USL VA-
R and to Separate Account E of American General Life Insurance Company of New
York. All of these other separate accounts are unit investment trusts registered
under the Investment Company Act of 1940. AGSI, a Texas corporation, is a
wholly-owned subsidiary of AGL and a member of the National Association of
Securities Dealers, Inc.
As principal underwriter of the Contracts, AGSI has not received any
compensation from AGL for any of the past three 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.
AGL offers the securities under the Contracts on a continuous basis.
ANNUITY PAYMENTS
The method of calculating annuity payments is described in the applicable
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
--- -----------------------------------------------
4
<PAGE>
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 gender 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 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 gender 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 "a", = 61.102126 units
5
<PAGE>
as calculated above
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
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
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, Montana, and certain other jurisdictions, do not permit differences in
annuity payment rates between males and females.
In addition, employers should be aware that, under most employer-sponsored
plans, the law prohibits Contracts that make distinctions based on gender.
Under these plans, AGL will make available Contracts with no such differences.
MISSTATEMENT OF AGE OR GENDER AND OTHER ERRORS
If the age or gender of an Annuitant has been misstated to us, any amount
payable will be the amount that the purchase payments paid would have purchased
at the correct age and gender. If we made any overpayments because of incorrect
information about age or gender or any error or miscalculation, we will deduct
the overpayment from the next payment or payments due. We will add any under
payments to the next payment. We will credit or charge the amount of any
adjustment with interest at the assumed interest rate used in the Contract's
annuity tables.
6
<PAGE>
CHANGE OF INVESTMENT ADVISER OR INVESTMENT POLICY
Unless otherwise permitted by law or regulation, neither the investment adviser
to the Portfolio Company (or any series) or any investment policy may be changed
without the consent of the shareholders. If required, we will file approval of
or change of any investment objective with the insurance department of each
state where a Contract has been delivered. We will notify you (or, after annuity
payments start, the payee) of any material investment policy change that we have
approved. We will also notify you of any investment policy change before its
implementation by the Separate Account, if the change requires your comment or
vote.
CALCULATION OF ACCUMULATION UNIT VALUES
The method of calculating accumulation unit values is described in the
applicable 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.
(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 = .01444
(.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
7
<PAGE>
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
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
FINANCIAL STATEMENTS
Separate Account A has six Divisions as of the date of this Statement. These
six Divisions are available under the Contracts that are the subject of this
Statement. The December 31, 1999 financial statements for these six Divisions
are included in this Statement.
You should consider the financial statements of AGL that we include in this
Statement primarily as bearing on the ability of AGL to meet its obligations
under the Contracts.
8
<PAGE>
INDEX TO
FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
Page No.
--------
<S> <C>
I. Separate Account A Financial Statements
Report of Ernst & Young LLP, Independent Auditors................... A-1
Statement of Net Assets for the year ended December 31, 1999........ A-2
Statement of Operations for the year ended December 31, 1999........ A-2
Statement of Changes in Net Assets for the years ended
December 31, 1999 and 1998........................................ A-3
Notes to Financial Statements....................................... A-4
II. AGL Consolidated Financial Statements
Report of Ernst & Young LLP, Independent Auditors................... F-1
Consolidated Balance Sheets as of December 31, 1999 and 1998........ F-2
Consolidated Income Statements for the years ended
December 31, 1999, 1998 and 1997.................................. F-4
Consolidated Statements of Comprehensive Income for the years ended
December 31, 1999, 1998 and 1997.................................. F-5
Consolidated Statements of Shareholder's Equity for the years ended
December 31, 1999, 1998 and 1997.................................. F-6
Consolidated Statements of Cash Flows for the years ended
December 31, 1999, 1998 and 1997................................... F-7
Notes to Consolidated Financial Statements........................... F-8
</TABLE>
9
<PAGE>
[LETTERHEAD OF ERNST & YOUNG]
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,
1999, 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 auditing standards generally accepted
in the United States. Those standards require that we plan and perform the audit
to obtain reasonable assurance about whether the financial statements are free
of material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. Our
procedures included confirmation of securities owned as of December 31, 1999, 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, 1999, 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 accounting principles
generally accepted in the United States.
/s/ Ernst & Young LLP
Houston, Texas
February 7, 2000
<PAGE>
American General Life Insurance Company
SEPARATE ACCOUNT A
STATEMENT OF NET ASSETS
December 31, 1999
<TABLE>
ASSETS:
<S> <C>
Investment securities - at market (cost $25,060,172).. $66,719,974
Due to American General Life Insurance Company........ (1,653)
-----------
NET ASSETS......................................... $66,718,321
===========
CONTRACT OWNER RESERVES:
Reserves for redeemable annuity contracts............. $61,006,005
Reserves for annuity contracts on benefit............. 5,712,316
-----------
TOTAL CONTRACT OWNER RESERVES...................... $66,718,321
===========
</TABLE>
STATEMENT OF OPERATIONS
Year Ended December 31, 1999
<TABLE>
INVESTMENT INCOME:
<S> <C> <C>
Dividends from mutual funds.......................... $ 643,497
EXPENSES:
Expense and mortality fees........................... $(643,882)
Fund advisory fee reimbursement...................... 6,331 (637,551)
--------- -----------
NET INVESTMENT INCOME............................. 5,946
-----------
REALIZED AND UNREALIZED GAIN ON INVESTMENTS:
Net realized gain on investments..................... 4,827,767
Capital gain distributions from mutual funds......... 543,080
Net unrealized gain on investments................... 5,912,486
-----------
NET REALIZED AND UNREALIZED GAIN ON INVESTMENTS... 11,283,333
-----------
INCREASE IN NET ASSETS RESULTING FROM OPERATIONS.. $11,289,279
===========
</TABLE>
See accompanying notes.
A-2
<PAGE>
American General Life Insurance Company
SEPARATE ACCOUNT A
STATEMENT OF CHANGES IN NET ASSETS
<TABLE>
<CAPTION>
Year Ended December 31,
1999 1998
<S> <C> <C>
OPERATIONS:
Net investment income............................................ $ 5,946 $ 387,558
Net realized gain on investments................................. 4,827,767 4,006,072
Capital gain distributions from mutual funds..................... 543,080 0
Net unrealized gain on investments............................... 5,912,486 9,421,798
----------- -----------
Increase in net assets resulting from operations.............. 11,289,279 13,815,428
----------- -----------
PRINCIPAL TRANSACTIONS:
Contract purchase payments, less sales and administrative
expenses and premium taxes.................................... 266,158 325,980
Mortality reserve transfers...................................... 133,767 (61,381)
Payments to contract owners:
Annuity benefits.............................................. (879,079) (758,072)
Terminations and withdrawals.................................. (5,774,187) (5,237,395)
----------- -----------
Decrease in net assets resulting from principal transactions.. (6,253,341) (5,730,868)
----------- -----------
TOTAL INCREASE IN NET ASSETS..................................... 5,035,938 8,084,560
NET ASSETS:
Beginning of year................................................ 61,682,383 53,597,823
----------- -----------
End of year...................................................... $66,718,321 $61,682,383
=========== ===========
</TABLE>
See accompanying notes.
A-3
<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, 1966. 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"), a related party. The Separate Account is comprised
of six subaccounts or "divisions" which are available to contract holders
through American General Life Insurance Company annuity contracts.
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 charges - 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 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%. The total reimbursements by the Company were $6,331 for the year ended
December 31, 1999.
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 $6,814 for the year ended December 31, 1999.
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 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 sales of investments realized by the
Separate Account are not taxable. Therefore, no federal income tax provision has
been made.
A-4
<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, 1999.
<TABLE>
<CAPTION>
Net Value of Unrealized
Asset Shares at Cost of Appreciation/
Fund Shares Value Market Shares Held (Depreciation)
<S> <C> <C> <C> <C> <C>
MidCap Index Fund............... 1,515.277 $22.24 $ 33,700 $ 36,304 $ (2,604)
Asset Allocation Fund........... 7,729.937 15.09 116,645 91,981 24,664
Money Market Fund............... 0.000 1.00 0 0 0
Capital Conservation Fund....... 0.000 9.04 0 0 0
Government Securities Fund...... 148.083 9.53 1,411 1,434 (23)
Stock Index Fund................ 1,497,934.695 44.44 66,568,218 24,930,453 41,637,765
----------- ----------- -----------
Total $66,719,974 $25,060,172 $41,659,802
=========== =========== ===========
</TABLE>
The aggregate cost of purchases and proceeds from sales of investments for
the period ended December 31, 1999 were $2,011,068 and $7,713,731, respectively.
The cost of total investments owned at December 31, 1999 was the same for both
financial reporting and federal income tax purposes. Gross unrealized
appreciation and gross unrealized depreciation as of December 31, 1999 were
$41,662,429 and $2,627, respectively.
Note E - Summary of Changes in Units
Summary of Changes in Units for the Year Ended December 31, 1999
CONTRACTS IN ACCUMULATION PERIOD:
<TABLE>
<CAPTION>
Stock Asset Money Capital Government
Index MidCap Allocation Market Conservation Securities
Fund Index Fund Fund Fund Fund Fund
<S> <C> <C> <C> <C> <C> <C>
Outstanding at beginning of period..... 2,050,512.154 10,460.901 40,499.767 0.000 0.000 923.091
Purchase payments...................... 6,746.364 0.000 0.000 0.000 0.000 0.000
Terminations and withdrawals........... (172,122.767) (419.469) (13.272) (305,155.934) 0.000 (5.807)
Transfers to annuity................... (13,980.738) 0.000 0.000 0.000 0.000 0.000
Transfers between funds................ (18,020.932) 0.000 0.000 305,155.934 0.000 0.000
------------- ---------- ---------- ------------ ----- -------
Outstanding at end of period........... 1,853,134.081 10,041.432 40,486.495 0.000 0.000 917.284
============= ========== ========== ============ ===== =======
</TABLE>
CONTRACTS IN ANNUITY PERIOD:
<TABLE>
<CAPTION>
Stock
Index
Fund
<S> <C>
Outstanding at beginning of period..... 186,843.413
Transfers from accumulation............ 12,169.972
Mortality reserve transfers............ 2,846.209
Annuity benefits....................... (27,908.040)
-------------
Outstanding at end of period........... 173,951.554
=============
</TABLE>
A-5
<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, 1998
CONTRACTS IN ACCUMULATION PERIOD:
<TABLE>
<CAPTION>
Stock Asset Money Capital Government
Index MidCap Allocation Market Conservation Securities
Fund Index Fund Fund Fund Fund Fund
<S> <C> <C> <C> <C> <C> <C>
Outstanding at beginning
of period..................... 2,259,376.335 9,327.907 41,787.393 0.000 9,964.962 2,361.798
Purchase payments.............. 9,058.373 0.000 0.000 0.000 325.246 0.000
Terminations and withdrawals... (194,174.037) (863.709) (1,287.626) (85,342.280) (10,290.208) (,438.707)
Transfers to annuity........... (10,176.500) 0.000 0.000 0.000 0.000 0.000
Transfers between funds........ 13,572.017 1,996.703 0.000 85,342.280 0.000 0.000
------------- ---------- ------------- ------------ ----------------- -----------
Outstanding at end of period... 2,050,512.154 10,460.901 40,499.767 0.000 0.000 923.091
============= ========== ============= ============ ================= ===========
</TABLE>
CONTRACTS IN ANNUITY PERIOD:
<TABLE>
<CAPTION>
Stock
Index
Fund
<S> <C>
Outstanding at beginning of period........... 211,785.140
Transfers from accumulation.................. 8,868.405
Mortality reserve transfers.................. 2,506.098
Annuity benefits............................. (36,316.230)
-------------
Outstanding at end of period................. 186,843.413
=============
</TABLE>
Note F - Net Assets Represented By:
<TABLE>
<CAPTION>
December 31, 1999
CONTRACTS IN ACCUMULATION PERIOD: Units Unit Value Amount
<S> <C> <C> <C>
MidCap Index Fund.................. 10,041.432 $ 3.348223 $ 33,621
Asset Allocation Fund.............. 40,486.495 2.883696 116,751
Money Market Fund.................. 0.000 1.024631 0
Capital Conservation Fund.......... 0.000 1.185152 0
Government Securities Fund......... 917.284 1.527152 1,401
Stock Index Fund................... 1,853,134.081 32.838548 60,854,232
-----------
61,006,005
-----------
CONTRACTS IN ANNUITY PERIOD:
Stock Index Fund......... 173,951.554 32.838548 5,712,316
-----------
TOTAL CONTRACT OWNER RESERVES $66,718,321
===========
</TABLE>
<TABLE>
<CAPTION>
December 31, 1998
CONTRACTS IN ACCUMULATION PERIOD: Units Unit Value Amount
<S> <C> <C> <C>
MidCap Index Fund............... 10,460.901 $ 2.952069 $ 30,882
Asset Allocation Fund........... 40,499.767 2.600638 105,325
Money Market Fund............... 0.000 1.011450 0
Capital Conservation Fund....... 0.000 1.185152 0
Government Securities Fund...... 923.091 1.591685 1,469
Stock Index Fund................ 2,050,512.154 27.507790 56,405,058
-----------
56,542,734
-----------
CONTRACTS IN ANNUITY PERIOD:
Stock Index Fund......... 186,843.413 27.507790 5,139,649
-----------
TOTAL CONTRACT OWNER RESERVES $61,682,383
===========
</TABLE>
A-6
<PAGE>
Note G - Year 2000 Contingency (Unaudited)
Internal Systems. The Company's ultimate parent, American General
----------------
Corporation ("AGC"), has numerous technology and non-technology systems that are
managed on a decentralized basis. AGC's Year 2000 readiness efforts have been
performed by its key business units with centralized oversight. Each business
unit, including the Company, executed a plan to minimize the risk of a
significant negative impact on its operations.
While the specifics of the plans varied, the plans included the following
activities: (1) perform an inventory of the Company's information technology and
non-information technology systems; (2) assess which items in the inventory may
expose the Company to business interruptions due to Year 2000 issues; (3)
reprogram or replace systems that are not Year 2000 ready; (4) test systems to
prove that they will function into the next century; and (5) return the systems
to operations. As of December 31, 1999, these activities have been completed,
making the Company's critical systems Year 2000 ready.
The Company continued to test its systems throughout 1999 to maintain Year
2000 readiness. In addition, the Company implemented plans for the century
transition. These plans included a freeze on system modifications from November
1999 through January 2000, the creation of rapid response teams to address
problems and limiting vacations for certain business and technical personnel and
establishing Y2K Command Centers. In addition, AGC established Y2K Command
Centers in Houston and each of its locations across the country. Each Command
Center monitored all major business processing activities during the century
transition and reported progress to the Houston Command Center which coordinated
the company's nationwide Year 2000 effort. The Command Centers continued to
operate 24 hours a day until January 7, 2000.
On January 1, 2000, AGC announced that its Y2K Command Centers reported
that all major technology systems, programs, and applications were operating
smoothly following the transition into the 21st century. As of February 7, 2000,
the Company has experienced no interruptions to normal business operations,
including the processing of customer account data and transactions. The Company
will continue to monitor our technology systems and maintain quality customer
service throughout the transition period.
Third Party Relationships. The Company has relationships with various third
-------------------------
parties who must also be Year 2000 ready. These third parties provide (or
receive) resources and services to (or from) the Company and include
organizations with which the Company exchanges information. Third parties
include vendors of hardware, software, and information services; providers of
infrastructure services such as voice and data communications and utilities for
office facilities; investors; customers; distribution channels; and joint
venture partners. Third parties differ from internal systems in that the Company
exercises less, or no, control over such parties' Year 2000 readiness.
The Company developed plans to assess and mitigate the risks associated
with the potential failure of third parties to achieve Year 2000 readiness.
These plans included the following activities: (1) identify and classify third
party dependencies; (2) research, analyze, and document Year 2000 readiness for
critical third parties; and (3) test critical hardware and software products and
electronic interfaces, and, where feasible, the Company has taken reasonable
precautions to protect against the receipt of non-Year 2000 ready data. Where
necessary, critical third party dependencies have been included in The Company's
contingency plans.
Contingency Plans. The Company's contingency planning process was designed
-----------------
to reduce the risk of Year 2000-related business failures related to both
internal systems and third party relationships. The contingency plans included
the following activities: (1) evaluate the consequences of failure of critical
business processes with significant exposure to Year 2000 risk; (2) determine
the probability of a Year 2000-related failure for those critical processes that
have a high consequence of failure; (3) develop an action plan to complete
contingency plans for critical processes that rank high in consequence and
probability of failure; and (4) complete the applicable contingency plans. The
contingency plans were tested and updated throughout 1999.
A-7
<PAGE>
SEPARATE ACCOUNT A
NOTES TO FINANCIAL STATEMENTS - CONTINUED
Note G - Year 2000 Contingency (Unaudited) - Continued
Risks and Uncertainties. Based on the Year 2000 readiness of internal
-----------------------
systems, century transition plans, plans to deal with third party relationships,
contingency plans and the reports from the AGC Y2K Command Centers described
above, the Company believes that it will experience at most isolated and minor
disruptions of business processes due to the Year 2000 transition. Such
disruptions are not expected to have a material effect on our future results of
operations, liquidity, or financial condition. However, due to the magnitude
and complexity of this project, risks and uncertainties exist and the Company is
not able to predict a most reasonably likely worst case scenario. If Year 2000
readiness is not achieved due to the Company's failure to maintain critical
systems as Year 2000 ready, failure of critical third parties to achieve Year
2000 readiness on a timely basis, failure of contingency plans to reduce Year
2000-related business failures, or other unforeseen circumstances in completing
its plans, the Year 2000 issues could have a material adverse impact on the
Company's operations following the turn of the century.
Costs. Through December 31, 1999, the Company has incurred, and anticipates
-----
that the Company will continue to incur, costs relative to achieving and
maintaining Year 2000 readiness. The cost of activities related to Year 2000
readiness has not had a material adverse effect on the Company's results of
operations or financial condition. In addition, the Company has elected to
accelerate the planned replacement of certain systems as part of the Year 2000
plans. Costs of the replacement systems are being capitalized and amortized over
their useful lives, in accordance with the Company's normal accounting policies.
None of the costs associated with Year 2000 readiness are passed to divisions of
the Separate Account.
A-8
<PAGE>
[LETTERHEAD OF ERNST & YOUNG]
Report of Independent Auditors
Board of Directors and Stockholder
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, 1999 and 1998, and the
related consolidated statements of income, comprehensive income, shareholder's
equity, and cash flows for each of the three years in the period ended December
31, 1999. These financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these financial
statements based on our audits.
We conducted our audits in accordance with auditing standards generally accepted
in the United States. Those standards require that we plan and perform the audit
to obtain reasonable assurance about whether the financial statements are free
of material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant estimates
made by management, as well as evaluating the overall financial statement
presentation. We believe that our audits provide a reasonable basis for our
opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the consolidated financial position of American General
Life Insurance Company and subsidiaries at December 31, 1999 and 1998, and the
consolidated results of their operations and their cash flows for each of the
three years in the period ended December 31, 1999, in conformity with accounting
principles generally accepted in the United States.
/s/ Ernst & Young LLP
------------------------------
Ernst & Young LLP
March 1,2000
F-1
<PAGE>
American General Life Insurance Company
Consolidated Balance Sheets
DECEMBER 31
1999 1998
-----------------------------
(In Thousands)
ASSETS
Investments:
Fixed maturity securities, at fair value
(amortized cost - $27,725,167 in 1999 and $27,029,409 $28,906,261
$27,425,605 in 1998)
Equity securities, at fair value (cost -
$198,640 in 1999 and $193,368 in 1998) 237,065 211,684
Mortgage loans on real estate 1,918,956 1,557,268
Policy loans 1,234,729 1,170,686
Investment real estate 125,563 119,520
Other long-term investments 129,155 86,194
Short-term investments 123,779 222,949
----------------------------
Total investments 30,798,656 32,274,562
Cash 45,983 117,675
Investment in Parent Company (cost - $8,597 in
1999 and 1998) 53,083 54,570
Indebtedness from affiliates 75,195 161,096
Accrued investment income 482,652 459,961
Accounts receivable 186,592 196,596
Deferred policy acquisition costs 1,956,653 1,087,718
Property and equipment 78,908 66,197
Other assets 250,299 206,318
Assets held in separate accounts 23,232,419 15,616,020
----------------------------
Total assets $57,160,440 $50,240,713
============================
See accompanying notes.
F-2
<PAGE>
American General Life Insurance Company
Consolidated Balance Sheets
DECEMBER 31
1999 1998
-----------------------------
(In Thousands)
LIABILITIES AND SHAREHOLDER'S EQUITY
Liabilities:
Future policy benefits $29,901,842 $29,353,022
Other policy claims and benefits payable 53,326 54,278
Other policyholders' funds 371,632 398,587
Federal income taxes 375,332 677,315
Indebtedness to affiliates 7,086 18,173
Other liabilities 372,416 554,783
Liabilities related to separate accounts 23,232,419 15,616,020
----------------------------
Total liabilities 54,314,053 46,672,178
Shareholder's 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 1,371,687 1,368,089
Accumulated other comprehensive (loss) income (356,865) 679,107
Retained earnings 1,824,715 1,514,489
----------------------------
Total shareholder's equity 2,846,387 3,568,535
----------------------------
Total liabilities and shareholder's equity $57,160,440 $50,240,713
============================
See accompanying notes.
F-3
<PAGE>
American General Life Insurance Company
Consolidated Statements of Income
YEAR ENDED DECEMBER 31
1999 1998 1997
-------------------------------------------
(In Thousands)
Revenues:
Premiums and other considerations $ 540,029 $ 470,238 $ 428,721
Net investment income 2,348,196 2,316,933 2,198,623
Net realized investment gains 5,351 (33,785) 29,865
(losses)
Other 82,581 69,602 53,370
-----------------------------------------
Total revenues 2,976,157 2,822,988 2,710,579
Benefits and expenses:
Benefits 1,719,375 1,788,417 1,757,504
Operating costs and expenses 495,606 467,067 379,012
Interest expense 74 15 782
Litigation settlement - 97,096 -
-----------------------------------------
Total benefits and expenses 2,215,055 2,352,595 2,137,298
-----------------------------------------
Income before income tax expense 761,102 470,393 573,281
Income tax expense 263,196 153,719 198,724
------------------------------------------
Net income $ 497,906 $ 316,674 $ 374,557
==========================================
See accompanying notes.
F-4
<PAGE>
American General Life Insurance Company
Consolidated Statements of Comprehensive Income
YEAR ENDED DECEMBER 31
1999 1998 1997
----------------------------------------
(In Thousands)
Net income $ 497,906 $ 316,674 $ 374,557
Other comprehensive income:
Gross change in unrealized gains
(losses) on securities (pretax:
($1,581,500) $341,000; $318,700) (1,027,977) 222,245 207,124
Less: gains (losses) realized in 7,995 (29,336) (1,251)
net income
----------------------------------------
Change in net unrealized gains
(losses) on securities (pretax:
($1,593,800) $387,000; $320,600) (1,035,972) 251,581 208,375
----------------------------------------
Comprehensive (loss) income $ (538,066) $ 568,255 $ 582,932
========================================
See accompanying notes.
F-5
<PAGE>
American General Life Insurance Company
Consolidated Statements of Shareholder's Equity
YEAR ENDED DECEMBER 31
1999 1998 1997
-------------------------------------------
(In Thousands)
Common stock:
Balance at beginning of year $ 6,000 $ 6,000 $ 6,000
Change during year - - -
-------------------------------------------
Balance at end of year 6,000 6,000 6,000
Preferred stock:
Balance at beginning of year 850 850 850
Change during year - - -
-------------------------------------------
Balance at end of year 850 850 850
Additional paid-in capital:
Balance at beginning of year 1,368,089 1,184,743 933,342
Capital contribution from Parent
Company - 182,284 250,000
Other changes during year 3,598 1,062 1,401
-------------------------------------------
Balance at end of year 1,371,687 1,368,089 1,184,743
Accumulated other comprehensive
(loss) income:
Balance at beginning of year 679,107 427,526 219,151
Change in unrealized gains
(losses) on securities (1,035,972) 251,581 208,375
------------------------------------------
Balance at end of year (356,865) 679,107 427,526
Retained earnings:
Balance at beginning of year 1,514,489 1,442,495 1,469,618
Net income 497,906 316,674 374,557
Dividends paid (187,680) (244,680) (401,680)
------------------------------------------
Balance at end of year 1,824,715 1,514,489 1,442,495
-------------------------------------------
Total shareholder's equity $2,846,387 $3,568,535 $3,061,614
===========================================
See accompanying notes.
F-6
<PAGE>
American General Life Insurance Company
Consolidated Statements of Cash Flows
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31
1999 1998 1997
--------------------------------------------------------------------
<S> <C> <C> <C>
(In Thousands)
OPERATING ACTIVITIES
Net income $ 497,906 $ 316,674 $ 374,557
Adjustments to reconcile net income to net cash
(used in) provided by operating activities:
Change in accounts receivable 10,004 11,613 (37,752)
Change in future policy benefits and other
policy claims (2,422,221) (866,428) (1,143,736)
Amortization of policy acquisition costs 101,066 125,062 115,467
Policy acquisition costs deferred (307,854) (244,196) (219,339)
Change in other policyholders' funds (26,955) 273 21,639
Provision for deferred income tax expense 85,257 15,872 13,264
Depreciation 24,066 19,418 16,893
Amortization (30,894) (26,775) (28,276)
Change in indebtedness to/from affiliates 74,814 (51,116) (8,695)
Change in amounts payable to brokers (43,321) (894) 31,769
Net loss (gain) on sale of investments 45,379 37,016 (29,865)
Other, net (170,413) 57,307 30,409
--------------------------------------------------------------------
Net cash used in operating activities (2,163,166) (606,174) (863,665)
INVESTING ACTIVITIES
Purchases of investments and loans made (44,508,908) (28,231,615) (29,638,861)
Sales or maturities of investments and
receipts from repayment of loans 43,879,377 26,656,897 28,300,238
Sales and purchases of property, equipment,
and software, net (87,656) (105,907) (9,230)
--------------------------------------------------------------------
Net cash used in investing activities (717,187) (1,680,625) (1,347,853)
FINANCING ACTIVITIES
Policyholder account deposits 5,747,658 4,688,831 4,187,191
Policyholder account withdrawals (2,754,915) (2,322,307) (1,759,660)
Dividends paid (187,680) (244,680) (401,680)
Capital contribution from Parent - 182,284 250,000
Other 3,598 1,062 1,401
--------------------------------------------------------------------
Net cash provided by financing activities 2,808,661 2,305,190 2,277,252
--------------------------------------------------------------------
(Decrease) increase in cash (71,692) 18,391 65,734
Cash at beginning of year 117,675 99,284 33,550
--------------------------------------------------------------------
Cash at end of year $ 45,983 $ 117,675 $ 99,284
====================================================================
</TABLE>
Interest paid amounted to approximately $2,026,000, $420,000, and $1,004,000, in
1999, 1998, and 1997, respectively.
See accompanying notes.
F-7
<PAGE>
American General Life Insurance Company
Notes to Consolidated Financial Statements
December 31, 1999
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"). During
1998, the Company formed a new wholly-owned subsidiary, American General Life
Companies ("AGLC"), to provide management services to certain life insurance
subsidiaries of the Parent Company.
The Company offers a complete portfolio of the standard forms of universal life,
variable 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 wholly-owned
broker/dealer, American General Securities, Inc. The Company serves the estate
planning needs of middle- and upper-income households and the life 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 subsidiaries. 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.
F-8
<PAGE>
American General Life Insurance Company
Notes to Consolidated Financial Statements (Continued)
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,
1999.
Statutory financial statements differ from GAAP. Significant differences were as
follows (in thousands):
<TABLE>
<CAPTION>
1999 1998 1997
--------------------------------------------------------
Net income:
<S> <C> <C> <C>
Statutory net income (1999 balance is
unaudited) $ 350,294 $ 259,903 $ 327,813
Deferred policy acquisition costs and cost
of insurance purchased 200,285 116,597 103,872
Deferred income taxes (86,456) (53,358) (13,264)
Adjustments to policy reserves 23,110 52,445 (30,162)
Goodwill amortization (2,437) (2,033) (2,067)
Net realized gain on investments 2,246 41,488 20,139
Litigation settlement - (63,112) -
Other, net 10,864 (35,256) (31,774)
--------------------------------------------------------
GAAP net income $ 497,906 $ 316,674 $ 374,557
========================================================
Shareholders' equity:
Statutory capital and surplus (1999 balance
is unaudited) $1,753,570 $1,670,412 $1,636,327
Deferred policy acquisition costs and cost
of insurance purchased 1,975,667 1,109,831 835,031
Deferred income taxes (350,258) (698,350) (535,703)
Adjustments to policy reserves (202,150) (274,532) (319,680)
Acquisition-related goodwill 52,317 54,754 51,424
Asset valuation reserve ("AVR") 351,904 310,564 255,975
Interest maintenance reserve ("IMR") 53,226 27,323 9,596
Investment valuation differences (683,500) 1,487,658 1,272,339
Surplus from separate accounts (180,362) (174,447) (150,928)
Other, net 75,973 55,322 7,233
--------------------------------------------------------
Total GAAP shareholders' equity $2,846,387 $3,568,535 $3,061,614
========================================================
</TABLE>
F-9
<PAGE>
American General Life Insurance Company
Notes to Consolidated Financial Statements (Continued)
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 tax assets and liabilities
are established for temporary differences between the financial reporting basis
and the tax basis of assets and liabilities, at the enacted tax rates expected
to be in effect when the temporary differences reverse; (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. At
December 31, 1999 and 1998, insurance investment contracts of $25.9 million and
$24.1 million, respectively, were included in the Company's liabilities.
F-10
<PAGE>
American General Life Insurance Company
Notes to Consolidated Financial Statements (Continued)
1. ACCOUNTING POLICIES (CONTINUED)
1.4 INVESTMENTS
FIXED MATURITY AND EQUITY SECURITIES
All fixed maturity and equity securities were classified as available-for-sale
and recorded at fair value at December 31, 1999 and 1998. After adjusting
related balance sheet accounts as if the unrealized gains (losses) had been
realized, the net adjustment is recorded in accumulated other comprehensive
income 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.
During 1999, the Company maintained a trading portfolio of certain fixed
maturity securities. Trading securities are recorded at fair value. Unrealized
and realized gains (losses) are included in net investment income. The Company
held no trading securities at December 31, 1999, and trading securities did not
have a material effect on net investment income in 1999.
MORTGAGE LOANS
Mortgage loans are reported at amortized cost, net of an allowance for losses.
The allowance for losses covers all non-performing loans and loans for which
management has a concern based on its assessment of risk factors, such as
potential non-payment or non-monetary default. The allowance is based on a loan-
specific review and a formula that reflects past results and current trends.
Loans for which the Company determines that collection of all amounts due under
the contractual terms is not probable are considered to be impaired. The Company
generally looks to the underlying collateral for repayment of impaired loans.
Therefore, impaired loans are considered to be collateral dependent and are
reported at the lower of amortized cost or fair value of the underlying
collateral, less estimated cost to sell.
POLICY LOANS
Policy loans are reported at unpaid principal balance.
F-11
<PAGE>
American General Life Insurance Company
Notes to Consolidated Financial Statements (Continued)
1. ACCOUNTING POLICIES (CONTINUED)
1.4 INVESTMENTS (CONTINUED)
INVESTMENT REAL ESTATE
Investment real estate is classified as held for investment or available for
sale, based on management's intent. Real estate held for investment is carried
at cost, less accumulated depreciation and impairment write-downs. Real estate
available for sale is carried at the lower of cost (less accumulated
depreciation, if applicable) or fair value less cost to sell.
INVESTMENT INCOME
Interest on fixed maturity securities and performing and restructured mortgage
loans is recorded as income when earned and is adjusted for any amortization of
premium or discount. Interest and any amortization of premium or discount on
delinquent mortgage loans is recorded as income only when actual interest
payments are received. Dividends are recorded as income on ex-dividend dates.
REALIZED INVESTMENT GAINS
Realized investment gains (losses) are recognized using the specific-
identification method.
1.5 SEPARATE ACCOUNTS
Separate Accounts are assets and liabilities associated with certain contracts,
principally annuities; for which the investment risk lies solely with the
contract holder. Therefore, 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, comprehensive
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.
F-12
<PAGE>
American General Life Insurance Company
Notes to Consolidated Financial Statements (Continued)
1. ACCOUNTING POLICIES (CONTINUED)
1.6 DEFERRED POLICY ACQUISITION COSTS ("DPAC") AND COST OF INSURANCE PURCHASED
("CIP")
Certain costs of writing an insurance policy, including commissions,
underwriting, and marketing expenses, are deferred and reported as DPAC.
CIP represents the cost assigned to insurance contracts in force that are
acquired through the purchase of a block of business. At December 31, 1999, CIP
of $19.0 million was reported within other assets.
DPAC and CIP associated with interest-sensitive life contracts, insurance
investment contracts, and participating life insurance contracts is charged to
expense in relation to the estimated gross profits of those contracts. DPAC and
CIP associated with all other insurance contracts is charged to expense over the
premium-paying period or as the premiums are earned over the life of the
contract.
DPAC and CIP are adjusted for the impact on estimated future gross profits as if
net unrealized gains (losses) on securities had been realized at the balance
sheet date. The impact of this adjustment is included in accumulated other
comprehensive income within shareholder's equity.
The Company reviews the carrying amount of DPAC and CIP on at least an annual
basis. Management considers estimated future gross profits or future premiums,
expected mortality, interest earned and credited rates, persistency, and
expenses in determining whether the carrying amount is recoverable.
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. 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 a constant relationship to insurance in force. For all other
contracts, premiums are recognized when due.
F-13
<PAGE>
American General Life Insurance Company
Notes to Consolidated Financial Statements (Continued)
1. ACCOUNTING POLICIES (CONTINUED)
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 by management for indicators of impairment in value. If facts
and circumstances suggest that goodwill is impaired, other than temporarily, the
Company assesses the fair value of the underlying assets and reduces goodwill
accordingly.
1.9 POLICY AND CONTRACT CLAIMS RESERVES
Substantially all of the Company's insurance and annuity liabilities relate to
long duration contracts. The contracts normally cannot be changed or canceled by
the Company during the contract period.
For interest-sensitive life insurance and investment contracts, reserves equal
the sum of the policy account balance and deferred revenue charges. Reserves for
other contracts are based on estimates of the cost of future policy benefits.
Reserves are determined using the net level premium method. Interest assumptions
used to compute reserves ranged from 2.5% to 13.5% at December 31, 1999.
1.10 REINSURANCE
The Company limits its exposure to loss on any single insured to $2.5 million by
ceding additional risks through reinsurance contracts with other insurers. The
Company diversifies its risk of reinsurance loss by using a number of reinsurers
that have strong claims-paying ability ratings. If the 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.
A receivable is recorded for the portion of benefits paid and insurance
liabilities that have been reinsured. Reinsurance recoveries on ceded
reinsurance contracts were $28 million, $63 million, and $25 million, during
1999, 1998, and 1997, respectively. The cost of reinsurance is recognized over
the life of the reinsured policies using assumptions consistent with those used
to account for the underlying policies. Benefits paid and future policy benefits
related to ceded insurance contracts are recorded as reinsurance receivables.
F-14
<PAGE>
American General Life Insurance Company
Notes to Consolidated Financial Statements (Continued)
1. ACCOUNTING POLICIES (CONTINUED)
1.11 PARTICIPATING POLICY CONTRACTS
Participating life insurance accounted for approximately 1% and 2% of life
insurance in force at December 31, 1999 and 1998, respectively.
The portion of earnings allocated to participating policyholders that cannot be
expected to inure to shareholders is excluded from net income and shareholder's
equity. Dividends to be paid on participating life insurance contracts are
determined annually based on estimates of the contracts' earnings. Policyholder
dividends were $4.6 million in 1999.
1.12 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.
Deferred tax assets and liabilities are established for temporary differences
between the financial reporting basis and the tax basis of assets and
liabilities, at the enacted tax rates expected to be in effect when the
temporary differences reverse. The effect of a tax rate change is recognized in
income in the period of enactment. State income taxes are included in income tax
expense.
A valuation allowance for deferred tax assets is provided if it is more likely
than not that some portion of the deferred tax asset will not be realized. An
increase or decrease in a valuation allowance that results from a change in
circumstances that causes a change in judgment about the realizability of the
related deferred tax asset is included in income. Changes related to
fluctuations in fair value of available-for-sale securities are included in the
consolidated statements of comprehensive income and accumulated other
comprehensive income in shareholder's equity.
F-15
<PAGE>
American General Life Insurance Company
Notes to Consolidated Financial Statements (Continued)
1. ACCOUNTING POLICIES (CONTINUED)
1.13 ACCOUNTING CHANGES
In 1998, the Financial Accounting Standards Board ("FASB") issued Statement of
Financial Accounting Standards ("SFAS") 133, Accounting for Derivative
Instruments and Hedging Activities, which requires all derivative instruments to
be recognized at fair value in the balance sheet. Changes in the fair value of a
derivative instrument will be reported as earnings or other comprehensive
income, depending upon the intended use of the derivative instrument. The
Company will adopt SFAS 133 on January 1, 2001. The Company does not expect
adoption to have a material impact on the Company's results of operations and
financial position.
2. INVESTMENTS
2.1 INVESTMENT INCOME
Investment income by type of investment was as follows:
1999 1998 1997
-------------------------------------------
(In Thousands)
Investment income:
Fixed maturities $2,118,794 $2,101,730 $1,966,528
Equity securities 17,227 1,813 1,067
Mortgage loans on real estate 134,878 148,447 157,035
Investment real estate 20,553 23,139 22,157
Policy loans 69,684 66,573 62,939
Other long-term investments 7,539 3,837 3,135
Short-term investments 24,874 15,492 8,626
Investment income from affiliates 8,695 10,536 11,094
-------------------------------------------
Gross investment income 2,402,244 2,371,567 2,232,581
Investment expenses 54,048 54,634 33,958
-------------------------------------------
Net investment income $2,348,196 $2,316,933 $2,198,623
===========================================
The carrying value of investments that produced no investment income during 1999
was less than 0.2% 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.
F-16
<PAGE>
American General Life Insurance Company
Notes to Consolidated Financial Statements (Continued)
2. INVESTMENTS (CONTINUED)
2.2 NET REALIZED INVESTMENT GAINS (LOSSES)
Realized gains (losses) by type of investment were as follows:
1999 1998 1997
-------------------------------------------
(In Thousands)
Fixed maturities:
Gross gains $ 118,427 $ 20,109 $ 42,966
Gross losses (102,299) (62,657) (34,456)
-------------------------------------------
Total fixed maturities 16,128 (42,548) 8,510
Equity securities 793 645 1,971
Other investments (11,570) 8,118 19,384
-------------------------------------------
Net realized investment gains
(losses) 5,351 (33,785) 29,865
before tax
Income tax expense (benefit) 1,874 (11,826) 10,452
Net realized investment gains
(losses) $ 3,477 $(21,959) $ 19,413
after tax
===========================================
F-17
<PAGE>
American General Life Insurance Company
Notes to Consolidated Financial Statements (Continued)
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, 1999 and 1998 were as follows:
GROSS GROSS
AMORTIZED UNREALIZED UNREALIZED FAIR
COST GAIN LOSS VALUE
--------------------------------------------------
(In Thousands)
DECEMBER 31, 1999
Fixed maturity securities:
Corporate securities:
Investment-grade $19,455,518 $134,003 $(704,194) $18,885,326
Below investment-grade 1,368,494 11,863 (114,260) 1,266,098
Mortgage-backed securities* 6,195,003 45,022 (74,746) 6,165,279
U.S. government obligations 276,621 15,217 (2,376) 289,462
Foreign governments 245,782 5,774 (1,767) 249,789
State and political 154,034 499 (10,836) 143,697
subdivisions
Redeemable preferred stocks 29,715 43 - 29,758
-------------------------------------------------
Total fixed maturity $27,725,167 $212,421 $(908,179) $27,029,409
securities
==================================================
Equity securities $ 198,640 $ 39,381 $ (956) $ 237,065
==================================================
Investment in Parent Company $ 8,597 $ 44,486 $ - $ 53,083
==================================================
* Primarily include pass-through securities guaranteed by and mortgage
obligations ("CMOs") collateralized by the U.S. government and government
agencies.
F-18
<PAGE>
American General Life Insurance Company
Notes to Consolidated Financial Statements (Continued)
2. INVESTMENTS (CONTINUED)
2.3 FIXED MATURITY AND EQUITY SECURITIES (CONTINUED)
GROSS GROSS
AMORTIZED UNREALIZED UNREALIZED FAIR
COST GAIN LOSS VALUE
-------------------------------------------------
(In Thousands)
DECEMBER 31, 1998
Fixed maturity securities:
Corporate securities:
Investment-grade $18,800,553 $1,129,504 $(26,353) $19,903,703
Below investment-grade 1,409,198 33,910 (45,789) 1,397,320
Mortgage-backed securities* 6,359,242 294,331 (870) 6,652,703
U.S. government obligations 417,822 69,321 (178) 486,965
Foreign governments 331,699 24,625 (2,437) 353,887
State and political 86,778 4,796 (187) 91,387
subdivisions
Redeemable preferred stocks 20,313 - (17) 20,296
-------------------------------------------------
Total fixed maturity $27,425,605 $1,556,487 $(75,831) $28,906,261
securities
=================================================
Equity securities $ 193,368 $ 19,426 $ (1,110) $ 211,684
=================================================
Investment in Parent Company $ 8,597 $ 45,973 $ - $ 54,570
=================================================
* Primarily include pass-through securities guaranteed by and mortgage
obligations ("CMOs") collateralized by the U.S. government and government
agencies.
F-19
<PAGE>
American General Life Insurance Company
Notes to Consolidated Financial Statements (Continued)
2. INVESTMENTS (CONTINUED)
2.3 FIXED MATURITY AND EQUITY SECURITIES (CONTINUED)
Net unrealized gains (losses) on securities included in accumulated
comprehensive income in shareholders' equity at December 31 were as follows:
1999 1998
-------------------------------
(In Thousands)
Gross unrealized gains $ 296,288 $1,621,883
Gross unrealized losses (909,135) (76,941)
DPAC and other fair value adjustments 200,353 (488,120)
Deferred federal income taxes 55,631 (377,718)
Net unrealized (losses) gains on securities $(356,863) $ 679,104
===============================
The contractual maturities of fixed maturity securities at December 31, 1999
were as follows:
1999 1998
--------------------------------------------------------
AMORTIZED MARKET AMORTIZED MARKET
COST VALUE COST VALUE
--------------------------------------------------------
(In thousands) (In thousands)
Fixed maturity
securities, excluding
mortgage-backed
securities:
Due in one year or $ 810,124 $ 813,683 $ 531,496 $ 536,264
less
Due after one year
through five years 5,380,557 5,394,918 5,550,665 5,812,581
Due after five years
through ten years 8,350,207 8,080,065 9,229,980 9,747,761
Due after ten years 6,988,799 6,575,461 5,754,220 6,156,950
Mortgage-backed 6,195,480 6,165,282 6,359,244 6,652,705
securities
--------------------------------------------------------
Total fixed maturity $27,725,167 $27,029,409 $27,425,605 $28,906,261
securities
========================================================
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 $12.3 billion,
$5.4 billion, and $14.8 billion during 1999, 1998, and 1997, respectively.
F-20
<PAGE>
American General Life Insurance Company
Notes to Consolidated Financial Statements (Continued)
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, 1999 and 1998:
OUTSTANDING PERCENT OF PERCENT
AMOUNT TOTAL NONPERFORMING
----------------------------------------------
(In Millions)
DECEMBER 31, 1999
Geographic distribution:
South Atlantic $ 470 24.6% 0.2%
Pacific 363 18.9 7.8
West South Central 185 9.6 0.0
East South Central 144 7.5 0.0
East North Central 256 13.3 0.0
Mid-Atlantic 323 16.8 0.9
Mountain 107 5.6 13.8
West North Central 43 2.2 0.0
New England 44 2.3 0.0
Allowance for losses (16) (0.8) 0.0
-------------------------------
Total $1,919 100.0% 2.4%
===============================
Property type:
Retail $ 628 32.6% 2.5%
Office 746 38.9 4.2
Industrial 302 15.7 0.0
Apartments 189 9.9 0.0
Hotel/motel 46 2.4 0.0
Other 24 1.3 0.2
Allowance for losses (16) (0.8) 0.0
-------------------------------
Total $1,919 100.0% 2.4%
===============================
F-21
<PAGE>
American General Life Insurance Company
Notes to Consolidated Financial Statements (Continued)
2. INVESTMENTS (CONTINUED)
2.4 MORTGAGE LOANS ON REAL ESTATE (CONTINUED)
OUTSTANDING PERCENT OF PERCENT
AMOUNT TOTAL NONPERFORMING
----------------------------------------------
(In Millions)
DECEMBER 31, 1998
Geographic distribution:
South Atlantic $ 429 27.6% 0.2%
Pacific 320 20.6 10.4
Mid-Atlantic 326 20.9 4.1
East North Central 178 11.4 -
Mountain 95 6.1 -
West South Central 118 7.5 -
East South Central 46 3.0 -
West North Central 33 2.1 -
New England 25 1.6 -
Allowance for losses (13) (0.8) -
-------------------------------
Total $1,557 100.00% 3.1%
===============================
Property type:
Office $ 593 38.1% 7.0%
Retail 423 27.1 0.2
Industrial 292 18.8 -
Apartments 178 11.4 2.9
Hotel/motel 38 2.4 -
Other 46 3.0 -
Allowance for losses (13) (0.8) -
-------------------------------
Total $1,557 100% 3.1%
===============================
Impaired mortgage loans on real estate and related interest income is not
material.
F-22
<PAGE>
American General Life Insurance Company
Notes to Consolidated Financial Statements (continued)
2. INVESTMENTS (CONTINUED)
2.5 INVESTMENT SUMMARY
Investments of the Company were as follows:
<TABLE>
<CAPTION>
DECEMBER 31, 1999 DECEMBER 31, 1998
-----------------------------------------------------------------------------------------
CARRYING CARRYING
COST FAIR VALUE AMOUNT COST FAIR VALUE AMOUNT
-----------------------------------------------------------------------------------------
(In Thousands) (In Thousands)
Fixed maturities:
Bonds:
<S> <C> <C> <C> <C> <C> <C>
United States
government and
government agencies $ 276,621 $ 289,462 $ 289,462 $ 417,822 $ 486,965 $ 486,965
and authorities
States, municipalities,
and political 154,034 143,697 143,697 86,778 91,387 91,387
subdivisions
Foreign governments 245,782 249,789 249,789 331,699 353,887 353,887
Public utilities 1,468,758 1,465,129 1,465,129 1,777,172 1,895,326 1,895,326
Mortgage-backed 6,195,003 6,165,279 6,165,279 6,359,242 6,652,703 6,652,703
securities
All other corporate 19,355,254 18,686,295 18,686,295 18,432,579 19,405,697 19,405,697
bonds**
Redeemable preferred 29,715 29,758 29,758 20,313 20,296 20,296
stocks
---------------------------------------------------------------------------------------------
Total fixed maturities 27,725,167 27,029,409 27,029,409 27,425,605 28,906,261 28,906,261
Equity securities:
Common stocks:
Banks, trust, and
insurance companies - - - - - -
Industrial,
miscellaneous, and 180,849 219,089 219,089 176,321 211,684 211,684
other
Nonredeemable preferred
stocks 17,791 17,976 17,976 17,047 - -
---------------------------------------------------------------------------------------------
Total equity securities 198,640 237,065 237,065 193,368 211,684 211,684
Mortgage loans on real 1,918,956 1,829,212 1,918,956 1,557,268 1,607,599 1,557,268
estate*
Investment real estate 125,563 XXXXXXX 125,563 119,520 xxxxxxx 119,520
Policy loans 1,234,729 1,205,056 1,234,729 1,170,686 1,252,409 1,170,686
Other long-term investments 129,155 XXXXXXX 129,155 86,194 xxxxxxx 86,194
Short-term investments 123,779 XXXXXXX 123,779 222,949 xxxxxxx 222,949
---------------------------------------------------------------------------------------------
Total investments $31,455,989 $ XXXXXXX $ 30,798,656 $ 30,775,590 $ xxxxxxx $ 32,274,562
============================================================================================
</TABLE>
* Amount is net of allowance for losses of $16 million and $13 million at
December 31, 1999 and 1998, respectively.
** Includes derivative financial instruments with negative fair values of $4.7
million and $1.0 million and positive fair values of $2.3 million and $24.3
million at December 31, 1999 and 1998, respectively.
F-23
<PAGE>
American General Life Insurance Company
Notes to Consolidated Financial Statements (continued)
3. DEFERRED POLICY ACQUISITIONS 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:
1999 1998 1997
--------------------------------------
(In Thousands)
Balance at January 1 $1,087,718 $ 835,031 $1,042,783
Capitalization 307,854 244,196 219,339
Amortization (101,066) (125,062) (115,467)
Effect of realized and unrealized
gains (losses) on securities 662,147 133,553 (311,624)
--------------------------------------
Balance at December 31 $1,956,653 $1,087,718 $ 835,031
=======================================
4. OTHER ASSETS
Other assets consisted of the following:
DECEMBER 31
1999 1998
------------------------------
(In Thousands)
Goodwill $ 52,317 $ 54,754
American General Corporation CBO (Collateralized
Bond Obligation) 98-1 Ltd. - 9,740
Cost of insurance purchased ("CIP") 19,014 22,113
Computer software 117,571 78,775
Other 61,397 40,936
------------------------------
Total other assets $250,299 $206,318
==============================
F-24
<PAGE>
American General Life Insurance Company
Notes to Consolidated Financial Statements (continued)
4. OTHER ASSETS (CONTINUED)
A rollforward of CIP for the year ended December 31, 1999, was as follows:
1999
------------
(In
Thousands)
Balance at January 1 $ 22,113
Acquisition of business -
Accretion of interest at 5.02% 926
Amortization (4,025)
---------
Balance at December 31 $ 19,014
=========
5. FEDERAL INCOME TAXES
5.1 TAX LIABILITIES
Income tax liabilities were as follows:
DECEMBER 31
1999 1998
-----------------------------
(In Thousands)
Current tax (receivable) payable $ 25,074 $ (21,035)
Deferred tax liabilities, applicable to:
Net income 405,889 320,632
Net unrealized investment gains (55,631) 377,718
-----------------------------
Total deferred tax liabilities 350,258 698,350
-----------------------------
Total current and deferred tax liabilities $375,332 $677,315
=============================
F-25
<PAGE>
American General Life Insurance Company
Notes to Consolidated Financial Statements (continued)
5. FEDERAL INCOME TAXES (CONTINUED)
5.1 TAX LIABILITIES (CONTINUED)
Components of deferred tax liabilities and assets at December 31 were as
follows:
1999 1998
--------------------------
(In Thousands)
Deferred tax liabilities applicable to:
Deferred policy acquisition costs $ 601,678 $ 307,025
Basis differential of investments - 590,661
Other 171,763 150,189
---------------------------
Total deferred tax liabilities 773,441 1,047,875
Deferred tax assets applicable to:
Policy reserves (215,465) (212,459)
Basis differential of investments (158,421) -
Other (141,236) (137,066)
--------------------------
Total deferred tax assets before valuation
allowance (515,122) (349,525)
Valuation allowance 91,939 -
--------------------------
Total deferred tax assets, net of valuation
allowance (423,183) (349,525)
--------------------------
Net deferred tax liabilities $ 350,258 $ 698,350
==========================
A portion of life insurance income earned prior to 1984 is not taxable unless it
exceeds certain statutory limitations, is distributed as dividends, or unless
the income tax deferred status of such amount is modified by future tax
legislation. Such income, accumulated in policyholders' surplus accounts,
totaled $88.2 million at December 31, 1999. At current corporate rates, the
maximum amount of tax on such income is approximately $30.9 million. Deferred
income taxes on these accumulations are not required because no distributions
are expected.
F-26
<PAGE>
American General Life Insurance Company
Notes to Consolidated Financial Statements (continued)
5. FEDERAL INCOME TAXES (CONTINUED)
5.1 TAX LIABILITIES (CONTINUED)
Components of income tax expense for the years were as follows:
1999 1998 1997
-------------------------------------
(In Thousands)
Current expense $176,725 $134,344 $185,460
Deferred expense (benefit):
Deferred policy acquisition cost 65,377 33,230 27,644
Policy reserves (22,654) 2,189 (27,496)
Basis differential of investments (4,729) 11,969 3,769
Litigation settlement 22,641 (33,983) -
Year 2000 - (9,653) -
Internally developed software 18,654 - -
Other, net 7,182 15,623 9,347
-------------------------------------
Total deferred expense 86,471 19,375 13,264
-------------------------------------
Income tax expense $263,196 $153,719 $198,724
=====================================
5.2 TAX EXPENSE
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.
1999 1998 1997
-------------------------------------
(In Thousands)
Income tax at statutory percentage
of GAAP pretax income $266,386 $164,638 $200,649
Tax-exempt investment income (16,423) (11,278) (9,493)
Goodwill 853 712 723
Other 12,380 (353) 6,845
-------------------------------------
Income tax expense $263,196 $153,719 $198,724
=====================================
F-27
<PAGE>
American General Life Insurance Company
Notes to Consolidated Financial Statements (continued)
5. FEDERAL INCOME TAXES (CONTINUED)
5.3 TAXES PAID
Income taxes paid amounted to approximately $126 million, $159 million, and $168
million in 1999, 1998, and 1997, 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 ("IRS") has completed
examinations of the Parent Company's tax returns through 1992. The IRS is
currently examining tax returns for 1993 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 Parent
Company believes that the ultimate liability, including interest, will not
materially exceed amounts recorded in the consolidated financial statements.
6. TRANSACTIONS WITH AFFILIATES
Affiliated notes and accounts receivable were as follows:
<TABLE>
<CAPTION>
DECEMBER 31, 1999 DECEMBER 31, 1998
------------------------------------------------------------
PAR VALUE BOOK VALUE PAR VALUE BOOK VALUE
------------------------------------------------------------
<S> <C> <C> <C> <C>
(In Thousands)
American General
Corporation, 9 3/8%, $ 4,725 $ 3,410 $ 4,725 $ 3,345
due 2008
American General
Corporation, Promissory
notes, due 2004 12,232 12,232 14,679 14,679
American General
Corporation, Restricted
Subordinated Note,
13 1/2%, due 2002 27,378 27,378 29,435 29,435
------------------------------------------------------------
Total notes receivable
from affiliates 44,335 43,020 48,839 47,459
Accounts receivable from
affiliates - 32,175 - 113,637
------------------------------------------------------------
Indebtedness from $44,335 $75,195 $48,839 $161,096
affiliates
============================================================
</TABLE>
F-28
<PAGE>
American General Life Insurance Company
Notes to Consolidated Financial Statements (continued)
6. TRANSACTIONS WITH AFFILIATES (CONTINUED)
Various American General companies provide services to the Company, principally
mortgage servicing and investment management services, provided by American
General Investment Management Corporation on a fee basis. The Company paid
approximately $55,318,000, $46,921,000, and $33,916,000 for such services in
1999, 1998, and 1997, respectively. Accounts payable for such services at
December 31, 1999 and 1998 were not material. The Company rents facilities and
provides services on an allocated cost basis to various American General
companies. Beginning in 1998, amounts received by the Company from affiliates
include amounts received by its wholly-owned, non-life insurance subsidiary,
American General Life Companies ("AGLC"). AGLC provides shared services,
including technology, to a number of American General Corporation's life
insurance subsidiaries. The Company received approximately $138,885,000,
$66,550,000, and $6,455,000 for such services and rent in 1999, 1998, and 1997,
respectively. Accounts receivable for rent and services at December 31, 1999 and
1998 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.
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. American
General Corporation follows the intrinsic value method of accounting for stock
options as prescribed by Accounting Principles Board Opinion No. 25, Accounting
for Stock Issued to Employees. Therefore, the 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.
F-29
<PAGE>
American General Life Insurance Company
Notes to Consolidated Financial Statements (continued)
7. STOCK-BASED COMPENSATION (CONTINUED)
Under an alternative accounting method of accounting under Statement of
Financial Accounting Standards No. 123, Accounting for Stock-Based Compensation,
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>
1999 1998 1997
---------------------------------------------
(In Thousands)
<S> <C> <C> <C>
Net income as reported $497,906 $316,674 $374,557
Net income pro forma $495,331 $315,078 $373,328
</TABLE>
The average fair values of the options granted during 1999, 1998, and 1997 were
$17.06, $15.38, and $10.33, 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>
1999 1998 1997
-----------------------------------------------
<S> <C> <C> <C>
Dividend yield 2.5% 2.5% 3.0%
Expected volatility 24.4% 23.0% 22.0%
Risk-free interest rate 4.95% 5.76% 6.4%
Expected life 6 years 6 years 6 years
</TABLE>
8. BENEFIT PLANS
8.1 PENSION PLANS
The Company has non-contributory defined benefit pension plans covering most
employees. Pension benefits are based on the participant's compensation and
length of credited service.
Equity and fixed maturity securities were 71% and 26%, respectively, of the
plans' assets at the plans' most recent balance sheet dates. Additionally, 1% of
plan assets were invested in general investment accounts of the Parent Company's
subsidiaries through deposit administration insurance contracts.
F-30
<PAGE>
American General Life Insurance Company
Notes to Consolidated Financial Statements (continued)
8. BENEFIT PLANS (CONTINUED)
8.1 PENSION PLANS (CONTINUED)
The benefit plans have purchased annuity contracts from American General
Corporation's subsidiaries to provide benefits for certain retirees. These
contracts are expected to provide future annual benefits to certain retirees of
American General Corporation and its subsidiaries of approximately $59 million.
The components of pension expense and underlying assumptions were as follows:
<TABLE>
<CAPTION>
1999 1998 1997
-----------------------------------------------
(In Thousands)
<S> <C> <C> <C>
Service cost $ 3,575 $ 3,693 $ 1,891
Interest cost 7,440 6,289 2,929
Expected return on plan assets (12,670) (9,322) (5,469)
Amortization (820) (557) 195
Pension (income) expense $ (2,475) $ 103 $ (454)
===============================================
Discount rate on benefit obligation 7.75% 7.00% 7.25%
Rate of increase in compensation levels 4.25% 4.25% 4.00%
Expected long-term rate of return on
plan assets 10.35% 10.25% 10.00%
</TABLE>
The Company's funding policy is to contribute annually no more than the maximum
deductible for federal income tax purposes. The funded status of the plans and
the prepaid pension expense included in other assets at December 31 were as
follows:
<TABLE>
<CAPTION>
1999 1998
-------------------------------
(In Thousands)
<S> <C> <C>
Projected benefit obligation (PBO) $100,600 $ 96,554
Plan assets at fair value 145,863 120,898
-------------------------------
Plan assets at fair value in excess of PBO 45,263 24,344
Other unrecognized items, net (26,076) (10,176)
-------------------------------
Prepaid pension expense $ 19,187 $ 14,168
===============================
</TABLE>
F-31
<PAGE>
American General Life Insurance Company
Notes to Consolidated Financial Statements (continued)
8. BENEFIT PLANS (CONTINUED)
8.1 PENSION PLANS (CONTINUED)
The change in PBO was as follows:
<TABLE>
<CAPTION>
1999 1998
-------------------------------
(In Thousands)
<S> <C> <C>
PBO at January 1 $ 96,554 $43,393
Service and interest costs 11,015 9,982
Benefits paid (4,919) (1,954)
Actuarial loss (12,036) 17,089
Amendments, transfers, and acquisitions 9,986 28,044
-------------------------------
PBO at December 31 $100,600 $96,554
===============================
</TABLE>
The change in the fair value of plan assets was as follows:
<TABLE>
<CAPTION>
1999 1998
-------------------------------
(In Thousands)
<S> <C> <C>
Fair value of plan assets at January 1 $120,898 $ 80,102
Actual return on plan assets 17,934 12,269
Benefits paid (4,919) (1,954)
Acquisitions and other 11,950 30,481
-------------------------------
Fair value of plan assets at December 31 $145,863 $120,898
===============================
</TABLE>
POSTRETIREMENT BENEFITS OTHER THAN PENSIONS
The Company has 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.
F-32
<PAGE>
American General Life Insurance Company
Notes to Consolidate Financial Statements (continued)
8. BENEFIT PLANS (CONTINUED)
8.2 POSTRETIREMENT BENEFITS OTHER THAN PENSIONS (CONTINUED)
The life plans are insured through December 31, 1999. A portion of the retiree
medical and dental plans is funded through a voluntary employees' beneficiary
association ("VEBA"); 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.
Postretirement benefit expense in 1999, 1998, and 1997 was $254,000, $60,000,
and $601,000, respectively. The accrued liability for postretirement benefits
was $18.8 million and $19.2 million at December 31, 1999 and 1998, respectively.
These liabilities were discounted at the same rates used for the pension plans.
9. DERIVATIVE FINANCIAL INSTRUMENTS
9.1 USE OF DERIVATIVE FINANCIAL INSTRUMENTS
The Company's use of derivative financial instruments is generally limited to
reducing its exposure to interest rate and currency exchange risk by utilizing
interest rate and currency swap agreements, and options to enter into interest
rate swap agreements (called swaptions). The Company accounts for these
derivative and financial instruments as hedges. Hedge accounting requires a high
correlation between changes in fair values or cash flows of the derivative
financial instrument and the specific item being hedged, both at inception and
throughout the life of the hedge.
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 declining interest rates on anticipated security purchases. Interest
rate swap agreements are also used to convert a portion of floating -rate
borrowings to a fixed rate and to hedge against the risk of rising interest
rates on anticipated debt issuances.
Currency swap agreements are used to convert cash flows from specific investment
securities denominated in foreign currencies into U.S. dollars at specific
exchange rates and to hedge against currency rate fluctuation on anticipated
security purchases.
F-33
<PAGE>
American General Life Insurance Company
Notes to Consolidate Financial Statements (continued)
9. DERIVATIVE FINANCIAL INSTRUMENTS (CONTINUED)
9.2 INTEREST RATE AND CURRENCY SWAP AGREEMENTS (CONTINUED)
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
sheets if the hedge investments are 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 other accumulated comprehensive income in shareholders' equity,
consistent with the treatment of the related investment security. The fair
values of swap agreements hedging debt are not recognized in the consolidated
balance sheet.
For swap agreements hedging anticipated investment purchases or debt issuances,
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 or debt. If the underlying
investment or debt is extinguished or sold, any related gain or loss on swap
agreements is recognized in income.
F-34
<PAGE>
American General Life Insurance Company
Notes to Consolidate Financial Statements (continued)
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>
1999 1998
-------------------------------
(Dollars in Millions)
<S> <C> <C>
Interest rate swap agreements to receive fixed rate:
Notional amount $ 160 $ 369
Average receive rate 6.73% 6.06%
Average pay rate 6.55% 5.48%
Currency swap agreements (receive U.S.
dollars/pay Canadian dollars):
Notional amount (in U.S. dollars) $ 124 $ 124
Average exchange rate 1.50 1.50
Currency swap agreements (receive U.S. dollars/pay
Australian dollars):
Notional amount (in U.S. dollars) $ 23 $ -
Average exchange rate 0.65 -
</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.
F-35
<PAGE>
American General Life Insurance Company
Notes to Consolidate Financial Statements (continued)
9. DERIVATIVE FINANCIAL INSTRUMENTS (CONTINUED)
9.3 CALL SWAPTIONS (CONTINUED)
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.
Swaptions at December 31 were as follows:
<TABLE>
<CAPTION>
1999 1998
-------------------------------
(Dollars in Billions)
<S> <C> <C>
Call swaptions:
Notional amount $3.78 $1.76
Average strike rate 4.52% 3.97%
Put swaptions:
Notional amount $2.14 $1.05
Average strike rate 8.60% 8.33%
</TABLE>
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 or 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.
F-36
<PAGE>
American General Life Insurance Company
Notes to Consolidate Financial Statements (continued)
10. FAIR VALUE OF FINANCIAL INSTRUMENTS
Carrying amounts and fair values for certain of the Company's financial
instruments at December 31 are presented below. Care should be exercised in
drawing conclusions based on fair value, since (1) the fair values presented do
not include the value associated with all the Company's assets and liabilities,
and (2) the reporting of investments at fair value without a corresponding
evaluation of related policyholders liabilities can be misinterpreted.
The following methods and assumptions were used to estimate the fair value of
financial instruments:
FIXED MATURITY AND EQUITY SECURITIES
Fair values of fixed maturity and equity securities were based on quoted
market prices, where available. For investments not actively traded, fair
values were estimated using values obtained from independent pricing
services or, in the case of some private placements, by discounting
expected future cash flows using a current market rate applicable to yield,
credit quality, and average life of investments.
MORTGAGE LOANS ON REAL ESTATE
Fair value of mortgage loans was estimated primarily using discounted cash
flows, based on contractual maturities and risk-adjusted discount rates.
POLICY LOANS
Fair value of policy loans was estimated using discounted cash flows and
actuarially determined assumptions, incorporating market rates.
INVESTMENT IN PARENT COMPANY
The fair value of the investment in Parent Company is based on quoted
market prices of American General Corporation common stock.
INSURANCE INVESTMENT CONTRACTS
Fair value of insurance investment contracts was estimated using cash flows
discounted at market interest rates.
F-37
<PAGE>
American General Life Insurance Company
Notes to Consolidate Financial Statements (continued)
10. FAIR VALUE OF FINANCIAL INSTRUMENTS (CONTINUED)
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 $187 million, $244 million, and
$401 million, in dividends on common stock to AGC Life Insurance Company in
1999, 1998, and 1997, respectively. The Company also paid $680 thousand per year
in dividends on preferred stock to an affiliate, The Franklin Life Insurance
Company, in 1999, 1998, and 1997.
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, 1999,
approximately $2.6 billion of consolidated shareholder's equity represents net
assets of the Company, which cannot be transferred, in the form of dividends,
loans, or advances to the Parent Company. Approximately $1.9 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.
F-38
<PAGE>
American General Life Insurance Company
Notes to Consolidate Financial Statements (continued)
12. RESTRICTIONS, COMMITMENTS, AND CONTINGENCIES (CONTINUED)
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 have resulted in substantial settlements. On
December 16, 1998, American General Corporation announced that certain of its
life insurance subsidiaries had entered into agreements to resolve all pending
market conduct class action lawsuits.
In conjunction with the proposed settlements, the Company recorded a charge of
$97.1 million ($63.1 million after-tax) in the fourth quarter of 1998. The
charge covers the cost of policyholder benefits and other anticipated expenses
resulting from the proposed settlements, as well as other administrative and
legal costs.
On December 31, 1998, the Company entered into an agreement with the Parent
Company whereby the Company assigned, and the Parent Company assumed, $80.1
million of the liabilities of the Company related to the proposed resolution.
The liabilities of American General Life Insurance Company of New York, which
totaled $17.0 million, were not assumed by the Parent Company. As consideration
for the assumption of the liabilities, the Company paid the Parent Company an
amount equal to the liabilities recorded with respect to the proposed resolution
of the litigation. The litigation liabilities were reduced by payments of $2.7
million, and the remaining balance of $94.4 million was included in other
liabilities on the Company's balance sheet at December 31, 1998. All settlements
were finalized in 1999.
The Company is party to various other lawsuits and proceedings arising in the
ordinary course of business. Many of these lawsuits and proceedings, including
those filed by individuals who have excluded themselves from the market conduct
settlement, and lawsuits relating to policies not covered by the market conduct
settlements, arise in jurisdictions, such as Alabama and Mississippi, that
permit damage awards disproportionate to the actual economic damages incurred.
Based upon information presently available, the Company believes that the total
amounts that will ultimately be paid, if any, arising from these lawsuits and
proceedings will not have a material adverse effect on the Company's
consolidated 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 and Mississippi continues to create the
potential for an unpredictable judgment in any given suit.
F-39
<PAGE>
American General Life Insurance Company
Notes to Consolidate Financial Statements (continued)
12. RESTRICTIONS, COMMITMENTS, AND CONTINGENCIES (CONTINUED)
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, 1999 and 1998, the Company has accrued $8.6 million and
$6.0 million, respectively, for guaranty fund assessments, net of $3.4 million
and $3.7 million, respectively, of premium tax deductions. The Company has
recorded receivables of $4.4 million and $6.2 million at December 31, 1999 and
1998, respectively, for expected recoveries against the payment of future
premium taxes. Expenses incurred for guaranty fund assessments were $2.1
million, $3.6 million, and $2.1 million in 1999, 1998, and 1997, respectively.
F-40
<PAGE>
American General Life Insurance Company
Notes to Consolidate Financial Statements (continued)
13. REINSURANCE
Reinsurance transactions for the years ended December 31, 1999, 1998, and 1997
were as follows:
<TABLE>
<CAPTION>
PERCENTAGE
CEDED TO ASSUMED OF AMOUNT
GROSS OTHER FROM OTHER ASSUMED TO
AMOUNT COMPANIES COMPANIES NET AMOUNT NET
---------------------------------------------------------------------------
(In Thousands)
<S> <C> <C> <C> <C> <C>
DECEMBER 31, 1999
Life insurance in force $50,060,334 $17,056,734 $524,062 $33,527,662 1.56%
==============================================================
Premiums:
Life insurance and annuities $ 101,900 $ 49,530 $ 252 $ 52,622 0.48%
Accident and health insurance 977 84 - 893 0.00%
--------------------------------------------------------------
Total premiums $ 102,877 $ 49,614 $ 252 $ 53,515 0.47%
===============================================================
DECEMBER 31, 1998
Life insurance in force $46,057,031 $13,288,183 $629,791 $33,398,639 1.89%
=============================================================
Premiums:
Life insurance and annuities $ 90,298 $ 42,235 $ 117 $ 48,180 0.24%
Accident and health insurance 1,134 87 - 1,047 0.00%
------------------------------------------------------------
Total premiums $ 91,432 $ 42,322 $ 117 $ 49,227 0.24%
============================================================
DECEMBER 31, 1997
Life insurance in force $45,963,710 $10,926,255 $ 4,997 $35,042,452 0.01%
============================================================
Premiums:
Life insurance and annuities $ 100,357 $ 37,294 $ 75 $ 63,138 0.12%
Accident and health insurance 1,208 172 - 1,036 0.00%
------------------------------------------------------------
Total premiums $ 101,565 $ 37,466 $ 75 $ 64,174 0.12%
============================================================
</TABLE>
Reinsurance recoverable on paid losses was approximately $8.0 million, $7.7
million, and $2.3 million at December 31, 1999, 1998, and 1997, respectively.
Reinsurance recoverable on unpaid losses was approximately $10.5 million, $2.5
million, and $3.2 million at December 31, 1999, 1998, and 1997, respectively.
F-41
<PAGE>
American General Life Insurance Company
Notes to Consolidate Financial Statements (continued)
14. YEAR 2000 CONTINGENCY (UNAUDITED)
Currently, all of our major technology systems, programs, and applications,
including those which rely on third parties, are operating smoothly following
our transition into 2000. We have experienced no interruptions to normal
business operations, including the processing of customer account data and
transactions. We will continue to monitor our technology systems, including
critical third-party dependencies, as necessary to maintain our Year 2000
readiness. We do not expect any future disruptions, if they occur, to have a
material effect on the Company's results of operations, liquidity, or financial
condition.
15. DIVISION OPERATIONS
15.1 NATURE OF OPERATIONS
The Company manages its business operation through two divisions, which are
based on products and services offered.
RETIREMENT SERVICES
The Retirement Services Division provides tax-deferred retirement annuities and
employer-sponsored retirement plans to employees of educational, health care,
public sector, and other not-for-profit organizations marketed nationwide
through exclusive sales representatives.
LIFE INSURANCE
The Life Insurance division provides traditional, interest-sensitive, and
variable life insurance and annuities to a broad spectrum of customers through
multiple distribution channels focused on specific market segments.
F-42
<PAGE>
American General Life Insurance Company
Notes to Consolidate Financial Statements (continued)
15. DIVISION OPERATIONS
15.2 DIVISION RESULTS
Results of each division exclude goodwill amortization, net realized investment
gains, and non-recurring items.
Division earnings information was as follows:
<TABLE>
<CAPTION>
REVENUES INCOME BEFORE TAXES EARNINGS
----------------------------------------------------------------------------------------
1999 1998 1997 1999 1998 1997 1999 1998 1997
----------------------------------------------------------------------------------------
In Millions
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Retirement Services $2,088 $1,987 $1,859 $ 567 $ 469 $ 398 $ 374 $ 315 $ 261
Life Insurance 883 870 822 191 162 147 123 107 97
---------------------------------------------------------------------------------------
Total divisions 2,971 2,857 2,681 758 631 545 497 422 358
Goodwill
amortization - - - (2) (2) (2) (2) (2) (2)
RG (L) 5 (34) 30 5 (34) 30 3 (22) 19
Nonrecurring items - - - - (125)(a) - - (81)(a) -
----------------------------------------------------------------------------------------
Total consolidated $2,976 $2,823 $2,711 $ 761 $ 470 $ 573 $ 498 $ 317 $ 375
=======================================================================================
</TABLE>
(a) Includes $97 million pretax ($63 million after-tax) in litigation
settlements and $28 million pretax ($18 million after-tax) in Year 2000
costs.
Division balance sheet information was as follows:
<TABLE>
<CAPTION>
ASSETS LIABILITIES
--------------------------------------------------------
December 31
--------------------------------------------------------
In millions 1999 1998 1999 1998
--------------------------------------------------------
<S> <C> <C> <C> <C>
Retirement Services $47,323 $41,347 $45,359 $38,841
Life Insurance 9,837 8,894 8,955 7,831
--------------------------------------------------------
Total consolidated $57,160 $50,241 $54,314 $46,672
========================================================
</TABLE>
F-43
<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, 1998
Statement of Operations for the year ended December 31, 1998
Statements of Changes in Net Assets for the years ended December 31,
1998 and 1997
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, 1998 and 1997
Consolidated Statements of Income for the years ended December 31,
1998, 1997, and 1996.
Consolidated Statements of Comprehensive Income for the years ended
December 31, 1998, 1997 and 1996.
Consolidated Statements of Shareholders' Equity for the years ended
December 31, 1998, 1997, and 1996.
Consolidated Statements of Cash Flows for the years ended December 31,
1998, 1997, and 1996.
Notes to Consolidated Financial Statements
PART C: None
C-1
<PAGE>
(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/
(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 ("AGL") 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) Amended and Restated Distribution Agreement between American General
Securities Incorporated and American General Life Insurance Company
effective October 15, 1998./4/
(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/
C-2
<PAGE>
(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/
(5) Form of Application for use with Variable and Fixed Retirement Annuity
Contract (Form No. 10154-2-1079)./1/
(6) (a) Amended and Restated Articles of Incorporation of AGL,
incorporated by reference to Exhibit 6(a) to initial filing on
Form N-4 Registration Statement (File No. 33-43390), filed on
October 16, 1991.
(b) Bylaws of American General Life Insurance Company, adopted
January 22, 1992, incorporated by reference to Post-Effective
Amendment No. 1 to Registrant's Form N-4 Registration Statement
(File No. 33-43390) filed on April 30, 1992.
(c) Amendment to the Amended and Restated Articles of Incorporation
of American General Life Insurance Company, effective July 13,
1995./2/
(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 Life
Companies./3/
(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. (Filed herewith)
(11) Not Applicable.
C-3
<PAGE>
(12) None.
(13) Not Applicable.
(14) Not Applicable.
- ---------------
/1/ Previously filed in Post-Effective Amendment No. 4 to this Registration
Statement (File No. 33-44745) filed on April 28, 1995.
/2/ Incorporated by reference to Pre-Effective Amendment No. 3 to the Form S-6
Registration Statement of AGL's Separate Account VL-R (File No. 333-53909)
filed on August 19, 1998.
/3/ Previously filed in Post-Effective Amendment No. 23 to this Registration
Statement (File No. 33-44745) filed on April 24, 1998.
/4/ Incorporated by reference to the filing of AGL's Form N-4 Registration
Statement (File No 333-70667) filed on January 15, 1999.
Item 25. Directors and Officers of the Depositor
The directors, executive officers, and, to the extent responsible for
variable annuity operations, other officers of the depositor are listed below.
Positions and Offices
Name and Principal with the
Business Address Depositor
---------------- ---------
Donald W. Britton Director and
2929 Allen Parkway Vice Chairman
Houston, Texas 77019
David A. Fravel Director and
2929 Allen Parkway Executive Vice President
Houston, Texas 77019
Robert F. Herbert, Jr. Director,
2727-A Allen Parkway Senior Vice President,
Houston, TX 77019 Treasurer and Controller
Royce G. Imhoff, II Director, Senior
2727-A Allen Parkway Vice President and
Houston, TX 77019 Chief Marketing Officer
C-4
<PAGE>
John V. LaGrasse Director and
2929 Allen Parkway Executive Vice President-
Houston, TX 77019 Chief Systems Officer
Rodney O. Martin, Jr. Director and Senior
2929 Allen Parkway Chairman
Houston, TX 77019
Gary D. Reddick Director and
2929 Allen Parkway Executive Vice President
Houston, TX 77019
Ronald H. Ridlehuber Director, President and
2727-A Allen Parkway Chief Executive Officer
Houston, TX 77019
Thomas M. Zurek Director,
2929 Allen Parkway Executive Vice President,
Houston, Texas 77019 General Counsel and Secretary
Robert M. Beuerlein Senior Vice President
2727-A Allen Parkway and Chief Actuary
Houston, TX 77019
F. Paul Kovach, Jr. Senior Vice President-
2727 Allen Parkway Broker Dealers
Houston, TX 77019
Simon J. Leech Senior Vice President-
2727-A Allen Parkway Houston Service Center
Houston, TX 77019
Don M. Ward Senior Vice President-
2727 Allen Parkway Variable Products-Marketing
Houston, TX 77019
Farideh Farrokhi Vice President -
2727-A Allen Parkway Variable Products Accounting
Houston, TX 77019
Rosalia S. Nolan Vice President-
2727-A Allen Parkway Policy Administration
Houston, TX 77019
C-5
<PAGE>
Larry M. Robinson Vice President-
2727-A Allen Parkway Variable Products-Marketing
Houston, TX 77019
Pauletta P. Cohn Assistant Secretary
2929 Allen Parkway
Houston, TX 77019
Joyce R. Bilski Administrative Officer
2727-A Allen Parkway
Houston, TX 77019
Timothy M. Donovan Administrative Officer
2727-A Allen Parkway
Houston, TX 77019
Karen Harper Administrative Officer
2727-A Allen Parkway
Houston, TX 77019
Laura Milazzo Administrative Officer
2727-A Allen Parkway
Houston, TX 77019
Patricia L. Myles Administrative Officer
2727-A Allen Parkway
Houston, TX 77019
Linda Price Administrative Officer
2727-A Allen Parkway
Houston, TX 77019
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
February 29, 2000. 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 (*).
Jurisdiction of
Name Incorporation
---- -------------
AGC Life Insurance Company................................... Missouri
American General Property Insurance Company/16/.............. Tennessee
American General Property Insurance Company of Florida... Florida
American General Life and Accident Insurance Company/6/.... Tennessee
American General Life Insurance Company/7/................. Texas
C-6
<PAGE>
<TABLE>
<CAPTION>
<S> <C>
American General Annuity Service Corporation........................ Texas
American General Life Companies..................................... Delaware
American General Life Insurance Company of New York................. New York
The Winchester Agency Ltd......................................... New York
The Variable Annuity Life Insurance Company......................... Texas
Parkway 1999 Trust/17/............................................ Maryland
PESCO Plus, Inc/14/............................................... Delaware
American General Gateway Services, L.L.C/15/...................... Delaware
The Variable Annuity Marketing Company............................ Texas
American General Financial Advisors, Inc.......................... Texas
VALIC Retirement Services Company................................. Texas
VALIC Trust Company............................................... Texas
American General Assignment Corporation of New York............... New York
The Franklin Life Insurance Company................................. Illinois
The American Franklin Life Insurance Company...................... Illinois
Franklin Financial Services Corporation........................... Delaware
HBC Development Corporation ........................................ Virginia
Templeton American General Life of Bermuda, Ltd/13/................. Bermuda
Western National Corporation........................................ Delaware
WNL Holding Corp.................................................... Delaware
American General Annuity Insurance Company........................ Texas
American General Assignment Corporation........................... Texas
American General Distributors, Inc................................ Delaware
A.G. Investment Advisory Services, Inc............................ Delaware
American General Financial Institutions Group, Inc................ Delaware
WNL Insurance Services, Inc....................................... Delaware
American General International, Inc................................. Delaware
American General Enterprise Services, Inc........................... Delaware
American General Corporation*....................................... Delaware
American General Delaware Management Corporation/1/................. Delaware
American General Finance, Inc....................................... Indiana
HSA Residential Mortgage Services of Texas, Inc..................... Delaware
AGF Investment Corp................................................. Indiana
American General Auto Finance, Inc.................................. Delaware
American General Finance Corporation/8/........................... Indiana
American General Finance Group, Inc.............................. Delaware
American General Financial Services, Inc./9/.................... Delaware
The National Life and Accident Insurance Company.............. Texas
Merit Life Insurance Co........................................... Indiana
Yosemite Insurance Company........................................ Indiana
American General Finance, Inc....................................... Alabama
A.G. Financial Service Center, Inc.................................. Utah
American General Bank, FSB.......................................... Utah
American General Financial Center, Inc.*............................ Indiana
American General Financial Center, Incorporated*.................... Indiana
American General Financial Center Thrift Company*................... California
Thrift, Incorporated*............................................... Indiana
</TABLE>
C-7
<PAGE>
<TABLE>
<S> <C>
American General Investment Advisory Services, Inc.*................ Texas
American General Investment Holding Corporation/10/................. Delaware
American General Investment Management, L.P./10/................. Delaware
American General Investment Management Corporation/10/.............. Delaware
American General Realty Advisors, Inc............................... Delaware
American General Realty Investment Corporation...................... Texas
AGLL Corporation/11/............................................. Delaware
American General Land Holding Company............................ Delaware
AG Land Associates, LLC/11/.................................... California
GDI Holding, Inc.*/12/........................................... California
Pebble Creek Service Corporation................................. Florida
SR/HP/CM Corporation............................................. Texas
Green Hills Corporation............................................. Delaware
Knickerbocker Corporation........................................... Texas
American Athletic Club, Inc...................................... Texas
Pavilions Corporation............................................... Delaware
USLIFE Corporation.................................................. Delaware
All American Life Insurance Company.............................. Illinois
American General Assurance Company............................... Illinois
American General Indemnity Company............................. Nebraska
USLIFE Credit Life Insurance Company of Arizona................ Arizona
American General Life Insurance Company of Pennsylvania.......... Pennsylvania
I.C. Cal*........................................................ California
North Central Administrators, Inc................................ Minnesota
North Central Life Insurance Company............................. Minnesota
North Central Caribbean Life, Ltd.............................. Nevis
The Old Line Life Insurance Company of America................... Wisconsin
The United States Life Insurance Company in the City of New York. New York
American General Bancassurance Services, Inc..................... Illinois
USMRP, Ltd..................................................... Turks & Caicos
USLIFE Realty Corporation ....................................... Texas
USLIFE Real Estate Services Corporation..................... Texas
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:
American General Capital, L.L.C.
American General Delaware, L.L.C.
C-8
<PAGE>
/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 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 their 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 12% of Whirlpool Financial Corp. ("Whirlpool")
preferred stock. AGLA's holdings in Whirlpool represents approximately 3%
of the voting power of the capital stock of Whirlpool. The interests in
Whirlpool (which is a corporation 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)
American General Insurance Agency of Texas, Inc. (Texas)
American General Insurance Agency of Oklahoma, Inc. (Oklahoma)
Insurance Masters Agency, Inc. (Texas)
C-9
<PAGE>
The foregoing indirectly related 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/ American General Finance Corporation is the parent of an additional 42
wholly-owned subsidiaries incorporated in 25 states for the purpose of
conducting its consumer finance operations, in addition to those noted in
footnote 9 below.
/9/ American General Financial Services, Inc., is the direct or indirect parent
of an additional 8 wholly-owned subsidiaries incorporated in 5 states and
Puerto Rico for the purpose of conducting its consumer finance operations.
/10/ American General Investment Management, L.P., a Delaware limited
partnership, is jointly owned by AGIHC and AGIMC. AGIHC holds a 99% limited
partnership interest, and AGIMC owns a 1% general partnership interest.
/11/ 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.
/12/ AGRI owns a 75% interest in GDI Holding, Inc.
/13/ AGCL owns 50% of the common stock of TAG Life. Templeton International,
Inc., a Delaware corporation, owns the remaining 50% of TAG Life. Templeton
International, Inc. is not affiliated with AGC.
/14/ VALIC holds 90% of the outstanding common shares of PESCO Plus, Inc. The
Florida Education Association/United, a Florida teachers union and
unaffiliated third party, holds the remaining 10% of the outstanding common
shares.
/15/ VALIC holds 90% of the outstanding common shares of American General
Gateway Services, L.L.C. Gateway Investment Services, Inc., a California
corporation and an unaffiliated third party, holds the remaining 10% of the
outstanding common shares.
/16/ AGPIC is jointly owned by AGCL and AGLA. AGCL owns 51.85% and AGLA owns
48.15% of the issued and outstanding shares of AGPIC.
/17/ Parkway 1999 Trust was formed as a Maryland business trust to function as
an investment subsidiary. VALIC owns 100% of its common equity.
COMPANY ABBREVIATIONS AS USED IN
REGISTRATION STATEMENT AMENDMENT
<TABLE>
<CAPTION>
State/Jur.
Abb. Company of Domicile
- ---- ------- -----------
<S> <C> <C>
AAL All American Life Insurance Company........................ IL
AAth American Athletic Club, Inc................................ TX
AFLI The American Franklin Life Insurance Company............... IL
</TABLE>
C-10
<PAGE>
<TABLE>
<S> <C> <C>
AGAIC American General Annuity Insurance Company.......................... TX
ASGN-NY American General Assignment Corporation of New York................. NY
AGAC American General Assurance Company.................................. IL
AGAS American General Annuity Service Corporation........................ TX
AGBS American General Distributors, Inc.................................. DE
AGB American General Bank, FSB.......................................... UT
AGC American General Corporation........................................ TX
AGCL AGC Life Insurance Company.......................................... MO
AGDMC American General Delaware Management Corporation.................... DE
AGES American General Enterprise Services, Inc........................... DE
AGF American General Finance, Inc....................................... IN
AGFC American General Finance Corporation................................ IN
AGFCI American General Financial Center, Incorporated..................... IN
AGFCT American General Financial Center Thrift Company.................... CA
AGFG American General Finance Group, Inc................................. DE
AGF Inv AGF Investment Corp................................................. IN
AGFn A.G. Financial Service Center, Inc.................................. UT
AGFnC American General Financial Center, Inc.............................. IN
AGFS American General Financial Services, Inc............................ DE
AGFA American General Financial Advisors, Inc............................ TX
AGFIG American General Financial Institutions Group, Inc.................. DE
AGGS American General Gateway Services, L.L.C............................ DE
AGIA American General Insurance Agency, Inc.............................. MO
AGIAH American General Insurance Agency of Hawaii, Inc.................... HI
AGIAM American General Insurance Agency of Massachusetts, Inc............. MA
AGIAO American General Insurance Agency of Ohio, Inc...................... OH
AGIAOK American General Insurance Agency of Oklahoma, Inc.................. OK
AGIAS A.G. Investment Advisory Services, Inc.............................. DE
AGIAT American General Insurance Agency of Texas, Inc..................... TX
AGII American General International, Inc................................. DE
AGIHC American General Investment Holding Corporation..................... DE
AGIM American General Investment Management, L.P......................... DE
AGIMC American General Investment Management Corporation.................. DE
AGIND American General Indemnity Company.................................. NE
AGL American General Life Insurance Company............................. TX
AGLC American General Life Companies .................................... DE
AGLA American General Life and Accident Insurance Company................ TN
AGLH American General Land Holding Company............................... DE
AGLL AGLL Corporation.................................................... DE
AGNY American General Life Insurance Company of New York................. NY
AGPA American General Life Insurance Company of Pennsylvania............. PA
AGPIC American General Property Insurance Company......................... TN
AGRA American General Realty Advisors, Inc............................... DE
AGRI American General Realty Investment Corporation...................... TX
AGSI American General Securities Incorporated............................ TX
AGX American General Exchange, Inc...................................... TN
</TABLE>
C-11
<PAGE>
<TABLE>
<S> <C> <C>
ASGN American General Assignment Corporation........................... TX
FFSC Franklin Financial Services Corporation........................... DE
FL The Franklin Life Insurance Company............................... IL
GHC Green Hills Corporation........................................... DE
HBDC HBC Development Corporation....................................... VA
KC Knickerbocker Corporation......................................... TX
ML Merit Life Insurance Co........................................... IN
NLA The National Life and Accident Insurance Company.................. TX
NCA North Central Administrators, Inc................................. MN
NCL North Central Life Insurance Company.............................. MN
NCCL North Central Caribbean Life, Ltd................................. T&C
OLL The Old Line Life Insurance Company of America.................... WI
PKWY Parkway 1999 Trust................................................ MD
PAV Pavilions Corporation............................................. DE
PCSC Pebble Creek Service Corporation.................................. FL
PIFLA American General Property Insurance Company of Florida............ FL
PPI PESCO Plus, Inc................................................... DE
RMST HSA Residential Mortgage Services of Texas, Inc................... DE
SRHP SR/HP/CM Corporation.............................................. TX
TAG Life Templeton American General Life of Bermuda, Ltd................... BA
TI Thrift, Incorporated.............................................. IN
UAS American General Bancassurance Services, Inc...................... IL
UC USLIFE Corporation................................................ DE
UCLA USLIFE Credit Life Insurance Company of Arizona................... AZ
URC USLIFE Realty Corporation......................................... TX
USC USLIFE Systems Corporation........................................ DE
USL The United States Life Insurance Company in the City of New York.. NY
USMRP USMRP, Ltd........................................................ T&C
VALIC The Variable Annuity Life Insurance Company....................... TX
VAMCO The Variable Annuity Marketing Company............................ TX
VRSCO VALIC Retirement Services Company................................. TX
VTC VALIC Trust Company............................................... TX
WA The Winchester Agency Ltd......................................... NY
WIS WNL Insurance Services, Inc....................................... DE
WNC Western National Corporation...................................... DE
WNLH WNL Holding Corp.................................................. DE
YIC Yosemite Insurance Company........................................ IN
</TABLE>
Item 27. Number of Contract Owners
The total number of Contract Owners as of March 21, 2000 was 4,060. The Group
Variable Retirement Annuity Contract, which accounts for 21 of the total number
of Contracts, is no long offered for sale.
C-12
<PAGE>
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 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
C-13
<PAGE>
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 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 American General
Life Insurance Company Separate Account A, American General Life
Insurance Company Separate Account VL-R, and American General Life
Insurance Company of New York Separate Account E.
(b) The directors and principal 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, Chairman,
American General Securities President and Chief Executive Officer
Incorporated
2727 Allen Parkway
Houston, Texas 77019
</TABLE>
C-14
<PAGE>
Donald W. Britton Director
American General Life
Companies
2929 Allen Parkway
Houston, Texas 77019
Royce G. Imhoff, II Director
American General Life
Insurance Company
2727-A Allen Parkway
Houston, Texas 77019
Alice T. Kane Director
American General Retirement
Services
125 Maiden Lane
New York, New York 10038
Rodney O. Martin, Jr. Director and Vice Chairman
American General Life
Companies
2929 Allen Parkway
Houston, Texas 77019
John A. Kalbaugh Vice President - Chief Marketing
American General Securities Officer
Incorporated
2727 Allen Parkway
Houston, Texas 77019
Robert M. Roth Vice President -
American General Securities Administration and Compliance,
Incorporated Treasurer and Secretary
2727 Allen Parkway
Houston, Texas 77019
Don M. Ward Vice President
American General Life
Companies
2727 Allen Parkway
Houston, Texas 77019
C-15
<PAGE>
Julie A. Cotton Assistant Secretary
American General Life
Companies
2727 Allen Parkway
Houston, Texas 77019
Robert F. Herbert, Jr. Assistant Treasurer
American General Life
Companies
2727-A Allen Parkway
Houston, Texas 77019
D. Lynne Walters Assistant Tax Officer
American General Corporation
2929 Allen Parkway
Houston, Texas 77019
(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 referenced 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
Life Companies, on behalf of AGL, at its principal executive office located at
2727-A Allen Parkway, Houston, Texas 77019.
Item 31. Management Services
Not Applicable.
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, or (2)
a toll-free number or a post card or similar written communication affixed to
or included in the applicable prospectus
C-16
<PAGE>
that the applicant can use to send for a Statement; (C) to deliver any
Statement 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 the 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 hereby represents that the fees and charges deducted under the Contracts, in
the aggregate, are reasonable in relation to the services rendered, the expenses
expected to be incurred, and the risks assumed by AGL.
C-17
<PAGE>
POWERS OF ATTORNEY
Each person whose signature appears below hereby appoints Thomas M. Zurek,
Robert F. Herbert, Jr. and Pauletta P. Cohn and each of them, any one of whom
may act without the joinder of the others, as his/her attorney-in-fact to sign
on his/her behalf and in the capacity stated below and to file all amendments to
this Registration Statement, which amendment or amendments may make such changes
and additions to this Registration Statement as such attorney-in-fact may deem
necessary or appropriate.
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 amended Registration Statement and has duly caused this
Registration Statement to be signed on its behalf, in the City of Houston, and
State of Texas on this 3rd day of April, 2000.
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, Treasurer and
Controller
[SEAL]
ATTEST: /s/ JULIE A. COTTON
--------------------------------------------
Julie A. Cotton
Assistant Secretary
C-18
<PAGE>
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement has been signed by the following officers and directors
of American General Life Insurance Company in the capacities and on the dates
indicated.
Signature Title Date
/s/ RONALD H. RIDLEHUBER Director, President and CEO April 3, 2000
- ------------------------
Ronald H. Ridlehuber
/s/ ROBERT F. HERBERT, JR. Director, Senior Vice President, April 3, 2000
- --------------------------
Robert F. Herbert, Jr. Treasurer and Controller
/s/ DONALD W. BRITTON Director April 3, 2000
- ---------------------
Donald W. Britton
/s/ DAVID A. FRAVEL Director April 3, 2000
- -------------------
David A. Fravel
/s/ DAVID L. HERZOG Director April 3, 2000
- -------------------
David L. Herzog
/s/ ROYCE G. IMHOFF, II Director April 3, 2000
- -----------------------
Royce G. Imhoff, II
/s/ JOHN V.LAGRASSE Director April 3, 2000
- -------------------
John V. LaGrasse
Director April __, 2000
__________________________
Rodney O. Martin, Jr.
/s/ GARY D. REDDICK Director April 3, 2000
- -------------------
Gary D. Reddick
/s/ THOMAS M. ZUREK Director April 3, 2000
- --------------------
Thomas M. Zurek
C-19
<PAGE>
EXHIBIT INDEX
(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/
(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 ("AGL") 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) Amended and Restated Distribution Agreement between American General
Securities Incorporated and American General Life Insurance Company
effective October 15, 1998./4/
(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/
E-1
<PAGE>
(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/
(5) Form of Application for use with Variable and Fixed Retirement Annuity
Contract (Form No. 10154-2-1079)./1/
(6) (a) Amended and Restated Articles of Incorporation of AGL, incorporated by
reference to Exhibit 6(a) to initial filing on Form N-4 Registration
Statement (File No. 33-43390), filed on October 16, 1991.
(b) Bylaws of American General Life Insurance Company, adopted January 22,
1992, incorporated by reference to Post-Effective Amendment No. 1 to
Registrant's Form N-4 Registration Statement (File No. 33-43390) filed
on April 30, 1992.
(c) Amendment to the Amended and Restated Articles of Incorporation of
American General Life Insurance Company, effective July 13, 1995./2/
(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 Life Companies./3/
(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. (Filed herewith)
(11) Not Applicable.
E-2
<PAGE>
(12) None.
(13) Not Applicable.
(14) Not Applicable.
_______________________________________
/1/ Previously filed in Post-Effective Amendment No. 4 to this Registration
Statement (File No. 33-44745) filed on April 28, 1995.
/2/ Incorporated by reference to Pre-Effective Amendment No. 3 to the Form S-6
Registration Statement of AGL's Separate Account VL-R (File No. 333-53909)
filed on August 19, 1998.
/3/ Previously filed in Post-Effective Amendment No. 23 to this Registration
Statement (File No. 33-44745) filed on April 24, 1998.
/4/ Incorporated by reference to the filing of AGL's Form N-4
Registration Statement (File No 333-70667) filed on January 15, 1999.
E-3
<PAGE>
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 7, 2000, as to the
American General Life Insurance Company Separate Account A, and dated March 1,
2000, as to American General Life Insurance Company, in Post-Effective Amendment
No. 9 to the Registration Statement (Form N-4 No. 33-44745 and 811-1491) of
American General Life Insurance Company Separate Account A.
/s/ ERNST & YOUNG LLP
---------------------
Houston, Texas
March 31, 2000
