SEPARATE ACCOUNT A
Units of Interest Under Group
and Individual Variable Annuity Contracts
Portfolio Director Contract Series
Prospectus July 11, 1995
THE VARIABLE ANNUITY LIFE INSURANCE
COMPANY
UNITS OF INTEREST UNDER
GROUP AND INDIVIDUAL VARIABLE
ANNUITY CONTRACTS
(PORTFOLIO DIRECTOR CONTRACT SERIES)
SEPARATE ACCOUNT A July 11, 1995
PROSPECTUS
The group and individual variable annuity contracts (the "Contracts") offered by
The Variable Annuity Life Insurance Company (the "Company") in connection with
this Prospectus are available to the public primarily through participation in
retirement programs which receive favorable tax deferred treatment under Federal
income tax law but include non-qualified Contracts as well. The Contracts are
available on a flexible payment deferred, single payment deferred, or single
payment immediate annuity basis. The Contract series is composed of Contract
forms UIT-194, UITG-194, UITN-194, UIT-IRA-194, and UIT-SEP-194.
The Contracts provide benefits related to the Company's General Account and to
the Divisions of the Company's Separate Account A, which invest in separate
portfolios of American General Series Portfolio Company (the "Series Company")
as well as portfolios of other mutual funds (collectively, the "Funds"), as
selected by the Participant. The Series Company consists of the following Funds:
the Stock Index Fund, the MidCap Index Fund, the Small Cap Index Fund, the
International Equities Fund, the Growth Fund, the Growth & Income Fund, the
Capital Conservation Fund, the Government Securities Fund, the International
Government Bond Fund, the Social Awareness Fund, the Science & Technology Fund,
the Money Market Fund, and the Timed Opportunity Fund (collectively, the "Series
Company Funds"). The other mutual fund portfolios consist of the following
Funds: from the Dreyfus Variable Investment Fund you may invest in the Small Cap
Portfolio (the "Dreyfus Small Cap Fund") and from the Templeton Variable
Products Series Fund you may invest in either or both the Templeton Asset
Allocation Fund or the Templeton International Fund.
- ------------------------------------------------------------------------------
This Prospectus provides investors the information they should know before
investing in the Contracts. Investors should read and retain this Prospectus for
future reference. A Profile of the Contract is provided on page 4 of this
Prospectus.
Additional information, including a Statement of Additional Information dated
July 11, 1995, has been filed with the Securities and Exchange Commission and
contains further information about Separate Account A. The Statement of
Additional Information is incorporated herein by reference. A copy may be
obtained without charge by completing and returning the form at the back of this
Prospectus or by calling 1-(800)-44-VALIC. The table of contents of the
Statement of Additional Information appears on page 60 of this Prospectus.
NO PERSON HAS BEEN AUTHORIZED TO GIVE ANY INFORMATION OR TO MAKE ANY
REPRESENTATIONS OTHER THAN THOSE CONTAINED IN THIS PROSPECTUS IN CONNECTION WITH
THE OFFER CONTAINED IN THIS PROSPECTUS, AND IF GIVEN OR MADE, SUCH INFORMATION
OR REPRESENTATION MUST NOT BE RELIED UPON AS HAVING BEEN AUTHORIZED. THIS
PROSPECTUS DOES NOT CONSTITUTE AN OFFER IN ANY JURISDICTION TO ANY PERSON TO
WHOM SUCH OFFER WOULD BE UNLAWFUL THEREIN.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION NOR HAS THE COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY
OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
THIS PROSPECTUS IS ACCOMPANIED BY THE CURRENT PROSPECTUSES FOR THE FUNDS BEING
CONSIDERED. EACH OF THESE PROSPECTUSES SHOULD BE READ CAREFULLY AND RETAINED
FOR FUTURE REFERENCE.
1
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2
TABLE OF CONTENTS
Page
----
Profile .................................................................... 4
Definitions ................................................................ 6
Fee Table .................................................................. 8
Selected Accumulation Unit Data ............................................ 10
Introduction ............................................................... 12
The Company and the Separate
Account .................................................................. 13
The Funds .................................................................. 14
Performance Information .................................................... 16
Average Annual Total Return with
Surrender Charge and
Maintenance Fee Imposed .............................................. 18
Average Annual Total Return with
No Surrender Charge and
Maintenance Fee Imposed .............................................. 19
Cumulative Return ...................................................... 19
Annual and Cumulative Change in
Accumulation Unit Value .............................................. 20
Hypothetical $10,000 Account
Value ................................................................ 21
Endorsements and Published Ratings ......................................... 30
Transfers Among Investment Options ......................................... 31
Transfers During the Accumulation
Period ............................................................... 31
Transfers During the Annuity
Period ............................................................... 31
Other Requirements ..................................................... 31
Charges Under Variable Annuity
Contracts ................................................................ 32
Charge for Premium Taxes ............................................... 32
Charge for Partial and Total
Surrenders ........................................................... 32
Charge for Account Maintenance ......................................... 34
Charge to the Separate Account ......................................... 35
Miscellaneous .......................................................... 35
Charge for Income Taxes ................................................ 35
Accumulation Period ........................................................ 35
Purchase Payments ...................................................... 35
Death Benefits During
Accumulation Period .................................................. 37
Suspension of Purchase
Payments ............................................................. 38
Annuity Period ............................................................. 38
Fixed or Variable Annuity
Payments ............................................................. 38
Annuity Date ........................................................... 39
Annuity Payment Options ................................................ 39
Enhancements Under Annuity
Options .............................................................. 40
Death of Annuitant During Annuity
Period ............................................................... 40
Surrender .................................................................. 40
Other Contract Features .................................................... 42
Change of Beneficiary and
Contingent Owner ..................................................... 42
Revocation ............................................................. 42
Reservation of Rights .................................................. 42
Relationship to Employer's
Plan ................................................................. 42
Federal Tax Matters ........................................................ 42
General ................................................................ 42
Taxes Payable by Participants and
Annuitants ........................................................... 42
Section 403(b) Annuities for
Employees of Certain Tax-Exempt
Organizations or Public
Educational Institutions ............................................. 43
Section 401 Qualified Pension,
Profit-Sharing or Annuity
Plans ................................................................ 44
Individual Retirement
Annuities ............................................................ 44
Simplified Employee Pension
Plans ................................................................ 45
Section 457 Unfunded Deferred
Compensation Plans of Public
Employers and Tax-Exempt
Organizations ........................................................ 45
Private Employer Unfunded
Deferred Compensation Plans .......................................... 46
Non-Qualified Contracts ................................................ 46
Effect of Tax-Deferred
Accumulations ........................................................ 47
Fund Diversification ................................................... 48
Voting Rights .............................................................. 48
Other Variable Annuity Contracts ........................................... 49
Exchange Offers ............................................................ 49
General ................................................................ 49
Differences Between New and
Existing Contracts ................................................... 50
Exchanges From Independence Plus
Contracts ............................................................ 50
Exchanges From V-Plan
Contracts ............................................................ 51
Exchanges From SA-1 and SA-2
Contracts ............................................................ 52
Exchanges From Impact
Contracts ............................................................ 53
Exchanges From Compounder
Contracts ............................................................ 54
Exchanges From Certain Other
Existing Contracts ................................................... 55
Information Which May be
Applicable to Any Exchange ........................................... 55
Agents' and Managers' Retirement
Plan Exchange Offer .................................................. 55
Taxes and Conversion Costs ............................................. 56
Availability of Offer .................................................. 56
Appendix ................................................................... 57
Revocation of Telephone Transfer
Authority ................................................................ 58
Contents of Statement of Additional
Information .............................................................. 60
3
<PAGE>
PROFILE OF PORTFOLIO DIRECTOR CONTRACT
Portfolio Director is VALIC's combination fixed and variable annuity that
offers you a wide choice of investment options and flexibility. A summary of
Portfolio Director's major features is presented below. For a more detailed
discussion of the Portfolio Director Contract, please read the entire prospectus
carefully.
FIXED AND VARIABLE OPTIONS
Portfolio Director offers you a choice from among 16 Variable Investment
Options and two Fixed Account Options. You may invest in up to seven of these
options at any one time.
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------------------
FIXED ACCOUNT
OPTIONS
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Fixed Fixed Guaranteed High Current -- --
Options Account Interest Income
Plus
--------------------------------------------------------------------------------------------------------------------
Short-term Guaranteed Current -- --
Fixed Account Interest Income
- ------------------------------------------------------------------------------------------------------------------------------------
Variable Investment Investment
Options Strategy Adviser Subadviser
- ------------------------------------------------------------------------------------------------------------------------------------
Index Stock Index Fund Seeks To Emulate S&P 500(R) Index Valic Bankers Trust
Equity --------------------------------------------------------------------------------------------------------------------
Funds Midcap Seeks To Emulate S&P Midcap Valic Bankers Trust
Index Fund 400(R) Index
--------------------------------------------------------------------------------------------------------------------
Small Cap Seeks To Emulate Valic Bankers Trust
Index Fund Russell 2000(R) Index
--------------------------------------------------------------------------------------------------------------------
International Seeks To Emulate Eafe Index Valic N/A
Equities Fund
- ------------------------------------------------------------------------------------------------------------------------------------
Actively Templeton Growth In Investments Templeton N/A
Managed International Outside The U.s.
Equity Fund
Funds --------------------------------------------------------------------------------------------------------------------
Dreyfus Small Growth Through Investments Dreyfus N/A
Cap Fund In Smaller Companies
--------------------------------------------------------------------------------------------------------------------
Growth Fund Growth Through Investments Valic T. Rowe Price
In Service Sector Companies
--------------------------------------------------------------------------------------------------------------------
Growth & Growth And Income Valic Value Line
Income Through Stocks (Or Securities
Fund Convertible To Stocks)
- ------------------------------------------------------------------------------------------------------------------------------------
Income Capital Invests In High Quality Valic N/A
Funds Conservation Corporate Bonds
Fund
--------------------------------------------------------------------------------------------------------------------
Government Invests In Intermediate Valic N/A
Securities And Long-term Government
Fund Debt Securities
--------------------------------------------------------------------------------------------------------------------
International Invests In High Quality Valic N/A
Government Debt Securities Issued
Bond Fund Or Guaranteed By Foreign
Governments
- ------------------------------------------------------------------------------------------------------------------------------------
Specialty Social Growth In Stocks Meeting Valic N/A
Funds Awareness Social Criteria Of Fund
Fund
--------------------------------------------------------------------------------------------------------------------
Science & Stocks Of Companies Which Valic T. Rowe Price
Technology Benefit From The Development
Fund Of Science And Technology
- ------------------------------------------------------------------------------------------------------------------------------------
Money Money Market Invests In Short-term Valic N/A
Market Fund Money Market Investments
Fund
- ------------------------------------------------------------------------------------------------------------------------------------
Asset Timed Opportunity Maximum Return And Valic N/A
Allocation Fund Controlled Risk Through
Fund Adjusting Mix Of Equities,
Debt And Money
Market Investments
--------------------------------------------------------------------------------------------------------------------
Templeton Flexible Policy Of Investing In Templeton N/A
Asset Stocks And Debt Obligations Of
Allocation Companies And Governments
Fund Of Any Nation
- ------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
4
A detailed description of the investment policy of each Fund can be found in
the section of the prospectus entitled "The Funds," and also in the current
prospectus for each Fund mentioned.
A Variable Annuity is designed to provide retirement benefits through the
accumulation of contributions, called net Purchase Payments. These payments can
be placed in Fixed Options or Variable Options in the contract. You bear the
investment risk if you choose to invest in any of the Variable Options in the
contract.
The total amount accumulated in the plan can be used to provide fixed or
variable annuity payments upon retirement.
INCREASING ANNUAL DEATH BENEFIT
Portfolio Director offers a death benefit that increases each year during
the Accumulation Period. This feature is available to all variable-account
investors under age 70 and to fixed-account investors under age 85.
To learn more about the increasing annual death benefit, refer to the
section in the prospectus entitled "Accumulation Period."
This contract provision may vary from state-to-state.
LOANS
Portfolio Director offers a tax-free loan provision for tax-qualified
contracts that gives you access to your money in either of the fixed account
options, subject to a minimum loan amount of $1,000. The availability of loans
is subject to government regulations, as well as your employer's plan
provisions.
Keep in mind that tax laws place restrictions on withdrawals (ie. loans
which are not repaid) if made prior to age 59 1/2.
TRANSFERS
There is no charge to transfer the money in your account among the Portfolio
Director investment options. You may transfer all or part of your variable
account balances at any time during the Accumulation Period.
Your account balances in the Short Term Account must remain there for at
least 90 days before they can be transferred to other contract options. In Fixed
Account Plus, up to 20% of your account value may be transferred during each
contract year to to other investment options.
Once you begin receiving payments from your account (called the Annuity
Period), you may still transfer funds among Variable Investment Options once
each contract year.
Transfers can be made by calling VALIC's toll-free transfer service at
1-800-621-7792. For more information on account transfers, see the "Transfers
Among Investment Options" section in the prospectus.
FEES
ACCOUNT MAINTENANCE FEE:
If any of your account is invested in Variable Investment Options, a
quarterly account maintenance fee of $3.75 is charged to your account. If you
invest only in fixed-account options during a calendar quarter no account
maintenance fee is assessed.
SURRENDER CHARGE
Under some circumstances a surrender charge is made to your account. These
situations are discussed in detail in the section of the prospectus entitled
"Charge for Partial and Total Surrenders." When this happens the surrender
charge is computed in two ways and you are charged whichever amount is less. The
first amount is simply 5% of whatever amount you have withdrawn. The second
amount is 5% of the contributions you made to your account during the last 60
months.
Withdrawals are always subject to your plan provisions and federal tax
restrictions, which generally include a tax penalty on withdrawals made prior to
age 59 1/2.
SEPARATE ACCOUNT CHARGE:
Depending on the Variable Investment Option you choose, you may incur a
mortality and expense risk fee, computed at an annualized rate of 1% or 1.25% on
the average daily net asset value of the separate account.
PREMIUM TAX CHARGE:
Premium taxes ranging from zero to 3% are currently imposed by certain
states and municipalities on purchase payments made under the contract.
FUND ANNUAL EXPENSE CHARGE:
A daily charge based on a percentage of each Fund's average daily net asset
balance is payable by each Fund to its investment adviser.
Since some of these fees may not apply to your contract, consult your VALIC
Retirement Plan Specialist to see how these provisions apply to you. More
information on fees may be found in the prospectus under the headings "Charges
Under Variable Annuity Contracts" and "Fee Table."
PAYOUT OPTIONS
When you withdraw your money, you can select from several payout options: a
lifetime annuity (which guarantees payment for as long as you live), periodic
withdrawals and systematic withdrawals. More information on payout options can
be found in the "Annuity Period" section of the prospectus.
FEDERAL TAX INFORMATION
Although deferred annuity contracts such as Portfolio Director can be
purchased with after-tax dollars, they are primarily used in connection with
retirement programs which receive favorable tax treatment under federal law. For
a more detailed discussion of these income tax provisions, see the "Federal Tax
Matters" section of the prospectus.
PURCHASE REQUIREMENTS
Purchase Payments may be made at any time and in any amount, subject to plan
limitations.
For more information on purchase payments, refer to the "Purchase Payment"
section of the prospectus.
5
DEFINITIONS
Accumulation Period -- the time between the date of the first Purchase
Payment and the Annuity Date.
Accumulation Unit ("Unit") -- a unit of interest in a Separate Account
Division which is accumulated in a Variable Investment Option before annuity
payments begin. The value of a Unit will vary with the net investment experience
of the respective Separate Account Division.
Accumulation Value -- the sum of the values of the Fixed Subaccounts and the
Variable Investment Options that have not been applied to provide annuity
payments allocated to a Participant Account.
Annuitant -- the individual to whom annuity payments will be paid. If the
Annuitant dies before the Annuity Date, the Beneficiary may receive payments.
Annuity Date -- the date elected by a Contract Owner on which annuity
payments start.
Annuity Period -- the time during which annuity payments are made.
Annuity Unit -- a measuring unit used in calculating the amount of annuity
payments. The value of an Annuity Unit for a Variable Investment Option, will
vary with the net investment experience of the Separate Account Division
selected. The value will be adjusted according to the Assumed Investment Rate
chosen by the Annuitant.
Assumed Investment Rate -- the rate used to determine the first monthly
annuity payment per thousand dollars of Accumulation Value in the Variable
Investment Option(s). (See the Statement of Additional Information for a
description of the effect of the Assumed Investment Rate on the level of
payments.)
Beneficiary -- the person who will receive payments, if any, on the
Annuitant's death.
Contract -- an individual or group variable annuity contract offered by this
Prospectus.
Contract Owner -- the employer, or other organization, which makes
application for a group Contract; the Annuitant under an individual Contract
unless otherwise stated in the application. Under an individual non-qualified
annuity Contract, the Contract Owner is generally the Annuitant but is not
required to be the Annuitant; under such Contract the Contract Owner may also
provide for a "Contingent Contract Owner."
Fixed Subaccount -- a particular subaccount under a Participant Account into
which net Purchase Payments and Accumulation Value under a fixed annuity
Contract may be allocated during the Accumulation Period. Fixed Subaccounts may
also be referred to collectively as "Fixed Interest Options." Allocations to the
Fixed Subaccounts are guaranteed to earn at least the minimum rate of interest
described in the Annuity Contract offered by this prospectus. Reserves for these
allocations are held in the Company's General Account.
Fixed Account Plus -- a Fixed Subaccount which is suitable for those wishing
to make more than a short-term commitment to a fixed return option. Up to 20% of
the Accumulation Value under Fixed Account Plus may be transferred during each
Participant Year. (For a more complete discussion of transfers and the
limitations thereon, see "Transfers Among Investment Options.") The total
interest rates paid by the Company from time to time on amounts deposited in
Fixed Account Plus are expected to more closely resemble the then-current
returns available on intermediate-term debt investments than would be the case
with respect to the Short Term Fixed Account.
Short Term Fixed Account -- a Fixed Subaccount which is suitable primarily
for those wishing to make only a shorter-term commitment to a fixed return
option. After a transfer to Short Term Fixed Account, no further transfers from
Short Term Fixed Account may be made for 90 days. (For a more complete
discussion of transfers and the limitations thereon, see "Transfers Among
Investment Options.")
Fund -- an investment portfolio of a mutual fund which is the underlying
investment medium for net Purchase Payments and Accumulation Values allocated to
a Separate Account Division.
General Account -- the assets of the Company other than those in the
Separate Account or any other separate account. Reserves for any fixed annuity
are maintained in the General Account.
6
Home Office -- the main office of the Company at 2929 Allen Parkway,
Houston, Texas 77019.
Participant -- an individual, most often the Annuitant on whose life annuity
payments will be based, for whom Purchase Payments are made.
Participant Account -- an individual account which is established for a
Participant under a group Contract to record transactions and values as to a
Participant or, in the case of an individual Contract, the entire Contract.
Participant Year -- a twelve month period starting with the issue date of a
Participant's certificate under a group Contract or the issue date of an
individual Contract and each anniversary of that date.
Purchase Payment -- an amount paid to VALIC in consideration for the
benefits of an annuity Contract offered by this Prospectus.
Separate Account -- the segregated asset account referred to as Separate
Account A. Separate Account A was established by the Company under the Texas
Insurance Code to receive and invest the net Purchase Payments and Accumulation
Value allocated to variable annuity contracts.
Separate Account Divisions ("Divisions") -- subdivisions of the Separate
Account, each of which invests in a different Fund with a particular investment
objective and strategy, and into which the net Purchase Payments and
Accumulation Value under a variable annuity may be applied.
Surrender Value -- the Accumulation Value of a Participant Account less the
surrender charge, if any, which is the amount payable upon surrender of a
Participant Account.
Variable Investment Options -- Variable in- vestments available
corresponding to the Separate Account Divisions into which net Purchase Payments
and Accumulation Values under a variable annuity Contract may be allocated.
Investment returns on Variable Investment Options may be positive or negative.
(For a more complete description of Variable Investment Options, see "The
Funds.")
7
<PAGE>
FEE TABLE
CONTRACT OWNER/PARTICIPANT TRANSACTION EXPENSES(1)
Surrender Charge (as a % of the lesser of all purchase
payments received during the last 60 months or the
amount withdrawn). (2)................................................. 5%
ACCOUNT MAINTENANCE FEE ($3.75 per quarter, annualized)(2)............... $15
CHARGE TO SEPARATE ACCOUNT (as a % of average account value):
<TABLE>
<CAPTION>
GOV-
TEM- GROWTH ERN-
SMALL INTER- PLETON DREYFUS & CAPITAL MENT
STOCK MIDCAP CAP NATIONAL INTER- SMALL IN- CONSER- SECURI-
CHARGE TO SEPARATE INDEX INDEX INDEX EQUITIES NATIONAL CAP GROWTH COME VATION TIES
ACCOUNT FUND FUND FUND FUND FUND FUND FUND(3) FUND(3) FUND FUND
- ------- ---- ---- ---- ---- ------ ---- ------- ------- ---- ----
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Mortality Risk Fee ....................... .80% .80% .80% .80% .80% .80% .80% .80% .80% .80%
Expense Risk Fee ......................... .20% .20% .20% .20% .45% .45% .20% .20% .20% .20%
---- ---- ---- ---- ---- ---- ---- ---- ---- ----
Total Charge to Separate Account ......... 1.00% 1.00% 1.00% 1.00% 1.25% 1.25% 1.00% 1.00% 1.00% 1.00%
<CAPTION>
INTER-
NATIONAL SCIENCE
GOVERN- SOCIAL & TIMED TEMPLE-
MENT AWARE- TECH- MONEY OPPOR- TON ASSET
CHARGE TO SEPARATE BOND NESS NOLOGY MARKET TUNITY ALLOCATION
ACCOUNT FUND FUND FUND(3) FUND FUND FUND
- ------- ---- ---- ------- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C>
Mortality Risk Fee........................ .80% .80% .80% .80% .80% .80%
Expense Risk Fee.......................... .20% .20% .20% .20% .20% .45%
---- ---- ---- ---- ---- ----
Total Charge to Separate Account.......... 1.00% 1.00% 1.00% 1.00% 1.00% 1.25%
</TABLE>
FUND ANNUAL EXPENSES (as a % of Fund average net assets)
<TABLE>
<CAPTION>
GOV-
TEM- GROWTH ERN-
SMALL INTER- PLETON DREYFUS & CAPITAL MENT
STOCK MIDCAP CAP NATIONAL INTER- SMALL IN- CONSER- SECURI-
INDEX INDEX INDEX EQUITIES NATIONAL CAP GROWTH COME VATION TIES
EXPENSES FUND FUND FUND FUND FUND FUND FUND(3) FUND(3) FUND FUND
- -------- ---- ---- ---- ---- ------ ---- ------- ------- ---- ----
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Management
fees(5) ................................ .30% .35% .35% .35% .50% .75% .80% .75% .50% .50%
Other expenses(4) ........................ .09 .11 .12 .12 .33 .32 .09 .11 .09 .09
ADVISERS'
REDUCTION OF
FUND EXPENSES(6) ....................... .00 .00 .00 .00 .00 .00 .00 .00 .00 .00
--- --- --- --- --- ---- --- --- --- ---
Total Fund Expenses (after
Reduction) ............................. .39% .46% .47% .47% .83% 1.07% .89% .86% .59% .59%
<CAPTION>
INTER-
NATIONAL SCIENCE
GOVERN- SOCIAL & TIMED TEMPLE-
MENT AWARE- TECH- MONEY OPPOR- TON ASSET
BOND NESS NOLOGY MARKET TUNITY ALLOCATION
EXPENSES FUND FUND FUND(3) FUND FUND FUND
- -------- ---- ---- ------- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C>
Management
fees(5)................................. .50% .50% .90% .50% .50% .50%
Other expenses(4)......................... .11 .10 .05 .08 .09 .25
ADVISERS'
REDUCTION OF
FUND EXPENSES(6)........................ .00 .00 .00 .00 .00 .00
--- --- --- --- --- ---
Total Fund Expenses (after
Reduction).............................. .61% .60% .95% .58% .59% .75%
</TABLE>
EXAMPLE #1--ASSUMING SURRENDER at the end of the period shown:
TOTAL EXPENSES: You would pay the following expenses on a $1,000 investment
under a typical Contract invested in a single Separate Account Division as
listed below, assuming a 5% annual return on assets:
1 YEAR 3 YEARS 5 YEARS 10 YEARS
------ ------- ------- --------
Stock Index Division ....................... $ 62 $ 98 $133 $182
MidCap Index Division ...................... 63 100 137 190
Small Cap Index Division ................... 63 100 137 191
International Equities Division ............ 63 100 137 191
Templeton International Division ........... 69 118 169 255
Dreyfus Small Cap Division ................. 71 125 181 279
Growth Division(3) ......................... 67 113 159 236
Growth & Income Division(3) ................ 67 112 158 232
Capital Conservation Division .............. 64 104 144 204
Government Securities Division ............. 64 104 144 204
International Government Bond Division ..... 64 105 145 206
Social Awareness Division .................. 64 104 144 205
Science & Technology Division(3) ........... 67 114 162 242
Money Market Division ...................... 64 104 143 203
Timed Opportunity Division ................. 64 104 144 204
Templeton Asset Allocation Division ........ 68 116 165 247
See footnotes on Page 9.
8
<PAGE>
EXAMPLE #2--ASSUMING NO SURRENDER at the end of the period shown:
TOTAL EXPENSES. You would pay the following expenses on a $1,000 investment
under a typical Portfolio Director Contract without a surrender charge imposed,
invested in a single Separate Account Division as listed below, assuming a 5%
annual return on assets:
1 YEAR 3 YEARS 5 YEARS 10 YEARS
------ ------- ------- --------
Stock Index Division ....................... $ 15 $ 48 $ 83 $182
MidCap Index Division ...................... 16 50 87 190
Small Cap Index Division ................... 16 51 87 191
International Equities Division ............ 16 51 87 191
Templeton International Division ........... 22 69 119 255
Dreyfus Small Cap Division ................. 25 76 131 279
Growth Division(3) ......................... 21 63 109 236
Growth & Income Division(3) ................ 20 63 108 232
Capital Conservation Division .............. 18 54 94 204
Government Securities Division ............. 18 54 94 204
International Government Bond Division ..... 18 55 95 206
Social Awareness Division .................. 18 55 94 205
Science & Technology Division(3) ........... 21 65 112 242
Money Market Division ...................... 17 54 93 203
Timed Opportunity Division ................. 18 54 94 204
Templeton Asset Allocation Division ........ 22 67 115 247
Additional Fee Table Examples are shown in the Appendix to this Prospectus. No
contract fees are charged upon
annuitization.
- ---------
(1) Premium taxes are not shown here, but may be charged by some states
either on Purchase Payments or on amounts annuitized. See "Charge for
Premium Taxes."
(2) Reductions in the surrender charge and the account maintenance fee are
available if certain conditions are met. No account maintenance fee is
deducted for any calendar quarter if the Accumulation Value is credited
only to the Fixed Interest Options throughout the quarter as described in
"Charge for Account Maintenance." See "Appendix". The surrender charge is
not incurred after the 15th Participant Year or after the 5th Participant
Year for an individual aged 59 1/2 or older; there is no surrender charge
if no Purchase Payments were received during the 60 months immediately
prior to surrender; there is no surrender charge on surrenders totaling
up to 10% during a Participant Year as described in "Charge for Partial
and Total Surrenders" below; there is no surrender charge if the
Participant elects an Annuity Income Option or the no charge systematic
withdrawal method; there is no surrender charge under certain Contracts
for withdrawals which meet the no charge minimum distribution
requirements described in "Charge for Partial and Total Surrenders" and
"Surrender," below; there is no surrender charge imposed after death or
disability of the Participant as described in "Charge for Partial and
Total Surrenders" below. No account maintenance fee will be assessed
during the Annuity Period as described in "Charge For Annual Account
Maintenance" below.
(3) The Series Company Funds underlying the Growth Division, the Growth &
Income Division and the Science & Technology Division were initiated on
April 29, 1994. Total Fund expenses expressed as a percentage of Fund
average net assets and total expenses as expressed above are estimated
based on amounts for the current fiscal year.
(4) Includes custody, accounting, reports to shareholders, audit, legal and
other miscellaneous expenses.
(5) The annual management fees for the Stock Index Fund, MidCap Index Fund,
Small Cap Index Fund and International Equities Fund are based on each
Fund's average daily net asset value at the following rates: .35% of the
first $500 million and .25% on the excess over $500 million. The annual
management fees for Growth Fund, Growth & Income Fund, Science &
Technology Fund, Social Awareness Fund, Timed Opportunity Fund, Capital
Conservation Fund, Government Securities Fund, International Government
Bond Fund, Money Market Fund, and Dreyfus Small Cap Fund are flat rates
as shown regardless of the amount of Fund assets. The annual management
fees for Templeton Asset Allocation Fund and Templeton International Fund
are based on each Fund's average daily net asset value at the following
rates: .50% of the first $200 million, .45% from $200 million up to $1.3
billion, and .40% on the excess over $1.3 billion.
(6) To the extent that any of the Series Company Funds' accrued expenses for
a given month exceed on an annualized basis 2% of estimated average daily
net assets, the Company has voluntarily undertaken to reduce expenses of
any such Fund, in an amount equal to the difference between such accrued
expenses and 2% of the Fund's average daily net assets for that month.
The Company may withdraw this voluntary undertaking upon 30 days written
notice to the Series Company.
Note: These examples should not be considered representations of past or future
expenses for the Separate Account or for any Fund. Actual expenses may be
greater or less than those shown above. Similarly, the 5% annual rate of return
assumed in the examples is not an estimate or guarantee of future investment
performance. The purpose of the Fee Table above is to help Contract Owners and
Participants understand the various expenses of the Separate Account and the
Funds which are, in effect, passed on to the Contract Owners and Participants.
This Fee Table, including the examples above, shows all charges and expenses
which are deducted from the assets of the Separate Account and from the Funds in
which the Separate Account invests. No deductions are made from Purchase
Payments, other than premimum taxes which may be charged by some states. For a
further description of these charges and expenses, see "Charges Under Variable
Annuity Contracts" in this Prospectus and "Investment Adviser" in the Series
Company Prospectus and "Management of the Fund" in the Dreyfus Small Cap Fund
Prospectus and "Management of the Trust" in the Templeton Variable Products
Series Fund Prospectus. Any and all limitations on total charges and expenses
are reflected in this Fee Table.
9
<PAGE>
SELECTED ACCUMULATION UNIT DATA
<TABLE>
<CAPTION>
INTER-
STOCK MIDCAP SMALL CAP NATIONAL TEMPLETON
INDEX INDEX INDEX EQUITIES INTERNATIONAL
DIIVISION 10(2) DIVISION 4(1) DIVISION 14 DIVISION 11 DIVISION 20
--------------- ------------- ------------ ------------ -------------
<S> <C> <C> <C> <C> <C>
December 31, 1994
Accumulation Units in Force ............ 416,234,288 171,442,018 100,383,839 187,749,916 71,716,511
Accumulation Unit Value ................ $ 1.724134 $ 2.153183 $ 1.222329 $ 1.054460 $ 0.999282
July 11, 1994
Accumulation Unit Value(3) ............. -- -- -- -- $ 1.000000
April 29, 1994
Accumulation Unit Value(3) ............. -- -- -- -- --
December 31, 1993
Accumulation Units in Force ............ 369,550,060 134,621,879 56,159,647 117,215,227 --
Accumulation Unit Value ................ $ 1.729327 $ 2.259378 $ 1.277199 $ 0.986387 --
December 31, 1992
Accumulation Units in Force ............ 283,808,045 81,007,871 9,723,477 52,524,165 --
Accumulation Unit Value ................ $ 1.589718 $ 2.021271 $ 1.112790 $ 0.767135 --
May 1, 1992
Accumulation Unit Value(3) ............. -- -- $ 1.000000 -- --
December 31, 1991
Accumulation Units in Force ............ 90,526,907 49,106,844 -- 27,011,169 --
Accumulation Unit Value ................ $ 1.505641 $ 1.858030 -- $ 0.895250 --
October 1, 1991
Accumulation Unit Value(3) ............. -- -- -- -- --
December 31, 1990
Accumulation Units in Force ............ 46,016,297 42,958,640 -- 13,776,769 --
Accumulation Unit Value ................ $ 1.179000 $ 1.538017 -- $ 0.813423 --
December 31, 1989
Accumulation Units in Force ............ 22,325,990 40,618,028 -- 2,247,450 --
Accumulation Unit Value ................ $ 1.238782 $ 1.712671 -- $ 1.028405 --
October 2, 1989
Accumulation Unit Value(3) ............. -- -- -- $ 1.000000 --
December 31, 1988
Accumulation Units in Force ............ 9,213,178 38,747,706 -- -- --
Accumulation Unit Value ................ $ 0.968670 $ 1.450217 -- -- --
December 31, 1987
Accumulation Units in Force ............ 4,326,102 35,297,367 -- -- --
Accumulation Unit Value ................ $ 0.856238 $ 1.282662 -- -- --
April 20, 1987
Accumulation Unit Value(3) ............. $ 1.000000 -- -- -- --
December 31, 1986
Accumulation Units in Force ............ -- 28,360,188 -- -- --
Accumulation Unit Value ................ -- $ 1.351553 -- -- --
January 16, 1986
Accumulation Unit Value(3) ............. -- -- -- -- --
December 31, 1985
Accumulation Units in Force ............ -- 21,817,139 -- -- --
Accumulation Unit Value ................ -- $ 1.319494 -- -- --
December 31, 1984
Accumulation Units in Force ............ -- 20,338,366 -- -- --
Accumulation Unit Value ................ -- $ 1.172148 -- -- --
</TABLE>
SELECTED ACCUMULATION UNIT DATA
DREYFUS GROWTH
SMALL CAP FUND
DIVISION 18 DIVISION 15
----------- -----------
December 31, 1994
Accumulation Units in Force .............. 85,169,871 32,633,370
Accumulation Unit Value .................. $ 1.043156 $ 1.001834
July 11, 1994
Accumulation Unit Value(3) ............... $ 1.000000 --
April 29, 1994
Accumulation Unit Value(3) ............... -- $ 1.000000
December 31, 1993
Accumulation Units in Force .............. -- --
Accumulation Unit Value .................. -- --
December 31, 1992
Accumulation Units in Force .............. -- --
Accumulation Unit Value .................. -- --
May 1, 1992
Accumulation Unit Value(3) ............... -- --
December 31, 1991
Accumulation Units in Force .............. -- --
Accumulation Unit Value .................. -- --
October 1, 1991
Accumulation Unit Value(3) ............... -- --
December 31, 1990
Accumulation Units in Force .............. -- --
Accumulation Unit Value .................. -- --
December 31, 1989
Accumulation Units in Force .............. -- --
Accumulation Unit Value .................. -- --
October 2, 1989
Accumulation Unit Value(3) ............... -- --
December 31, 1988
Accumulation Units in Force .............. -- --
Accumulation Unit Value .................. -- --
December 31, 1987
Accumulation Units in Force .............. -- --
Accumulation Unit Value .................. -- --
April 20, 1987
Accumulation Unit Value(3) ............... -- --
December 31, 1986
Accumulation Units in Force .............. -- --
Accumulation Unit Value .................. -- --
January 16, 1986
Accumulation Unit Value(3) ............... -- --
December 31, 1985
Accumulation Units in Force .............. -- --
Accumulation Unit Value .................. -- --
December 31, 1984
Accumulation Units in Force .............. -- --
Accumulation Unit Value .................. -- --
- ---------
(1) Effective October 1, 1991, the Fund underlying this Division changed its
name from the Capital Accumulation Fund to the MidCap Index Fund and amended
its investment objective, investment program and investment restrictions
accordingly. Historical accumulation unit values prior to October 1, 1991
reflect investment experience before these changes.
(2) Effective with the merger of Quality Growth Fund into Stock Index Fund on
May 1, 1992, Quality Growth Division 9 was merged into Stock Index Division
10. The merger of Divisions was accomplished by an exchange of units of
Quality Growth Division 9 for units of Stock Index Division 10 of equivalent
value as calculated at the close of business on April 30, 1992.
(3) Accumulation Unit Value At Date Of Inception.
10
<PAGE>
SELECTED ACCUMULATION UNIT DATA
<TABLE>
<CAPTION>
INTERNATIONAL SOCIAL
GROWTH & CAPITAL GOVERNMENT GOVERNMENT AWARE-
INCOME CONSERVATION SECURITIES BOND NESS
DIVISION 16 DIVISION 7 DIVISION 8 DIVISION 13 DIVISION 12
----------- ------------ ---------- ------------- -----------
<S> <C> <C> <C> <C> <C>
December 31, 1994
Accumulation Units in Force .............. 12,386,602 26,859,219 26,667,073 25,691,713 29,015,764
Accumulation Unit Value .................. $0.993168 $1.515278 $1.547150 $1.301357 $1.333899
July 11, 1994
Accumulation Unit Value(3) ............... -- -- -- -- --
April 29, 1994
Accumulation Unit Value(3) ............... $1.000000 -- -- -- --
December 31, 1993
Accumulation Units in Force .............. -- 24,628,606 26,563,166 18,155,381 26,230,566
Accumulation Unit Value .................. -- $1.630069 $1.636228 $1.258340 $1.366979
December 31, 1992
Accumulation Units in Force .............. -- 14,922,749 16,609,444 6,245,713 16,956,437
Accumulation Unit Value .................. -- $1.470167 $1.491537 $1.112826 $1.279516
May 1, 1992
Accumulation Unit Value(3) ............... -- -- -- -- --
December 31, 1991
Accumulation Units in Force .............. -- 11,069,044 11,694,890 953,038 8,447,711
Accumulation Unit Value .................. -- $1.366905 $1.405236 $1.090499 $1.250634
October 1, 1991
Accumulation Unit Value(3) ............... -- -- -- $1.000000 --
December 31, 1990
Accumulation Units in Force .............. -- 9,321,049 8,460,327 -- 2,947,418
Accumulation Unit Value .................. -- $1.178361 $1.237104 -- $0.987666
December 31, 1989
Accumulation Units in Force .............. -- 7,502,717 5,556,464 -- 212,636
Accumulation Unit Value .................. -- $1.193583 $1.179231 -- $1.010003
October 2, 1989
Accumulation Unit Value(3) ............... -- -- -- -- $1.000000
December 31, 1988
Accumulation Units in Force .............. -- 3,996,455 3,408,919 -- --
Accumulation Unit Value .................. -- $1.078919 $1.062082 -- --
December 31, 1987
Accumulation Units in Force .............. -- 2,343,021 2,074,588 -- --
Accumulation Unit Value .................. -- $1.018629 $1.011978 -- --
April 20, 1987
Accumulation Unit Value(3) ............... -- -- -- -- --
December 31, 1986
Accumulation Units in Force .............. -- 1,153,481 1,163,907 -- --
Accumulation Unit Value .................. -- $1.047718 $1.046062 -- --
January 16, 1986
Accumulation Unit Value(3) ............... -- $1.000000 $1.000000 -- --
December 31, 1985
Accumulation Units in Force .............. -- -- -- -- --
Accumulation Unit Value .................. -- -- -- -- --
December 31, 1984
Accumulation Units in Force .............. -- -- -- -- --
Accumulation Unit Value .................. -- -- -- -- --
</TABLE>
SELECTED ACCUMULATION UNIT DATA
<TABLE>
<CAPTION>
SCIENCE TEMPLETON
& TECHN- MONEY TIMED ASSET
NOLOGY MARKET OPPORTUNITY ALLOCATION
DIVISION 17 DIVISION 6 DIVISION 5 DIVISION 19
----------- ---------- ----------- -----------
<S> <C> <C> <C> <C>
December 31, 1994
Accumulation Units in Force .............. 42,726,137 75,765,781 89,377,860 32,807,602
Accumulation Unit Value .................. $1.247713 $1.479129 $1.951533 $0.995860
July 11, 1994
Accumulation Unit Value(3) ............... -- -- -- $1.000000
April 29, 1994
Accumulation Unit Value(3) ............... $1.000000 -- -- --
December 31, 1993
Accumulation Units in Force .............. -- 24,799,810 93,899,802 --
Accumulation Unit Value .................. -- $1.439327 $1.997266 --
December 31, 1992
Accumulation Units in Force .............. -- 23,414,474 80,637,090 --
Accumulation Unit Value .................. -- $1.415690 $1.846025 --
May 1, 1992
Accumulation Unit Value(3) ............... -- -- -- --
December 31, 1991
Accumulation Units in Force .............. -- 25,545,494 76,624,765 --
Accumulation Unit Value .................. -- $1.384882 $1.878219 --
October 1, 1991
Accumulation Unit Value(3) ............... -- -- -- --
December 31, 1990
Accumulation Units in Force .............. -- 25,246,481 72,284,139 --
Accumulation Unit Value .................. -- $1.325393 $1.563444 --
December 31, 1989
Accumulation Units in Force .............. -- 15,949,534 68,361,149 --
Accumulation Unit Value .................. -- $1.240599 $1.618165 --
October 2, 1989
Accumulation Unit Value(3) ............... -- -- -- --
December 31, 1988
Accumulation Units in Force .............. -- 9,429,191 65,817,325 --
Accumulation Unit Value .................. -- $1.149516 $1.397280 --
December 31, 1987
Accumulation Units in Force .............. -- 4,121,853 59,631,901 --
Accumulation Unit Value .................. -- $1.087299 $1.286227 --
April 20, 1987
Accumulation Unit Value(3) ............... -- -- -- --
December 31, 1986
Accumulation Units in Force .............. -- 914,106 41,290,244 --
Accumulation Unit Value .................. -- $1.040484 $1.198662 --
January 16, 1986
Accumulation Unit Value(3) ............... -- $1.000000 -- --
December 31, 1985
Accumulation Units in Force .............. -- -- 30,770,485 --
Accumulation Unit Value .................. -- -- $1.100420 --
December 31, 1984
Accumulation Units in Force .............. -- -- 33,139,731 --
Accumulation Unit Value .................. -- -- $0.985271 --
</TABLE>
Financial statements of the Separate Account are included in the Statement
of Additional Information, which is available upon request. Accumulation units
shown are for an Accumulation Unit outstanding throughout the year under a
representative Contract of the type invested in each column shown. The unit
value of each Division of the Separate Account will not be the same on any given
day as the net asset value per share of the underlying Fund of the Series
Company and the other mutual fund portfolios described in this Prospectus in
which that Division invests. This is because each unit value consists of the
underlying share's net asset value minus the charges to the Separate Account. In
addition, dividends declared by the underlying Fund are reinvested by the
Division in additional shares. These distributions have the effect of reducing
the value of each share of the Fund and increasing the number of Fund shares
outstanding. However, the total cash value in the Separate Account does not
change as a result of such distributions.
11
INTRODUCTION
THIS PROSPECTUS DESCRIBES BOTH GROUP AND INDIVIDUAL CONTRACTS THROUGH WHICH
UNITS OF INTEREST IN THE COMPANY'S SEPARATE ACCOUNT A ARE OFFERED. BOTH GROUP
AND INDIVIDUAL CONTRACTS ARE COMBINATION FIXED/VARIABLE CONTRACTS OFFERING
VARIABLE OR FIXED ACCUMULATIONS AND VARIABLE OR FIXED BENEFITS OR A COMBINATION
OF BOTH. THIS PROSPECTUS DESCRIBES ONLY THE VARIABLE ASPECTS OF THE CONTRACTS,
EXCEPT WHERE FIXED ASPECTS ARE SPECIFICALLY MENTIONED.
The Contracts are designed to provide individuals with retirement benefits
through the accumulation of net Purchase Payments on a fixed or variable basis,
and by the application of such accumulations to provide fixed or variable
annuity payments. The purpose of variable accumulations and annuity payments is
to provide returns to investors which offset or exceed the effects of inflation.
There is, however, no guarantee that this objective will in fact be achieved.
Certain Fund options are indexed funds, a popular approach to investing among
individuals saving for retirement.
THE FUNDS. Sixteen Separate Account Divisions, thirteen of which invest in
separate portfolios of American General Series Portfolio Company and three of
which invest in investment portfolios of other mutual funds (collectively, the
"Funds"), are available under the Contracts in addition to the Company's General
Account. The sixteen Funds underlying the available Separate Account Divisions
are Stock Index Fund, MidCap Index Fund, Small Cap Index Fund, International
Equities Fund, Growth Fund, Growth & Income Fund, Science & Technology Fund,
Social Awareness Fund, Timed Opportunity Fund, Capital Conservation Fund,
Government Securities Fund, International Government Bond Fund, Money Market
Fund, Dreyfus Small Cap Fund, Templeton Asset Allocation Fund, and the Templeton
International Fund.
ACCUMULATION OF PURCHASE PAYMENTS. Prior to retirement, the Participant may
pursue various investment options on a variable or fixed basis by directing net
Purchase Payments to various Variable Investment Options or Fixed Subaccounts.
Variable investments are accomplished by allocating or transferring amounts to
Variable Investment Options. Fixed investments are accomplished by allocating or
transfering amounts to Fixed Subaccounts. Amounts in each of the sixteen
Variable Investment Options are invested in a corresponding Separate Account
Division which invests, in turn, in an underlying Fund. As the value of the
investment in the Funds increases or decreases, the value of the Variable
Investment Options that accumulate will increase or decrease. The value of such
accumulations is subject to deduction for charges summarized below. Amounts in
each of the two Fixed Subaccounts earn various rates of interest, with the
minimum being the guaranteed rate. Unless otherwise restricted by the Contract,
a Participant may allocate and/or accumulate amounts in up to seven of the
eighteen available subaccounts (sixteen Variable Investment Options and two
Fixed Interest Options). (For information as to how the Contracts may be
purchased, and certain minimums that apply to Purchase Payments and Accumulation
Values, see "Accumulation Period.") Owners of individual Contracts may exercise
a 20-day revocation right. (See "Revocation.")
SURRENDERS. The Participant may, subject to applicable law and the terms of
the employer's plan, make a total or partial surrender at any time during the
Accumulation Period by giving a written request to the Company. (See "Surrender"
and "Federal Tax Matters.") An individual Contract must be returned to the
Company before a total surrender can be effected. A surrender charge may be
assessed.
SURRENDER CHARGE. A surrender charge of up to 5% of Purchase Payments
received during the most recent 60 months may be assessed for a partial or
total surrender. The surrender charge is designed to help defray sales and
distribution expenses incurred by the Company. The Company intends to decrease
or eliminate the surrender charge applicable to a particular Contract if it
estimates that its sales expenses will be lower. (See "Charge for Partial and
Total Surrenders.")
FIXED AND VARIABLE ANNUITY PAYMENTS. On the Annuity Date, the Accumulation
Value, at the Annuitant's option, may be applied to purchase any combination of
fixed and/or variable annuities, subject to the Company's minimum annuity
payment and other requirements for any one annuity form. (See "Fixed or Variable
Annuity Payments" and "Annuity Payment Options.") Up to seven Divisions, or six
Divisions if a fixed annuity is also selected, may be utilized to provide
annuity payments. Each selection must be a whole percentage of the Accumulation
Value.
12
TRANSFERS. During the Accumulation Period, all or part of the Accumulation
Value may be transferred among Variable Investment Options or from Variable
Investment Options to fixed investment options. Transfers may be made from
fixed investment options subject to certain conditions. (See "Transfers Among
Investment Options.")
During the Annuity Period, an Annuitant may also transfer amounts among the
Variable Investment Options underlying a variable annuity, or all or part of
amounts underlying a variable annuity to provide a fixed annuity, once every 365
days. Transfers of amounts providing a fixed annuity may not be made to provide
a variable annuity during the Annuity Period.
Transfers are not subject to any charge. (See "Transfers Among Investment
Options" for additional conditions and limitations regarding transfers.) The
transfer privilege may be suspended or terminated at any time.
OTHER CHARGES. An account maintenance charge is applied for each calendar
quarter during the Accumulation Period during which any Variable Investment
Option Accumulation Value is applied to a Participant's Contract. No charge is
deducted for any calendar quarter if the Accumulation Value is credited only to
the Fixed Interest Options throughout the quarter. The account maintenance
charge applies to each Participant Account and is currently $3.75 per quarter.
It is due in quarterly installments beginning the first day of the calendar
quarter following the first date a value is credited to a Variable Investment
Option. However, it is not deducted until the last day of the calendar quarter
in which it is due. A full quarterly charge will be assessed if all Variable
Investment Options are surrendered during a calendar quarter. If all Variable
Accumulation Values are withdrawn or transferred to a Fixed Interest Option, the
charge will be deducted at the time of withdrawal, surrender or transfer. This
charge will reduce the Surrender Value of the Participant Account. This charge
contributes to offsetting the cost of administrative expenses with respect to
each Contract. No account maintenance charge will be assessed during the Annuity
Period.
The Company intends to decrease or eliminate the account maintenance
charge applicable to a particular Contract if it estimates that its
administrative expenses will be lower. (See "Charge for Account Maintenance.")
A daily fee is charged at the annual rate of 1% or 1.25% of the average
daily net asset value allocable to the Variable Investment Options. This
charge is imposed for the assumption by the Company of certain mortality and
expense risks. Additionally, in certain states a deduction for premium tax may
be made. (See: "Charge to the Separate Account" and "Charge for Premium
Taxes.")
A daily charge, based on a percentage of average daily net assets, is paid
by each Fund to its investment adviser for investment management. These charges,
and other Fund charges and expenses more fully described in the prospectuses for
the Funds and summarized in the preceding Fee Table, are borne indirectly by the
Contract Owners.
THE COMPANY AND THE
SEPARATE ACCOUNT
The Company is a stock life insurance company organized under the laws of
the State of Texas as the successor to Variable Annuity Life Insurance Company
of America, a District of Columbia life insurance company organized in 1955. The
Company is engaged primarily in the offering and issuance of fixed and variable
retirement annuity contracts and combinations thereof. The Company"s executive
office is located at 2929 Allen Parkway, Houston, Texas 77019, its mailing
address is P.O. Box 3206, Houston, Texas 77253.
The Company is an indirect wholly-owned subsidiary of American General
Corporation. However, the assets of American General Corporation do not support
the obligations of the Company under the Contracts. Members of the American
General Corporation group of companies operate in each of the 50 states and
Canada, and collectively are engaged in substantially all forms of financial
services, with activities heavily weighted toward insurance.
On April 18, 1979, the Board of Directors of the Company established the
Separate Account in accordance with the Texas Insurance Code. The Separate
Account is registered with the U.S. Securities and Exchange Commission as a unit
investment trust under the Investment Company Act of 1940 (the "1940 Act").
Units of interest in the Separate Account under the Contracts are registered as
securities under the Securities Act of 1933 (the "1933 Act"). Under the Texas
Insurance Code and the Contracts, the assets of the Separate Account will not be
chargeable with liabilities arising out of any other business which the Company
may conduct, but will be held exclusively for the benefit of the Contract
Owners,
13
Participants, Annuitants, and Beneficiaries of the Contracts.
Each Division of the Separate Account is administered and accounted for as
part of the general business of the Company; however, the income, capital gains,
or capital losses, whether or not realized, of each Division of the Separate
Account are credited to or charged against the assets held in that Division in
accordance with the terms of each contract without regard to the income, capital
gains, or capital losses of any other Division or arising out of any other
business the Company may conduct.
The Separate Account currently is made up of eighteen Divisions, sixteen of
which are available as Variable Investment Options under the Contracts to
receive net Purchase Payments.The Separate Account is also available to receive
net purchase payments under other variable annuity contracts issued by the
Company. Each Division of the Separate Account available under the Contracts
will invest in the shares of a specific Fund. (For a description of the
Divisions available under the Contracts and the specific Fund in which each
respective Division invests, see "The Funds.")
THE FUNDS
Sixteen investment portfolios or "Funds," each of which is a separate series
of a mutual fund, are available for investment through corresponding Divisions
of the Separate Account. These Funds include thirteen portfolios of the Series
Company; the Dreyfus Small Cap Fund, a series of the Dreyfus Variable Investment
Fund; and Templeton Asset Allocation Fund and Templeton International Fund, each
a series of the Templeton Variable Products Series Fund. The Company serves as
the investment adviser to the Series Company. The Dreyfus Corporation serves as
investment adviser to the Dreyfus Small Cap Fund, and Templeton Investment
Counsel, Inc. ("TICI") serves as the investment adviser to the Templeton Asset
Allocation Fund and Templeton International Fund. The Series Company, the
Dreyfus Small Cap Fund, and the Templeton Variable Products Series Fund each is
a diversified open-end, management investment company registered under the 1940
Act. Shares of the Dreyfus Small Cap Fund, the Templeton Asset Allocation Fund
and the Templeton International Fund are also sold to separate accounts of other
insurance companies, that may or may not be affiliated with the Company or each
other, a practice known as "shared funding." They may also be sold to separate
accounts that act as the underlying investments for both variable annuity
contracts and variable life insurance policies, a practice known as "mixed
funding." There are certain risks associated with mixed and shared funding, as
disclosed in each Fund's prospectus.
A brief summary of the investment objectives of each Fund appears below. FOR
MORE COMPLETE INFORMATION ABOUT THESE FUNDS, INCLUDING CHARGES AND EXPENSES,
REFER TO THE PROSPECTUSES FOR THE FUNDS, ADDITIONAL COPIES OF WHICH ARE
AVAILABLE FROM THE VARIABLE ANNUITY MARKETING COMPANY, P.O. BOX 3206, HOUSTON,
TEXAS 77253 OR CONTACT ANY REGIONAL OFFICE AT 1-800-44-VALIC OR AT THE ADDRESS
SHOWN ON THE INSIDE BACK COVER OF THIS PROSPECTUS. READ EACH PROSPECTUS
CAREFULLY BEFORE YOU INVEST OR SEND MONEY.
STOCK INDEX FUND (DIVISION TEN). This Fund seeks investment results that
correspond to the performance of the S&P 500(R)* Index, through investments in
common stocks traded on the New York Stock Exchange and the American Stock
Exchange and to a limited extent, the over-the-counter markets.
MIDCAP INDEX FUND (DIVISION FOUR). This Fund seeks to provide growth of
capital through investments primarily in a diversified portfolio of common
stocks that, as a group, are expected to provide investment results closely
corresponding to the performance of the Standard & Poor's(R) Corporation
(S&P(R)) MidCap 400 Index. Effective October 1, 1991, the Capital Accumulation
Fund changed its name to the MidCap Index Fund and revised its investment
objective, investment program and investment restrictions accordingly, pursuant
to contract owner vote.
SMALL CAP INDEX FUND (DIVISION FOURTEEN). This Fund seeks to provide
growth of capital through investments primarily in a diversified portfolio of
common stocks that, as a group, are expected to provide investment results
closely corresponding to the Russell 2000(R)** Index.
- ---------
* "Standard & Poor's(R)", "S&P(R)", "S&P 500(R)" and "S&P MidCap 400 Index" are
trademarks of Standard and Poor's Corporation. Neither the MidCap Index Fund
or the Stock Index Fund is sponsored, endorsed, sold or promoted by S&P and
S&P makes no representation regarding the advisability of investing in these
Funds.
14
INTERNATIONAL EQUITIES FUND (DIVISION ELEVEN). The Fund seeks to provide
long-term growth of capital through investments primarily in a diversified
portfolio of equity and equity related securities of foreign issuers that, as a
group, are expected to provide investment results closely corresponding to the
performance of the Morgan Stanley Capital International Europe, Australia and
Far East Index ("EAFE Index").
TEMPLETON INTERNATIONAL FUND. (DIVISION TWENTY). This Fund seeks to achieve
long-term capital growth through a flexible policy of investing in stocks and
debt obligations of companies and governments outside the United States. Any
income realized will be incidental. Although the Fund generally invests in
common stock, it may also invest in preferred stocks and certain debt securities
such as convertible bonds which are rated in any category by S&P or Moody's or
which are unrated by any agency.
DREYFUS SMALL CAP FUND (DIVISION EIGHTEEN). This Fund seeks to maximize
capital appreciation and invests principally in common stocks. This Fund will be
particularly alert to companies which The Dreyfus Corporation considers to be
emerging smaller-sized companies which are believed to be characterized by new
or innovative products, services or processes which should enhance prospects for
growth in future earnings.
GROWTH FUND (DIVISION FIFTEEN). This Fund seeks to provide long-term
growth of capital through investment primarily in common stocks of U.S. growth
companies engaged in service-related activities.
GROWTH & INCOME FUND (DIVISION SIXTEEN). This Fund seeks to provide
long-term growth of capital and, secondarily, current income. To achieve its
investment objective, the Fund will, under normal conditions, invest at least
90% of its net assets in common stocks and equity-related securities.
CAPITAL CONSERVATION FUND (DIVISION SEVEN). This Fund seeks to obtain the
highest possible total return consistent with preservation of capital from a
combination of current income and capital gains on investments in intermediate
and long-term debt instruments and other income producing securities.
GOVERNMENT SECURITIES FUND (DIVISION EIGHT). This Fund seeks high current
income and protection of capital through investments in debt instruments issued
or guaranteed by the U.S. Government, its agencies or instrumentalities and
having maturities generally exceeding one year.
INTERNATIONAL GOVERNMENT BOND FUND (DIVISION THIRTEEN). This Fund seeks high
current income through investments primarily in high-quality debt securities
issued or guaranteed by foreign governments.
SOCIAL AWARENESS FUND (DIVISION TWELVE). This Fund seeks growth of capital
through investment, primarily in common stocks, in companies which meet the
social criteria established for the Fund.
SCIENCE & TECHNOLOGY FUND (DIVISION SEVENTEEN). This Fund seeks long-term
growth in capital through investment primarily in the common stocks of companies
which are expected to benefit from the development, advancement and use of
science and technology. Current income will be incidental to the Fund's
investment objective. Total return will consist primarily of capital
appreciation or depreciation.
MONEY MARKET FUND (DIVISION SIX). This Fund seeks the highest level of
current income consistent with liquidity, stability and protection of capital
through investments in money market instruments or other cash equivalents such
as repurchase agreements. Shares of the Money Market Fund are neither insured
nor guaranteed by the U.S. Government. There is no assurance that this Fund will
be able to maintain a stable net asset value of $1.00 per share.
TIMED OPPORTUNITY FUND (DIVISION FIVE). This Fund's primary investment
objective is maximum aggregate rate of return over the long-term through the
assumption of controlled investment risk by adjusting its investment mix among
equity instruments, long-term debt securities and short-term money market
instruments.
TEMPLETON ASSET ALLOCATION FUND (DIVISION NINETEEN). This Fund seeks a
high level of total return through a flexible policy of investing in the
following market segments: stocks of companies in any nation, debt securities
of companies and governments of any nation, and money market instruments.
Changes in the asset mix will be adjusted in an attempt to capitalize on total
return potential produced by changing economic conditions throughout the world.
- ---------
** The Russell 2000 Index is a trademark/service mark of the Frank Russell
Company. Russell(TM) is a trademark of the Frank Russell Company.
15
PERFORMANCE INFORMATION
The Separate Account may from time to time advertise certain performance
information concerning its various Divisions. The Separate Account and certain
Divisions have been offering contracts for periods prior to the commencement of
the offering of the Contracts described in this Prospectus. In addition, certain
of the Funds have been in existence prior to the commencement of the offering of
the Contracts. The Separate Account may advertise the performance of its
Divisions for these prior periods. The performance information of any period
prior to the commencement of the offering of the Contracts is calculated as if
the Contracts had been offered during those periods using current charges and
expenses. The performance information is based on historical results and is not
intended to indicate past performance under an actual Contract or future
performance. Each Division may also, from time to time, advertise its
performance relative to certain performance rankings and indices compiled by
independent organizations. More detailed information as to the calculation of
performance information, as well as comparisons with unmanaged market indices,
appears in the Statement of Additional Information.
Each Division may advertise total return performance information for various
periods of time. Total return performance information is based on the overall
dollar or percentage change in value of a hypothetical investment in the
specific Division over a given period of time. In general, a Division's total
return reflects the overall change in value of the Division from the beginning
of the relevant period to the end of that period.
First, the average annual total return information shows the average
percentage change in the value of an investment in the Division from the
beginning date of the measuring period to the end of that period. The
standardized version of average annual total return reflects all historical
investment results, less all charges and deductions applied against the Division
(including any maintenance charge and any surrender charge that would apply if a
Contract Owner terminated the Contract at the end of each period indicated, but
excluding any deductions for premium taxes). (See Table I, below.) The average
annual total return is computed for each Division comparing an initial
hypothetical investment of $1,000 in the Division to the redeemable value of
that investment at the end of specifically identified 1, 3, 5 and 10 year
periods. In order to calculate average annual total return, the Company divides
the value of a Division under a Contract terminated on a particular date by a
hypothetical $1,000 investment in the Division made by the Contract Owner at the
beginning of the period illustrated. The resulting total growth rate for the
period is then annualized to obtain the average annual percentage increase (or
decrease) during the period. Annualization assumes that the application of a
single rate of return each year during the period will produce the ending value,
taking into account the effect of compounding.
Second, the Divisions may present a nonstandardized average annual total
return that reflects all historical investment results without deduction for
surrender charges, premium taxes or maintenance charges. (See Table II, below.)
The rate for the nonstandardized version of average annual total return is
otherwise computed for each Division in the same manner as stated above for the
standardized version of average annual total return.
Third, the Divisions may also advertise total return performance information
computed on different bases. For example, the Divisions may present cumulative
total return information computed on the same basis as described above for total
return performance information, except deductions will not include the surrender
charge or the maintenance charge. (The Company refers to this presentation as
"Cumulative Return.") (See Table III, below.) This presentation assumes that the
investment in the Contract persists beyond the period when the surrender charge
applies, consistent with the long-term investment and retirement objectives of
the Contract. This presentation may assume 1, 3, 5 and 10 year periods and is
based on a hypothetical $10,000 initial investment.
Fourth, the Divisions may present total return information calculated by
subtracting a Division's Accumulation Unit value at the beginning of a year from
the Accumulation Unit value of that Division at the end of the year and dividing
the difference by the Accumulation Unit value at the beginning of the year. (The
Company refers to this presentation as "Annual Change in Accumulation Unit
Value.") (See Table IV, below.) This computation results in a total growth rate
for the period which the Company annualizes (as described above) in order to
obtain the average annual percentage change in the Accumulation Unit value for
that period. Surrender charges, pre-
16
mium taxes, and maintenance charges are not deducted from the Accumulation Unit
values. These charges, if applicable, are imposed by the cancellation of
Accumulation Units attributable to an individual Contract Owner's account. The
effect of these charges is to reduce total return to the Contract Owner.
Fifth, the Divisions may present aggregate total return figures for various
periods, reflecting the cumulative change in value of an investment in the
Division for the specified period. This calculation is the same as that for the
Annual Change in Accumulation Unit Value but is based on the Accumulation Unit
value at the beginning and end of a period of years in excess of one year. (The
Company refers to this presentation as "Cumulative Change in Accumulation Unit
Value.") (See Table IV, below.)
Sixth, the Divisions may present total return information based on different
amounts of periodic investments into the Division. For example, the Division may
present total return information based on a $100 a month investment for a
specified period into the Division. Performance presentations will include an
explanation of charges imposed, as appropriate, for total return information.
Finally, the Divisions may present a hypothetical example that applies the
Annual Change in Accumulation Unit Value to an initial investment of $10,000.
(The Company refers to this presentation as "Hypothetical $10,000 Account
Value".) (See Tables V and VI, below.) The Annual Change in Accumulation Unit
Value, as stated above, does not reflect deductions for surrender charges,
premium taxes, and maintenance charges.
Each Division, other than the Money Market Division, may advertise
standardized yield performance in addition to total return information. A
Division's yield is one way of showing the rate of income the Division earns as
a percentage of the value of the Division's Accumulation Units. The yield of
each Division is computed by dividing the average daily net investment income
per Accumulation Unit of the Division earned during a specifically identified
30-day base period, less a maintenance charge, by the Accumulation Unit value on
the last day of the period, and annualizing that result. This calculation takes
into account the average daily number of Accumulation Units outstanding during
the period. The yield of each Division reflects the deduction of all charges,
expenses and fees applicable against the Division, but does not take into
account the surrender charge and premium taxes.
The Money Market Division may advertise current yield and effective yield
performance information. The yield of the Money Market Division refers to the
income generated by an investment in the Money Market Division over a
specifically identified 7-day period. (The yield does not take into account the
Surrender Charge, the maintenance charge or premium taxes.) This income is
annualized by assuming that the amount of income generated by the investment
during that week is generated each week over a 52-week period and is shown as a
percentage of the investment. The 7 day current yield for the seven days ended
December 31, 1994 was 4.38%. The effective yield of the Money Market Division is
calculated in a similar manner but, when annualizing such yield, income earned
by the Money Market Division is assumed to be reinvested. This compounding
effect will cause effective yield to be higher than current yield. The 7-day
effective yield for the seven days ended December 31, 1994 was 4.48%.
Certain performance data related to each Division is printed in the tables
below. (See "Performance Calculation" in the Statement of Additional Information
for certain other performance data.)
The information presented does not reflect the advantage under the Contracts
of deferring Federal income tax on increases in Account Value due to earnings
attributable to Purchase Payments. (See "Federal Tax Matters -- Effect of Tax
Deferred Accumulation"). The information presented also does not reflect the
advantage under Qualified Contracts of deferring federal income tax on Purchase
Payment Contributions (See "Federal Tax Matters -- Effect of Tax Deferred
Accumulation").
The performance results shown in the following tables are not an estimate or
guarantee of future investment performance, and do not represent the actual
experience of amounts invested by a particular Participant.
17
<PAGE>
AVERAGE ANNUAL TOTAL RETURN TABLE I
WITH SURRENDER CHARGE AND MAINTENANCE FEE IMPOSED
(PERIOD ENDED DECEMBER 31, 1994)
<TABLE>
<CAPTION>
SINCE
DIVISION INCEPTION* 10 YEARS 5 YEARS 3 YEARS 1 YEAR
- -------- --------- -------- ------- ------- ------
<S> <C> <C> <C> <C> <C>
Stock Index Fund (Division 10) ........................... 7.18% -- 5.91% 2.93 % -4.91%
MidCap Index Fund (Division 4)
Period from 10/13/82 to 12/31/94 ..................... 6.33 6.13% 3.69 3.36 -9.11
Period from 10/01/91 to 12/31/94 ..................... 6.78 -- -- 3.36 -9.11
Small Cap Index Fund (Division 14) ....................... 5.98 -- -- -- -8.72
International Equities Fund (Division 11) ................ 0.88 -- -0.55 3.94 1.96
Templeton International Fund (Division 20) ............... 8.81 -- -- -- -7.95
Dreyfus Small Cap Fund (Division 18) ..................... 60.13 -- -- 43.06 1.41
Growth Fund (Division 15) ................................ -4.42 -- -- -- --
Growth & Income Fund (Division 16) ....................... -5.25 -- -- -- --
Capital Conservation Fund (Division 7) ................... 4.61 -- 3.90 1.78 -11.34
Government Securities Fund (Division 8) .................. 4.85 -- 4.62 1.55 -9.82
International Government Bond Fund (Division 13) ......... 6.98 -- -- 4.42 -1.37
Social Awareness Fund (Division 12) ...................... 5.50 -- 4.76 0.48 -6.93
Science & Technology Fund (Division 17) .................. 19.65 -- -- -- --
Money Market Fund (Division 6) ........................... 4.32 -- 2.55 0.53 -1.99
Timed Opportunity Fund (Division 5) ...................... 5.94 6.93 2.80 -0.39 -6.81
Templeton Asset Allocation Fund (Division 19) ............ 8.26 -- 6.96 6.80 -8.67
</TABLE>
- ---------
* The inception dates of the Divisions are as follows:
DIVISION INCEPTION DATE
- -------- --------------
Stock Index Division.................................... 04/20/87
MidCap Index Division................................... 10/13/82
Small Cap Index Division................................ 05/01/92
International Equities Division......................... 10/02/89
Templeton International Division........................ 05/01/92
Dreyfus Small Cap Division.............................. 08/31/90
Growth Division......................................... 04/29/94
Growth & Income Division................................ 04/29/94
Capital Conservation Division........................... 01/16/86
Government Securities Division.......................... 01/16/86
International Government Bond Division.................. 10/01/91
Social Awareness Division............................... 10/02/89
Science & Technology Division........................... 04/29/94
Money Market Division................................... 01/16/86
Timed Opportunity Division.............................. 09/06/83
Templeton Asset Allocation Division..................... 08/24/88
The MidCap Index Division was formerly the Capital Accumulation Division.
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 data prior to October 1, 1991 reflect investment
experience prior to these changes. Selected accumulation unit data for the last
ten years for this Division appears on page 10 of this Prospectus. Performance
information for the Dreyfus Small Cap Division, Templeton Asset Allocation
Division, and Templeton International Division was calculated on a pro forma
basis, using the inception dates of the underlying Funds, and applying current
contract charges.
18
<PAGE>
TABLE II
AVERAGE ANNUAL TOTAL RETURN
WITH NO SURRENDER CHARGE OR MAINTENANCE FEE IMPOSED
(PERIOD ENDED DECEMBER 31, 1994)
<TABLE>
<CAPTION>
SINCE
DIVISION INCEPTION* 10 YEARS 5 YEARS 3 YEARS 1 YEAR
-------- ---------- -------- ------- ------- ------
<S> <C> <C> <C> <C> <C>
Stock Index Fund (Division 10) ............................ 7.32% -- 6.83% 4.62% -0.30%
MidCap Index Fund (Division 4)
Period from 10/13/82 to 12/31/94 ...................... 6.47 6.27% 4.68 5.03 -4.70
Period from 10/01/91 to 12/31/94 ...................... 8.23 -- -- 5.03 -4.70
Small Cap Index Fund (Division 14) ........................ 7.81 -- -- -- -4.30
International Equities Fund (Division 11) ................ 1.01 -- 0.50 5.60 6.90
Templeton International Fund (Division 20) ................ 10.56 -- -- -- -3.49
Dreyfus Small Cap Fund (Division 18) ...................... 60.59 -- -- 44.06 6.33
Growth Fund (Division 15) ................................. 0.18 -- -- -- --
Growth & Income Fund (Division 16) ........................ -0.68 -- -- -- --
Capital Conservation Fund (Division 7) .................... 4.75 -- 4.89 3.49 -7.04
Government Securities Fund (Division 8) ................... 4.99 -- 5.58 3.26 -5.44
International Government Bond Fund (Division 13) .......... 8.43 -- -- 6.06 3.42
Social Awareness Fund (Division 12) ....................... 5.64 -- 5.72 2.17 -2.42
Science & Technology Fund (Division 17) ................... 24.77 -- -- -- --
Money Market Fund (Division 6) ............................ 4.46 -- 3.58 2.22 2.77
Timed Opportunity Fund (Division 5) ....................... 6.08 7.07 3.82 1.28 -2.29
Templeton Asset Allocation Fund (Division 19) ............. 8.41 -- 7.85 8.39 -4.24
</TABLE>
TABLE III
CUMULATIVE RETURN
(PERIOD ENDED DECEMBER 31, 1994)
<TABLE>
<CAPTION>
SINCE
DIVISION INCEPTION* 10 YEARS 5 YEARS 3 YEARS 1 YEAR
-------- --------- -------- ------- ------- ------
<S> <C> <C> <C> <C> <C>
Stock Index Fund (Division 10) ............................ 72.41% -- 39.18% 14.51% -0.30%
MidCap Index Fund (Division 4)
Period from 10/01/91 through 12/31/94 ................... 29.36 -- -- 15.89 -4.70
Period from 10/13/82 through 12/31/94 ................... 115.32 83.70% 25.72 15.89 -4.70
Small Cap Index Fund (Division 14) ........................ 22.23 -- -- -- -4.30
International Equities Fund (Division 11) ................. 5.45 -- 2.53 17.78 6.90
Templeton International Fund (Division 20) ................ 30.77 -- -- -- -3.49
Dreyfus Small Cap Fund (Division 18) ...................... 681.25 -- -- 199.27 6.33
Growth Fund (Division 15) ................................. 0.18 -- -- -- --
Growth & Income Fund (Division 16) ........................ -0.68 -- -- -- --
Capital Conservation Fund (Division 7) .................... 51.53 -- 26.95 10.85 -7.04
Government Securities Fund (Division 8) ................... 54.72 -- 31.20 10.10 -5.44
International Government Bond Fund (Division 13) .......... 30.14 -- -- 19.34 3.42
Social Awareness Fund (Division 12) ....................... 33.39 -- 32.07 6.66 -2.42
Science & Technology Fund (Division 17) ................... 24.77 -- -- -- --
Money Market Fund (Division 6) ............................ 47.91 -- 19.23 6.81 2.77
Timed Opportunity Fund (Division 5) ....................... 95.15 98.07 20.60 3.90 -2.29
Templeton Asset Allocation Fund (Division 19) ............. 67.11 -- 45.97 27.35 -4.24
</TABLE>
- ---------
* See footnote to Table I for the inception date of each Division.
SEE THE TEXT BEGINNING ON PAGE 16 FOR A DESCRIPTION OF THE METHODS OF COMPUTING
THESE RETURNS, INCLUDING A STATEMENT OF THE CHARGES REFLECTED. ANY CHARGES UNDER
THE CONTRACT EXCLUDED FROM THE COMPUTATION OF THESE RETURNS WILL FURTHER REDUCE
CONTRACT VALUES.
19
<PAGE>
TABLE IV
ANNUAL AND CUMULATIVE CHANGE IN ACCUMULATION UNIT VALUE
<TABLE>
<CAPTION>
ANNUAL CHANGE IN ACCUMULATION UNIT VALUE
FOR THE YEAR ENDED DECEMBER 31*
-----------------------------------------------------------------
DIVISION 1994 1993 1992 1991 1990
-------- ------ ------ ------ ------ -------
<S> <C> <C> <C> <C> <C>
Stock Index Fund (Division 10) ........................... (0.30)% 8.78% 5.58% 27.70% (4.83)%
MidCap Index Fund (Division 4) ........................... (4.70) 11.78 8.79 20.81 (10.20)
Small Cap Index Fund (Division 14) ....................... (4.30) 14.77 11.28 -- --
International Equities Fund (Division 11) ................ 6.90 28.58 (14.31) 10.06 (20.90)
Templeton International Fund (Division 20) ............... (3.49) 45.51 (6.89) -- --
Dreyfus Small Cap Fund (Division 18) ..................... 6.33 66.31 69.24 156.75 1.68
Growth Fund (Division 15) ................................ 0.18 -- -- -- --
Growth & Income Fund (Division 16) ....................... -0.68 -- -- -- --
Capital Conservation Fund (Division 7) ................... (7.04) 10.88 7.55 16.00 (1.28)
Government Securities Fund (Division 8) .................. (5.44) 9.70 6.14 13.59 4.91
International Government Bond Fund (Division 13) ......... 3.42 13.08 2.05 9.05 --
Social Awareness Fund (Division 12) ...................... (2.42) 6.84 2.31 26.63 (2.21)
Science & Technology Fund (Division 17) .................. 24.77 -- -- -- --
Money Market Fund (Division 6) ........................... 2.77 1.67 2.22 4.49 6.83
Timed Opportunity Fund (Division 5) ...................... (2.29) 8.19 (1.71) 20.13 (3.38)
Templeton Asset Allocation Fund (Division 19) ............ (4.24) 24.59 6.74 26.13 (9.13)
<CAPTION>
ANNUAL CHANGE IN ACCUMULATION UNIT VALUE
FOR THE YEAR ENDED DECEMBER 31*
------------------------------------------------------------
DIVISION 1989 1988 1987 1986 1985
-------- ------ ------ ------ ------ ------
<S> <C> <C> <C> <C> <C>
Stock Index Fund (Division 10) ........................... 27.88% 13.13% (14.38)% -- --
MidCap Index Fund (Division 4) ........................... 18.10 13.06 (5.10) 2.43% 12.57%
Small Cap Index Fund (Division 14) ....................... -- -- -- -- --
International Equities Fund (Division 11) ................ 2.84 -- -- -- --
Templeton International Fund (Division 20) ............... -- -- -- -- --
Dreyfus Small Cap Fund (Division 18) ..................... -- -- -- -- --
Growth Fund (Division 15) ................................ -- -- -- -- --
Growth & Income Fund (Division 16) ....................... -- -- -- -- --
Capital Conservation Fund (Division 7) ................... 10.63 5.92 (2.78) 4.77 --
Government Securities Fund (Division 8) .................. 11.03 4.95 (3.26) 4.61 --
International Government Bond Fund (Division 13) ......... -- -- -- -- --
Social Awareness Fund (Division 12) ...................... 1.00 -- -- -- --
Science & Technology Fund (Division 17) .................. -- -- -- -- --
Money Market Fund (Division 6) ........................... 7.92 5.72 4.50 4.05 --
Timed Opportunity Fund (Division 5) ...................... 15.81 8.63 7.31 8.93 11.69
Templeton Asset Allocation Fund (Division 19) ............ 11.86 2.35 -- -- --
<CAPTION>
CUMULATIVE CHANGE IN ACCUMULATION UNIT VALUE
FOR EACH PERIOD END SINCE 12/31/84*
----------------------------------------------------------------
DIVISION 1994 1993 1992 1991 1990
-------- ------ ------ ------ ------ ------
<S> <C> <C> <C> <C> <C>
Stock Index Fund (Division 10) ............................ 72.41% 72.93% 58.97% 50.56% 17.90%
MidCap Index Fund (Division 4) ............................ 83.70 92.76 72.44 58.52 31.21
Small Cap Index Fund (Division 14) ........................ 22.23 27.72 11.28 -- --
International Equities Fund (Division 11) ................. 5.45 (1.36) (23.29) (10.48) (18.66)
Templeton International Fund (Division 20) ................ 30.77 35.49 (6.89) -- --
Dreyfus Small Cap Fund (Division 18) ...................... 681.25 634.77 341.81 161.05 1.68
Growth Fund (Division 15) ................................. 0.18 -- -- -- --
Growth & Income Fund (Division 16) ........................ -0.68 -- -- -- --
Capital Conservation Fund (Division 7) .................... 51.53 63.01 47.02 36.69 17.84
Government Securities Fund (Division 8) ................... 54.72 63.62 49.15 40.52 23.71
International Government Bond Fund (Division 13) .......... 30.14 25.83 11.28 9.05 --
Social Awareness Fund (Division 12) ....................... 33.39 36.70 27.95 25.06 (1.23)
Science & Technology Fund (Division 17) ................... 24.77 -- -- -- --
Money Market Fund (Division 6) ............................ 47.91 43.93 41.57 38.49 32.54
Timed Opportunity Fund (Division 5) ....................... 98.07 102.71 87.36 90.63 58.68
Templeton Asset Allocation Fund (Division 19) ............. 67.11 74.51 40.07 31.22 4.03
<CAPTION>
CUMULATIVE CHANGE IN ACCUMULATION UNIT VALUE
FOR EACH PERIOD END SINCE 12/31/84*
----------------------------------------------------------------
DIVISION 1989 1988 1987 1986 1985
-------- ------ ------ ------ ------ ------
<S> <C> <C> <C> <C> <C>
Stock Index Fund (Division 10) ............................ 23.88% (3.13)% (14.38)% -- --
MidCap Index Fund (Division 4) ............................ 46.11 23.72 9.43 15.31% 12.57%
Small Cap Index Fund (Division 14) ........................ -- -- -- -- --
International Equities Fund (Division 11) ................. 2.84 -- -- -- --
Templeton International Fund (Division 20) ................ -- -- -- -- --
Dreyfus Small Cap Fund (Division 18) ...................... -- -- -- -- --
Growth Fund (Division 15) ................................. -- -- -- -- --
Growth & Income Fund (Division 16) ........................ -- -- -- -- --
Capital Conservation Fund (Division 7) .................... 19.36 7.89 1.86 4.77 --
Government Securities Fund (Division 8) ................... 17.92 6.21 1.20 4.61 --
International Government Bond Fund (Division 13) .......... -- -- -- -- --
Social Awareness Fund (Division 12) ....................... 1.00 -- -- -- --
Science & Technology Fund (Division 17) ................... -- -- -- -- --
Money Market Fund (Division 6) ............................ 24.06 14.95 8.73 4.05 --
Timed Opportunity Fund (Division 5) ....................... 64.24 41.82 30.55 21.66 11.69
Templeton Asset Allocation Fund (Division 19) ............. 14.49 2.35 -- -- --
</TABLE>
- ---------
* For the year in which a Division was initiated, less than a full year's
performance has been reflected. Actual, not annualized, performance is
reflected. See footnote to Table I above for the inception date of each
Division. As noted above, effective October 1, 1991, the Fund underlying the
MidCap Index 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 data prior to October 1,
1991 reflect investment experience prior to these changes. Investment
experience for this Division subsequent to October 1, 1991 has been as
follows: for the period from October 1, 1991 through December 31, 1991, the
change in accumulation unit value was 11.63%; for the period from October 1,
1991 through December 31, 1992, the cumulative change in accumulation unit
value was 21.43%; for the period from October 1, 1991 through December 31,
1993, the cumulative change in accumulation unit value was 35.74% and for the
period from October 1, 1991 through December 31, 1994, the cumulative change
in accumulation unit value was 29.36%.
SEE THE TEXT BEGINNING ON PAGE 16 FOR A DESCRIPTION OF THE METHODS OF COMPUTING
THESE RETURNS, INCLUDING A STATEMENT OF THE CHARGES REFLECTED. ANY CHARGES UNDER
THE CONTRACT EXCLUDED FROM THE COMPUTATION OF THESE RETURNS WILL FURTHER REDUCE
CONTRACT VALUES.
20
<PAGE>
TABLE V
HYPOTHETICAL $10,000 ACCOUNT VALUE
For the Stock Index Fund, MidCap Index Fund, Small Cap Index Fund,
International Equities Fund, Growth Fund, Growth & Income Fund, International
Government Bond Fund, Science & Technology Fund, Social Awareness Fund, Timed
Opportunity Fund, Capital Conservation Fund, Government Securities Fund and
Money Market Fund, the respective tables and graphs below show the change in
accumulation value of a hypothetical $10,000 investment in each of the Divisions
since the inception of the Division (or the last 10 fiscal years, in the case of
MidCap Index Fund and Timed Opportunity Fund). For the Dreyfus Small Cap Fund,
Templeton Asset Allocation Fund and Templeton International Fund the respective
tables and graphs below show the annual change in accumulation unit value of a
hypothetical $10,000 investment in each of those Funds calculated on a pro forma
basis using the inception dates of the Funds in which these Divisions invest.
STOCK INDEX FUND (DIVISION 10)
ANNUAL VALUE OF A $10,000
STIPULATED PAYMENT MADE
APRIL 20, 1987
-------------------------------------
04/20/87.................. $10,000
12/31/87.................. 8,562
12/31/88.................. 9,687
12/31/89.................. 12,388
12/31/90.................. 11,790
12/31/91.................. 15,056
12/31/92.................. 15,897
12/31/93.................. 17,293
12/31/94.................. 17,241
[LINE GRAPH PLOTTED FROM DATA IN TABLE BELOW]
VALUE AT QUARTERLY INTERVALS OF A $10,000
STIPULATED PAYMENT MADE APRIL 20, 1987
$ VALUE
---------
20-Apr-87............................ 10,000.00
30-Jun-87............................ 10,399.20
30-Sep-87............................ 11,031.20
31-Dec-87............................ 8,562.40
31-Mar-88............................ 8,958.70
30-Jun-88............................ 9,455.80
30-Sep-88............................ 9,456.90
31-Dec-88............................ 9,686.70
31-Mar-89............................ 10,263.40
30-Jun-89............................ 11,063.80
30-Sep-89............................ 12,175.90
31-Dec-89............................ 12,387.80
31-Mar-90............................ 11,997.00
30-Jun-90............................ 12,739.10
30-Sep-90............................ 10,878.90
31-Dec-90............................ 11,790.00
31-Mar-91............................ 13,403.30
30-Jun-91............................ 13,294.20
30-Sep-91............................ 13,917.40
31-Dec-91............................ 15,056.40
31-Mar-92............................ 14,575.70
30-Jun-92............................ 14,773.80
30-Sep-92............................ 15,193.80
31-Dec-92............................ 15,897.20
31-Mar-93............................ 16,606.50
30-Jun-93............................ 16,617.50
30-Sep-93............................ 16,978.90
31-Dec-93............................ 17,293.30
31-Mar-94............................ 16,559.70
30-Jun-94............................ 16,544.00
30-Sep-94............................ 17,289.30
31-Dec-94............................ 17,241.30
SEE THE TEXT BEGINNING ON PAGE 16 FOR A DESCRIPTION OF THE METHODS OF COMPUTING
THESE RETURNS, INCLUDING A STATEMENT OF THE CHARGES REFLECTED. ANY CHARGES UNDER
THE CONTRACT EXCLUDED FROM THE COMPUTATION OF THESE RETURNS WILL FURTHER REDUCE
CONTRACT VALUES.
21
<PAGE>
TABLE V CONTINUED
MIDCAP INDEX FUND (DIVISION 4)
The performance information for the MidCap Index Division is shown in two
separate sets of tables and graphs for the ten year period beginning January 1,
1985 and for the period beginning October 1, 1991. The latter period shows the
performance of the MidCap Index Division since the change in investment
objectives, investment program, and investment restrictions of the underlying
Fund. Selected accumulation unit data for the last ten years for the MidCap
Index Division appears on page 10 of this Prospectus.
ANNUAL VALUE OF A $10,000
STIPULATED PAYMENT MADE
OCTOBER 1, 1991
-----------------------------------
10/01/91.................. $10,000
12/31/91.................. 11,163
12/31/92.................. 12,143
12/31/93.................. 13,574
12/31/94.................. 12,936
[LINE GRAPH PLOTTED FROM DATA IN TABLE BELOW]
VALUE AT QUARTERLY INTERVALS OF A $10,000
STIPULATED PAYMENT MADE OCTOBER 1, 1991
$ VALUE
---------
01-Oct-91............................ 10,000.00
31-Dec-91............................ 11,162.70
31-Mar-92............................ 10,994.50
30-Jun-92............................ 10,590.00
30-Sep-92............................ 10,945.10
31-Dec-92............................ 12,143.40
31-Mar-93............................ 12,480.40
30-Jun-93............................ 12,713.10
30-Sep-93............................ 13,276.20
31-Dec-93............................ 13,573.90
31-Mar-94............................ 13,055.10
30-Jun-94............................ 12,513.60
30-Sep-94............................ 13,332.40
31-Dec-94............................ 12,935.90
ANNUAL VALUE OF A $10,000
STIPULATED PAYMENT MADE
JANUARY 1, 1985
-----------------------------------
01/01/85.................. 10,000
12/31/85.................. 11,257
12/31/86.................. 11,531
12/31/87.................. 10,943
12/31/88.................. 12,372
12/31/89.................. 14,611
12/31/90.................. 13,121
12/31/91.................. 15,852
12/31/92.................. 17,244
12/31/93.................. 19,276
12/31/94.................. 18,370
[LINE GRAPH PLOTTED FROM DATA IN TABLE BELOW]
VALUE AT QUARTERLY INTERVALS OF A $10,00
STIPULATED PAYMENT MADE JANUARY 1, 1985
$ VALUE
---------
01-Jan-85............................ 10,000.00
31-Mar-85............................ 10,512.50
30-Jun-85............................ 10,804.70
30-Sep-85............................ 10,087.30
31-Dec-85............................ 11,257.10
31-Mar-86............................ 12,162.60
30-Jun-86............................ 12,681.70
30-Sep-86............................ 11,096.10
31-Dec-86............................ 11,530.60
31-Mar-87............................ 13,426.70
30-Jun-87............................ 13,481.90
30-Sep-87............................ 14,307.30
31-Dec-87............................ 10,942.80
31-Mar-88............................ 11,882.80
30-Jun-88............................ 12,865.20
30-Sep-88............................ 12,297.70
31-Dec-88............................ 12,372.30
31-Mar-89............................ 13,123.30
30-Jun-89............................ 13,494.70
30-Sep-89............................ 14,622.90
31-Dec-89............................ 14,611.40
31-Mar-90............................ 14,336.40
30-Jun-90............................ 14,985.90
30-Sep-90............................ 12,354.40
31-Dec-90............................ 13,121.40
31-Mar-91............................ 14,657.20
30-Jun-91............................ 13,760.20
30-Sep-91............................ 14,200.50
31-Dec-91............................ 15,851.50
31-Mar-92............................ 15,612.70
30-Jun-92............................ 15,038.30
30-Sep-92............................ 15,542.50
31-Dec-92............................ 17,244.20
31-Mar-93............................ 17,722.80
30-Jun-93............................ 18,053.10
30-Sep-93............................ 18,852.90
31-Dec-93............................ 19,275.50
31-Mar-94............................ 18,510.50
30-Jun-94............................ 17,769.90
30-Sep-94............................ 18,932.60
31-Dec-94............................ 18,369.50
22
<PAGE>
TABLE V CONTINUED
SMALL CAP INDEX FUND (DIVISION 14)
ANNUAL VALUE OF A $10,000
STIPULATED PAYMENT MADE
MAY 1, 1992
-----------------------------------
05/01/92.................. $10,000
12/31/92.................. 11,128
12/31/93.................. 12,772
12/31/94.................. 12,223
[LINE GRAPH PLOTTED FROM DATA IN TABLE BELOW]
VALUE AT QUARTERLY INTERVALS OF A $10,000
STIPULATED PAYMENT MADE MAY 1, 1992
$ VALUE
---------
01-May-92............................ 10,000.00
30-Jun-92............................ 9,572.60
30-Sep-92............................ 9,939.30
31-Dec-92............................ 11,127.90
31-Mar-93............................ 11,448.50
30-Jun-93............................ 11,635.40
30-Sep-93............................ 12,550.00
31-Dec-93............................ 12,772.00
31-Mar-94............................ 12,317.70
30-Jun-94............................ 11,749.30
30-Sep-94............................ 12,473.20
31-Dec-94............................ 12,223.30
INTERNATIONAL EQUITIES FUND (DIVISION 11)
ANNUAL VALUE OF A $10,000
STIPULATED PAYMENT MADE
OCTOBER 2, 1989
-----------------------------------
10/02/89.................. $10,000
12/31/89.................. 10,284
12/31/90.................. 8,134
12/31/91.................. 8,952
12/31/92.................. 7,671
12/31/93.................. 9,864
12/31/94................. 10,545
[LINE GRAPH PLOTTED FROM DATA IN TABLE BELOW]
VALUE AT QUARTERLY INTERVALS OF A $10,000
STIPULATED PAYMENT MADE OCTOBER 2, 1989
$ VALUE
---------
02-Oct-89............................ 10,000.00
31-Dec-89............................ 10,284.10
31-Mar-90............................ 8,391.10
30-Jun-90............................ 9,077.40
30-Sep-90............................ 7,596.10
31-Dec-90............................ 8,134.20
31-Mar-91............................ 8,609.00
30-Jun-91............................ 8,199.70
30-Sep-91............................ 8,872.20
31-Dec-91............................ 8,952.50
31-Mar-92............................ 7,751.20
30-Jun-92............................ 7,930.40
30-Sep-92............................ 8,054.90
31-Dec-92............................ 7,671.40
31-Mar-93............................ 8,494.00
30-Jun-93............................ 9,064.50
30-Sep-93............................ 9,838.30
31-Dec-93............................ 9,863.90
31-Mar-94............................ 10,161.00
30-Jun-94............................ 10,674.90
30-Sep-94............................ 10,709.30
31-Dec-94............................ 10,544.60
23
<PAGE>
TABLE V CONTINUED
TEMPLETON INTERNATIONAL FUND (DIVISION 20)
ANNUAL VALUE OF A $10,000
STIPULATED PAYMENT MADE
MAY 1, 1992
-----------------------------------
05/01/92................. $10,000
12/31/92.................. 9,311
12/31/93.................. 13,549
12/31/94.................. 13,077
[LINE GRAPH PLOTTED FROM DATA IN TABLE BELOW]
VALUE AT QUARTERLY INTERVALS OF A $10,000
STIPULATED PAYMENT MADE MAY 1, 1992
$ VALUE
---------
01-May-92............................ 10,000.00
30-Jun-92............................ 9,699.50
30-Sep-92............................ 9,221.10
31-Dec-92............................ 9,311.40
31-Mar-93............................ 9,925.60
30-Jun-93............................ 10,427.30
30-Sep-93............................ 11,368.50
31-Dec-93............................ 13,549.10
31-Mar-94............................ 13,020.70
30-Jun-94............................ 12,770.60
30-Sep-94............................ 13,684.90
31-Dec-94............................ 13,076.60
DREYFUS SMALL CAP FUND (DIVISION 18)
ANNUAL VALUE OF A $10,000
STIPULATED PAYMENT MADE
AUGUST 31, 1990
-----------------------------------
08/31/90.................. $10,000
12/31/90.................. 10,168
12/31/91.................. 26,105
12/31/92.................. 44,181
12/31/93.................. 73,477
12/31/94.................. 78,125
[LINE GRAPH PLOTTED FROM DATA IN TABLE BELOW]
VALUE AT QUARTERLY INTERVALS OF A $10,000
STIPULATED PAYMENT MADE MAY 1, 1992
$ VALUE
---------
01-May-92............................ 10,000.00
30-Jun-92............................ 9,699.50
30-Sep-92............................ 9,221.10
31-Dec-92............................ 9,311.40
31-Mar-93............................ 9,925.60
30-Jun-93............................ 10,427.30
30-Sep-93............................ 11,368.50
31-Dec-93............................ 13,549.10
31-Mar-94............................ 13,020.70
30-Jun-94............................ 12,770.60
30-Sep-94............................ 13,684.90
31-Dec-94............................ 13,076.60
24
<PAGE>
TABLE V CONTINUED
GROWTH FUND (DIVISION 15)
QUARTERLY VALUE OF A $10,000
STIPULATED PAYMENT MADE
APRIL 29, 1994
-----------------------------------
04/29/94.................. $10,000
06/30/94................. ]9,527
09/30/94.................. 10,037
12/31/94.................. 10,018
[LINE GRAPH PLOTTED FROM DATA IN TABLE BELOW]
VALUE AT QUARTERLY INTERVALS OF A $10,000
STIPULATED PAYMENT MADE APRIL 29, 1994
$ VALUE
---------
29-Apr-94............................ 10,000.00
30-Jun-94............................ 9,527.00
30-Sep-94............................ 10,037.00
31-Dec-94............................ 10,018.00
GROWTH & INCOME FUND (DIVISION 16)
QUARTERLY VALUE OF A $10,000
STIPULATED PAYMENT MADE
APRIL 29, 1994
-----------------------------------
04/29/94.................. $10,000
06/30/94................. 9,479
09/30/94.................. 10,033
12/31/94.................. 9,932
[LINE GRAPH PLOTTED FROM DATA IN TABLE BELOW]
VALUE AT QUARTERLY INTERVALS OF A $10,000
STIPULATED PAYMENT MADE APRIL 29, 1994
$ VALUE
---------
29-Apr-94............................ 10,000.00
30-Jun-94............................ 9,479.00
30-Sep-94............................ 10,033.00
31-Dec-94............................ 9,932.00
25
<PAGE>
TABLE V CONTINUED
CAPITAL CONSERVATION FUND (DIVISION 7)
ANNUAL VALUE OF A $10,000
STIPULATED PAYMENT MADE
JANUARY 16, 1986
-----------------------------------
01/16/86.................. $10,000
12/31/86.................. 10,477
12/31/87.................. 10,186
12/31/88.................. 10,789
12/31/89.................. 11,936
12/31/90.................. 11,784
12/31/91.................. 13,669
12/31/92.................. 14,702
12/31/93.................. 16,301
12/31/94.................. 15,153
[LINE GRAPH PLOTTED FROM DATA IN TABLE BELOW]
VALUE AT QUARTERLY INTERVALS OF A $10,000
STIPULATED PAYMENT MADE JANUARY 16, 1986
$ VALUE
---------
16-Jan-86............................ 10,000.00
31-Mar-86............................ 10,036.00
30-Jun-86............................ 10,125.40
30-Sep-86............................ 10,224.10
31-Dec-86............................ 10,477.20
31-Mar-87............................ 10,617.10
30-Jun-87............................ 10,227.60
30-Sep-87............................ 9,700.00
31-Dec-87............................ 10,186.30
31-Mar-88............................ 10,541.30
30-Jun-88............................ 10,602.20
30-Sep-88............................ 10,730.70
31-Dec-88............................ 10,789.20
31-Mar-89............................ 10,792.00
30-Jun-89............................ 11,865.40
30-Sep-89............................ 11,697.00
31-Dec-89............................ 11,935.80
31-Mar-90............................ 11,667.40
30-Jun-90............................ 11,990.50
30-Sep-90............................ 11,538.50
31-Dec-90............................ 11,783.60
31-Mar-91............................ 12,023.60
30-Jun-91............................ 12,236.40
30-Sep-91............................ 12,957.60
31-Dec-91............................ 13,669.00
31-Mar-92............................ 13,468.30
30-Jun-92............................ 14,099.70
30-Sep-92............................ 14,935.30
31-Dec-92............................ 14,701.70
31-Mar-93............................ 15,454.10
30-Jun-93............................ 15,947.80
30-Sep-93............................ 16,468.60
31-Dec-93............................ 16,300.70
31-Mar-94............................ 15,520.40
30-Jun-94............................ 15,170.10
30-Sep-94............................ 15,172.60
31-Dec-94............................ 15,152.80
GOVERNMENT SECURITIES FUND (DIVISION 8)
ANNUAL VALUE OF A $10,000
STIPULATED PAYMENT MADE
JANUARY 16, 1986
-----------------------------------
01/16/86.................. $10,000
12/31/86.................. 10,461
12/31/87.................. 10,120
12/31/88.................. 10,621
12/31/89.................. 11,792
12/31/90.................. 12,371
12/31/91.................. 14,052
12/31/92.................. 14,915
12/31/93.................. 16,362
12/31/94.................. 15,472
[LINE GRAPH PLOTTED FROM DATA IN TABLE BELOW]
VALUE AT QUARTERLY INTERVALS OF A $10,000
STIPULATED PAYMENT MADE JANUARY 16, 1986
$ VALUE
---------
16-Jan-86............................ 10,000.00
31-Mar-86............................ 10,036.50
30-Jun-86............................ 10,066.80
30-Sep-86............................ 10,200.60
31-Dec-86............................ 10,460.60
31-Mar-87............................ 10,587.10
30-Jun-87............................ 10,193.40
30-Sep-87............................ 9,620.00
31-Dec-87............................ 10,119.80
31-Mar-88............................ 10,448.80
30-Jun-88............................ 10,499.40
30-Sep-88............................ 10,641.60
31-Dec-88............................ 10,620.80
31-Mar-89............................ 10,685.80
30-Jun-89............................ 11,407.70
30-Sep-89............................ 11,431.20
31-Dec-89............................ 11,792.30
31-Mar-90............................ 11,555.90
30-Jun-90............................ 11,906.90
30-Sep-90............................ 11,860.20
31-Dec-90............................ 12,371.00
31-Mar-91............................ 12,508.30
30-Jun-91............................ 12,609.20
30-Sep-91............................ 13,390.70
31-Dec-91............................ 14,052.40
31-Mar-92............................ 13,721.90
30-Jun-92............................ 14,326.80
30-Sep-92............................ 15,116.20
31-Dec-92............................ 14,915.40
31-Mar-93............................ 15,600.10
30-Jun-93............................ 16,057.20
30-Sep-93............................ 16,539.50
31-Dec-93............................ 16,362.30
31-Mar-94............................ 15,709.90
30-Jun-94............................ 15,393.90
30-Sep-94............................ 15,426.00
31-Dec-94............................ 15,471.50
26
<PAGE>
TABLE V CONTINUED
INTERNATIONAL GOVERNMENT BOND FUND (DIVISION 13)
ANNUAL VALUE OF A $10,000
STIPULATED PAYMENT MADE
OCTOBER 1, 1991
-----------------------------------
10/01/91.................. $10,000
12/31/91.................. 10,905
12/31/92.................. 11,128
12/31/93.................. 12,583
12/31/94.................. 13,014
[LINE GRAPH PLOTTED FROM DATA IN TABLE BELOW]
VALUE AT QUARTERLY INTERVALS OF A $10,000
STIPULATED PAYMENT MADE OCTOBER 1, 1991
$ VALUE
---------
01-Oct-91............................ 10,000.00
31-Dec-91............................ 10,905.00
31-Mar-92............................ 10,324.70
30-Jun-92............................ 11,273.70
30-Sep-92............................ 11,993.50
31-Dec-92............................ 11,128.30
31-Mar-93............................ 11,761.10
30-Jun-93............................ 12,052.50
30-Sep-93............................ 12,589.20
31-Dec-93............................ 12,583.40
31-Mar-94............................ 12,743.80
30-Jun-94............................ 12,924.00
30-Sep-94............................ 12,979.90
31-Dec-94............................ 13,013.60
SOCIAL AWARENESS FUND (DIVISION 12)
ANNUAL VALUE OF A $10,000
STIPULATED PAYMENT MADE
OCTOBER 2, 1989
-----------------------------------
10/02/89.................. $10,000
12/31/89.................. 10,100
12/31/90.................. 9,877
12/31/91.................. 12,506
12/31/92.................. 12,795
12/31/93.................. 13,670
12/31/94.................. 13,339
[LINE GRAPH PLOTTED FROM DATA IN TABLE BELOW]
VALUE AT QUARTERLY INTERVALS OF A $10,000
STIPULATED PAYMENT MADE OCTOBER 2, 1989
$ VALUE
---------
02-Oct-89............................ 10,000.00
31-Dec-89............................ 10,100.00
31-Mar-90............................ 9,962.10
30-Jun-90............................ 10,715.00
30-Sep-90............................ 8,987.80
31-Dec-90............................ 9,876.70
31-Mar-91............................ 11,168.20
30-Jun-91............................ 10,728.00
30-Sep-91............................ 11,312.70
31-Dec-91............................ 12,506.30
31-Mar-92............................ 11,812.50
30-Jun-92............................ 11,647.60
30-Sep-92............................ 12,030.60
31-Dec-92............................ 12,795.20
31-Mar-93............................ 13,361.30
30-Jun-93............................ 13,289.80
30-Sep-93............................ 13,735.30
31-Dec-93............................ 13,669.80
31-Mar-94............................ 13,092.10
30-Jun-94............................ 13,191.70
30-Sep-94............................ 13,452.70
31-Dec-94............................ 13,339.00
27
<PAGE>
TABLE V CONTINUED
SCIENCE & TECHNOLOGY FUND (DIVISION 17)
QUARTERLY VALUE OF A $10,000
STIPULATED PAYMENT MADE
APRIL 29, 1994
-----------------------------------
04/29/94.................. $10,000
06/30/94.................. 9,457
09/30/94.................. 11,316
12/31/94.................. 12,477
[LINE GRAPH PLOTTED FROM DATA IN TABLE BELOW]
VALUE AT QUARTERLY INTERVALS OF A $10,000
STIPULATED PAYMENT MADE APRIL 29, 1994
$ VALUE
---------
29-Apr-94............................ 10,000.00
30-Jun-94............................ 9,457.00
30-Sep-94............................ 11,316.00
31-Dec-94............................ 12,477.00
MONEY MARKET FUND (DIVISION 6)
ANNUAL VALUE OF A $10,000
STIPULATED PAYMENT MADE
JANUARY 16, 1986
-----------------------------------
01/16/86.................. $10,000
12/31/86.................. 10,405
12/31/87.................. 10,873
12/31/88.................. 11,495
12/31/89.................. 12,406
12/31/90]................. 13,254
12/31/91.................. 13,849
12/31/92.................. 14,157
12/31/93.................. 14,393
12/31/94.................. 14,791
[LINE GRAPH PLOTTED FROM DATA IN TABLE BELOW]
VALUE AT QUARTERLY INTERVALS OF A $10,000
STIPULATED PAYMENT MADE JANUARY 16, 1986
$ VALUE
---------
16-Jan-86............................ 10,000.00
31-Mar-86............................ 10,121.00
30-Jun-86............................ 10,228.60
30-Sep-86............................ 10,328.50
31-Dec-86............................ 10,404.80
31-Mar-87............................ 10,512.10
30-Jun-87............................ 10,637.60
30-Sep-87............................ 10,761.40
31-Dec-87............................ 10,873.00
31-Mar-88............................ 10,981.30
30-Jun-88............................ 11,104.20
30-Sep-88............................ 11,293.10
31-Dec-88............................ 11,495.20
31-Mar-89............................ 11,724.80
30-Jun-89............................ 11,969.90
30-Sep-89............................ 12,191.30
31-Dec-89............................ 12,406.00
31-Mar-90............................ 12,613.30
30-Jun-90............................ 12,826.10
30-Sep-90............................ 13,037.00
31-Dec-90............................ 13,253.90
31-Mar-91............................ 13,424.50
30-Jun-91............................ 13,576.20
30-Sep-91............................ 13,722.70
31-Dec-91............................ 13,848.80
31-Mar-92............................ 13,941.10
30-Jun-92............................ 14,024.20
30-Sep-92............................ 14,095.30
31-Dec-92............................ 14,156.90
31-Mar-93............................ 14,215.10
30-Jun-93............................ 14,273.10
30-Sep-93............................ 14,332.40
31-Dec-93............................ 14,393.30
31-Mar-94............................ 14,457.30
30-Jun-94............................ 14,543.10
30-Sep-94............................ 14,653.30
31-Dec-94............................ 14,791.30
28
<PAGE>
TABLE V CONTINUED
TIMED OPPORTUNITY FUND (DIVISION 5)
ANNUAL VALUE OF A $10,000
STIPULATED PAYMENT MADE
JANUARY 1, 1985
-----------------------------------
01/01/85.................. $10,000
12/31/85.................. 11,169
12/31/86.................. 12,166
12/31/87.................. 13,055
12/31/88.................. 14,182
12/31/89.................. 16,424
12/31/90.................. 15,868
12/31/91.................. 19,063
12/31/92.................. 18,736
12/31/93.................. 20,271
12/31/94.................. 19,807
[LINE GRAPH PLOTTED FROM DATA IN TABLE BELOW]
VALUE AT QUARTERLY INTERVALS OF A $10,000
STIPULATED PAYMENT MADE JANUARY 1, 1985
$ VALUE
---------
01-Jan-85............................ 10,000.00
31-Mar-85............................ 10,065.70
30-Jun-85............................ 10,479.90
30-Sep-85............................ 10,352.90
31-Dec-85............................ 11,168.70
31-Mar-86............................ 12,074.40
30-Jun-86............................ 12,456.90
30-Sep-86............................ 12,009.40
31-Dec-86............................ 12,165.80
31-Mar-87............................ 13,724.00
30-Jun-87............................ 14,159.00
30-Sep-87............................ 14,692.50
31-Dec-87............................ 13,054.60
31-Mar-88............................ 13,426.50
30-Jun-88............................ 13,767.50
30-Sep-88............................ 13,940.50
31-Dec-88............................ 14,181.70
31-Mar-89............................ 14,702.40
30-Jun-89............................ 15,435.60
30-Sep-89............................ 16,068.60
31-Dec-89............................ 16,423.60
31-Mar-90............................ 16,067.60
30-Jun-90............................ 16,547.40
30-Sep-90............................ 14,855.70
31-Dec-90............................ 15,868.20
31-Mar-91............................ 17,386.00
30-Jun-91............................ 17,355.30
30-Sep-91............................ 18,039.40
31-Dec-91............................ 19,063.00
31-Mar-92............................ 18,358.20
30-Jun-92............................ 17,851.40
30-Sep-92............................ 18,263.90
31-Dec-92............................ 18,736.20
31-Mar-93............................ 19,525.10
30-Jun-93............................ 19,689.40
30-Sep-93............................ 20,177.20
31-Dec-93............................ 20,271.20
31-Mar-94............................ 19,627.00
30-Jun-94............................ 19,405.40
30-Sep-94............................ 19,799.20
31-Dec-94............................ 19,807.10
TEMPLETON ASSET ALLOCATION FUND (DIVISION 19)
ANNUAL VALUE OF A $10,000
STIPULATED PAYMENT MADE
AUGUST 24, 1988
-----------------------------------
08/24/88.................. $10,000
12/31/88.................. 10,235
12/31/89.................. 11,449
12/31/90.................. 10,403
12/31/91.................. 13,122
12/31/92.................. 14,007
12/31/93.................. 17,451
12/31/94.................. 16,711
[LINE GRAPH PLOTTED FROM DATA IN TABLE BELOW]
VALUE AT QUARTERLY INTERVALS OF A $10,000
STIPULATED PAYMENT MADE AUGUST 24, 1988
$ VALUE
---------
24-Aug-88............................ 10,000.00
30-Sep-88............................ 10,057.10
31-Dec-88............................ 10,235.00
31-Mar-89............................ 10,471.50
30-Jun-89............................ 10,607.50
30-Sep-89............................ 11,197.70
31-Dec-89............................ 11,448.70
31-Mar-90............................ 11,307.50
30-Jun-90............................ 11,644.00
30-Sep-90............................ 10,035.00
31-Dec-90............................ 10,403.10
31-Mar-91............................ 11,425.00
30-Jun-91............................ 11,338.10
30-Sep-91............................ 12,335.00
31-Dec-91............................ 13,121.90
31-Mar-92............................ 13,163.10
30-Jun-92............................ 13,979.70
30-Sep-92............................ 13,883.90
31-Dec-92............................ 14,006.80
31-Mar-93............................ 14,781.20
30-Jun-93............................ 15,404.10
30-Sep-93............................ 16,351.10
31-Dec-93............................ 17,450.50
31-Mar-94............................ 16,786.20
30-Jun-94............................ 16,540.50
30-Sep-94............................ 17,256.90
31-Dec-94............................ 16,711.30
29
ENDORSEMENTS AND
PUBLISHED RATINGS
From time to time, in advertisements or in reports to Contract Owners, the
Company may refer to its endorsements. Endorsements are often in the form of a
list of organizations, individuals or other parties which recommend the Company
or the Contracts. The endorser's name will be used only with the endorser's
consent. It should be noted that the list of endorsements may change from time
to time.
Also from time to time, the rating of the Company as an insurance company by
A. M. Best may be referred to in advertisements or in reports to Contract
Owners. Each year the A. M. Best Company reviews the financial status of
thousands of insurers, culminating in the assignment of Best's Ratings. These
ratings reflect their current opinion of the relative financial strength and
operating performance of an insurance company in comparison to the norms of the
life/health insurance industry. Best's Ratings range from A++ to F. The
Company's rating is A++. An A++ rating means, in the opinion of A. M. Best, that
the insurer has demonstrated the strongest ability to meet its respective
policyholder and other contractual obligations.
In addition, the claims-paying ability of the Company as measured by the
Standard and Poor's Ratings Group may be referred to in advertisements or in
reports to Contract Owners. A Standard and Poor's insurance claims-paying
ability rating is an assessment of an operating insurance company's financial
capacity to meet the obligations of its insurance policies in accordance with
their terms. Standard and Poor's ratings range from AAA to D. The Company's
claims paying ability rating is AAA, which is defined as superior.
Further, from time to time the Company may refer to Moody's Investor's
Service's rating of the Company. Moody's Investor's Service's financial strength
ratings indicate an insurance company's ability to discharge senior policyholder
obligations and claims and are based on an analysis of the insurance company and
its relationship to its parent, subsidiaries and affiliates. Moody's Investor's
Service's ratings range from Aaa to C. The Company's rating is Aa2 which is
defined as excellent.
The Company may additionally refer to its Duff & Phelp's rating. A Duff &
Phelp's rating is an assessment of a Company's insurance claims paying ability.
Duff & Phelp's ratings range from AAA to CCC. Duff & Phelp's rates the claims
paying ability of the Company as AAA. An AAA rating reflects that the Company
has the highest claims paying ability.
Ratings relate to the claims paying ability of the Company's General Account
and not the investment characteristics of the Separate Account.
The Company may from time to time, refer to Lipper Analytical Services
Incorporated ("Lipper"), Morningstar, Inc. ("Morningstar") and CDA/Wiesenberger
Investment Companies (CDA/Wiesenberger) when discussing the performance of its
Divisions. Lipper, Morningstar and CDA/Wiesenberger are leading publishers of
statistical data about the investment company industry
in the United States.
Additionally, the Company may compare the performance of the Divisions to
categories published by Lipper and Morningstar. The published categories which
may be utilized in comparison with the performance of the Divisions include the
Morningstar Growth and Income Mutual Fund Category, Morningstar Aggressive
Growth Mutual Fund Category, Morningstar Growth Mutual Fund Category,
Morningstar International Stock Mutual Fund Category, Lipper Growth and Income
Mutual Fund Category, Lipper Small Company Growth Mutual Fund Category, Lipper
Growth Mutual Fund Category and Lipper International Mutual Fund Category.
Additional Lipper or Morningstar categories may be utilized if they are deemed
by the Company relevant to the performance of the Company's Divisions.
The Company may, from time to time, refer to The Variable Annuity Research &
Data Services (VARDS) Report. The VARDS Report offers monthly analysis of the
variable annuity industry, including marketing and performance information.
VARDS currently tracks over 900 variable separate accounts totaling over $260
billion in variable annuity assets.
The Company may, from time to time, refer to Bankers Trust Company's
Tactical Asset Allocation Model's historical performance and compare such
performance to that of the S&P 500 Index. Neither the Model nor the S&P 500
Index is a managed fund and neither have identifiable investment objectives.
Finally the Company will utilize as a comparative measure for the
performance of its Funds the Consumer Price Index ("CPI"). The CPI is a meas-
30
ure of change in consumer prices, as determined in a monthly survey of the U.S.
Bureau of Labor Statistics. Housing costs, transportation, food, electricity,
changes in taxes and labor costs are among the CPI components. The CPI provides
a tool for determining the impact of inflation on an individual's purchasing
power.
TRANSFERS AMONG INVESTMENT OPTIONS
Transfers of Accumulation Value and Annuity Units among investment options
are permitted subject to the conditions discussed below. The right to make
transfers is exercisable by the Participant, or the Contract Owner if the
Contract Owner and the Annuitant are not the same during the Accumulation
Period, and by the Annuitant during the Annuity Period. The Company reserves the
right to limit or restrict transfers to the extent such limitation or
restriction is allowed by the Contract.
TRANSFERS DURING THE ACCUMULATION PERIOD
Transfers among investment options during the Accumulation Period are
accomplished by transferring Accumulation Value among Variable Investment
Options (which are invested in Divisions) or Fixed Subaccounts.
The Company has the right to limit transfers. The Company's current policy
is that transfers among Variable Investment Options or from Variable Investment
Options to Fixed Subaccounts currently may be made at any time during the
Accumulation Period.
Transfers from a Fixed Subaccount to one or more Variable Investment Options
or another Fixed Subaccount may be made during the Accumulation Period, subject
to certain restrictions. Specifically, during the Accumulation Period, transfers
of up to 20% of the Accumulation Value allocated to Fixed Account Plus may be
made each Participant Year. However, if the transfer would result in a Fixed
Account Plus Accumulation Value of less than $500, the entire Fixed Account Plus
Accumulation Value may be transferred at that time. A transfer to Short Term
Fixed Account currently will result in no further transfers from Short Term
Fixed Account being permitted for a period of 90 days. Otherwise, transfers from
Short Term Fixed Account may be made at any time during the Accumulation Period.
VALIC may change the 90 day transfer restriction at any time. However, the
transfer period may not exceed 180 days.
TRANSFERS DURING THE ANNUITY PERIOD
During the Annuity Period, transfers among investment options are
accomplished by transferring Annuity Units among the Separate Account's
Divisions or to a fixed annuity. These transfers may be made at intervals of at
least 365 days. During the Annuity Period, transfers from a fixed annuity are
not permitted.
OTHER REQUIREMENTS
Transfers among investment options or changes of future allocation of
Purchase Payments ("reallocations") may be made upon receipt by the Company, at
its Home Office, of written instructions or by telephone at 1-800-621-7792.
Requests for transfers or reallocations by telephone will be automatically
permitted unless the Company has been notified otherwise in writing or by
telephone at 1-800-621-7792. If, after notifying the Company that telephone
transfers or reallocations are not to be allowed, the Contract Owner or
Participant wishes to have the right to effect telephone transfers or
reallocations reactivated, he or she must notify the Company in writing.
Prior to the Company's effecting a transfer request or reallocation by
telephone instruction, the Company will require the Contract Owner's or
Participant's social security number, account number and date of birth. Unless
the Contract Owner or Participant has instructed the Company not to accept
telephone transfers or reallocations, anyone who represents that he or she is
authorized by the Contract Owner or Participant to effect a transfer or
reallocation may do so if they have the above stated requisite Contract Owner or
Participant account information. Officers, directors, agents, representatives
and employees of the Company may not give or be authorized to give telephone
instructions on behalf of Contract Owners or Participants (other than for
Contracts within their immediate family) without prior written permission of the
Company.
31
It is the responsibility of the Contract Owner or Participant to verify the
accuracy of all confirmations of transfers and to promptly advise the Company of
any inaccuracies within one business day of receipt of the confirmation. The
Company will send to the Contract Owner or Participant a confirmation of the
transfer within five (5) days from the date of any instruction.
The Company is not responsible for the authenticity of transfer or
reallocation instructions received by telephone. Any telephone instructions
reasonably believed by the Company to be genuine will be the Contract Owner's or
Participant's responsibility, including losses arising from any errors in the
communication of instructions. As a result of this policy, the Contract Owner or
Participant will bear the risk of loss.
Transfers or reallocations will be effected pursuant to the Contract Owner's
or Participant's written or telephone transfer request as of the day when
received by the Company if received by the Company's Home Office before the
close of regular trading of the New York Stock Exchange, generally 4:00 p.m. New
York time, on a day Accumulation Unit values are calculated; otherwise the next
calculated Accumulation Unit value will be used. Telephone transfer requests
will not be accepted during the Annuity Period. The Company reserves the right
to discontinue the telephone transfer facility at any time.
Up to seven fixed or variable investment options may be used by a
Participant at any one time during the Accumulation Period or the Annuity
Period. (For additional requirements with respect to investment options during
the Annuity Period, see "Fixed or Variable Annuity Payments," "Annuity Payment
Options" and "Death of Annuitant During Annuity Period.")
CHARGES UNDER VARIABLE ANNUITY CONTRACTS
All charges under the Contracts are described below.
CHARGE FOR PREMIUM TAXES
Premium taxes ranging from zero to 3% are currently imposed by certain
states and municipalities on Purchase Payments made under the Contracts.
Under deferred Contracts subject to premium tax, an amount for the tax may
be deducted, either from Purchase Payments when received, or from the amount
applied to effect an annuity at the time annuity payments commence, depending on
applicable state law. If an amount for any premium taxes is deducted but
subsequently is determined not to be due, the Company will adjust the excess
amount to reflect investment experience from the date of the deduction to the
date the determination is made. The Company will then apply the excess amount
deducted, as adjusted, to increase the number of Accumulation Units or Annuity
Units under the Participant Account at the time such determination is made.
CHARGE FOR PARTIAL AND TOTAL SURRENDERS
Except as provided below, a total or partial surrender is subject to a
surrender charge calculated as a percentage of the dollar amount of previous
Purchase Payments with respect to a Participant Account which are withdrawn, or
the dollar amount of the surrender, if less. Except as provided below it is
assumed that the most recent Purchase Payments are withdrawn first, and no
surrender charge is ever imposed on any amount not actually withdrawn.
Amounts exchanged to this Contract from other annuity contracts issued by
the Company, in many cases, are not considered to be Purchase Payments for
purposes of calculating the surrender charge. For such Contract exchanges,
exchanged amounts shall be deemed to be withdrawn only after all subsequent
Purchase Payments have been withdrawn. See "Exchange Offers" for more complete
information about these exchanges and surrender charges on exchanged amounts.
The surrender charge with respect to any Participant Account may not exceed
5% of the lesser of (a) the amount of all Purchase Payments received during the
most recent 60 months prior to the receipt of the surrender request by the
Company at its Home Office, or (b) the amount withdrawn. For purposes of this
charge, the Company treats withdrawals as withdrawals of Purchase Payments
before any earnings. Additionally, the most recent Purchase Payments are treated
as withdrawn first.
32
In any Participant Year, the Participant may totally or partially surrender
up to 10% of the Accumulation Value without the above surrender charge being
imposed. These 10% withdrawals without charge do not reduce Purchase Payments
for purposes of computing the charge. The surrender charge will apply to the
amount withdrawn that exceeds 10%. In calculating the 10% limitation, the
percentage withdrawn will be determined by the proportion of the amount
withdrawn bears to the Accumulation Value immediately prior to the withdrawal.
If multiple withdrawals are made in a Participant Year, the percentages
withdrawn for each withdrawal will be added together to determine whether the
10% limit has been exceeded.
If a surrender charge is assessed against any Purchase Payment, or a portion
thereof, such Purchase Payment (or portion) will not be subject to any further
surrender charges upon a subsequent surrender.
The surrender charge is not imposed upon annuitization. Nor is the surrender
charge imposed on the payment of benefits to a Beneficiary or an Annuitant when
a Participant dies during the Accumulation Period. (See "Death Benefits During
Accumulation Period.") There is no surrender charge in any of the following
situations: (a) if no Purchase Payments have been received during the 60 months
immediately prior to surrender; (b) if the Participant Account has been in
effect for 15 years or longer; (c) if the Participant Account has been in effect
for 5 years or longer and the Annuitant has attained age 59 1/2; (d) the
Participant elects the no charge systematic withdrawal limitations described in
the annuity Contract offered by this Prospectus; or (e) the Participant, under
certain Contracts, makes withdrawals in accordance with the no charge minimum
distribution provisions established under those Contracts. No surrender charge
is imposed if the Participant has become totally and permanently disabled. This
means that the Participant is unable, because of physical or mental impairment,
to perform the material and substantial duties of any occupation for which the
Participant is suited by means of education, training or experience. The
impairment must have been in existence for more than 180 days. The impairment
must be expected to result in death or be long-standing and indefinite. Proof of
disability is to be evidenced by a certified copy of a Social Security
Administration determination or a doctor's verification of such disability. For
employer sponsored groups, i.e. in the case of Contracts other than
Non-Qualified contracts or IRA contracts, no surrender charges will apply if the
Participant Account was established at least 5 years from the date of surrender,
the Participant has separated from service of his or her employer and the
Participant has attained age 55.
The amount of surrender charges for a particular Contract may be reduced or
eliminated when the Contract is issued pursuant to a retirement plan or similar
arrangement and sales are made to individuals or groups of individuals in a
manner that results in savings of sales expenses. The entitlement to such a
reduction or elimination of Surrender Charges will be determined by the Company
in the following manner:
1. The size of the group to which such sales are to be made will be
considered. Generally, the sales expenses for a larger group are smaller
than for a smaller group because of the ability to establish a larger
number of Participant Accounts with fewer sales contacts.
2. The total amount of Purchase Payments to be received from a group will be
considered. Per Participant Account sales expenses are likely to be less
on larger Purchase Payments than on smaller ones.
3. The purpose for which the Contracts are being purchased will be
considered. Certain types of qualified plans are more likely to be stable
than are others. Such stability reduces the number of sales contracts
required, reduces sales administration and results in fewer Participant
Account terminations. As a result, sales expenses can be reduced.
4. The nature of the group for which the Contracts are being purchased will
be considered. Certain types of employee and professional groups are more
likely to continue Contract participation for longer periods than are
other groups with more mobile membership. If fewer Participant Accounts
are surrendered in a given group, the Company's sales expenses are
reduced.
33
5. The use of mass enrollment procedures or the performance of sales or
related administrative functions by the employer will be considered.
Sales expenses are likely to be lower on Contracts where the need for
individual sales contacts is minimized.
6. There may be other circumstances of which the Company is not presently
aware, which could result in reduced sales expenses.
If, after consideration of the foregoing factors, the Company determines
that a group purchase would result in reduced or eliminated sales expenses, such
a group would be entitled to a reduction or elimination of the charge.
In no event will reduction or elimination of the charge be permitted where
such reduction or elimination will be unfairly discriminatory to any person.
The surrender charge reimburses the Company for part or all of its expenses
related to distributing the Contracts. To the extent that the amount of such
expenses exceeds the amount of revenues generated by the surrender charge, the
Company will pay such excess out of its general account assets which, among
other things, would include any gains from the asset charge described below
under "Charge to the Separate Account."
Examples of calculation of the surrender charge upon partial and total
surrender are set forth in the Statement of Additional Information--"Calculation
of Surrender Charge."
CHARGE FOR ACCOUNT MAINTENANCE
An account maintenance charge is assessed for each calendar quarter during
the Accumulation Period during which any Variable Investment Option Accumulation
Value is credited to a Participant's contract. No charge is assessed for any
calendar quarter if the Accumulation Value is credited only to the Fixed
Interest Options throughout the quarter. The account maintenance charge assessed
each Participant Account by the Company is $3.75 per quarter. The charge is due
in quarterly installments beginning on the first day of the calendar quarter
following the first date a value is credited to a Variable Investment Option of
a Participant's Account. The charge is assessed on the last day of the calendar
quarter in which it is due. If all Variable Accumulation Values are withdrawn or
transferred to a fixed investment option, the charge will be deducted at the
time of withdrawal, surrender or transfer. This charge will be assessed equally
among the Variable Investment Options' which make up the Accumulation Value.
This charge is to reimburse the Company for the cost of Variable Investment
Options' administrative expenses, including the expenses incurred in
establishing and maintaining the records relating to the Variable Investment
Options' portion of the Contract. The Company does not expect that the revenues
it will derive from this charge will exceed such expenses.
The account maintenance charge may be reduced or waived on Contracts issued
under a retirement plan or similar arrangement which does not occasion all the
administrative expenses that otherwise would be incurred. The entitlement to
such a reduction in maintenance charge will be determined by the Company in the
following manner:
1. The purposes for which the Contracts are being purchased will be
considered. Certain types of qualified plans are more likely to be
stable than are others. Such stability reduces sales administration and
results in fewer Participant Account terminations. As a result,
administrative expenses can be reduced.
2. The nature of the group for which the Contracts are being purchased will
be considered. Certain types of employees and professional groups are
more likely to continue Contract participation for longer periods than
are other groups with more mobile membership. If fewer Participant
Accounts are surrendered in a given group, the Company's administrative
expenses are reduced.
3. The frequency of Purchase Payments will be considered. If Participant
Accounts are established or Purchase Payments are received in large
numbers only once a year, administrative costs are dramatically reduced.
4. The performance of administrative functions by the employer or the use
by an employer of automated techniques in submitting Purchase Payments
or infor-
34
mation related to Purchase Payments on behalf of its employees can
reduce the Company's administrative expenses associated with a Contract.
5. There may be other circumstances of which the Company is not presently
aware, which could result in reduced administrative expenses.
If, after consideration of the foregoing factors, the Company determines
that a group purchase would result in reduced administrative expenses, such a
group would be entitled to a reduction of the charge. In no event will
reductions of the charges be permitted where such reductions will be unfairly
discriminatory to any person.
If two or more Participant Accounts are established for the same Annuitant
under the same group Contracts, the Company and the Contract Owner may agree to
assess the maintenance charges related to some or all such Participant Accounts
against one such account.
CHARGE TO THE SEPARATE ACCOUNT
To compensate the Company for assuming mortality and expense risks under the
Contracts, the Separate Account will incur a daily charge at an annualized rate
of 1% or 1.25% on the average daily net asset value of the Separate Account
attributable to the Contracts depending upon the Variable Investment Option(s),
if any, selected (see Fee Table). Of this charge, the Company estimates .20% or
.45%, as appropriate, is for expense risks and .80% is for mortality risks. This
charge is guaranteed and may not be increased by the Company.
In assuming the mortality risks, the Company is taking the risk that its
actuarial estimate of mortality rates during the Annuity Period may prove
erroneous and that the Annuitant will live longer than expected or that the
Annuitant will die during the Accumulation Period at a time when the death
benefit guaranteed by the Company is higher than the Accumulation Value of the
Participant Account. The Company expects to derive a profit on this charge.
In addition to mortality risks, the Company will assume an expense risk
under the Contracts. An expense risk is incurred because the charge for account
maintenance deducted under the Contracts to cover administrative expenses is not
anticipated to be sufficient to cover actual expenses. The Company does not
expect to derive a profit from the expense risk charge.
MISCELLANEOUS
A daily charge based on a percentage of each Fund's average daily net assets
is payable by each Fund to the Company, or to The Dreyfus Corporation or to
TICI, depending upon the Variable Annuity Options selected, for investment
management. These charges, and other Fund charges and expenses more fully
described in the prospectus for the Funds, are borne indirectly by Participants.
CHARGE FOR INCOME TAXES
Currently, no charge is made against the Separate Account for the Company's
Federal income taxes, or provisions for such taxes that may be attributable to
the Separate Account. The Company may charge each Division in the Separate
Account for its portion of any income tax charged to the Company or the Division
on its assets. Under present laws, the Company 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, the Company may decide to make
charges for such taxes or provisions for such taxes against the Separate
Account. Any such charges against the Separate Account or its Divisions could
have an adverse effect on the investment performance of such Division.
ACCUMULATION PERIOD
PURCHASE PAYMENTS
During the period before the commencement of annuity payments (the
"Accumulation Period"), the Participant or employer may make Purchase Payments
from time to time, and on such dates and in such amounts as may be determined
pursuant to the retirement plan for which the Contract has been purchased.
In all cases, the initial Purchase Payment must be preceded or accompanied
by a properly completed application. Except in the case of IRAs and some
Non-Qualified Contracts, Purchase Payments are generally remitted through or by
an employer and the Company must also receive a premium flow report which
identifies the amount
35
to be credited to each Participant Account held pursuant to the employer's
retirement plan.
The initial and subsequent Purchase Payments for a periodic payment Contract
must be at least $30 per Participant Account. This minimum applies separately to
the amount of each Purchase Payment directed to each Variable Investment Option
or Fixed Subaccount. For single payment Contracts, the minimum Purchase Payment
is $1,000 per Participant Account.
When an initial Purchase Payment accompanies an application (and, if
required, a premium flow report) the Company will, within two business days
after receipt of the application at its Home Office, either (a) process and
accept the application, issue the Contract to the Contract Owner, establish
Participant Accounts and credit amounts or Accumulation Units to those accounts
as of the date of acceptance; (b) reject the application and return the Purchase
Payment; or (c) request additional documents or information if the application
is not complete or is incorrectly completed. With respect to (c), a Purchase
Payment will be returned if a correctly completed application is not received
within five business days unless the Contract Owner agrees otherwise. For
initial and subsequent payments, Accumulation Units will be credited at the
Accumulation Unit value calculated as of the day the Purchase Payment was
received by the Company if received at the Company's Home Office before the
close of regular trading of the New York Stock Exchange, generally 4:00 p.m. New
York Time on a day Accumulation Unit values are calculated; otherwise, the next
calculated Accumulation Unit value is used. As a result, the Participant Account
will be credited with the investment experience of the Separate Account from the
date of the Company's receipt of the Purchase Payment.
Unless otherwise restricted by the Contract, a Participant may allocate
and/or accumulate amounts in up to seven of the eighteen available subaccounts
(the sixteen Variable Investment Options and the two Fixed Interest Options).
The Accumulation Value of a Participant's Account or Contract during the
Accumulation Period is the sum of values of the Fixed Interest Options and the
Variable Investment Options.
A Participant may allocate all or a portion of Purchase Payments to the
Fixed Subaccount. The Fixed Subaccount consists of two Fixed Interest Options
which are part of the Company's General Account. Each Fixed Interest Option pays
interest at a declared rate which may differ depending upon the Fixed Interest
Option selected. The Company bears the full amount of the investment risk for
amounts allocated to either of the Fixed Interest Options. Earned interest on
amounts allocated to the Fixed Subaccount will be paid regardless of the actual
investment experience of the General Account. Because of exemptive and
exclusionary provisions, interests in the Fixed Subaccount have not been
registered under the Securities Act of 1933, and neither the Fixed Subaccount
nor the General Account has been registered as an investment company under the
Investment Company Act of 1940. Accordingly, interests in the Fixed Subaccount
is not subject to regulation under these Acts. As a result, the staff of the SEC
has not reviewed the disclosures which are included in this Prospectus and which
relate to the General Account and the Fixed Subaccount. These disclosures,
however, may be subject to certain provisions of federal securities law relating
to the accuracy and completeness statements made in this Prospectus.
The value of a Participant's Account attributable to the Fixed Subaccount
during the Accumulation Period is the sum of all net Purchase Payments allocated
to either of the Fixed Interest Options in the Fixed Subaccount, amounts
transferred from the Separate Account's Variable Investment Options to any Fixed
Interest Option, and all earned interest. This amount is reduced by amounts
transferred out or withdrawn and may be further reduced by the deduction of
certain charges.
A Participant may allocate all or a portion of Purchase Payments to the
Variable Investment Options. The value of the Contract and of a Participant's
Account attributable to the Variable Investment Options can be determined at any
time by multiplying the number of Accumulation Units outstanding under the
Contract or account by the current Accumulation Unit value. During the
Accumulation Period, the value of the Contract attributable to the Variable
Investment Options varies with the performance of the investments of the
Separate Account, and there is no assurance that such value will equal or exceed
Purchase Payments. The number of Accumulation
36
Units credited will not be changed by any subsequent change in the value of an
Accumulation Unit, but the dollar value of an Accumulation Unit for a particular
Separate Account Division may vary from day to day depending upon the investment
experience of that Division, which, in turn, is affected by the investment
experience of the corresponding Fund, expenses, and the deduction of certain
charges.
The Accumulation Unit value for a particular Separate Account Division is
calculated as follows. First, a gross investment rate is determined from the
investment performance of that Separate Account Division. The gross investment
rate is calculated as of 4:00 p.m. New York time on each business day when the
New York Stock Exchange is open (except the Friday following Thanksgiving, the
Friday following Christmas if Christmas falls on a Thursday and the Monday
before Christmas if Christmas falls on a Tuesday). Such rate is (i) the Separate
Account Division's investment income and capital gains and losses, whether
realized or unrealized on such day, from the assets attributable to that
Separate Account Division, divided by (ii) the value of the Separate Account
Division for the immediately preceding day on which such values were calculated.
The net investment rate for any day is determined by deducting from the gross
investment rate, a factor representing the mortality risk and expense charges
described herein (see "Charge to the Separate Account"), and any applicable
income taxes. The Accumulation Unit value for a given day is then determined by
multiplying the Accumulation Unit value for the preceding day by a net
investment factor equal to the net investment rate plus 1.00.
Illustrations showing the calculation of an Accumulation Unit value and the
purchase of Accumulation Units (using hypothetical examples) are contained in
the Statement of Additional Information--"Accumulation Unit Value."
DEATH BENEFITS DURING ACCUMULATION PERIOD
If an Annuitant under a Contract dies during the Accumulation Period, a
death benefit described in 1 or 2 below is payable.
1. If the Annuitant dies on or after age 70, the death benefit is the
greater of (a) the Accumulation Value of the Participant Account on the
date VALIC receives proof of death, or (b) 100% of Purchase Payments
reduced by the amount of any prior withdrawals and charges and further
reduced by any portion of the Accumulation Value that has been applied
under an Annuity Income Option.
2. If the Annuitant dies before age 70, the death benefit is the sum of
the benefits under the Fixed Interest Options and the Variable
Investment Options. The benefit under the Fixed Interest Option is the
greater of (a) the Fixed Interest Option Values on the date VALIC
receives proof of Death or (b) 100% of Purchase Payments allocated to
the Fixed Interest Options, reduced by the amount of any prior
withdrawals and charges and further reduced by any portion of the
Accumulation Value that has been applied under an Annuity Income
Option. The benefit under the Variable Investment Options is the
greater of (a) the Variable Investment Option Accumulation Value on
the date VALIC receives proof of death or (b) 100% of Purchase
Payments allocated to Variable Investment Options reduced by the
amount of any prior withdrawals or transfers from the Variable
Investment Options, plus interest at an annual rate of 3%. For this
purpose, all amounts transferred into Variable Investment Options are
considered Purchase Payments allocated to Variable Investment Options.
The Beneficiary may exercise the right to receive the death benefit as a
lump-sum settlement or in the form of any of the annuity options provided in the
Contract (within such time limits required by Federal tax law). (See "Annuity
Payment Options.") Beneficiaries other than the spouse of an Annuitant must
receive the death benefit in full by the date five years after the Annuitant's
death unless payments commence within one year of the Annuitant's death under a
life annuity, a life annuity with payments certain or payments for a designated
period. Payments certain or payments for a designated period in any case cannot
be selected for a period exceeding the Beneficiary's life expectancy. The
Beneficiary thereafter will be entitled to exercise many of the
37
investment options and other rights an Annuitant would have under the
Contract.
On individual non-tax qualified Contracts, the Annuitant and the Owner may
not, in some cases, be the same individual. If the Owner dies during the
Annuitization Period, there is no death benefit payable. However, the Contract
will then be transferred to the Contingent Owner, if any, or the Owner's estate
and must be distributed in accordance with the applicable rules under the
Internal Revenue Code.
SUSPENSION OF PURCHASE PAYMENTS
Flexible payment Contracts contain provisions protecting against forfeiture.
If, at any time, additional Purchase Payments are not made, the number of
Accumulation Units outstanding under the Participant Account at that time will
remain constant (so long as no transfer election is made), and the value of the
Units will continue to vary. The Accumulation Value will continue to be subject
to charges during the period of suspension. The Contract Owner may resume making
Purchase Payments at any time during the Accumulation Period, so long as the
Participant Account (or Contract) has not been surrendered and the Contract has
not otherwise been terminated.
Under the Contracts, if the Accumulation Value of a Participant Account
falls below $300, and there are no Purchase Payments for two Contract years, in
the case of individual Contracts, or two certificate years, in the case of group
Contracts, the Company, at its option, may cause the Participant Account to be
automatically surrendered, in which case a surrender charge may be deducted from
the amount paid to the Participant.
ANNUITY PERIOD
FIXED OR VARIABLE ANNUITY PAYMENTS
If an employer's plan so permits, the Annuitant may elect to have any
portion of the Accumulation Value applied to provide either a variable annuity
or a fixed annuity, or a combination of both.
Fixed annuity payments are monthly payments from the Company to an
individual, the amount of which is fixed and guaranteed by the Company. The
amount of the monthly payments will depend only on the form and duration of
annuity payments chosen, the age of the Annuitant or the Beneficiary (and sex,
under individual retirement annuity ("IRA") and certain other non-qualified
Contracts), the total Accumulation Value applied to purchase the annuity, and
the applicable annuity rate. If it would produce greater benefits, the amount of
the monthly payment will be that produced by a then currently issued immediate
annuity of the same form.
Variable annuity payments are similar to fixed annuity payments, except that
the amount of each monthly payment from the Company will vary reflecting the net
investment experience of each Division of the Separate Account in which the net
Purchase Payments are accumulated. (For an illustration of the calculation of
annuity payments and Annuity Unit value see the Statement of Additional
Information -- "Amount of Annuity Payments" and "Annuity Unit Value.") The value
of an Annuity Unit is calculated at the same time that the value of an
Accumulation Unit is calculated and is based on the same values for Fund shares
and other assets and liabilities. (See "Accumulation Period.") If the net
investment experience for a given month, after all charges summarized below,
exceeds the Assumed Investment Rate (3 1/2% per annum unless a different rate is
selected), the monthly payment will be greater than the previous payment. If the
net investment experience for a month is less than such Assumed Investment Rate,
the monthly payment will be less than the previous monthly payment. (See the
Statement of Additional Information -- "Assumed Investment Rate.")
The use of an Assumed Investment Rate higher than 3 1/2% per annum would
cause the first annuity payment to be larger, but subsequent payments would
increase more slowly or decrease more quickly and ultimately be less than they
would under a 3 1/2% Assumed Investment Rate, provided that annuity payments
continue for a sufficient period of time. A 3 1/2% Assumed Investment Rate will
be used in the absence of a selection otherwise.
As many as seven Divisions may be applied to provide a variable annuity, or
up to six Divisions if a fixed annuity is also selected. The first payment
provided under a fixed annuity and each portion of a variable annuity based on a
Division must each be at least $25.
38
ANNUITY DATE
Annuity payments under deferred non-qualified Contracts may begin on the
first day of any month before the Annuitant's 85th birthday, as selected by the
Contract Owner on a form approved by the Company. Special minimum distribution
rules apply to payments under 403(b), 401, 403(a) and 457 plans or simplified
employee plans ("SEPs"). (See the discussion of required distributions for each
plan type under "Federal Tax Matters.")
ANNUITY PAYMENT OPTIONS
The Annuitant may elect to have the Accumulation Value of the Participant
Account applied on the Annuity Date to any one of the options listed below. The
amount applied to effect an annuity will be the Accumulation Value on the tenth
day (or the preceding business day if the tenth day is not a business day)
preceding the Annuity Date.
In most cases, if the Annuitant does not specify one of the options at least
thirty days prior to the Annuity Date, annuity payments are made in accordance
with the second option, with payments being guaranteed for a ten year period,
commencing on the Annuity Date. If the Contract is issued under certain
retirement plans, however, federal pension law may require that payments be made
pursuant to the fourth option unless otherwise elected. Tax laws and regulations
may impose further restrictions to assure that the primary purpose of the plan
is distribution of the accumulated funds to the employee. Absent a contrary
election at least thirty days in advance, Fixed Subaccount accumulations will be
used to provide a fixed annuity, and Variable Investment Option accumulations
will be used to provide a variable annuity based on the same Divisions in which
the Variable Investment Option(s) were invested immediately prior thereto. If
the fifth annuity option is selected, annuity payments must be made on a fixed
basis. An Annuitant wishing to receive a lump sum rather than an annuity may
surrender the Contract as described below under "Surrender."
Annuity payments are generally made monthly. If such payments would amount
to less than $25 each, the Company reserves the right to make less frequent
payments.
Once annuity payments have begun, an annuity option may not be terminated.
FIRST OPTION -- LIFE ANNUITY WITH NO GUARANTEE PERIOD. Variable annuity
payments are payable monthly during the lifetime of the Annuitant, and the
annuity terminates with the last payment preceding death. This option offers the
maximum amount per variable annuity payment since there is no provision for a
death benefit for Beneficiaries. IT WOULD BE POSSIBLE UNDER THIS OPTION FOR THE
ANNUITANT TO RECEIVE ONLY ONE ANNUITY PAYMENT IF HE DIED PRIOR TO THE DATE OF
THE SECOND PAYMENT, TWO IF HE DIED BEFORE THE THIRD ANNUITY PAYMENT DATE, ETC.
SECOND OPTION -- LIFE ANNUITY WITH GUARANTEE PERIOD OF 5, 10, 15 OR 20
YEARS. Variable annuity payments are payable monthly during the lifetime of an
Annuitant with the provision that, if the Annuitant dies during the certain
period, the Beneficiary may receive monthly payments for the remainder of the
certain period.
THIRD OPTION -- LIFE ANNUITY WITH CASH OR UNIT REFUND OPTION. Variable
annuity payments are payable monthly during the lifetime of the Annuitant with
an additional payment to the Beneficiary at the death of the Annuitant equal to
the then-current value of any Annuity Units credited to the Participant Account
at the Annuity Date which have not theretofore been paid out in the form of
annuity payments. For this purpose, the number of Annuity Units credited to the
Participant Account at the Annuity Date will be the total value applied to this
option divided by the Annuity Unit value at the date used to calculate the first
annuity payment.
FOURTH OPTION -- JOINT AND SURVIVOR LIFE ANNUITY. Variable annuity payments
are payable monthly during the joint lifetimes of two Annuitants and continue
during the lifetime of the surviving Annuitant. This option is designed
primarily for couples who require maximum possible variable annuity payments
during their joint lives and who are not concerned with providing for
Beneficiaries at the death of the last to survive. IT WOULD BE POSSIBLE UNDER
THIS OPTION FOR THE JOINT ANNUITANTS TO RECEIVE ONLY ONE PAYMENT IF BOTH
ANNUITANTS DIED PRIOR TO THE DATE OF THE SECOND PAYMENT, OR FOR THE JOINT
ANNUITANTS TO RECEIVE ONLY ONE PAYMENT AND THE SURVIVING ANNUITANT TO RECEIVE
ONLY ONE PAYMENT IF ONE ANNUITANT DIED
39
PRIOR TO THE DATE OF THE SECOND PAYMENT AND THE SURVIVING ANNUITANT DIED PRIOR
TO THE DATE OF THE THIRD PAYMENT, ETC.
FIFTH OPTION -- PAYMENTS FOR DESIGNATED PERIOD. Annuity payments are payable
monthly for a selected number of years between five and thirty. Payments under
this option may be made on a fixed basis only.
ENHANCEMENTS UNDER ANNUITY OPTIONS
Enhancements of the annuity options described above are available under the
Contracts. These include partial annuitization, flexible payments of varying
amounts and inflation protection payments. To the extent some or all of these
options do not result in "substantially equal payments" over the life expectancy
of the Annuitant, electing such options may result in unfavorable tax
consequences to Annuitants under age 59 1/2. (See "Federal Tax Matters.")
Additionally, certain options may be available with a one to twenty payment
certain period. The Fourth Option also may be available with a one to twenty
year payment certain option. Not all of the enhancements are available under
each option.
DEATH OF ANNUITANT DURING ANNUITY PERIOD
If the Annuitant dies during the Annuity Period, the Beneficiary may be
entitled to payment of an additional amount or amounts, and may be entitled to
certain alternatives discussed below. If, prior to death, the Annuitant had been
receiving payments under the first or fourth options, no additional amounts
would be due. If, however, the Annuitant had been receiving payments under the
second, the third or the fifth options, the Beneficiary may elect within 60 days
after the benefit is payable:
1. to receive in a lump sum the present value, discounted at the Assumed
Investment Rate, of any remaining annuity payments owed under the
Contract based on the then-current Annuity Unit value;
2. to continue receiving annuity payments under the terms of the Contract,
in which case the Beneficiary would be entitled, any time thereafter, to
receive the present value of remaining variable annuity payments,
discounted at the Assumed Investment Rate, based on the Annuity Unit
value next determined after request for such payment is received at the
Company's Home Office; or
3. to have the present value, discounted at the Assumed Investment Rate, of
any annuity payments owed on the Contract, based on the then-current
Annuity Unit value, applied to the fifth option for a period shorter than
the period remaining under the annuity option selected by the Annuitant.
Spouse Beneficiaries may be entitled to more favorable treatment under
Federal tax laws.
Under the Federal tax laws, the election of alternative (2) above on a
variable basis may be treated in the same manner as a surrender of the Contract.
If the Contract is surrendered, usually the full amount received would be
includable in income for that year, and, to the extent so included, would be
taxed at ordinary rates.
SURRENDER
All or part of the Surrender Value of a Participant Account may be withdrawn
by the Participant at any time before the commencement of annuity payments,
provided that the Annuitant is alive at the time of surrender. This right is
subject to any restrictions on surrender under applicable law and the employer's
plan. An individual Contract must be returned to and be received by the Company
before a total surrender will be effected. (See "Charge for Partial and Total
Surrenders" for an explanation of charges which may be assessed upon surrender.)
The Surrender Value of a Participant Account at any time is equal to the
Accumulation Value under the Participant Account at the time of surrender, less
any surrender charge. For this purpose, the value of an Accumulation Unit is
that next computed after the request for surrender is received at the Company's
Home Office. There is no assurance that the Surrender Value under Variable
Investment Options will equal or exceed the aggregate amount of Purchase
Payments at any time.
A partial surrender under a Participant Account will result in a reduction
of the Accumulation Value credited to a Participant Account. The reduction will
equal the dollar amount surrendered plus the Surrender Charge, if any, and will
be allocated among subaccounts in the same
40
proportion as the surrender requested by the Participant. The reduction in the
number of Accumulation Units credited to a Variable Investment Option(s) will
equal the amount surrendered from that Variable Investment Option(s) plus the
Surrender Charge allocable to that Variable Investment Option(s), if any,
divided by the applicable Accumulation Unit value next computed after the
written request for surrender is received at the Company's Home Office. If the
entire value under a subaccount is surrendered in a partial surrender, the
dollar amount surrendered will be reduced by any Surrender Charge allocable to
that subaccount. The Surrender Value will be reduced by a full quarterly
maintenance charge assessment in the case of a full surrender during a calendar
quarter.
Under the Texas State Optional Retirement Program or in many Section
403(b) contracts, no surrender or partial surrender by a Participant will be
permitted prior to termination of employment, retirement or death. (See
"Federal Tax Matters.")
Under the Florida State Optional Retirement Program no surrender or partial
surrender by a Participant of Accumulation Values attributable to Purchase
Payments contributed by the Participant's employer will be permitted prior to
termination of employment, retirement or death. Benefits based on employer
contributions may only be paid upon the Participant's death, retirement or
termination of employment. Except in the case of the Participant's death, and
except for certain small amounts as approved by the State of Florida, such
benefit payments may not be paid in a lump sum or for a period certain, but will
only be paid through a life contingency option.
For an explanation of possible adverse tax consequences from a partial or
full surrender see "Federal Tax Matters."
Payments of Surrender Values as well as lump-sum payments available under an
annuity option will be made within seven calendar days after receipt of the
written request by the Company at its Home Office; however, payments
attributable to a Division may be suspended or postponed at any time when
redemption of corresponding Fund's shares is suspended or postponed. See
"Offering, Purchase and Redemption of Fund Shares" in the Series Company's
Statement of Additional Information, and other Fund prospectuses for a
discussion of the circumstances under which the Series Company or the Dreyfus
Variable Investment Fund or Templeton Variable Product Series Fund may suspend
or postpone redemption of their respective shares.
Occasionally, the Company may receive a request for total or partial
surrender which includes Accumulation Values derived from Purchase Payments
which have not cleared the banking system. The Company may delay mailing that
portion of the Surrender Value which relates to such amounts until the check for
the payment has cleared. The Accumulation Unit value used to determine the
remaining Surrender Value to be remitted will be on the basis of the valuation
next computed after receipt of the request for surrender.
The Participant may elect to withdraw all or part of the Accumulation Value
without incurring a surrender charge under the no charge systematic withdrawal
method described in the annuity Contract offered by this Prospectus. This
systematic withdrawal generally provides for payment over a specified period of
time, but not less than five years, and payment in a specified annual dollar
amount, which must not be greater than 20% of the Participant's Accumulation
Value at the time this systematic withdrawal is elected. Additionally, the
Company may also require a minimum payment amount for withdrawals made under
this method. Undistributed portions of a Participant's Account will continue to
reflect the rate of return of the investment options the Participant has
selected. The Participant may revoke a no charge systematic withdrawal election.
However, such a systematic withdrawal may not be elected again. No more than one
systematic withdrawal election may be in effect at any one time. The Company
reserves the right to discontinue the election or to change the terms of the
systematic withdrawal methods.
There will be no surrender charges imposed on minimum distributions required
by federal tax law, provided the withdrawal (a) is made payable to the
Participant and (b) does not exceed the amount required to be distributed under
the tax Code and applicable regulations. This Contract feature is not available
if, in any Contract year, any amount has been withdrawn under the no charge
systematic withdrawal method described above. (See "Federal Tax Matters" for
more infor-
41
mation regarding required distributions imposed by tax law.)
OTHER CONTRACT FEATURES
CHANGE OF BENEFICIARY AND CONTINGENT OWNER
Once a Participant Account has been established, the Contract Owner, the
Participant and the Annuitant may not be changed.
The Beneficiary is designated by the Participant in a group Contract and by
the Contract Owner for an individual Contract. The Participant or Owner
generally may change the Beneficiary designation at any time unless such
designation has been made irrevocable. Under certain retirement programs,
however, spousal consent may be required to name or change a Beneficiary, and
the right to name a Beneficiary other than the spouse may be subject to
applicable tax laws and regulations. If no Beneficiary is living at the time of
an Annuitant's death, any benefits otherwise payable under the Contract to the
Beneficiary will be payable to the Annuitant's estate. If a Beneficiary dies
while receiving payments under the Contract, and if no other Beneficiary is then
living, any remaining benefits owed under the Contract will be paid to such
Beneficiary's estate.
Under individual non-tax qualified Contracts, the Owner may designate a
Contingent Owner. The Contingent Owner may be changed at any time during the
Accumulation Period. However, upon death of the Owner, benefits under the
Contract must be distributed in accordance with the rules established under the
Internal Revenue Code.
REVOCATION
Individual Contracts allow the Contract Owner to revoke the Contract by
returning it to the Company within twenty days of delivery or such longer
revocation period as is required by state law. The Company will refund any
Purchase Payments received for the Contract without regard to investment
results, unless a larger refund is required by state law.
RESERVATION OF RIGHTS
The Company reserves the right to amend the Contract to conform with
substitutions of investments or to comply with tax or other laws applicable to
these types of Contracts. The Company, upon written notice, may make other
changes to group Contracts that would apply only to individuals who become
Participants after the effective date of such changes. The Company also reserves
the right to operate the Separate Account as a management investment company
under the 1940 Act, in consideration of receipt of an investment management fee,
or in any other form permitted by law, and to deregister the Separate Account
under the 1940 Act, in the event such registration is no longer required.
The Company, at its sole discretion and upon written notice may curtail or
prohibit new Participants under a group Contract.
RELATIONSHIP TO EMPLOYER'S PLAN
Since it is contemplated that most Contracts offered by this Prospectus will
be used for retirement programs, reference should be made to specific plan
provisions and restrictions, if any, contained in the employer's plan in
connection with this description of the Contracts.
Plan loans from the Fixed Subaccounts may be permitted by your employer's
plan. Refer to your plan for a description of charges and further information.
FEDERAL TAX MATTERS
GENERAL
MAJOR CHANGES IN FEDERAL INCOME TAX LAWS IN THE PAST SEVERAL YEARS MAY
AFFECT THE TAX TREATMENT OF INVESTMENTS IN THE CONTRACTS. IT IS NOT FEASIBLE TO
COMMENT ON ALL OF THESE CHANGES, AND CONTRACT OWNERS SHOULD CONSULT A QUALIFIED
TAX ADVISOR FOR MORE COMPLETE INFORMATION. CONTRACT OWNERS SHOULD ALSO BE AWARE
THAT FUTURE LEGISLATION MAY CHANGE SOME OF THE RULES DISCUSSED IN THE FOLLOWING
MATERIALS.
TAXES PAYABLE BY PARTICIPANTS
AND ANNUITANTS
The Contracts offered in connection with this prospectus are primarily used
with retirement programs which receive favorable tax deferred treatment under
Federal income tax law, although deferred annuity contracts may be purchased
with after tax dollars.
Annuity payments or other amounts received under all Contracts generally are
subject to some form of federal income tax withholding. The withholding
requirement will vary among
42
recipients depending on the type of program, the tax status of the individual
and the type of payments from which taxes are withheld. Additionally, annuity
payments or other amounts received under all Contracts may be subject to state
income tax withholding requirements.
Non-Qualified Contracts do not enjoy the advantage of pre-tax contributions
reflected in the illustrations below. (See "Effect of Tax-Deferred
Accumulations.") However, all annuity contracts, including Non-Qualified
Contracts, receive tax-deferred treatment of the earnings from the Purchase
Payments invested.
SECTION 403(b) ANNUITIES FOR EMPLOYEES
OF CERTAIN TAX-EXEMPT ORGANIZATIONS OR
PUBLIC EDUCATIONAL INSTITUTIONS
PURCHASE PAYMENTS. Under section 403(b) of the Code, payments made by
certain employers (i.e., tax-exempt organizations, meeting the requirements of
section 501(c)(3) of the Code and public educational institutions) to purchase
annuity Contracts for their employees are excludable from the gross income of
employees to the extent that the aggregate Purchase Payments do not exceed the
limitations prescribed by section 402(g), section 403(b)(2) and section 415 of
the Code. This gross income exclusion applies to employer contributions and
voluntary salary reduction contributions.
An individual's voluntary salary reduction contributions under section
403(b) are generally limited to the lesser of $9,500 or 20 percent of salary,
additional catch-up contributions are permitted under certain circumstances.
Combined employer and salary reduction contributions are generally limited to
approximately 20 percent of salary. In addition, for plan years beginning after
December 31, 1988, employer contributions must comply with various
nondiscrimination rules; these rules may have the effect of further limiting the
rate of employer contributions for highly compensated employees.
TAXATION OF DISTRIBUTIONS. Distributions of voluntary salary reduction
amounts are restricted. The restrictions apply to amounts accumulated after
December 31, 1988 (including voluntary contributions after that date and
earnings on prior and current voluntary contributions). These restrictions
require that no distributions will be permitted prior to one of the following
events: (1) attainment of age 59 1/2, (2) separation from service, (3) death,
(4) disability, or (5) hardship (hardship distributions will be limited to the
amount of salary reduction contributions exclusive of earnings thereon).
Other distributions from a section 403(b) annuity Contract are taxed as
ordinary income to the recipient in accordance with section 72 of the Code.
Distributions received before the recipient attains age 59 1/2 generally are
subject to a 10% penalty tax in addition to regular income tax. Certain
distributions are excepted from this penalty tax, including distributions
following (1) death, (2) disability, (3) separation from service during or after
the year the participant reaches age 55, (4) separation from service at any age
if the distribution is in the form of substantially equal periodic payments over
the life (or life expectancy) of the Participant (or the Participant and
Beneficiary), and (5) distributions in excess of tax deductible medical
expenses.
REQUIRED DISTRIBUTIONS. Generally, distributions from section 403(b)
annuities must commence no later than April 1 of the calendar year following the
calendar year in which the Participant attains age 70 1/2 and such distributions
must be made over a period that does not exceed the life expectancy of the
Participant (or the Participant and Beneficiary). Participants employed by
governmental entities and certain church organizations may delay the
commencement of payments until April 1 of the calendar year following retirement
if they remain employed after attaining age 70 1/2. Following the death of the
Participant, the distribution requirements are generally the same as those
described with respect to Non-Qualified Contracts. However, amounts accumulated
under a Contract on December 31, 1986, are not subject to these minimum
distribution requirements. Pre-January 1, 1987 amounts may be paid in a manner
that meets the above rule or (i) must begin to be paid when the Participant
attains age 75; and (ii) the present value of payments expected to be made over
the life of the Participant, under the option chosen must exceed 50% of the
present value of all payments expected to be made (the "50% rule"). The 50% rule
will not apply to joint annuitants, if a Participant's spouse is the joint
annuitant. Notwithstanding these rules for pre-January 1, 1987 amounts held
under 403(b) contracts, the entire contract balance must
43
meet the minimum distribution incidental benefit requirement of Section
403(b)(10). A penalty tax of 50% will be imposed on the amount by which the
minimum required distribution in any year exceeds the amount actually
distributed in that year.
TAX-FREE TRANSFERS AND ROLLOVERS. The IRS has ruled (Revenue Rulings 90-24)
that total or partial amounts may be transferred tax free between section 403(b)
annuity contracts and/or 403(b)(7) custodial accounts under certain
circumstances. In addition, section 403(b)(8) of the Code permits tax-free
rollovers from section 403(b) programs to IRAs or other section 403(b) programs
under certain circumstances. Such a rollover must be completed within 60 days of
receipt of the distribution. The portion of any distribution which is eligible
to be rolled over to an IRA or another 403(b) program is subject to 20% federal
income tax withholding unless the Participant elects a direct rollover of such
distribution to an IRA or other section 403(b) program.
SECTION 401 QUALIFIED PENSION, PROFIT-SHARING OR ANNUITY PLANS
PURCHASE PAYMENTS. Purchase Payments made by an employer (or a self-employed
individual) under a pension, profit-sharing or annuity plan qualified under
section 401(a) or section 403(a) of the Code are excluded from the gross income
of the employee for Federal income tax purposes. Payments made by an employee
generally are made on an after-tax basis unless they are made on a pre-tax basis
by reason of sections 401(k) or 414(h) of the Code.
TAXATION OF DISTRIBUTIONS. Distributions from Contracts purchased under
qualified plans are taxable as ordinary income, except to the extent allocable
to an employee's after-tax contributions (which constitute "investment in the
Contract"). However, if an employee or the Beneficiary receives a lump sum
distribution, as defined in the Code, from an exempt employees' trust, the
taxable portion of the distribution may be subject to special tax treatment. For
most individuals receiving lump sum distributions after attainment of age 59
1/2, the rate of tax may be determined under a special 5-year income averaging
provision. Those who attained age 50 by January 1, 1986 may instead elect to use
a 10-year income averaging provision based on the income tax rates in effect for
1986. In addition, individuals who attained age 50 by January 1, 1986 may elect
capital gains treatment (at a 20% rate) for the taxable portion of a lump sum
distribution attributable to years of service before 1974; such capital gains
treatment has otherwise been repealed. Taxable distributions received under a
Contract purchased under a qualified plan prior to attainment of age 59 1/2 are
subject to the same 10% penalty tax (and the same exceptions) as described with
respect to section 403(b) annuity Contracts.
REQUIRED DISTRIBUTIONS. The minimum distribution requirements for qualified
plans are generally the same as described with respect to section 403(b) annuity
Contracts, except that no amounts are exempted from the minimum distribution
requirements.
TAX-FREE ROLLOVERS. The taxable portion of certain distributions from a plan
qualified under section 401 or 403(a) may be transferred in a tax-free rollover
to an individual retirement account or annuity or to another such plan. Such a
rollover must be completed within 60 days of receipt of the qualifying
distribution. The portion of any distribution which is eligible to be rolled
over to an IRA or another section 401(a) or 403(a) plan is subject to 20%
federal income tax withholding unless the Participant elects a direct rollover
of such distribution to an IRA or other section 401(a) or 403(a) plan.
INDIVIDUAL RETIREMENT ANNUITIES
PURCHASE PAYMENTS. The Tax Reform Act of 1986 has limited the extent to
which individuals may make tax-deductible contributions for IRA Contracts.
Deductible contributions equal to the lesser of $2,000 or 100% of compensation
are permitted only for individuals who (i) are not (and whose spouses are not)
active participants in another retirement plan; (ii) are active participants in
another retirement plan, but are unmarried and have adjusted gross income of
$25,000 or less; or (iii) are active participants (or have spouses who are) in
another retirement plan, but are married and have adjusted gross income of
$40,000 or less. Such individuals may also establish an IRA for a nonworking
spouse who receives no compensation during the tax year; the annual
tax-deductible Purchase Payments for both spouses'
44
Contracts cannot exceed the lesser of $2,250 or 100% of the working spouse's
earned income; no more than $2,000 may be contributed to either spouse's IRA for
any year. Individuals who are active participants in other retirement plans and
whose adjusted gross income exceeds the cut-off point ($25,000 for unmarried and
$40,000 for married) by less than $10,000 are entitled to make deductible IRA
contributions in proportionately reduced amounts.
An individual may make nondeductible IRA contributions to the extent of the
excess of (i) the lesser of $2,000 ($2,250 in the case of contributions to both
the individual's IRA and spousal IRA) or 100% of compensation over (ii) the IRA
deduction limit with respect to the individual.
TAXATION OF DISTRIBUTIONS. Distributions from IRA Contracts are taxed as
ordinary income to the recipient. In addition, a 10% penalty tax will be imposed
on taxable distributions received before the year in which the recipient attains
age 59 1/2, except that distributions made on account of death, disability or in
the form of substantially equal periodic payments over the life (or life
expectancy) of the Participant (or the Participant and Beneficiary) are not
subject to the penalty tax.
REQUIRED DISTRIBUTIONS. The minimum distribution requirements for IRA
Contracts are generally the same as described with respect to Section 403(b)
annuity Contracts, except that no amounts are exempted from the minimum
distribution requirements and in all events such distributions must commence no
later than April 1 of the calendar year following the calendar year in which the
Participant attains age 70 1/2.
TAX FREE ROLLOVERS. Federal law permits funds to be transferred in a tax
free rollover from a qualified employer pension, profit-sharing, or annuity
plan, or a Section 403(b) annuity Contract to an IRA Contract under certain
conditions. Amounts accumulated under such a rollover IRA may subsequently be
rolled over on a tax-free basis to another such plan or Section 403(b) annuity
Contract. In addition, a tax-free rollover may be made from one IRA to another,
provided that not more than one such rollover may be made during any twelve
month period. In order to qualify for tax-free treatment, all rollovers must be
completed within 60 days after the distribution is received.
SIMPLIFIED EMPLOYEE PENSION PLANS
PURCHASE PAYMENTS. Under section 408(k) of the Code, employers may establish
a type of IRA plan referred to as a simplified employee pension plan (SEP).
Employer contributions under a SEP, which generally must be made at a rate
representing a uniform percent of the compensation of participating employees,
are excluded from the gross income of employees for Federal income tax purposes.
Employer contributions to a SEP cannot exceed the lesser of $22,500 or 15% of an
employee's compensation for plan years beginning after December 31, 1993.
SALARY REDUCTION SEPS. Federal tax law allows employees of certain small
employers to have contributions made to the SEP on their behalf on a salary
reduction basis. These salary reduction contributions may not exceed $7,000,
indexed for inflation in later years. Employees of tax-exempt organizations are
not eligible for this type of SEP.
TAXATION OF DISTRIBUTIONS. SEP distributions are subject to taxation in
the same manner as other IRA distributions.
REQUIRED DISTRIBUTIONS. SEP distributions are subject to the same minimum
required distribution rules applicable to other IRAs.
TAX FREE ROLLOVERS. Funds may be rolled over tax free from one SEP to
another as long as the rollover is completed within 60 days after the
distribution is received and is done no more frequently than once every twelve
months.
SECTION 457 UNFUNDED DEFERRED
COMPENSATION PLANS OF PUBLIC
EMPLOYERS AND TAX-EXEMPT
ORGANIZATIONS
PURCHASE PAYMENTS. Under section 457 of the Code, individuals who perform
services for a unit of a state or local government may participate in a deferred
compensation program. Tax-exempt employers may establish deferred compensation
plans under section 457 only for a select group of management or highly
compensated employees and/or independent contractors.
This type of program allows individuals to defer the receipt of compensation
which would otherwise be presently payable and to, therefore, defer the payment
of Federal income taxes on the amounts. Assuming that the program meets the
45
requirements to be considered an eligible deferred compensation plan (an
"EDCP"), an individual may contribute (and thereby defer from current income for
tax purposes) the lesser of $7,500 or 33 1/3% of the individual's includible
compensation. (Includible compensation means compensation from the employer
which is currently includible in gross income for Federal tax purposes.) During
the last three years before an individual attains normal retirement age,
additional catch-up deferrals are permitted.
The amounts which are deferred may be used by the employer to purchase the
Contracts offered by this Prospectus. The Contract is owned by the employer and,
in fact, is subject to the claims of the employer's creditors. The employee has
no present rights or vested interest in the Contract and is only entitled to
payment in accordance with the EDCP provisions.
TAXATION OF DISTRIBUTIONS. Amounts received by an individual from an EDCP
are includible in gross income for the taxable year in which such amounts are
paid or otherwise made available.
DISTRIBUTIONS BEFORE SEPARATION FROM SERVICE. Distributions generally are
not permitted under an EDCP prior to separation from service except for
unforeseeable emergencies. Emergency distributions are includible in the gross
income of the individual in the year in which paid.
REQUIRED DISTRIBUTIONS. Beginning January 1, 1989, the minimum distribution
requirements for EDCP's are generally the same as those for qualified plans and
section 403(b) annuity Contracts, except that no amounts are exempted from
minimum distribution requirements.
TAX FREE TRANSFERS AND ROLLOVERS. Federal income tax law permits the tax
free transfer of EDCP amounts to another EDCP, but not to an IRA or other type
of plan.
PRIVATE EMPLOYER UNFUNDED DEFERRED
COMPENSATION PLANS
PURCHASE PAYMENTS. Private taxable employers may establish unfunded and
non-qualified deferred compensation plans for a select group of management or
highly compensated employees and/or for independent contractors.
Certain arrangements of nonprofit employers entered into prior to August 16,
1986, and not subsequently modified, are subject to the rules for private
taxable employer deferred compensation plans discussed below.
Deferred compensation plans represent a bare contractual promise on the part
of the employer to pay current wages 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 present right or vested interest in the Contract and is only
entitled to payment in accordance with plan provisions. Private taxable
employers that are not natural persons, however, are currently taxable on any
increase in the Accumulation Value attributable to Purchase Payments made to
such Contracts after February 28, 1986.
TAXATION OF DISTRIBUTIONS. Amounts received by an individual from a private
employer deferred compensation plan are includible in gross income for the
taxable year in which such amounts are paid or otherwise made available.
TAX FREE TRANSFERS AND ROLLOVERS. Federal income tax law does not allow tax
free transfers or rollovers for amounts accumulated in a private employer
deferred compensation plan.
NON-QUALIFIED CONTRACTS
PURCHASE PAYMENTS. Purchase Payments made under certain Contracts are not
excludible from the gross income of the Contract Owner or deductible for tax
purposes ("Non-Qualified Contracts"). However, any increase in the Accumulation
Value of a Non-Qualified Contract resulting from the investment performance of
the Separate Account is not taxable to the Contract Owner until received by him.
Contract Owners that are not natural persons, however, are currently taxable on
any increase in the Accumulation Value attributable to Purchase Payments made to
such Contracts after February 28, 1986.
TAXATION OF DISTRIBUTIONS. In general, partial redemptions that are not
received as an annuity under a Non-Qualified Contract purchased after August 13,
1982 (or allocated to post-August 13 Purchase Payments under a pre-existing
Contract) are taxed as ordinary income to the extent of the accumulated income
or gain under the Contract. Partial redemptions from a Non-Qualified Contract
purchased before August 14, 1982, are taxed only after the Contract Owner has
received all of his "investment in the Contract"
46
(Purchase Payments less any amounts previously received and excluded from gross
income).
In the case of a complete redemption of a Non-Qualified Contract (regardless
of the date of purchase), the amount received will be taxed as ordinary income
to the extent that it exceeds the Contract Owner's investment in the Contract.
If a Contract Owner purchases two or more Contracts from the Company (or an
affiliated company) within any twelve month period, those Contracts are treated
as a single Contract for purposes of measuring the income on a partial
redemption or complete surrender.
When payments are received as an annuity, the Contract Owner's investment in
the Contract is treated as received ratably over the expected payment period of
the annuity and excluded from gross income as a tax-free return of capital.
Individuals who start receiving annuity payments on or after January 1, 1987,
can exclude from income only their unrecovered investment in the Contract. Where
such individuals die before they have recovered their entire investment in the
Contract on a tax-free basis, they generally are entitled to a deduction of the
unrecovered amount on their final tax return.
In addition to regular income taxes, there is a 10% penalty tax on the
taxable portion of a distribution received before age 59 1/2 under a
Non-Qualified Contract, unless the distribution is: (1) made to a Beneficiary on
or after death of the Contract Owner; (2) made upon the disability of the
Contract Owner; (3) part of a series of substantially equal annuity payments for
the life or life expectancy of the Contract Owner or the Contract Owner and
Beneficiary; (4) made under an immediate annuity contract, or (5) allocable to
Purchase Payments made prior to August 14, 1982.
REQUIRED DISTRIBUTIONS. In contrast with the required distribution rules
described above for Contracts purchased under employer-sponsored retirement
programs, the Code does not require a Contract Owner under a Non-Qualified
Contract to commence receiving distributions at any particular time and does not
limit the duration of annuity payments. However, upon the death of the Contract
Owner prior to the commencement of annuity payments, the amount accumulated
under the Contract must be distributed within five years or, if distributions to
a beneficiary designated under the Contract start within one year of the
Contract Owner's death, distributions are permitted over the life of the
beneficiary or over a period not extending beyond the beneficiary's life
expectancy. If the Contract Owner has started receiving annuity distributions
prior to his death, distributions must continue at least as rapidly as under the
method in effect at the date of his death.
TAX-FREE EXCHANGES. Certain of the Non-Qualified single payment deferred
annuity contracts permit the Contract Owner to exchange his contract for a new
deferred annuity contract prior to the commencement of annuity payments. Under
section 1035 of the Code, the exchange of one annuity contract for another is
not a taxable transaction, but is reportable to the IRS.
EFFECT OF TAX-DEFERRED ACCUMULATIONS
The charts below compare accumulations attributable to contributions to (1)
Contracts purchased with pre-tax contributions under tax-favored retirement
programs, (2) Non-Qualified Contracts purchased with after tax contributions and
(3) conventional savings vehicles such as savings accounts.
THE POWER OF TAX-DEFERRED GROWTH
[BAR CHART PLOTTED FROM DATA PRESENTED IN TABLE BELOW]
10 YEARS 20 YEARS 30 YEARS
-------- -------- --------
Conventional Savings ...................... $16,122 $44,347 $ 93,761
Nonqualified Contract Tax-
Deferred Annuity ........................ 18,128 57,266 141,761
Tax-Deferred Annuity ...................... 25,178 79,537 196,892
This hypothetical chart compares the results of (1) contributing $100 per month
to a conventional, non-tax deferred plan, (2) contributing $100 to a
non-qualified, tax-deferred annuity, and (3) contributing $100 per month
($138.89 since contributions are made before tax) to a qualified tax-deferred
plan. The chart assumes a 28% tax rate and an 8% fixed rate of return. Variable
annuity options incur mortality and expense charges (1%-1.25%) and may also
incur administrative fees ($3.75 per quarter) and surrender charges (5% of the
lesser of all contributions received during the last 60 months or the amount
withdrawn). These fees and charges are not reflected in the above illustration
and would reduce the results shown. Income taxes are payable upon withdrawal,
and an additional 10% tax penalty may apply to withdrawals before age 59 1/2.
This information is for illustrative purposes only and is not a guarantee of
future return.
Unlike savings accounts, contributions to tax-favored retirement programs
and Non-Qualified Contracts provide tax-deferred treatment on earnings. In
addition, contributions to tax-favored retirement programs ordinarily are not
subject to
47
income tax until withdrawn. As shown above, investing in a tax-favored program
increases the accumulation power of savings over time. The more taxes saved and
reinvested in the program, the more the accumulation power effectively grows
over the years.
To further illustrate the advantages of tax-deferred savings using a 28%
Federal tax bracket, an annual fixed yield (BEFORE THE DEDUCTION OF ANY FEES OR
CHARGES) of 8% under a tax-favored retirement program in which tax savings were
reinvested has an equivalent annual fixed yield of 5.76% under a conventional
savings program. THE 8% YIELD ON THE TAX-FAVORED PROGRAM WILL BE REDUCED BY THE
IMPACT OF INCOME TAXES UPON WITHDRAWAL. The yield will vary depending upon the
timing of withdrawals. The previous chart shows the actual after-tax amounts
that would be received.
As indicated above, contributions to tax-favored retirement programs are not
subject to Federal income tax unless and until withdrawn. Accumulations under
tax-favored retirement programs are generally not required to be withdrawn until
age 70 1/2. There may be restrictions on withdrawals of certain types of
contributions until age 59 1/2, separation from service, death, disability or
hardship. Withdrawals before age 59 1/2 generally are subject to a 10% penalty
tax in addition to regular income tax, but withdrawals may be eligible for total
or partial rollover to an IRA or another retirement program.
By taking into account the current deferral of taxes, these contributions to
tax-favored retirement programs increase the amount available for savings by
decreasing the relative current out-of-pocket cost (referring to the effect on
annual net take-home pay) of the investment. The chart below illustrates this
principle by comparing a pre-tax contribution to a tax-favored retirement plan
with an after-tax contribution to a conventional savings account:
PAYCHECK COMPARISON
TAX-FAVORED CONVENTIONAL
RETIREMENT SAVINGS
PROGRAM ACCOUNT
----------- ------------
Annual amount available for savings
before Federal taxes............... $ 2,500 $2,500
Current Federal income tax due on
contributions...................... 0 (700)
Net retirement plan contributions.... $ 2,500 $1,800
This chart assumes a 28% Federal income tax rate. The $700 which is paid
toward current Federal income taxes on the $2,500 contributed to the
conventional savings account remains in the tax-favored program, subject to
being taxed upon withdrawal. Stated otherwise, to reach an annual retirement
savings goal of $2,500, the contribution to a tax-favored retirement program
results in a current out-of-pocket expense of $1,800 while the contribution to a
conventional savings account requires the full $2,500 out-of-pocket expense. The
tax-favored retirement program represented in this chart is a plan type, such as
one under section 403(b) of the Code, which allows Participants to exclude
contributions, within limits, from gross income.
FUND DIVERSIFICATION
Separate Account investments must be adequately diversified in order for the
increase in the value of Non-Qualified Contracts to receive tax-deferred
treatment. In order to be adequately diversified, each Fund must, as of the end
of each calendar quarter or within 30 days thereafter, have no more than 55% of
its assets invested in any one investment, 70% in any two investments, 80% in
any three investments and 90% in any four investments. Failure of a Fund to meet
the diversification requirements could result in tax liability to Non-Qualified
Contract Owners.
Each Fund expects to meet the diversification requirements above and assure
tax deferred treatment for holders of any Non-Qualified Contracts.
The investment opportunities of a Fund could conceivably be limited by
adhering to the above diversification requirements. This would affect all
Contract Owners, including those owners of Qualified Contracts for whom
diversification is not a requirement for tax-deferred treatment.
VOTING RIGHTS
The Contract Owner during the Accumulation Period, the during the
Annuity Period, or the Beneficiary after the death, will be entitled
to give instructions to the Company as to how Fund shares held in the Divisions
attributable to the Participant Account or variable annuity should be voted at
meetings of shareholders of the Funds. Those persons entitled to give voting
instructions will be determined as of the record date for the meeting.
During the Accumulation Period, each (other than Annuitants under
Contracts issued in connection with non-qualified and deferred
compensation plans) will have the right to give instructions for those votes,
not-
48
withstanding that the Contract Owner may be the employer. Contract
Owners will instruct the Company in accordance with such instructions.
The number of Fund shares held in a Division deemed attributable to a
Participant Account prior to the Annuity Date and during the lifetime of the
will be determined on the basis of the value of Accumulation Units
credited to the Participant Account as of the record date. On or after the
Annuity Date or after the death of the Annuitant, the number of Fund shares
deemed attributable to the Participant Account will be based on the liability
for future variable annuity payments to the payee under the Contract as of the
record date. Such liability for future payments will be calculated on the basis
of the mortality assumptions and the Assumed Investment Rate used in determining
the number of Annuity Units credited to the Participant Account and the
applicable Annuity Unit value on the record date. During the Annuity Period, the
number of votes attributable to a variable annuity will generally decrease since
funds set aside for an Annuitant will decrease.
Persons who are entitled to vote will receive proxy material and a form on
which voting instructions may be given. Fund shares held in the Separate Account
or any other registered separate account that are or are not attributable to
variable annuity contracts or variable life insurance policies as to which no
instructions have been received will be voted for or against any proposition in
the same proportion as the shares for which voting instructions have been
received by that separate account. Fund shares held in unregistered separate
accounts will be voted in the same proportion as the aggregate of (a) the shares
for which voting instructions are received and (b) the shares that are voted in
proportion to such voting instructions. However, if any company whose separate
account invests in a Fund determines that it is permitted to vote any such
shares of that Fund in its own right, it may elect to do so, subject to the then
current interpretation of the 1940 Act and the rules thereunder.
OTHER VARIABLE ANNUITY
CONTRACTS
In addition to the Contracts described in this Prospectus, the Company has
made the Separate Account available to fund other group and individual variable
annuity contracts funded through the Separate Account or, formerly funded
through the Company's Separate Account One and the Company's Separate Account
Two. These contracts, which are funded exclusively through Division Ten of the
Separate Account, impose different charges at the Separate Account level than
the ones imposed on the Contracts described in this Prospectus.
The other contracts listed above are described in and offered pursuant to
separate prospectuses.
EXCHANGE OFFERS
GENERAL
The Company is making an exchange offer to annuitants and contact owners
under certain of its outstanding fixed annuity contracts, certain outstanding
variable annuity contracts formerly issued through the Company's Separate
Account One and Separate Account Two, and certain variable annuity contracts
issued through Separate Account A. The exchange will be available only as to
contracts under which the Company has not yet started making annuity payments.
Eligible annuitants and contract owners may exchange their current fixed
Contracts ("V-Plan Contracts," IFA-582 and GFA-582 Contracts or "Compounder
Contracts," C-I-75 and IFA-78 Contracts) and variable Contracts ("Independence
Plus Contracts," UIT-585 and UITG-585 Contracts; "Impact Contracts," UIT-981
Contracts; and "SA-1 or SA-2 Contracts," GUP 64, GUP 74 and GTS-VA Contracts)
(collectively referred to as "Existing Contracts") for one of the new variable
annuity Contracts ("New Contracts") of the type described in this Prospectus.
The New Contract will have the same Accumulation Value as the exchanged
Existing Contract and, in addition, will have certain new features which may be
advantageous. Annuitants under New Contracts may choose up to seven of eighteen
investment options, including two fixed accumulation options, whereas fewer
options are available under the Existing Contracts. The New Contracts have a
surrender charge, similar to the Impact, V-Plan and Independence Plus Contracts,
rather than the front end sales load imposed under the SA-1 and SA-2 and
Compounder Contracts. The New Contracts may also provide an enhanced death
benefit over Existing Contracts. Fund fees and charges under the New Contracts
are different from those under the Existing Contracts and, in some cases, may be
higher. Guaranteed annuity rates and guaranteed interest rates may be less
favorable under the New Con-
49
tracts. Differences between New and Existing Contracts are described more
fully below.
The Company is also making an exchange offer to annuitants and contract
owners under certain of its other outstanding fixed annuity contracts (FSPA-75,
FSPA-75-3, FSPA-76, FSPA-779, SPQ181, SPQ181-1, CTA978, and TFA-379 contracts)
and certain of its other outstanding variable annuity contracts (SDA-578,
SDA-773-T and IRA-579 contracts) (collectively referred to as "Other Existing
Contracts"). The exchange will also only be available as to contracts under
which the Company has not yet started making annuity payments. When comparing
differences between the New Contracts and the Other Existing Contracts, you
should refer to the form of contract (or certificate thereunder) or the most
recently dated prospectus, whichever is applicable, for an explanation of terms
and conditions pertaining to an Other Existing Contract.
The Company also imposes other restrictions and rules upon the exchange of
Existing Contracts and Other Existing Contracts into the New Contracts. You
should contact the Company for information regarding such restrictions and
rules. One of the exchange restrictions requires the fixed account assets of
Existing Contracts and Other Existing Contracts to transfer directly into like
Fixed Subaccounts under the New Contracts at the time of the exchange. Such an
exchange will subject those assets to the restrictions and rules applicable to
Fixed Subaccounts under the New Contracts. (See "Transfers Among Investment
Options.") The Company, however, at its option, may waive such investment
transfer restrictions, for a specified period of time, and allow individuals who
are making an exchange to allocate assets exchanged from the Existing Contracts
and Other Existing Contracts among any of the investment options made available
under the New Contracts.
DIFFERENCES BETWEEN NEW AND EXISTING CONTRACTS
If you currently have a V-Plan or Compounder Contract, you should refer to
the form of contract (or certificate thereunder) for its terms and conditions.
You should refer to the most recently dated prospectus for a complete
description of your variable annuity contract's terms and conditions. That
prospectus is incorporated herein by reference. You may obtain an additional
copy of a prospectus free of charge by contacting the nearest Regional Office of
the Company. (The addresses of these offices appears on the inside back cover of
this Prospectus.) Some of the important differences between Existing Contracts
and New Contracts are discussed below.
EXCHANGES FROM INDEPENDENCE PLUS CONTRACTS
SALES/SURRENDER CHARGES. Under an Independence Plus Contract, no sales
charge is deducted at the time a purchase payment is made, but a surrender
charge may be imposed on partial or total surrenders. The surrender charge may
not exceed 5% of any purchase payments withdrawn within five years of the date
such purchase payments were made. The most recent purchase payments are deemed
to be withdrawn first. Up to 10% of the account value may be surrendered in a
Participant Year without any surrender charge being imposed. The New Contract
imposes a similar surrender charge upon total or partial surrenders. Both the
New Contracts and Independence Plus Contracts have other similar provisions
where surrender charges are not imposed. However, the New Contract provides at
least one additional provision, not included in Independence Plus Contracts,
under which no surrender charge will be imposed. An additional provision allows
election of a systematic withdrawal method without surrender charges. (See
"Charge for Partial and Total Surrenders.") For purposes of satisfying the
fifteen-year and seven-year holding requirements described in "Charge for
Partial and Total Surrenders," the New Contracts will be deemed to have been
issued on the same date as the Existing Contract or certificate thereunder, but
no earlier than January 1, 1982. Purchase Payments exchanged into a New Contract
and which were made within five years before the date of exchange will be
treated as Purchase Payments under the New Contract for purposes of calculating
surrender charges. Exchanged payments will be deemed to have been made under the
New Contracts on the date they were made to Independence Plus Contracts for
purposes of calculating the surrender charge under the New Contracts.
OTHER CHARGES. Under the Independence Plus Contracts, a maintenance charge
of $20 is assessed for the first year and an annual charge of $15 is assessed
for the second and later years during the accumulation period. The charge is due
in quarterly installments. A daily fee is charged at the annual rate of 1% of
the daily net asset value allocable to the Variable Subaccounts
50
to cover administrative expenses (other than those covered by the annual charge)
and mortality risks assumed by the Company. For New Contracts, a quarterly
account maintenance charge of $3.75 is assessed for each calendar quarter during
the Accumulation Period during which any Variable Investment Option Accumulation
Value is credited to a Participant's Account. The charge is to reimburse the
Company for some of the administrative expenses associated with the Variable
Investment Options. No charge is assessed for any calendar quarter if the
Accumulation Value is credited only to the Fixed Interest Options throughout the
quarter. Such charge begins immediately if an exchange is made into any Variable
Investment Option offered under the New Contract. The charge may also be reduced
or waived by the Company on New Contracts if the administrative expenses are
expected to be lower for that Contract. (See "Charge for Account Maintenance.")
To cover expenses not covered by the account maintenance charge and to
compensate the Company for assuming mortality risks under the New Contracts, an
additional daily charge with an annualized rate of 1.00% or 1.25%, depending
upon the Variable Investment Options selected, if any, on the daily net asset
value of the Separate Account is attributable to New Contracts. (See "Charge to
Separate Account.")
INVESTMENT OPTIONS. Under Independence Plus Contracts ten divisions of
Separate Account A are available variable investment alternatives, each
investing in shares of a different underlying fund of the Series Company
portfolio. The ten mutual funds are managed by the Company for advisory fees at
annual rates ranging from .31% to .50% of each respective portfolio's average
daily net assets. In addition, two fixed investment options are available. Under
the New Contracts, sixteen divisions of Separate Account A are available,
thirteen of which invest in a different investment portfolio of the Series
Company and three divisions of which invest in other mutual fund portfolios.
These mutual fund portfolios are managed either by the Company, the Dreyfus
Corporation, or TICI for advisory fees at annual rates ranging from .31% to .90%
of each portfolio's or mutual fund's average daily net assets. Two fixed
investment options are also available.
ANNUITY OPTIONS. Annuity options under Independence Plus Contracts provide
for payments on a fixed or variable basis, or a combination of both. The
Independence Plus Contract permits annuity payments for a designated period
between three and thirty years on a fixed basis only. The New Contract permits
annuity payments for a designated period between of 5 and 30 years on a fixed
basis only. Independence Plus Contracts and the New Contracts both provide for
"betterment of rates." Under this provision, annuity payments for fixed
annuities will be based on mortality tables then being used by the Company, if
more favorable to the Annuitant than those included in the Contract.
EXCHANGES FROM V-PLAN CONTRACTS
SALES/SURRENDER CHARGES. Under a V-Plan Contract, no sales charge is
deducted at the time a purchase payment is made, but a surrender charge may be
imposed on partial or total surrenders. The surrender charge is equal to 7% of
the purchase payments withdrawn within five years of the date such purchase
payments were made. The most recent purchase payments are deemed to be withdrawn
first. Up to 10% of the account value may be surrendered in a Participant Year
without any surrender charge being imposed. The New Contract also imposes a
surrender charge upon total or partial surrenders. However, the surrender charge
under the New Contracts may not exceed 5% of any Purchase Payments withdrawn
within the most recent five years prior to the receipt of the surrender request
by the Company at its Home Office. V-Plan Contracts have other provisions where
surrender charges are not imposed. However, the New Contracts provide at least
two additional provisions, not included in V-Plan Contracts, under which no
surrender charge will be imposed. Those New Contract provisions include no
surrender charges on an election of the no charge systematic withdrawal method,
and where an employee-participant has maintained the account for a period of
seven years and has attained the age 59 1/2. (See "Charge for Partial and Total
Surrenders.") For purposes of satisfying the fifteen-year and seven-year holding
requirements, the New Contracts will be deemed to have been issued on the same
date as the Existing Contract or certificate thereunder, but no earlier than
January 1, 1982.
If there is a total or partial surrender, Purchase Payments exchanged into a
New Contract and which were made within five years before the date of exchange
will be treated as Purchase Payments under the New Contract for purposes of
calculating surrender charges. Exchanged payments will be deemed to have been
made under
51
the New Contracts on the date they were made to Existing Contracts for purposes
of calculating the surrender charge under the New Contracts.
OTHER CHARGES. There are no administrative and risk charges under V-Plan
Contracts. For New Contracts, a quarterly account maintenance charge of $3.75 is
assessed for each calendar quarter during the Accumulation Period during which
any Variable Investment Option Accumulation Value is credited to a Participant's
Account. The charge is to reimburse the Company for some of the administrative
expenses associated with the Variable Investment Options. No charge is assessed
for any calendar quarter if the Accumulation Value is credited only to the Fixed
Interest Options throughout the quarter. Such charge begins immediately if an
exchange is made into any Variable Investment Option offered under the New
Contract. The charge may also be reduced or waived by the Company on New
Contracts if the administrative expenses are expected to be lower for that
Contract. (See "Charge for Account Maintenance.") To cover expenses not covered
by the account maintenance charge and to compensate the Company for assuming
mortality risks under the New Contracts, an additional daily charge with an
annualized rate of 1.00% or 1.25%, depending upon the Variable Investment
Options selected, if any, on the daily net asset value of the Separate Account
is attributable to New Contracts. (See "Charge to Separate Account.")
INVESTMENT OPTIONS. There are no variable investment alternatives provided
under V-Plan Contracts.
ANNUITY OPTIONS. Annuity options under V-Plan Contracts provide for payments
on a fixed basis only. The V-Plan Contract permits annuity payments for a
designated period of 1 to 15 years. Under a V-Plan Contract, the designated
period option may, subject to adverse tax consequences, be commuted at any time
for its remaining value. The New Contract permits annuity payments for a
designated period of between 5 and 30 years on a fixed basis only. Under the New
Contract, annuity payments may be made on a fixed or variable basis, or a
combination of both. The New Contract does not provide for commutation. V-Plan
Contracts and the New Contracts both provide for "betterment of rates." Under
this provision, annuity payments for fixed annuities will be based on mortality
tables then being used by the Company, if more favorable to the Annuitant than
those included in the Contract.
EXCHANGES FROM SA-1 AND SA-2 CONTRACTS
SALES/SURRENDER CHARGES. Under the SA-1 and SA-2 Contracts a sales and
administrative charge is deducted from each purchase payment. This charge ranges
from 5% of the first $5,000 of purchase payments to 3% of purchase payments in
excess of $15,000. If a SA-1 or SA-2 Contract is exchanged for a New Contract
the surrender charge under the New Contract will not apply to the amount of
Accumulation Value applied to the New Contract (the "Exchanged Amount").
Purchase Payments made to the New Contracts, however, would be subject to the
surrender charge under the New Contracts. In the case of a partial surrender,
all Purchase Payments to the New Contract will be deemed to be withdrawn before
any Exchanged Amount is deemed to be withdrawn. No exchange pursuant to this
offer will be allowed within 120 days of a transfer of fixed accumulations under
a SA-1 or SA-2 Contract to the variable portion of such Contract. Under a New
Contract, no sales charge is deducted at the time a Purchase Payment is made,
but a surrender charge may be imposed on partial or total surrenders. The
surrender charge may not exceed 5% of any Purchase Payments withdrawn within the
most recent five years prior to the receipt of the surrender request by the
Company at its Home Office. For purposes of this surrender charge, the most
recent Purchase Payments are deemed to be withdrawn first. (See "Charge for
Partial and Total Surrenders.")
OTHER CHARGES. A charge of a percentage of each purchase payment is made for
administrative expenses for SA-1 and SA-2 Contracts. The charge is generally
1.25% and is included in the above sales and administrative charge. An
additional daily charge (at an annual rate of 1% of total net assets
attributable to SA-1 Contracts and ranging from .21% to .85% of total net assets
attributable to SA-2 Contracts) is made for mortality and expense risks assumed
by the Company under the variable portion of the Contract. The total of these
expenses and other charges is limited to a maximum of the rate imposed on SA-1
and SA-2 Contracts on April 1, 1987. (See prospectus for SA-1 and SA-2 contracts
dated April 20, 1987.) For New Contracts, a quarterly account maintenance charge
of $3.75 is assessed for each calendar quarter during the Accumulation Period
during which any Variable Investment Option Accumulation Value is credited to a
Participant's Account. The charge is to reimburse the Company for some of the
administrative expenses
52
associated with the Variable Investment Options. No charge is assessed for any
calendar quarter if the Accumulation Value is credited only to the Fixed
Interest Options throughout the quarter. Such charge begins immediately if an
exchange is made into any Variable Investment Option offered under the New
Contract. The charge may also be reduced or waived by the Company on New
Contracts if the administrative expenses are expected to be lower for that
Contract. (See "Charge for Account Maintenance.") To cover expenses not covered
by the account maintenance charge and to compensate the Company for assuming
mortality risks under the New Contracts, an additional daily charge with an
annualized rate of 1.00% or 1.25%, depending upon the Variable Investment
Options selected, if any, on the average daily net asset value of the Separate
Account is attributable to New Contracts. (See "Charge to Separate Account.")
INVESTMENT OPTIONS. Under SA-1 and SA-2 Contracts only one division of
Separate Account A is available as a variable investment alternative. This
division invests in a portfolio of the Series Company. This portfolio is managed
by the Company for advisory fees at an annual rate of .31% of the portfolio's
average daily net assets. (Under a "grandfathering" arrangement, the total
advisory fees and certain other charges imposed against these Contracts are
limited to a maximum of the rate charged on April 1, 1987. See the prospectus
for these Contracts dated April 20, 1987.) Under the New Contracts, sixteen
divisions of Separate Account A are available, thirteen of which invest in a
different investment portfolio of the Series Company and three divisions of
which invest in other mutual fund portfolios. These mutual fund portfolios are
managed by either the Company, The Dreyfus Corporation, or TICI, for advisory
fees at annual rates ranging from .31% to .90% of each portfolio's or mutual
fund's average daily net assets. Additionally, two fixed investment options are
available under the New Contracts.
ANNUITY OPTIONS. Annuity options under the SA-1 and SA-2 Contracts provide
for payments on a fixed or variable basis, or a combination of both. The SA-1
Contract annuity payments under a designated period option are limited to 15
years on a fixed basis only. Under this Contract, the designated period option
may, subject to adverse tax consequences, be commuted at any time for its
remaining value. SA-2 Contracts do not provide a designated period option nor do
they provide for commutation. The New Contract permits annuity payments for a
designated period of between 5 and 30 years on a fixed basis only. The New
Contract does not provide for commutation. The SA-1 and SA-2 Contracts make no
provision for transfers from a separate account to a fixed annuity during the
annuity period. This option, subject to certain conditions, is available under
the New Contracts. The SA-1 Contracts provide an option for monthly variable
annuity payments to be made at a level payment basis during each year of the
annuity period. The New Contracts do not provide this option. SA-1 and the New
Contracts, but not SA-2 Contracts, both provide for "betterment of rates." Under
this provision, annuity payments for fixed annuities will be based on mortality
tables then being used by the Company, if more favorable to the Annuitant than
those included in the Contract.
EXCHANGES FROM IMPACT CONTRACTS
SALES/SURRENDER CHARGES. Under an Impact Contract, no sales charge is
deducted at the time a purchase payment is made, but a surrender charge may be
imposed on partial or total surrenders. The surrender charge is equal to 5% of
the purchase payments withdrawn within three years of the date such purchase
payments were made. The most recent purchase payments are deemed to be withdrawn
first. The New Contracts also impose a surrender charge upon total or partial
surrenders which may not exceed 5% of any Purchase Payments withdrawn within the
most recent five years prior to the receipt of the surrender request by the
Company at its Home Office. The New Contracts also have other provisions where
surrender charges are not imposed. (See "Charge for Partial and Total
Surrenders.") For purposes of satisfying the fifteen-year and seven-year holding
requirements, the New Contracts will be deemed to have been issued on the same
date as the Existing Contract or certificate thereunder, but no earlier than
January 1, 1982. Only purchase payments exchanged into a New Contract which were
made within three years before the date of exchange will be treated as Purchase
Payments under the New Contract for purposes of calculating surrender charges.
Exchanged payments will be deemed to have been made under the New Contracts on
the date they were made to Impact Contracts for purposes of calculating the
surrender charge under the New Contracts.
OTHER CHARGES. Under Impact Contracts, a $30 annual charge is assessed once
a year to
53
cover administrative expenses. The charge may, with prior regulatory approval if
required, be increased or decreased. In addition, a daily charge is made at an
annual rate of 1% of the net asset value allocable to the Impact Contracts to
cover administrative expenses (other than those covered by the annual charge)
and mortality risks assumed by the Company. For New Contracts, a quarterly
account maintenance charge of $3.75 is assessed for each calendar quarter during
the Accumulation Period during which any Variable Investment Option Accumulation
Value is credited to a Participant's Account. The charge is to reimburse the
Company for some of the administrative expenses associated with the Variable
Investment Options. No charge is assessed for any calendar quarter if the
Accumulation Value is credited only to the Fixed Interest Options throughout the
quarter. Such charge begins immediately if an exchange is made into any Variable
Investment Option offered under the New Contract. The charge may also be reduced
or waived by the Company on New Contracts if the administrative expenses are
expected to be lower for that Contract. (See "Charge for Account Maintenance.")
To cover expenses not covered by the account maintenance charge and to
compensate the Company for assuming mortality risks under the New Contracts, an
additional daily charge with an annualized rate of 1.00% or 1.25%, depending
upon the Variable Investment Options selected, if any, on the daily net asset
value of the Separate Account is attributable to New Contracts. (See "Charge to
Separate Account.")
INVESTMENT OPTIONS. Under the Impact Contract five divisions of Separate
Account A are available as variable investment alternatives, each investing in
shares of a different underlying fund of the Series Company portfolio. The five
mutual funds are managed by the Company for advisory fees at annual rates
ranging from .31% to .50% of each respective portfolio's average daily net
assets. Under the New Contracts, sixteen divisions of Separate Account A are
available, thirteen of which invest in a different investment portfolio of the
Series Company and three divisions of which invest in other mutual fund
portfolios. These mutual fund portfolios are managed by either the Company, The
Dreyfus Corporation, or TICI, for advisory fees at annual rates ranging from
.31% to .90% of each portfolio's or mutual fund's average daily net assets. In
addition, two fixed investment options are available under the New Contracts.
ANNUITY OPTIONS. Annuity options under Impact Contracts provide for payments
on a fixed or variable basis, or a combination of both. The Impact Contract
permits annuity payments for a designated period of 1 to 15 years on a fixed
basis only. Under an Impact Contract, the designated period option may, subject
to adverse tax consequences, be commuted at any time for its remaining value.
The New Contract permits annuity payments for a designated period of between 5
and 30 years on a fixed basis only. The New Contract does not provide for
commutation. Impact Contracts and the New Contracts both provide for "betterment
of rates." Under this provision, annuity payments for fixed annuities will be
based on mortality tables then being used by the Company, if more favorable to
the Annuitant than those included in the Contract.
EXCHANGES FROM COMPOUNDER CONTRACTS
SALES/SURRENDER CHARGES. Under a Compounder Contract a sales and
administrative charge is deducted from each purchase payment. This charge ranges
from 5% of the first $5,000 of purchase payments to 3% of purchase payments in
excess of $15,000. If a Compounder Contract is exchanged for a New Contract the
surrender charge under the New Contract will not apply to the amount of
Accumulation Value applied to the New Contracts. Purchase Payments made to the
New Contract, however, would be subject to the surrender charge under the New
Contracts. In the case of a partial surrender, all Purchase Payments to the New
Contract will be deemed to be withdrawn before any Exchanged Amount is deemed to
be withdrawn. Under a New Contract, no sales charge is deducted at the time a
Purchase Payment is made, but a surrender charge may be imposed on partial or
total surrenders. The surrender charge may not exceed 5% of any Purchase
Payments withdrawn within the most recent five years prior to the receipt of the
surrender request by the Company at its Home Office. For purposes of this
surrender charge, the most recent Purchase Payments are deemed to be withdrawn
first. (See "Charge for Partial and Total Surrenders.")
OTHER CHARGES. A charge of a percentage of each purchase payment is made for
administrative expenses under a Compounder Contract. The charge is 1.25% and is
included in the above sales charge. For New Contracts, a quarterly account
maintenance charge of $3.75 is assessed for each calendar quarter during the
Accumula-
54
tion Period during which any Variable Investment Option Accumulation Value is
credited to a Participant's Account. The charge is to reimburse the Company for
some of the administrative expenses associated with the Variable Investment
Options. No charge is assessed for any calendar quarter if the Accumulation
Value is credited only to the Fixed Interest Options throughout the quarter.
Such charge begins immediately if an exchange is made into any Variable
Investment Option offered under the New Contract. The charge may also be reduced
or waived by the Company on New Contracts if the administrative expenses are
expected to be lower for that Contract. (See "Charge for Account Maintenance.")
To cover expenses not covered by the account maintenance charge and to
compensate the Company for assuming mortality risks under the New Contracts, an
additional daily charge with an annualized rate of 1.00% or 1.25%, depending
upon the Variable Investment Options selected, if any, on the daily net asset
value of the Separate Account is attributable to New Contracts. (See "Charge to
Separate Account.")
INVESTMENT OPTIONS. There are no variable investment alternatives provided
under Compounder Contracts.
ANNUITY OPTIONS. Annuity payments under a Compounder Contract are on a fixed
basis only and the designated period option is limited to a period of 15 years.
However, under a Compounder Contract, the designated period option may, subject
to adverse tax consequences, be commuted at any time for its remaining value.
The New Contract permits annuity payments may be made on a fixed or variable
basis, or both. One option under the New Contract provides for a designated
period of 5 and 30 years on a fixed basis only. The New Contract does not
provide for commutation. Unlike the New Contract, the Compounder Contracts
contain no "betterment of rates" provision.
EXCHANGES FROM CERTAIN OTHER EXISTING CONTRACTS
The New Contracts will have the same Accumulation Value as the exchanged
Other Existing Contracts. Subject to the restrictions and rules which the
Company may apply and as otherwise noted below, exchanges from Other Existing
Contracts into the New Contract will be treated as new Purchase Payments under
the New Contracts. However, except for SDA-578, SDA-773-T, SPQ181, and SPQ-181-1
contracts, the contract date for determining surrender charges under the New
Contracts will be the contract date under the Other Existing Contracts. For
SPQ181 and SPQ181-1 contracts, the contract date for determining surrender
charges under the New Contracts will be the SPQ181 and SPQ181-1 contract dates,
whichever may be applicable, plus one year. For example, if you have an SPQ181
contract with a contract date of January 1, 1989, upon exchange into a New
Contract, the contract date for surrender charge purposes becomes January 1,
1990 (SPQ181 contract date plus one year). There is no surrender charge imposed
upon a SDA-578 or SDA-773-T contract either at the time of exchange into a New
Contract or under a New Contract.
INFORMATION WHICH MAY BE APPLICABLE TO ANY EXCHANGE
GUARANTEED ANNUITY RATES. Mortality rates have improved since annuity rates
were developed for the Existing Contracts and the Other Existing Contracts.
Therefore, the annuity rates guaranteed in the New Contracts are less favorable
to Contract Owners and Annuitants than those guaranteed in the Existing
Contracts and may also be less favorable than those under the Other Existing
Contracts. However, the current annuity rates being charged for fixed annuities
under the "betterment of rates" provisions discussed above are more favorable
than those guaranteed under the New or the Existing Contracts. Of course, no
assurance can be given that this will continue to be true at the time of
annuitization for a given contract. Guaranteed annuity rate tables are set forth
in your Existing Contract or your Other Existing Contracts or in current
endorsements thereto. Those guaranteed for New Contracts are set forth therein,
and copies may be obtained from one of the Company's Regional Offices listed on
the inside back cover of this prospectus.
To satisfy a Federal tax law requirement, non-spouse beneficiaries under a
New Contract generally must receive the entire benefit payable upon the death of
the Annuitant over their life expectancy or within five years of the Annuitant's
death. This requirement may be inapplicable to certain Existing Contracts or
certificates issued before January 19, 1985 if not exchanged.
AGENTS' AND MANAGERS" RETIREMENT PLAN
EXCHANGE OFFER
GENERAL. All eligible agents and managers of the Company are allowed to
participate in the
55
Company's Agents' and Managers' Retirement Plan ("Plan"). The Company is
granting to participants in the Plan the right to effect a voluntary exchange of
their units of interest under the SA-1 Contracts or Independence Plus Contracts
for the equivalent units of interest in the New Contracts.
Participants who enter into the voluntary exchange will not incur under the
New Contracts any surrender charges or account maintenance fees. Other
individuals who are not eligible agents and managers of the Company who may
exchange their units of interest under the SA-1 and Independence Plus Contracts
for the equivalent units of interest in the New Contracts may have imposed under
the New Contract such charges and fees. All other provisions with regard to
exchange offers referenced in the section entitled "Exchange Offers" will apply
to the Agents and Managers Retirement Plan Exchange Offer.
Pursuant to this voluntary exchange offer, participants in the Plan will
have three options to choose from. As to the funding vehicle for their purchase
payment plan, the participant may choose to:
1. remain in the SA-1 Contract or Independence Plus Contract.
2. leave current assets in the SA-1 Contract and direct future Purchase
Payments to the New Contract; or
3. transfer all current assets and future Purchase Payments to the New
Contract.
If the participant chooses to remain in either the SA-1 Contract or
Independence Plus Contract, future Purchase Payments and current assets will be
controlled by the provisions of the SA-1 Contract or Independence Plus Contract,
respectively. If the participant chooses to leave current assets in the SA-1
Contract or the Independence Plus Contract and direct future Purchase Payments
to the New Contract, the current assets will be controlled by the provisions of
the SA-1 Contract or the Independence Plus Contract, respectively. The future
Purchase Payments will be controlled by the terms of the New Contract subject to
the exception that surrender charges and maintenance fees will not be imposed
under the New Contract. If the participant chooses to transfer all current
assets and future Purchase Payments to the New Contract, such current assets and
future Purchase Payments will be controlled by the provisions of the New
Contract subject to the exception that surrender charges and account maintenance
fees will not be imposed under the New Contract.
Once a participant transfers assets and future Purchase Payments to the New
Contract the participant will not be permitted to exchange back to the SA-1
Contract or Independence Plus Contract. If a participant chooses to transfer
future Purchase Payments but not current assets to the New Contract, the
participant will be allowed at a later date to transfer the current assets to
the New Contract. For a complete analysis of the differences between the SA-1
contract or the Independence Plus Contract and the New Contract, you should
refer to the section entitled "Differences Between New and Existing Contracts"
and the form of the contract or certificate for its terms and conditions.
TAXES AND CONVERSION COSTS
The Company will impose no fee or charge in connection with conversion.
Please see discussion of "Federal Tax Matters" in the prospectus regarding the
Federal income tax treatment of the New Contracts.
AVAILABILITY OF OFFER
Current owners or annuitants wishing to exchange should contact any Regional
Office at 1-800-44-VALIC for assistance. Partial exchanges are not permitted
and, once this privilege has been exercised, any exchange back to the Existing
Contract will not be made on these terms. This exchange offer is not applicable
to any outstanding fixed annuity contracts except those fixed contracts
described on pages 51 and 52 of this Prospectus. THE COMPANY RESERVES THE RIGHT
TO TERMINATE, MODIFY OR SUSPEND THE EXCHANGE OFFER AT ANY TIME.
56
<PAGE>
APPENDIX
Additional Fee Table Example for Portfolio Director Contract without a
surrender charge or maintenance fees imposed.
EXAMPLE #3 -- Assuming no surrender and no maintenance at the end of the period
shown:
TOTAL EXPENSES. You would pay the following expenses on a $1,000 investment
under a typical Portfolio Director Contract without a Surrender Charge or
maintenance fees imposed, invested in a single Separate Account Division as
listed below, assuming a 5% annual return on assets:
1 YEAR 3 YEARS 5 YEARS 10 YEARS
------ ------- ------- --------
Stock Index Division.............. $ 14 $ 44 $ 76 $ 167
MidCap Index Division(1).......... 15 46 80 175
Small Cap Index Division.......... 15 47 80 176
International Equities Division... 15 47 80 176
Templeton International Division.. 21 65 112 242
Dreyfus Small Cap Division........ 24 72 124 266
Growth Division(2)................ 19 59 102 222
Growth & Income Division(2)....... 19 59 101 218
Capital Conservation Division..... 16 50 87 189
Government Securities Division.... 16 50 87 189
International Government Bond
Division........................ 16 51 88 192
Social Awareness Division......... 16 51 87 191
Science & Technology Division(2).. 20 61 105 228
Money Market Division............. 16 50 86 188
Timed Opportunity Division........ 16 50 87 189
Templeton Asset Allocation
Division........................ 20 63 108 233
- ---------
(1) Effective October 1, 1991, the Capital Accumulation Fund changed its name to
the MidCap Index Fund and amended its investment objective, investment
program and investment restrictions accordingly. Total Fund expenses
expressed as a percentage of Fund assets represent expenses of the Capital
Accumulation Fund prior to October 1, 1991.
(2) The Series Company Funds underlying the Growth Division, the Growth &
Income Division and the Science & Technology Division were initiated on
April 29, 1994.
57
REVOCATION OF TELEPHONE ASSET TRANSFER AUTHORITY
- --------------------------------------------------------------------------------
Participant/Contract Owner Name:
Social Security Number:
Birth Date:
- --------------------------------------------------------------------------------
I am the Participant under or Contract Owner of one or more variable annuity
contracts issued by The Variable Annuity Life Insurance Company ("VALIC"). I
hereby instruct VALIC not to accept any telephone instructions to transfer
Accumulation Values among investment options or change the allocation of future
Purchase Payments from me, anyone representing me or anyone representing himself
or herself to be me. I understand as a result of executing this form that the
transfer of Accumulation Values or Annuity Values among investment options or
changes in the allocation of future Purchase Payments may only be effected upon
the receipt by VALIC of my written instructions.
- ----------------------------------------------------------- ------------------
Participant/Contract Owner Signature Date
Mail this form to any Regional Office (see the last page of your prospectus for
addresses) or to the Home Office at the following address: VALIC, Customer
Service A3-01, 2929 Allen Parkway, Houston, TX 77019.
58
Please tear off, complete and return the form below to one of our Regional
Offices at the address shown on the inside back cover of this Prospectus. A
Statement of Additional Information may also be ordered by calling
1-(800)-44-VALIC.
................................................................................
PORTFOLIO DIRECTOR CONTRACTS
Please send me a free copy of the Statement of Additional Information for the
Variable Annuity Life Insurance Company Separate Account A (Portfolio Director
Contract Series).
(Please Print or Type)
- ------------------------------------------------------------------------------
Name: G.A. #
Address: Policy #
Social Security Number:
- ------------------------------------------------------------------------------
59
<PAGE>
CONTENTS OF STATEMENT OF ADDITIONAL INFORMATION
PAGE
----
General Information ....................................................... 3
Marketing Information ..................................................... 3
Types of Variable Annuity Contracts ....................................... 5
Calculation of Surrender Charge ........................................... 6
Illustration of Surrender Charge on Total Surrender ..................... 6
Illustration of Surrender Charge on a 10% Partial Surrender
Followed by a Full Surrender .......................................... 6
Accumulation Unit Value ................................................... 7
Illustration of Calculation of Accumulation Unit Value .................. 7
Illustration of Purchase of Accumulation Units .......................... 7
Performance Calculations .................................................. 7
Money Market Division Yields ............................................ 7
Calculation of Yield for Money Market Division Six ...................... 7
Illustration of Calculation of Yield for Money Market Division Six ...... 7
Calculation of Effective Yield for Money Market Division Six ............ 7
Illustration of Calculation of Effective Yield for Money Market
Division Six .......................................................... 7
Standardized Yield for Divisions Seven, Eight and Thirteen ................ 8
Calculation of Standardized Yield for Divisions Seven, Eight and
Thirteen .............................................................. 8
Illustration of Calculation of Standardized Yield for Divisions
Seven, Eight and Thirteen ............................................. 8
Calculation of Average Annual Total Return .............................. 9
Performance Information ................................................... 10
Performance Compared to Market Indices .................................. 10
Stock Index Division Ten Performance Compared to S&P 500 Index .......... 13
MidCap Index Division Four Performance Compared to Relevant Index ....... 13
Small Cap Index Division Fourteen Performance Compared to Russell
2000(R) Index .......................................................... 14
International Equities Division Eleven Performance Compared to
EAFE Index ............................................................. 14
Templeton International Division Twenty Performance Compared to
MSCI World Index ....................................................... 15
Dreyfus Small Cap Division Eighteen Performance Compared to Russell
2000 ................................................................... 15
Growth Division Fifteen Performance Compared to S&P 500 Index ........... 16
Growth & Income Division Sixteen Performance Compared to S&P 500
Index .................................................................. 16
Capital Conservation Division Seven Performance Compared to Merrill
Lynch Corporate Master Index ........................................... 17
Government Securities Division Eight Performance Compared to
Lehman Brothers U. S. Treasury Composite Index ......................... 18
International Government Bond Division Thirteen Performance Compared
to Salomon Brothers Non U.S. Dollar World Government Bond Index ........ 18
Social Awareness Division Twelve Performance Compared to S&P 500
Index .................................................................. 19
Science & Technology Division Seventeen Performance Compared to
S&P 500 Index .......................................................... 19
Money Market Division Six Performance Compared to Certificate of
Deposit Primary Offering by New York City Banks, 30 Day Index .......... 20
Timed Opportunity Division Five Performance Compared to S&P 500(R)
Index, Merrill Lynch Corporate and Government Master Index and
Certificate of Deposit Primary Offering by New York City Banks,
30 Day Index ........................................................... 21
Templeton Asset Allocation Division Nineteen Performance Compared to
MSCI World Index, Salomon Bros. Non-US Dollar World Government
Bond Index, and Certificate of Deposit Primary Offering by New
York City Banks, 30 Day Index .......................................... 22
Annuity Payments .......................................................... 22
Assumed Investment Rate ................................................. 22
Amount of Annuity Payments .............................................. 22
Annuity Unit Value ...................................................... 23
Illustration of Calculation of Annuity Unit Value ....................... 23
Illustration of Annuity Payments ........................................ 24
Distribution of Variable Annuity Contracts ................................ 24
Experts ................................................................... 24
Comments on Financial Statements .......................................... 25
60
<PAGE>
================================================================================
FOR ADDITIONAL INFORMATION ABOUT THE CONTRACTS
CONTACT YOUR NEAREST REGIONAL OFFICE:
4722 N. 24th 8500 Normandale Lake Blvd.
Suite 150 Suite 750
Phoenix, AZ 85016 Bloomington, MN 55437
(602) 957-1690 (612) 893-1099
222 South Harbor Blvd. 410 Amherst Street
10th Floor Suite 250
Anaheim CA 92805 Nashua, NH 03063
(714) 774-7844 (603) 883-3840
1900 O'Farrell St. 90 Woodbridge Ctr. Dr.
Suite 390 Suite 410
San Mateo, CA 94403 Woodbridge NJ 07095
(415) 574-5433 (908) 750-5611
165 South Union Blvd. West University Tower
Suite 1050 3100 Tower Blvd.
Lakewood, CO 80228 Suite 1601, Box 50
(303) 988-3344 Durham, NC 27707
(919) 489-6529
10006 N. Dale Mabry Hwy.
Suite 113 Two Summit Park Drive
Tampa, FL 33618 Suite 410
(813) 961-1611 Independence, OH 44131
(216) 520-2028
100 Ashford Center North
Suite 100 1800 S.W. First Avenue
Atlanta, GA 30338 Suite 505
(404) 395-4700 Portland, OR 97201
(503) 223-6288
230 West Monroe
Suite 1550 1767 Sentry Pkwy. West 19
Chicago, IL 60606 Suite 300
(312) 368-1001 Blue Bell, PA 19422
(215) 646-8030
8555 North River Road
Suite 420 4020 McEwen
Indianapolis, IN 46240 Suite 120
(317) 574-7145 Dallas, TX 75244
(214) 490-1515
7310 Ritchie Highway
Suite 800 800 Gessner
Glen Burnie, MD 21061 Suite 1280
(410) 768-2330 Houston, TX 77024
(713) 465-2253
1301 West Long Lake Road
Suite 340
Troy, MI 48098
(810) 641-0022
There are also more than thirty branch offices located throughout the country.
THE VARIABLE ANNUITY LIFE INSURANCE COMPANY
2929 ALLEN PARKWAY, HOUSTON, TEXAS 77019 1-800-44-VALIC
TDD NUMBER 1-800-35-VALIC
FOR UNIT VALUE INFORMATION CALL: 1-(800) 847-5634
FOR ASSET TRANSFERS BY TELEPHONE CALL: 1-(800) 621-7792
================================================================================
VALIC
* AN AMERICAN GENERAL COMPANY
Printed Matter
Printed in U.S.A. VA 9084 REV 7/95
The Variable Annuity Life Insurance Company, Houston, Texas
<PAGE>
THE VARIABLE ANNUITY LIFE INSURANCE COMPANY
SEPARATE ACCOUNT A
UNITS OF INTEREST UNDER GROUP AND
INDIVIDUAL VARIABLE ANNUITY CONTRACTS
PORTFOLIO DIRECTOR CONTRACT SERIES
-----------------------------------------------
STATEMENT OF ADDITIONAL INFORMATION
-----------------------------------------------
FORM N-4 PART B
JULY 11, 1995
This Statement of Additional Information is not a prospectus but contains
information in addition to that set forth in the Prospectus for the Portfolio
Director Contract Series* dated July 11, 1995 ("Contracts") and should be read
in conjunction with the Prospectus. The terms used in this Statement of
Additional Information have the same meaning as those set forth in the
Prospectus. A Prospectus may be obtained by calling or writing the Company, or
The Variable Annuity Marketing Company (the "Underwriter") at 2929 Allen
Parkway, Houston, Texas 77019; 1-(800)-44-VALIC. Prospectuses are also available
from regional sales offices of the Underwriter or from its registered sales
representatives.
(*The Portfolio Director Contract Series is composed of Contract Forms UIT-194,
UITG-194, UITN-194, UIT-IRA-194, and UIT-SEP-194.)
1
<PAGE>
TABLE OF CONTENTS
PAGE
----
General Information ....................................................... 3
Marketing Information ...................................................... 3
Types of Variable Annuity Contracts ........................................ 5
Calculation of Surrender Charge ............................................ 6
Illustration of Surrender Charge on Total Surrender ...................... 6
Illustration of Surrender Charge on a 10% Partial Surrender
Followed by a Full Surrender ........................................... 6
Accumulation Unit Value .................................................... 7
Illustration of Calculation of Accumulation Unit Value ................... 7
Illustration of Purchase of Accumulation Units ........................... 7
Performance Calculations ................................................... 7
Money Market Division Yields ............................................. 7
Calculation of Yield for Money Market Division Six ....................... 7
Illustration of Calculation of Yield for Money Market Division Six ....... 7
Calculation of Effective Yield for Money Market Division Six ............. 7
Illustration of Calculation of Effective Yield for Money Market
Division Six ........................................................... 7
Standardized Yield for Divisions Seven, Eight and Thirteen ................. 8
Calculation of Standardized Yield for Divisions Seven, Eight and
Thirteen ............................................................... 8
Illustration of Calculation of Standardized Yield for Divisions
Seven, Eight and Thirteen .............................................. 8
Calculation of Average Annual Total Return ............................... 9
Performance Information .................................................... 10
Performance Compared to Market Indices ................................... 10
Stock Index Division Ten Performance Compared to S&P 500 Index ........... 13
MidCap Index Division Four Performance Compared to Relevant Index ........ 13
Small Cap Index Division Fourteen Performance Compared to
Russell 2000(R) Index .................................................. 14
International Equities Division Eleven Performance Compared to
EAFE Index .............................................................. 14
Templeton International Division Twenty Performance Compared to
MSCI World Index ........................................................ 15
Dreyfus Small Cap Division Eighteen Performance Compared to Russell
2000 .................................................................... 15
Growth Division Fifteen Performance Compared to S&P 500 Index ............ 16
Growth & Income Division Sixteen Performance Compared to
S&P 500 Index .......................................................... 16
Capital Conservation Division Seven Performance Compared to Merrill
Lynch Corporate Master Index ............................................ 17
Government Securities Division Eight Performance Compared to
Lehman Brothers U. S. Treasury Composite Index .......................... 18
International Government Bond Division Thirteen Performance Compared
to Salomon Brothers Non U.S. Dollar World Government Bond Index ........ 18
Social Awareness Division Twelve Performance Compared to
S&P 500 Index .......................................................... 19
Science & Technology Division Seventeen Performance Compared to
S&P 500 Index ........................................................... 19
Money Market Division Six Performance Compared to Certificate
of Deposit Primary Offering by New York City Banks, 30 Day Index ....... 20
Timed Opportunity Division Five Performance Compared to S&P
500(R) Index, Merrill Lynch Corporate and Government Master Index
and Certificate of Deposit Primary Offering by New York City Banks,
30 Day Index ............................................................ 21
Templeton Asset Allocation Division Nineteen Performance Compared to
MSCI World Index, Salomon Bros. Non-US Dollar World Government
Bond Index, and Certificate of Deposit Primary Offering by New
York City Banks, 30 Day Index ........................................... 22
Annuity Payments ........................................................... 22
Assumed Investment Rate .................................................. 22
Amount of Annuity Payments ............................................... 22
Annuity Unit Value ....................................................... 23
Illustration of Calculation of Annuity Unit Value ........................ 23
Illustration of Annuity Payments ......................................... 24
Distribution of Variable Annuity Contracts ................................. 24
Experts .................................................................... 24
Comments on Financial Statements ........................................... 25
2
<PAGE>
GENERAL INFORMATION
MARKETING INFORMATION
The Company has targeted not-for-profit organizations as the central focus
of its marketing efforts for its Contracts. The Company has utilized as its
general marketing theme the concept that the Company is "America's Retirement
Plan Specialists." Specifically, the Company's marketing thrust is aimed at
individuals and groups associated with public and private schools, colleges and
universities, not-for-profit health care organizations, state and local
governments and other not-for-profit organizations.
This marketing concept has proven to be successful. In the aggregate,
premium deposits to the Company have grown from $37,000 in 1956 to more than
$2.2 billion as of December 31, 1994. The number of aggregate participant
accounts has increased from 155,000 accounts in 1980 to more than 1,268,000
accounts as of December 31, 1994. The number of employer groups which have
purchased Contracts has increased by 65 percent in the past five years to more
than 18,645 as of December 31, 1994. As of December 31, 1994, the Company was
ranked in the top 1 percent of all U.S. life insurance companies with regard to
asset size. As of December 31, 1994 the Company's assets totaled $22 billion.
The Company's growth can also be reviewed by examining each market segment
the Company targets.
As of December 31, 1994, the Company was marketing Contracts in more than
7,574 public and private schools with nearly 393,295 participant accounts for
employees in public and private schools nationwide. From December 31, 1989 to
December 31, 1994, the cash value of investments in these Contracts has
increased by 99 percent while the number of public and private school groups in
these Contracts increased 36 percent and the number of participant accounts in
these Contracts increased by 53 percent.
The Company has also increased its marketing efforts to colleges and
universities. From December 31, 1989 to December 31, 1994, the number of
colleges and universities which allow the Company to market Contracts to its
faculty and staff members has increased 56 percent and for the same period the
number of participant accounts has increased 53 percent. For the same time
period cash values for participants have increased 99 percent. As of December
31, 1994 more than 66 percent of United States colleges and universities allow
the Company to market Contracts to their faculty and staff members.
The Company has utilized as the central focus in its marketing to college
and university faculty and staff members the theme that the Company is the
"Alternative of Choice."
The Company has also had growth in the health care segment of the
not-for-profit organization market. From December 31, 1989 to December 31, 1994
Contract cash values have increased 198 percent. During the same period the
number of health care groups that have purchased these Contracts increased 82
percent and the number of participants who were in the Contracts increased 175
percent.
The Company has also experienced growth in contracts sold to state and local
governmental groups. From December 31, 1989 to December 31, 1994, Contract cash
values for participants in these groups have increased 113 percent. For the same
period the number of participant accounts for individuals in these groups in
these Contracts increased 72 percent and the number of employer groups has
increased 113 percent.
Additionally, several states have enacted, as an alternative to state
administered defined benefit retirement programs, Optional Retirement Plans
(ORPs). A state that sponsors an ORP will select the carriers which will be
allowed to participate in the ORP. The Company has been selected as one of the
carriers permitted to market Contracts to state employees who elect to
participate in the ORP in 21 of the last 26 states to sponsor ORPs with multiple
carriers, as of December 31, 1994. From December 31, 1990 to December 31, 1994
in these ORPs the number of participant accounts increased 127 percent and cash
values increased 104 percent to more than $1.2 billion dollars. In addition,
during this time period annual ORP premiums doubled.
The Company may, from time to time, refer to a general investment strategy
known as indexing. Several of the Divisions employ this investment strategy. The
Company may compare the performance of these Divisions to the S&P 500 Index, S&P
MidCap 400 Index, Russell 2000 Index, Morgan Stanley Capital International
Europe, Australia, and Far East EAFE) Index, or any other appropriate market
index. The indexes are not
3
managed funds and have no identifiable investment objectives.
The Company may, from time to time, refer, individually or collectively, to
its package of retirement plan services. Collectively, this package of services
may be referred to as EASYPLAN. EASYPLAN includes: (1.) personal one-to-one
services from VALIC Retirement Plan Specialists, (2.) a wide selection of
innovative investment products, (3.) specialized software programs for
retirement planning and for developing investment strategies, (4.) informative
educational programs and materials, (5.) advanced and efficient administration
of your retirement plan, and (6.) VALIC's financial strength and stability.
From time to time the Company may refer to the diversifying process of asset
allocation based on the Modern Portfolio Theory developed by Nobel Prize winning
economist Harry Markowitz. The basic assumptions of Modern Portfolio Theory are
that the selection of individual investments has little impact on portfolio
performance, market timing strategies seldom work, markets are efficient and
selecting the suitable mix of asset classes is more important when creating a
long-term investment portfolio. Modern Portfolio Theory allows an investor to
determine an "efficient" or "optimized" portfolio that has historically provided
a higher return with the same risk or the same return with lower risk.
When presenting the asset allocation process the Company may outline the
process of personal and investment risk analysis including determining
individual risk tolerances and a discussion of the different types of investment
risk. The Company may classify investors into five categories based on their
personal risk tolerance and will quote various industry experts on which types
of investments are best suited to each of the five risk categories. The industry
experts quoted may include Ibbotson Associates, CDA Investment Technologies,
Lipper Analytical Services, Laffer-Cantos, Inc., VARDS Report, Wilson Associates
and any other expert which has been deemed by the Company to be appropriate. The
Company may also provide a historical overview of the performance of a variety
of investment market indexes and different asset classes, such as stocks, bonds,
cash equivalents, etc. The Company may also discuss investment volatility
(standard deviation) including the range of returns for different asset classes
over different time horizons, and the correlation between the returns of
different asset classes. The Company may also discuss the basis of portfolio
optimization including the required inputs and the construction of efficient
portfolios using sophisticated computer-based techniques. Finally, the Company
may describe various investment strategies and methods of implementation such as
the use of index funds vs. actively managed funds, the use of dollar cost
averaging techniques, the tax status of contributions, and the periodic
rebalancing of diversified portfolios.
The Company, in its marketing efforts to each of the market segments, may
from time to time design sales literature and material specifically for that
market segment, e.g., the health care segment of the not-for-profit organization
market. This sales literature and material may also be specific to a certain
group. For example, sales literature and material may be designed for a specific
hospital. The sales literature and material would address specifically the
group's contract and retirement plan.
The Company, in its marketing efforts, may also refer to the following
investment advisers referenced in the Prospectus.
Templeton Investment Counsel Inc., is the investment adviser for the
Templeton Asset Allocation Fund (underlying Division Nineteen) and the Templeton
International Fund (underlying Division Twenty). For more than 50 years, the
Templeton organization has been a leading global investment management company
with offices in the U.S., Australia, Bahamas, Canada, Germany, Hong Kong,
Luxembourg, Russia, Scotland and Singapore. A member of the $114 billion
Franklin Templeton Group, Templeton has more than $41.9 billion of assets under
management in global and non-U.S. investment companies and private accounts. The
Templeton organization with its affiliates provides investment management and
advisory services to a worldwide client base, including over 4.3 million mutual
fund shareholders, foundations and endowments, employee benefit plans and
individuals. Templeton Investment Counsel Inc., uses a disciplined, long-term
approach to value oriented global and international investing. It has an
extensive global network of investment research sources. Securities are selected
for a fund's portfolio on the basis of fundamental company-by-company analysis.
The firm's average holding for a security is five years.
The Company may, from time to time, refer to Value Line, investment
subadviser to the Growth
4
& Income Fund (underlying Division 16). For more than four decades, Value Line
has provided investment counseling services to mutual funds and private and
institutional accounts with combined assets in excess of $4 billion. Investment
selection is based on the Value Line Ranking System for Timeliness, which has
evolved after many years of research. The system provides objective standards
for determining whether the market is under- or overvaluing a particular
security. Value Line also publishes the Value Line Investment Survey, one of the
best known investment advisory services in the United States, which covers about
1700 stocks, organized into 90+ industries on regular basis.
The Company may, from time to time, refer to T. Rowe Price Associates, Inc.
(T. Rowe Price), is subadviser to the Science & Technology Fund (underlying
Division Seventeen) and the Growth Fund (underlying Division Fifteen). T. Rowe
Price is one of the leading fund managers with $59.3 billion of assets under
management. Its approach to managing money is based on proprietary research and
a strict investment discipline developed over 50 years. The firm, which was
founded by Mr. Thomas Rowe Price, is one of the pioneers of growth stock
investing. Growth stock investing focuses on well-managed companies that operate
in fields where earnings and dividends are expected to grow faster than both
inflation and the overall economy. T. Rowe Price has delivered strong
performance for its clients by investing in both large and small growth
companies which operate in the service sector of the economy. This is based on
the fundamental premise that long-term growth in the service sector will outpace
overall economic growth. T. Rowe Price has also delivered strong performance for
its clients by investing in the common stocks of companies expected to benefit
from the development, advancement and use of science and technology. This
includes industries such as telecommunications, computers, software, medical
devices, and biotechnology.
The Company may, from time to time, refer to The Dreyfus Corporation is
adviser for the Dreyfus Small Cap Fund (underlying Division Eighteen). Dreyfus
has been helping Americans invest for their future with quality mutual funds for
more than four decades. As of the end of 1994, the firm had over $70 billion of
assets under management.
The Company may, from time to time, refer in advertisements or sales
materials to certain milestones which are intended to emphasize the Company's
growth and development in assets, groups and various market segments.
Additionally the Company may refer from time to time in advertisements or sales
materials to marketing strategies it utilizes to promote the Company's business
objectives. Further the Company may refer from time to time in advertisements or
sales materials to certain value-added services it provides to its groups,
Contract Owners and Participants.
TYPES OF VARIABLE ANNUITY CONTRACTS
Three types of Contracts are offered in connection with the Prospectus to
which this Statement of Additional Information relates:
(1) single payment immediate annuity Contracts;
(2) single payment deferred annuity Contracts; and
(3) flexible payment deferred annuity Contracts.
Under single payment Contracts, only one Purchase Payment is made by the
Contract Owner. Under flexible payment Contracts, Purchase Payments generally
are made until retirement age is reached. However, no Purchase Payments are
required to be made after the first payment. Purchase Payments are subject to
any minimum payment requirements under the Contract.
Under deferred annuity contracts, Purchase Payments are invested and
accumulate on a fixed or variable basis until the date the Contract Owner
selects to commence annuity payments.
Under immediate annuity Contracts, the first annuity payment is made on the
first day of the second month after the Purchase Payment is received. During the
period before the Annuity Date, the Purchase Payments are invested in the same
manner, and the other terms and conditions (including the options and rights of
Contract Owners, Annuitants and Beneficiaries) are the same under immediate
annuity Contracts as under deferred annuity Contracts.
The Contracts are non-participating and will not share in any of the profits
of the Company.
5
CALCULATION OF SURRENDER CHARGE
The surrender charge is discussed in the Prospectus under "Charges Under
Variable Annuity Contracts -- Charge for Partial and Total Surrenders." Examples
of calculation of the Surrender Charge upon total and partial surrender are set
forth below:
ILLUSTRATION OF SURRENDER CHARGE ON TOTAL SURRENDER
EXAMPLE 1.
TRANSACTION HISTORY
DATE TRANSACTION AMOUNT
- ---- ----------- -------
2/1/89........................ Purchase Payment $10,000
2/1/90........................ Purchase Payment 5,000
2/1/91........................ Purchase Payment 15,000
2/1/92........................ Purchase Payment 2,000
2/1/93........................ Purchase Payment 3,000
2/1/94........................ Purchase Payment 4,000
7/1/94........................ Total Purchase Payments (Assumes
Accumulation Value is $50,000) 39,000
Surrender Charge is lesser of (a) or (b):
a. Surrender Charge calculated on 60 months of
Purchase Payments
1. Surrender Charge against Purchase
Payment of 2/1/89.................... $ 0
2. Surrender Charge against Purchase
Payment of 2/1/90 (0.05 X $5,000).... $ 250
3. Surrender Charge against Purchase
Payment of 2/1/91 (0.05 X $15,000)... $ 750
4. Surrender Charge against Purchase
Payment of 2/1/92 (0.05 X $2,000).... $ 100
5. Surrender Charge against Purchase
Payment of 2/1/93 (0.05 X $3,000).... $ 150
6. Surrender Charge against Purchase
Payment of 2/1/94 (0.05 X $4,000).... $ 200
Surrender Charge based on Purchase
Payments (1 + 2 + 3 + 4 + 5 + 6)..... $ 1,450
b. Surrender Charge calculated on the excess over
10% of the Accumulation Value at the time of
surrender:
Accumulation Value at time of surrender $50,000
Less 10% not subject to Surrender Charge -5,000
-------
Subject to Surrender Charge 45,000
X .05
-------
Surrender Charge based on Accumulation Value $ 2,250 ........ $2,250
c. Surrender Charge is the lesser of a or b......................... $1,450
ILLUSTRATION OF SURRENDER CHARGE ON A 10% PARTIAL SURRENDER
FOLLOWED BY A FULL SURRENDER
EXAMPLE 2.
TRANSACTION HISTORY (ASSUMES NO INTEREST EARNED)
DATE TRANSACTION AMOUNT
- ---- ----------- -------
2/1/89........................ Purchase Payment $10,000
2/1/90........................ Purchase Payment 5,000
2/1/91........................ Purchase Payment 15,000
2/1/92........................ Purchase Payment 2,000
2/1/93........................ Purchase Payment 3,000
2/1/94........................ Purchase Payment 4,000
7/1/94........................ 10% Partial Surrender (Assumes 3,900
Accumulation Value is $39,000)
8/1/94........................ Full Surrender 35,100
a. Since this is the first partial surrender in this participant year,
calculate the excess over 10% of the value of the Accumulation Units.
10% of $39,000 = $3,900 [no charge on this 10% withdrawal]
b. The Accumulation Value upon which Surrender Charge on the Full
Surrender may be calculated (levied) is $39,000 -- $3,900 = $35,100
c. The Surrender Charge calculated on the Accumulation Value withdrawn
$35,100 x .05 = $1,755
d. Since only $29,000 has been paid in Purchase Payments in the 60 months
prior to the Full Surrender, the charge can only be calculated on
$29,000. The $3,900 partial withdrawal does not reduce this amount.
Thus, the charge is $29,000 X (0.05) = $1,450.
6
ACCUMULATION UNIT VALUE
The calculation of Accumulation Unit value is discussed in the Prospectus
under "Accumulation Period." The following illustrations show a calculation of a
new Unit value and the purchase of Accumulation Units (using hypothetical
examples):
ILLUSTRATION OF CALCULATION OF ACCUMULATION UNIT VALUE
EXAMPLE 3.
1. Accumulation Unit value, beginning of period.............. $ 1.800000
2. Value of Fund share, beginning of period.................. $ 21.200000
3. Change in value of Fund share............................. $ .500000
4. Gross investment return (3)divided by (2)................. .023585
5. Daily mortality and expense charge........................ .000027
6. Net investment return (4)-(5)............................. .023558
7. Net investment factor 1.000000+(6)........................ 1.023558
8. Accumulation Unit value, end of period (1)X(7)............ $ 1.842404
ILLUSTRATION OF PURCHASE OF ACCUMULATION UNITS (ASSUMING NO STATE PREMIUM TAX)
EXAMPLE 4.
1. First Periodic Purchase Payment........................... $ 100.00
2. Accumulation Unit value on effective date
of purchase (see Example 3)............................... $ 1.800000
3. Number of Accumulation Units purchased (1)divided by (2).. 55.556
4. Accumulation Unit value for valuation date following
purchase (see Example 3).................................. $ 1.842404
5. Value of Accumulation Units in account for valuation
date following purchase (3)X(4)........................... $ 102.36
PERFORMANCE CALCULATIONS
MONEY MARKET DIVISION YIELDS
CALCULATION OF YIELD FOR MONEY MARKET DIVISION SIX
7-Day Current Yield: 4.38%
ILLUSTRATION OF CALCULATION OF YIELD FOR MONEY MARKET DIVISION SIX
EXAMPLE 5.
The yield quotation above is based on the seven days ended December 31,
1994, the date of the most recent balance sheet included in the registration
statement ("base period"). It is computed by determining the net change,
exclusive of capital changes, in the value of a hypothetical pre-existing
account having a balance of one Accumulation Unit at the beginning of the
period, subtracting a hypothetical charge reflecting deductions from Contract
Owner accounts, and dividing the difference by the value of the account at the
beginning of the base period to obtain the base period return and then
multiplying the base period return by 365/7.
CALCULATION OF EFFECTIVE YIELD FOR MONEY MARKET DIVISION SIX
7-Day Effective Yield: 4.48%
ILLUSTRATION OF CALCULATION OF EFFECTIVE YIELD FOR MONEY MARKET DIVISION SIX
EXAMPLE 6.
The effective yield quotation above is based on the seven days ended
December 31, 1994, the date of the most recent balance sheet included in the
registration statement ("base period"). It is computed by determining the net
change, exclusive of capital changes, in the value of a hypothetical
pre-existing account having a balance of one Accumulation Unit at the beginning
of the period, subtracting a hypothetical charge reflecting deductions from
Contract Owner accounts, and dividing the difference by the value of the account
at the beginning of the base period to obtain the
7
base period return and then compounding the base period return by adding 1,
raising the sum to a power equal to 365 divided by 7, and subtracting 1 from the
result, according to the following formula:
EFFECTIVE YIELD = [(BASE PERIOD RETURN + 1) 365/7] -1
STANDARDIZED YIELD FOR DIVISIONS SEVEN, EIGHT AND THIRTEEN
CALCULATION OF STANDARDIZED YIELD FOR DIVISIONS SEVEN, EIGHT AND THIRTEEN
DIV 7 DIV 8 DIV 13
----- ----- ------
Standardized Yield................... 5.67% 5.12% 4.72%
ILLUSTRATION OF CALCULATION OF STANDARDIZED YIELD
FOR DIVISIONS SEVEN, EIGHT AND THIRTEEN
EXAMPLE 7.
The yield quotation based on a 30-day period ended December 31, 1994, the
date of the most recent balance sheet of the Registrant included in the
registration statement is computed by dividing the net investment income per
Accumulation Unit earned during the period by the maximum offering price per
Unit on the last day of the period, according to the following formula:
YIELD = 2 [( a - b + 1 )6 -1 ]
cd
Where:
a = net investment income earned during the period by the Fund
attributable to shares owned by the Division
b = expenses accrued for the period (net of reimbursements)
c = the average daily number of Accumulation Units outstanding
during the period
d = the maximum offering price per Accumulation Unit on the
last day of the period
Yield on each Division is earned from dividends declared and paid by the
Fund, which are automatically reinvested in Fund shares.
8
CALCULATION OF AVERAGE ANNUAL TOTAL RETURN
Average Annual Total Return quotations for the 1, 3, 5, and 10 year periods
ended December 31, 1994, the date of the most recent balance sheet included in
this registration statement, are computed by finding the average annual
compounded rates of over the 1,3, 5, and 10 year periods that would equate the
initial amount invested to the ending redeemable value, according to the
following formula:
P (1+T)n = ERV
Where:
P = a hypothetical initial Purchase Payment of $1,000
T = average annual total return
n = number of years
ERV = redeemable value at the end of the 1, 3, 5 or 10 year periods
of a hypothetical $1,000 Purchase Payment made at the beginning
of the 1, 3, 5, or 10 year periods (or fractional portion
thereof)
The Company may advertise standardized average annual total return which,
includes the surrender charge of up to 5% of Gross Purchase Payments received
during the most recent 60 months as well as non-standardized average annual
total returns which does not include a surrender charge or maintenance fee.
There is no sales charge for reinvested dividends. All recurring fees have
been deducted. For fees which vary with the account size, an account size equal
to that of the median account size has been assumed. Ending redeemable value has
been determined assuming a complete redemption at the end of the 1, 3, 5 or 10
year period and deduction of all nonrecurring charges at the end of each such
period.
9
PERFORMANCE INFORMATION
The following tables show the Hypothetical $10,000 Account Value and
Cumulative Return of each Division as compared to the benchmarks shown. Because
the Funds underlying Divisions Fifteen, Sixteen and Seventeen began operations
on April 29, 1994, performance information for those Divisions is based on
performance of comparable funds managed by the subadvisers for the Funds. The
performance information presented for all other Divisions represents actual Fund
performance.
These performance calculations for the Divisions, and the methods used for
calculating them, are explained in the Prospectus. (See, "Performance
Information" and "The Fund.")
These tables compare hypothetical investment performance and percentage
changes in Accumulation Unit values with the results of several benchmarks,
representing unmanaged market indices. The performance information has been
adjusted to reflect mortality and expense risk charges. Surrender charges,
maintenance charges and premium taxes are not deducted. The effect of these
charges is to reduce total return to a Contract Owner. The comparisons should be
considered in light of the investment policies and objectives of the Funds.
Rates of return for the Divisions include reinvestment of investment income,
including capital gains, interest and dividends. The rates of return on the
market indices also have been adjusted to reflect reinvestment of interest and
dividends.
Price returns for the market indices are calculated by subtracting the price
level at the beginning of the year from the price level at the end of the year
and dividing the difference by the price level at the beginning of the year. To
calculate dollar values for the indices' Hypothetical $10,000 Account Value
presentation, price index values were substituted for Unit values in the
calculation described in the Prospectus, and where applicable, dividend yields
were then added to determine the total returns applied in the dollar value
calculations. Similarly, to calculate Cumulative Return for the indices, the
Cumulative Return calculation described in the Prospectus for Unit values of the
Divisions is used, substituting the Hypothetical $10,000 Account Value at the
end of each year for the Accumulation Unit Value. No sales load, administrative
charges, or any other expenses have been deducted from the index calculations.
Additionally, the performance of a Division may from time to time be
compared with other Indexes which have been deemed by the Company relevant to
the Division.
These benchmarks do not reflect any charges for investment advisory fees,
brokerage commissions or other fees and expenses of the type charged at either
the Separate Account or Fund level. Therefore, the comparisons with these
benchmarks are of limited use.
THE PERFORMANCE RESULTS SHOWN IN THIS SECTION ARE NOT AN ESTIMATE OR
GUARANTEE OF FUTURE INVESTMENT PERFORMANCE, AND DO NOT REPRESENT THE ACTUAL
EXPERIENCE OF AMOUNTS INVESTED BY A PARTICULAR PARTICIPANT.
PERFORMANCE COMPARED TO MARKET INDICES
The performance of Stock Index Division Ten, Social Awareness Division
Twelve, the Growth Division Fifteen, the Growth & Income Division Sixteen, and
the Science & Technology Division Seventeen may be compared to the record of the
Standard & Poor's(R) Corporation ("S&P(R)")* Composite Stock Price Index ("S&P
500 Index"). The S&P 500(R) Index is a well known measure of the price
performance of 500 leading larger domestic stocks which represents approximately
80% of the market capitalization of the United States equity market. The index
is an unmanaged weighted index of 500 industrial, transportation, utility and
financial companies.
The performance of MidCap Index Division Four may be compared to the record
of the S&P MidCap 400 Index. The S&P MidCap 400 Index was developed in 1991 by
S&P to track the stock market performance of medium-capitalization domestic
stocks. The S&P MidCap 400 Index is market weighted and consists of 400 stocks
of domestic companies having a median market capitalization of approximately
$600 million. Stocks included in the S&P MidCap 400 Index are chosen on the
basis of their market size, liquidity and industry group representation. No
stocks included in the S&P 500 Index are included in the S&P MidCap 400 Index.
- ---------
* "Standard & Poor's(R)", "S&P(R)", "S&P 500(R)" and "S&P MidCap 400 Index" are
trademarks of Standard and Poor's Corporation. Neither the MidCap Index Fund
nor the Stock Index Fund is sponsored, endorsed, sold or promoted by S&P and
S&P makes no representation regarding the advisability of investing in these
Funds.
10
The performance of Money Market Division Six may be compared to the
Certificate of Deposit Primary Offering by New York City Banks, 30 Day Index.
The index is a money market index which reflects the average rate paid by New
York Banks on certificates of deposit of more than $100,000. The Index for 30
days is published daily.
The performance of Capital Conservation Division Seven may be compared to
the Merrill Lynch Corporate Master Index. The Merrill Lynch Corporate Master
Index consists of an index of approximately 4000 corporate bond holdings of
which assets are rated A or AA. The average years to maturity of these corporate
bond holdings are approximately 13 years.
Performance of Government Securities Division Eight may be compared to the
Lehman Brothers U.S. Treasury Composite Index. The Lehman Brothers U.S. Treasury
Composite Index consists of an index of approximately 500 government securities
issues with all such issues having a maturity of greater than one year.
The performance of International Equities Division Eleven may be compared to
the Morgan Stanley Capital International Europe, Australia and Far East Index
("EAFE Index"). The EAFE Index, which commenced in 1969, is an unmanaged stock
index consisting of more than 1,000 companies from Europe, Australia and the Far
East. The index is capitalization weighted. It is a well known measure for
international stock performance. Total returns (with income reinvested) for the
EAFE Index are published using two methods. The first method includes gross
income (income earned without subtracting foreign income taxes which may be
withheld from foreign investors). The second method includes net income (income
earned after subtracting estimated foreign taxes). The Division currently
compares its performance with the index using the second method.
The performance of the International Government Bond Fund Division Thirteen
may be compared to the Salomon Brothers Non-US Dollar World Government Bond
Index ("Salomon Index"). Total returns with income reinvested for the Salomon
index are published using two methods. The first method includes gross income
(income earned without subtracting foreign income taxes which may be withheld
from foreign investors). The second method includes net income (income earned
after subtracting estimated foreign taxes). The Division currently compares its
performance with the index using the second method. The Salomon Index is an
unmanaged aggregate index composed of 661 issues from thirteen foreign
countries. These countries include Austria, Australia, Belgium, Canada, Denmark,
France, Germany, Italy, Japan, the Netherlands, Spain, Sweden and the United
Kingdom.
The performance of the Small Cap Index Division Fourteen and the Dreyfus
Small Cap Division Eighteen may be compared with the Russell 2000(R) Index
("Russell 2000").** The Russell 2000 was developed in 1984 by the Frank Russell
Company to track the stock market performance of small capitalization domestic
stocks. The Russell 2000 is market weighted and consists of approximately 2000
stocks. Stocks included in the Russell 2000 are chosen by the Frank Russell
Company on the basis of their market size.
The performance of Timed Opportunity Division Five may be compared to a
benchmark comprised of a weighted average of three market sectors corresponding
to the three market sectors in which the Division, through the Timed Opportunity
Fund, will invest as follows: 55% in equity securities, 35% in intermediate or
long-term debt securities and 10% in money-market or short-term debt securities,
regardless of the Division's actual asset allocation. The performance of the
equity securities sector of the Division may be compared to the S&P 500 Index.
The performance of the intermediate or long-term debt securities sector may be
compared to the Merrill Lynch Corporate and Government Master Index. The Merrill
Lynch Corporate and Government Master Index consists of an index of
approximately 5000 corporate and government bond holdings. The average maturity
of these corporate bond holdings is approximately 10 years. The performance of
the money market or short-term debt securities sector may be compared to the
Certificate of Deposit Primary Offering by New York City Banks, 30 Day Index.
- ---------
** The Russell 2000(R) Index is a trademark/service mark of the Frank Russell
Company. Russell(TM) is a trademark of the Frank Russell Company.
11
The performance of the Templeton Asset Allocation Division Nineteen may be
compared to a benchmark comprised of a weighted average of three market sectors
corresponding to the sectors in which the Division, through the Templeton Asset
Allocation Fund, will invest as follows: 55% in equity securities, 35% in
intermediate or long-term debt securities and 10% in money-market or short-term
debt securities, regardless of the Division's actual asset allocation. The
performance of the equity securities sector of the Division may be compared to
the Morgan Stanley Capital International World Index ("MSCI World Index"). The
performance of the intermediate or long-term debt securities sector may be
compared to the Salomon Brothers World Government Bond Index ("Salomon World
Index"). The performance of the money market or short-term debt securities
sector may be compared to the Certificate of Deposit Primary Offering by New
York City Banks, 30 Day Index. Total returns (with income reinvested) for the
MSCI World Index and the Salomon World Index are published using two methods.
The first method includes gross income (income earned without subtracting
foreign income taxes which may be withheld from foreign investors). The second
method includes net income (income earned after subtracting estimated foreign
taxes). The Division currently compares its performance with these indexes using
the second method. The MSCI World Index is an unmanaged capitalization weighted
index consisting of more than 1,500 issues from 22 countries as well as certain
South African gold mining issues. The countries include Australia, Austria,
Belgium, Canada, Denmark, Finland, France, Germany, Hong Kong, Ireland, Italy,
Japan, Malaysia, The Netherlands, New Zealand, Norway, Singapore, Spain, Sweden,
Switzerland, the United Kingdom, and the United States. The Salomon World Index
is an unmanaged aggregate index composed of approximately 840 issues from
fourteen countries. The countries include Australia, Austria, Belgium, Canada,
Denmark, France, Germany, Italy, Japan, The Netherlands, Spain, Sweden, the
United Kingdom and the United States.
The performance of the Templeton International Division Twenty may be
compared to the Morgan Stanley Capital International World Index ("MSCI World
Index"). Total returns (with income reinvested) for the MSCI World Index is
published using two methods. The first method includes gross income (income
earned without subtracting foreign income taxes which may be withheld from
foreign investors). The second method includes net income (income earned after
subtracting estimated foreign taxes). The Division currently compares its
performance with the index using the second method. The MSCI World Index is an
unmanaged capitalization weighted index consisting of more than 1,500 issues
from 22 countries as well as certain South African gold mining issues. The
countries include Australia, Austria, Belgium, Canada, Denmark, Finland, France,
Germany, Hong Kong, Ireland, Italy, Japan, Malaysia, The Netherlands, New
Zealand, Norway, Singapore, Spain, Sweden, Switzerland, the United Kingdom, and
the United States.
12
SEE THE TEXT BEGINNING ON PAGE 10 FOR A DESCRIPTION OF THE METHODS OF COMPUTING
THESE RETURNS, INCLUDING A STATEMENT OF THE CHARGES REFLECTED FOR EACH OF THE
FOLLOWING TABLES. ANY CHARGES UNDER THE CONTRACT EXCLUDED FROM THE COMPUTATION
OF THESE RETURNS WILL FURTHER REDUCE CONTRACT VALUES.
STOCK INDEX DIVISION TEN PERFORMANCE COMPARED TO S&P 500 INDEX
HYPOTHETICAL $10,000 ACCOUNT VALUE
ANNUAL VALUE OF A $10,000 STIPULATED PAYMENT MADE APRIL 20, 1987
STOCK INDEX S&P 500
DIVISION TEN INDEX
- ------------------------------------------------ -------
04/20/87............................. $ 10,000 $10,000
12/31/87............................. 8,562 8,722
12/31/88............................. 9,687 10,171
12/31/89............................. 12,388 13,394
12/31/90............................. 11,790 12,978
12/31/91............................. 15,056 16,932
12/31/92............................. 15,897 18,222
12/31/93............................. 17,293 20,059
12/31/94............................. 17,241 20,323
CUMULATIVE RETURN COMPARED TO MARKET INDEX
(PERIOD ENDED DECEMBER 31, 1994)
SINCE
INCEPTION* 5 YEARS 3 YEARS 1 YEAR
---------- ------- ------- ------
Investment Division
Stock Index Division Ten..... 72.41% 39.18% 14.51% -0.30%
Benchmark Comparison
S&P 500 Index................ 103.23% 51.74% 20.03% 1.32%
- ---------
* This Division was initiated on April 20, 1987.
MIDCAP INDEX DIVISION FOUR* PERFORMANCE COMPARED TO S&P 500 INDEX AND S&P
MIDCAP 400 INDEX
HYPOTHETICAL $10,000 ACCOUNT VALUE
ANNUAL VALUE OF A $10,000 STIPULATED PAYMENT MADE OCTOBER 13, 1982
S&P S&P
MIDCAP INDEX 500 MIDCAP 400
DIVISION FOUR INDEX INDEX
- ------------------------------------------------ --------- ----------
10/13/82............................. $ 10,000 $ 10,000 $ 10,000
12/31/82............................. 10,096 11,352 11,564
12/31/83............................. 11,608 13,913 14,583
12/31/84............................. 11,721 14,786 14,755
12/31/85............................. 13,195 19,477 20,004
12/31/86............................. 13,516 23,113 23,247
12/31/87............................. 12,827 24,326 22,774
12/31/88............................. 14,502 28,367 27,527
12/31/89............................. 17,127 37,355 37,310
12/31/90............................. 15,380 36,195 35,401
12/31/91............................. 18,580 47,223 53,136
12/31/92............................. 20,213 50,820 59,466
12/31/93............................. 22,594 55,943 67,762
12/31/94............................. 21,532 56,681 65,332
13
<PAGE>
CUMULATIVE RETURN COMPARED TO MARKET INDEX
(PERIOD ENDED DECEMBER 31, 1994)
<TABLE>
<CAPTION>
SINCE
INCEPTION* 10 YEARS 5 YEARS 3 YEARS 1 YEAR
---------- -------- ------- ------- ------
<S> <C> <C> <C> <C> <C>
Investment Division
Division Four ........................... 115.32% 83.70% 25.72% 15.89% -4.70%
Benchmark Comparison
S&P 500 Index ........................... 466.81% 283.34% 51.74% 20.03% 1.32%
S&P MidCap 400 Index .................... 553.32% 342.79% 75.11% 22.95% -3.59%
</TABLE>
- ---------
Effective October 1, 1991, the Capital Accumulation Fund changed its name to
the MidCap Index Fund and revised its investment objective, investment program
and investment restrictions accordingly, pursuant to contract owner vote.
Selected accumulation unit data for the last ten years for this Division
appears in the Prospectus. Figures appearing above for the S&P MidCap 400
Index for years prior to 1991 are based on estimates provided by Standard &
Poor's for illustrative purposes.
* This Division was initiated on October 13, 1982.
SMALL CAP INDEX DIVISION FOURTEEN PERFORMANCE COMPARED TO RUSSELL 2000
INDEX(R)
HYPOTHETICAL $10,000 ACCOUNT VALUE
ANNUAL VALUE OF A $10,000 STIPULATED PAYMENT MADE MAY 1, 1992
RUSSELL
SMALL CAP INDEX 2000
DIVISION FOURTEEN INDEX
- ------------------------------------------------ --------
05/01/92............................. $10,000 $ 10,000
12/31/92............................. 11,128 11,416
12/31/93............................. 12,772 13,571
12/31/94............................. 12,223 13,324
CUMULATIVE RETURN COMPARED TO MARKET INDEX
(PERIOD ENDED DECEMBER 31, 1994)
SINCE
INCEPTION* 1 YEAR
---------- -------
Investment Division
Small Cap Index Division
Fourteen....................... 22.23% -4.30%
Benchmark Comparison
Russell 2000..................... 33.23% -1.82%
- ---------
* This Division was initiated May 1, 1992.
INTERNATIONAL EQUITIES DIVISION ELEVEN PERFORMANCE COMPARED TO EAFE INDEX
HYPOTHETICAL $10,000 ACCOUNT VALUE
ANNUAL VALUE OF A $10,000 STIPULATED PAYMENT MADE OCTOBER 2, 1989
INTERNATIONAL EQUITIES EAFE
DIVISION ELEVEN INDEX
- ------------------------------------------------ -------
10/02/89............................. $10,000 $10,000
12/31/89............................. 10,284 10,467
12/31/90............................. 8,134 8,013
12/31/91............................. 8,952 8,984
12/31/92............................. 7,671 7,891
12/31/93............................. 9,864 10,460
12/31/94............................. 10,545 11,274
14
<PAGE>
CUMULATIVE RETURN COMPARED TO MARKET INDEX
(PERIOD ENDED DECEMBER 31, 1994)
<TABLE>
<CAPTION>
SINCE
INCEPTION* 5 YEARS 3 YEARS 1 YEAR
---------- ------- ------- -------
<S> <C> <C> <C> <C>
Investment Division
International Equities Division
Eleven ................................................. 5.45% 2.53% 17.78% 6.90%
Benchmark Comparison
EAFE Index ............................................... 12.74% 7.71% 25.48% 7.78%
</TABLE>
- ---------
* This Division was initiated on October 2, 1989.
TEMPLETON INTERNATIONAL DIVISION TWENTY PERFORMANCE COMPARED TO MSCI WORLD
INDEX
HYPOTHETICAL $10,000 ACCOUNT VALUE*
ANNUAL VALUE OF A $10,000 STIPULATED PAYMENT MADE MAY 1, 1992
MSCI
TEMPLETON INTERNATIONAL WORLD
DIVISION TWENTY INDEX
- ------------------------------------------------ ---------
05/01/92............................. $10,000 $ 10,000
12/31/92............................. 9,311 10,182
12/31/93............................. 13,549 12,474
12/31/94............................. 13,077 13,107
CUMULATIVE RETURN COMPARED TO MARKET INDEX*
(PERIOD ENDED DECEMBER 31, 1994)
SINCE
INCEPTION* 1 YEAR
---------- ------
Investment Division
Templeton International Division
Twenty......................... 30.77% -3.49%
Benchmark Comparison
MSCI World Index................. 31.07% 5.08%
- ---------
* The hypothetical account illustration and cumulative returns were calculated
on a pro forma basis. Therefore, the inception date used for the Templeton
International Fund Division 20 was May 1, 1992, the inception of the
underlying fund. Current contract charges have been assessed in determining
pro forma hypothetical account values and cumulative returns.
DREYFUS SMALL CAP DIVISION EIGHTEEN PERFORMANCE COMPARED TO RUSSELL 2000
HYPOTHETICAL $10,000 ACCOUNT VALUE*
ANNUAL VALUE OF A $10,000 STIPULATED PAYMENT MADE AUGUST 31, 1990
DREYFUS SMALL CAP RUSSELL
DIVISION EIGHTEEN 2000
- ------------------------------------------------ -------
08/31/90............................. $10,000 $10,000
12/31/90............................. 10,168 9,577
12/31/91............................. 26,105 13,996
12/31/92............................. 44,181 16,572
12/31/93............................. 73,477 19,701
12/31/94............................. 78,125 19,341
15
<PAGE>
CUMULATIVE RETURN COMPARED TO MARKET INDEX*
(PERIOD ENDED DECEMBER 31, 1994)
SINCE
INCEPTION* 3 YEARS 1 YEAR
---------- ------- ------
Investment Division
Dreyfus Small Cap Division
Eighteen....................... 681.25% 199.27% 6.33%
Benchmark Comparison
Russell 2000..................... 93.41% 38.20% -1.82%
- ---------
* The hypothetical account illustration and cumulative returns were calculated
on a pro forma basis. Therefore, the inception date used for the Dreyfus Small
Cap Fund Division 18 was August 31, 1990, the inception of the underlying
fund. Current contract charges have been assessed in determining pro forma
hypothetical account values and cumulative returns.
GROWTH DIVISION FIFTEEN PERFORMANCE COMPARED TO S&P 500 INDEX
HYPOTHETICAL $10,000 ACCOUNT VALUE
ANNUAL VALUE OF A $10,000 STIPULATED PAYMENT MADE APRIL 29, 1994
S&P
GROWTH DIVISION 500
FIFTEEN INDEX
- ------------------------------------------------ ---------
04/29/94............................. $10,000 $ 10,000
06/30/94............................. 9,527 10,042
09/30/94............................. 10,037 10,533
12/31/94............................. 10,018 10,532
CUMULATIVE RETURN COMPARED TO MARKET INDEX
(PERIOD ENDED DECEMBER 31, 1994)
<TABLE>
<CAPTION>
SINCE
INCEPTION* 5 YEARS 3 YEARS 1 YEAR
Investment Division ---------- ------- ------- ------
<S> <C> <C> <C> <C>
Growth Division Fifteen ................................... 0.18% -- -- --
Benchmark Comparison
S & P 500 Index ........................................... 5.32% -- -- --
</TABLE>
- ---------
* The Fund underlying this Division was initiated on April 29, 1994.
GROWTH & INCOME DIVISION SIXTEEN COMPARED TO S&P 500 INDEX
HYPOTHETICAL $10,000 ACCOUNT VALUE
ANNUAL VALUE OF A $10,000 STIPULATED PAYMENT MADE APRIL 29, 1994
GROWTH & INCOME S&P 500
DIVISION SIXTEEN INDEX
- -------------------------------------------------- --------
04/29/94............................. $ 10,000 $ 10,000
06/30/94............................. 9,479 10,042
09/30/94............................. 10,033 10,533
12/31/94............................. 9,932 10,532
16
<PAGE>
CUMULATIVE RETURN COMPARED TO MARKET INDEX
(PERIOD ENDED DECEMBER 31, 1994)
SINCE
INCEPTION* 5 YEARS 3 YEARS 1 YEAR
---------- ------- ------- ------
Investment Division
Growth & Income Division
Sixteen ................... -0.68% -- -- --
Benchmark Comparison
S & P 500 Index ............. 5.32% -- -- --
- ---------
* The Fund underlying this Division was initiated on April 29, 1994.
CAPITAL CONSERVATION DIVISION SEVEN PERFORMANCE COMPARED TO MERRILL LYNCH
CORPORATE MASTER INDEX
HYPOTHETICAL $10,000 ACCOUNT VALUE
ANNUAL VALUE OF A $10,000 STIPULATED PAYMENT MADE JANUARY 16, 1986
MERRILL LYNCH
CAPITAL CONSERVATION CORPORATE MASTER
DIVISION SEVEN INDEX
- ------------------------------------------------ ----------------
01/16/86............................. $10,000 $ 10,000
12/31/86............................. 10,477 11,609
12/31/87............................. 10,186 11,823
12/31/88............................. 10,789 12,976
12/31/89............................. 11,936 14,808
12/31/90............................. 11,784 15,899
12/31/91............................. 13,669 18,799
12/31/92............................. 14,702 20,514
12/31/93............................. 16,301 23,064
12/31/94............................. 15,153 22,288
CUMULATIVE RETURN COMPARED TO MARKET INDEX
(PERIOD ENDED DECEMBER 31, 1994)
<TABLE>
<CAPTION>
SINCE
INCEPTION* 5 YEARS 3 YEARS 1 YEAR
---------- ------- ------- ------
<S> <C> <C> <C> <C>
Investment Division
Capital Conservation Division
Seven ............................................... 51.53% 26.95% 10.85% -7.04%
Benchmark Comparison
Merrill Lynch Corporate Master
Index ............................................... 122.88% 50.51% 18.56% -3.36%
</TABLE>
- ---------
* This Division was initiated on January 16, 1986.
17
<PAGE>
GOVERNMENT SECURITIES DIVISION EIGHT PERFORMANCE COMPARED TO LEHMAN BROTHERS
U.S. TREASURY COMPOSITE INDEX
HYPOTHETICAL $10,000 ACCOUNT VALUE
ANNUAL VALUE OF A $10,000 STIPULATED PAYMENT MADE JANUARY 16, 1986
GOVERNMENT SECURITIES U.S. TREASURY
DIVISION EIGHT COMPOSITE INDEX
- ------------------------------------------------ ---------------
01/16/86............................. $ 10,000 $10,000
12/31/86............................. 10,461 11,630
12/31/87............................. 10,120 11,862
12/31/88............................. 10,621 12,694
12/31/89............................. 11,792 14,516
12/31/90............................. 12,371 15,765
12/31/91............................. 14,052 18,187
12/31/92............................. 14,915 19,502
12/31/93............................. 16,362 21,597
12/31/94............................. 15,472 20,857
CUMULATIVE RETURN COMPARED TO MARKET INDEX
(PERIOD ENDED DECEMBER 31, 1994)
<TABLE>
<CAPTION>
SINCE
INCEPTION* 5 YEARS 3 YEARS 1 YEAR
---------- ------- ------- ------
<S> <C> <C> <C> <C>
Investment Division
Government Securities Division
Eight ............................................... 54.72% 31.20% 10.10% -5.44%
Benchmark Comparison
U.S. Treasury Composite Index ......................... 108.57% 43.68% 14.68% -3.43%
</TABLE>
- ---------
* This Division was initiated on January 16, 1986.
INTERNATIONAL GOVERNMENT BOND DIVISION THIRTEEN PERFORMANCE COMPARED TO
SALOMON BROTHERS NON-U.S. DOLLAR WORLD GOVERNMENT BOND INDEX
HYPOTHETICAL $10,000 ACCOUNT VALUE
ANNUAL VALUE OF A $10,000 STIPULATED PAYMENT MADE OCTOBER 1, 1991
SALOMON BROS.
NON-U.S. DOLLAR
INTERNATIONAL GOVERNMENT BOND WORLD GOVERNMENT
DIVISION THIRTEEN BOND INDEX
- ------------------------------------------------ ----------------
10/01/91............................. $ 10,000 $ 10,000
12/31/91............................. 10,905 11,042
12/31/92............................. 11,128 11,540
12/31/93............................. 12,583 13,246
12/31/94............................. 13,014 13,999
18
<PAGE>
CUMULATIVE RETURN COMPARED TO MARKET INDEX
(PERIOD ENDED DECEMBER 31, 1994)
SINCE
INCEPTION* 3 YEAR 1 YEAR
---------- ------ ------
Investment Division
International Government Bond
Division Thirteen.............. 30.14% 19.34% 3.42%
Benchmark Comparison
Salomon Bros. Non-U.S. Dollar
World Government Bond Index.... 39.99% 26.79% 5.69%
- ---------
* This Division was initiated on October 1, 1991.
SOCIAL AWARENESS DIVISION TWELVE PERFORMANCE COMPARED TO S&P 500 INDEX
HYPOTHETICAL $10,000 ACCOUNT VALUE
ANNUAL VALUE OF A $10,000 STIPULATED PAYMENT MADE OCTOBER 2, 1989
SOCIAL AWARENESS S&P 500
DIVISION TWELVE INDEX
- ------------------------------------------------ -------
10/02/89............................. $10,000 $10,000
12/31/89............................. 10,100 10,214
12/31/90............................. 9,877 9,897
12/31/91............................. 12,506 12,912
12/31/92]............................ 12,795 13,896
12/31/93............................. 13,670 15,297
12/31/94............................. 13,339 15,499
CUMULATIVE RETURN COMPARED TO MARKET INDEX
(PERIOD ENDED DECEMBER 31, 1994)
SINCE
INCEPTION* 5 YEARS 3 YEARS 1 YEAR
---------- ------- ------- ------
Investment Division
Social Awareness Division
Twelve ........................ 33.39% 32.07% 6.66% -2.42%
Benchmark Comparison
S&P 500 Index ................... 54.99% 51.74% 20.03% 1.32%
- ---------
* This Division was initiated on October 2, 1989.
SCIENCE & TECHNOLOGY DIVISION SEVENTEEN COMPARED TO S&P 500 INDEX.
HYPOTHETICAL $10,000 ACCOUNT VALUE
ANNUAL VALUE OF A $10,000 STIPULATED PAYMENT MADE APRIL 29, 1994
SCIENCE & TECHNOLOGY S&P 500
DIVISION SEVENTEEN INDEX
- ------------------------------------------------ --------
04/29/94............................. $10,000 $ 10,000
06/30/94............................. 9,457 10,042
09/30/94............................. 11,316 10,533
12/31/94............................. 12,477 10,532
19
<PAGE>
CUMULATIVE RETURN COMPARED TO MARKET INDEX
(PERIOD ENDED DECEMBER 31, 1994)
<TABLE>
<CAPTION>
SINCE
INCEPTION* 5 YEARS 3 YEARS 1 YEAR
---------- ------- ------- ------
<S> <C> <C> <C> <C>
Investment Division
Science & Technology Division
Seventeen...................... 24.77% -- -- --
Benchmark Comparison
S & P 500 Index.................. 5.32% -- -- --
</TABLE>
- ---------
* The Fund underlying this Division was initiated on April 29, 1994.
MONEY MARKET DIVISION SIX PERFORMANCE COMPARED TO CERTIFICATE OF DEPOSIT
PRIMARY OFFERING BY NEW YORK CITY BANKS, 30 DAY INDEX (PRIMARY CD INDEX)
HYPOTHETICAL $10,000 ACCOUNT VALUE
ANNUAL VALUE OF A $10,000 STIPULATED PAYMENT MADE JANUARY 16, 1986
MONEY MARKET PRIMARY
DIVISION SIX CD INDEX
- ------------------------------------------------ --------
01/16/86............................. $10,000 $10,000
12/31/86............................. 10,405 10,591
12/31/87............................. 10,873 11,253
12/31/88............................. 11,495 12,083
12/31/89............................. 12,406 13,130
12/31/90............................. 13,254 14,181
12/31/91............................. 13,849 14,955
12/31/92............................. 14,157 15,427
12/31/93............................. 14,393 15,826
12/31/94............................. 14,791 16,390
CUMULATIVE RETURN COMPARED TO MARKET INDEX
(PERIOD ENDED DECEMBER 31, 1994)
SINCE
INCEPTION* 5 YEARS 3 YEARS 1 YEAR
---------- ------- ------- ------
Investment Division
Money Market Division Six.... 47.91% 19.23% 6.81% 2.77%
Benchmark Comparison
Primary CD Index............. 63.90% 24.83% 9.60% 3.57%
- ---------
* This Division was initiated on January 16, 1986.
20
<PAGE>
TIMED OPPORTUNITY DIVISION FIVE PERFORMANCE COMPARED TO S&P 500 INDEX, MERRILL
LYNCH CORPORATE AND GOVERNMENT MASTER INDEX AND CERTIFICATE OF DEPOSIT PRIMARY
OFFERING BY NEW YORK CITY BANKS, 30 DAY INDEX
HYPOTHETICAL $10,000 ACCOUNT VALUE
ANNUAL VALUE OF A $10,000 STIPULATED PAYMENT MADE SEPTEMBER 6, 1983
TIMED OPPORTUNITY S&P 500 BLENDED
DIVISION FIVE INDEX INDEX*
- ------------------------------------------------ --------- --------
09/06/83............................. $ 10,000 $ 10,000 $ 10,000
12/31/83............................. 9,857 10,156 10,252
12/31/84............................. 9,853 10,793 11,269
12/31/85............................. 11,004 14,217 14,177
12/31/86............................. 11,987 16,871 16,536
12/31/87............................. 12,862 17,757 17,472
12/31/88............................. 13,973 20,706 19,669
12/31/89............................. 16,182 27,267 24,213
12/31/90............................. 15,634 26,420 24,748
12/31/91............................. 18,782 34,470 30,404
12/31/92............................. 18,460 37,095 32,608
12/31/93............................. 19,973 40,834 35,770
12/31/94............................. 19,515 41,373 35,769
CUMULATIVE RETURN COMPARED TO MARKET INDEX
(PERIOD ENDED DECEMBER 31, 1994)
<TABLE>
<CAPTION>
SINCE
INCEPTION** 10 YEARS 5 YEARS 3 YEARS 1 YEAR
----------- -------- ------- ------- ------
<S> <C> <C> <C> <C> <C>
Investment Division
Timed Opportunity Division
Five ........................................ 95.15% 98.07% 20.60% 3.90% -2.29%
Benchmark Comparison
S&P 500 Index ................................. 313.73% 283.34% 51.74% 20.03% 1.32%
Blended Index* ................................ 257.69% 217.42% 47.72% 17.65% 0.00%
</TABLE>
- ---------
* The Blended Index reflects an allocation of investments in the following
Indexes: 55% of investments included in the S&P 500 Index, 35% of investments
included in the Merrill Lynch Corporate and Government Master Index, and 10%
of investments included in the Certificate of Deposit Primary Offering by New
York City Banks 30 Day Index.
** This Division was initiated on September 6, 1983.
21
<PAGE>
TEMPLETON ASSET ALLOCATION DIVISION NINETEEN PERFORMANCE COMPARED TO MSCI
WORLD INDEX, SALOMON BROTHERS WORLD GOVERNMENT BOND INDEX AND CERTIFICATE OF
DEPOSIT PRIMARY OFFERING BY NEW YORK CITY BANKS, 30 DAY INDEX
HYPOTHETICAL $10,000 ACCOUNT VALUE*
ANNUAL VALUE OF A $10,000 STIPULATED PAYMENT MADE AUGUST 24, 1988
MSCI
TEMPLETON ASSET ALLOCATION WORLD BLENDED
DIVISION NINETEEN INDEX INDEX**
- ------------------------------------------------ ------- ---------
08/24/88............................. $ 10,000 $10,000 $ 10,000
12/31/88............................. 10,235 11,432 11,074
12/31/89............................. 11,449 13,330 12,346
12/31/90............................. 10,403 11,062 11,737
12/31/91............................. 13,122 13,084 13,649
12/31/92............................. 14,007 12,401 13,553
12/31/93............................. 17,451 15,191 15,883
12/31/94............................. 16,711 15,962 16,522
CUMULATIVE RETURN COMPARED TO MARKET INDEX*
(PERIOD ENDED DECEMBER 31, 1994)
SINCE
INCEPTION* 5 YEARS 3 YEARS 1 YEAR
---------- ------- ------- ------
Investment Division
Templeton Asset Allocation
Division Nineteen.......... 67.11% 45.97% 27.35% -4.24%
Benchmark Comparison**
MSCI World Index............. 59.62% 19.74% 21.99% 5.08%
Blended Index................ 65.22% 33.82% 21.05% 4.03%
- ---------
* The hypothetical account illustration and cumulative returns were calculated
on a pro forma basis. Therefore, the inception date used for the Templeton
Asset Allocation Fund Division 19 was August 24, 1988, the inception of the
underlying fund. Current contract charges have been assessed in determining
pro forma hypothetical account values and
cumulative returns.
** The Blended Index reflects an allocation of investments in the following
Indexes; 55% of investments included in the MSCI World Index, 35% of
investments included in the Salomon Bros. World Government Bond Index and 10%
of investments included in the Certificate of Deposit Primary Offering by New
York City Banks, 30 Day Index.
ANNUITY PAYMENTS
ASSUMED INVESTMENT RATE
The discussion concerning the amount of annuity payments which follows this
section is based on an Assumed Investment Rate of 3 1/2% per annum. However, the
Company will permit each Annuitant choosing a variable annuity payment option to
select an Assumed Investment Rate permitted by state law or regulations other
than the 3 1/2% rate described in this prospectus as follows: 3%, 4 1/2%, 5% or
6% per annum. (Note: an Assumed Investment Rate higher than 5% may not be
selected under individual Contracts.) The foregoing Assumed Investment Rates are
used merely in order to determine the first monthly payment per thousand dollars
of value. It should not be inferred that such rates will bear any relationship
to the actual net investment experience of the Separate Account.
AMOUNT OF ANNUITY PAYMENTS
The amount of the first variable annuity payment to the Annuitant will
depend on the amount of the Accumulation Value applied to effect the variable
annuity as of the tenth day immediately preceding the date annuity payments
commence, the amount of any premium tax owed, the annuity option selected, and
the age of the Annuitant.
22
The Contracts contain tables indicating the dollar amount of the first annuity
payment under each annuity option for each $1,000 of Accumulation Value (after
the deduction for any premium tax) at various ages. These tables are based upon
the 1983 Table A (promulgated by the Society of Actuaries) and an Assumed
Investment Rate of 3%, 3 1/2%, 4% and 5% per annum (3 1/2% in the group
Contract).
The portion of the first monthly variable annuity payment derived from a
Division of the Separate Account is divided by the Annuity Unit value for that
Division (calculated ten days prior to the date of the first monthly payment) to
determine the number of Annuity Units in each Division represented by the
payment. The number of such units will remain fixed during the Annuity Period,
assuming the Annuitant makes no transfers of Annuity Units to provide Annuity
Units under another Division or to provide a fixed annuity.
In any subsequent month, the dollar amount of the variable annuity payment
derived from each Division is determined by multiplying the number of Annuity
Units in that Division by the value of such Annuity Unit on the tenth day
preceding the due date of such payment. The Annuity Unit value will increase or
decrease in proportion to the net investment return of the Division or Divisions
underlying the variable annuity since the date of the previous annuity payment,
less an adjustment to neutralize the 3 1/2% or other Assumed Investment Rate
referred to above.
Therefore, the dollar amount of variable annuity payments after the first
will vary with the amount by which the net investment return is greater or less
than 3 1/2% per annum. For example, if a Division has a cumulative net
investment return of 5% over a one year period, the first annuity payment in the
next year will be approximately 1 1/2 percentage points greater than the payment
on the same date in the preceding year, and subsequent payments will continue to
vary with the investment experience of the Division. If such net investment
return is 1% over a one year period, the first annuity payment in the next year
will be approximately 2 1/2 percentage points less than the payment on the same
date in the preceding year, and subsequent payments will continue to vary with
the investment experience of the applicable Division.
Each deferred Contract provides that, when fixed annuity payments are to be
made under one of the first four annuity options, the monthly payment to the
Annuitant will not be less than the monthly payment produced by the then current
settlement option rates, which will not be less than the rates used for a
currently issued single payment immediate annuity contract. The purpose of this
provision is to assure the Annuitant that, at retirement, if the fixed annuity
purchase rates then required by the Company for new single payment immediate
annuity contracts are significantly more favorable than the annuity rates
guaranteed by a Contract, the Annuitant will be given the benefit of the new
annuity rates.
ANNUITY UNIT VALUE
The value of an Annuity Unit is calculated at the same time that the value
of an Accumulation Unit is calculated and is based on the same values for Fund
shares and other assets and liabilities. (See "Accumulation Period" in the
Prospectus.) The calculation of Annuity Unit value is discussed in the
Prospectus under "Annuity Period."
The following illustrations show, by use of hypothetical examples, the
method of determining the Annuity Unit value and the amount of variable annuity
payments.
ILLUSTRATION OF CALCULATION OF ANNUITY UNIT VALUE
EXAMPLE 8.
1. Annuity Unit value, beginning of period .................. $ .980000
2. Net investment factor for Period
(see Example 3) .......................................... 1.023558
3. Daily adjustment for 3 1/2% Assumed Investment Rate ...... .999906
4. (2)X(3)................................................... 1.023462
5. Annuity Unit value, end of period (1)X(4)................. $ 1.002993
23
<PAGE>
ILLUSTRATION OF ANNUITY PAYMENTS
EXAMPLE 9. ANNUITANT AGE 65, LIFE ANNUITY WITH 120 PAYMENTS CERTAIN
1. Number of Accumulation Units at Annuity Date ................. 10,000.00
2. Accumulation Unit value (see Example 3) ...................... $ 1.800000
3. Accumulation Value of Contract (1)X(2) ....................... $ 18,000.00
4. First monthly annuity payment
per $1,000 of Accumulation Value ............................. $ 5.63
5. First monthly annuity payment (3)X(4) divided by 1,000 ....... $ 101.34
6. Annuity Unit value (see Example 10) .......................... $ .980000
7. Number of Annuity Units (5) divided by (6) ................... 103.408
8. Assume Annuity Unit value for
second month equal to ........................................ $ .997000
9. Second monthly Annuity Payment (7)X(8) ....................... $ 103.10
10. Assume Annuity Unit value for third month equal to ........... $ .953000
11. Third monthly Annuity Payment (7)X(10) ....................... $ 98.55
DISTRIBUTION OF VARIABLE ANNUITY CONTRACTS
The Company has qualified or intends to qualify the Contracts for sale in
all fifty states and the District of Columbia and will commence offering the
Contracts promptly upon qualification in each such jurisdiction.
The Contracts are sold in a continuous offering by licensed insurance agents
who are registered representatives of broker-dealers which are members of the
National Association of Securities Dealers, Inc. (the "NASD"). The principal
underwriter for the Separate Account is the Underwriter as defined above, a
wholly-owned subsidiary of the Company. The Underwriter's address is 2929 Allen
Parkway, Houston, Texas 77019. The Underwriter is a Texas corporation organized
in 1970 and is a member of the NASD.
The licensed agents who sell the Contracts will be compensated for such
sales by commissions ranging up to 5% of each Purchase Payment. Managers who
supervise the agents will receive overriding commissions ranging up to 1% of
Purchase Payments. (These various commissions are paid by the Company and do not
result in any charge to Contract Owners or to the Separate Account in addition
to the charges described under "Charges Under Variable Annuity Contracts.")
Pursuant to its underwriting agreement with the Underwriter and the Separate
Account, the Company reimburses the Underwriter for reasonable sales expenses,
including overhead expenses. Sales commissions for year 1994 were $8,189,000.
EXPERTS
The consolidated financial statements of the Company at December 31, 1994
and 1993, and for each of the three years in the period ended December 31, 1994,
and the financial statements of the Company's Separate Account A at December 31,
1994 and for each of the two years in the period then ended, appearing in this
Statement of Additional Information have been audited by Ernst & Young LLP,
independent auditors, as set forth in their reports thereon appearing elsewhere
herein. The financial statements audited by Ernst & Young LLP have been included
in reliance upon such reports given upon the authority of such firm as experts
in accounting and auditing.
24
COMMENTS ON FINANCIAL STATEMENTS
The financial statements of The Variable Annuity Life Insurance Company
should be considered only as bearing upon the ability of the Company to meet its
obligations under the Contracts, which include death benefits, and its
assumption of the mortality and expense risks.
Divisions Four, Five, Six, Seven, Eight, Ten, Eleven, Twelve, Thirteen,
Fourteen, Fifteen, Sixteen, Seventeen, Eighteen, Nineteen, and Twenty are the
only Divisions available under the Contracts described in the Prospectus. The
Separate Account financial statements contained herein reflect the composition
of the Separate Account as of December 31, 1994, and for the fiscal year then
ended.
The most current audited financial statement of the Company are those as of
the end of the most recent fiscal year. The Company does not prepare audited
financial statements for publication more often than annually. In addition, the
Company represents that, through the date of this prospectus there have been no
material adverse changes in the financial condition or operations of the Company
as reflected in the audited financial statements for the most recent fiscal
year.
25
AUDITED
CONSOLIDATED
. FINANCIAL
. STATEMENTS
December 31, 1994
VALIC(R)
* An American General Company
AUDITED CONSOLIDATED
FINANCIAL STATEMENTS
December 31, 1994
TABLE OF CONTENTS
Report of Independent Auditors ............................................ 1
Consolidated Balance Sheet ................................................ 2
Consolidated Statement of Income .......................................... 3
Consolidated Statement of Changes in Stockholder's Equity ................. 4
Consolidated Statement of Cash Flows ...................................... 5
Notes to Consolidated Financial Statements ................................ 6
<PAGE>
REPORT OF INDEPENDENT AUDITORS
To the Board of Directors
The Variable Annuity Life Insurance Company
We have audited the accompanying consolidated balance sheets of The Variable
Annuity Life Insurance Company and Subsidiary as of December 31, 1994 and 1993,
and the related consolidated statements of income, changes in stockholder's
equity, and cash flows for each of the three years in the period ended December
31, 1994. These financial statements are the responsibility of the company's
management. Our responsibility is to express an opinion on these financial
statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the consolidated financial position of The Variable
Annuity Life Insurance Company and Subsidiary at December 31, 1994 and 1993, and
the consolidated results of their operations and their cash flows for each of
the three years in the period ended December 31, 1994, in conformity with
generally accepted accounting principles.
As discussed in Note 1.3 to the financial statements, in 1993 the company
changed its method of accounting for postretirement benefits other than
pensions, income taxes, postemployment benefits, reinsurance, loan impairments,
and certain investments in debt and equity securities, as a result of adopting
recently promulgated accounting standards governing the accounting treatment for
these items.
ERNST & YOUNG LLP
Houston, Texas ERNST & YOUNG LLP
February 14, 1995
1
<PAGE>
CONSOLIDATED BALANCE SHEET
(In Thousands)
December 31
----------------------------
1994 1993
------------ -----------
ASSETS
Investments - Notes 2, 6, 7, 8:
Fixed maturity securities (amortized
cost: $16,930,860 in 1994 and
$15,523,515 in 1993) ...................... $ 16,084,308 $16,488,885
Equity securities (cost: $69,774 in
1994 and $38,296 in 1993) ................. 72,752 42,643
Mortgage loans on real estate .............. 1,535,201 1,725,628
Real estate, net of accumulated
depreciation of $134 in 1994 and
$338 in 1993 .............................. 22,235 24,793
Policy loans ............................... 474,830 414,387
Other long-term invested assets ............ 7,232 25
Short-term investments ..................... 160,022 --
------------ -----------
Total investments ........................ 18,356,580 18,696,361
Investment income receivable ................... 280,161 266,626
Receivable for securities sold ................. 3,896 2,836
Deferred policy acquisition costs - Note 3 ..... 910,479 113,116
Due from reinsurer, net ........................ 18,009 19,042
Other assets ................................... 26,655 26,778
Assets held in Separate Account ................ 2,506,810 1,890,451
------------ -----------
TOTAL ASSETS ......................... $ 22,102,590 $21,015,210
============ ===========
LIABILITIES
Policy reserves for fixed annuity
investment contracts .......................... $ 18,656,189 $17,028,585
Payable for securities purchased ............... 2,310 20,851
Remittances not allocated ...................... 34,275 35,551
Commissions, general expenses, and taxes
(other than income taxes) ..................... 32,552 29,711
Other liabilities .............................. 28,032 87,832
Income tax liabilities - Note 4 ................ 109,362 365,612
Liabilities related to Separate Account ........ 2,506,810 1,890,451
------------ -----------
TOTAL LIABILITIES .................... 21,369,530 19,458,593
============ ===========
STOCKHOLDER'S EQUITY
Common stock (voting) par value $1 per
share, 5,000 shares authorized and
3,575 issued and outstanding in 1994
and 1993 - Note 5 ............................. 3,575 3,575
Additional paid-in capital ..................... 382,733 382,727
Retained earnings .............................. 910,233 821,845
Net unrealized investment gains
(losses) - Note 2 ............................. (563,481) 348,470
------------ -----------
TOTAL STOCKHOLDER'S EQUITY ........... 733,060 1,556,617
------------ -----------
TOTAL LIABILITIES AND STOCKHOLDER'S
EQUITY .............................. $ 22,102,590 $21,015,210
============ ===========
See notes to consolidated financial statements.
2
<PAGE>
CONSOLIDATED STATEMENT OF INCOME
(In Thousands)
Year Ended December 31
------------------------------------------
1994 1993 1992
------------ ------------ ------------
REVENUES
Surrender charges ................. $ 9,964 $ 8,605 $ 7,365
Mortality charges ................. 21,136 15,614 10,914
Expense charges ................... 5,528 5,349 5,095
Net investment income - Note 2 .... 1,493,942 1,434,019 1,325,725
Net reinsurance income ............ 1,908 1,826 2,327
Realized investment gains
(losses) - Note 2 ............... (71,950) 17,969 12,705
Other income ...................... 6,517 4,361 3,895
------------ ------------ ------------
TOTAL REVENUES ................ 1,467,045 1,487,743 1,368,026
============ ============ ============
COSTS AND EXPENSES
Policy Costs:
Increase in policy reserves for
fixed annuity contracts ....... 1,133,547 1,125,055 1,068,947
------------ ------------ ------------
TOTAL COSTS ................... 1,133,547 1,125,055 1,068,947
Expenses:
Commissions ..................... 73,198 66,739 61,959
Salaries ........................ 42,742 39,923 35,590
Data processing ................. 10,908 10,262 10,046
Postage and telephone ........... 8,137 7,348 7,290
Sales promotion ................. 8,024 7,305 6,631
Guaranty association
assessments - Note 9 .......... 6,300 7,000 11,886
Printing and supplies ........... 4,372 3,505 3,915
Other expenses .................. 43,029 36,327 34,931
Amortization of deferred policy
acquisition costs - Note 3 .... 13,263 10,000 4,896
Policy acquisition costs
deferred - Note 3 ............. (88,046) (82,960) (76,107)
------------ ------------ ------------
TOTAL EXPENSES ................ 121,927 105,449 101,037
------------ ------------ ------------
TOTAL COSTS AND EXPENSES .... 1,255,474 1,230,504 1,169,984
============ ============ ============
EARNINGS
EARNINGS BEFORE INCOME TAXES AND
CUMULATIVE EFFECT OF ACCOUNTING
CHANGES .......................... 211,571 257,239 198,042
Income tax expense:
Excluding tax rate related
adjustment - Note 4 ........... 70,183 84,863 60,660
Tax rate related adjustment -
Note 4 ........................ -- 4,490 --
------------ ------------ ------------
Total ........................... 70,183 89,353 60,660
------------ ------------ ------------
INCOME BEFORE CUMULATIVE EFFECT
OF ACCOUNTING CHANGES ............ 141,388 167,886 137,382
------------ ------------ ------------
Cumulative effect of accounting
changes - Note 1 ................. -- (2,588) --
------------ ------------ ------------
NET INCOME .................... $ 141,388 $ 165,298 $ 137,382
============ ============ ============
See notes to consolidated financial statements.
3
<PAGE>
CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDER'S EQUITY
(In Thousands)
Year Ended December 31
------------------------------------
1994 1993 1992
--------- ---------- --------
COMMON STOCK
Common stock ......................... $ 3,575 $ 3,575 $ 3,575
========= ========== ========
ADDITIONAL PAID-IN CAPITAL
Balance at beginning of year ......... 382,727 330,800 330,800
Capital contribution from
stockholder ...................... 6 51,927 --
--------- ---------- --------
Balance at end of year ............... 382,733 382,727 330,800
========= ========== ========
RETAINED EARNINGS
Balance at beginning of year ......... 821,845 656,547 519,165
Net income ......................... 141,388 165,298 137,382
Dividends paid to stockholder ...... (53,000) -- --
--------- ---------- --------
Balance at end of year ............... 910,233 821,845 656,547
========= ========== ========
NET UNREALIZED INVESTMENT
GAINS (LOSSES)
Balance at beginning of year ......... 348,470 4,892 3,538
Change during year ................. (911,951) 343,578 1,354
--------- ---------- --------
Balance at end of year ............... (563,481) 348,470 4,892
========= ========== ========
STOCKHOLDER'S EQUITY
Total stockholder's equity at
end of year ...................... $ 733,060 $1,556,617 $995,814
========= ========== ========
See notes to consolidated financial statements.
4
<PAGE>
CONSOLIDATED STATEMENT OF CASH FLOWS
(In Thousands)
Year Ended December 31
---------------------------------------
1994 1993 1992
----------- ----------- -----------
OPERATING ACTIVITIES
Income before cumulative effect
of accounting changes .............. $ 141,388 $ 167,886 $ 137,382
Reconciling adjustments to net cash
provided by operating activities:
Insurance and annuity liabilities . 1,133,547 1,125,055 1,068,947
Deferred policy acquisition costs . (74,783) (72,960) (71,211)
Other, net ........................ (55,752) (91,143) (62,880)
----------- ----------- -----------
Net cash provided by
operating activities ............ 1,144,400 1,128,838 1,072,238
=========== =========== ===========
INVESTING ACTIVITIES
Investment purchases ................. (7,827,877) (5,531,834) (5,000,222)
Investment calls, maturities,
and sales .......................... 6,456,637 3,497,419 2,893,940
Net increase in short-term
investments ......................... (160,022) -- --
----------- ----------- -----------
Net cash used for investing
activities ..................... (1,531,262) (2,034,415) (2,106,282)
=========== =========== ===========
FINANCING ACTIVITIES
Policyholder account deposits ........ 2,227,803 2,129,542 1,897,589
Policyholder account withdrawals ..... (1,004,953) (751,537) (642,358)
Transfers to Separate Account ........ (723,994) (504,969) (282,987)
Capital contribution from
stockholder ........................ 6 52,941 --
Net increase (decrease) in
short-term debt .................... (59,000 (20,400) 61,800
Dividends paid ....................... (53,000) -- --
----------- ----------- -----------
Net cash provided by
financing activities ............ 386,862 905,577 1,034,044
=========== =========== ===========
NET CHANGE IN CASH
Net increase (decrease) in cash ...... -- -- --
Cash at beginning of year ............ -- -- --
----------- ----------- -----------
Cash at end of year .............. $ -- $ -- $ --
=========== =========== ===========
See notes to consolidated financial statements.
5
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 1994
(All Dollar Amounts in Thousands, except per share data)
1. SIGNIFICANT ACCOUNTING POLICIES
1.1 INTRODUCTION
The Variable Annuity Life Insurance Company (VALIC), an indirect, wholly
owned subsidiary of American General Corporation (AGC), is engaged primarily in
the offering, issuance, and sale of fixed and variable retirement annuity
contracts. VALIC is 100% owned by American General Life Insurance Company
(AGLIC), a wholly owned subsidiary of AGC Life Insurance Company (AGC Life). AGC
Life is a wholly owned subsidiary of AGC. A summary of the accounting policies
followed in the preparation of the consolidated financial statements is set
forth below.
1.2 PREPARATION OF FINANCIAL STATEMENTS
The consolidated financial statements have been prepared in accordance with
generally accepted accounting principles (GAAP). The consolidated financial
statements include the accounts of VALIC and its wholly owned marketing company.
All material intercompany accounts have been eliminated upon consolidation. To
conform with the 1994 presentation, certain items in the prior years' financial
statements have been reclassified.
1.3 ACCOUNTING CHANGES
CURRENT YEAR. During 1994, VALIC adopted Statement of Financial Accounting
Standards (SFAS) 118, "Accounting by Creditors for Impairment of a Loan - Income
Recognition and Disclosures," and SFAS 119, "Disclosure about Derivative
Financial Instruments and Fair Value of Financial Instruments." SFAS 118
requires disclosures about the recorded investment in certain impaired loans and
the recognition of related interest income. SFAS 119 requires additional
disclosures about derivative financial instruments and amends existing fair
value disclosure requirements. These standards do not impact the consolidated
financial statements.
PRIOR YEAR. Effective January 1, 1993, VALIC adopted the following
accounting standards:
SFAS 106, "Employers' Accounting for Postretirement Benefits Other Than
Pensions," resulted in a one-time reduction of net income of $573 ($868 pretax).
This standard requires accrual of a liability for postretirement benefits
other-than pensions.
SFAS 109, "Accounting for Income Taxes," resulted in a one-time reduction of
net income of $1,880. This standard changes the way income tax expense is
determined for financial reporting purposes.
SFAS 112, "Employers' Accounting for Postemployment Benefits," resulted in a
one-time reduction of net income of $135 ($205 pretax). This standard requires
the accrual of benefits provided to employees after employment but before
retirement.
SFAS 113, "Accounting and Reporting for Reinsurance of Short-Duration and
Long-Duration Contracts," requires that reinsurance receivables and prepaid
reinsurance premiums be reported as assets, rather than netted against the
related insurance liabilities. This standard does not have a material impact on
the consolidated financial statements.
SFAS 114, "Accounting by Creditors for Impairment of a Loan," requires that
certain impaired loans be reported at the present value of expected future cash
flows, the loan's observable market price, or the fair value of underlying
collateral. This standard does not have a material impact on the consolidated
financial statements.
SFAS 115, "Accounting for Certain Investments in Debt and Equity
Securities," was adopted at December 31, 1993. This statement requires that debt
and equity securities be carried at fair value unless VALIC has the positive
intent and ability to hold these investments to maturity. Debt and equity
securities must be classified into one of three categories: 1) held-to-maturity,
2) available-for-sale, or 3) trading securities. At December 31, 1993, VALIC
classified all debt and equity securities as available-for-sale and recorded net
unrealized gains on securities of $345,645 to shareholder's equity. Rising
interest rates during 1994 caused a decrease in the fair value of VALIC's
available-for-sale fixed maturity securities. As a result, shareholder's equity
included net unrealized losses on these securities of $565,386 at December 31,
1994.
1.4 INVESTMENTS
FIXED MATURITIES AND EQUITY SECURITIES. Effective with the adoption of SFAS
115, management determines the appropriate classification of fixed maturity and
equity securities at the time of purchase and re-evaluates such designation at
each balance sheet date. All fixed maturity and equity securities currently are
classified as available-for-sale and recorded at fair value. After adjusting
related balance sheet accounts as if the unrealized gains (losses) had been
realized, the net adjustment is recorded in net unrealized gains (losses) on
securities within stockholder's 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 net
realizable value, and the reduction is recorded as a realized loss.
MORTGAGE LOANS. Mortgage loans are reported at amortized cost, net of an
allowance for losses. The allowance for losses covers all non-performing loans,
consisting of loans delinquent 60 days or more and restructured commercial
loans. The allowance also covers loans about which there is a concern based on
management's 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.
Impaired loans, those for which VALIC determines that it probably will not
collect all amounts due under the contractual terms, are reported at the lower
of amortized cost or fair value of the underlying collateral, less estimated
costs to sell.
6
POLICY LOANS. Policy loans are reported at cost and are adjusted
periodically for possible uncollectible amounts.
INVESTMENT INCOME. Interest on fixed maturity securities and performing
mortgage loans is recorded as income when earned and is adjusted for any
amortization of premium or discount. Interest on restructured mortgage loans is
recorded as income based on the rate to be paid; interest on delinquent
mortgage loans is recorded as income on a cash basis. Dividends are recorded as
income on ex-dividend dates.
REALIZED INVESTMENT GAINS (LOSSES). Realized investment gains (losses) are
recognized using the specific identification method and include declines in fair
value of investments below cost that are considered other than temporary.
1.5 DEFERRED POLICY ACQUISITION COSTS (DPAC)
The costs of writing an insurance policy, including agents' commissions and
underwriting and marketing expenses, are deferred, capitalized and included in
the DPAC asset. DPAC is charged to expense in relation to the estimated gross
profits of the insurance contracts, including realized investment gains
(losses).
Under SFAS 115, DPAC is adjusted for the impact on estimated future gross
profits as if net unrealized gains (losses) on securities had been realized at
the balance sheet date. Net unrealized gains (losses) on securities within
stockholder's equity is also reduced to reflect this adjustment.
VALIC reviews the carrying value of DPAC on at least an annual basis. The
company considers estimated future gross profit margins (expected mortality,
interest earned and credited rates, persistency, and expenses) in determining
whether the carrying value of DPAC is appropriate. The reported value and
remaining life are considered appropriate.
1.6 SEPARATE ACCOUNT
Separate Accounts are assets and liabilities associated with certain
contracts, principally annuities. The investment risk lies solely with the
holder of the contract rather than the company. Consequently, the insurer's
liability for these accounts equals the value of the account assets. Investment
income and realized investment gains (losses) of the Separate Account are
excluded from the consolidated statement of income. Assets held in the Separate
Account are primarily shares in mutual funds, which are carried at fair value,
based on the quoted net asset value per share.
1.7 POLICY RESERVES
Net deposits made by fixed annuity policyholders are accumulated at interest
rates guaranteed by VALIC plus excess interest paid at the sole discretion of
the Board of Directors until benefits are payable. Reserves for deferred
annuities (accumulation phase) are equivalent to the policyholders' account
values. Reserves for annuities on which benefits are currently payable (annuity
payout phase) are provided based upon estimated mortality and other assumptions,
including provisions for the risk of adverse deviation from assumptions, which
were appropriate at the time the contracts were issued. The Progressive Annuity
Mortality Table, the 1971 Individual or Group Annuity Mortality Tables, and the
1983a Table have been used to provide for future annuity benefits in the annuity
payout phase. Interest rates used in determining reserves for policy benefits
during both the accumulation and annuity payout phases range from 3.5% to 13.5%.
1.8 RECOGNITION OF REVENUES AND COSTS
Premium receipts for annuity contracts are classified as deposits instead
of revenues. Revenues for these contracts consist of the mortality, expense,
and surrender charges assessed against the account balance. Gains (losses)
from mortality guarantees under variable annuity contracts are recognized as
they occur.
1.9 INCOME TAXES
Beginning in 1993, income taxes are provided in accordance with SFAS 109.
Under this standard, 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. Under SFAS 109, state income taxes,
previously reported in operating costs and expenses, are included in income tax
expense.
A valuation allowance for deferred tax assets is provided if all or some
portion of the deferred tax asset may not be realized. An increase or decrease
in a valuation allowance that results from a change in circumstances that causes
a change in judgement about the realizability of the related deferred tax asset
is included in income. A change related to fluctuations in fair value of
available-for-sale fixed maturity securities is included in unrealized gains
(losses) in stockholder's equity.
Before 1993, VALIC recognized deferred taxes on timing differences between
financial reporting income and taxable income. Deferred tax liabilities were not
adjusted for tax rate changes.
1.10 STATUTORY ACCOUNTING
Statutory accounting is the basis for determining the adequacy of capital
and dividend-paying capacity of insurance companies. State insurance laws
prescribe statutory accounting practices for calculating net income and equity
(capital and surplus) that differ from GAAP. Net income and stockholder's equity
as determined by statutory accounting practices were as follows:
Year Ended December 31
--------------------------------------
1994 1993 1992
-------- -------- --------
Net income ........................ $171,486 $154,231 $ 68,342
Stockholder's equity .............. $869,026 $770,385 $603,285
======== ======== ========
7
2. INVESTMENTS
2.1 INVESTMENT INCOME
Income by type of investment was as follows:
1994 1993 1992
----------- ----------- -----------
Non-Affiliated fixed
maturity securities .......... $ 1,300,028 $ 1,222,544 $ 1,096,665
Affiliated fixed
maturity securities .......... 3,342 3,466 3,967
Equity securities .............. 2,529 2,454 3,861
Mortgage loans ................. 163,263 183,532 207,459
Other income ................... 36,226 33,993 30,573
----------- ----------- -----------
Gross investment income ...... 1,505,388 1,445,989 1,342,525
Investment expenses .......... 11,446 11,970 16,800
----------- ----------- -----------
Net investment income ........ $ 1,493,942 $ 1,434,019 $ 1,325,725
=========== =========== ===========
The carrying value of investments that produced no investment income during
1994 totaled $39,971 or 0.2% of total invested assets. The ultimate disposition
of these assets is not expected to have a material effect on VALIC's
consolidated financial position.
2.2 NET REALIZED INVESTMENT GAINS (LOSSES)
Net realized investment gains (losses) were as follows:
1994 1993 1992
--------- --------- ---------
Fixed maturity securities ......... $ (83,950) $ 45,166 $ 30,444
Equity securities ................. 2,143 12,060 10,360
Mortgage loans .................... (11,640) (30,565) (21,480)
Real estate ....................... 1,608 (8,519) (6,619)
Other ............................. 19,889 (173) 0
--------- --------- ---------
Realized gains (losses)
before taxes .................... (71,950) 17,969 12,705
Income tax expense
(benefit) ....................... (25,183) 6,289 4,320
--------- --------- ---------
Net realized investment
gains (losses) ............... $ (46,767) $ 11,680 $ 8,385
========= ========= =========
Proceeds from sales of fixed maturity securities were $1,128,925, $413,679,
and $197,696 during 1994, 1993, and 1992, respectively. Gross gains of $7,610,
$25,737, and $2,826 and gross losses of $89,917, $32,878, and $5,728, were
realized on those sales during 1994, 1993, and 1992, respectively.
During fourth quarter 1994, AGC initiated a program to realize capital
losses for tax purposes to offset prior period capital gains. The purpose of the
program is to realize tax refunds of approximately $200,000 for the AGC
consolidated group. In conjunction with this program, VALIC has realized net
capital losses for tax purposes of $110,019, primarily through the sale of
$1,186,197 of fixed maturity securities. Reinvestment of the sales proceeds in
higher yielding fixed maturity securities and investment of the tax refunds are
expected to increase future investment income.
2.3 FIXED MATURITY AND EQUITY SECURITIES
VALUATION. As of December 31, 1994 and 1993, all fixed maturity and equity
securities were classified as available-for-sale and reported at fair value (see
Note 1.4). Fair value and amortized cost information as of December 31 were as
follows:
<TABLE>
<CAPTION>
Gross Gross
Amortized Cost Unrealized Gains Unrealized Losses Fair Value
------------------------ -------------------- -------------------- ------------------------
1994 1993 1994 1993 1994 1993 1994 1993
----------- ----------- -------- ---------- --------- -------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
U.S. Treasury securities and
obligations of U.S. government
corporations and agencies ..... $ 178,724 $ 557,549 $ 3,623 $ 28,078 $ (2,165) $ (8,026) $ 180,182 $ 577,601
Obligations of states and
political subdivisions ........ 13,902 9,914 15 579 (1,290) -- 12,627 10,493
Debt securities issued by
foreign governments ........... 272,999 285,140 1,310 21,679 (14,570) (8) 259,739 306,811
Corporate securities ............ 9,413,532 8,112,896 91,402 654,146 (458,242) (12,492) 9,046,692 8,754,550
Mortgage-backed securities ...... 7,016,389 6,519,662 34,801 334,928 (501,436) (53,514) 6,549,754 6,801,076
Affiliated fixed maturity
securities ..................... 35,314 38,354 -- -- -- -- 35,314 38,354
----------- ----------- -------- ---------- --------- -------- ----------- -----------
Total fixed maturity securities $16,930,860 $15,523,515 $131,151 $1,039,410 $(977,703) $(74,040) $16,084,308 $16,488,885
----------- ----------- -------- ---------- --------- -------- ----------- -----------
Equity securities ............... $ 69,774 $ 38,296 $ 4,153 $ 4,604 $ (1,175) $ (257) $ 72,752 $ 42,643
=========== =========== ======== ========== ========= ======== =========== ===========
</TABLE>
8
MATURITIES. The contractual maturities of fixed maturity securities at
December 31, 1994 were as follows:
Amortized Fair
Cost Value
----------- -----------
Due in one year or less ........................ $ 103,783 $ 104,761
Due after one year through five years .......... 1,106,212 1,110,642
Due after five years through ten years ......... 6,605,866 6,295,223
Due after ten years ............................ 2,097,678 2,022,996
Mortgage-backed securities ..................... 7,017,321 6,550,686
----------- -----------
Total fixed maturity securities .............. $16,930,860 $16,084,308
=========== ===========
Actual maturities may differ from contractual maturities since borrowers
may have the right to call or prepay obligations. Corporate requirements and
investment strategies may result in the sale of investments before maturity.
2.4 UNREALIZED GAINS (LOSSES) ON SECURITIES
Net unrealized gains (losses) on fixed maturity and equity securities
included in stockholder's equity at December 31 were as follows:
1994 1993
--------- -----------
Gross unrealized gains ....................... $ 135,304 $ 1,044,014
Gross unrealized losses ...................... (978,877) (74,297)
DPAC adjustments ............................. 269,161 (433,608)
Deferred federal income taxes ................ 10,931 (187,639)
--------- -----------
Net unrealized gains (losses)
on securities ............................ $(563,481) $ 348,470
========= ===========
2.5 MORTGAGE LOANS ON REAL ESTATE
DIVERSIFICATION. Diversification of the geographic location and type of
property collateralizing mortgage loans reduces the concentration of credit
risk. For new loans, VALIC requires loan-to-value ratios of 75% or less, based
on management's credit assessment of the borrower.
At December 31, the mortgage loan portfolio was distributed as follows:
1994 1993
----------- -----------
Geographic Distribution:
Atlantic ............................. $ 705,643 $ 758,127
Pacific and Mountain ................. 500,417 534,595
Central .............................. 384,806 481,518
Allowance for losses ................. (55,665) (48,612)
----------- -----------
Total .............................. $ 1,535,201 $ 1,725,628
=========== ===========
Property Type:
Office ............................... $ 512,229 $ 525,332
Retail ............................... 486,881 557,550
Industrial ........................... 253,760 298,453
Apartments ........................... 229,324 261,945
Residential and other ................ 108,672 130,960
Allowance for losses ................. (55,665) (48,612)
----------- -----------
Total .............................. $ 1,535,201 $ 1,725,628
=========== ===========
ALLOWANCE. The allowance for mortgage loan losses was as follows:
1994 1993 1992
-------- -------- --------
Balance at January 1, ................ $ 48,612 $ 25,170 $ 21,906
Net additions (a) .................... 9,926 31,757 13,146
Deductions (b) ....................... (2,873) (8,315) (9,882)
-------- -------- --------
Balance at December 31, ............ $ 55,665 $ 48,612 $ 25,170
======== ======== ========
(a) Charged to realized investment losses
(b) Resulting from foreclosures
IMPAIRED LOANS. Impaired mortgage loans on real estate and related
interest income were as follows:
1994 1993
-------- -------
Impaired Loans:
With allowance* ............................. $100,353 $58,320
Without allowance ........................... 1,434 2,725
-------- -------
Total impaired loans ...................... $101,787 $61,045
-------- -------
Average investment ............................ $ 79,337 $67,440
Interest income earned ........................ 4,634 2,314
Interest income - cash basis .................. 2,318 920
======== =======
* Represents gross amounts before allowance for mortgage loan losses of $23,553
and $8,951, respectively.
3. DEFERRED POLICY ACQUISITION COSTS (DPAC)
The balance of DPAC at December 31, and the components of the change for the
years then ended, were as follows:
1994 1993 1992
--------- --------- ---------
Balance at January 1, ............. $ 113,116 $ 473,764 $ 402,553
Capitalization:
Commissions ....................... 44,899 35,500 33,225
Other acquisition costs ........... 43,147 47,460 42,882
Amortization:
Operating earnings ................ (13,263) (10,000) (4,896)
Offset to realized losses ......... 19,812 -- --
Change in the effect of
SFAS 115 ......................... 702,768 (433,608) --
--------- --------- ---------
Balance at December 31, ........... $ 910,479 $ 113,116 $ 473,764
========= ========= =========
4. INCOME TAXES
4.1 TAX-SHARING AGREEMENT
VALIC, combined with its Separate Account, is taxed as a life insurance
company. VALIC and the Separate Account are included in the consolidated life
insurance company tax return of AGC. VALIC participates in a tax-sharing
agreement with the other companies included in the consolidated return. Under
this agreement, tax payments are made to AGC as if the companies filed separate
tax returns and companies incurring operating losses and/or capital losses are
reimbursed for the use of these losses by the consolidated return group.
4.2 ACCOUNTING CHANGE
As a result of the adoption of SFAS 109, income tax disclosures for 1994 and
1993 are not comparable to prior years.
9
4.3 TAX LIABILITIES
Components of income tax liabilities and assets at December 31 were as
follows:
1994 1993
--------- ---------
Current tax liabilities (assets) ................... $ (36,282) $ 33,145
--------- ---------
Deferred tax liabilities, applicable to:
Deferred policy acquisition costs ................ 317,015 38,245
Basis differential of investments ................ 7,105 340,021
Other ............................................ 2,322 6,597
--------- ---------
Total deferred tax liabilities ................ 326,442 384,863
--------- ---------
Deferred tax assets, applicable to:
Basis differential of investments ................ (295,251) --
Policy reserves .................................. (71,232) (43,210)
Other ............................................ (10,287) (9,186)
--------- ---------
Total deferred tax assets before
valuation allowance ......................... (376,770) (52,396)
Valuation allowance ........................... 195,972 --
--------- ---------
Total deferred tax assets, net of
valuation allowance ......................... (180,798) (52,396)
--------- ---------
Net deferred tax liabilities .............. 145,644 332,467
--------- ---------
Total income tax liabilities ........ $ 109,362 $ 365,612
========= =========
The deferred tax asset applicable to basis differential of investments at
December 31, 1994, is principally due to unrealized losses on securities
recorded in accordance with SFAS 115. This asset is partially offset by an SFAS
109 valuation allowance that was recorded in net unrealized gains (losses) on
securities in stockholder's equity. This valuation allowance had no income
statement impact.
4.4 TAX EXPENSE
Components of income tax expense were as follows:
1994 1993 1992
-------- -------- --------
Current:
Federal ............................ $ 52,973 $ 93,936 $ 52,265
State .............................. 2,368 1,461 --
-------- -------- --------
Total current income
tax expense .................... 55,341 95,397 52,265
-------- -------- --------
Deferred, applicable to:
Basis differential of
investments ...................... 7,189 (2,600) (5,650)
Deferred policy acquisition
costs ............................ 32,800 25,119 23,688
Policy reserves .................... (31,085) (32,633) (5,078)
Other, net ......................... 5,938 4,070 (4,565)
-------- -------- --------
Total deferred income
tax expense (benefit) .......... 14,842 (6,044) 8,395
-------- -------- --------
Income tax expense ............ $ 70,183 $ 89,353 $ 60,660
======== ======== ========
During the third quarter of 1993, the federal corporate tax rate increased
from 34% to 35%, retroactive to January 1, 1993. The effect of the 1% tax rate
increase on the existing deferred tax liability was $4,490. This amount was
included in 1993 income tax expense.
A reconciliation between the federal income tax rate and the effective tax
rate follows:
1994 1993 1992
-------- -------- --------
Federal income tax rate ........... 35% 35% 34%
Income tax expense at
applicable rate ................. $ 74,050 $ 90,034 $ 67,335
Dividends received
deduction ....................... (3,392) (1,819) (1,737)
Tax-exempt interest (ESOP) ........ (4,670) (4,996) (5,152)
Effect of tax rate change
on deferred tax liabilities ..... -- 4,490 --
State income taxes ................ 7,051 1,461 --
Other items ....................... (2,856) 183 214
-------- -------- --------
Income tax expense .............. $ 70,183 $ 89,353 $ 60,660
======== ======== ========
Federal income taxes paid in 1994, 1993, and 1992 were $122,608, $59,613,
and $57,725, respectively. State income taxes paid in 1994 and 1993 were
$3,390 and $1,363, respectively.
5. CAPITAL STOCK
VALIC has two classes of capital stock: preferred stock ($1.00 par value
with 2 million shares authorized) that may be issued with such dividend,
liquidation, redemption, conversion, voting, and other rights as the board of
directors may determine, and common stock ($1.00 par value, 5 million shares
authorized).
VALIC is restricted by state insurance laws as to the amount it may pay
as dividends without prior approval from the Texas Department of Insurance.
The maximum dividend payout which may be made without prior approval in 1995
is $178,101.
6. DERIVATIVE FINANCIAL INSTRUMENTS
VALIC is neither a dealer nor a trader in derivative financial instruments.
On occasion, the company may utilize derivative financial instruments to manage
its exposure to interest rate risk and currency rate fluctuations associated
with specific investment securities. At December 31, 1994, the company had
purchased an option on a currency swap agreement with an effective date in 1995.
This swap, with a total notional amount of $14,714, hedges anticipated
investment purchases expected to occur in 1995.
10
7. FAIR VALUE OF FINANCIAL INSTRUMENTS
SFAS 107, "Disclosures about Fair Value of Financial Instruments," requires
disclosure of the fair value of financial instruments. This standard excludes
certain financial instruments and all nonfinancial instruments, including
policyholder liabilities, from its disclosure requirements. Care should be
exercised in drawing conclusions based on fair value, since the fair values
presented below do not include the value associated with all the company's
assets and liabilities.
Carrying amounts and fair values for those financial instruments covered by
SFAS 107 at December 31 were as follows:
<TABLE>
<CAPTION>
1994 1993
--------------------------- ---------------------------
Fair Carrying Fair Carrying
Value Amount Value Amount
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
Assets
Fixed maturity and equity securities .. $16,157,060* $16,157,060* $16,531,528 $16,531,528
Mortgage loans on real estate ......... 1,533,403 1,535,201 1,782,401 1,725,628
Policy Loans .......................... 474,830 474,830 414,387 414,387
Liabilities
Insurance investment contracts ........ 16,273,449 18,656,189 16,800,000 17,028,585
=========== =========== =========== ===========
* Includes derivative financial instruments with positive fair value of $952.
</TABLE>
The carrying amounts for assets and liabilities in the above table are
reported in the corresponding line item in the consolidated balance sheet. The
following methods and assumptions were used to estimate the fair values of
financial instruments.
FIXED MATURITY AND EQUITY SECURITIES. Fair values of fixed maturity and
equity securities were based on quoted market prices, where available. For
investments not actively traded, fair values were estimated using values
obtained from independent pricing services or, in the case of private
placements, by discounting expected future cash flows using a current market
rate applicable to yield, credit quality, and average life of the investments.
The reporting of fixed maturity securities at fair value without a corresponding
revaluation of related policyholder liabilities can be misinterpreted, and care
should be exercised in drawing conclusions from such data.
MORTGAGE LOANS ON REAL ESTATE. Fair value of mortgage loans was estimated
primarily using discounted cash flows, based on contractual maturities and
discount rates that were based on U.S. Treasury rates for similar maturity
ranges, adjusted for risk, based on property type. The reporting of mortgage
loans on a fair value basis without a corresponding revaluation of related
policyholder liabilities can be misinterpreted, and care should be exercised in
drawing conclusions from such data.
POLICY LOANS. Fair value of policy loans was estimated using discounted
cash flows and actuarially-determined assumptions, incorporating market
rates.
INSURANCE INVESTMENT CONTRACTS. Insurance investment contracts do not
subject VALIC to significant risks arising from policyholder mortality or
morbidity. Fair value of insurance investment contracts was estimated using cash
flows discounted at market interest rates. Care should be exercised in drawing
conclusions based on the estimated fair value of insurance investment contracts,
since assumptions regarding future economic activity have been made in
estimating fair value.
8. TRANSACTIONS WITH AFFILIATED COMPANIES
In the ordinary course of business, VALIC is occasionally involved in
transactions with affiliated companies. Transactions involving the purchase or
disposal of securities are consummated at the market value of the security on
the date of the transaction. Transactions with affiliated companies during each
of the three years in the period ended December 31, 1994 were as follows:
Operating expenses include $23,138 in 1994, $23,055 in 1993, and $26,562 in
1992 for amounts paid to AGC or its subsidiaries primarily for rent, data
processing services, use of facilities, and investment expenses. Interest paid
on borrowings from AGC totaled $525 in 1994, $430 in 1993, and $1,405 in 1992.
On November 4, 1982, VALIC invested $11,853 in 13 1/2% Restricted
Subordinated Notes due November 4, 2002 issued by AGC. The principal amount of
the note is due November 4, 2002. A principal payment of $592 was received on
November 4, 1994. AGC called an amount totaling $410 on November 4, 1993. VALIC
recognized $1,532 in interest income during 1994, $1,591 for 1993, and $1,600
for 1992.
On December 31, 1984, VALIC entered into a $48,929 note purchase agreement
with AGC. Under the agreement AGC issued an adjustable rate promissory note in
exchange for VALIC's holdings of AGC preferred stock, common stock, and
warrants. The principal amount of the note is due in 20 equal installment
payments commencing December 29, 1985 and concluding December 29, 2004.
Principal payments of $2,446 were received on December 31, 1994, December 29,
1993, and December 31, 1992. VALIC recognized $1,810, $1,875, and $2,367, of
interest income on the note during 1994, 1993, and 1992, respectively.
11
On March 19, 1993, VALIC received a capital contribution of $40,000 from
American General Life Insurance Company (AGLIC).
On June 30, 1993, VALIC received a capital contribution from AGLIC of
furniture and equipment with a book value of $12,942 and a related deferred tax
liability of $1,096.
On February 14, 1994, VALIC acquired from AGLIC bonds of various issuers at
a cost of $11,268.
On February 15, 1994, VALIC acquired from AGLIC bonds of various issuers at
a cost of $9,900.
VALIC paid common stock dividends of $53,000, $14.83 per share, to AGLIC in
1994.
9. COMMITMENTS AND CONTINGENCIES
VALIC is a defendant in various lawsuits arising in the normal course of
business. VALIC believes it has valid defenses in these lawsuits and is
defending the cases vigorously. VALIC also believes that the total amounts that
would ultimately have to be paid arising from these lawsuits would have no
material effect on its consolidated financial position.
One case in particular, Otto v. VALIC, has gained a certain amount of
industry publicity and interest. In the case, the United States Court of Appeals
for the Seventh Circuit affirmed in part and reversed in part the District
Courts' entry of summary judgment in favor of VALIC. VALIC then filed
a petition for writ of certiorari with the Supreme Court of the United States
addressing the sole issue decided against VALIC by the Court of Appeals. On May
23, 1988, the U.S. Supreme Court denied VALIC's petition. The case has been
returned through the Court of Appeals to the District Court and discovery has
been completed. Mediation by a retired federal district judge has failed. The
case could go to trial in 1995. VALIC believes the ultimate outcome of the case
will not have a material effect on the company's consolidated financial
position.
All 50 states have laws requiring solvent life insurance companies to pay
assessments to state guaranty associations to protect the interests of
policyholders of insolvent life insurance and annuity companies. Known
insolvencies of life insurance companies are expected to result in future
assessments. Where probable future assessments can be reasonably estimated, they
have been accrued. As of December 31, 1994, the accrued liability for
anticipated assessments was $10,214, compared to $13,727 at December 31, 1993.
10. EMPLOYEE BENEFIT PLANS
10.1 PENSION PLANS
VALIC participates in several employee benefit plans which together cover
substantially all of its employees. One of these plans is a defined benefit
plan. Pension benefits under this plan are based on the participant's average
monthly compensation and length of credited service. VALIC's funding policy for
this plan is to contribute annually no more than the maximum amount that can be
deducted for federal income tax purposes.
The components of pension expense for the defined benefit plan were as
follows:
1994 1993 1992
----- ----- -----
Service cost (benefits earned)
during period ......................... $ 759 $ 567 $ 433
Interest cost on projected
benefit obligation .................... 551 407 307
Actual (return) loss on
plan assets ........................... 414 (667) (396)
Amortization of unrecognized
net asset existing at date of
initial application ................... (58) (58) (58)
Amortization of unrecognized
prior service cost .................... 35 35 35
Deferral of net asset gain (loss) ....... (920) 224 1
----- ----- -----
Total pension expense ................. $ 781 $ 508 $ 322
===== ===== =====
Assumptions used for 1994, 1993,
and 1992:
Weighted-average discount rate
on benefit obligation ................. 8.50% 7.25% 8.00%
Rate of increase in
compensation levels ................... 4.00 4.00 5.00
Expected long-term rate of
return on plan assets ................. 10.00 10.00 10.00
The following table sets forth the funded status and amounts recognized in
the Consolidated Balance Sheet at December 31, 1994 and 1993 for VALIC's defined
benefit pension plan:
1994 1993
------- -------
Actuarial present value of benefit obligation:
Vested ........................................... $ 4,862 $ 4,536
Nonvested ........................................ 285 423
------- -------
Accumulated benefit obligation ..................... 5,147 4,959
Effect of increase in compensation levels .......... 1,607 1,703
------- -------
Projected benefit obligation ....................... 6,754 6,662
Plan assets at fair value .......................... 5,211 5,627
------- -------
Plan assets in excess of projected
benefit obligation ............................... (1,543) (1,035)
Unrecognized net gain .............................. 306 351
Unrecognized prior service cost .................... 148 180
Unrecognized net obligation at
January 1, net of amortization ................... (93) (144)
------- -------
Net pension liability .......................... $(1,182) $ (648)
======= =======
More than 96% of the plan assets at the plans' most recent balance sheet
date, October 31, 1994, were invested in fixed maturity and equity securities.
The remaining plan assets consisted primarily of cash equivalents and
investment-related receivables.
12
10.2 POSTRETIREMENT BENEFITS OTHER THAN PENSIONS
VALIC, through American General Corporation, 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. For
individuals retiring after December 31, 1992, the cost of the supplemental major
medical plan is borne entirely by retirees. VALIC has reserved the right to
change or eliminate these benefits at any time.
The life plans are fully insured; the retiree and medical and dental plans
are unfunded and self-insured.
The plans' combined funded status and the accrued postretirement benefit
cost included in other liabilities at December 31 were as follows:
1994 1993
------- -------
Actuarial present value of benefit obligations
Retirees ......................................... $ 142 $ 196
Fully eligible active plan participants .......... 272 246
Other active plan participants ................... 865 699
------- -------
Accumulated postretirement
benefit obligation ............................... 1,279 1,141
Unrecognized net gain .............................. (114) (134)
-------- -------
Accrued postretirement benefit cost ............ $ 1,165 $ 1,007
-------- -------
Discount rate on postretirement
benefit obligations .............................. 8.50% 7.25%
------- -------
Postretirement benefit expense was as follows:
Service cost (benefits earned) ..................... $ 131 $ 79
Interest cost on accumulated
postretirement benefit obligation ................ 150 73
------- -------
Postretirement benefit expense ................. $ 281 $ 152
======= =======
For measurement purposes, a 12% annual rate of increase in the per capita
cost of covered health care benefits was assumed in 1995; the rate was assumed
to decrease gradually to 6% in 2007 and remain at that level. A 1% increase in
the assumed annual rate of increase in per capita cost of health care benefits
results in a $60 increase in the accumulated postretirement benefit obligation
and an $13 increase in postretirement benefit expense.
13
<PAGE>
VA 8527
ANNUAL
SEPARATE ACCOUNT A
REPORT
TO CONTRACT OWNERS
DECEMBER 31, 1994
VALIC
* An American General Company
<PAGE>
CHAIRMAN'S LETTER SEPARATE ACCOUNT A
TO OUR PARTICIPANTS:
We are pleased to present the December 31, 1994, Annual Report to Contract
Owners for Separate Account A of The Variable Annuity Life Insurance Company. A
summary of the change in unit value for each fund and each product series
(Portfolio Director, Independence Plus, Group Unit Purchase, and Impact) appears
on page two.
The Portfolio Director series is appearing for the first time in this
annual report. The Portfolio Director product series was introduced in the
summer of 1994, and is presently available in 49 states. In 1994 it was the
fastest growing variable annuity product in America, according to Variable
Annuity Research & Data Service (VARDS), accumulating approximately $1.1 billion
of account values by year end.
In December 1994, Morningstar, Inc. awarded its "five star" ranking to two
VALIC funds - the International Government Bond Fund and the Dreyfus Small Cap
Stock Fund. Tom Frank, manager of the Dreyfus Small Cap Fund was honored by
Morningstar as the 1994 Variable-Fund Manager of the Year.
Most of the VALIC funds experienced declines in unit values during 1994 as
the markets retreated. The funds continue to be managed consistently with their
long term objectives.
During 1994 domestic equity returns were 1.32% for the S&P 500 Index,
- -3.59% for the S&P MidCap 400 Index, and -1.82% for the Russell 2000 Index.
Domestic fixed income returns, measured by the Merrill Lynch Corporate Master
Index, declined by 3.36%. The U.S. Treasury market declined by 3.43% as measured
by the Lehman Brothers U.S. Treasury Index.
International returns were positive with the Europe, Australia, Far East
Index (EAFE) gaining 7.78%, and the Salomon Brothers Non-U.S. Government Bond
Index gaining 5.69%.
If you have any questions about your contract or this report, we would be
happy to hear from you.
Respectfully,
STEPHEN D. BICKEL
Stephen D. Bickel, Chairman and CEO
The Variable Annuity Life Insurance Company
February 8, 1995
NOTE: This report is published exclusively for the information of the variable
annuity contract owners of the Company in accordance with section 30 (d)
of the Investment Company Act of 1940. This report is authorized for
distribution to other persons only when preceded or accompanied by an
effective prospectus which gives the sales expense and other pertinent
information.
"Standard & Poor's Registration Mark 500 Index" and "Standard & Poor's
Registration Mark MidCap 400 Index" are trademarks of Standard & Poor's
Corporation. The Stock Index Fund and MidCap Index Fund are not sponsored,
endorsed, sold or promoted by S&P and S&P makes no representation
regarding the advisability of investing in the funds. The Russell 2000
Registration Mark Index is a trademark / service mark of the Frank Russell
Company. Russell trademark is a trademark of the Frank Russell Company.
1
<PAGE>
UNIT VALUE RETURNS
(Unaudited)
<TABLE>
<CAPTION>
ONE YEAR TOTAL
RETURNS FOR THE
PORTFOLIO INDEPENDENCE GROUP UNIT YEAR ENDING DECEMBER 31,
DIRECTOR PLUS IMPACT PURCHASE ------------------------
DIVISION DIVISION DIVISION DIVISION 1994 1993
--------- ------------ --------- ---------- -------- --------
INDEXED FUNDS
<S> <C> <C> <C> <C> <C> <C>
Stock Index Fund ................................... 10C 10C 10D 10A, 10B (0.30)% 8.78%
MidCap Index Fund .................................. 4 4 4 N/A (4.70) 11.78
Small Cap Index Fund ............................... 14 14 N/A N/A (4.30) 14.77
International Equities Fund ........................ 11 11 N/A N/A 6.90 28.58
MANAGED FUNDS
Growth Fund ........................................ 15 N/A N/A N/A 0.18 <F1> N/A
Growth & Income Fund ............................... 16 N/A N/A N/A (0.68)<F1> N/A
Science & Technology Fund .......................... 17 N/A N/A N/A 24.77 <F1> N/A
Social Awareness Fund .............................. 12 12 N/A N/A (2.42) 6.84
Timed Opportunity Fund ............................. 5 5 5 N/A (2.29) 8.19
Capital Conservation Fund .......................... 7 7 1 N/A (7.04) 10.88
Government Securities Fund ......................... 8 8 N/A N/A (5.44) 9.70
International Government Bond Fund ................. 13 13 N/A N/A 3.42 13.08
Money Market Fund .................................. 6 6 2 N/A 2.77 1.67
Dreyfus Small Cap Fund ............................. 18 N/A N/A N/A 6.33 N/A
Templeton Asset Allocation Fund .................... 19 N/A N/A N/A (4.24) N/A
Templeton International Fund ....................... 20 N/A N/A N/A (3.49) N/A
<FN>
<F1> Since April 29, 1994, inception of the Fund.
</FN>
</TABLE>
VARIABLE ACCOUNT PERFORMANCE
FOR THE YEAR ENDED DECEMBER 31, 1994
<TABLE>
<CAPTION>
LIPPER ANALYTICAL
SERVICES, INC. MORNINGSTAR, INC.
--------------------------------- --------------------------------------
UNIT RANKING RANKING
VALUE ----------------------- AVERAGE --------------------------- AVERAGE
RETURN POSITION PERCENTILE RETURN POSITION PERCENTILE RETURN
------ ---------- ---------- ------- ------------ ---------- -------
<S> <C> <C> <C> <C> <C> <C> <C>
Stock Index Fund ............................ (0.30)% 19/38 50% (.19)% 75/187 60% (.25)%
MidCap Index Fund ........................... (4.70) 15/17 12 1.26 208/287 28 (2.87)
Small Cap Index Fund ........................ (4.30) 16/33 52 (2.68) 54/89 39 (.96)
International Equities Fund ................. 6.90 4/69 94 (.81) 9/136 93 (1.07)
Growth Fund ................................. N/A N/A N/A N/A N/A N/A N/A
Growth & Income Fund ........................ N/A N/A N/A N/A N/A N/A N/A
Science & Technology Fund ................... N/A N/A N/A N/A N/A N/A N/A
Social Awareness Fund ....................... (2.42) 2/12 83 (4.24) 157/187 16 (.25)
Timed Opportunity Fund ...................... (2.29) 54/136 60 (3.65) 66/226 71 (3.89)
Capital Conservation Fund ................... (7.04) 68/71 4 (4.86) 165/179 8 (4.98)
Government Securities Fund .................. (5.44) 28/45 38 (4.94) 55/80 31 (4.56)
International Government Bond Fund .......... 3.42 1/31 100 (6.34) 1/37 100 (6.48)
Money Market Fund ........................... 2.77 67/182 63 2.62 64/186 66 2.61
Dreyfus Small Cap Fund ...................... N/A N/A N/A N/A N/A N/A N/A
Templeton Asset Allocation Fund ............. N/A N/A N/A N/A N/A N/A N/A
Templeton International Fund ................ N/A N/A N/A N/A N/A N/A N/A
</TABLE>
Sources: Morningstar Variable Annuity/Life Performance Report, January 1995
Lipper Variable Insurance Products Performance Analysis
Service, December 1994
The Portfolio Director rankings shown in this publication indicate the
total return rankings of Separate Account A's divisions compared to Morningstar
and Lipper categories for the twelve month period ending 12/31/94. The total
returns and rankings displayed show value after all management, administration
fees and fund expenses and do not include potential sales charges or maintenance
fees, if applicable. For total return information over a longer period, see the
Portfolio Director prospectus. The performance shown represents past
performance. The principal value of an investment will fluctuate so that an
investor's shares, when redeemed, may be worth more or less than their original
cost. Past performance does not guarantee future returns.
2
<PAGE>
FINANCIAL STATEMENTS SEPARATE ACCOUNT A
STATEMENT OF NET ASSETS
December 31, 1994
<TABLE>
<CAPTION>
ASSETS: ALL DIVISIONS
--------------
<S> <C>
Total investment in shares of mutual funds, at market (cost $2,442,944,600) ............. $2,498,950,500
Balance due from VALIC general account .................................................. 7,859,569
--------------
NET ASSETS .............................................................................. $2,506,810,069
==============
CONTRACT OWNER RESERVES:
Reserves for redeemable annuity contracts
(Net of applicable contract loans - partial withdrawals with right of
reinvestment) .................................................................... $2,496,850,770
Reserves for annuity contracts on benefit ............................................... 9,959,299
--------------
TOTAL CONTRACT OWNER RESERVES ........................................................... $2,506,810,069
==============
STATEMENT OF OPERATIONS
For the year ended December 31, 1994
INVESTMENT INCOME: ALL DIVISIONS
--------------
Dividends from mutual funds ............................................................. $ 53,870,572
--------------
EXPENSES:
Mortality risk charge ................................................................... 17,089,353
Expense risk charge ..................................................................... 4,199,616
--------------
Total expenses ...................................................................... 21,288,969
--------------
NET INVESTMENT INCOME ................................................................... 32,581,603
--------------
REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS:
Net realized gain on investments ........................................................ 14,131,361
Capital gains distributions from mutual funds ........................................... 25,307,836
Net unrealized depreciation of investments during the period ............................ (95,069,796)
--------------
Net realized and unrealized loss on investments ..................................... (55,630,599)
--------------
DECREASE IN NET ASSETS RESULTING FROM OPERATIONS ........................................ $ (23,048,996)
==============
</TABLE>
STATEMENTS OF CHANGES IN NET ASSETS
For the year ended December 31:
<TABLE>
<CAPTION>
ALL DIVISIONS
------------------------------------
OPERATIONS: 1994 1993
--------------- ---------------
<S> <C> <C>
Net investment income .................................................................... $ 32,581,603 $ 23,713,484
Net realized gain on investments ......................................................... 14,131,361 811,826
Capital gains distributions from mutual funds ............................................ 25,307,836 15,051,592
Net unrealized appreciation (depreciation) of investments during the year ................ (95,069,796) 106,693,053
--------------- ---------------
Increase (decrease) in net assets resulting from operations .......................... (23,048,996) 146,269,955
--------------- ---------------
PRINCIPAL TRANSACTIONS:
Purchase payments ........................................................................ 581,037,348 433,481,876
Surrenders of accumulation units by terminations, withdrawals, and maintenance fees ...... (96,084,797) (74,124,797)
Annuity benefit payments ................................................................. (1,371,515) (1,463,350)
Amounts transferred from VALIC general account ........................................... 155,830,645 74,287,999
--------------- ---------------
Increase in net assets resulting from principal transactions ......................... 639,411,681 432,181,728
--------------- ---------------
TOTAL INCREASE IN NET ASSETS ............................................................. 616,362,685 578,451,683
NET ASSETS:
Beginning of year ........................................................................ 1,890,447,384 1,311,995,701
--------------- ---------------
End of year .............................................................................. $ 2,506,810,069 $ 1,890,447,384
=============== ===============
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS.
3
<PAGE>
FINANCIAL STATEMENTS SEPARATE ACCOUNT A
STATEMENTS OF NET ASSETS
December 31, 1994
<TABLE>
<CAPTION>
MIDCAP
STOCK INDEX FUND INDEX
----------------------------------------------------------- FUND
DIVISION 10A DIVISION 10B DIVISION 10C DIVISION 10D DIVISION 4
------------- ------------- ------------- ------------- -------------
<S> <C> <C> <C> <C> <C>
ASSETS:
Investment in shares of mutual funds, at market ....... $ 282,610,627 $ 24,296,771 $ 718,635,231 $ 37,337,444 $ 370,387,709
Balance due (to) from VALIC general account ........... (19,247) 1,597 1,109,856 29,871 (71,620)
------------- ------------- ------------- ------------- -------------
NET ASSETS ............................................ $ 282,591,380 $ 24,298,368 $ 719,745,087 $ 37,367,315 $ 370,316,089
============= ============= ============= ============= =============
CONTRACT OWNER RESERVES:
Reserves for redeemable annuity contracts (Net of
applicable contract loans - partial withdrawals
with right of reinvestment) ....................... $ 274,465,217 $ 23,102,872 $ 719,444,674 $ 37,316,539 $ 370,246,711
Reserves for annuity contracts on benefit ............. 8,126,163 1,195,496 300,413 50,776 69,378
------------- ------------- ------------- ------------- -------------
TOTAL CONTRACT OWNER RESERVES ......................... $ 282,591,380 $ 24,298,368 $ 719,745,087 $ 37,367,315 $ 370,316,089
============= ============= ============= ============= =============
</TABLE>
STATEMENTS OF NET ASSETS
December 31, 1994
<TABLE>
<CAPTION>
SOCIAL TIMED GOVERNMENT
AWARENESS OPPORTUNITY CAPITAL CONSERVATION SECURITIES
FUND FUND --------------------------- FUND
DIVISION 12 DIVISION 5 DIVISION 1 DIVISION 7 DIVISION 8
------------ ------------ ------------ ------------ -------------
<S> <C> <C> <C> <C> <C>
ASSETS:
Investment in shares of mutual funds, at market ....... $ 38,816,280 $174,745,029 $ 7,993,140 $ 40,807,649 $ 41,224,096
Balance due (to) from VALIC general account ........... 6,809 44,431 13,128 (3,096) 142,854
------------ ------------ ------------ ------------ ------------
NET ASSETS ............................................ $ 38,823,089 $174,789,460 $ 8,006,268 $ 40,804,553 $ 41,366,950
============ ============ ============ ============ ============
CONTRACT OWNER RESERVES:
Reserves for redeemable annuity contracts (Net of
applicable contract loans - partial withdrawals
with right of reinvestment) ....................... $ 38,823,089 $174,724,084 $ 8,002,096 $ 40,804,553 $ 41,366,950
Reserves for annuity contracts on benefit ............. -- 65,376 4,172 -- --
------------ ------------ ------------ ------------ ------------
TOTAL CONTRACT OWNER RESERVES ......................... $ 38,823,089 $174,789,460 $ 8,006,268 $ 40,804,553 $ 41,366,950
============ ============ ============ ============ ============
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS.
4
<PAGE>
STATEMENTS OF NET ASSETS
December 31, 1994
<TABLE>
<CAPTION>
SMALL CAP INTERNATIONAL GROWTH & SCIENCE &
INDEX EQUITIES GROWTH INCOME TECHNOLOGY
FUND FUND FUND FUND FUND
DIVISION 14 DIVISION 11 DIVISION 15 DIVISION 16 DIVISION 17
------------- ------------- ------------- ------------- -------------
<S> <C> <C> <C> <C> <C>
ASSETS:
Investment in shares of mutual funds, at market ........ $ 123,129,003 $ 198,691,488 $ 32,721,056 $ 12,324,238 $ 54,586,046
Balance due (to) from VALIC general account ............ 156,818 203,569 188,966 54,274 (908,084)
------------- ------------- ------------- ------------- -------------
NET ASSETS ............................................. $ 123,285,821 $ 198,895,057 $ 32,910,022 $ 12,378,512 $ 53,677,962
============= ============= ============= ============= =============
CONTRACT OWNER RESERVES:
Reserves for redeemable annuity contracts (Net of
applicable contract loans - partial withdrawals
with right of reinvestment) ........................ $ 123,285,821 $ 198,766,472 $ 32,910,022 $ 12,378,512 $ 53,677,962
Reserves for annuity contracts on benefit .............. -- 128,585 -- -- --
------------- ------------- ------------- ------------- -------------
TOTAL CONTRACT OWNER RESERVES .......................... $ 123,285,821 $ 198,895,057 $ 32,910,022 $ 12,378,512 $ 53,677,962
============= ============= ============= ============= =============
</TABLE>
STATEMENTS OF NET ASSETS
December 31, 1994
<TABLE>
<CAPTION>
INTERNATIONAL DREYFUS TEMPLETON TEMPLETON
GOVERNMENT MONEY MARKET FUND SMALL CAP ASSET ALLOCATION INTERNATIONAL
BOND FUND ------------------------- FUND FUND FUND
DIVISION 13 DIVISION 2 DIVISION 6 DIVISION 18 DIVISION 19 DIVISION 20
----------- ---------- ------------ ------------ ---------------- -----------
<S> <C> <C> <C> <C> <C> <C>
ASSETS:
Investment in shares of mutual
funds, at market ................ $33,511,231 $7,239,185 $106,312,340 $ 89,049,008 $32,782,088 $ 71,750,841
Balance due (to) from VALIC
general account ................. 49,859 (22,827) 6,106,418 354,600 71,185 350,208
----------- ---------- ------------ ------------ ----------- ------------
NET ASSETS ....................... $33,561,090 $7,216,358 $112,418,758 $ 89,403,608 $32,853,273 $ 72,101,049
=========== ========== ============ ============ =========== ============
CONTRACT OWNER RESERVES:
Reserves for redeemable annuity
contracts (Net of applicable
contract loans - partial
withdrawals with right of
reinvestment) ................... $33,561,090 $7,216,358 $112,399,818 $ 89,403,608 $32,853,273 $ 72,101,049
Reserves for annuity contracts
on benefit ...................... -- -- 18,940 -- -- --
----------- ---------- ------------ ------------ ----------- ------------
TOTAL CONTRACT OWNER RESERVES .... $33,561,090 $7,216,358 $112,418,758 $ 89,403,608 $32,853,273 $ 72,101,049
=========== ========== ============ ============ =========== ============
</TABLE>
5
<PAGE>
STATEMENTS OF OPERATIONS
For the year ended December 31, 1994
<TABLE>
<CAPTION>
MIDCAP
STOCK INDEX FUND INDEX
--------------------------------------------------------- FUND
DIVISION 10A DIVISION 10B DIVISION 10C DIVISION 10D DIVISION 4
------------ ------------ ------------ ------------ ------------
<S> <C> <C> <C> <C> <C>
INVESTMENT INCOME:
Dividends from mutual funds ............................. $ 7,466,271 $ 624,227 $ 17,514,360 $ 1,007,533 $ 6,040,427
------------ ------------ ------------ ------------ ------------
EXPENSES:
Mortality risk charge ................................... 2,380,876 72,892 5,523,142 373,642 2,842,478
Expense risk charge ..................................... 595,219 9,940 1,380,786 28,124 682,858
------------ ------------ ------------ ------------ ------------
Total expenses ...................................... 2,976,095 82,832 6,903,928 401,766 3,525,336
------------ ------------ ------------ ------------ ------------
NET INVESTMENT INCOME ................................... 4,490,176 541,395 10,610,432 605,767 2,515,091
------------ ------------ ------------ ------------ ------------
REALIZED AND UNREALIZED GAIN
(LOSS) ON INVESTMENTS:
Net realized gain (loss) on investments ................. (266,345) (16,715) 4,405,234 49,938 2,119,902
Capital gains distributions from mutual funds ........... 638,819 54,939 1,624,189 84,388 11,552,151
Net unrealized appreciation (depreciation)
of investments during the period .................... (5,896,939) (495,564) (17,763,623) (896,531) (32,449,763)
------------ ------------ ------------ ------------ ------------
Net realized and unrealized gain (loss) on investments .. (5,524,465) (457,340) (11,734,200) (762,205) (18,777,710)
------------ ------------ ------------ ------------ ------------
INCREASE (DECREASE) IN NET ASSETS
RESULTING FROM OPERATIONS ........................... (1,034,289) 84,055 (1,123,768) (156,438) (16,262,619)
============ ============ ============ ============ ============
</TABLE>
STATEMENTS OF OPERATIONS
For the year ended December 31, 1994
<TABLE>
<CAPTION>
SOCIAL TIMED GOVERNMENT
AWARENESS OPPORTUNITY CAPITAL CONSERVATION SECURITIES
FUND FUND --------------------------- FUND
DIVISION 12 DIVISION 5 DIVISION 1 DIVISION 7 DIVISION 8
------------ ------------ ------------ ------------ ------------
<S> <C> <C> <C> <C> <C>
INVESTMENT INCOME:
Dividends from mutual funds ............................. $ 870,143 $ 6,687,422 $ 609,262 $ 2,774,406 $ 2,453,304
------------ ------------ ------------ ------------ ------------
EXPENSES:
Mortality risk charge ................................... 308,682 1,526,226 85,705 331,355 338,454
Expense risk charge ..................................... 77,170 350,358 6,451 82,839 84,613
------------ ------------ ------------ ------------ ------------
Total expenses ...................................... 385,852 1,876,584 92,156 414,194 423,067
------------ ------------ ------------ ------------ ------------
NET INVESTMENT INCOME ................................... 484,291 4,810,838 517,106 2,360,212 2,030,237
------------ ------------ ------------ ------------ ------------
REALIZED AND UNREALIZED GAIN
(LOSS) ON INVESTMENTS:
Net realized gain (loss) on investments ................. 632,326 735,641 32,250 350,094 316,682
Capital gains distributions from mutual funds ........... 2,328,955 6,863,526 -- -- --
Net unrealized appreciation (depreciation)
of investments during the period .................... (4,358,741) (16,833,221) (1,254,436) (5,791,380) (4,822,548)
------------ ------------ ------------ ------------ ------------
Net realized and unrealized gain (loss) on investments .. (1,397,460) (9,234,054) (1,222,186) (5,441,286) (4,505,866)
------------ ------------ ------------ ------------ ------------
INCREASE (DECREASE) IN NET ASSETS
RESULTING FROM OPERATIONS ........................... (913,169) (4,423,216) (705,080) (3,081,074) (2,475,629)
============ ============ ============ ============ ============
</TABLE>
*For the period from July 11, 1994 to December 31, 1994.
SEE NOTES TO FINANCIAL STATEMENTS.
6
<PAGE>
STATEMENTS OF OPERATIONS
For the year ended December 31, 1994
<TABLE>
<CAPTION>
SMALL CAP INTERNATIONAL GROWTH & SCIENCE &
INDEX EQUITIES GROWTH INCOME TECHNOLOGY
FUND FUND FUND FUND FUND
DIVISION 14 DIVISION 11 DIVISION 15* DIVISION 16* DIVISION 17*
----------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C>
INVESTMENT INCOME:
Dividends from mutual funds .................................... $ 1,418,451 $ 2,310,740 $ 52,331 $ 25,375 $ 27,762
----------- ----------- ----------- ----------- -----------
EXPENSES:
Mortality risk charge .......................................... 861,227 1,379,423 44,540 17,056 65,466
Expense risk charge ............................................ 215,307 344,856 11,135 4,264 16,367
----------- ----------- ----------- ----------- -----------
Total expenses ............................................. 1,076,534 1,724,279 55,675 21,320 81,833
----------- ----------- ----------- ----------- -----------
NET INVESTMENT INCOME .......................................... 341,917 586,461 (3,344) 4,055 (54,071)
----------- ----------- ----------- ----------- -----------
REALIZED AND UNREALIZED GAIN
(LOSS) ON INVESTMENTS:
Net realized gain (loss) on investments ........................ 1,086,972 4,189,593 2 160 250,313
Capital gains distributions from mutual funds .................. -- 1,224,134 -- -- 549,747
Net unrealized appreciation (depreciation)
of investments during the period ........................... (5,860,073) 1,953,569 330,403 85,633 2,692,873
----------- ----------- ----------- ----------- -----------
Net realized and unrealized gain (loss) on investments ......... (4,773,101) 7,367,296 330,405 85,793 3,492,933
----------- ----------- ----------- ----------- -----------
INCREASE (DECREASE) IN NET ASSETS
RESULTING FROM OPERATIONS .................................. (4,431,184) 7,953,757 327,061 89,848 3,438,862
=========== =========== =========== =========== ===========
</TABLE>
STATEMENTS OF OPERATIONS
For the year ended December 31, 1994
<TABLE>
<CAPTION>
TEMPLETON
INTERNATIONAL DREYFUS ASSET TEMPLETON
GOVERNMENT MONEY MARKET FUND SMALL CAP ALLOCATION INTERNATIONAL
BOND FUND ------------------------ FUND FUND FUND
DIVISION 13 DIVISION 2 DIVISION 6 DIVISION 18* DIVISION 19* DIVISION 20*
----------- ----------- ----------- ----------- ------------ -------------
<S> <C> <C> <C> <C> <C> <C>
INVESTMENT INCOME:
Dividends from mutual funds .................... $ 1,652,262 $ 289,865 $ 1,681,795 $ 364,636 $ -- $ --
----------- ----------- ----------- ----------- ------------ -----------
EXPENSES:
Mortality risk charge .......................... 232,684 73,182 352,101 126,490 48,464 105,268
Expense risk charge ............................ 58,171 5,508 88,025 71,150 27,261 59,214
----------- ----------- ----------- ----------- ------------ -----------
Total expenses ............................. 290,855 78,690 440,126 197,640 75,725 164,482
----------- ----------- ----------- ----------- ------------ -----------
NET INVESTMENT INCOME .......................... 1,361,407 211,175 1,241,669 166,996 (75,725) (164,482)
----------- ----------- ----------- ----------- ------------ -----------
REALIZED AND UNREALIZED GAIN
(LOSS) ON INVESTMENTS:
Net realized gain (loss) on investments ........ 245,193 -- -- -- -- 121
Capital gains distributions from mutual
funds ...................................... -- -- -- 386,988 -- --
Net unrealized appreciation (depreciation)
of investments during the period ........... (642,360) -- -- (102,019) (729,094) (2,235,982)
----------- ----------- ----------- ----------- ------------ -----------
Net realized and unrealized gain (loss)
on investments ............................. (397,167) -- -- 284,969 (729,094) (2,235,861)
----------- ----------- ----------- ----------- ------------ -----------
INCREASE (DECREASE) IN NET ASSETS
RESULTING FROM OPERATIONS .................. 964,240 211,175 1,241,669 451,965 (804,819) (2,400,343)
=========== =========== =========== =========== ============ ===========
</TABLE>
7
<PAGE>
FINANCIAL STATEMENTS SEPARATE ACCOUNT A
STATEMENTS OF CHANGES IN NET ASSETS
For the year ended December 31:
<TABLE>
<CAPTION>
STOCK INDEX FUND
-------------------------------------------------------------
DIVISION 10A DIVISION 10B
----------------------------- -----------------------------
1994 1993 1994 1993
------------- ------------- ------------- -------------
<S> <C> <C> <C> <C>
OPERATIONS:
Net investment income .............................................. $ 4,490,176 $ 4,179,453 $ 541,395 $ 522,769
Net realized gain (loss) on investments ............................ (266,345) (390,883) (16,715) (27,589)
Capital gains distributions from mutual funds ...................... 638,819 1,850,151 54,939 154,885
Net unrealized appreciation (depreciation)
of investments during the year ................................. (5,896,939) 20,020,777 (495,564) 1,625,775
------------- ------------- ------------- -------------
Increase (decrease) in net assets resulting from operations .... (1,034,289) 25,659,498 84,055 2,275,840
------------- ------------- ------------- -------------
PRINCIPAL TRANSACTIONS:
Purchase payments .................................................. 5,464,415 6,122,860 720,902 902,333
Surrenders of accumulation units by terminations,
withdrawals, and maintenance fees .............................. (20,019,026) (17,052,374) (1,706,119) (1,179,769)
Annuity benefit payments ........................................... (1,114,443) (1,177,971) (205,698) (218,229)
Amounts transferred (to) from VALIC general account ................ (6,986,742) (3,670,910) (256,628) (209,297)
------------- ------------- ------------- -------------
Increase (decrease) in net assets resulting from principal
transactions ............................................... (22,655,796) (15,778,395) (1,447,543) (704,962)
------------- ------------- ------------- -------------
TOTAL INCREASE (DECREASE) IN NET ASSETS ............................ (23,690,085) 9,881,103 (1,363,488) 1,570,878
NET ASSETS:
Beginning of year .................................................. 306,281,465 296,400,362 25,661,856 24,090,978
------------- ------------- ------------- -------------
End of year ........................................................ $ 282,591,380 $ 306,281,465 $ 24,298,368 $ 25,661,856
============= ============= ============= =============
CHANGE IN UNITS OUTSTANDING:
Accumulation units beginning of year ............................... 36,512,399 38,339,955 1,937,835 1,980,063
Purchase payments .................................................. 678,364 783,756 57,856 75,300
Surrenders ......................................................... (2,487,947) (2,162,103) (138,745) (99,768)
Transfers - interdivision and (to) from VALIC general account ...... (888,296) (449,209) (20,852) (17,760)
------------- ------------- ------------- -------------
Accumulation units end of year ..................................... 33,814,520 36,512,399 1,836,094 1,937,835
============= ============= ============= =============
</TABLE>
<TABLE>
<CAPTION>
DECEMBER 31, DECEMBER 31,
----------------------------- -----------------------------
1994 1993 1994 1993
------------- ------------- ------------- -------------
<S> <C> <C> <C> <C>
Accumulation unit value ............................................ $ 8.116786 $ 8.140393 $ 12.582568 $ 12.535147
============= ============= ============= =============
Annuity unit value assuming a 3.5% discount factor ................. $ 2.510493 $ 2.605821 $ 3.309445 $ 3.412239
============= ============= ============= =============
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS.
8
<PAGE>
STATEMENTS OF CHANGES IN NET ASSETS
For the year ended December 31:
<TABLE>
<CAPTION>
STOCK INDEX FUND
-------------------------------------------------------------
DIVISION 10C DIVISION 10D
----------------------------- -----------------------------
1994 1993 1994 1993
------------- ------------- ------------- -------------
<S> <C> <C> <C> <C>
OPERATIONS:
Net investment income .............................................. $ 10,610,432 $ 7,692,240 $ 605,767 $ 623,918
Net realized gain (loss) on investments ............................ 4,405,234 (313,994) 49,938 9,728
Capital gains distributions from mutual funds ...................... 1,624,189 3,848,709 84,388 260,099
Net unrealized appreciation (depreciation)
of investments during the year ................................. (17,763,623) 34,062,303 (896,531) 2,939,011
------------- ------------- ------------- -------------
Increase (decrease) in net assets resulting from operations .... (1,123,768) 45,289,258 (156,438) 3,832,756
------------- ------------- ------------- -------------
PRINCIPAL TRANSACTIONS:
Purchase payments .................................................. 173,237,158 170,977,122 1,678,616 2,082,892
Surrenders of accumulation units by terminations,
withdrawals, and maintenance fees .............................. (26,626,162) (19,992,142) (2,632,793) (5,117,724)
Annuity benefit payments ........................................... (23,752) (46,714) (3,736) (3,734)
Amounts transferred (to) from VALIC general account ................ (65,001,259) (8,340,728) (4,630,624) (3,608,444)
------------- ------------- ------------- -------------
Increase (decrease) in net assets resulting from principal
transactions ............................................... 81,585,985 142,597,538 (5,588,537) (6,647,010)
------------- ------------- ------------- -------------
TOTAL INCREASE (DECREASE) IN NET ASSETS ............................ 80,462,217 187,886,796 (5,744,975) (2,814,254)
NET ASSETS:
Beginning of year .................................................. 639,282,870 451,396,074 43,112,290 45,926,544
------------- ------------- ------------- -------------
End of year ........................................................ $ 719,745,087 $ 639,282,870 $ 37,367,315 $ 43,112,290
============= ============= ============= =============
CHANGE IN UNITS OUTSTANDING:
Accumulation units beginning of year ............................... 369,550,060 283,808,045 14,043,516 16,275,183
Purchase payments .................................................. 99,449,095 102,720,320 551,269 694,922
Surrenders ......................................................... (14,897,712) (11,633,396) (863,807) (1,681,161)
Transfers - interdivision and (to) from VALIC general account ...... (37,867,155) (5,344,909) (1,523,294) (1,245,428)
------------- ------------- ------------- -------------
Accumulation units end of year ..................................... 416,234,288 369,550,060 12,207,684 14,043,516
============= ============= ============= =============
</TABLE>
<TABLE>
<CAPTION>
DECEMBER 31, DECEMBER 31,
----------------------------- -----------------------------
1994 1993 1994 1993
------------- ------------- ------------- -------------
<S> <C> <C> <C> <C>
Accumulation unit value ............................................ $ 1.724134 $ 1.729327 $ 3.056808 $ 3.066025
============= ============= ============= =============
Annuity unit value assuming a 3.5% discount factor ................. $ 1.352112 $ 1.403598 $ 1.966534 $ 2.041424
============= ============= ============= =============
</TABLE>
STATEMENTS OF CHANGES IN NET ASSETS
For the year ended December 31:
<TABLE>
<CAPTION>
SMALL CAP
MIDCAP INDEX FUND INDEX FUND
----------------------------- -----------------------------
DIVISION 4 DIVISION 14
----------------------------- -----------------------------
1994 1993 1994 1993
------------- ------------- ------------- -------------
<S> <C> <C> <C> <C>
OPERATIONS:
Net investment income .............................................. $ 2,515,091 $ 1,356,212 $ 341,917 $ 72,988
Net realized gain (loss) on investments ............................ 2,119,902 153,296 1,086,972 278,879
Capital gains distributions from mutual funds ...................... 11,552,151 2,344,512 -- 1,951,667
Net unrealized appreciation (depreciation)
of investments during the year ................................. (32,449,763) 23,115,856 (5,860,073) 3,307,579
------------- ------------- ------------- -------------
Increase (decrease) in net assets resulting from operations .... (16,262,619) 26,969,876 (4,431,184) 5,611,113
------------- ------------- ------------- -------------
PRINCIPAL TRANSACTIONS:
Purchase payments .................................................. 124,009,106 95,004,266 60,678,232 30,701,427
Surrenders of accumulation units by terminations,
withdrawals, and maintenance fees .............................. (14,276,915) (9,669,469) (3,630,894) (1,340,647)
Annuity benefit payments ........................................... (14,576) (13,535) -- --
Amounts transferred (to) from VALIC general account ................ (27,422,005) 28,182,566 (1,057,342) 25,934,929
------------- ------------- ------------- -------------
Increase (decrease) in net assets resulting from principal
transactions ............................................... 82,295,610 113,503,828 55,989,996 55,295,709
------------- ------------- ------------- -------------
TOTAL INCREASE (DECREASE) IN NET ASSETS ............................ 66,032,991 140,473,704 51,558,812 60,906,822
NET ASSETS:
Beginning of year .................................................. 304,283,098 163,809,394 71,727,009 10,820,187
------------- ------------- ------------- -------------
End of year ........................................................ $ 370,316,089 $ 304,283,098 $ 123,285,821 $ 71,727,009
============= ============= ============= =============
CHANGE IN UNITS OUTSTANDING:
Accumulation units beginning of year ............................... 134,621,879 81,007,871 56,159,647 9,723,477
Purchase payments .................................................. 55,929,821 44,737,785 48,518,804 25,636,612
Surrenders ......................................................... (6,365,496) (4,465,302) (2,868,199) (1,104,250)
Transfers - interdivision and (to) from VALIC general account ...... (12,744,186) 13,341,525 (1,426,413) 21,903,808
------------- ------------- ------------- -------------
Accumulation units end of year ..................................... 171,442,018 134,621,879 100,383,839 56,159,647
============= ============= ============= =============
</TABLE>
<TABLE>
<CAPTION>
DECEMBER 31, DECEMBER 31,
----------------------------- -----------------------------
1994 1993 1994 1993
------------- ------------- ------------- -------------
<S> <C> <C> <C> <C>
Accumulation unit value ............................................ $ 2.153183 $ 2.259378 $ 1.222329 $ 1.277199
============= ============= ============= =============
Annuity unit value assuming a 3.5% discount factor ................. $ 1.441063 $ 1.565003 $ 1.115264 $ 1.206069
============= ============= ============= =============
</TABLE>
9
<PAGE>
FINANCIAL STATEMENTS SEPARATE ACCOUNT A
STATEMENTS OF CHANGES IN NET ASSETS
For the year ended December 31:
<TABLE>
<CAPTION>
International Equities
Fund Growth Growth & Science &
----------------------------- Fund Income Fund Technology Fund
Division 11 Division 15 Division 16 Division 17
----------------------------- -------------- ------------ -------------
1994 1993 1994* 1994* 1994*
------------- ------------- -------------- ------------ -------------
<S> <C> <C> <C> <C> <C>
OPERATIONS:
Net investment income .............................. $ 586,461 $ (7,357) $ (3,344) $ 4,055 $ (54,071)
Net realized gain (loss)
on investments .................................... 4,189,593 122,095 2 160 250,313
Capital gains distributions
from mutual funds ................................. 1,224,134 200,185 -- -- 549,747
Net unrealized appreciation
(depreciation) of investments
during the year ................................... 1,953,569 13,523,320 330,403 85,633 2,692,873
------------- ------------- -------------- ------------ -------------
Increase (decrease) in net assets
resulting from operations ....................... 7,953,757 13,838,243 327,061 89,848 3,438,862
------------- ------------- -------------- ------------ -------------
PRINCIPAL TRANSACTIONS:
Purchase payments .................................. 70,132,976 31,229,552 4,547,841 1,630,675 6,652,744
Surrenders of accumulation units by
terminations, withdrawals, and
maintenance fees .................................. (6,159,144) (2,830,449) (39,858) (5,453) (37,889)
Annuity benefit payments ........................... (2,449) -- -- -- --
Amounts transferred (to) from VALIC
general account ................................... 11,350,355 33,089,090 28,074,978 10,663,442 43,624,245
------------- ------------- -------------- ------------ -------------
Increase (decrease) in net assets
resulting from principal transactions ........... 75,321,738 61,488,193 32,582,961 12,288,664 50,239,100
------------- ------------- -------------- ------------ -------------
TOTAL INCREASE (DECREASE) IN NET ASSETS ............ 83,275,495 75,326,436 32,910,022 12,378,512 53,677,962
NET ASSETS:
Beginning of year .................................. 115,619,562 40,293,126 -- -- --
------------- ------------- -------------- ------------ -------------
End of year ........................................ $ 198,895,057 $ 115,619,562 $ 32,910,022 $ 12,378,512 $ 53,677,962
============= ============= ============== ============ =============
CHANGE IN UNITS OUTSTANDING:
Accumulation units beginning of year ............... 117,215,227 52,524,165 -- -- --
Purchase payments .................................. 65,406,765 33,687,901 4,373,529 1,583,044 5,315,122
Surrenders ......................................... (5,718,100) (2,968,661) (40,064) (5,487) (32,041)
Transfers - interdivision and (to) from
VALIC general account ............................. 10,846,024 33,971,822 28,299,905 10,809,045 37,443,056
------------- ------------- -------------- ------------ -------------
Accumulation units end of year ..................... 187,749,916 117,215,227 32,633,370 12,386,602 42,726,137
============= ============= ============== ============ =============
December 31,
----------------------------- December 31, December 31, December 31,
1994 1993 1994 1994 1994
------------- ------------- -------------- ------------ -------------
Accumulation unit value ............................ $ 1.054460 $ 0.986387 $ 1.001834 $ 0.993168 $ 1.247713
============= ============= ============== ============ =============
Annuity unit value assuming a 3.5% discount factor . $ 0.880460 $ 0.852415 $ 0.978806 $ 0.970339 $ 1.219034
============= ============= ============== ============ =============
</TABLE>
*For the period from July 11, 1994 to December 31, 1994.
SEE NOTES TO FINANCIAL STATEMENTS.
10
<PAGE>
<TABLE>
<CAPTION>
Social Awareness Timed Opportunity
Fund Fund
----------------------------- -------------------------------
Division 12 Division 5
----------------------------- -------------------------------
1994 1993 1994 1993
------------- ------------- -------------- --------------
<S> <C> <C> <C> <C>
OPERATIONS:
Net investment income .............................. $ 484,291 $ 337,716 $ 4,810,838 $ 3,965,350
Net realized gain (loss)
on investments .................................... 632,326 151,967 735,641 284,369
Capital gains distributions
from mutual funds ................................. 2,328,955 338,965 6,863,526 3,174,296
Net unrealized appreciation
(depreciation) of investments
during the year ................................... (4,358,741) 910,644 (16,833,221) 5,295,536
------------- ------------- -------------- --------------
Increase (decrease) in net assets
resulting from operations ....................... (913,169) 1,739,292 (4,423,216) 12,719,551
------------- ------------- -------------- --------------
PRINCIPAL TRANSACTIONS:
Purchase payments .................................. 13,160,211 13,216,657 36,297,892 35,175,207
Surrenders of accumulation units by
terminations, withdrawals, and
maintenance fees .................................. (1,413,415) (984,379) (8,285,289) (6,709,505)
Annuity benefit payments ........................... -- -- (4,816) (1,070)
Amounts transferred (to) from VALIC
general account ................................... (7,867,172) 189,032 (36,353,014) (2,499,198)
------------- ------------- -------------- --------------
Increase (decrease) in net assets
resulting from principal transactions ........... 3,879,624 12,421,310 (8,345,227) 25,965,434
------------- ------------- -------------- --------------
TOTAL INCREASE (DECREASE) IN NET ASSETS ............ 2,966,455 14,160,602 (12,768,443) 38,684,985
NET ASSETS:
Beginning of year .................................. 35,856,634 21,696,032 187,557,903 148,872,918
------------- ------------- -------------- --------------
End of year ........................................ $ 38,823,089 $ 35,856,634 $ 174,789,460 $ 187,557,903
============= ============= ============== ==============
CHANGE IN UNITS OUTSTANDING:
Accumulation units beginning of year ............... 26,230,566 16,956,437 93,899,802 80,637,090
Purchase payments .................................. 9,604,919 9,860,571 18,196,642 18,041,762
Surrenders ......................................... (983,733) (715,677) (4,118,862) (3,428,934)
Transfers - interdivision and (to) from
VALIC general account ............................. (5,835,988) 129,235 (18,599,722) (1,350,116)
------------- ------------- -------------- --------------
Accumulation units end of year ..................... 29,015,764 26,230,566 89,377,860 93,899,802
============= ============= ============== ==============
December 31, December 31,
----------------------------- -------------------------------
1994 1993 1994 1993
------------- ------------- -------------- --------------
Accumulation unit value ............................ $ 1.333899 $ 1.366979 $ 1.951533 $ 1.997266
============= ============= ============== ==============
Annuity unit value assuming a 3.5% discount factor . $ 1.113787 $ 1.181314 $ 1.324778 $ 1.403225
============= ============= ============== ==============
</TABLE>
<TABLE>
<CAPTION>
Capital Conservation Fund
-------------------------------------------------------------
Division 1 Division 7
----------------------------- -----------------------------
1994 1993 1994 1993
------------- ------------- ------------ --------------
<S> <C> <C> <C> <C>
OPERATIONS:
Net investment income .............................. $ 517,106 $ 569,551 $ 2,360,212 $ 1,562,829
Net realized gain (loss)
on investments .................................... 32,250 264,615 350,094 136,240
Capital gains distributions
from mutual funds ................................. -- 51,254 -- 195,929
Net unrealized appreciation
(depreciation) of investments
during the year ................................... (1,254,436) 274,430 (5,791,380) 755,187
------------- ------------- ------------ --------------
Increase (decrease) in net assets
resulting from operations ....................... (705,080) 1,159,850 (3,081,074) 2,650,185
------------- ------------- ------------ --------------
PRINCIPAL TRANSACTIONS:
Purchase payments .................................. 494,060 627,934 14,414,782 13,216,821
Surrenders of accumulation units by
terminations, withdrawals, and
maintenance fees .................................. (1,098,891) (1,128,221) (2,021,727) (1,568,968)
Annuity benefit payments ........................... (478) (507) -- --
Amounts transferred (to) from VALIC
general account ................................... (1,152,049) (936,689) (8,653,752) 3,908,125
------------- ------------- ------------ --------------
Increase (decrease) in net assets
resulting from principal transactions ........... (1,757,358) (1,437,483) 3,739,303 15,555,978
------------- ------------- ------------ --------------
TOTAL INCREASE (DECREASE) IN NET ASSETS ............ (2,462,438) (277,633) 658,229 18,206,163
NET ASSETS:
Beginning of year .................................. 10,468,706 10,746,339 40,146,324 21,940,161
------------- ------------- ------------ --------------
End of year ........................................ $ 8,006,268 $ 10,468,706 $ 40,804,553 $ 40,146,324
============= ============= ============ ==============
CHANGE IN UNITS OUTSTANDING:
Accumulation units beginning of year ............... 3,590,916 4,086,583 24,628,606 14,922,749
Purchase payments .................................. 145,757 193,111 9,129,477 8,233,438
Surrenders ......................................... (362,666) (355,260) (1,241,827) (952,443)
Transfers - interdivision and (to) from
VALIC general account ............................. (420,146) (333,518) (5,657,037) 2,424,862
------------- ------------- ------------ --------------
Accumulation units end of year ..................... 2,953,861 3,590,916 26,859,219 24,628,606
============= ============= ============ ==============
December 31, December 31,
----------------------------- -----------------------------
1994 1993 1994 1993
------------- ------------- ------------ --------------
Accumulation unit value ............................ $ 2.709029 $ 2.913980 $ 1.515278 $ 1.630069
============= ============= ============ ==============
Annuity unit value assuming a 3.5% discount factor . $ 1.596246 $ 1.777039 $ 1.116084 $ 1.242610
============= ============= ============ ==============
</TABLE>
11
<PAGE>
FINANCIAL STATEMENTS SEPARATE ACCOUNT A
STATEMENTS OF CHANGES IN NET ASSETS
For the year ended December 31:
<TABLE>
<CAPTION>
Government Securities International Government
Fund Bond Fund
------------------------------- -------------------------------
Division 8 Division 13
------------------------------- -------------------------------
1994 1993 1994 1993
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
OPERATIONS:
Net investment income .................................. $ 2,030,237 $ 1,471,555 $ 1,361,407 $ 641,360
Net realized gain (loss) on investments ................ 316,682 230,903 245,193 (87,800)
Capital gains distributions from
mutual funds .......................................... -- 663,099 -- 17,841
Net unrealized appreciation
(depreciation) of investments
during the year ....................................... (4,822,548) 227,444 (642,360) 635,191
------------ ------------ ------------ ------------
Increase (decrease) in net assets
resulting from operations ........................... (2,475,629) 2,593,001 964,240 1,206,592
------------ ------------ ------------ ------------
PRINCIPAL TRANSACTIONS:
Purchase payments ...................................... 13,894,906 15,891,712 12,960,014 8,236,769
Surrenders of accumulation units by
terminations, withdrawals, and
maintenance fees ...................................... (1,878,777) (1,213,200) (981,285) (473,045)
Annuity benefit payments ............................... -- -- -- --
Amounts transferred (to) from VALIC
general account ....................................... (11,636,951) 1,418,287 (2,227,507) 6,924,920
------------ ------------ ------------ ------------
Increase (decrease) in net assets
resulting from principal transactions ............... 379,178 16,096,799 9,751,222 14,688,644
------------ ------------ ------------ ------------
TOTAL INCREASE (DECREASE) IN NET ASSETS ................ (2,096,451) 18,689,800 10,715,462 15,895,236
NET ASSETS:
Beginning of year ...................................... 43,463,401 24,773,601 22,845,628 6,950,392
------------ ------------ ------------ ------------
End of year ............................................ $ 41,366,950 $ 43,463,401 $ 33,561,090 $ 22,845,628
============ ============ ============ ============
CHANGE IN UNITS OUTSTANDING:
Accumulation units beginning of year ................... 26,563,166 16,609,444 18,155,381 6,245,713
Purchase payments ...................................... 8,675,976 9,849,609 10,044,637 6,728,889
Surrenders ............................................. (1,181,704) (729,770) (763,521) (374,185)
Transfers - interdivision and (to)
from VALIC general account ............................ (7,390,365) 833,883 (1,744,784) 5,554,964
------------ ------------ ------------ ------------
Accumulation units end of year ......................... 26,667,073 26,563,166 25,691,713 18,155,381
============ ============ ============ ============
December 31, December 31,
------------------------------- -------------------------------
1994 1993 1994 1993
------------ ------------ ------------ ------------
Accumulation unit value ................................ $ 1.547150 $ 1.636228 $ 1.301357 $ 1.258340
============ ============ ============ ============
Annuity unit value assuming a 3.5%
discount factor ....................................... $ 1.139558 $ 1.247303 $ 1.164474 $ 1.165348
============ ============ ============ ============
</TABLE>
*For the period from July 11, 1994 to December 31, 1994.
SEE NOTES TO FINANCIAL STATEMENTS.
12
<PAGE>
<TABLE>
<CAPTION>
Money Market Fund
---------------------------------------------------------------------
Division 2 Division 6
------------------------------- -------------------------------
1994 1993 1994 1993
----------- ------------- ------------ ------------
<S> <C> <C> <C> <C>
OPERATIONS:
Net investment income .................................. $ 211,175 $ 157,404 $ 1,241,669 $ 567,496
Net realized gain (loss) on investments ................ -- -- -- --
Capital gains distributions from mutual funds .......... -- -- -- --
Net unrealized appreciation (depreciation)
of investments during the year ........................ -- -- -- --
----------- ------------- ------------ ------------
Increase (decrease) in net assets resulting
from operations ..................................... 211,175 157,404 1,241,669 567,496
----------- ------------- ------------ ------------
PRINCIPAL TRANSACTIONS:
Purchase payments ...................................... 221,092 333,611 13,855,791 9,762,713
Surrenders of accumulation units by
terminations, withdrawals, and
maintenance fees ...................................... (663,266) (2,057,724) (4,406,881) (2,807,181)
Annuity benefit payments ............................... -- -- (1,567) (1,590)
Amounts transferred (to) from VALIC
general account ....................................... (978,344) (1,118,462) 66,014,809 (4,975,222)
----------- ------------- ------------ ------------
Increase (decrease) in net assets
resulting from principal transactions ............... (1,420,518) (2,842,575) 75,462,152 1,978,720
----------- ------------- ------------ ------------
TOTAL INCREASE (DECREASE) IN NET ASSETS ................ (1,209,343) (2,685,171) 76,703,821 2,546,216
NET ASSETS:
Beginning of year ...................................... 8,425,701 11,110,872 35,714,937 33,168,721
----------- ------------- ------------ ------------
End of year ............................................ $ 7,216,358 $ 8,425,701 $ 112,418,758 $ 35,714,937
=========== ============= ============ ============
CHANGE IN UNITS OUTSTANDING:
Accumulation units beginning of year ................... 4,129,981 5,536,887 24,799,810 23,414,474
Purchase payments ...................................... 107,142 168,074 9,439,315 6,916,245
Surrenders ............................................. (314,181) (959,941) (3,026,130) (1,914,027)
Transfers - interdivision and (to)
from VALIC general account ............................ (480,705) (615,039) 44,552,786 (3,616,882)
----------- ------------- ------------ ------------
Accumulation units end of year ......................... 3,442,237 4,129,981 75,765,781 24,799,810
=========== ============= ============ ============
December 31, December 31,
------------------------------- -------------------------------
1994 1993 1994 1993
----------- ------------- ------------ ------------
Accumulation unit value ................................ $ 2.096416 $ 2.040131 $ 1.479129 $ 1.439327
=========== ============= ============ ============
Annuity unit value assuming a 3.5%
discount factor ....................................... $ 1.379656 $ 1.389554 $ 1.077548 $ 1.085211
=========== ============= ============ ============
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Dreyfus Small Templeton Asset Templeton Inter-
Cap Fund Allocation Fund national Fund
Division 18 Division 19 Division 20
------------ ------------ ------------
1994* 1994* 1994*
------------ ------------ ------------
<S> <C> <C> <C>
OPERATIONS:
Net investment income ....................... $ 166,996 $ (75,725) $ (164,482)
Net realized gain (loss) on investments ..... -- -- 121
Capital gains distributions from mutual funds 386,988 -- --
Net unrealized appreciation (depreciation)
of investments during the year ............. (102,019) (729,094) (2,235,982)
------------ ------------ ------------
Increase (decrease) in net assets resulting
from operations .......................... 451,965 (804,819) (2,400,343)
------------ ------------ ------------
PRINCIPAL TRANSACTIONS:
Purchase payments ........................... 12,217,697 4,656,678 10,111,560
Surrenders of accumulation units by
terminations, withdrawals, and
maintenance fees ........................... (111,066) (47,985) (41,962)
Annuity benefit payments .................... -- -- --
Amounts transferred (to) from VALIC
general account ............................ 76,845,012 29,049,399 64,431,794
------------ ------------ ------------
Increase (decrease) in net assets
resulting from principal transactions .... 88,951,643 33,658,092 74,501,392
------------ ------------ ------------
TOTAL INCREASE (DECREASE) IN NET ASSETS ..... 89,403,608 32,853,273 72,101,049
NET ASSETS:
Beginning of year ........................... -- -- --
------------ ------------ ------------
End of year ................................. $ 89,403,608 $ 32,853,273 $ 72,101,049
============ ============ ============
CHANGE IN UNITS OUTSTANDING:
Accumulation units beginning of year ........ -- -- --
Purchase payments ........................... 11,303,726 4,421,687 9,484,235
Surrenders .................................. (107,113) (48,133) (41,499)
Transfers - interdivision and (to)
from VALIC general account ................. 73,973,258 28,434,048 62,273,775
------------ ------------ ------------
Accumulation units end of year .............. 85,169,871 32,807,602 71,716,511
============ ============ ============
December 31, December 31, December 31,
1994 1994 1994
------------ ------------ ------------
Accumulation unit value ..................... $ 1.043156 $ 0.995860 $ 0.999282
============ ============ ============
Annuity unit value assuming a 3.5%
discount factor ............................ $ 1.026303 $ 0.979771 $ 0.983138
============ ============ ============
</TABLE>
13
<PAGE>
NOTES TO FINANCIAL STATEMENTS SEPARATE ACCOUNT A
NOTE A -- ORGANIZATION
Separate Account A (the "Separate Account"), established by The Variable
Annuity Life Insurance Company ("VALIC") on April 18, 1979, is registered under
the Investment Company Act of 1940 as a unit investment trust. The Separate
Account is comprised of twenty-one subaccounts or "divisions." Each division,
which represents a variable investment vehicle available only through a VALIC
annuity contract, invests in one of the following mutual funds:
AMERICAN GENERAL SERIES PORTFOLIO COMPANY ("AGSPC"):
Stock Index Fund (Divisions 10A, B, C, and D),
MidCap Index Fund (Division 4),
Small Cap Index Fund (Division 14),
International Equities Fund (Division 11),
Growth Fund (Division 15),
Growth & Income Fund (Division 16),
Science & Technology Fund (Division 17),
Social Awareness Fund (Division 12),
Timed Opportunity Fund (Division 5),
Capital Conservation Fund (Divisions 1 and 7),
Government Securities Fund (Division 8),
International Government Bond Fund (Division 13), and
Money Market Fund (Divisions 2 and 6).
DREYFUS VARIABLE INVESTMENT FUND:
Dreyfus Small Cap Portfolio (Division 18)
TEMPLETON VARIABLE PRODUCTS SERIES FUND:
Templeton Asset Allocation Fund (Division 19)
Templeton International Fund (Division 20)
Divisions 15, 16, 17, 18, 19, and 20 commenced operations on July 11, 1994.
NOTE B -- SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
The assets of the Separate Account are segregated from VALIC's other
assets. The operations of the Separate Account are part of VALIC. The following
is a summary of significant accounting policies consistently followed by the
Separate Account in the preparation of its financial statements.
INVESTMENT VALUATION. Investments in mutual funds (the "Funds") are valued
at the net asset (market) value per share at the close of each business day.
INVESTMENT TRANSACTIONS. Investment transactions are accounted for on the
trade date. Realized gains and losses on investments are determined on the basis
of identified cost. Capital gain distributions from mutual funds are recorded on
the ex-dividend date and reinvested upon receipt.
ANNUITY RESERVES. Net payments made by variable annuity contract owners are
accumulated based on the performance of the investments of the Separate Account
until the date the contract owners select to commence annuity payments. Reserves
for annuities on which benefits are currently payable are provided for based
upon estimated mortality and other assumptions, including provisions for the
risk of adverse deviation from assumptions, which were appropriate at the time
the contracts were issued. The 1949 Progressive Annuity Table has been used in
the computation of annuity reserves for currently payable contracts.Participants
are able to elect investment rates between 3.0% and 6.0%, as regulated by the
laws of the State of Texas.
INVESTMENT INCOME. Dividend income from mutual funds is recorded on the
ex-dividend date and reinvested upon receipt.
NOTE C -- TRANSACTIONS WITH AFFILIATES
VALIC acts as investment adviser and transfer agent to the American General
Series Portfolio Company.
The Separate Account is charged for mortality and expense risks assumed by
VALIC. The charge, based on the daily net assets of each division, is assessed
daily based on the following annual rates: for Division 10B, .85% on the first
$10,000,000, .425% on the next $90,000,000, and .21% on the excess over
$100,000,000; for Divisions 1, 2, 4, 5, 6, 7, 8, 9, 10A, 10C, 10D, 11, 12, 13,
14, 15, 16, and 17, 1.00%; and for Divisions 18, 19, and 20, 1.25%.
Pursuant to the reorganization agreement entered into on April 17, 1987,
which transferred VALIC Separate Accounts One and Two into the Separate Account,
expenses of Division 10A (formerly Separate Account One) are limited to 1.4157%
of average daily net assets, and expenses of Division 10B (formerly Separate
Account Two) are limited to the following rates based on average daily net
assets: 0.6966% on the first $25,434,267 and 0.5% on the next $74,565,733.
Accordingly, during the year ended December 31, 1994, VALIC reduced expenses of
Division 10B by $67,955.
A portion of the annual contract maintenance charge is assessed each
contract (except those relating to Divisions 10A and 10B) by VALIC on the last
day of the calendar quarter in which VALIC receives the first purchase payment,
and in quarterly installments thereafter during the accumulation period.
Maintenance charges assessed totaled $1,857,628 and $1,308,948 for the years
ended December 31, 1994 and December 31, 1993, respectively.
VALIC received surrender charges of $1,233,026 and $829,064 for the years
ended December 31, 1994, and December 31, 1993, respectively. In addition, VALIC
received $124,462 and $22,329 for the year ended December 31, 1994, in sales
load on variable annuity purchase payments for Divisions 10A and 10B,
respectively. VALIC received $156,523 and $28,503 for the year ended December
31, 1993, in sales load on variable annuity purchase payments for Divisions 10A
and 10B, respectively.
14
<PAGE>
NOTE D -- INVESTMENTS
The cost of fund shares is the same for financial reporting and federal
income tax purposes. The following is a summary of fund shares owned as of
December 31, 1994:
<TABLE>
<CAPTION>
UNREALIZED
MARKET APPRECIATION
UNDERLYING FUND DIVISION SHARES PRICE MARKET COST (DEPRECIATION)
- --------------- --------- ---------- -------- -------------- -------------- ---------------
<S> <C> <C> <C> <C> <C> <C>
Stock Index Fund .................... 10A,B,C,D 73,504,810 $ 14.46 $1,062,880,073 $1,007,341,487 $ 55,538,586
MidCap Index Fund ................... 4 26,494,098 13.98 370,387,709 363,631,577 6,756,132
Small Cap Index Fund ................ 14 10,679,012 11.53 123,129,003 125,010,600 (1,881,597)
International Equities Fund ......... 11 19,809,708 10.03 198,691,488 186,715,599 11,975,889
Growth Fund ......................... 15 3,255,826 10.05 32,721,056 32,390,653 330,403
Growth & Income Fund ................ 16 1,241,111 9.93 12,324,238 12,238,605 85,633
Science & Technology Fund ........... 17 4,395,011 12.42 54,586,046 51,893,173 2,692,873
Social Awareness Fund ............... 12 3,503,273 11.08 38,816,280 41,275,168 (2,458,888)
Timed Opportunity Fund .............. 5 16,982,030 10.29 174,745,029 179,413,772 (4,668,743)
Capital Conservation Fund ........... 1&7 5,564,495 8.77 48,800,789 53,643,645 (4,842,856)
Government Securities Fund .......... 8 4,447,040 9.27 41,224,096 45,179,973 (3,955,877)
International Government Bond Fund .. 13 3,054,810 10.97 33,511,231 34,009,791 (498,560)
Money Market Fund ................... 2&6 113,551,525 1.00 113,551,525 113,551,525 --
Dreyfus Small Cap Fund .............. 18 2,438,363 36.52 89,049,008 89,151,027 (102,019)
Templeton Asset Allocation Fund ..... 19 2,089,362 15.69 32,782,088 33,511,182 (729,094)
Templeton International Fund ........ 20 5,427,447 13.22 71,750,841 73,986,823 (2,235,982)
-------------- -------------- --------------
$2,498,950,500 $2,442,944,600 $ 56,005,900
============== ============== ==============
</TABLE>
NOTE E -- FEDERAL INCOME TAXES
VALIC is taxed as a life insurance company under the Internal Revenue Code
and includes the operations of the Separate Account in determining its federal
income tax liability. Under existing federal income tax law the investment
income and capital gains from sale of investments realized by the Separate
Account are not taxable. Therefore, no federal income tax provision has been
made.
NOTE F -- SECURITY PURCHASES AND SALES
For the year ended December, 1994, the aggregate cost of purchases and
proceeds from sales of investments were:
PURCHASES SALES
------------ ------------
Stock Index Fund:
Division 10A ................................... $ 16,487,579 $ 34,174,742
Division 10B ................................... 1,609,111 2,446,702
Division 10C ................................... 126,957,455 33,102,517
Division 10D ................................... 2,592,139 7,487,506
MidCap Index Fund Division 4 ..................... 113,860,748 16,631,075
Small Cap Index Fund Division 14 ................. 65,855,679 9,384,187
International Equities Fund Division 11 .......... 101,189,686 23,935,570
Growth Fund Division 15 .......................... 32,390,744 93
Growth & Income Fund Division 16 ................. 12,250,924 12,479
Science & Technology Fund Division 17 ............ 53,018,051 1,375,191
Social Awareness Fund Division 12 ................ 11,165,369 4,387,773
Timed Opportunity Fund Division 5 ................ 29,143,380 25,569,907
Capital Conservation Fund:
Division 1 ..................................... 1,241,705 2,482,262
Division 7 ..................................... 14,422,019 8,217,870
Government Securities Fund Division 8 ............ 13,361,861 11,021,764
International Government Bond Fund Division 13 ... 18,074,694 6,958,865
Money Market Fund:
Division 2 ..................................... 3,296,012 4,469,480
Division 6 ..................................... 112,233,892 41,584,395
Dreyfus Small Cap Fund Division 18 ............... 89,151,027 --
Templeton Asset Allocation Fund Division 19 ...... 33,511,182 --
Templeton International Fund Division 20 ......... 73,988,766 2,064
------------ ------------
Total ........................................ $925,802,023 $233,244,442
============ ============
15
<PAGE>
REPORT OF INDEPENDENT AUDITORS SEPARATE ACCOUNT A
TO THE BOARD OF THE VARIABLE ANNUITY LIFE INSURANCE COMPANY AND CONTRACT
OWNERS OF THE VARIABLE ANNUITY LIFE INSURANCE COMPANY SEPARATE ACCOUNT A
We have audited the accompanying statements of net assets of The Variable
Annuity Life Insurance Company Separate Account A ("Separate Account A") and
each of the divisions (1, 2, 4, 5, 6, 7, 8, 10A, 10B, 10C, 10D, 11, 12, 13, 14,
15, 16, 17, 18, 19, and 20) comprising Separate Account A as of December 31,
1994. We have also audited the related statements of operations for the year
then ended and the statements of changes in net assets of Separate Account A and
each of its divisions for each of the two years in the period then ended except
divisions 15, 16, 17, 18, 19, and 20, for which we have audited the statements
of operations and the statements of changes in net assets for the period from
July 11, 1994 (inception) to December 31, 1994. These financial statements are
the responsibility of Separate Account A's management. Our responsibility is to
express an opinion on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. Our procedures included
confirmation of securities owned as of December 31, 1994, by correspondence with
the transfer agent. 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 Separate Account A and each of
the divisions comprising Separate Account A at December 31, 1994, and the
results of their operations and changes in their net assets for each of the
periods identified above, in conformity with generally accepted accounting
principles.
ERNST & YOUNG LLP
Houston, Texas
January 20, 1995
16
THE VARIABLE ANNUITY LIFE INSURANCE COMPANY
SEPARATE ACCOUNT A
P.O. Box 3206
Houston, Texas 77253-3206
VA 4872 REV 19/94
<PAGE>
THE VARIABLE ANNUITY LIFE INSURANCE COMPANY
SEPARATE ACCOUNT A
STATEMENTS OF NET ASSETS (UNAUDITED)
February 28, 1995
<TABLE>
<CAPTION>
AGSPC
AGSPC STOCK INDEX MIDCAP
------------------------------------------------------------ INDEX
DIVISION 10A DIVISION 10B DIVISION 10C DIVISION 10D DIVISION 4
------------- ------------- ------------- ------------ -------------
<S> <C> <C> <C> <C> <C>
ASSETS:
Investment in shares of mutual funds at cost ....... $ 262,528,766 $ 22,771,984 $ 676,538,478 $ 35,697,201 $ 358,641,962
Investment in shares of mutual funds at market ..... $ 291,620,890 $ 25,247,792 $ 759,778,968 $ 38,418,803 $ 386,806,709
Balance due (to) from VALIC general account ........ (482,086) (41,869) 35,246 (79,178) 204,916
------------- ------------- ------------- ------------- -------------
NET ASSETS ........................................... $ 291,138,804 $ 25,205,923 $ 759,814,214 $ 38,339,625 $ 387,011,625
============= ============= ============= ============= =============
CONTRACT OWNER RESERVES:
Reserves for redeemable annuity contracts (Net of
applicable contract loans - partial withdrawals
with right of reinvestment) ...................... $ 282,545,786 $ 23,969,121 $ 759,499,327 $ 38,286,807 $ 386,944,359
Reserves for annuity contracts on benefit .......... 8,593,018 1,236,802 314,887 52,818 67,266
------------- ------------- ------------- ------------- -------------
TOTAL CONTRACT OWNER RESERVES ........................ $ 291,138,804 $ 25,205,923 $ 759,814,214 $ 38,339,625 $ 387,011,625
============= ============= ============= ============= =============
<CAPTION>
AGSPC AGSPC AGSPC AGSPC
SMALL CAP INTERNATIONAL AGSPC GROWTH & SCIENCE &
INDEX EQUITIES GROWTH INCOME TECHNOLOGY
DIVISION 14 DIVISION 11 DIVISION 15 DIVISION 16 DIVISION 17
------------- ------------- ------------- ------------- -------------
<S> <C> <C> <C> <C> <C>
ASSETS:
Investment in shares of mutual funds at cost ....... $ 122,187,129 $ 186,325,313 $ 49,913,335 $ 18,578,106 $ 83,581,816
Investment in shares of mutual funds at market ..... $ 122,952,493 $ 187,688,062 $ 52,487,389 $ 19,386,664 $ 89,328,983
Balance due (to) from VALIC general account ........ (356,286) (527,947) 488,917 63,474 772,160
------------- ------------- ------------- ------------- -------------
NET ASSETS ........................................... $ 122,596,207 $ 187,160,115 $ 52,976,306 $ 19,450,138 $ 90,101,143
============= ============= ============= ============= =============
CONTRACT OWNER RESERVES:
Reserves for redeemable annuity contracts (Net of
applicable contract loans - partial withdrawals
with right of reinvestment) ...................... $ 122,596,207 $ 187,036,027 $ 52,976,306 $ 19,450,138 $ 90,090,370
Reserves for annuity contracts on benefit .......... 0 124,088 0 0 10,773
------------- ------------- ------------- ------------- -------------
TOTAL CONTRACT OWNER RESERVES ........................ $ 122,596,207 $ 187,160,115 $ 52,976,306 $ 19,450,138 $ 90,101,143
============= ============= ============= ============= =============
<CAPTION>
AGSPC AGSPC AGSPC
SOCIAL TIMED AGSPC CAPITAL CONSERVATION GOVERNMENT
AWARENESS OPPORTUNITY --------------------------- SECURITIES
DIVISION 12 DIVISION 5 DIVISION 1 DIVISION 7 DIVISION 8
------------ ------------ ------------ ------------ ------------
<S> <C> <C> <C> <C> <C>
ASSETS:
Investment in shares of mutual funds at cost ............ $ 40,786,197 $172,715,356 $ 8,424,051 $ 44,853,295 $ 46,933,647
Investment in shares of mutual funds at market .......... $ 40,959,329 $174,388,284 $ 8,151,091 $ 41,962,906 $ 44,128,065
Balance due (to) from VALIC general account ............. (27,348) (85,549) (55,833) (24,754) 142,755
------------ ------------ ------------ ------------ ------------
NET ASSETS ................................................ $ 40,931,981 $174,302,735 $ 8,095,258 $ 41,938,152 $ 44,270,820
============ ============ ============ ============ ============
CONTRACT OWNER RESERVES:
Reserves for redeemable annuity contracts (Net of
applicable contract loans - partial withdrawals
with right of reinvestment) ........................... $ 40,931,981 $174,235,756 $ 8,090,959 $ 41,938,152 $ 44,270,820
Reserves for annuity contracts on benefit ............... 0 66,979 4,299 0 0
------------ ------------ ------------ ------------ ------------
TOTAL CONTRACT OWNER RESERVES ............................. $ 40,931,981 $174,302,735 $ 8,095,258 $ 41,938,152 $ 44,270,820
============ ============ ============ ============ ============
<CAPTION>
AGSPC TEMPLETON
INTERNATIONAL AGSPC MONEY MARKET DREYFUS ASSET
GOV'T BOND -------------------------- SMALL CAP ALLOCATION
DIVISION 13 DIVISION 2 DIVISION 6 DIVISION 18 DIVISION 19
------------ ------------ ------------ ------------- ------------
<S> <C> <C> <C> <C> <C>
ASSETS:
Investment in shares of mutual funds at cost .............. $ 38,097,485 $ 7,206,861 $ 66,796,711 $128,387,413 $ 46,386,091
Investment in shares of mutual funds at market ............ $ 39,130,593 $ 7,206,861 $ 66,796,711 $131,963,907 $ 45,007,599
Balance due (to) from VALIC general account ............... 126,290 12,644 (1,179,798) 960,670 179,798
------------ ------------ ------------ ------------ ------------
NET ASSETS .................................................. $ 39,256,883 $ 7,219,505 $ 65,616,913 $132,924,577 $ 45,187,397
============ ============ ============ ============ ============
CONTRACT OWNER RESERVES:
Reserves for redeemable annuity contracts (Net of
applicable contract loans - partial withdrawals
with right of reinvestment) ............................. $ 39,256,883 $ 7,219,505 $ 65,598,078 $132,914,055 $ 45,164,615
Reserves for annuity contracts on benefit ................. 0 0 18,835 10,522 22,782
------------ ------------ ------------ ------------ ------------
TOTAL CONTRACT OWNER RESERVES ............................... $ 39,256,883 $ 7,219,505 $ 65,616,913 $132,924,577 $ 45,187,397
============ ============ ============ ============ ============
<CAPTION>
TEMPLETON
INTERNATIONAL ALL
DIVISION 20 DIVISIONS
------------- --------------
<S> <C> <C>
ASSETS:
Investment in shares of mutual funds at cost ............. $105,936,790 $2,523,287,987
Investment in shares of mutual funds at market ........... $101,558,571 $2,674,970,670
Balance due (to) from VALIC general account .............. 483,951 610,173
------------- --------------
NET ASSETS ................................................. $102,042,522 $2,675,580,843
============= ==============
CONTRACT OWNER RESERVES:
Reserves for redeemable annuity contracts (Net of
applicable contract loans - partial withdrawals
with right of reinvestment) ............................ $102,035,075 $2,665,050,327
Reserves for annuity contracts on benefit ................ 7,447 10,530,516
------------- --------------
TOTAL CONTRACT OWNER RESERVES .............................. $102,042,522 $2,675,580,843
============= ==============
</TABLE>
<PAGE>
THE VARIABLE ANNUITY LIFE INSURANCE COMPANY
SEPARATE ACCOUNT A
STATEMENTS OF OPERATIONS (UNAUDITED)
For the period ended February 28, 1995
<TABLE>
<CAPTION>
AGSPC AGSPC
AGSPC Stock Index MidCap Small Cap
------------------------------------------------------- Index Index
Division 10A Division 10B Division 10C Division 10D Division 4 Division 14
----------- ------------ ----------- ------------ ----------- -----------
<S> <C> <C> <C> <C> <C> <C>
INVESTMENT INCOME:
Dividends ................................ $ 1,044,049 $ 90,478 $ 2,711,503 $ 138,062 $ 1,182,228 $ 265,904
----------- ---------- ----------- ---------- ----------- ----------
EXPENSES:
Mortality risk charge .................... 369,666 11,260 954,845 57,128 491,454 158,362
Expense risk charge ...................... 92,416 1,536 238,711 4,300 118,063 39,591
----------- ---------- ----------- ---------- ----------- ----------
Total expenses ......................... 462,082 12,796 1,193,556 61,428 609,517 197,953
----------- ---------- ----------- ---------- ----------- ----------
NET INVESTMENT INCOME ...................... 581,967 77,682 1,517,947 76,634 572,711 67,951
----------- ---------- ----------- ---------- ----------- ----------
REALIZED AND UNREALIZED GAIN (LOSS)
ON INVESTMENTS:
Net realized gain (loss) on
investments sold ....................... 124,319 13,820 3,538,795 54,577 676,761 291,200
Net unrealized appreciation (depreciation)
of investments during the period ....... 17,161,517 1,482,487 41,104,910 2,242,524 21,408,615 2,646,961
----------- ---------- ----------- ---------- ----------- ----------
Net realized and unrealized
gain (loss) on investments ........... 17,285,836 1,496,307 44,643,705 2,297,101 22,085,376 2,938,161
----------- ---------- ----------- ---------- ----------- ----------
INCREASE (DECREASE) IN NET
ASSETS RESULTING FROM OPERATIONS ......... $17,867,803 $1,573,989 $46,161,652 $2,373,735 $22,658,087 $3,006,112
=========== ========== =========== ========== =========== ==========
<CAPTION>
AGSPC AGSPC AGSPC AGSPC
International AGSPC Growth & Science & Social
Equities Growth Income Technology Awareness
Division 11 Division 15 Division 16 Division 17 Division 12
------------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C>
INVESTMENT INCOME:
Dividends ................................ $ 48,449 $ 22,439 $ 29,389 $ 38,736 $ 148,867
------------ ----------- -------- ----------- ----------
EXPENSES:
Mortality risk charge .................... 248,048 54,345 20,158 90,143 51,524
Expense risk charge ...................... 62,012 13,586 5,039 22,536 12,881
------------ ----------- -------- ----------- ----------
Total expenses ......................... 310,060 67,931 25,197 112,679 64,405
------------ ----------- -------- ----------- ----------
NET INVESTMENT INCOME ...................... (261,611) (45,492) 4,192 (73,943) 84,462
------------ ----------- -------- ----------- ----------
REALIZED AND UNREALIZED GAIN (LOSS)
ON INVESTMENTS:
Net realized gain (loss) on
investments sold ....................... 2,112,446 0 0 315,765 76,000
Net unrealized appreciation (depreciation)
of investments during the period ....... (10,613,140) 2,243,651 722,925 3,054,294 2,632,020
------------ ----------- -------- ----------- ----------
Net realized and unrealized
gain (loss) on investments ........... (8,500,694) 2,243,651 722,925 3,370,059 2,708,020
------------ ----------- -------- ----------- ----------
INCREASE (DECREASE) IN NET
ASSETS RESULTING FROM OPERATIONS ......... ($ 8,762,305) $ 2,198,159 $727,117 $ 3,296,116 $2,792,482
============ =========== ======== =========== ==========
<CAPTION>
AGSPC AGSPC AGSPC
Timed AGSPC CapitalConservation Government International
Opportunity -------------------------- Securities Gov't Bond
Division 5 Division 1 Division 7 Division 8 Division 13
----------- ---------- ----------- ----------- -------------
<S> <C> <C> <C> <C> <C>
INVESTMENT INCOME:
Dividends ................................ 1,190,400 98,241 503,371 515,737 291,266
----------- --------- ----------- ----------- ----------
EXPENSES:
Mortality risk charge .................... 229,344 12,112 53,245 54,578 46,098
Expense risk charge ...................... 52,648 912 13,311 13,645 11,524
----------- --------- ----------- ----------- ----------
Total expenses ......................... 281,992 13,024 66,556 68,223 57,622
----------- --------- ----------- ----------- ----------
NET INVESTMENT INCOME ...................... 908,408 85,217 436,815 447,514 233,644
----------- --------- ----------- ----------- ----------
REALIZED AND UNREALIZED GAIN (LOSS)
ON INVESTMENTS:
Net realized gain (loss) on
investments sold ....................... (665,838) (4,721) (69,535) (64,687) 29,017
Net unrealized appreciation (depreciation)
of investments during the period ....... 6,341,671 266,903 1,412,604 1,150,295 1,531,668
----------- --------- ----------- ----------- ----------
Net realized and unrealized
gain (loss) on investments ........... 5,675,833 262,182 1,343,069 1,085,608 1,560,685
----------- --------- ----------- ----------- ----------
INCREASE (DECREASE) IN NET
ASSETS RESULTING FROM OPERATIONS ......... $ 6,584,241 $ 347,399 $ 1,779,884 $ 1,533,122 $1,794,329
=========== ========= =========== =========== ==========
<CAPTION>
Templeton
AGSPC Money Market Dreyfus Asset Templeton
---------------------- Small Cap Allocation International ALL
Division 2 Division 6 Division 18 Division 19 Division 20 DIVISIONS
---------- ---------- ----------- ----------- ----------- ------------
<S> <C> <C> <C> <C> <C> <C>
INVESTMENT INCOME:
Dividends ................................ 63,332 641,589 0 1,162,767 1,168,235 $ 11,355,042
------- -------- ----------- ----------- ----------- ------------
EXPENSES:
Mortality risk charge .................... 10,662 92,806 139,494 50,006 111,208 3,306,486
Expense risk charge ...................... 802 23,202 78,466 28,129 62,555 895,865
------- -------- ----------- ----------- ----------- ------------
Total expenses ......................... 11,464 116,008 217,960 78,135 173,763 4,202,351
------- -------- ----------- ----------- ----------- ------------
NET INVESTMENT INCOME ...................... 51,868 525,581 (217,960) 1,084,632 994,472 7,152,691
------- -------- ----------- ----------- ----------- ------------
REALIZED AND UNREALIZED GAIN (LOSS)
ON INVESTMENTS:
Net realized gain (loss) on
investments sold ....................... 0 0 0 (63) 0 6,427,856
Net unrealized appreciation (depreciation)
of investments during the period ....... 0 0 3,678,513 (649,398) (2,142,237) 95,676,783
------- -------- ----------- ----------- ----------- ------------
Net realized and unrealized
gain (loss) on investments ........... 0 0 3,678,513 (649,461) (2,142,237) 102,104,639
------- -------- ----------- ----------- ----------- ------------
INCREASE (DECREASE) IN NET
ASSETS RESULTING FROM OPERATIONS ......... $51,868 $525,581 $ 3,460,553 $ 435,171 ($1,147,765) $109,257,330
======= ======== =========== =========== =========== ============
</TABLE>
<PAGE>
THE VARIABLE ANNUITY LIFE INSURANCE COMPANY
SEPARATE ACCOUNT A
STATEMENTS OF CHANGES IN NET ASSETS (UNAUDITED)
For the period ended:
<TABLE>
<CAPTION>
AGSPC Stock Index AGSPC Stock Index
Division 10A Division 10B
------------------------------- ------------------------------
2 months ended Year ended 2 months ended Year ended
2/28/95 12/31/94 2/28/95 12/31/94
------------- ------------- -------------- ------------
<S> <C> <C> <C> <C>
OPERATIONS:
Net investment income ............................. $581,967 $4,490,176 $77,682 $541,395
Net realized gain (loss) on investments sold ...... 124,319 (266,345) 13,820 (16,715)
Capital gains distributions from mutual funds ..... 0 638,819 0 54,939
Net unrealized appreciation (depreciation) of
investments during the period ................... 17,161,517 (5,896,939) 1,482,487 (495,564)
------------- ------------- ------------ ------------
Increase in net assets resulting from operations . 17,867,803 (1,034,289) 1,573,989 84,055
------------- ------------- ------------ ------------
PRINCIPAL TRANSACTIONS:
Purchase payments ................................. 766,577 5,464,415 108,478 720,902
Surrenders of accumulation units by terminations,
withdrawals, and maintenance fees ............... (2,442,332) (20,019,026) (258,447) (1,706,119)
Annuity benefit payments .......................... (185,046) (1,114,443) (32,462) (205,698)
Amounts transferred (to) from VALIC general account (7,459,578) (6,986,742) (484,003) (256,628)
------------- ------------- ------------ ------------
Increase (decrease) in net assets resulting from
principal transactions ........................ (9,320,379) (22,655,796) (666,434) (1,447,543)
------------- ------------- ------------ ------------
TOTAL INCREASE (DECREASE) IN NET ASSETS ............. 8,547,424 (23,690,085) 907,555 (1,363,488)
NET ASSETS:
Beginning of period ................................. 282,591,380 306,281,465 24,298,368 25,661,856
------------- ------------- ------------ ------------
End of period ....................................... $291,138,804 $282,591,380 $25,205,923 $24,298,368
============= ============= ============ ============
Accumulation units end of period .................... 32,702,467 33,814,520 1,787,719 1,836,094
============= ============= ============ ============
Accumulation unit value ............................. $8.639892 $8.116786 $13.407654 $12.582568
============= ============= ============ ============
<CAPTION>
AGSPC Stock Index AGSPC Stock Index
Division 10C Division 10D
-------------------------------- ------------------------------
2 months ended Year ended 2 months ended Year ended
2/28/95 12/31/94 2/28/95 12/31/94
-------------- ------------- -------------- ------------
<S> <C> <C> <C> <C>
OPERATIONS:
Net investment income ............................. $1,517,947 $10,610,432 $76,634 $605,767
Net realized gain (loss) on investments sold ...... 3,538,795 4,405,234 54,577 49,938
Capital gains distributions from mutual funds ..... 0 1,624,189 0 84,388
Net unrealized appreciation (depreciation) of
investments during the period ................... 41,104,910 (17,763,623) 2,242,524 (896,531)
------------- ------------- ------------ ------------
Increase in net assets resulting from operations . 46,161,652 (1,123,768) 2,373,735 (156,438)
------------- ------------- ------------ ------------
PRINCIPAL TRANSACTIONS:
Purchase payments ................................. 26,479,598 173,237,158 198,698 1,678,616
Surrenders of accumulation units by terminations,
withdrawals, and maintenance fees ............... (4,669,840) (26,626,162) (247,066) (2,632,793)
Annuity benefit payments .......................... (3,263) (23,752) (1,137) (3,736)
Amounts transferred (to) from VALIC general account (27,899,020) (65,001,259) (1,351,920) (4,630,624)
------------- ------------- ------------ ------------
Increase (decrease) in net assets resulting from
principal transactions ........................ (6,092,525) 81,585,985 (1,401,425) (5,588,537)
------------- ------------- ------------ ------------
TOTAL INCREASE (DECREASE) IN NET ASSETS ............. 40,069,127 80,462,217 972,310 (5,744,975)
NET ASSETS:
Beginning of period ................................. 719,745,087 639,282,870 37,367,315 43,112,290
------------- ------------- ------------ ------------
End of period ....................................... $759,814,214 $719,745,087 $38,339,625 $37,367,315
============= ============= ============ ============
Accumulation units end of period .................... 413,861,133 416,234,288 11,767,698 12,207,684
============= ============= ============ ============
Accumulation unit value ............................. $1.835155 $1.724134 $3.253551 $3.056808
============= ============= ============ ============
<CAPTION>
AGSPC MidCap Index
Division 4
--------------------------------
2 months ended Year ended
2/28/95 12/31/94
-------------- -------------
<S> <C> <C>
OPERATIONS:
Net investment income ............................. $572,711 $2,515,091
Net realized gain (loss) on investments sold ...... 676,761 2,119,902
Capital gains distributions from mutual funds ..... 0 11,552,151
Net unrealized appreciation (depreciation) of
investments during the period ................... 21,408,615 (32,449,763)
------------- -------------
Increase in net assets resulting from operations . 22,658,087 (16,262,619)
------------- -------------
PRINCIPAL TRANSACTIONS:
Purchase payments ................................. 17,229,057 124,009,106
Surrenders of accumulation units by terminations,
withdrawals, and maintenance fees ............... (2,439,262) (14,276,915)
Annuity benefit payments .......................... (2,514) (14,576)
Amounts transferred (to) from VALIC general account (20,749,832) (27,422,005)
------------- -------------
Increase (decrease) in net assets resulting from
principal transactions ........................ (5,962,551) 82,295,610
------------- -------------
TOTAL INCREASE (DECREASE) IN NET ASSETS ............. 16,695,536 66,032,991
NET ASSETS:
Beginning of period ................................. 370,316,089 304,283,098
------------- -------------
End of period ....................................... $387,011,625 $370,316,089
============= =============
Accumulation units end of period .................... 169,263,445 171,442,018
============= =============
Accumulation unit value ............................. $2.286048 $2.153183
============= =============
<CAPTION>
AGSPC Small Cap Index AGSPC International Equit
Division 14 Division 11
-------------------------------- --------------------------------
2 months ended Year ended 2 months ended Year ended
2/28/95 12/31/94 2/28/95 12/31/94
-------------- ------------- -------------- -------------
<S> <C> <C> <C> <C>
OPERATIONS:
Net investment income ............................. $67,951 $341,917 ($261,611) $586,461
Net realized gain (loss) on investments sold ...... 291,200 1,086,972 2,112,446 4,189,593
Capital gains distributions from mutual funds ..... 0 0 0 1,224,134
Net unrealized appreciation (depreciation) of
investments during the period ................... 2,646,961 (5,860,073) (10,613,140) 1,953,569
------------- ------------- ------------- -------------
Increase in net assets resulting from operations . 3,006,112 (4,431,184) (8,762,305) 7,953,757
------------- ------------- ------------- -------------
PRINCIPAL TRANSACTIONS:
Purchase payments ................................. 8,311,787 60,678,232 11,003,066 70,132,976
Surrenders of accumulation units by terminations,
withdrawals, and maintenance fees ............... (552,612) (3,630,894) (1,001,649) (6,159,144)
Annuity benefit payments .......................... 0 0 (930) (2,449)
Amounts transferred (to) from VALIC general account (11,454,901) (1,057,342) (12,973,124) 11,350,355
------------- ------------- ------------- -------------
Increase (decrease) in net assets resulting from
principal transactions ........................ (3,695,726) 55,989,996 (2,972,637) 75,321,738
------------- ------------- ------------- -------------
TOTAL INCREASE (DECREASE) in NET ASSETS ............. (689,614) 51,558,812 (11,734,942) 83,275,495
NET ASSETS:
Beginning of period ................................. 123,285,821 71,727,009 198,895,057 115,619,562
------------- ------------- ------------- -------------
End of period ....................................... $122,596,207 $123,285,821 $187,160,115 $198,895,057
============= ============= ============= =============
Accumulation units end of period .................... 97,862,295 100,383,839 185,570,944 187,749,916
============= ============= ============= =============
Accumulaton unit value .............................. $1.252742 $1.222329 $1.007895 $1.054460
============= ============= ============= =============
<CAPTION>
AGSPC Growth AGSPC Growth & Income
Division 15 Division 16
------------------------------ ------------------------------
Period from Period from
2 months ended 7/11/94 to 2 months ended 7/11/94 to
2/28/95 12/31/94 2/28/95 12/31/94
------------- ------------ ------------- ------------
<S> <C> <C> <C> <C>
OPERATIONS:
Net investment income ............................. ($45,492) ($3,344) $4,192 $4,055
Net realized gain (loss) on investments sold ...... 0 2 0 160
Capital gains distributions from mutual funds ..... 0 0 0 0
Net unrealized appreciation (depreciation) of
investments during the period ................... 2,243,651 330,403 722,925 85,633
------------ ------------ ------------ ------------
Increase in net assets resulting from operations . 2,198,159 327,061 727,117 89,848
------------ ------------ ------------ ------------
PRINCIPAL TRANSACTIONS:
Purchase payments ................................. 4,243,963 4,547,841 1,356,074 1,630,675
Surrenders of accumulation units by terminations,
withdrawals, and maintenance fees ............... (47,800) (39,858) (44,677) (5,453)
Annuity benefit payments .......................... 0 0 0 0
Amounts transferred (to) from VALIC general account 13,671,962 28,074,978 5,033,112 10,663,442
------------ ------------ ------------ ------------
Increase (decrease) in net assets resulting from
principal transactions ........................ 17,868,125 32,582,961 6,344,509 12,288,664
------------ ------------ ------------ ------------
TOTAL INCREASE (DECREASE) in NET ASSETS ............. 20,066,284 32,910,022 7,071,626 12,378,512
NET ASSETS:
Beginning of period ................................. 32,910,022 0 12,378,512 0
------------ ------------ ------------ ------------
End of period ....................................... $52,976,306 $32,910,022 $19,450,138 $12,378,512
============ ============ ============ ============
Accumulation units end of period .................... 50,052,111 32,633,370 18,733,921 12,386,602
============ ============ ============ ============
Accumulaton unit value .............................. $1.058423 $1.001834 $1.038231 $0.993168
============ ============ ============ ============
<CAPTION>
AGSPC Science & Technology
Division 17
------------------------------
Period from
2 months ended 7/11/94 to
2/28/95 12/31/94
------------- ------------
<S> <C> <C>
OPERATIONS:
Net investment income ............................. ($73,943) ($54,071)
Net realized gain (loss) on investments sold ...... 315,765 250,313
Capital gains distributions from mutual funds ..... 0 549,747
Net unrealized appreciation (depreciation) of
investments during the period ................... 3,054,294 2,692,873
------------ ------------
Increase in net assets resulting from operations . 3,296,116 3,438,862
------------ ------------
PRINCIPAL TRANSACTIONS:
Purchase payments ................................. 6,738,957 6,652,744
Surrenders of accumulation units by terminations,
withdrawals, and maintenance fees ............... (110,096) (37,889)
Annuity benefit payments .......................... 0 0
Amounts transferred (to) from VALIC general account 26,498,204 43,624,245
------------ ------------
Increase (decrease) in net assets resulting from
principal transactions ........................ 33,127,065 50,239,100
------------ ------------
TOTAL INCREASE (DECREASE) in NET ASSETS ............. 36,423,181 53,677,962
NET ASSETS:
Beginning of period ................................. 53,677,962 0
------------ ------------
End of period ....................................... $90,101,143 $53,677,962
============ ============
Accumulation units end of period .................... 69,220,202 42,726,137
============ ============
Accumulaton unit value .............................. $1.301504 $1.247713
============ ============
<CAPTION>
AGSPC Social Awareness AGSPC Timed Opportunity
Division 12 Division 5
------------------------------ --------------------------------
2 months ended Year ended 2 months ended Year ended
2/28/95 12/31/94 2/28/95 12/31/94
------------- ------------ -------------- -------------
<S> <C> <C> <C> <C>
OPERATIONS:
Net investment income ............................. $84,462 $484,291 $908,408 $4,810,838
Net realized gain (loss) on investments sold ...... 76,000 632,326 (665,838) 735,641
Capital gains distributions from mutual funds ..... 0 2,328,955 0 6,863,526
Net unrealized appreciation (depreciation) of
investments during the period ................... 2,632,020 (4,358,741) 6,341,671 (16,833,221)
------------ ------------ ------------- -------------
Increase in net assets resulting from operations . 2,792,482 (913,169) 6,584,241 (4,423,216)
------------ ------------ ------------- -------------
PRINCIPAL TRANSACTIONS:
Purchase payments ................................. 1,810,671 13,160,211 4,778,829 36,297,892
Surrenders of accumulation units by terminations,
withdrawals, and maintenance fees ............... (237,858) (1,413,415) (1,114,697) (8,285,289)
Annuity benefit payments .......................... 0 0 (1,020) (4,816)
Amounts transferred (to) from VALIC general account (2,256,403) (7,867,172) (10,734,078) (36,353,014)
------------ ------------ ------------- -------------
Increase (decrease) in net assets resulting from
principal transactions ........................ (683,590) 3,879,624 (7,070,966) (8,345,227)
------------ ------------ ------------- -------------
TOTAL INCREASE (DECREASE) in NET ASSETS ............. 2,108,892 2,966,455 (486,725) (12,768,443)
NET ASSETS:
Beginning of period ................................. 38,823,089 35,856,634 174,789,460 187,557,903
------------ ------------ ------------- -------------
End of period ....................................... $40,931,981 $38,823,089 $174,302,735 $174,789,460
============ ============ ============= =============
Accumulation units end of period .................... 28,609,098 29,015,764 85,973,909 89,377,860
============ ============ ============= =============
Accumulation unit value ............................. $1.430733 $1.333899 $2.026612 $1.951533
============ ============ ============= =============
<CAPTION>
AGSPC Capital Conservation AGSPC Capital Conservation
Division 1 Division 7
------------------------------ ------------------------------
2 months ended Year ended 2 months ended Year ended
2/28/95 12/31/94 2/28/95 12/31/94
------------- ------------ ------------- ------------
<S> <C> <C> <C> <C>
OPERATIONS:
Net investment income ............................. $85,217 $517,106 $436,815 $2,360,212
Net realized gain (loss) on investments sold ...... (4,721) 32,250 (69,535) 350,094
Capital gains distributions from mutual funds ..... 0 0 0 0
Net unrealized appreciation (depreciation) of
investments during the period ................... 266,903 (1,254,436) 1,412,604 (5,791,380)
----------- ------------ ------------ ------------
Increase in net assets resulting from operations . 347,399 (705,080) 1,779,884 (3,081,074)
----------- ------------ ------------ ------------
PRINCIPAL TRANSACTIONS:
Purchase payments ................................. 18,190 494,060 1,826,998 14,414,782
Surrenders of accumulation units by terminations,
withdrawals, and maintenance fees ............... (98,887) (1,098,891) (343,032) (2,021,727)
Annuity benefit payments .......................... (78) (478) 0 0
Amounts transferred (to) from VALIC general account (177,634) (1,152,049) (2,130,251) (8,653,752)
----------- ------------ ------------ ------------
Increase (decrease) in net assets resulting from
principal transactions ........................ (258,409) (1,757,358) (646,285) 3,739,303
----------- ------------ ------------ ------------
TOTAL INCREASE (DECREASE) in NET ASSETS ............. 88,990 (2,462,438) 1,133,599 658,229
NET ASSETS:
Beginning of period ................................. 8,006,268 10,468,706 40,804,553 40,146,324
----------- ------------ ------------ ------------
End of period ....................................... $8,095,258 $8,006,268 $41,938,152 $40,804,553
=========== ============ ============ ============
Accumulation units end of period .................... 2,860,986 2,953,861 26,510,047 26,859,219
=========== ============ ============ ============
Accumulation unit value ............................. $2.828032 $2.709029 $1.581972 $1.515278
=========== ============ ============ ============
<CAPTION>
AGSPC Government Securities
Division 8
------------------------------
2 months ended Year ended
2/28/95 12/31/94
-------------- -----------
<S> <C> <C>
OPERATIONS:
Net investment income ............................. $447,514 $2,030,237
Net realized gain (loss) on investments sold ...... (64,687) 316,682
Capital gains distributions from mutual funds ..... 0 0
Net unrealized appreciation (depreciation) of
investments during the period ................... 1,150,295 (4,822,548)
------------ ------------
Increase in net assets resulting from operations . 1,533,122 (2,475,629)
------------ ------------
PRINCIPAL TRANSACTIONS:
Purchase payments ................................. 1,862,308 13,894,906
Surrenders of accumulation units by terminations,
withdrawals, and maintenance fees ............... (242,013) (1,878,777)
Annuity benefit payments .......................... 0 0
Amounts transferred (to) from VALIC general account (249,547) (11,636,951)
------------ ------------
Increase (decrease) in net assets resulting from
principal transactions ........................ 1,370,748 379,178
------------ ------------
TOTAL INCREASE (DECREASE) in NET ASSETS ............. 2,903,870 (2,096,451)
NET ASSETS:
Beginning of period ................................. 41,366,950 43,463,401
------------ ------------
End of period ....................................... $44,270,820 $41,366,950
============ ============
Accumulation units end of period .................... 27,602,396 26,667,073
============ ============
Accumulation unit value ............................. $1.603876 $1.547150
============ ============
<CAPTION>
AGSPC International Gov't Bond AGSPC Money Market
Division 13 Division 2
------------------------------- -----------------------------
2 months ended Year ended 2 months ended Year ended
2/28/95 12/31/94 2/28/95 12/31/94
--------------- ------------ -------------- -----------
<S> <C> <C> <C> <C>
OPERATIONS:
Net investment income ............................. $233,644 $1,361,407 $51,868 $211,175
Net realized gain (loss) on investments sold ...... 29,017 245,193 0 0
Capital gains distributions from mutual funds ..... 0 0 0 0
Net unrealized appreciation (depreciation) of
investments during the period ................... 1,531,668 (642,360) 0 0
------------ ------------ ----------- -----------
Increase in net assets resulting from operations . 1,794,329 964,240 51,868 211,175
------------ ------------ ----------- -----------
PRINCIPAL TRANSACTIONS:
Purchase payments ................................. 2,605,941 12,960,014 27,247 221,092
Surrenders of accumulation units by terminations,
withdrawals, and maintenance fees ............... (295,618) (981,285) (20,655) (663,266)
Annuity benefit payments .......................... 0 0 0 0
Amounts transferred (to) from VALIC general account 1,591,141 (2,227,507) (55,313) (978,344)
------------ ------------ ----------- -----------
Increase (decrease) in net assets resulting from
principal transactions ........................ 3,901,464 9,751,222 (48,721) (1,420,518)
------------ ------------ ----------- -----------
TOTAL INCREASE (DECREASE) in NET ASSETS ............. 5,695,793 10,715,462 3,147 (1,209,343)
NET ASSETS:
Beginning of period ................................. 33,561,090 22,845,628 7,216,358 8,425,701
------------ ------------ ----------- -----------
End of period ....................................... $39,256,883 $33,561,090 $7,219,505 $7,216,358
============ ============ =========== ===========
Accumulation units end of period .................... 28,723,470 25,691,713 3,418,648 3,442,237
============ ============ =========== ===========
Accumulation unit value ............................. $1.366718 $1.301357 $2.111801 $2.096416
============ ============ =========== ===========
<CAPTION>
AGSPC Money Market Dreyfus Small Cap
Division 6 Division 18
-------------------------------- -------------------------------
Period from
2 months ended Year ended 2 months ended 7/11/94 to
2/28/95 12/31/94 2/28/95 12/31/94
-------------- ------------- -------------- ------------
<S> <C> <C> <C> <C>
OPERATIONS:
Net investment income ............................. $525,581 $1,241,669 ($217,960) $166,996
Net realized gain (loss) on investments sold ...... 0 0 0 0
Capital gains distributions from mutual funds ..... 0 0 0 386,988
Net unrealized appreciation (depreciation) of
investments during the period ................... 0 0 3,678,513 (102,019)
------------- ------------- ------------- ------------
Increase in net assets resulting from operations . 525,581 1,241,669 3,460,553 451,965
------------- ------------- ------------- ------------
PRINCIPAL TRANSACTIONS:
Purchase payments ................................. 2,653,205 13,855,791 10,158,178 12,217,697
Surrenders of accumulation units by terminations,
withdrawals, and maintenance fees ............... (1,032,717) (4,406,881) (256,082) (111,066)
Annuity benefit payments .......................... (261) (1,567) 0 0
Amounts transferred (to) from VALIC general account (48,947,653) 66,014,809 30,158,320 76,845,012
------------- ------------- ------------- ------------
Increase (decrease) in net assets resulting from
principal transactions ........................ (47,327,426) 75,462,152 40,060,416 88,951,643
------------- ------------- ------------- ------------
TOTAL INCREASE (DECREASE) in NET ASSETS ............. (46,801,845) 76,703,821 43,520,969 89,403,608
NET ASSETS:
Beginning of period ................................. 112,418,758 35,714,937 89,403,608 0
------------- ------------- ------------- ------------
End of period ....................................... $65,616,913 $112,418,758 $132,924,577 $89,403,608
============= ============= ============= ============
Accumulation units end of period .................... 44,025,290 75,765,781 124,105,308 85,169,871
============= ============= ============= ============
Accumulation unit value ............................. $1.490009 $1.479129 $1.070978 $1.043156
============= ============= ============= ============
<CAPTION>
Templeton Asset Allocation
Division 19
------------------------------
Period from
2 months ended 7/11/94 to
2/28/95 12/31/94
-------------- ------------
<S> <C> <C>
OPERATIONS:
Net investment income ............................. $1,084,632 ($75,725)
Net realized gain (loss) on investments sold ...... (63) 0
Capital gains distributions from mutual funds ..... 0 0
Net unrealized appreciation (depreciation) of
investments during the period ................... (649,398) (729,094)
------------ ------------
Increase in net assets resulting from operations . 435,171 (804,819)
------------ ------------
PRINCIPAL TRANSACTIONS:
Purchase payments ................................. 3,466,375 4,656,678
Surrenders of accumulation units by terminations,
withdrawals, and maintenance fees ............... (27,589) (47,985)
Annuity benefit payments .......................... 0 0
Amounts transferred (to) from VALIC general account 8,460,167 29,049,399
------------ ------------
Increase (decrease) in net assets resulting from
principal transactions ........................ 11,898,953 33,658,092
------------ ------------
TOTAL INCREASE (DECREASE) in NET ASSETS ............. 12,334,124 32,853,273
NET ASSETS:
Beginning of period ................................. 32,853,273 0
------------ ------------
End of period ....................................... $45,187,397 $32,853,273
============ ============
Accumulation units end of period .................... 44,928,829 32,807,602
============ ============
Accumulation unit value ............................. $1.005248 $0.995860
============ ============
<CAPTION>
Templeton International
Division 20
------------------------------- ALL DIVISIONS
Period from -----------------------------------
2 months ended 7/11/94 to 2 months ended Year ended
2/28/95 12/31/94 2/28/95 12/31/94
-------------- ------------ --------------- ---------------
<S> <C> <C> <C> <C>
OPERATIONS:
Net investment income ............................. $994,472 ($164,482) $7,152,691 $32,581,603
Net realized gain (loss) on investments sold ...... 0 121 6,427,856 14,131,361
Capital gains distributions from mutual funds ..... 0 0 0 25,307,836
Net unrealized appreciation (depreciation) of
investments during the period ................... (2,142,237) (2,235,982) 95,676,783 (95,069,796)
------------- ------------ --------------- ---------------
Increase in net assets resulting from operations . (1,147,765) (2,400,343) 109,257,330 (23,048,996)
------------- ------------ --------------- ---------------
PRINCIPAL TRANSACTIONS:
Purchase payments ................................. 7,903,951 10,111,560 113,548,148 581,037,348
Surrenders of accumulation units by terminations,
withdrawals, and maintenance fees ............... (93,043) (41,962) (15,575,972) (96,084,797)
Annuity benefit payments .......................... 0 0 (226,711) (1,371,515)
Amounts transferred (to) from VALIC general account 23,278,330 64,431,794 (38,232,021) 155,830,645
------------- ------------ --------------- ---------------
Increase (decrease) in net assets resulting from
principal transactions ........................ 31,089,238 74,501,392 59,513,444 639,411,681
------------- ------------ --------------- ---------------
TOTAL INCREASE (DECREASE) in NET ASSETS ............. 29,941,473 72,101,049 168,770,774 616,362,685
NET ASSETS:
Beginning of period ................................. 72,101,049 0 2,675,580,843 1,890,447,384
------------- ------------ --------------- ---------------
End of period ....................................... $102,042,522 $72,101,049 2,675,580,843 2,506,810,069
============= ============ =============== ===============
Accumulation units end of period .................... 103,727,915 71,716,511
============= ============
Accumulation unit value ............................. $0.983680 $0.999282
============= ============
</TABLE>
<PAGE>
NOTES TO FINANCIAL STATEMENTS (UNAUDITED)
NOTE A - ORGANIZATION
Separate Account A (the "Separate Account"), established by The Variable
Annuity Life Insurance Company ("VALIC") on April 18, 1979, is registered under
the Investment Company Act of 1940 as a unit investment trust. The Separate
Account is comprised of twenty-one subaccounts or "divisions." Each division,
which represents a variable investment vehicle available only through a VALIC
annuity contract, invests in one of the following mutual funds:
AMERICAN GENERAL SERIES PORTFOLIO COMPANY ("AGSPC"):
<TABLE>
<S> <C>
Stock Index Fund (Divisions 10A, B, C, and D) Social Awareness Fund (Division 12)
MidCap Index Fund (Division 4) Timed Opportunity Fund (Division 5)
Small Cap Index Fund (Division 14) Capital Conservation Fund (Divisions 1 and 7)
International Equities Fund (Division 11) Government Securities Fund (Division 8)
Growth Fund (Division 15) International Government Bond Fund (Division 13)
Growth & Income Fund (Division 16) Money Market Fund (Divisions 2 and 6)
Science & Technology Fund (Division 17)
</TABLE>
DREYFUS VARIABLE INVESTMENT FUND:
Dreyfus Small Cap Portfolio (Division 18).
TEMPLETON VARIABLE PRODUCTS SERIES FUND:
Templeton Asset Allocation Fund (Division 19),
Templeton International Fund (Division 20).
Divisions 15, 16, 17, 18, 19, and 20 commenced operations on July 11, 1994.
NOTE B - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
The accompanying financial statements of Separate Account A have been
prepared in accordance with generally accepted accounting principles for interim
periods. In the opinion of management, these statements include all adjustments,
consisting only of normal recurring accruals, that are necessary for a fair
presentation of the Statement of Net Assets at February 28, 1995, and the
Statement of Operations and Statement of Changes in Net Assets for the two
months ended February 28, 1995.
The assets of the Separate Account are segregated from VALIC's other
assets. The operations of the Separate Account are part of VALIC. The following
is a summary of significant accounting policies consistently followed by the
Separate Account in the preparation of its financial statements.
INVESTMENT VALUATION. Investments in mutual funds (the "Funds") are
valued at the net asset (market) value per share at the close of each business
day.
INVESTMENT TRANSACTIONS. Investment transactions are accounted for on
the trade date. Realized gains and losses on investments are determined on the
basis of identified cost. Capital gain distributions from mutual funds are
recorded on the ex-dividend date and reinvested upon receipt.
ANNUITY RESERVES. Net payments made by variable annuity contract owners
are accumulated based on the performance of the investments of the Separate
Account until the date the contract owners select to commence annuity payments.
Reserves for annuities on which benefits are currently payable are provided for
based upon estimated mortality and other assumptions, including provisions for
the risk of adverse deviation from assumptions, which were appropriate at the
time the contracts were issued. The 1949 Progressive Annuity Table has been used
in the computation of annuity reserves for currently payable contracts.
Participants are able to elect investment rates between 3.0% and 6.0%, as
regulated by the laws of the State of Texas.
INVESTMENT INCOME. Dividend income from mutual funds is recorded on the
ex-dividend date and reinvested upon receipt.
NOTE C - TRANSACTIONS WITH AFFILIATES
VALIC acts as investment adviser and transfer agent to the American
General Series Portfolio Company.
The Separate Account is charged for mortality and expense risks assumed
by VALIC. The charge, based on the daily net assets of each division, is
assessed daily based on the following annual rates: for Division 10B, .85% on
the first $10,000,000, .425% on the next $90,000,000, and .21% on the excess
over $100,000,000; for Divisions 1, 2, 4, 5, 6, 7, 8, 10A, 10C, 10D, 11, 12, 13,
14, 15, 16, and 17, 1.00%; and for Divisions 18, 19, and 20, 1.25%.
Pursuant to the reorganization agreement entered into on April 17, 1987,
which transferred VALIC Separate Accounts One and Two into the Separate Account,
expenses of Division 10A (formerly Separate Account One) are limited to 1.4157%
of average daily net assets, and expenses of Division 10B (formerly Separate
Account Two) are limited to the following rates based on average daily net
assets: 0.6966% on the first $25,434,267 and 0.5% on the next $74,565,733.
A portion of the annual contract maintenance charge is assessed each
contract (except those relating to Divisions 10A and 10B) by VALIC on the last
day of the calendar quarter in which VALIC receives the first purchase payment,
and in quarterly installments thereafter during the accumulation period.
VALIC receives a front-end sales load on variable annuity purchase
payments received for Divisions 10A and 10B. VALIC receives surrender charges on
certain withdrawals made from divisions where a front-end load is not applied.
NOTE D - FEDERAL INCOME TAXES
VALIC is taxed as a life insurance company under the Internal Revenue
Code and includes the operations of the Separate Account in determining its
federal income tax liability. Under existing federal income tax law the
investment income and capital gains from sale of investments realized by the
Separate Account are not taxable. Therefore, no federal income tax provision has
been made.
<PAGE>
VALIC
*AN AMERICAN GENERAL COMPANY
Printed Matter
Printed in U.S.A. VA 9084 REV 7/95
(C)The Variable Annuity Life Insurance Company, Houston, Texas
