<PAGE> 1
THE VARIABLE ANNUITY LIFE INSURANCE COMPANY
UNITS OF INTEREST UNDER GROUP AND INDIVIDUAL
VARIABLE ANNUITY CONTRACTS
(PORTFOLIO DIRECTOR)
SEPARATE ACCOUNT A. May 1, 1996
PROSPECTUS
The Portfolio Director Contract consists of group and individual variable
annuity contracts ("Portfolio Director") that are offered by The Variable
Annuity Life Insurance Company. Portfolio Director may be available to you when
you participate in a retirement program that qualifies for deferral of federal
income taxes. Non-qualified contracts are also available. Portfolio Director is
composed of the following contract forms: UIT-194, UITG-194, UITN-194,
UIT-IRA-194 and UIT-SEP-194.
Portfolio Director permits you to invest in and receive retirement benefits from
Fixed Account Options and/or Variable Account Options. Each of these investment
options is explained more fully in this prospectus. Here is a list of these
investment options:
TWO FIXED ACCOUNT OPTIONS:
Fixed Account Plus
Short-Term Fixed Account
SIXTEEN VARIABLE ACCOUNT OPTIONS
(through a variety of mutual funds):
American General Series Portfolio Company:
Stock Index Fund
MidCap Index Fund
Small Cap Index Fund
International Equities Fund
Growth Fund
Growth & Income Fund
Capital Conservation Fund
Government Securities Fund
International Government Bond Fund
Social Awareness Fund
Science & Technology Fund
Money Market Fund
Timed Opportunity Fund
Dreyfus Variable Investment Fund:
Dreyfus Small Cap Fund
Templeton Variable Products Series Fund:
Templeton International Fund
Templeton Asset Allocation Fund
This prospectus provides you with information you should know before investing
in Portfolio Director. This prospectus is accompanied by the current
prospectuses for the mutual fund options listed above. Please read and retain
each of these prospectuses for future reference.
A Statement of Additional Information, dated May 1, 1996, has been filed with
the Securities and Exchange Commission. This Statement of Additional Information
contains additional information about Portfolio Director and is part of this
prospectus. For a free copy, complete and return the form contained in the back
of this prospectus or call 1-800-44-VALIC.
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.
THE SECURITIES AND EXCHANGE COMMISSION HAS NOT APPROVED OR DISAPPROVED THESE
SECURITIES. ALSO, IT HAS NOT PASSED ON WHETHER THIS PROSPECTUS IS ADEQUATE OR
ACCURATE. IT IS A CRIMINAL OFFENSE TO STATE OTHERWISE.
<PAGE> 2
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
ABOUT THE PROSPECTUS......................... 1
PROFILE OF PORTFOLIO DIRECTOR CONTRACT....... 2
FEE TABLE.................................... 4
SELECTED PURCHASE UNIT DATA.................. 6
ABOUT PORTFOLIO DIRECTOR..................... 8
ABOUT VALIC.................................. 8
ABOUT VALIC SEPARATE ACCOUNT A............... 8
VARIABLE ACCOUNT OPTIONS..................... 9
Summary of Funds........................ 9
PURCHASE PERIOD.............................. 19
Purchase Payments....................... 19
Purchase Units.......................... 19
Calculation of Purchase Unit Value...... 19
Choosing Investment Options............. 20
Fixed Account Options.............. 20
Variable Account Options........... 20
Stopping Purchase Payments.............. 20
TRANSFERS BETWEEN INVESTMENT OPTIONS......... 21
During the Purchase Period.............. 21
During the Payout Period................ 21
Communicating Transfer or Reallocation
Instructions.......................... 21
Effective Date of Transfer.............. 21
FEES AND CHARGES............................. 22
Account Maintenance Fee................. 22
Surrender Charges....................... 22
Amount of Surrender Charges........ 22
10% Free Withdrawal................ 22
Exceptions to Surrender
Charges.......................... 22
Premium Tax Charge...................... 23
Separate Account Charges................ 23
Fund Annual Expense Charge.............. 23
Other Tax Charges....................... 23
Reduction or Waiver of Account
Maintenance Fee or Surrender
Charges............................... 23
PAYOUT PERIOD................................ 25
Fixed Payout............................ 25
Variable Payout......................... 25
Combination Fixed and Variable Payout... 25
<CAPTION>
PAGE
----
<S> <C>
Payout Date............................. 25
Payout Options.......................... 25
Enhancements to Payout Options.......... 26
Payout Information...................... 26
SURRENDER OF ACCOUNT VALUE................... 27
When Surrenders are Allowed............. 27
Amount That May Be Surrendered.......... 27
Surrender Restrictions.................. 27
Partial Surrenders...................... 27
Systematic Withdrawals.................. 27
Distributions Required By Federal Tax
Law................................... 28
EXCHANGE PRIVILEGE........................... 29
Restrictions on Exchange Privilege...... 29
Taxes and Conversion Costs.............. 29
Surrender Charges....................... 29
Exchange Offers......................... 29
Comparison of Contracts................. 29
Features of Portfolio Director.......... 30
Agents' and Managers' Retirement Plan
Exchange Offer........................ 30
DEATH BENEFITS............................... 31
Beneficiary Information................. 31
Special Information for Individual
Non-Tax Qualified Contracts........... 31
During the Purchase Period.............. 31
Interest Guaranteed Death
Benefit.......................... 31
Standard Death Benefit............. 32
During the Payout Period................ 32
HOW TO REVIEW INVESTMENT PERFORMANCE OF
SEPARATE ACCOUNT DIVISIONS................. 33
Types of Investment Performance
Information Advertised................ 33
Yield Performance Information........... 34
OTHER CONTRACT FEATURES...................... 35
VOTING RIGHTS................................ 36
FEDERAL TAX MATTERS.......................... 37
Type of Plans........................... 37
Tax Consequences in General............. 37
Effect of Tax-Deferred
Accumulations......................... 38
</TABLE>
(i)
<PAGE> 3
ABOUT THE PROSPECTUS
- --------------------------------------------------------------------------------
Unless otherwise specified in this prospectus, the words we, our, Company, and
VALIC mean The Variable Annuity Life Insurance Company. The words you and your,
unless otherwise specified in this prospectus, mean the participant, contract
owner, annuitant or beneficiary.
We will use a number of other specific terms in this prospectus. We will, when
that term is used in the prospectus, provide you with a definition of that term.
The terms used in this prospectus for which we will provide you a definition
are:
Account Value
Annuitant
Assumed Investment Rate
Beneficiary
Contract Owner
Division
Fixed Account Options
Home Office
Mutual Fund or Fund
Participant
Participant Year
Payout Period
Payout Unit
Purchase Payments
Purchase Period
Purchase Unit
VALIC Separate Account A
Variable Account Options
This prospectus is being given to you to help you make decisions for selecting
various investment options and benefits to plan and save for your retirement. It
is intended to provide you with information about VALIC, Portfolio Director, and
saving for your retirement.
The purpose of Variable Account Options and Variable Payout Options is to
provide you investment returns which are greater than the effects of inflation.
We cannot, however, guarantee that this purpose will be achieved.
This prospectus describes a contract in which units of interest in VALIC's
Separate Account A are offered. Portfolio Director will allow you to accumulate
retirement dollars in Fixed Account Options and/or Variable Account Options.
This prospectus describes only the variable aspects of Portfolio Director except
where the Fixed Account Options are specifically mentioned.
For specific information about the Variable Account Options, you should refer to
the mutual fund prospectuses you have been given with this document. You should
keep these prospectuses to help answer any questions you may have in the future.
Following this introduction is a summary of the major features and options of
Portfolio Director. This summary is called the "Profile of Portfolio Director
Contract." It is intended to provide you with a brief overview of those sections
discussed in more detail in this prospectus.
PARTICIPANT -- the individual, (in most cases you are the Participant) for
whom Purchase Payments are made.
1
<PAGE> 4
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 Account Options
and two Fixed Account Options. You may invest in up to seven of these investment
options at any one time.
<TABLE>
- ----------------------------------------------------------------------------------------------------------------
<S> <C> <C>
FIXED ACCOUNT
OPTIONS
- -----------------------------------------------------------------------------------------------------------------
FIXED Fixed Guaranteed high current
OPTIONS Account Plus interest income
-------------------------------------------------------------------------------------------
Short-Term Guaranteed current
Fixed Account interest income
- -----------------------------------------------------------------------------------------------------------------
VARIABLE ACCOUNT INVESTMENT
OPTIONS STRATEGY
- -----------------------------------------------------------------------------------------------------------------
INDEX Stock Index Fund Growth through investments tracking
EQUITY the S&P 500(R) Index
FUNDS -------------------------------------------------------------------------------------------
MidCap Growth through investments tracking
Index Fund the S&P MidCap 400(R) Index
-------------------------------------------------------------------------------------------
Small Cap Growth through investments tracking
Index Fund the Russell 2000(R) Index
-------------------------------------------------------------------------------------------
International Growth through investments tracking
Equities Fund the EAFE Index
- -----------------------------------------------------------------------------------------------------------------
ACTIVELY Templeton Growth through investments outside
MANAGED International Fund the U.S.
EQUITY -------------------------------------------------------------------------------------------
FUNDS Dreyfus Small Growth through investments
Cap Fund in smaller companies
-------------------------------------------------------------------------------------------
Growth Fund Growth through investments
in service sector companies
-------------------------------------------------------------------------------------------
Growth & Growth and income through investments in
Income Fund stocks or securities convertible into stocks
- -----------------------------------------------------------------------------------------------------------------
INCOME Capital Income and possible growth
FUNDS Conservation through investments in high quality debt
Fund securities
-------------------------------------------------------------------------------------------
Government Income and possible growth
Securities through investments in intermediate &
Fund long-term government debt securities
-------------------------------------------------------------------------------------------
International Income and possible growth through
Government investments in high quality foreign
Bond Fund government debt securities
- -----------------------------------------------------------------------------------------------------------------
SPECIALTY Social Growth through investments in
FUNDS Awareness stocks of companies meeting social
Fund criteria of the Fund
-------------------------------------------------------------------------------------------
Science & Growth through investments in
Technology stocks of companies which
Fund benefit from development of science
and technology
- -----------------------------------------------------------------------------------------------------------------
MONEY Money Market Income through investments in
MARKET Fund short-term money market
FUND securities
- -----------------------------------------------------------------------------------------------------------------
ASSET Timed Opportunity Maximum return through investments in
ALLOCATION Fund a mix of stocks, bonds and money market
FUNDS securities
-------------------------------------------------------------------------------------------
Templeton Flexible policy of investing in
Asset stocks and debt obligations of
Allocation companies and governments
Fund of any nation
- -----------------------------------------------------------------------------------------------------------------
<CAPTION>
FIXED -- --
OPTIONS
-------------------------------------------------------------------------------------------
-- --
- -----------------------------------------------------------------------------------------------------------------
ADVISER SUBADVISER
- -----------------------------------------------------------------------------------------------------------------
INDEX VALIC Bankers Trust
EQUITY -------------------------------------------------------------------------------------------
FUNDS VALIC Bankers Trust
-------------------------------------------------------------------------------------------
VALIC Bankers Trust
-------------------------------------------------------------------------------------------
VALIC N/A
- -----------------------------------------------------------------------------------------------------------------
ACTIVELY Templeton N/A
MANAGED -------------------------------------------------------------------------------------------
EQUITY Dreyfus N/A
FUNDS -------------------------------------------------------------------------------------------
VALIC T. Rowe Price
-------------------------------------------------------------------------------------------
VALIC Value Line
- -----------------------------------------------------------------------------------------------------------------
INCOME VALIC N/A
FUNDS
-------------------------------------------------------------------------------------------
VALIC N/A
-------------------------------------------------------------------------------------------
VALIC N/A
- -----------------------------------------------------------------------------------------------------------------
SPECIALTY VALIC N/A
FUNDS
-------------------------------------------------------------------------------------------
VALIC T. Rowe Price
- -----------------------------------------------------------------------------------------------------------------
MONEY VALIC N/A
MARKET FUND
- -----------------------------------------------------------------------------------------------------------------
ASSET VALIC N/A
ALLOCATION
FUNDS
-------------------------------------------------------------------------------------------
Templeton N/A
</TABLE>
2
<PAGE> 5
<TABLE>
<S> <C>
To learn more about the
INTEREST GUARANTEED
DEATH BENEFIT, refer to
the section in the
prospectus entitled
"Death Benefits."
More information on FEES
may be found in the
prospectus under the
headings "FEES AND
CHARGES" AND "FEE
TABLE."
For a more detailed
discussion of these
income tax provisions,
see the "FEDERAL TAX
MATTERS" section of the
prospectus and of the
Statement of Additional
Information.
For more information on
PURCHASE PAYMENTS, refer
to the "Purchase Period"
section of the
prospectus.
</TABLE>
3
<PAGE> 6
FEE TABLE
------------------------------------------------------------
CONTRACT OWNER/PARTICIPANT EXPENSES(1)
<TABLE>
<S> <C>
Account Maintenance Fee ($3.75 per quarter, annualized) $ 15
Maximum Surrender Charge(2) 5.00%
</TABLE>
SEPARATE ACCOUNT EXPENSES
(as a percentage of Separate Account net assets):
<TABLE>
<CAPTION>
AGSPC FUNDS* OTHER FUNDS*
------------ ------------
<S> <C> <C>
Mortality and Expense Risk Fee 1.00% 1.25%
* -- see list of Funds under "Fund Annual Expenses" below.
</TABLE>
FUND ANNUAL EXPENSES(3)
(as a percentage of Fund net assets):
<TABLE>
<CAPTION>
MANAGEMENT OTHER TOTAL FUND
FEES EXPENSES EXPENSES
---------- -------- ----------
<S> <C> <C> <C>
AGSPC FUNDS:
Stock Index 0.29 0.09 0.38
MidCap Index 0.35 0.09 0.44
Small Cap Index 0.35 0.09 0.44
International Equities 0.35 0.10 0.45
Growth 0.80 0.11 0.91
Growth & Income 0.75 0.11 0.86
Capital Conservation 0.50 0.08 0.58
Government Securities 0.50 0.08 0.58
International Government
Bond 0.50 0.09 0.59
Social Awareness 0.50 0.08 0.58
Science & Technology 0.90 0.10 1.00
Money Market 0.50 0.07 0.57
Timed Opportunity 0.50 0.08 0.58
OTHER FUNDS:
Dreyfus Small Cap 0.75 0.08 0.83
Templeton International 0.49 0.22 0.71
Templeton Asset Allocation 0.48 0.18 0.66
</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 Portfolio Director
Contract invested in a single Separate Account Division as
listed below, assuming a 5% annual return on assets:
<TABLE>
<CAPTION>
1 YEAR 3 YEARS 5 YEARS 10 YEARS
------ ------- ------- --------
<S> <C> <C> <C> <C>
Stock Index Division $ 61 $ 96 $ 130 $176
MidCap Index Division 62 98 133 182
Small Cap Index Division 62 98 133 182
International Equities
Division 62 98 134 183
Templeton International
Division 67 113 160 238
Dreyfus Small Cap Division 68 117 166 250
Growth Division 67 112 158 233
Growth & Income Division 66 110 155 227
Capital Conservation
Division 63 102 141 198
Government Securities
Division 63 102 141 198
International Government
Bond Division 64 103 141 199
Social Awareness Division 63 102 141 198
Science & Technology
Division 67 114 162 242
Money Market Division 63 102 140 196
Timed Opportunity Division 63 102 141 198
Templeton Asset Allocation
Division 67 112 158 233
</TABLE>
See footnotes on Page 5.
4
<PAGE> 7
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:
<TABLE>
<CAPTION>
1 YEAR 3 YEARS 5 YEARS 10 YEARS
------ ------- ------- --------
<S> <C> <C> <C> <C>
Stock Index Division $ 15 $ 46 $ 80 $176
MidCap Index Division 16 48 83 182
Small Cap Index Division 16 48 83 182
International Equities Division 16 49 84 183
Templeton International Division 21 64 110 238
Dreyfus Small Cap Division 22 68 116 250
Growth Division 20 63 108 233
Growth & Income Division 20 61 105 227
Capital Conservation Division 17 53 91 198
Government Securities Division 17 53 91 198
International Government Bond Division 17 53 91 199
Social Awareness Division 17 53 91 198
Science & Technology Division 21 65 112 242
Money Market Division 17 52 90 196
Timed Opportunity Division 17 53 91 198
Templeton Asset Allocation Division 20 63 108 233
</TABLE>
EXAMPLE #3 -- Assuming No Account Maintenance Fee and
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 or
account maintenance fee imposed, invested in a single Separate Account Division
as listed below, assuming a 5% annual return on assets:
<TABLE>
<CAPTION>
1 YEAR 3 YEARS 5 YEARS 10 YEARS
------ ------- ------- --------
<S> <C> <C> <C> <C>
Stock Index Division $ 14 $ 44 $ 76 $166
MidCap Index Division 15 46 79 173
Small Cap Index Division 15 46 79 173
International Equities Division 15 46 79 174
Templeton International Division 20 62 106 229
Dreyfus Small Cap Division 21 65 112 242
Growth Division 19 60 103 224
Growth & Income Division 19 59 101 218
Capital Conservation Division 16 50 86 188
Government Securities Division 16 50 86 188
International Government Bond Division 16 50 87 189
Social Awareness Division 16 50 86 188
Science & Technology Division 20 63 108 233
Money Market Division 16 50 86 187
Timed Opportunity Division 16 50 86 188
Templeton Asset Allocation Division 19 60 103 224
</TABLE>
- ------------
(1) Premium taxes are not shown here, but may be charged by some states. See:
"Premium Tax Charge" in this prospectus.
(2) Reductions in the surrender charge and the account maintenance fee are
available if certain conditions are met. See "Reduction or Waiver of
Account Maintenance Fee or Surrender Charges" and "Exceptions to Surrender
Charges" in this prospectus.
(3) MANAGEMENT FEES: 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. OTHER EXPENSES includes custody,
accounting, reports to shareholders, audit, legal and other miscellaneous
expenses.
Note: These examples should not be considered representations of past or future
expenses for VALIC Separate Account A 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 VALIC Separate Account A and
the Funds which are, in effect, passed on to the Contract Owners and
Participants.
This Fee Table, shows all charges and expenses which may be deducted from the
assets of VALIC Separate Account A and from the Funds in which VALIC Separate
Account A invests. For a further description of these charges and expenses, see
"Fees and Charges" 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.
5
<PAGE> 8
SELECTED PURCHASE UNIT DATA
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
MIDCAP SMALL CAP INTERNATIONAL TEMPLETON DREYFUS GROWTH
STOCK INDEX INDEX INDEX EQUITIES INTERNATIONAL SMALL CAP FUND
DIVISION 10(2) DIVISION 4(1) DIVISION 14 DIVISION 11 DIVISION 20 DIVISION 18 DIVISION 15
-------------- ------------- ------------ ------------- ------------- ------------ -----------
<S> <C> <C> <C> <C> <C> <C> <C>
December 31, 1995
Purchase Units in Force 455,255,243 172,613,690 98,335,995 172,564,018 219,124,926 267,735,219 164,417,848
Purchase Unit Value $2.343900 $2.782677 $1.544896 $1.156454 $1.142586 $1.332904 $1.466652
December 31, 1994
Purchase Units in Force 416,234,288 171,442,018 100,383,839 187,749,916 71,716,511 85,169,871 32,633,370
Purchase Unit Value $1.724134 $2.153183 $1.222329 $1.054460 $0.999282 $1.043156 $1.001834
July 11, 1994
Purchase Unit Value(3) -- -- -- -- $1.000000 $1.000000 --
April 29, 1994
Purchase Unit Value(3) -- -- -- -- -- -- $1.000000
December 31, 1993
Purchase Units in Force 369,550,060 134,621,879 56,159,647 117,215,227 -- -- --
Purchase Unit Value $1.729327 $2.259378 $1.277199 $0.986387 -- -- --
December 31, 1992
Purchase Units in Force 283,808,045 81,007,871 9,723,477 52,524,165
Purchase Unit Value $1.589718 $2.021271 $1.112790 0.767135 -- -- --
May 1, 1992
Purchase Unit Value(3) -- -- $1.000000 -- -- -- --
December 31, 1991
Purchase Units in Force 90,526,907 49,106,844 -- 27,011,169 -- -- --
Purchase Unit Value $1.505641 $1.858030 -- $0.895250 -- -- --
October 1, 1991
Purchase Unit Value(3) -- -- -- -- -- -- --
December 31, 1990
Purchase Units in Force 46,016,297 42,958,640 -- 13,776,769
Purchase Unit Value $1.179000 $1.538017 -- $0.813423
December 31, 1989
Purchase Units in Force 22,325,990 40,618,028 -- 2,247,450
Purchase Unit Value $1.238782 $1.712671 -- $1.028405 -- -- --
October 2, 1989
Purchase Unit Value(3) -- -- -- $1.000000 -- -- --
December 31, 1988
Purchase Units in Force 9,213,178 38,747,706 -- -- -- -- --
Purchase Unit Value $0.968670 $1.450217 -- -- -- -- --
December 31, 1987
Purchase Units in Force 4,326,102 35,297,367 -- -- -- -- --
Purchase Unit Value $0.856238 $1.282662 -- -- -- -- --
April 20, 1987
Purchase Unit Value(3) $1.000000 -- -- -- -- -- --
December 31, 1986
Purchase Units in Force -- 28,360,188 -- -- -- -- --
Purchase Unit Value -- $1.351553 -- -- -- -- --
January 16, 1986
Purchase Unit Value(3) -- -- -- -- -- -- --
December 31, 1985
Purchase Units in Force -- 21,817,13 -- -- -- -- --
Purchase Unit Value -- $1.31944 -- -- -- -- --
</TABLE>
- ------------
(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 purchase 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) Purchase Unit Value At Date Of Inception.
6
<PAGE> 9
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
INTERNATIONAL
GROWTH & CAPITAL GOVERNMENT GOVERNMENT SOCIAL SCIENCE & MONEY
INCOME CONSERVATION SECURITIES BOND AWARENESS TECHNOLOGY MARKET
DIVISION 16 DIVISION 7 DIVISION 8 DIVISION 13 DIVISION 12 DIVISION 17 DIVISION 6
- ------------ ------------ ------------ ------------- ------------ ------------- ------------
<S> <C> <C> <C> <C> <C> <C>
51,779,089 29,573,808 39,847,053 73,369,250 32,750,120 187,862,232 51,907,757
$1.296577 $1.812011 $1.799475 $1.530780 $1.835102 $1.997175 $1.545802
12,386,602 26,859,219 26,667,073 25,691,713 29,015,764 42,726,137 75,765,781
$0.993168 $1.515278 $1.547150 $1.301357 $1.333899 $1.247713 $1.479129
-- -- -- -- -- -- --
$1.000000 -- -- -- -- $1.000000 --
-- 24,628,606 26,563,166 18,155,381 26,230,566 -- 24,799,810
-- $1.630069 $1.636228 $1.258340 $1.366979 -- $1.439327
-- 14,922,749 16,609,444 6,245,713 16,956,437 -- 23,414,474
-- $1.470167 $1.491537 $1.112826 $1.279516 -- $1.415690
-- -- -- -- -- -- --
-- 11,069,044 11,694,890 953,038 8,447,711 -- 25,545,494
-- $1.366905 $1.405236 $1.090499 $1.250634 -- $1.384882
-- -- -- $1.000000 -- -- --
-- 9,321,049 8,460,327 -- 2,947,418 -- 25,246,481
-- $1.178361 $1.237104 -- $0.987666 -- $1.325393
-- 7,502,717 5,556,464 -- 212,636 -- 15,949,534
-- $1.193583 $1.179231 -- $1.010003 -- $1.240599
-- -- -- -- $1.000000 -- --
-- 3,996,455 3,408,919 -- -- -- 9,429,191
-- $1.078919 $1.062082 -- -- -- $1.149516
-- 2,343,021 2,074,588 -- -- -- 4,121,853
-- $1.018629 $1.011978 -- -- -- $1.087299
-- -- -- -- -- -- --
-- 1,153,481 1,163,907 -- -- -- 914,106
-- $1.047718 $1.046062 -- -- -- $1.040484
-- $1.000000 $1.000000 -- -- -- $1.000000
-- -- -- -- -- -- --
-- -- -- -- -- -- --
<CAPTION>
TEMPLETON
TIMED ASSET
OPPORTUNITY ALLOCATION
DIVISION 5 DIVISION 19
------------ ------------
<C> <C>
75,851,431 78,494,505
$2.411022 $1.205181
89,377,860 32,807,602
$1.951533 $0.995860
-- $1.000000
-- --
93,899,802 --
$1.997266 --
80,637,090 --
$1.846025 --
-- --
76,624,765 --
$1.878219 --
-- --
72,284,139 --
$1.563444 --
68,361,149 --
$1.618165 --
-- --
65,817,325 --
$1.397280 --
59,631,901 --
$1.286227 --
-- --
41,290,244 --
$1.198662 --
-- --
30,770,485 --
$1.100420 --
</TABLE>
- ------------
Financial statements of VALIC Separate Account A are included in the Statement
of Additional Information, which is available upon request. Purchase units shown
are for a Purchase Unit outstanding throughout the year under a representative
Contract of the type invested in each column shown. The unit value of each
Division of VALIC Separate Account A 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 VALIC Separate Account A. 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 VALIC Separate Account A does not
change as a result of such distributions.
7
<PAGE> 10
- --------------------------------------------------------------------------------
ABOUT PORTFOLIO DIRECTOR
Portfolio Director was developed to help you save money for your retirement. It
offers you a combination of fixed and variable investment options that you can
invest in to help you reach your retirement savings goals. Your contributions to
Portfolio Director can come from different sources, like payroll deductions or
money transfers. Your retirement savings process with Portfolio Director will
involve two stages: the Purchase Period; and the Payout Period. The first is
when you make contributions into Portfolio Director called "Purchase Payments."
The second, is when you receive your retirement payouts. For more information,
see "Purchase Period" and the "Payout Period" in this prospectus.
You may choose, depending upon your retirement savings goals, your personal risk
tolerances, and your retirement plan, to invest in the Fixed Account Options
and/or the Variable Account Options described in this prospectus. When you
decide to retire, or otherwise withdraw your money, you can select from a wide
array of payout options including both fixed and variable payments. In addition,
this prospectus will describe for you all fees and charges that may apply to
your participation in Portfolio Director.
ABOUT VALIC
We are a life insurance company organized in 1955 and located in the State of
Texas. Our main business is issuing and offering fixed and variable retirement
annuity contracts, like Portfolio Director. Our principal offices are located at
2929 Allen Parkway, Houston, Texas 77019. We have Regional Offices throughout
the United States. The addresses for these offices are given in the back of this
prospectus.
VALIC is a member of the American General Corporation group of companies.
Members of the American General Corporation group of companies operate in each
of the 50 states and Canada and collectively provide financial services with
activities heavily weighted toward insurance.
ABOUT VALIC SEPARATE ACCOUNT A
When you direct money to Portfolio Director's Variable Account Options, you will
be sending that money through VALIC's Separate Account A. You do not invest
directly in the Mutual Funds made available in Portfolio Director. VALIC's
Separate Account A invests in the Mutual Funds on behalf of your account.
VALIC Separate Account A is made up of what we call "Divisions." Sixteen
Divisions are available and represent the Variable Account Options in Portfolio
Director. Each of these Divisions invests in a different Mutual Fund made
available through Portfolio Director. For example, Division Ten represents and
invests in the Stock Index Fund. The earnings (or losses) of each Division are
credited to (or charged against) the assets of that Division, and do not affect
the performance of the other Divisions of VALIC Separate Account A.
VALIC established Separate Account A in 1979 under Texas insurance law to allow
you to be able to invest in a number of Variable Account Options available in
Portfolio Director. VALIC Separate Account A is registered with the Securities
and Exchange Commission (SEC) as a unit investment trust under the Investment
Company Act of 1940. Units of interest in VALIC Separate Account A are
registered as securities under the Securities Act of 1933.
VALIC Separate Account A is administered and accounted for as part of VALIC's
business operations. However, the income, capital gains or capital losses,
whether or not realized of each Division of VALIC Separate Account A are
credited to or charged against the assets held in that Division 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. In accordance with the terms
of Portfolio Director, VALIC Separate Account A may not be charged with the
liabilities of any other VALIC operation. As stated in Portfolio Director, the
Texas Insurance Code requires that the assets of VALIC Separate Account A
attributable to Portfolio Director be held exclusively for the benefit of the
contract owner, participants, annuitants, and beneficiaries of Portfolio
Director. When we discuss performance information in this prospectus, we mean
the performance of a VALIC Separate Account A Division.
UNITS OF INTERESTS
Your investment in a Division of VALIC Separate Account A is represented by
units of interest issued by VALIC Separate Account A. On a daily basis, the
units of interest issued by VALIC Separate Account A are revalued to reflect
that day's performance of the underlying mutual fund minus any applicable fees
and charges to VALIC Separate Account A.
All inquiries regarding
PORTFOLIO DIRECTOR
may be directed to your
VALIC Regional Office at
the addresses shown in the
back of this prospectus.
MUTUAL FUND OR FUND --
the investment portfolio(s)
of a registered open-end
management investment
company, which serves as
the underlying investment
vehicle for each Division
represented in VALIC
Separate Account A.
For more information about
VALIC, see the Statement of
Additional Information
8
<PAGE> 11
VARIABLE ACCOUNT OPTIONS
- --------------------------------------------------------------------------------
Portfolio Director enables you to participate in Divisions that represent
sixteen Variable Account Options. These Divisions comprise all of the Variable
Account Options that are made available to you through VALIC Separate Account A.
See "About VALIC Separate Account A" in this prospectus.
Each individual Division represents and invests, through VALIC's Separate
Account A, in specific mutual funds. These mutual funds serve as the investment
vehicles for Portfolio Director and include:
- - American General Series Portfolio
Company -- offers 13 funds, for which VALIC serves as investment adviser.
- - Templeton Variable Products Series -- offers 2 funds, for which Templeton
Investment Counsel, Inc. serves as investment adviser.
- - Dreyfus Variable Investment Fund -- offers 1 fund, for which The Dreyfus
Corporation serves as investment adviser.
Each of these Funds (except for American General Series Portfolio Company's
International Government Bond Fund) is registered as a diversified open-end,
management investment company and is regulated under the Investment Company
Act of 1940. For complete information about each of these Funds, including
charges and expenses, you should refer to the prospectus for that Fund.
Additional copies are available from VALIC or you may contact your VALIC
Regional Office at the addresses shown in the back of this prospectus.
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 us. This is known as
"shared funding." These funds may also be sold to separate accounts that act as
the underlying investments for both variable annuity contracts and variable life
insurance policies. This is known as "mixed funding." There are certain risks
associated with mixed and shared funding. These risks are discussed in each
Fund's prospectus.
SUMMARY OF FUNDS
A brief summary of the investment objectives of each mutual fund is shown below.
In addition to the investment objectives, the change in an Account Value of an
assumed $10,000 investment in each of the Divisions is shown in both table and
graph form. The Account Values shown are since the inception of the Division or
the last 10 fiscal years. The change in Account Values shown for the Dreyfus and
Templeton Funds have been calculated on a pro forma basis using the inception
dates of the Funds in which the corresponding Divisions invest. For more
information about how these returns were calculated including a statement of the
charges reflected, see "How to Review Investment Performance of Separate Account
Divisions" in this prospectus. Any charges under Portfolio Director excluded
from the calculation of these returns will further reduce your return.
VARIABLE ACCOUNT
OPTIONS -- investment
options that correspond
to Separate Account
Divisions offered by
Portfolio Director.
Investment returns on
Variable Account
Options may be positive
or negative depending on
the investment
performance of the
underlying Mutual Fund.
9
<PAGE> 12
STOCK INDEX FUND
(Division 10)
- -------------------------------------------------------------------------------
INVESTMENT OBJECTIVE
Seeks long-term capital growth through investment in common stocks that, as a
group, are expected to provide investment results closely corresponding to the
performance of the Standard & Poor's 500 Stock Index(R)*.
<TABLE>
<CAPTION>
Annual Value of a $10,000
Stipulated Payment made
April 20, 1987 $ Value
- ------------------------- -------
<S> <C>
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
12/31/95 23,439
</TABLE>
VALUE AT MONTHLY INTERVALS OF A $10,000
STIPULATED PAYMENT MADE APRIL 20, 1987
CHART
SMALL CAP INDEX FUND
(Division 14)
- -------------------------------------------------------------------------------
INVESTMENT OBJECTIVE
Seeks to provide growth of capital through investment 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 Russell 2000(R) Index.**
<TABLE>
<CAPTION>
Annual Value of a $10,000
Stipulated Payment made
May 1, 1992 $ Value
- ------------------------- -------
<S> <C>
05/01/92 $10,000
12/31/92 11,128
12/31/93 12,772
12/31/94 12,223
12/31/95 15,449
</TABLE>
VALUE AT MONTHLY INTERVALS OF A $10,000
STIPULATED PAYMENT MADE MAY 1, 1992
CHART
* "Standard & Poor's(R)", "S&P(R)", "S&P 500(R)" and "S&P MidCap 400(R)" are
trademarks of Standard and Poor's ("S&P"). 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.
** The Russell 2000(R) Index is a trademark/service mark of the Frank Russell
Trust Company. Russell(TM) is a trademark of the Frank Russell Company.
10
<PAGE> 13
MIDCAP INDEX FUND
(Division 4)
- -------------------------------------------------------------------------------
INVESTMENT OBJECTIVE
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 MidCap 400(R) Index*.
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,
1986 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 Purchase Unit data for the last ten years for the MidCap Index
Division appears on page 6 of this prospectus.
<TABLE>
<CAPTION>
Annual Value of a $10,000
Stipulated Payment made
October 1, 1991 $ Value
- ------------------------- -------
<S> <C>
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
12/31/95 16,718
</TABLE>
VALUE AT MONTHLY INTERVALS OF A $10,000
STIPULATED PAYMENT MADE OCTOBER 1, 1991
CHART
<TABLE>
<CAPTION>
Annual Value of a $10,000
Stipulated Payment made
January 1, 1986 $ Value
- ------------------------- -------
<S> <C>
01/01/86 $10,000
12/31/86 10,243
12/31/87 9,721
12/31/88 10,991
12/31/89 12,980
12/31/90 11,656
12/31/91 14,081
12/31/92 15,319
12/31/93 17,123
12/31/94 16,318
12/31/95 21,089
</TABLE>
VALUE AT MONTHLY INTERVALS OF A $10,000
STIPULATED PAYMENT MADE JANUARY 1, 1986
CHART
11
<PAGE> 14
INTERNATIONAL EQUITIES FUND
(Division 11)
- -------------------------------------------------------------------------------
INVESTMENT OBJECTIVE
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 EAFE Index.
<TABLE>
<CAPTION>
Annual Value of a $10,000
Stipulated Payment made
October 2, 1989 $ Value
- ------------------------- -------
<S> <C>
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
12/31/95 11,565
</TABLE>
VALUE AT MONTHLY INTERVALS OF A $10,000
STIPULATED PAYMENT MADE OCTOBER 2, 1989
CHART
TEMPLETON INTERNATIONAL
FUND
(Division 20)
- -------------------------------------------------------------------------------
INVESTMENT OBJECTIVE
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.
<TABLE>
<CAPTION>
Annual Value of a $10,000
Stipulated Payment made
May 1, 1992 $ Value
- ------------------------- -------
<S> <C>
05/01/92 $10,000
12/31/92 9,311
12/31/93 13,549
12/31/94 13,077
12/31/95 14,952
</TABLE>
VALUE AT MONTHLY INTERVALS OF A $10,000
STIPULATED PAYMENT MADE MAY 1, 1992
CHART
12
<PAGE> 15
DREYFUS SMALL CAP FUND
(Division 18)
- -------------------------------------------------------------------------------
INVESTMENT OBJECTIVE
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-size companies which are believed to be
characterized by new or innovative products, services, or processes which should
enhance prospects for growth in future earnings.
<TABLE>
<CAPTION>
Annual Value of a $10,000
Stipulated Payment made
August 31, 1990 $ Value
- ------------------------- -------
<S> <C>
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
12/31/95 99,825
</TABLE>
VALUE AT MONTHLY INTERVALS OF A $10,000
STIPULATED PAYMENT MADE AUGUST 31, 1990
CHART
GROWTH FUND
(Division 15)
- -------------------------------------------------------------------------------
INVESTMENT OBJECTIVE
Seeks to provide long-term growth of capital through investment primarily in
common stocks of U.S. growth companies engaged in service-related activities.
<TABLE>
<CAPTION>
Quarterly Value of a $10,000
Stipulated Payment made
April 29,1994 $ Value
- ---------------------------- -------
<S> <C>
04/29/94 $10,000
06/30/94 9,527
09/30/94 10,037
12/31/94 10,018
03/31/95 11,246
06/30/95 12,241
09/30/95 13,920
12/31/95 14,667
</TABLE>
VALUE AT MONTHLY INTERVALS OF A $10,000
STIPULATED PAYMENT MADE APRIL 29, 1994
CHART
13
<PAGE> 16
GROWTH & INCOME FUND
(Division 16)
- -------------------------------------------------------------------------------
INVESTMENT OBJECTIVE
Seeks to provide long-term growth of capital and, secondarily, current income
through investment in common stocks and equity-related securities.
<TABLE>
<CAPTION>
Quarterly Value of a $10,000
Stipulated Payment made
April 29, 1994 $ Value
- ---------------------------- -------
<S> <C>
04/29/94 $10,000
06/30/94 9,479
09/30/94 10,033
12/31/94 9,932
03/31/95 10,762
06/30/95 11,473
09/30/95 12,621
12/31/95 12,966
</TABLE>
VALUE AT MONTHLY INTERVALS OF A $10,000
STIPULATED PAYMENT MADE APRIL 29, 1994
CHART
CAPITAL CONSERVATION FUND
(Division 7)
- -------------------------------------------------------------------------------
INVESTMENT OBJECTIVE
Seeks the highest possible total return consistent with preservation of capital
through current income and capital gains on investments in intermediate and
long-term debt instruments and other income producing securities.
<TABLE>
<CAPTION>
Annual Value of a $10,000
Stipulated Payment made
January 16, 1986 $ Value
- ------------------------- -------
<S> <C>
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
12/31/95 18,120
</TABLE>
VALUE AT MONTHLY INTERVALS OF A $10,000
STIPULATED PAYMENT MADE JANUARY 16, 1986
CHART
14
<PAGE> 17
GOVERNMENT SECURITIES
FUND
(Division 8)
- -------------------------------------------------------------------------------
INVESTMENT OBJECTIVE
Seeks high current income and protection of capital through investments in
intermediate and long-term U.S. Government debt securities.
<TABLE>
<CAPTION>
Annual Value of a $10,000
Stipulated Payment made
January 16, 1986 $ Value
- ------------------------- -------
<S> <C>
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
12/31/95 17,995
</TABLE>
VALUE AT MONTHLY INTERVALS OF A $10,000
STIPULATED PAYMENT MADE JANUARY 16, 1986
CHART
INTERNATIONAL GOVERNMENT
BOND FUND
(Division 13)
- -------------------------------------------------------------------------------
INVESTMENT OBJECTIVE
Seeks high current income through investments primarily in high quality debt
securities issued or guaranteed by foreign governments.
<TABLE>
<CAPTION>
Annual Value of a $10,000
Stipulated Payment made
October 1, 1991 $ Value
- ------------------------- -------
<S> <C>
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
12/31/95 15,308
</TABLE>
VALUE AT MONTHLY INTERVALS OF A $10,000
STIPULATED PAYMENT MADE OCTOBER 1, 1991
CHART
15
<PAGE> 18
SOCIAL AWARENESS FUND
(Division 12)
- -------------------------------------------------------------------------------
INVESTMENT OBJECTIVE
Seeks to obtain growth of capital through investment, primarily in common
stocks, in companies which meet the social criteria established for the Fund.
<TABLE>
<CAPTION>
Annual Value of a $10,000
Stipulated Payment made
October 2, 1989 $ Value
- ------------------------- -------
<S> <C>
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
12/31/95 18,351
</TABLE>
VALUE AT MONTHLY INTERVALS OF A $10,000
STIPULATED PAYMENT MADE OCTOBER 2, 1989
CHART
SCIENCE & TECHNOLOGY FUND
(Division 17)
- -------------------------------------------------------------------------------
INVESTMENT OBJECTIVE
Seeks long-term growth of capital through investment primarily in the common
stocks and equity-related securities of companies that are expected to benefit
from the development, advancement and use of science and technology.
<TABLE>
<CAPTION>
Quarterly Value of a
$10,000
Stipulated Payment made
April 29, 1994 $ Value
- ------------------------- -------
<S> <C>
04/29/94 $10,000
06/30/94 9,457
09/30/94 11,316
12/31/94 12,477
03/31/95 13,753
06/30/95 16,805
09/30/95 19,444
12/31/95 19,972
</TABLE>
VALUE AT MONTHLY INTERVALS OF A $10,000
STIPULATED PAYMENT MADE APRIL 29, 1994
CHART
16
<PAGE> 19
MONEY MARKET FUND
(Division 6)
- -------------------------------------------------------------------------------
INVESTMENT OBJECTIVE
Seeks liquidity, protection of capital and current income through investments in
short-term money market instruments.
<TABLE>
<CAPTION>
Annual Value of a $10,000
Stipulated Payment made
January 16, 1986 $ Value
- ------------------------- -------
<S> <C>
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
12/31/95 15,458
</TABLE>
VALUE AT MONTHLY INTERVALS OF A $10,000
STIPULATED PAYMENT MADE JANUARY 16, 1986
CHART
TIMED OPPORTUNITY FUND
(Division 5)
- -------------------------------------------------------------------------------
INVESTMENT OBJECTIVE
Seeks maximum aggregate rate of return over the long-term through controlled
investment risk by adjusting its investment mix among stocks, long-term debt
securities and short-term money market securities.
<TABLE>
<CAPTION>
Annual Value of a $10,000
Stipulated Payment made
January 1, 1986 $ Value
- ------------------------- -------
<S> <C>
01/01/86 $10,000
12/31/86 10,893
12/31/87 11,689
12/31/88 12,698
12/31/89 14,705
12/31/90 14,208
12/31/91 17,068
12/31/92 16,776
12/31/93 18,150
12/31/94 17,734
12/31/95 21,910
</TABLE>
VALUE AT MONTHLY INTERVALS OF A $10,000
STIPULATED PAYMENT MADE JANUARY 1, 1986
CHART
17
<PAGE> 20
TEMPLETON ASSET ALLOCATION
FUND
(Division 19)
- -------------------------------------------------------------------------------
INVESTMENT OBJECTIVE
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.
<TABLE>
<CAPTION>
Annual Value of a $10,000
Stipulated Payment made
August 24, 1988 $ Value
- ------------------------- -------
<S> <C>
08/24/88 $10,000
12/31/88 10,237
12/31/89 11,450
12/31/90 10,405
12/31/91 13,124
12/31/92 14,009
12/31/93 17,453
12/31/94 16,714
12/31/95 20,227
</TABLE>
VALUE AT MONTHLY INTERVALS OF A $10,000
STIPULATED PAYMENT MADE AUGUST 24, 1988
CHART
18
<PAGE> 21
PURCHASE PERIOD
- --------------------------------------------------------------------------------
The Purchase Period begins when your first Purchase Payment is made and
continues until you begin your Payout Period. The Purchase Period can also end
when a Portfolio Director account is surrendered before the Payout Period. The
amount, number, and frequency of your Purchase Payments is determined by the
retirement plan for which Portfolio Director was purchased.
PURCHASE PAYMENTS
You may establish an account only through a VALIC representative. Initial
Purchase Payments must be received by VALIC either with, or before, a completed
application. Your employer is usually responsible for remitting Purchase
Payments to us. The employer is responsible for furnishing instructions to us (a
premium flow report) as to the amount being applied to your account. Purchase
Payments can also be made by you for IRAs and certain non-qualified contracts
("individual contracts.")
Minimum initial and subsequent Purchase Payments are as follows:
- --------------------------------------------------
<TABLE>
<CAPTION>
Initial Subsequent
Contract Type Payment Payment
- ---------------------- ------- ----------
<S> <C> <C>
Periodic Payment $ 30 $ 30
Single Payment $1,000 -0-
</TABLE>
Periodic Payment minimums apply to each Fixed Account Option or Variable Account
Option selected. The Single Payment minimum applies to each of your accounts.
Purchase Payments are received in VALIC's Home Office. When an initial Purchase
Payment accompanies an application, within 2 business days we will:
- - Accept the Application -- and issue a contract. We will also establish your
account and apply your Purchase Payment by crediting the amount to the Fixed
Account Option or Variable Account Option selected;
- - Reject the Application -- and return the Purchase Payment; or
- - Request Additional Information -- to correct or complete the application.
- - Initial Purchase Payments will be returned if we do not receive a correct and
complete application within 5 business days unless the Contract Owner agrees
otherwise.
PURCHASE UNITS
A Purchase Unit is a unit of interest owned by you in your Variable Account
Option. Purchase Units apply only to the Variable Account Options selected for
your account. Purchase Unit values are calculated at the close of regular
trading of the New York Stock Exchange (the "Exchange"), currently 4:00 p.m. New
York time (see Calculation of Purchase Unit Value below for more information.)
Purchase Units will be credited the same business day if Purchase Payments are
received by our Home Office before the close of the Exchange. If not, they will
be calculated and credited the next business day. Purchase Unit values will vary
depending on the net investment results of each of the Variable Account Options.
This means the value of your Variable Account Option will fluctuate.
CALCULATION OF PURCHASE UNIT VALUE
The Purchase Unit value for a Division is calculated as shown below:
- --------------------------------------------------
Step 1: Calculate the gross investment rate:
Gross Investment Rate
= (EQUALS)
The Division's investment income
and capital gains and losses
(whether realized or unrealized) on
that day from the assets
attributable to the Division.
/ (DIVIDED BY)
The value of the Division for
the immediately preceding day on
which the values are calculated.
We calculate the gross investment rate 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.)
- --------------------------------------------------
Step 2: Calculate net investment rate for any day as follows:
Net Investment Rate
= (EQUALS)
Gross Investment Rate
(calculated in Step 1)
- - (MINUS)
Separate Account charges and any
income tax charges.
Step 3: Determine Purchase Unit Value for that day.
Purchase Unit Value for that day.
= (EQUALS)
Purchase Unit Value for immediate
preceding day.
X (MULTIPLIED BY)
Net Investment Rate (as calculated
in Step 2) plus 1.00.
PURCHASE PAYMENTS -- an amount of
money you pay to VALIC to receive the
benefits of an annuity Contract
offered by Portfolio Director.
For more information as to how
PURCHASE UNIT VALUES are calculated,
see the Statement of Additional
Information.
19
<PAGE> 22
------------------------------------------------------------
CHOOSING INVESTMENT OPTIONS
There are 18 investment options offered in Portfolio Director. This includes 2
Fixed Account Options and 16 Variable Account Options. Unless provided
otherwise, you may select and combine up to 7 of the 18 options. The Funds that
underlie the Variable Account Options are registered as investment companies
under and are subject to regulation of the Investment Company Act of 1940 (the
Act). The Fixed Account Options are not subject to regulation under the Act and
are not required to be registered under the Securities Act of 1933. As a result,
the SEC has not reviewed data in this prospectus that relates to the Fixed
Account Options. However, federal securities law does require such data to be
accurate and complete.
FIXED ACCOUNT OPTIONS
Each of the Fixed Account Options are part of the Company's general assets. You
may allocate all or a portion of your Purchase Payment to the Fixed Account
Options listed in "Profile of Portfolio Director Contract" appearing in this
prospectus. Purchase Payments you allocate to these Fixed Account Options are
guaranteed to earn at least a minimum rate of interest. Interest is paid on each
of the Fixed Account Options at declared rates, which may be different for each
option. We bear the entire investment risk for the Fixed Account Option. All
Purchase Payments and interest earned on such amounts in your Fixed Account
Option will be paid regardless of the investment results experienced by the
Company's general assets.
- --------------------------------------------------
Here is how you may calculate the value of your Fixed Account Option during the
Purchase Period:
Value of Your Fixed
Account Options
= (EQUALS)
All Purchase Payments made to the
Fixed Account Options
+ (PLUS)
Amounts transferred from Variable
Account Options to the Fixed
Account Options
+ (PLUS)
All interest earned
- - (MINUS)
Amounts transferred or withdrawn
from Fixed Account Options
(including applicable fees and
charges)
VARIABLE ACCOUNT OPTIONS
You may allocate all or a portion of your Purchase Payments to the Variable
Account Options listed in this prospectus. A complete discussion of each of the
Variable Account Options may be found in the "Variable Account Options" section
in this prospectus. Based upon a Variable Account Option's Purchase Unit Value
your account will be credited with the applicable number of Purchase Units. The
Purchase Unit Value of each Variable Account Option will change daily depending
upon the investment performance of the underlying fund (which may be positive or
negative) and the deduction of VALIC Separate Account A charges. See the "Fees
and Charges" section in this prospectus. Because Purchase Unit Values change
daily, the number of Purchase Units your account will be credited with for
subsequent Purchase Payments will vary. Each Variable Account Option bears its
own investment risk. Therefore, the value of your account may be worth more or
less at retirement or withdrawal.
- --------------------------------------------------
Here is how to calculate the value of each Variable Account Option in your
account during the Purchase Period:
Value of Your Variable Account Option
= (EQUALS)
Total Number of Purchase Units
X (MULTIPLIED BY)
Current Purchase Unit Value
STOPPING PURCHASE PAYMENTS
Purchase Payments may be stopped at any time. Purchase Payments may be resumed
at any time before your Portfolio Director account has been surrendered. While
no Purchase Payments are being made, the number of Purchase Units outstanding
will remain the same. (This is assuming no transfers or withdrawals are made.)
The value of the Purchase Units will continue to vary. Your Account Value will
continue to be subject to charges.
If your Account Value falls below $300, and you do not make any Purchase
Payments for two years from the date we established your account, we may close
the account and pay the Account Value (less any surrender charge) to you.
PURCHASE UNIT -- a
measuring unit used to
calculate your Account Value
during the Purchase Period.
The value of a Purchase Unit
will vary with the investment
experience of the Separate
Account Division you have
selected.
20
<PAGE> 23
TRANSFERS BETWEEN INVESTMENT OPTIONS
- --------------------------------------------------------------------------------
You may transfer all or part of your Account Value between the various Fixed
Account and Variable Account Options in Portfolio Director without a charge.
Transfer instructions may be made either in writing or by telephone as discussed
below. Transfers may be made during the Purchase Period or during the Payout
Period. We reserve the right to limit transfers as discussed below. Your
employer's plan may also limit your rights to transfer.
DURING THE PURCHASE PERIOD
During the Purchase Period, transfers may be made between Portfolio Director's
Fixed Account Options and Variable Account Options.
We currently permit transfers between Variable Account Options or from Variable
Account Options to Fixed Account Options, at any time. We may, however, limit
the number of transfers you can make.
Transfers are also permitted from the Fixed Account Options subject to the
following limitations:
- ---------------------------------------------------
<TABLE>
<CAPTION>
FIXED OTHER
ACCOUNT OPTION VALUE FREQUENCY RESTRICTIONS
<S> <C> <C> <C>
Fixed Account
Plus: Up to 20% per At any time None (1)
contract year
100% At any time If Account Value is
less than or equal
to $500
Short-Term Fixed
Account: Up to 100% At any time 90-day Holding Period
If transfer was
previously made into
Short-Term Fixed
Account.(2)
</TABLE>
- ---------------
(1) Your employer may further limit or expand the restrictions. We may charge
for those modified restrictions if specified in your employer's retirement
plan.
(2) VALIC may change this holding period at any time in the future, but it will
never be more than 180 days.
DURING THE PAYOUT PERIOD
During the Payout Period, transfers may be made between Portfolio Director's
investment options subject to the following limitations:
- ---------------------------------------------------
<TABLE>
<CAPTION>
% OF ACCOUNT
OTHER
ACCOUNT OPTION VALUE FREQUENCY RESTRICTIONS
<S> <C> <C> <C>
Variable: Up to 100% Once every 365 days None
Combination Fixed
and Variable Payout: Up to 100% Once every 365 days None
of money in
variable
option
payout
Fixed: Not -- --
permitted
</TABLE>
COMMUNICATING TRANSFER OR
REALLOCATION INSTRUCTIONS
A written instruction to transfer or reallocate all or part of your Account
Value between the various investment options in Portfolio Director, should be
sent to VALIC's Home Office.
Instructions for transfers or reallocations may be made by calling
1-800-621-7792. Telephone transfers will be allowed unless we have been notified
not to accept such telephone instructions. In this event, we must receive
written instructions, in order to permit future telephone transfers to be made.
Before a transfer will be made by telephone, you must give us the requested
identifying information concerning your account(s).
Unless we have been instructed not to accept requests for telephone transfers,
anyone may effect a telephone transfer if they furnish the requested
information. You will bear any loss resulting from such instructions, whether
the caller was specifically authorized by you or not.
No one that we employ or that represents VALIC may give telephone instructions
on your behalf without VALIC's prior written permission. (This does not apply to
a contract with the immediate family of an employee or representative of VALIC).
We will send you a confirmation of the completed transfer within 5 days from the
date of your instruction. When you receive your confirmation, it is your duty to
verify the information shown, and advise us of any errors within one business
day.
You will bear the risk of loss arising from instructions received by telephone.
We are not responsible for the authenticity of such instructions. Any telephone
instructions which we reasonably believe to be genuine will be your
responsibility. This includes losses from errors in communication. Telephone
transfer instruction may not be made during the Payout Period. We reserve the
right to stop telephone transfers at any time.
EFFECTIVE DATE OF TRANSFER
The effective date of a transfer will be:
- - The date of receipt, if received in our Home Office before the close of
regular trading of the New York Stock Exchange on a day values are calculated;
(Normally, this will be 4:00 P.M. New York time); otherwise
- - The next date values are calculated.
ACCOUNT VALUE -- the
total sum of your Fixed
Account and/or Variable
Account Options that
have not yet been
applied to your Payout
Payments.
PURCHASE PERIOD -- the
time between your first
Purchase Payment and
your Payout Period (or
surrender).
HOME OFFICE -- Our
principal office at 2929
Allen Parkway, Houston,
Texas 77019.
PAYOUT PERIOD -- the
time that starts when
you begin to withdraw
your money in a steady
stream of payments.
21
<PAGE> 24
FEES AND CHARGES
------------------------------------------------------------
By investing in Portfolio Director, you may be subject to six basic types of
fees and charges:
- - Account Maintenance Fee
- - Surrender Charges
- - Premium Tax Charge
- - Separate Account Charges
- - Fund Annual Expense Charge
- - Other Tax Charges
These fees and charges are explained below. For additional information about
these fees and charges, see the Fee Table in this prospectus.
ACCOUNT MAINTENANCE FEE
An account maintenance fee of $3.75 will be deducted on the last day of each
calendar quarter if any of your money is invested in the Variable Account
Options. We will sell Purchase Units from your Account to pay the account
maintenance fee. If you invest only in Fixed Account Options during a calendar
quarter, this fee will not apply. If all your money in a Variable Account Option
is withdrawn, or transferred to a Fixed Account Option, the fee will be deducted
at that time. The fee will be assessed equally among the Variable Account
Options that make up your Account Value.
The account maintenance fee is to reimburse the Company for our administrative
expenses for providing Variable Account Options. This includes the expense for
establishing and maintaining the record keeping for the Variable Account
Options. We do not expect that the amount of fees we receive will be greater
than our expenses.
The amount of the account maintenance fee may be reduced or waived if Portfolio
Director is issued to certain types of plans which are expected to result in
lower costs to VALIC. To learn more about how we determine if account
maintenance fees may be reduced or waived, see the "Reduction or Waiver of
Account Maintenance Fee or Surrender Charges" section in this prospectus. If you
have two or more accounts established under the same group contract, we may
agree to deduct an account maintenance fee from only one account.
SURRENDER CHARGES
When you withdraw money from your account, you may be subject to a surrender
charge. For information about your right to surrender, see "Surrender of Account
Value" in this prospectus.
It is assumed that the most recent Purchase Payments are withdrawn first. No
surrender charge will be applied unless an amount is actually withdrawn. We
consider all Purchase Payments to be withdrawn before earnings are withdrawn.
Amounts exchanged from other contracts issued by the Company may or may not be
subject to a surrender charge. After exchange, it is assumed that any new
Purchase Payments are withdrawn before the exchanged amount. For more
information, see "Exchange Privilege" in the Statement of Additional
Information.
AMOUNT OF SURRENDER CHARGES
A surrender charge may not be greater than:
- - Five percent (5%) of the amount of all Purchase Payments received during the
past 60 months; or
- - Five percent (5%) of the amount withdrawn.
10% FREE WITHDRAWAL
In any Participant Year, up to 10% of the Account Value may be withdrawn without
a surrender charge. The surrender charge will apply to any amount withdrawn that
exceeds this 10% limit. The percentage withdrawn will be determined by dividing
the amount withdrawn by the Account Value just prior to the withdrawal. If more
than one withdrawal is made during a Participant Year, each percentage will be
added to determine at what point the 10% limit has been reached.
These 10% withdrawals without charge do not reduce Purchase Payments for the
purpose of computing the surrender charge. If a surrender charge is applied to
all or part of a Purchase Payment, no surrender charge will be applied to such
Purchase Payment (or portion thereof) again.
EXCEPTIONS TO SURRENDER CHARGES
No surrender charge will be applied:
- - To money applied to provide a Payout Option;
- - To death benefits;
- - If no Purchase Payments have been received during the 60 months prior to the
date of surrender;
- - If your account has been in effect for 15 years or longer;
- - If your account has been in effect for 5 years or longer, and you have
attained age 59 1/2;
- - To "No Charge Systematic Withdrawals";
- - Under certain contracts, to withdrawals under the No Charge Minimum
Distribution provisions;
PARTICIPANT YEAR -- the first
twelve month period and
then each yearly anniversary
of that period following the
issue date of the contract or
certificate.
22
<PAGE> 25
- --------------------------------------------------------------------------------
- - If you have become totally and permanently disabled, defined as follows: You
are unable, due to mental or physical impairment, to perform the material and
substantial duties of any occupation for which you are 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 and proof of disability must be evidenced by a
certified copy of a Social Security Administration determination or a doctor's
verification; and
- - If you are at least 55 years old, are no longer employed by the employer that
established the plan, and your account under the plan was established at least
5 years prior to the date of surrender.
The surrender charges may be reduced or waived if Portfolio Director is issued
to certain types of plans which are expected to result in lower costs to VALIC.
To learn more about how we determine if surrender charges may be reduced or
waived, see the "Reduction or Waiver of Account Maintenance Fee or Surrender
Charges" section in this prospectus.
PREMIUM TAX CHARGE
Taxes on Purchase Payments are imposed by some states, cities, and towns. The
rate will range from zero to 3%.
If the law of a state, city, or town requires premium taxes to be paid when
Purchase Payments are made, we will, of course, comply. Otherwise, such tax will
be deducted from the Payout Value when annuity payments are to begin.
If we deduct an amount for premium taxes, but later find the tax was not due, we
will:
- - Adjust the amount deducted in error to reflect investment experience from the
date of the deduction to the date we determined the tax was not due; and
- - Apply the excess amount, as adjusted, to increase the number of Pay-in or
Payout Units.
SEPARATE ACCOUNT CHARGES
There will be a mortality and expense risk charge applied to VALIC Separate
Account A. This is a daily charge at an annualized rate of 1% to 1.25% on the
average daily net asset value of VALIC Separate Account A. The exact rate
depends on the Variable Account Option selected. This charge is guaranteed and
cannot be increased by the Company. The mortality and expense risk charge is to
compensate the Company for assuming mortality and expense risks under Portfolio
Director. The mortality risk that the Company assumes is the obligation to
provide payments during the Payout Period for your life no matter how long that
might be. In addition, the Company assumes the obligation to pay during the
Purchase Period an interest guaranteed death benefit. For more information about
the interest guaranteed death benefit see the "Death Benefit" section of this
prospectus. The expense risk is our obligation to cover the cost of issuing and
administering Portfolio Director, no matter how large the cost may be.
The Company may make a profit on the mortality and expense risk charge. For more
information about the mortality and expense risk charge, see the Fee Table in
this prospectus.
FUND ANNUAL EXPENSE CHARGE
Investment management charges based on a percentage of each Fund's average daily
net assets are payable by each Fund. Depending on the Variable Account Option
selected, the charges will be paid by each Fund to the Company, or to Dreyfus or
to Templeton. These charges and other Fund charges and expenses are fully
described in the prospectuses for the Funds. These charges indirectly cost you
because they lower your return.
OTHER TAX CHARGES
We reserve the right to charge for certain taxes (other than premium taxes) that
we may have to pay. This could include federal income taxes. Currently, no such
charges are being made.
REDUCTION OR WAIVER OF ACCOUNT
MAINTENANCE FEE OR SURRENDER
CHARGES
We may, as described below, determine that the account maintenance fee or the
amount of surrender charges for Portfolio Director may be reduced or waived. We
may reduce or waive these fees and charges if we determine that your retirement
program will allow us to reduce or eliminate administrative or sales expenses
that we usually incur for retirement programs. There are a number of factors we
will review in determining whether your retirement program will allow us to
reduce or eliminate these administrative or sales expenses. In no event will the
reduction or waiver of fees and charges be permitted where the reduction or
waiver will unfairly discriminate against any person.
23
<PAGE> 26
------------------------------------------------------------
To determine whether we can reduce or waive account maintenance fees, we review
the following factors:
- The type of retirement program
Certain types of retirement programs because of their stability can result
in lower administrative costs.
- The nature of your retirement program.
Certain types of retirement programs, due to the types of employees who
participate, experience fewer account surrenders thus reducing
administrative costs.
- The frequency of Purchase Payments for your retirement program
Purchase Payments received no more than once a year can reduce
administrative costs.
- The administrative tasks performed by your employer for your retirement
program.
The employer sponsoring your retirement program can, through their method
of remitting Purchase Payments, reduce administrative costs.
- Other factors of which we are not presently aware which could reduce
administrative costs.
To determine whether we can reduce or waive surrender charges, we review the
following factors:
- The size of your retirement program.
A retirement program which involves a larger group of employees may allow
us to reduce sales expenses.
- The total amount of Purchase Payments to be received for your retirement
program.
Larger Purchase Payments can reduce sales expenses.
- The nature of your retirement program.
Certain types of retirement programs, due to the type of employees who
participate, experience fewer account surrenders thus reducing sales
expense.
- The type of your retirement program.
Certain types of retirement programs because of their stability can result
in lower sales expenses.
- The use of mass enrollment or related administrative tasks performed by
your employer for your retirement program.
- Other factors of which we are not presently aware which could reduce sales
expenses.
24
<PAGE> 27
PAYOUT PERIOD
- --------------------------------------------------------------------------------
The Payout Period (Annuity Period) begins when you decide to retire or otherwise
withdraw your money in a steady stream of payments. If your employer's plan
permits, you may apply any portion of your Account Value to one of the types of
Payout Options listed below. You may choose to have your Payout Option on either
a fixed, a variable, or a combination payout basis. When you choose to have your
Payout Option on a variable basis, you may keep the same Variable Account
Options in which your Purchase Payments were made, or transfer to different
ones.
FIXED PAYOUT
Under Fixed Payout, you will receive payments from the Company. These payments
are fixed and guaranteed by the Company. The amount of these payments will
depend on:
- Type and duration of Payout Option chosen;
- Your age or your age and the age of your survivor (1);
- Your sex or your sex and the sex of your survivor (1) (IRA's and certain
nonqualified contracts);
- The portion of your Account Value being applied; and
- The payout rate being applied and the frequency of the payments.
(1) This applies only to joint and survivor payouts.
If the benefit would be greater, the amount of your payments will be based on
the current payout rate the Company uses for immediate annuity contracts.
VARIABLE PAYOUT
With a Variable Payout, you may select up to 7 Variable Account Options. Your
payments will vary accordingly. This is due to the varying investment results
that will be experienced by each of the Variable Account Options you selected.
The Payout Unit Value is calculated just like the Purchase Unit Value for each
Variable Account Option except that the Payout Unit Value includes a factor for
the Assumed Investment Rate you select. For additional information on how Payout
Payments and Payout Unit Values are calculated, see the Statement of Additional
Information.
In determining your first Payout Payment, an Assumed Investment Rate of 3 1/2%
is used (unless you select a higher rate.) If the net investment experience of
the Variable Account Option exceeds your Assumed Investment Rate, your next
payment will be greater than your first payment. If the investment experience
of the Variable Account Option is lower than your Assumed Investment Rate,
your next payment will be less than your first payment.
COMBINATION FIXED AND VARIABLE PAYOUT
With a Combination Fixed and Variable Payout, you may choose:
- Up to 6 Variable Account Options (payments will vary); with a
- Fixed Payout (payment is fixed and guaranteed).
PAYOUT DATE
The Payout Date is the date elected by you on which your payout (annuity)
payments will start. The date elected must be the first of any month provided 30
days advance notice has been given to VALIC. Your account will be valued ten
days prior to the end of the month preceding the Payout Date. A request to start
payments must be sent to our Home Office on a form approved by VALIC. Generally,
for qualified contracts, the Payout Date may begin when you attain age 59 1/2 or
separate from service, but must begin no later than April 1 following the
calendar year you reach age 70 1/2. For nonqualified contracts, the Payout Date
may begin at any time prior to your 85th birthday. For additional information on
the minimum distribution rules that apply to payments under 403(b), 401, 403(a)
and 457 plans or simplified employee plans ("SEPs"), see "Federal Tax Matters"
in this prospectus and in the Statement of Additional Information.
PAYOUT OPTIONS
You may specify the manner in which your Payout Payments are made. You may
select one of the following options:
- LIFE ONLY -- payments are made only to you during your lifetime. Under this
option there is no provision for a death benefit for the beneficiary. For
example, it would be possible under this option for the Annuitant to receive
only one payout payment if he died prior to the date of the second payment,
two if he died before the third payment.
- LIFE WITH GUARANTEED PERIOD -- payments are made to you during your
lifetime; but if you die before the guaranteed period has expired, your
beneficiary will receive payments for the rest of your guaranteed period.
- LIFE WITH CASH OR UNIT REFUND -- payments are made to you during your
lifetime. Upon your death, your beneficiary will receive a lump sum
PAYOUT UNIT -- a
measuring unit used to
calculate Payout
Payments from your
Variable Account Option.
Payout Unit values will
vary with the investment
experience of the VALIC
Separate Account A
Division you have
selected.
ASSUMED INVESTMENT
RATE -- the rate used to
determine your first
monthly Payout Payment
per thousand dollars of
Account Value in your
Variable Account
Option(s).
25
<PAGE> 28
------------------------------------------------------------
payment equal to the remaining Annuity Value.
- JOINT AND SURVIVOR LIFE -- payments are made to you during the joint
lifetime of you and your beneficiary. Upon the death of one, payments
continue during the lifetime of the survivor. This option is designed
primarily for couples who require maximum possible variable payouts during
their joint lives and are not concerned with providing for beneficiaries at
death of the last survivor. For example, 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 prior to the date of the
second payment and the surviving Annuitant dies prior to the date of the
third payment.
- PAYMENT FOR A DESIGNATED PERIOD -- payments are made to you for a select
number of years between five and thirty. Upon your death, payments will
continue to your beneficiary until the designated period is completed.
ENHANCEMENTS TO PAYOUT OPTIONS
You may be able to select enhancements to the Payout Options described above.
These enhancements include partial annuitization, flexible payments of varying
amounts and inflation protection payments. Additionally, certain options may be
available with a one to twenty year guaranteed period. Additionally, certain
options may be available with a one to twenty year guaranteed period. The Joint
and Survivor Life Option may be available with a one to twenty year guaranteed
period option. Not all of the enhancements are available under each option.
PAYOUT INFORMATION
Once your Payout Payments have begun, the option you have chosen may not be
stopped or changed. Any one of the Variable Account Options may result in your
receiving unequal payments during your life expectancy. If payments begin before
age 59 1/2, you may suffer unfavorable tax consequences if you do not meet an
exception to federal tax law. See "Federal Tax Matters" in this prospectus.
Your Payment Option should be selected at least 30 days before your Payout Date.
If such selection is not made:
- payments will be made under the Life with Guaranteed Period Option, and
- the payments will be guaranteed for a 10 year period, and
- the payments will be based on the allocation used for your Purchase Payments
- Fixed Account Option will be used to distribute payments to you on a Fixed
Payout basis
- Variable Account Options will be used to distribute payments to you on a
Variable Payout basis.
Your first Payout Payment must total at least $25.
Most Payout Payments are made monthly. If the amount of your payment is less
than $25, we reserve the right to reduce the number of payments made each year
so each of your payments are at least $25.
For more information about
PAYOUT OPTIONS OR
ENHANCEMENTS
of those Payout Options
available under the Contract,
see the "Statement of
Additional Information".
26
<PAGE> 29
SURRENDER OF ACCOUNT VALUE
- --------------------------------------------------------------------------------
WHEN SURRENDERS ARE ALLOWED. You may withdraw all or part of your Account Value
at any time before the Payout Period begins if:
- allowed under federal and state law; and
- allowed under your employer's plan.
For an explanation of charges that may apply if you surrender your Account
Value, see "Fees and Charges" in this prospectus.
AMOUNT THAT MAY BE SURRENDERED. The amount that may be surrendered at any time
can be determined as follows:
- ----------------------------------------------------
<TABLE>
<S> <C> <C>
Your
Account
Allowed Value(1)
Surrender = (EQUALS) - (MINUS)
Value Any Applicable
Surrender
Charge
</TABLE>
1: Equals the Account Value next computed after your properly completed
request for surrender is received in our Home Office.
There is no guarantee that the Surrender Value in a Variable Account Option will
ever equal or exceed the total amount of your Purchase Payments received by us.
We will mail to you the Surrender Value within 7 calendar days after we receive
your properly completed surrender request at our Home Office. However, we may be
required to suspend or postpone payments if redemption of an underlying Fund's
shares have been suspended or postponed. See "Offering, Purchase and Redemption
of Fund Shares" in the Series Company Statement of Additional Information. See
your current Fund(s)' prospectuses for a discussion of the reasons why the
redemption of shares may be suspended or postponed.
We may receive a surrender for a Purchase Payment which has not cleared the
banking system. We may delay payment of that portion of your Surrender Value
until the check clears. The rest of the Surrender Value will be processed as
usual.
SURRENDER RESTRICTIONS
Under the TEXAS STATE OPTIONAL RETIREMENT PROGRAM, and in many Section 403(b)
contracts, no surrender or partial surrender will be allowed except for
termination of employment, retirement or death.
Under the FLORIDA STATE OPTIONAL RETIREMENT PROGRAM, no surrender or partial
surrender of Purchase Payments made by the employer will be allowed except for
termination of employment, retirement or death. Benefit payments based on
payments from the employer may not be paid in a lump sum or for a period
certain, but must be paid under a life contingency option, except for:
- death benefits; and
- certain small amounts approved by the State of Florida.
PARTIAL SURRENDERS
You may request a partial surrender of your Account Value at any time. A partial
surrender plus any surrender charge will reduce your Account Value. The
reduction in your Account Value will be allocated proportionally through all of
your investment options unless specific investment options have been stated on
your request.
The reduction in the number of Purchase Units credited to your Variable Account
Option Account Value will equal:
- --------------------------------------------------
<TABLE>
<S> <C> <C>
The amount Your Purchase
surrendered Units next
from the Variable computed after
Account Option the written
+ (PLUS) / (DIVIDED BY) request for
Any Surrender surrender is
Charge received at our
Home Office.
</TABLE>
The Surrender Value will be reduced by a full quarterly account maintenance fee
charged in the case of a full surrender during a quarter.
SYSTEMATIC WITHDRAWALS. You may elect to withdraw all or part of your Account
Value under a systematic withdrawal method described in your annuity contract
offered by Portfolio Director. There will be no surrender charge for withdrawals
using this method, which provides for:
- Payments to be made to you
- Payment over a stated period of time (but not less than five years);
- Payment of a stated yearly dollar amount or percentage (the amount or
percentage may not exceed 20% of your Account Value at the time election is
made);
We may require a minimum withdrawal amount under this method. The portion of
your account that has not been withdrawn will continue to receive the investment
return of the Variable Account Options which you selected. A systematic
withdrawal election may not be changed but can be revoked at no charge. Once
revoked, a systematic withdrawal may not be elected again. No more than one
systematic withdrawal election may be in effect at any one time. We reserve the
right to discontinue any or all systematic withdrawals or to change its terms,
at any time.
27
<PAGE> 30
------------------------------------------------------------
DISTRIBUTIONS REQUIRED BY FEDERAL TAX LAW. There will be no surrender charge on
a minimum distribution required by federal tax law (known as No Charge Minimum
Distribution), if the withdrawal:
- Is made payable to you; and
- Does not exceed the amount required under federal tax law as determined by
the values in your Portfolio Director Contract and VALIC.
This contract feature will not be available in any year that an amount has been
withdrawn under the no charge systematic withdrawal method. See "Federal Tax
Matters" in this prospectus and in the Statement of Additional Information for
more information about required distributions imposed by tax law.
For an explanation of possible adverse tax consequences of a surrender, see
"Federal Tax Matters" in this prospectus.
28
<PAGE> 31
EXCHANGE PRIVILEGE
- --------------------------------------------------------------------------------
We issue other fixed and/or variable annuity contracts (other contracts) in
addition to Portfolio Director. These other contracts are listed below. We will
allow you, under certain conditions, to exchange from one of these other
contracts to Portfolio Director. This exchange privilege will be available only
to other contracts for which we have not yet started making payments under a
Payout Option. If you elect to exercise one of these exchange offers, you should
contact any of our Regional Offices at the addresses shown in the back of this
prospectus.
RESTRICTIONS ON EXCHANGE PRIVILEGE
We will impose certain general restrictions and rules on the exchange
privileges.
- Partial exchanges are not permitted.
- Exchanges from Portfolio Director to other contract forms are not permitted.
- This exchange privilege is only available for those other contracts listed
below.
Additionally, if you have your money in a fixed account of one of the below
listed other contracts, you must exchange directly into the Fixed Account
Options of Portfolio Director. You will be subject to all of the rules that
apply to the Fixed Account Options in Portfolio Director. For example, you will
be subject to the rules concerning transfers among investment options as stated
in the Transfers Between Investment Options section in this prospectus. We may,
at our option, waive any transfer restrictions for a stated period of time. If
we waive these transfer restrictions, you will be allowed to exchange to any
investment option available in Portfolio Director.
WE RESERVE THE RIGHT TO TERMINATE, MODIFY OR SUSPEND THESE EXCHANGE PRIVILEGES
AT ANY TIME.
TAXES AND CONVERSION COSTS
We will impose no fee or charge for these exchanges. Please read the "Federal
Tax Matters" section in this prospectus for information about the federal income
tax treatment of Portfolio Director.
SURRENDER CHARGES
We will generally not impose nor waive existing surrender charges as a result of
your electing to exchange from one of the other contracts.
For purposes of determining surrender charges, we often consider time in the
contract. For SPQ181 and SPQ181-1 Contracts, the contract date for determining
surrender charges under Portfolio Director will be the SPQ181 and SPQ181-1
contract date plus one year. For example, if you have an SPQ181 contract with a
contract date of January 1, 1993, upon exchange into Portfolio Director, the
contract date for surrender charges purposes becomes January 1, 1994.
For any other contract, the contract date for determining surrender charges
under Portfolio Director will be the same date as the other contract, but no
earlier than January 1, 1982. (The effect of this is to potentially shorten the
charge period for Purchase Payments subsequently made to Portfolio Director.)
If there is no surrender charge on assets within another contract, we will not
impose charges on those assets as a result of an exchange. If surrender charges
are to be based on Purchase Payments within a contract, we will consider
purchase payments in the other contract to have been transferred to Portfolio
Director for purposes of calculating the surrender charge. The effective dates
of these Purchase Payments will also be retained for surrender charge purposes.
EXCHANGE OFFERS
The following other contracts may be exchanged.
- V-Plan Contracts (IFA-582 and GFA-582 Contracts)
- Compounder Contracts (C-1-75 and IFA-78 Contracts)
- Independence Plus Contracts (UIT-585 and UITG-585 Contracts)
- Impact Contracts (UIT-981 Contracts)
- SA-1 or SA-2 (GUP-64, GUP-74 and GTS-VA Contracts)
- FSPA-75, FSPA-73-3, FSPA-779 Contracts
- SPQ181, SPQ181-1 Contracts
- CTA 978 Contract
- TFA-379 Contract
- SDA-578, SDA-773-T Contract
- IRA-579 Contracts
Portfolio Director will have the same Account Value (called Accumulation Value
in the other contracts) as the other contracts.
COMPARISON OF CONTRACTS
You should carefully compare the features, charges and restrictions of the other
contracts to those of Portfolio Director. A more detailed comparison of the
features, charges, and restriction between each above listed other
29
<PAGE> 32
------------------------------------------------------------
contract and Portfolio Director is provided in the Statement of Additional
Information.
For the V-Plan and Compounder Contract you should refer to the terms of the
contract or certificate. For the other contracts please refer to its most
recently dated prospectus for a complete description of the contract terms and
conditions. Those prospectuses are incorporated herein by reference. If you want
an additional copy of any of these prospectuses or Statements of Additional
Information, please contact us at the address shown in the introduction of the
prospectus.
FEATURES OF PORTFOLIO DIRECTOR
In deciding whether you want to exercise this exchange privilege, you should
consider the following features of Portfolio Director.
- Portfolio Director has more investment options to select from.
- The Portfolio Director surrender charge is calculated assuming the most
recent Purchase Payments are removed first. This policy may cause exchanged
funds to be accessible only after charges are imposed.
- Portfolio Director has an Interest Guaranteed Death Benefit.
- Portfolio Director's Fund fees and charges are different than the other
contracts and in some cases may be higher.
- Portfolio Director's guaranteed annuity rates and guaranteed interest rates
may be less favorable than the other contracts.
AGENTS' AND MANAGERS' RETIREMENT PLAN
EXCHANGE OFFER
General. All eligible agents and managers of the Company are allowed to
participate in the Company's Agents' and Managers' Retirement Plan ("Plan"). We
grant 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 Portfolio Director.
Agents and managers of VALIC who enter into the voluntary exchange will not
incur under Portfolio Director any surrender charges or account maintenance
fees. Other individuals who may exchange to Portfolio Director from SA-1 or
Independence Plus Contracts may have surrender charges and account maintenance
fees imposed under Portfolio Director. 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:
- Remain in the SA-1 Contract or Independence Plus Contract.
- Leave current assets in the SA-1 Contract or Independence Plus Contract and
direct future Purchase Payments to the Portfolio Director; or
- Transfer all current assets and future Purchase Payments to the Portfolio
Director.
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 Portfolio
Director, 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 Portfolio Director subject to the
exception that surrender charges and account maintenance fees will not be
imposed under Portfolio Director. If the participant chooses to transfer all
current assets and future Purchase Payments to Portfolio Director, such current
assets and future Purchase Payments will be controlled by the provisions of
Portfolio Director subject to the exception that surrender charges and account
maintenance fees will not be imposed under Portfolio Director.
Once a participant transfers assets and future Purchase Payments to Portfolio
Director 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 Portfolio Director, the
participant will be allowed at a later date to transfer the current assets to
Portfolio Director. For a complete analysis of the differences between the SA-1
contract or the Independence Plus Contract and Portfolio Director, you should
refer to the Statement of Additional Information and the form of the contract or
certificate for its terms and conditions.
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<PAGE> 33
DEATH BENEFITS
- --------------------------------------------------------------------------------
Portfolio Director will pay death benefits during either the Purchase Period or
the Payout Period. How these death benefits will be paid are discussed below.
The death benefit provisions in Portfolio Director may vary from state to state.
BENEFICIARY INFORMATION
The Beneficiary may receive death benefits:
- - In a lump sum; or
- - In the form of an annuity under any of the Payout Options stated in the Payout
Period section of this prospectus subject to the restrictions of that Payout
Option.
Payment of any death benefits must be within the time limits set by federal tax
law.
Beneficiaries Other Than Spouses.
If the Beneficiary is not the spouse of the Annuitant, death benefits must be
paid.
- - In full within 5 years after the Annuitant's death; or
- - By payments beginning within 1 year after the Annuitant's death under:
- A life annuity;
- A life annuity with payments certain; or
- An annuity for a designated period.
If the Annuitant dies before the Annuity Date, the Beneficiary as named by you
may receive the payout.
Payments certain or payments for a designated period cannot be for a greater
period of time than the Beneficiary's life expectancy. After choosing a payment
option, a Beneficiary may exercise many of the investment options and other
rights that the Participant or Contract Owner had under Portfolio Director.
SPECIAL INFORMATION FOR INDIVIDUAL
NON-TAX QUALIFIED CONTRACTS
It is possible that the Contract Owner and the Annuitant under a Non-Tax
Qualified Contract are not the same person. If this is the case, and the
Contract Owner dies, there will be no death benefit payable since the death
benefit is only due in the event of the Annuitant's death. However, the Contract
will be transferred to the Contingent Owner, if any, or to the Contract Owner's
estate. Such transfers will be considered a taxable event by the IRS.
DURING THE PURCHASE PERIOD
Two types of benefits are available if death occurs during the Purchase Period.
Interest Guaranteed Death Benefit and Standard Death Benefit.
INTEREST GUARANTEED DEATH BENEFIT
The interest guaranteed death benefit is payable when death occurs prior to your
reaching the age of 70. This contract provision is not available in some states.
The amount payable under the interest guaranteed death benefit will be at least
equal to the sum of your Account Value in the Fixed Account Option(s) and the
Variable Account Option(s) on the date VALIC receives proof of death.
Here is how to calculate the death benefit:
- --------------------------------------------------
Step 1: Determine your Fixed Account Option Value by taking the greater of:
Value of Fixed Account Option on date
proof of death Is received by VALIC
OR
100% of Purchase Payments placed
in Fixed Account Option
- - (MINUS)
Amount of all prior withdrawals, charges and
any portion of Account Value applied under
a Payout Option
- --------------------------------------------------
Step 2: Determine your Variable Account Option Value by taking the greater of:
Value of Variable Account Option on date
proof of death is received by VALIC
OR
100% of Purchase Payments placed in
Variable Account Options
- - (MINUS)
Prior withdrawals (out of) or transfers
(out of) the Variable Account Option
+ (PLUS)
Interest at an annual rate of 3%
- --------------------------------------------------
Step 3: Add step 1 + 2 = Death Benefit
For purposes of this calculation amounts transferred into the Variable Account
Option will be treated as Purchase Payments.
BENEFICIARY -- the
person designated to
receive Payout Payments
upon the death of an
Annuitant.
ANNUITANT -- the
individual, (in most
cases this person is
you) to whom Payout
Payments will be paid.
CONTRACT OWNER -- either
your employer or
organization in the case
of a group contract or
the Annuitant in the
case of an individual
contract. If the
contract is an
individual non-qualified
type, this is generally
the Annuitant but a
Contingent Contract
Owner may also be
provided for.
FIXED ACCOUNT
OPTIONS -- a particular
subaccount into which
your Purchase Payments
and Account Value may be
allocated to fixed
investment options.
Currently, the Fixed
Account Options in
Portfolio Director are
Fixed Account Plus and
Short-Term Fixed
Account. Each option of
this type is guaranteed
to earn at least a
minimum rate of
interest.
VARIABLE ACCOUNT
OPTIONS -- Investment
Options that correspond
to VALIC Separate
Account A Divisions
offered by Portfolio
Director. Investment
returns on Variable
Account Options will be
positive or negative
depending on the
investment performance
of the underlying mutual
fund.
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<PAGE> 34
------------------------------------------------------------
STANDARD DEATH BENEFIT
The standard death benefit is payable if death occurs on or after age 70.
The Standard Death Benefit will be the greater of:
- --------------------------------------------------
Your Account Value on the Date Proof of Death is Received by VALIC
OR
100% of Purchase Payments (to Fixed
and/or Variable Account Options)
- - (MINUS)
Amount of all Prior Withdrawals, Charges
and any portion of Account Value applied
under a Payout Option
DURING THE PAYOUT PERIOD
If death occurs during the Payout Period, your Beneficiary may receive a death
benefit depending on the Payout Option selected. The amount of death benefits
will also depend on the Payout Option that you selected. The Payout Options
available in Portfolio Director are described in the "Payout Period" section of
this prospectus.
- If the Life Only Option or Joint and Survivor Life Option were chosen, there
will be no death benefit.
- If the Life With Guaranteed Period Option, Joint and Survivor Life with
Guaranteed Periods Option, Life with Cash or Unit Refund Option or Payment
for a Designated Period Option were chosen, and the entire amount guaranteed
has not been paid, the Beneficiary may choose one of the following within 60
days after death benefits are payable:
- Receive the present value of any remaining payments in a lump sum; or
- Receive the remaining payments under the same terms of the guaranteed
period option chosen by the deceased Participant; or
- Receive the present value of any remaining payments applied under the
Payment for a Designated Period Option for a period equal to or shorter
than the period remaining. Spouse beneficiaries may be entitled to more
favorable treatment under federal tax law.
Under federal tax laws if the Life with Guaranteed Periods Option is chosen on a
variable basis, it may be treated in the same manner as a surrender of your
Portfolio Director account. If your account is surrendered the full amount your
Beneficiary receives will normally be treated as income for that year. This
amount generally will also be taxed at rates used for ordinary income.
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<PAGE> 35
HOW TO REVIEW INVESTMENT PERFORMANCE
OF SEPARATE ACCOUNT DIVISIONS
- --------------------------------------------------------------------------------
We will advertise information about the investment performance of VALIC Separate
Account A Divisions. Our advertising of past investment performance results does
not mean that future performance will be the same. The performance information
will not predict what your actual investment experience will be in that Division
or show past performance under an actual contract. We may also show how the
Divisions rank on the basis of data compiled by independent ranking services.
Some of the Divisions (and underlying Funds) offered in this prospectus were
previously available through other annuity contracts before Portfolio Director
was first available to you. We may therefore, advertise investment performance
since the inception of the underlying Funds. However, in doing so, we will use
the charges and fees imposed by Portfolio Director in calculating the Division's
investment performance for earlier time frames.
TYPES OF INVESTMENT
PERFORMANCE INFORMATION
ADVERTISED
We may advertise the Division's Total Return Performance information and Yield
Performance information.
TOTAL RETURN PERFORMANCE
INFORMATION
Total Return Performance Information is based on the overall dollar or
percentage change in value of an assumed investment in a Division over a given
period of time.
There are seven ways Total Return Performance Information may be advertised:
- Standard Average Annual Total Return
- Nonstandard Average Annual Total Return
- Cumulative Total Return
- Annual Change in Purchase Unit Value
- Cumulative Change in Purchase Unit Value
- Total Return Based on Different Investment Amounts
- An Assumed Account Value of $10,000
Each of these is described below.
STANDARD AVERAGE ANNUAL TOTAL RETURN
Standard Average Annual Total Return shows the average percentage change in the
value of an investment in the Division from the beginning to the end of a given
historical period. The results shown are after all charges and fees have been
applied against the
Division. This will include account maintenance fees and surrender charges that
would have been deducted if you surrendered Portfolio Director at the end of
each period shown. Premium taxes are not deducted. This information is
calculated for each Division based on how an initial assumed payment of $1,000
performed at the end of 1, 3, 5 and 10 year periods.
The return for periods of more than one year are 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.
NONSTANDARD AVERAGE ANNUAL TOTAL RETURN
Nonstandard Average Annual Total Return is calculated in the same manner as the
Standard Average Annual Total Return. However, Nonstandard Average Annual Total
Return shows only the historic investment results of the Division. Account
maintenance fees, surrender charges and premium taxes are not deducted.
CUMULATIVE TOTAL RETURN
Cumulative Total Return assumes the investment in Portfolio Director will stay
in the Division beyond the time that a surrender charge would apply. It may be
calculated for 1, 3, 5 and 10 year periods. It is based on an assumed initial
investment of $10,000. The Cumulative Return will be calculated without
deduction of account maintenance fees, surrender charges or premium taxes.
ANNUAL CHANGE IN PURCHASE UNIT VALUE
Annual Change in Purchase Unit Value is a percentage change during a one year
period. This is calculated as follows:
- The Purchase Unit Value at the start of the year is subtracted from the
Purchase Unit Value at the end of the year;
- The difference is divided by the Purchase Unit Value at the start of the
year.
Account maintenance fees, surrender charges and premium taxes are not deducted.
The effect of these charges, if deducted, would reduce the Division's Annual
Change in Purchase Unit Value.
DIVISIONS -- Subaccounts
of VALIC Separate
Account A which
represent the Variable
Account Options in
Portfolio Director. Each
Division invests in a
different mutual fund,
each having its own
investment objective and
strategy.
PURCHASE PAYMENTS -- an
amount of money you pay
to VALIC to receive the
benefits of an annuity
Contract offered by
Portfolio Director.
For more information on
how TOTAL RETURN
PERFORMANCE INFORMATION
is calculated and tables
showing historical
performance information,
see the Statement of
Additional Information.
33
<PAGE> 36
------------------------------------------------------------
CUMULATIVE CHANGE IN PURCHASE UNIT VALUE
Cumulative Change in Purchase Unit Value is a percentage change from the
beginning to the ending of a period usually greater than one year. Otherwise, it
is calculated in the same way as the Annual Change in Purchase Unit Value.
TOTAL RETURN BASED ON DIFFERENT
INVESTMENT AMOUNTS
We may show total return information based on different investment amounts. For
example, we may show $200 a month for 10 years, or $100 a month to age 65. Fees
may or may not be included. Each performance illustration will explain the
Portfolio Director charges and fees imposed on the Division.
AN ASSUMED ACCOUNT VALUE OF $10,000
We may show annual changes in the Purchase Unit Value based on an initial
investment of $10,000. This will not reflect any deduction for account
maintenance fees, surrender charges and premium taxes.
YIELD PERFORMANCE INFORMATION
We may advertise Yield Performance, at a given point in time. A Division's yield
is one way of showing the rate of income the Division is earning as a percentage
of the Division's Purchase Unit Value.
MONEY MARKET DIVISION
We may advertise the Money Market Division's Current Yield and Effective Yield.
The Current Yield refers to the income produced by an investment in the Money
Market Division over a given 7-day period. The Current Yield does not take into
account surrender charges, account maintenance fees or premium taxes. The income
produced over a 7 day period is then "annualized." This means we are assuming
the amount of income produced during the 7-day period will continue to be
produced each week for an entire year. The annualized amount is shown as a
percentage of the investment. The 7-day Current Yield for the last 7 days ended
December 31, 1995 was 4.15%.
The Effective Yield is calculated in a manner similar to the Current Yield. But,
when the yield is annualized the income earned is assumed to be reinvested. The
compounding effect will cause the Effective Yield to be higher than the Current
Yield. The 7-day Effective Yield for the last 7 days ended December 31, 1995 was
4.24%.
DIVISIONS OTHER THAN THE MONEY MARKET DIVISION
We may advertise the standardized yield performance for each Division other than
the Money Market Division. The yield for each of these Divisions will be
determined as follows:
- We will subtract the account maintenance fee from the average daily net
investment income per Purchase Unit;
- We will divide the remainder by the Purchase Unit Value on the last day of
the period; and
- We will annualize the result.
34
<PAGE> 37
OTHER CONTRACT FEATURES
- --------------------------------------------------------------------------------
CHANGES THAT MAY NOT BE MADE
The following terms in Portfolio Director may not be changed once your account
has been established:
- The Contract Owner;
- The Participant; and
- The Annuitant.
CHANGE OF BENEFICIARY
The Beneficiary (if not irrevocable) may usually be changed at any time.
Under some retirement programs, the right to name or change a Beneficiary is
subject to approval by the spouse. Also, the right to name a Beneficiary other
than the spouse may be subject to certain tax laws and regulations.
If the Annuitant dies, and there is no Beneficiary, any death benefit will be
payable to the Annuitant's estate.
If a Beneficiary dies while receiving payments, and there is no co-Beneficiary
to continue to receive payments, any amount still due will be paid to the
Beneficiary's estate.
CONTINGENT OWNER
The Contract Owner may name a Contingent Owner under an individual non-tax
qualified Contract. During the Purchase Period, the Contingent Owner may be
changed. However, if the Contract Owner dies, benefits must be distributed as
required by the federal tax law.
CANCELLATION -- THE 20 DAY "FREE LOOK"
The Contract Owner may cancel an individual contract by returning it to the
Company within 20 days after delivery. (A longer period will be allowed if
required under state law.) A refund will be made to the Contract Owner within 7
days after receipt of the Contract within the required period. The amount of the
refund will be equal to all Purchase Payments received or the amount required
under state law, if larger.
WE RESERVE CERTAIN RIGHTS
We reserve the right to:
- Amend the Contract to conform with substitutions of investments;
- Amend the Contract to comply with tax or other laws;
- Make changes (upon written notice) to group Contracts that would apply only
to new Participants after the effective date of the changes;
- Operate VALIC Separate Account A as a management investment company under
the 1940 Act, in consideration of an investment management fee or in any
other form permitted by law;
- Deregister VALIC Separate Account A under the 1940 Act, if registration is
no longer required;
- Stop accepting new Participants under a group Contract.
RELATIONSHIP TO EMPLOYER'S PLAN
If the Contract is being offered as a retirement plan through your employer, you
should always refer to the terms and conditions in your employer's plan when
reviewing the description of Portfolio Director in this prospectus.
Plan loans from the Fixed Account Options may be allowed by your employer's
plan. Refer to your plan for a description of charges and other information.
35
<PAGE> 38
VOTING RIGHTS
------------------------------------------------------------
As discussed in the "About VALIC Separate Account A" section of this prospectus,
VALIC Separate Account A holds on your behalf shares of the Funds which comprise
the Variable Account Options. From time to time the Funds are required to hold a
shareholder meeting to obtain approval from their shareholders for certain
matters. As a Participant, you may be entitled to give voting instructions to us
as to how VALIC Separate Account A should vote its Fund shares on these matters.
Those persons entitled to give voting instructions will be determined before the
shareholders meeting is held. For more information about these shareholder
meetings and when they may be held, see the Funds' prospectuses.
WHO MAY GIVE VOTING INSTRUCTIONS
In most cases during the Purchase Period, you will have the right to give voting
instructions for the shareholder meetings. This will be true even if your
employer is the Contract Owner. Contract Owners will instruct VALIC Separate
Account A in accordance with these instructions. You will receive proxy material
and a form on which voting instructions may be given before the shareholder
meeting is held.
You will not have the right to give voting instructions if Portfolio Director
was issued in connection with a nonqualified and unfunded deferred compensation
plan.
DETERMINATION OF FUND SHARES
ATTRIBUTABLE TO YOUR ACCOUNT
DURING PURCHASE PERIOD
The number of Fund shares attributable to your account will be determined on the
basis of the Purchase Units credited to your account on the record date set for
the Fund shareholder meeting.
DURING PAYOUT PERIOD OR AFTER A DEATH
BENEFIT HAS BEEN PAID
The number of Fund shares attributable to your account will be based on the
liability for future variable annuity payments to your payees on the record date
set for the Fund shareholder meeting.
HOW FUND SHARES ARE VOTED
The Funds which comprise the Variable Account Options in Portfolio Director may
have a number of shareholders including VALIC Separate Account A, VALIC and
other affiliated insurance company separate accounts and retirement plans within
the American General group of companies.
VALIC Separate Account A will vote all of the shares of the Funds it holds based
on, and in the same proportion as, the instructions given by all the
Participants invested in that Fund entitled to give instructions at that
shareholder meeting. VALIC Separate Account A will vote the shares of the Funds
it holds for which it receives no voting instruction in the same proportion as
the shares for which voting instructions have been received.
VALIC will vote the shares of the Funds it holds based on, and in the same
proportion as, the voting instructions received from participants in VALIC
Separate Account A.
In the future, we may decide how to vote the shares of VALIC or VALIC Separate
Account A in a different manner if permitted at that time under federal
securities law.
VALIC SEPARATE
ACCOUNT A -- a segregated
asset account established by
VALIC under the Texas
Insurance Code. The purpose
of VALIC Separate Account A
is to receive and invest your
Purchase Payments and
Account Value in the Variable
Account Options you have
selected.
36
<PAGE> 39
FEDERAL TAX MATTERS
- --------------------------------------------------------------------------------
Portfolio Director Contracts provide tax-deferred accumulation over time, but
are subject to federal income and excise taxes, mentioned briefly below. You
should refer to the Statement of Additional Information for further details.
Section references are to the Internal Revenue Code ("Code"). We do not attempt
to describe any potential estate or gift tax, or any applicable state, local or
foreign tax law other than possible premium taxes mentioned under "Premium Tax
Charge." Remember that future legislation could modify the rules discussed
below, and always consult your personal tax adviser regarding how the current
rules apply to your specific situation.
TYPE OF PLANS
Tax rules vary, depending on whether the Contract is offered under your
employer's tax-qualified retirement program or an IRA, or is instead a
nonqualified Contract. Portfolio Director is used under the following types of
retirement arrangements:
- Section 403(b) annuities for employees of public schools and Section
501(c)(3) tax-exempt organizations;
- Section 401(a) and 403(a) qualified plans of for-profit employers (including
self-employed individuals);
- Section 408(b) individual retirement annuities;
- Section 457 unfunded deferred compensation plans of governmental and
tax-exempt employers;
- Section 408(k) simplified deferred compensation plans of private employers.
- Unfunded, non-qualified deferred compensation plans of private employers.
Note that the specific terms of the governing employer plan may limit rights and
options otherwise available under a Contract.
In addition, Portfolio Director is also available through "Non-Qualified
Contracts." Separate Account investment must be "adequately diversified" in
order for the increase in the value of Non-Qualified Contracts to receive
tax-deferred treatment. 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. A Fund's failure to meet these diversification
requirements could result in tax liability to Non-Qualified Contract Owners.
Since each Fund expects to satisfy diversification, and assure tax deferred
treatment to Non-Qualified Contract holders, investment opportunities of a Fund
may consequently be limited. This would affect all Contract Owners, including
owners of Contracts other than Non-Qualified Contracts for whom diversification
is not a requirement for tax-deferred treatment.
TAX CONSEQUENCES IN GENERAL
Purchase Payments, distributions, withdrawals, transfers and surrender of a
Contract can each have a tax effect, which varies with the governing retirement
arrangement. Please refer to the detailed explanation in the Statement of
Additional Information, the documents (if any) controlling the retirement
arrangement through which the contract is offered, and your personal tax
adviser.
Purchase Payments under Portfolio Director can be made as contributions by
employers, or as pre-tax or after-tax contributions by employees, depending on
the type of retirement program. After-tax employee contributions constitute
"investment in the Contract." All Contracts receive deferral of tax on the
inside build-up of earnings on invested Purchase Payments, until a distribution
occurs. See the Statement of Additional Information for special rules, including
those applicable to taxable, non-natural owners of Non-Qualified Contracts.
Distributions are taxed differently depending on the program through which
Portfolio Director is offered and the previous tax characterization of the
contributions to which the distribution relates. Generally, the amount by which
a distribution exceeds investment in the Contract is subject to income tax. For
annuity payments, investment in the contract is recovered ratably over the
expected payout period. Special recovery rules might apply in certain
situations.
Amounts subject to income tax may also incur excise tax, under the circumstances
described in the Statement of Additional Information. Generally, they would also
be subject to some form of federal income tax withholding unless rolled into
another tax-deferred vehicle. Required withholding will vary according to type
of program, type of payment and your tax status. In addition, amounts received
under all Contracts may be subject to state income tax withholding requirements.
37
<PAGE> 40
------------------------------------------------------------
EFFECT OF TAX-DEFERRED ACCUMULATIONS
The chart below compares the results from Premium Payments made to:
- Portfolio Director Contract issued to a tax favored retirement program
purchased with pre-tax premium payments;
- A non-qualified Contract purchased with after-tax Premium Payments and;
- conventional savings vehicles such as savings accounts.
THE POWER OF TAX-DEFERRED GROWTH
CHART
This hypothetical chart compares the results of (1) contributing $100 per month
to a conventional, non-tax deferred plan, (2) contributing $100 to a
nonqualified, 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, Premium Payments made to tax-favored retirement
programs and Non-Qualified Contracts provide tax deferred treatment on earnings.
In addition, Premium Payments made to tax-favored retirement programs ordinarily
are not subject to 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 represents (without factoring in fees
and charges) after-tax amounts that would be received.
By taking into account the current deferral of taxes, 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
<TABLE>
<CAPTION>
TAX-FAVORED CONVENTIONAL
RETIREMENT SAVINGS
PROGRAM ACCOUNT
------------ -------------
<S> <C> <C>
Annual amount
available for
savings before
federal taxes.... $ 2,500 $ 2,500
Current federal
income tax due on
Purchase
Payments......... 0 (700)
Net retirement plan
Purchase
Payments......... $ 2,500 $ 1,800
</TABLE>
This chart assumes a 28% Federal income tax rate. The $700 which is paid toward
current Federal income taxes on $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.
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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
Account 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 Account Values or Payout 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.
<TABLE>
<S> <C>
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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.
</TABLE>
39
<PAGE> 42
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).
(Please Print or Type)
<TABLE>
<S> <C>
- -----------------------------------------------------------------------------------------------------------
Name: ___________________________________________ G.A. # ____________________________________________
Address:_________________________________________ Policy # __________________________________________
_________________________________________________
Social Security Number: _________________________
- -----------------------------------------------------------------------------------------------------------
</TABLE>
40
<PAGE> 43
CONTENTS OF STATEMENT OF ADDITIONAL INFORMATION
<TABLE>
<CAPTION>
PAGE
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<S> <C>
General Information................................. 4
Marketing Information........................... 4
Endorsements and Published Ratings.............. 6
Types of Variable Annuity Contracts................. 7
Federal Tax Matters................................. 8
Tax Consequences of Purchase Payments........... 8
Tax Consequences of Distributions............... 9
Special Tax Consequences -- Early
Distribution.................................. 10
Special Tax Consequences -- Required
Distributions................................. 10
Tax Free Rollovers, Transfers and Exchanges..... 11
Exchange Privilege.................................. 12
Exchanges From Independence Plus Contracts...... 12
Exchanges From V-Plan Contracts................. 13
Exchanges From SA-1 and SA-2 Contracts.......... 14
Exchanges From Impact Contracts................. 15
Exchanges From Compounder Contracts............. 16
Information Which May Be Applicable To Any
Exchange...................................... 17
Calculation of Surrender Charge..................... 18
Illustration of Surrender Charge on Total
Surrender..................................... 18
Illustration of Surrender Charge on a 10%
Partial Surrender Followed by a Full
Surrender..................................... 18
Purchase Unit Value................................. 19
Illustration of Calculation of Purchase Unit
Value......................................... 19
Illustration of Purchase of Purchase Units...... 19
Performance Calculations............................ 19
Money Market Division Yields.................... 19
Calculation of Yield for Money Market
Division Six.................................. 19
Illustration of Calculation of Yield for Money
Market Division Six........................... 19
Calculation of Effective Yield for Money Market
Division Six.................................. 19
Illustration of Calculation of Effective Yield
for Money Market Division Six................. 19
Standardized Yield for Divisions Seven, Eight and
Thirteen.......................................... 20
Calculation of Standardized Yield for Divisions
Seven, Eight and Thirteen..................... 20
Illustration of Calculation of Standardized
Yield for Divisions Seven, Eight and
Thirteen...................................... 20
Calculation of Average Annual Total Return...... 21
Separate Account Division Performance Information... 21
Average Annual Total Return, Cumulative Return
and Annual and Cumulative Change in Purchase
Unit Value Tables............................. 22
Hypothetical $10,000 Account Value and
Cumulative Return as Compared
to Benchmark Tables........................... 25
Performance Compared to Market Indices.......... 25
Stock Index Division Ten Performance Compared to
S&P 500 Index................................. 28
<CAPTION>
PAGE
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<S> <C>
MidCap Index Division Four Performance Compared
to Relevant Index............................. 28
Small Cap Index Division Fourteen Performance
Compared to Russell 2000 Index................ 29
International Equities Division Eleven
Performance Compared to EAFE Index............ 29
Templeton International Division Twenty
Performance Compared to MSCI World Index...... 30
Dreyfus Small Cap Division Eighteen Performance
Compared to Russell 2000...................... 30
Growth Division Fifteen Performance Compared to
S&P 500 Index................................. 31
Growth & Income Division Sixteen Performance
Compared to S&P 500 Index..................... 31
Capital Conservation Division Seven Performance
Compared to Merrill Lynch Corporate Master
Index......................................... 32
Government Securities Division Eight Performance
Compared to Lehman Brothers U.S. Treasury
Composite Index............................... 33
International Government Bond Division Thirteen
Performance Compared to Salomon Brothers
Non-U.S. Dollar World Government Bond Index... 33
Social Awareness Division Twelve Performance
Compared to S&P 500 Index..................... 34
Science & Technology Division Seventeen
Performance Compared to S&P 500 Index......... 34
Money Market Division Six Performance Compared
to Certificate of Deposit Primary Offering by
New York City Banks, 30 Day Index............. 35
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................. 36
Templeton Asset Allocation Division Nineteen
Performance Compared to MSCI World Index,
Salomon Brothers Non-US Dollar World
Government Bond Index, and Certificate of
Deposit Primary Offering by New York City
Banks, 30 Day Index........................... 37
Payout Payments..................................... 37
Assumed Investment Rate......................... 37
Amount of Payout Payments....................... 37
Payout Unit Value............................... 38
Illustration of Calculation of Payout Unit
Value......................................... 38
Illustration of Payout Payments................. 39
Distribution of Variable Annuity Contracts.......... 39
Experts............................................. 39
Comments on Financial Statements.................... 40
</TABLE>
41
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- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
FOR ADDITIONAL INFORMATION ABOUT THE CONTRACTS
CONTACT YOUR NEAREST REGIONAL OFFICE:
10851 N. Black Canyon Hwy
Suite 700
Phoenix, AZ 85029
(602) 678-1700
222 South Harbor Blvd.
10th Floor
Anaheim, CA 92805
(714) 774-7844
1900 O'Farrell St.
Suite 390
San Mateo, CA 94403
(415) 574-5433
165 South Union Blvd. West
Suite 1050
Lakewood, CO 80228
(303) 988-3344
10006 N. Dale Mabry Hwy.
Suite 113
Tampa, FL 33618
(813) 961-1611
100 Ashford Center North
Suite 100
Atlanta, GA 30338
(770) 395-4700
230 West Monroe
Suite 1550
Chicago, IL 60606
(312) 368-1001
8555 North River Road
Suite 420
Indianapolis, IN 46240
(317) 574-7145
7310 Ritchie Highway
Suite 800
Glen Burnie, MD 21061
(410) 768-2330
1301 West Long Lake Road
Suite 340
Troy, MI 48098
(810) 641-0022
8500 Normandale Lake Blvd.
Suite 750
Bloomington, MN 55437
(612) 893-1099
410 Amherst Street
Suite 250
Nashua, NH 03063
(603) 883-3840
90 Woodbridge Ctr. Dr.
Suite 410
Woodbridge, NJ 07095
(908) 750-5611
University Tower
3100 Tower Blvd.
Suite 1601, Box 50
Durham, NC 27707
(919) 489-6529
Two Summit Park Drive
Suite 410
Independence, OH 44131
(216) 520-2028
1800 S.W. First Avenue
Suite 505
Portland, OR 97201
(503) 223-6288
1767 Sentry Pkwy. West 19
Suite 300
Blue Bell, PA 19422
(215) 646-8030
5400 LBJ Freeway
Suite 1340
Dallas, TX 75240
(214) 490-1515
800 Gessner
Suite 1280
Houston, TX 77024
(713) 465-2253
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) 42-VALIC
FOR ASSET TRANSFERS BY TELEPHONE CALL: 1-(800) 42-VALIC
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE> 45
THE VARIABLE ANNUITY LIFE INSURANCE COMPANY
SEPARATE ACCOUNT A
UNITS OF INTEREST UNDER GROUP AND
INDIVIDUAL VARIABLE ANNUITY CONTRACTS
PORTFOLIO DIRECTOR
----------------------------------------------------------------
STATEMENT OF ADDITIONAL INFORMATION
----------------------------------------------------------------
FORM N-4 PART B
MAY 1, 1996
This Statement of Additional Information is not a prospectus but contains
information in addition to that set forth in the prospectus for Portfolio
Director* dated May 1, 1996 ("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.
(*Portfolio Director is composed of Contract Forms UIT-194, UITG-194, UITN-194,
UIT-IRA-194, and UIT-SEP-194.)
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<PAGE> 46
TABLE OF CONTENTS
<TABLE>
<S> <C>
General Information................................................................... 4
Marketing Information............................................................... 4
Endorsements and Published Ratings.................................................. 6
Types of Variable Annuity Contracts................................................... 7
Federal Tax Matters................................................................... 8
Tax Consequences of Purchase Payments............................................... 8
Tax Consequences of Distributions................................................... 9
Special Tax Consequences -- Early Distribution...................................... 10
Special Tax Consequences -- Required Distributions.................................. 10
Tax Free Rollovers, Transfers and Exchanges......................................... 11
Exchange Privilege.................................................................... 12
Exchanges From Independence Plus Contracts.......................................... 12
Exchange From V-Plan Contracts...................................................... 13
Exchanges From SA-1 and SA-2 Contracts.............................................. 14
Exchange From Impact Contracts...................................................... 15
Exchanges From Compounder Contracts................................................. 16
Information Which May Be Applicable To Any Exchange................................. 17
Calculation of Surrender Charge....................................................... 18
Illustration of Surrender Charge on Total Surrender................................. 18
Illustration of Surrender Charge on a 10% Partial Surrender Followed by a Full
Surrender........................................................................ 18
Purchase Unit Value................................................................... 19
Illustration of Calculation of Purchase Unit Value.................................. 19
Illustration of Purchase of Purchase Units.......................................... 19
Performance Calculations.............................................................. 19
Money Market Division Yields........................................................ 19
Calculation of Yield for Money Market Division Six.................................. 19
Illustration of Calculation of Yield for Money Market Division Six.................. 19
Calculation of Effective Yield for Money Market Division Six........................ 19
Illustration of Calculation of Effective Yield for Money Market Division Six........ 19
Standardized Yield for Divisions Seven, Eight and Thirteen............................ 20
Calculation of Standardized Yield for Divisions Seven,Eight and Thirteen............ 20
Illustration of Calculation of Standardized Yield for Divisions Seven, Eight and
Thirteen......................................................................... 20
Calculation of Average Annual Total Return.......................................... 21
Separate Account Division Performance Information..................................... 21
Average Annual Total Return, Cumulative Return and Annual and Cumulative Change in
Purchase Unit Value Tables....................................................... 22
Hypothetical $10,000 Account Value and Cumulative Return as Compared to
Benchmark Tables................................................................. 25
Performance Compared to Market Indices.............................................. 25
Stock Index Division Ten Performance Compared to S&P 500 Index...................... 28
MidCap Index Division Four Performance Compared to Relevant Index................... 28
Small Cap Index Division Fourteen Performance Compared to Russell 2000 Index........ 29
International Equities Division Eleven Performance Compared to EAFE Index........... 29
Templeton International Division Twenty Performance Compared to MSCI World Index.... 30
Dreyfus Small Cap Division Eighteen Performance Compared to Russell 2000............ 30
Growth Division Fifteen Performance Compared to S&P 500 Index....................... 31
Growth & Income Division Sixteen Performance Compared to S&P 500 Index.............. 31
Capital Conservation Division Seven Performance Compared to Merrill Lynch Corporate
Master Index..................................................................... 32
Government Securities Division Eight Performance Compared to Lehman Brothers U.S.
Treasury Composite Index......................................................... 33
</TABLE>
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<TABLE>
<S> <C>
International Government Bond Division Thirteen Performance Compared to Salomon
Brothers Non-U.S. Dollar World Government Bond Index............................. 33
Social Awareness Division Twelve Performance Compared to S&P 500 Index.............. 34
Science & Technology Division Seventeen Performance Compared to S&P 500 Index....... 34
Money Market Division Six Performance Compared to Certificate of Deposit Primary
Offering by New York City Banks, 30 Day Index.................................... 35
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............................................. 36
Templeton Asset Allocation Division Nineteen Performance Compared to MSCI World
Index, Salomon Brothers Non-US Dollar World Government Bond Index, and
Certificate of Deposit Primary Offering by New York City Banks, 30 Day Index..... 37
Payout Payments....................................................................... 37
Assumed Investment Rate............................................................. 37
Amount of Payout Payments........................................................... 37
Payout Unit Value................................................................... 38
Illustration of Calculation of Payout Unit Value.................................... 38
Illustration of Payout Payments..................................................... 39
Distribution of Variable Annuity Contracts............................................ 39
Experts............................................................................... 39
Comments on Financial Statements...................................................... 40
</TABLE>
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<PAGE> 48
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
$2.5 billion as of December 31, 1995. The number of aggregate participant
accounts has increased from 155,000 accounts in 1980 to more than 1,390,700
accounts as of December 31, 1995. The number of employer groups which have
purchased Contracts has increased by 83 percent in the past five years to more
than 20,386 as of December 31, 1995. As of December 31, 1995, 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, 1995 the Company's assets totaled $27 billion.
The Company's growth can also be reviewed by examining each market segment
the Company targets.
As of December 31, 1995, the Company was marketing Contracts in more than
7,911 public and private, primary and secondary schools with nearly 401,064
participant accounts for employees in public and private schools nationwide.
From December 31, 1990 to December 31, 1995, the cash value of investments in
these Contracts has increased by 96 percent while the number of public and
private school groups in these Contracts increased 34 percent and the number of
participant accounts in these Contracts increased by 44 percent.
The Company has also increased its marketing efforts to colleges and
universities. From December 31, 1990 to December 31, 1995, the number of
colleges and universities which allow the Company to market Contracts to its
faculty and staff members has increased 72 percent and for the same period the
number of participant accounts has increased 48 percent. For the same time
period cash values for participants have increased 102 percent. As of December
31, 1995, more than 41 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, 1990 to December 31, 1995
Contract cash values have increased 199 percent. During the same period the
number of health care groups that have purchased these Contracts increased 78
percent and the number of participants who were in the Contracts increased 148
percent.
The Company has also experienced growth in contracts sold to state and
local governmental groups. From December 31, 1990 to December 31, 1995, Contract
cash values for participants in these groups have increased 98 percent. For the
same period the number of participant accounts for individuals in these groups
in these Contracts increased 75 percent and the number of employer groups has
increased 101 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 24 of the last 27 states to sponsor ORPs with multiple
carriers, as of December 31, 1995. From December 31, 1990 to December 31, 1995,
in these ORPs the number of participant accounts increased 164 percent and cash
values increased 153 percent to more than $1.5 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
4
<PAGE> 49
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 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 easy Retirement Plan easy Retirement Plan includes: (1)
personal, face-to-face service from highly trained VALIC Retirement Plan
Specialists; (2) informative retirement-investment education programs, seminars
and materials; (3) specialized software programs for retirement planning and
developing asset allocation strategies; (4) a wide selection of innovative,
market-responsive investment options; (5) advanced and efficient administration
of your retirement account; (6) and a financially strong and stable Company with
which to do business.
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 $132.6 billion
Franklin Templeton Group, Templeton has more than $52 billion of assets under
management in global and non-U.S. investment companies and private accounts. The
Franklin Templeton Group provides investment management and advisory services to
5
<PAGE> 50
a worldwide client base. 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 Company may, from time to time, refer to Value Line Inc., ("Value
Line"), investment subadviser to the Growth & 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 $4.5 billion. Investment selection is based on the Value
Line Timeliness Ranking System, 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. A Value Line subsidiary 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 a regular basis. The Expanded Edition of The Value Line
Investment Survey covers an additional 1,800 stocks.
The Company may, from time to time, refer to T. Rowe Price Associates, Inc.
(T. Rowe Price), as subadviser to the Science & Technology Fund (underlying
Division Seventeen) and the Growth Fund (underlying Division Fifteen). T. Rowe
Price, one of the nation's leading no-load mutual fund managers together with
its affiliates currently manages more than $70 billion. Its approach to managing
money is based on proprietary research and a strict investment discipline
developed over 50 years. Founded in 1937 by the late Thomas Rowe Price Jr., T.
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 as
adviser for the Dreyfus Small Cap Fund (underlying Division Eighteen). The
Dreyfus Corporation has been helping Americans invest for their future with
quality mutual funds for more than four decades. As of the end of 1995, the firm
had over $82 billion in 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.
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,
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<PAGE> 51
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.
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 measure
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.
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
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<PAGE> 52
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.
FEDERAL TAX MATTERS
This Section summarizes the major tax consequences of contributions,
payments, and withdrawals under Portfolio Director, during life and at death.
TAX CONSEQUENCES OF PURCHASE PAYMENTS
403(b) Annuities. Purchase Payments made by Section 501(c)(3) tax-exempt
organizations and public educational institutions toward Contracts for their
employees are excludable from the gross income of employees, to the extent
aggregate Purchase Payments do not exceed several competing tax limitations.
This gross income exclusion applies both to employer contributions and to your
voluntary salary reduction contributions.
Your voluntary salary reduction contributions are generally limited to the
lesser of $9,500 or 20% of salary, although additional, "catch-up" contributions
are permitted under certain circumstances. Combined employer and salary
reduction contributions are generally limited to approximately 20% of salary. In
addition, after 1988 employer contributions for highly compensated employees may
be further limited by applicable nondiscrimination rules.
401(a) and 403(a) Qualified Plans. Purchase Payments made by an employer
(or a self-employed individual) under a qualified pension, profit-sharing or
annuity plan are excluded from the gross income of the employee. Purchase
Payments made by an employee generally are made on an after-tax basis, unless
eligible for pre-tax treatment by reason of Sections 401(k) or 414(h).
408(b) Individual Retirement Annuities ("IRAs"). Tax-deductible
contributions for IRA Contracts are limited to the lesser of $2,000 or 100% of
compensation, and may be made only by 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 whose spouse is) in another retirement plan,
but are married and have adjusted gross income of $40,000 or less.
Active participants in other retirement plans whose adjusted gross income
exceeds the limits in (ii) or (iii) by less than $10,000 are entitled to make
deductible IRA contributions in proportionately reduced amounts. If an IRA is
established for a nonworking spouse who has no compensation, the annual
tax-deductible Purchase Payments for both spouses' Contracts cannot exceed the
lesser of $2,250 or 100% of the working spouse's earned income, and no more than
$2,000 may be contributed to either spouse's IRA for any year.
You may be eligible to make nondeductible IRA contributions in excess of:
(i) the lesser of $2,000 ($2,250 for you and your spouse's IRA) or 100% of
compensation, over
(ii) your applicable IRA deduction limit.
457 Plans. A unit of a state or local government may establish a deferred
compensation program for individuals who: (i) perform services for the
government unit, and (ii) belong to a select
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group of management or highly compensated employees and/or independent
contractors.
This type of program allows eligible individuals to defer the receipt of
compensation (and taxes thereon) otherwise presently payable to them. If the
program is an eligible deferred compensation plan (an "EDCP"), you may
contribute (and defer tax on) the lesser of $7,500 or 33 1/3% of your
"includible" compensation (compensation from the employer currently includible
in taxable income). Additional, catch-up deferrals are permitted in your final
three years before normal retirement age.
The employer uses deferred amounts to purchase the Contracts offered by
this prospectus. The Contract is owned by the employer and remains subject to
the claims of the employer's general creditors. The employee has no present
rights to vested interest in the Contract and is entitled to payment only in
accordance with the EDCP provisions.
SEP. Employer contributions under a SEP are made to a separate individual
retirement account established for each participating employee, and generally
must be made at a rate representing a uniform percent of participating
employees' compensation. Employer contributions are excludable from employees'
taxable income, and after 1993 cannot exceed the lesser of $30,000 or 15% of
your compensation.
Employees of certain small employers (other than tax-exempt organizations)
may contribute pretax, on a salary reduction basis, to the SEP. These salary
reduction contributions may not exceed $7,000, indexed for inflation in later
years.
Unfunded Deferred Compensation Plans. Private taxable employers may
establish unfunded, non-qualified deferred compensation plans for a select group
of management or highly compensated employees and/or for independent
contractors. Certain arrangements of nonprofit employers entered into prior to
August 16, 1986, and not subsequently modified, are also subject to the rules
discussed below.
An unfunded, deferred compensation plan is a bare contractual promise on
the part of the employer to defer current wages to some future time. The
Contract is owned by the employer and remains subject to the claims of the
employer's general creditors. Private taxable employers that are not natural
persons, however, are currently taxable on any increase in the Purchase Unit
Value attributable to Purchase Payments made after February 28, 1986 to such
Contracts. Participants have no present right or vested interest in the Contract
and are only entitled to payment in accordance with plan provisions.
Non-Qualified Contracts. Purchase Payments made under Non-Qualified
Contracts are neither excludible from the gross income of the Contract Owner nor
deductible for tax purposes. However, any increase in the Purchase Unit Value of
a Non-Qualified Contract resulting from the investment performance of VALIC
Separate Account A 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 Purchase Unit Value attributable to Purchase Payments made
after February 28, 1986 to such Contracts.
TAX CONSEQUENCES OF DISTRIBUTIONS
403(b) Annuities. Voluntary salary reduction amounts accumulated after
December 31, 1988, and earnings on voluntary contributions before and after that
date, may not be distributed before one of the following:
(1) attainment of age 59 1/2;
(2) separation from service;
(3) death;
(4) disability, or
(5) hardship (hardship distributions are limited to salary reduction
contributions only, exclusive of earnings thereon).
Distributions are taxed as ordinary income to the recipient in accordance
with Section 72.
401(a) and 403(a) Qualified Plans. Distributions from Contracts purchased
under qualified plans are taxable as ordinary income, except to the extent
allocable to an employee's after-tax contributions (investment in the Contract).
If you or your Beneficiary receive a "lump sum distribution" (legally defined
term), the taxable portion may be subject to special 5-year or 10-year income
averaging treatment. Ten-year income averaging uses tax rates in effect for
1986, allows 20% capital gains treatment for the taxable portion of a lump sum
distribution attributable to
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years of service before 1974, and is available if you were 50 or older on
January 1, 1986.
408(b) IRAs and SEPs. Distributions are taxed as ordinary income to the
recipient.
457 Plans. Amounts received from an EDCP are includible in gross income for
the taxable year in which are paid or otherwise made available to the recipient.
Unfunded Deferred Compensation Plans. Amounts received are includible in
gross income for the taxable year in which are paid or otherwise made available
to the recipient.
Non-Qualified Contracts. Partial redemptions generally are taxed as
ordinary income to the extent of the accumulated income or gain under the
Contract if they are not received as an annuity under a Non-Qualified Contract
purchased after August 13, 1982 (or allocated to post-August 13, 1982 Purchase
Payments under a pre-existing 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. The amount
received in a complete redemption of a Non-Qualified Contract (regardless of the
date of purchase) will be taxed as ordinary income to the extent that it exceeds
the Contract Owners's investment in the Contract. Two or more Contracts
purchased from VALIC (or an affiliated company) by a Contract Owner within any
twelve-month period 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 and excluded ratably from gross
income as a tax-free return of capital, over the expected payment period of the
annuity. Individuals who begin receiving annuity payments on or after January 1,
1987 can exclude from income only their unrecovered investment in the Contract.
Upon death prior to recovering tax-free their entire investment in the Contract,
such individuals generally are entitled to deduct the unrecovered amount on
their final tax return.
SPECIAL TAX CONSEQUENCES -- EARLY
DISTRIBUTION
403(b) Annuities, 401(a) and 403(a) Qualified Plans, 408(b) IRAs and
SEPs. Taxable distributions received before the recipient attains age 59 1/2
generally are subject to a 10% penalty tax in addition to regular income tax.
Distributions on account of the following generally are excepted from this
penalty tax:
(1) death;
(2) disability;
(3) separation from service after a 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 which do not exceed the employee's tax deductible medical
expenses for the taxable year of receipt.
457 Plans. Distributions generally may be made under an EDCP prior to
separation from service only for unforeseeable emergencies, and are includible
in the recipient's gross income in the year paid.
Non-Qualified Contracts. A 10% penalty tax applies to the taxable portion
of a distribution received before age 59 1/2 under a Non-Qualified Contract,
unless the distribution is:
(1) to a Beneficiary on or after the Contract Owner's death;
(2) upon the Contract Owner's disability;
(3) part of a series of substantially equal annuity payments for the life or
life expectancy of the Contract Owner, or the lives or joint life expectancy
of the Contract Owner and Beneficiary;
(4) made under an immediate annuity contract, or
(5) allocable to Purchase Payments made before August 14, 1982.
SPECIAL TAX CONSEQUENCES -- REQUIRED DISTRIBUTIONS
403(b) Annuities. Generally, minimum required distributions must commence
no later than April 1 of the calendar year following the calendar
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year in which the Participant attains age 70 1/2; required distributions must be
made over a period that does not exceed the life or life expectancies of the
Participant (or lives or joint life expectancies of the Participant and
Beneficiary). The minimum amount payable can be determined several different
ways. 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 still employed at age 70 1/2. A penalty
tax of 50% is imposed on the amount by which the minimum required distribution
in any year exceeds the amount actually distributed in that year.
Amounts accumulated under a Contract on December 31, 1986 may be paid in a
manner that meets the above rule or, alternatively:
(i) must begin to be paid when 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 if a Participant's spouse is the joint
annuitant. Notwithstanding these pre-January 1, 1987 rules the entire contract
balance must meet the minimum distribution incidental benefit requirement of
Section 403(b)(10).
At the Participant's death before payout has begun, Contract amounts
generally either must be paid to the Beneficiary within 5 years, or must begin
within 1 year of death and be paid over the life or life expectancy of the
Beneficiary. If death occurs after commencement of (but before full) payout,
distributions generally must continue at least as rapidly as under the method
elected by the Participant and in effect at the time of death.
401(a) and 403(a) Qualified Plans. Minimum distribution requirements for
Qualified Plans, are generally the same as described for 403(b) Annuities,
except that:
(1) there is no exception for pre-1987 amounts; and
(2) there is no available postponement, past April 1 of the calendar year
following the calendar year in which age 70 1/2 is attained, if the
Participant remains employed.
408(b) IRAs and SEPs. Minimum distribution requirements are generally the
same as described above for 403(b) Annuities, except that:
(1) there is no exception for pre-1987 amounts; and
(2) there is no available postponement, past April 1 of the calendar year
following the calendar year in which age 70 1/2 is attained, if the
Participant remains employed.
457 Plans. Beginning January 1, 1989, the minimum distribution requirements
for EDCP's are generally the same as described above for 403(b) Annuities,
except that there is no exemption or postponement.
Non-Qualified Contracts. Non-Qualified Contracts do not require
commencement of distributions at any particular time and do not limit the
duration of annuity payments.
At the Participant's death before payout has begun, Contract amounts
generally either must be paid to the Beneficiary within 5 years, or must begin
within 1 year of death and be paid over the life or life expectancy of the
Beneficiary. If death occurs after commencement of (but before full) payout,
distributions generally must continue at least as rapidly as under the method
elected by the Participant at the time of death.
TAX-FREE ROLLOVERS, TRANSFERS AND
EXCHANGES
403(b) Annuities. Tax free transfers between 403(b) annuity contracts
and/or 403(b)(7) custodial accounts, and tax-free rollovers from 403(b) programs
to IRAs or other 403(b) programs, are permitted under certain circumstances.
401(a) and 403(a) Qualified Plans. The taxable portion of certain
distributions may be transferred in a tax-free rollover to an individual
retirement account or annuity, or to another such plan.
408(b) IRAs. Funds may be transferred tax-free to an IRA Contract, from a
403(b) Annuity, or 401(a) or 403(a) Qualified Plan, under certain conditions.
These amounts may subsequently be rolled over on a tax-free basis to another
such plan or 403(b) Annuity Contract from this "conduit" IRA. In addition,
tax-free rol-
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lovers may be made from one IRA to another provided that no more than one such
rollover is made during any twelve-month period.
SEPs. Funds may be rolled over tax free from one SEP only to another SEP or
an IRA.
457 Plans. Tax-free transfer of EDCP amounts are permitted only to another
EDCP.
Unfunded Deferred Compensation Plans. Tax-free transfers or rollovers are
not allowed from these plans.
Non-Qualified Contracts. Certain of the Non-Qualified single payment
deferred annuity Contracts permit the Contract Owner to exchange the Contract
for a new deferred annuity contract prior to the commencement of annuity
payments. The exchange of one annuity contract for another is a tax-free
transaction under Section 1035, but is reportable to the IRS.
EXCHANGE PRIVILEGE
In the prospectus we described generally how under certain conditions we
will allow you to exchange from other fixed and/or variable contracts we issue
(other contracts) to Portfolio Director. These other contracts are listed in the
prospectus. A more detailed comparison of the features, charges and restrictions
between each of these listed other contracts and Portfolio Director is provided
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. Portfolio Director
imposes a similar surrender charge upon total or partial surrenders. Both the
Portfolio Director and Independence Plus Contracts have other similar provisions
where surrender charges are not imposed. However, Portfolio Director 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
"Surrender Charges" in the prospectus.) For purposes of satisfying the
fifteen-year and five-year holding requirements described in "Surrenders
Charges" in the prospectus, Portfolio Director will be deemed to have been
issued on the same date as the Independence Plus Contract or certificate
thereunder, but no earlier than January 1, 1982. Purchase Payments exchanged
into Portfolio Director and which were made within five years before the date of
exchange will be treated as Purchase Payments under Portfolio Director for
purposes of calculating surrender charges. Exchanged payments will be deemed to
have been made under Portfolio Director on the date they were made to
Independence Plus Contracts for purposes of calculating the surrender charge
under Portfolio Director.
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 to cover
administrative expenses (other than those covered by the annual charge) and
mortality risks assumed by the Company. For Portfolio Director, a quarterly
account maintenance charge of $3.75 is assessed for each calendar quarter during
the Purchase Period during which any Variable Account Option Account 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 Account
Options. No charge is assessed for any calendar quarter if the Account Value is
credited only to the Fixed Account Options throughout the quarter. Such charge
begins immediately if an exchange is made into any Variable Account Option
offered under Portfolio Director. The charge may also be reduced or waived by
the Company for Portfolio Director if the administrative expenses are expected
to be lower for that Contract. (See "Reduction or Waiver of Account Maintenance
Fee or Surrender Charges" in the prospectus) To cover expenses not covered by
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the account maintenance charge and to compensate the Company for assuming
mortality risks under Portfolio Director, an additional daily charge with an
annualized rate of 1.00% or 1.25%, depending upon the Variable Account Options
selected, if any, on the daily net asset value of VALIC Separate Account A is
attributable to Portfolio Director. (See "Separate Account Charges" in the
prospectus)
Investment Options. Under Independence Plus Contracts ten divisions of
VALIC 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 .29% to .50% of each respective portfolio's average
daily net assets. In addition, two fixed investment options are available. Under
Portfolio Director, sixteen divisions of VALIC 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 Templeton Investment Counsel Inc. for advisory fees at annual
rates ranging from .29% 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 3 and 30 years on a fixed basis only. Portfolio Director permits annuity
payments for a designated period between of 5 and 30 years on a fixed basis
only. Independence Plus Contracts and Portfolio Director 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. Portfolio Director also imposes a
surrender charge upon total or partial surrenders. However, the surrender charge
under Portfolio Director 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, Portfolio Director provides at least
two additional provisions, not included in V-Plan Contracts, under which no
surrender charge will be imposed. Those Portfolio Director 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
five years and has attained the age 59 1/2. (See "Surrender Charges" in the
prospectus.) For purposes of satisfying the fifteen-year and five-year holding
requirements, Portfolio Director will be deemed to have been issued on the same
date as the V-Plan Contract or certificate thereunder, but no earlier than
January 1, 1982.
If there is a total or partial surrender, Purchase Payments exchanged into
Portfolio Director and which were made within five years before the date of
exchange will be treated as Purchase Payments under Portfolio Director for
purposes of calculating surrender charges. Exchanged payments will be deemed to
have been made under Portfolio Director on the date they were made to the V-Plan
Contract for purposes of calculating the surrender charge under Portfolio
Director.
Other Charges. There are no administrative and risk charges under V-Plan
Contracts. For Portfolio Director, a quarterly account maintenance charge of
$3.75 is assessed for each calendar quarter during the Purchase Period during
which any Variable Account Option Account 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 Account Options. No charge is assessed for
any calendar quarter if the Account Value is
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credited only to the Fixed Account Options throughout the quarter. Such charges
begin immediately if an exchange is made into any Variable Account Option
offered under Portfolio Director. The charge may also be reduced or waived by
the Company on Portfolio Director if the administrative expenses are expected to
be lower for that Contract. (See "Reduction or Waiver of Account Maintenance Fee
or Surrender Charges" in the prospectus.) To cover expenses not covered by the
account maintenance charge and to compensate the Company for assuming mortality
risks under Portfolio Director, an additional daily charge with an annualized
rate of 1.00% or 1.25%, depending upon the Variable Account Options selected, if
any, on the daily net asset value of the VALIC Separate Account A is
attributable to Portfolio Director. (See "Separate Account Charges" in the
prospectus.)
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. Portfolio Director permits Payout Payments for a
designated period of between 5 and 30 years on a fixed basis only. Under
Portfolio Director, Payout Payments may be made on a fixed or variable basis, or
a combination of both. Portfolio Director does not provide for commutation.
V-Plan Contracts and Portfolio Director both provide for "betterment of rates."
Under this provision, Payout 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 (GUP-64, GUP-74, GTS VA 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 Portfolio
Director the surrender charge under Portfolio Director will not apply to the
amount of Account Value applied to Portfolio Director ("Exchanged Amount").
Purchase Payments made to Portfolio Director, however, would be subject to
surrender charges. In the case of a partial surrender, all Purchase Payments to
Portfolio Director 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 Portfolio Director, 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 "Surrender Charges" in the prospectus.)
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 Portfolio Director, a quarterly account maintenance
charge of $3.75 is assessed for each calendar quarter during the Purchase Period
during which any Variable Account Option Account 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 Account Options. No charge
is assessed for any calendar quarter if the Account Value is credited only to
the Fixed Account Options throughout the quarter. Such charge begins immediately
if an exchange is made into any Variable Account Option offered under Portfolio
Director. The charge may
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also be reduced or waived by the Company on Portfolio Director if the
administrative expenses are expected to be lower for that Contract. (See
"Reduction or Waiver of Account Maintenance Fee or Surrender Charges" in the
prospectus.) To cover expenses not covered by the account maintenance charge and
to compensate the Company for assuming mortality risks under Portfolio Director,
an additional daily charge with an annualized rate of 1.00% or 1.25%, depending
upon the Variable Account Options selected, if any, on the average daily net
asset value of the Separate Account is attributable to Portfolio Director. (See
"Separate Account Charges" in the prospectus.)
Investment Options. Under SA-1 and SA-2 Contracts only one division of
VALIC 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 .29% 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 Portfolio Director, sixteen
divisions of VALIC 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 Templeton Investment
Counsel Inc., for advisory fees at annual rates ranging from .29% to .90% of
each portfolio's or mutual fund's average daily net assets. Additionally, two
fixed investment options are available under Portfolio Director.
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. Portfolio Director permits Payout Payments for a
designated period of between 5 and 30 years on a fixed basis only. Portfolio
Director 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
Portfolio Director. 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. Portfolio Director does not provide this option. SA-1 and
Portfolio Director, but not SA-2 Contracts, both provide for "betterment of
rates." Under this provision, Payout 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. Portfolio Director also imposes 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. Portfolio Director also has other provisions where
surrender charges are not imposed. (See "Exceptions to Surrender Charge" in the
prospectus.) For purposes of satisfying the fifteen-year and five-year holding
requirements, Portfolio Director will be deemed to have been issued on the same
date as the Impact Contract, or certificate thereunder, but no earlier than
January 1, 1982. Only Purchase Payments exchanged into a Portfolio Director
which were made within three years before the date of exchange will be treated
as Purchase Payments under Portfolio Director for purposes of calculating
surrender charges. Exchanged payments will be deemed to have been made under
Portfolio Director on the date they were made to Impact Contracts for purposes
of calculating the surrender charge under Portfolio Director.
Other Charges. Under Impact Contracts, a $30 annual charge is assessed once
a year to
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<PAGE> 60
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 Portfolio Director, a quarterly
account maintenance charge of $3.75 is assessed for each calendar quarter during
the Purchase Period during which any Variable Account Option Account 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 Account
Options. No charge is assessed for any calendar quarter if the Account Value is
credited only to the Fixed Account Options throughout the quarter. Such charge
begins immediately if an exchange is made into any Variable Account Option
offered under Portfolio Director. The charge may also be reduced or waived by
the Company on Portfolio Director if the administrative expenses are expected to
be lower for that Contract. (See "Reduction or Waiver of Account Maintenance Fee
or Surrender Charges" in the prospectus.) To cover expenses not covered by the
account maintenance charge and to compensate the Company for assuming mortality
risks under Portfolio Director, an additional daily charge with an annualized
rate of 1.00% or 1.25%, depending upon the Variable Account Options selected, if
any, on the daily net asset value of the Separate Account is attributable to
Portfolio Director. (See "Separate Account Charges" in the prospectus.)
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 .29% to .50% of each respective portfolio's average daily net
assets. Under Portfolio Director, sixteen divisions of VALIC 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 Templeton Investment Counsel Inc., for advisory fees at
annual rates ranging from .29% to .90% of each portfolio's or mutual fund's
average daily net assets. In addition, two fixed investment options are
available under Portfolio Director.
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. Portfolio Director permits Payout Payments for a designated period of
between 5 and 30 years on a fixed basis only. Portfolio Director does not
provide for commutation. Impact Contracts and the Portfolio Director both
provide for "betterment of rates." Under this provision, Payout 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 Portfolio Director
the surrender charge under Portfolio Director will not apply to the amount of
Account Value applied to Portfolio Director. Purchase Payments made to Portfolio
Director, however, would be subject to the surrender charge under Portfolio
Director. In the case of a partial surrender, all Purchase Payments to Portfolio
Director will be deemed to be withdrawn before any Exchanged Amount is deemed to
be withdrawn. Under Portfolio Director, 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 "Surrender Charges" in the prospectus.)
16
<PAGE> 61
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 Portfolio Director, a quarterly
account maintenance charge of $3.75 is assessed for each calendar quarter during
the Purchase Period during which any Variable Account Option Account 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 Account
Options. No charge is assessed for any calendar quarter if the Account Value is
credited only to the Fixed Account Options throughout the quarter. Such charge
begins immediately if an exchange is made into any Variable Account Option
offered under Portfolio Director. The charge may also be reduced or waived by
the Company for Portfolio Director if the administrative expenses are expected
to be lower for that Contract. (See "Reduction or Waiver of Account Maintenance
Fee or Surrender Charges" in this prospectus.) To cover expenses not covered by
the account maintenance charge and to compensate the Company for assuming
mortality risks under Portfolio Director, an additional daily charge with an
annualized rate of 1.00% or 1.25%, depending upon the Variable Account Options
selected, if any, on the daily net asset value of the Separate Account is
attributable to Portfolio Director. (See "Separate Account Charges" in the
prospectus.)
Investment Options. There are no variable investment alternatives provided
under Compounder Contracts.
Annuity Options. Payout 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.
Portfolio Director allows Payout Payments be made on a fixed or variable basis,
or both. One option under the Portfolio Director provides for a designated
period of 5 and 30 years on a fixed basis only. Portfolio Director does not
provide for commutation. Unlike Portfolio Director, the Compounder Contracts
contain no "betterment of rates" provision.
INFORMATION WHICH MAY BE APPLICABLE TO
ANY EXCHANGE
Guaranteed Annuity Rates. Mortality rates have improved since annuity rates
were developed for the other contracts. Therefore, the annuity rates guaranteed
in Portfolio Director are less favorable to Contract Owners and Annuitants than
those guaranteed in the other 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 Portfolio
Director or the other 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 Contract or in current
endorsements thereto. Those guaranteed for Portfolio Director 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
Portfolio Director 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 other
contracts or certificates issued before January 19, 1985 if not exchanged.
17
<PAGE> 62
CALCULATION OF SURRENDER CHARGE
The surrender charge is discussed in the Prospectus under "Fees and Charges
- -- Surrender Charge." 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
<TABLE>
<CAPTION>
DATE TRANSACTION AMOUNT
---- ----------- ------
<S> <C> <C>
2/1/90......................... Purchase Payment $ 10,000
2/1/91......................... Purchase Payment 5,000
2/1/92......................... Purchase Payment 15,000
2/1/93......................... Purchase Payment 2,000
2/1/94......................... Purchase Payment 3,000
2/1/95......................... Purchase Payment 4,000
7/1/95......................... Total Purchase Payments (Assumes
Account Value is $50,000) 39,000
</TABLE>
Surrender Charge is lesser of (a) or (b):
<TABLE>
<S> <C> <C> <C>
a. Surrender Charge calculated on 60 months of Purchase Payments
1. Surrender Charge against Purchase Payment of 2/1/90.......................... $ 0
2. Surrender Charge against Purchase Payment of 2/1/91 (0.05 X $5,000).......... $ 250
3. Surrender Charge against Purchase Payment of 2/1/92 (0.05 X $15,000)......... $ 750
4. Surrender Charge against Purchase Payment of 2/1/93 (0.05 X $2,000).......... $ 100
5. Surrender Charge against Purchase Payment of 2/1/94 (0.05 X $3,000).......... $ 150
6. Surrender Charge against Purchase Payment of 2/1/95 (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 Account Value at the time
of surrender:
Account 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 Account Value $ 2,250 .......................... $ 2,250
c. Surrender Charge is the lesser of a or b........................................... $ 1,450
</TABLE>
ILLUSTRATION OF SURRENDER CHARGE ON A 10% PARTIAL SURRENDER FOLLOWED BY A FULL
SURRENDER
Example 2.
TRANSACTION HISTORY (ASSUMES NO INTEREST EARNED)
<TABLE>
<CAPTION>
DATE TRANSACTION AMOUNT
---- ----------- ------
<S> <C> <C>
2/1/90......................... Purchase Payment $ 10,000
2/1/91......................... Purchase Payment 5,000
2/1/92......................... Purchase Payment 15,000
2/1/93......................... Purchase Payment 2,000
2/1/94......................... Purchase Payment 3,000
2/1/95......................... Purchase Payment 4,000
7/1/95......................... 10% Partial Surrender (Assumes 3,900
Account Value is $39,000)
8/1/95......................... Full Surrender 35,100
</TABLE>
a. Since this is the first partial surrender in this participant year,
calculate the excess over 10% of the value of the Purchase Units
10% of $39,000 = $3,900 [no charge on this 10% withdrawal]
b. The Account 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 Account 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.
18
<PAGE> 63
PURCHASE UNIT VALUE
The calculation of Purchase Unit value is discussed in the Prospectus under
"Purchase Period." The following illustrations show a calculation of a new Unit
value and the purchase of Purchase Units (using hypothetical examples):
ILLUSTRATION OF CALCULATION OF PURCHASE UNIT VALUE
Example 3.
<TABLE>
<S> <C>
1. Purchase 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)/(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. Purchase Unit value, end of period (1)X(7)............................. $ 1.842404
</TABLE>
ILLUSTRATION OF PURCHASE OF PURCHASE UNITS (ASSUMING NO STATE PREMIUM TAX)
Example 4.
<TABLE>
<S> <C>
1. First Periodic Purchase Payment........................................ $ 100.00
2. Purchase Unit value on effective date of purchase (see Example 3)...... $ 1.800000
3. Number of Purchase Units purchased (1)/(2)............................. 55.556
4. Purchase Unit value for valuation date following purchase (see Example
3)..................................................................... $ 1.842404
5. Value of Purchase Units in account for valuation date following
purchase (3)X(4)....................................................... $ 102.36
</TABLE>
PERFORMANCE CALCULATIONS
MONEY MARKET DIVISION YIELDS
CALCULATION OF YIELD FOR MONEY MARKET DIVISION SIX
7-Day Current Yield: 4.15%
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,
1995, 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 Purchase 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: 4.24%
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, 1995, 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 Purchase Unit at the beginning of
19
<PAGE> 64
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
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
<TABLE>
<CAPTION>
DIV 7 DIV 8 DIV 13
------ ------ ------
<S> <C> <C> <C>
Standardized Yield........................................... 5.23% 5.00% 4.25%
</TABLE>
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, 1995, 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
Purchase 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:
<TABLE>
<S> <C>
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 Purchase Units outstanding during the period
d = the maximum offering price per Purchase Unit on the last day of the
period
</TABLE>
Yield on each Division is earned from dividends declared and paid by the
Fund, which are automatically reinvested in Fund shares.
20
<PAGE> 65
CALCULATION OF AVERAGE ANNUAL TOTAL RETURN
Average Annual Total Return quotations for the 1, 3, 5, and 10 year periods
ended December 31, 1995, 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:
<TABLE>
<S> <C>
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)
</TABLE>
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.
SEPARATE ACCOUNT DIVISION PERFORMANCE INFORMATION
AVERAGE ANNUAL TOTAL RETURN, CUMULATIVE RETURN AND ANNUAL AND CUMULATIVE CHANGE
IN PURCHASE UNIT VALUE TABLES.
In the prospectus we described a number of ways we may advertise
information about the investment performance of VALIC Separate Account A
Divisions. Certain performance information for each VALIC Separate A Account
Division is printed in the four tables below.
The information presented does not reflect the advantage under Portfolio
Director of deferring federal income tax on increases in Account Value due to
earnings attributable to Purchase Payments (see "Federal Tax Matters" in the
prospectus and in the Statement of Additional Information.) The information
presented also does not reflect the advantage under Qualified Contracts of
deferring federal income tax on Purchase Payments.
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.
21
<PAGE> 66
TABLE I
AVERAGE ANNUAL TOTAL RETURN
WITH SURRENDER CHARGE AND ACCOUNT MAINTENANCE FEE IMPOSED
(PERIOD ENDED DECEMBER 31, 1995)
<TABLE>
<CAPTION>
SINCE
DIVISION INCEPTION* 10 YEARS 5 YEARS 3 YEARS 1 YEAR
- ---------------------------------------------- ---------- -------- ------- ------- -------
<S> <C> <C> <C> <C> <C>
Stock Index Fund (Division 10)................. 10.13% -- 13.99% 12.36% 30.77%
MidCap Index Fund (Division 4)
Period from 10/13/82 to 12/31/95............. 7.90 7.60% 11.81 9.73 24.06
Period from 10/01/91 to 12/31/95............. 11.88 -- -- 9.73 24.06
Small Cap Index Fund (Division 14)............. 11.42 -- -- 10.05 21.22
International Equities Fund (Division 11)...... 2.22 -- 6.38 13.22 4.60
Templeton International Fund (Division 20)..... 10.40 -- -- 15.71 9.19
Dreyfus Small Cap Fund (Division 18)........... 53.65 -- 57.50 30.07 22.61
Growth Fund (Division 15)...................... 22.91 -- -- -- 41.20
Growth & Income Fund (Division 16)............. 13.88 -- -- -- 25.38
Capital Conservation Fund (Division 7)......... 6.01 -- 8.12 5.60 14.42
Government Securities Fund (Division 8)........ 5.93 -- 6.88 4.82 11.15
International Government Bond Fund (Division
13).......................................... 9.52 -- -- 9.70 12.47
Social Awareness Fund (Division 12)............ 10.05 -- 12.41 11.29 32.39
Science & Technology Fund (Division 17)........ 48.59 -- -- -- 54.85
Money Market Fund (Division 6)................. 4.33 -- 2.08 1.27 -0.33
Timed Opportunity Fund (Division 5)............ 7.25 8.01 8.18 7.75 18.38
Templeton Asset Allocation Fund (Division
19).......................................... 9.90 -- 13.46 11.55 15.86
</TABLE>
- ------------
* The inception dates of the Divisions are as follows:
<TABLE>
<CAPTION>
INCEPTION
DIVISION DATE
------------------------------------------- ---------
<S> <C>
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
</TABLE>
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 purchase unit data for the last ten
years for this Division appears on page 10 of the 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.
22
<PAGE> 67
TABLE II
AVERAGE ANNUAL TOTAL RETURN
WITH NO SURRENDER CHARGE OR ACCOUNT MAINTENANCE FEE IMPOSED
(PERIOD ENDED DECEMBER 31, 1995)
<TABLE>
<CAPTION>
SINCE
DIVISION INCEPTION* 10 YEARS 5 YEARS 3 YEARS 1 YEAR
- ---------------------------------------------- ---------- -------- ------- ------- -------
<S> <C> <C> <C> <C> <C>
Stock Index Fund (Division 10)................ 10.28% -- 14.72% 13.82% 35.95%
MidCap Index Fund (Division 4)
Period from 10/13/82 to 12/31/95............ 8.04 7.75% 12.59 11.24 29.24
Period from 10/01/91 to 12/31/95............ 12.84 -- -- 11.24 29.24
Small Cap Index Fund (Division 14)............ 12.58 -- -- 11.56 26.39
International Equities Fund (Division 11)..... 2.35 -- 7.29 14.66 9.67
Templeton International Fund (Division 20).... 11.58 -- -- 17.10 14.34
Dreyfus Small Cap Fund (Division 18).......... 53.86 -- 57.87 31.22 27.78
Growth Fund (Division 15)..................... 25.66 -- -- -- 46.40
Growth & Income Fund (Division 16)............ 16.75 -- -- -- 30.55
Capital Conservation Fund (Division 7)........ 6.15 -- 8.98 7.22 19.58
Government Securities Fund (Division 8)....... 6.07 -- 7.78 6.46 16.31
International Government Bond Fund (Division
13)......................................... 10.52 -- -- 11.21 17.63
Social Awareness Fund (Division 12)........... 10.20 -- 13.18 12.77 37.57
Science & Technology Fund (Division 17)....... 51.07 -- -- -- 60.07
Money Market Fund (Division 6)................ 4.47 -- 3.12 2.97 4.51
Timed Opportunity Fund (Division 5)........... 7.40 8.15 9.04 9.31 23.55
Templeton Asset Allocation Fund (Division
19)......................................... 10.05 -- 14.21 13.03 21.02
</TABLE>
TABLE III
CUMULATIVE RETURN
(PERIOD ENDED DECEMBER 31, 1995)
<TABLE>
<CAPTION>
SINCE
DIVISION INCEPTION* 10 YEARS 5 YEARS 3 YEARS 1 YEAR
- ------------------------------------------- ---------- -------- ------- ------- -------
<S> <C> <C> <C> <C> <C>
Stock Index Fund (Division 10).............. 134.39% -- 98.80% 47.44% 35.95%
MidCap Index Fund (Division 4)
Period from 10/13/82 through 12/31/95..... 178.27 110.89% 80.93 37.67 29.24
Period from 10/01/91 through 12/31/95..... 67.18 -- -- 37.67 29.24
Small Cap Index Fund (Division 14).......... 54.49 -- -- 38.83 26.39
International Equities Fund (Division 11)... 15.65 -- 42.17 50.75 9.67
Templeton International Fund (Division
20)....................................... 49.52 -- -- 60.58 14.34
Dreyfus Small Cap Fund (Division 18)........ 898.25 -- 881.77 125.94 27.78
Growth Fund (Division 15)................... 46.67 -- -- -- 46.40
Growth & Income Fund (Division 16).......... 29.66 -- -- -- 30.55
Capital Conservation Fund (Division 7)...... 81.20 -- 53.77 23.25 19.58
Government Securities Fund (Division 8)..... 79.95 -- 45.46 20.65 16.31
International Government Bond Fund (Division
13)....................................... 53.08 -- -- 37.56 17.63
Social Awareness Fund (Division 12)......... 83.51 -- 85.80 43.42 37.57
Science & Technology Fund (Division 17)..... 99.72 -- -- -- 60.07
Money Market Fund (Division 6).............. 54.58 -- 16.63 9.19 4.51
Timed Opportunity Fund (Division 5)......... 141.10 119.10 54.21 30.61 23.55
Templeton Asset Allocation Fund (Division
19)....................................... 102.27 -- 94.40 44.39 21.02
</TABLE>
- ---------------
* See footnote to Table I for the inception date of each Division.
See "How to Review Investment Performance of Separate Account Divisions" in the
prospectus for information about how these returns were calculated.
23
<PAGE> 68
TABLE IV
ANNUAL AND CUMULATIVE CHANGE IN PURCHASE UNIT VALUE
<TABLE>
<CAPTION>
ANNUAL CHANGE IN PURCHASE UNIT VALUE FOR THE YEAR ENDED DECEMBER 31*
-------------------------------------------------------------------------------
DIVISION 1995 1994 1993 1992 1991 1990 1989
- ------------------------------------------------ ------- ------- ------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C> <C> <C>
Stock Index Fund (Division 10).................. 35.95% (0.30)% 8.78% 5.58% 27.70% (4.83)% 27.88%
MidCap Index Fund (Division 4).................. 29.24 (4.70) 11.78 8.79 20.81 (10.20) 18.10
Small Cap Index Fund (Division 14).............. 26.39 (4.30) 14.77 11.28 -- -- --
International Equities Fund (Division 11)....... 9.67 6.90 28.58 (14.31) 10.06 (20.90) 2.84
Templeton International Fund (Division 20)...... 14.34 (3.49) 45.51 (6.89) -- -- --
Dreyfus Small Cap Fund (Division 18)............ 27.78 6.33 66.31 69.24 156.75 1.68 --
Growth Fund (Division 15)....................... 46.40 0.18 -- -- -- -- --
Growth & Income Fund (Division 16).............. 30.55 (0.68) -- -- -- -- --
Capital Conservation Fund (Division 7).......... 19.58 (7.04) 10.88 7.55 16.00 (1.28) 10.63
Government Securities Fund (Division 8)......... 16.31 (5.44) 9.70 6.14 13.59 4.91 11.03
International Government Bond Fund (Division
13)............................................ 17.63 3.42 13.08 2.05 9.05 -- --
Social Awareness Fund (Division 12)............. 37.57 (2.42) 6.84 2.31 26.63 (2.21) 1.00
Science & Technology Fund (Division 17)......... 60.07 24.77 -- -- -- -- --
Money Market Fund (Division 6).................. 4.51 2.77 1.67 2.22 4.49 6.83 7.92
Timed Opportunity Fund (Division 5)............. 23.55 (2.29) 8.19 (1.71) 20.13 (3.38) 15.81
Templeton Asset Allocation Fund (Division 19)... 21.02 (4.24) 24.59 6.74 26.13 (9.13) 11.86
<CAPTION>
ANNUAL CHANGE IN PURCHASE UNIT
VALUE FOR THE YEAR ENDED
DECEMBER 31*
-------------------------------
DIVISION 1988 1987 1986
- ------------------------------------------------ ------- ------- -------
<S> <C> <C> <C>
Stock Index Fund (Division 10).................. 13.13% (14.38)% --
MidCap Index Fund (Division 4).................. 13.06 (5.10) 2.43%
Small Cap Index Fund (Division 14).............. -- -- --
International Equities Fund (Division 11)....... -- -- --
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).......... 5.92 (2.78) 4.77
Government Securities Fund (Division 8)......... 4.95 (3.26) 4.61
International Government Bond Fund (Division
13)............................................ -- -- --
Social Awareness Fund (Division 12)............. -- -- --
Science & Technology Fund (Division 17)......... -- -- --
Money Market Fund (Division 6).................. 5.72 4.50 4.05
Timed Opportunity Fund (Division 5)............. 8.63 7.31 8.93
Templeton Asset Allocation Fund (Division 19)... 2.37 -- --
</TABLE>
<TABLE>
<CAPTION>
CUMULATIVE CHANGE IN PURCHASE UNIT VALUE FOR EACH PERIOD END SINCE 12/31/85*
-------------------------------------------------------------------------------
DIVISION 1995 1994 1993 1992 1991 1990 1989
- ------------------------------------------------- ------- ------- ------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C> <C> <C>
Stock Index Fund (Division 10)................... 134.39% 72.41% 72.93% 58.97% 50.56% 17.90% 23.88%
MidCap Index Fund (Division 4)................... 110.89 63.18 71.23 53.19 40.81 16.56 29.80
Small Cap Index Fund (Division 14)............... 54.49 22.23 27.72 11.28 -- -- --
International Equities Fund (Division 11)........ 15.65 5.45 (1.36) (23.29) (10.48) (18.66) 2.84
Templeton International Fund (Division 20)....... 49.52 30.77 35.49 (6.89) -- -- --
Dreyfus Small Cap Fund (Division 18)............. 898.25 681.25 634.77 341.81 161.05 1.68 --
Growth Fund (Division 15)........................ 46.67 0.18 -- -- -- -- --
Growth & Income Fund (Division 16)............... 29.66 (0.68) -- -- -- -- --
Capital Conservation Fund (Division 7)........... 81.20 51.53 63.01 47.02 36.69 17.84 19.36
Government Securities Fund (Division 8).......... 79.95 54.72 63.62 49.15 40.52 23.71 17.92
International Government Bond Fund (Division
13)............................................. 53.08 30.14 25.83 11.28 9.05 -- --
Social Awareness Fund (Division 12).............. 83.51 33.39 36.70 27.95 25.06 (1.23) 1.00
Science & Technology Fund (Division 17).......... 99.72 24.77 -- -- -- -- --
Money Market Fund (Division 6)................... 54.58 47.91 43.93 41.57 38.49 32.54 24.06
Timed Opportunity Fund (Division 5).............. 119.10 77.34 81.50 67.76 70.68 42.08 47.05
Templeton Asset Allocation Fund (Division 19).... 102.27 67.14 74.53 40.09 31.24 4.05 14.50
<CAPTION>
CUMULATIVE CHANGE IN PURCHASE
UNIT VALUE FOR EACH PERIOD END
SINCE 12/31/85*
-------------------------------
DIVISION 1988 1987 1986
- ------------------------------------------------- ------- ------- -------
<S> <C> <C> <C>
Stock Index Fund (Division 10)................... (3.13)% (14.38)% --
MidCap Index Fund (Division 4)................... 9.91 (2.79) 2.43
Small Cap Index Fund (Division 14)............... -- -- --
International Equities Fund (Division 11)........ -- -- --
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)........... 7.89 1.86 4.77
Government Securities Fund (Division 8).......... 6.21 1.20 4.61
International Government Bond Fund (Division
13)............................................. -- -- --
Social Awareness Fund (Division 12).............. -- -- --
Science & Technology Fund (Division 17).......... -- -- --
Money Market Fund (Division 6)................... 14.95 8.73 4.05
Timed Opportunity Fund (Division 5).............. 26.98 16.89 8.93
Templeton Asset Allocation Fund (Division 19).... 2.37 -- --
</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 purchase unit value was 11.63%; for the period from October 1, 1991
through December 31, 1992, the cumulative change in purchase unit value was
21.43%; for the period from October 1, 1991 through December 31, 1993, the
cumulative change in purchase unit value was 35.74%; for the period from
October 1, 1991 through December 31, 1994, the cumulative change in purchase
unit value was 29.36% and for the period from October 1, 1991 through December
31, 1995 the cumulative change in purchase unit value was 67.18.
See "How to Review Investment Performance of Separate Account Divisions" in the
prospectus for information about how these returns were calculated.
24
<PAGE> 69
HYPOTHETICAL $10,000 ACCOUNT VALUE AND
CUMULATIVE RETURN AS COMPARED TO BENCHMARKS TABLES.
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 "How To Review
Investment Performance of Separate Account Divisions" and "Variable Account
Options" in the prospectus.)
These tables compare hypothetical investment performance and percentage
changes in Purchase 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 Purchase 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
- ---------------
* "Standard & Poor's(R)", "S&P(R)", "S&P 500(R)" and "S&P MidCap 400(R)" are
trademarks of Standard and Poor's ("S&P"). 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.
25
<PAGE> 70
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.
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 BBB3 to AAA. The average years to maturity of these
corporate bond holdings are approximately 12 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 170 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 650 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
- ---------------
** The Russell 2000(R) Index is a trademark/service mark of the Frank Russell
Trust Company. Russell TM is a trademark of the Frank Russell Company.
26
<PAGE> 71
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 6,700 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 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 Non-US Dollar 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 820 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.
27
<PAGE> 72
See "How to Review Investment Performance of Separate Account Divisions" in the
prospectus for information about how these returns were calculated.
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
<TABLE>
<CAPTION>
STOCK INDEX S&P 500
DIVISION TEN INDEX
----------------------------------------------------------------- --------
<S> <C> <C>
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
12/31/95............................................... 23,439 27,960
</TABLE>
CUMULATIVE RETURN COMPARED TO MARKET INDEX
(PERIOD ENDED DECEMBER 31, 1995)
<TABLE>
<CAPTION>
SINCE
INCEPTION* 5 YEARS 3 YEARS 1 YEAR
-------- -------- ------- -------
<S> <C> <C> <C> <C>
Investment Division
Stock Index Division Ten................. 134.39% 98.80% 47.44% 35.95%
Benchmark Comparison
S&P 500 Index............................ 179.60% 115.45% 53.44% 37.58%
</TABLE>
- ---------------
* 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
<TABLE>
<CAPTION>
S&P
S&P MIDCAP
MIDCAP INDEX 500 400
DIVISION FOUR INDEX INDEX
-------------------------------------------------- -------- --------
<S> <C> <C> <C>
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
12/31/95................................ 27,827 77,981 85,547
</TABLE>
28
<PAGE> 73
CUMULATIVE RETURN COMPARED TO MARKET INDEX
(PERIOD ENDED DECEMBER 31, 1995)
<TABLE>
<CAPTION>
SINCE
INCEPTION* 10 YEARS 5 YEARS 3 YEARS 1 YEAR
---------- -------- -------- ------- -------
<S> <C> <C> <C> <C> <C>
Investment Division
Division Four............... 178.27% 110.89% 80.93% 37.67% 29.24%
Benchmark Comparison
S&P 500 Index............... 679.81% 300.37% 115.45% 53.44% 37.58%
S&P MidCap 400 Index........ 755.47% 327.64% 141.65% 43.86% 30.94%
</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 purchase 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
<TABLE>
<CAPTION>
RUSSELL
SMALL CAP INDEX 2000
DIVISION FOURTEEN INDEX
----------------------------------------------------------------- --------
<S> <C> <C>
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
12/31/95............................................... 15,449 17,114
</TABLE>
CUMULATIVE RETURN COMPARED TO MARKET INDEX
(PERIOD ENDED DECEMBER 31, 1995)
<TABLE>
<CAPTION>
SINCE
INCEPTION* 3 YEARS 1 YEAR
---------- ------- -------
<S> <C> <C> <C>
Investment Division
Small Cap Index Division Fourteen...................... 54.49% 38.83% 26.39%
Benchmark Comparison
Russell 2000........................................... 71.14% 49.92% 28.45%
</TABLE>
- ---------------
* 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
<TABLE>
<CAPTION>
INTERNATIONAL EQUITIES EAFE
DIVISION ELEVEN INDEX
----------------------------------------------------------------- --------
<S> <C> <C>
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
12/31/95............................................... 11,565 12,537
</TABLE>
29
<PAGE> 74
CUMULATIVE RETURN COMPARED TO MARKET INDEX
(PERIOD ENDED DECEMBER 31, 1995)
<TABLE>
<CAPTION>
SINCE
INCEPTION* 5 YEARS 3 YEARS 1 YEAR
---------- ------- ------- -------
<S> <C> <C> <C> <C>
Investment Division
International Equities Division Eleven... 15.65% 42.17% 50.75% 9.67%
Benchmark Comparison
EAFE Index............................... 25.37% 56.46% 58.88% 11.21%
</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
<TABLE>
<CAPTION>
MSCI
TEMPLETON INTERNATIONAL WORLD
DIVISION TWENTY INDEX
-------------------------------------------------------------------- --------
<S> <C> <C>
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
12/31/95................................................. 14,952 15,823
</TABLE>
CUMULATIVE RETURN COMPARED TO MARKET INDEX*
(PERIOD ENDED DECEMBER 31, 1995)
<TABLE>
<CAPTION>
SINCE
INCEPTION* 3 YEARS 1 YEAR*
---------- ------- -------
<S> <C> <C> <C>
Investment Division
Templeton International Division Twenty.............. 49.52% 60.58% 14.34%
Benchmark Comparison
MSCI World Index..................................... 58.23% 55.39% 20.72%
</TABLE>
- ---------------
* 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
<TABLE>
<CAPTION>
DREYFUS SMALL CAP RUSSELL
DIVISION EIGHTEEN INDEX
-------------------------------------------------------------------- --------
<S> <C> <C>
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
12/31/95................................................. 99,825 24,844
</TABLE>
30
<PAGE> 75
CUMULATIVE RETURN COMPARED TO MARKET INDEX*
(PERIOD ENDED DECEMBER 31, 1995)
<TABLE>
<CAPTION>
SINCE
INCEPTION* 5 YEARS 3 YEARS 1 YEAR
---------- -------- -------- -------
<S> <C> <C> <C> <C>
Investment Division
Dreyfus Small Cap Division Eighteen..... 898.25% 881.77% 125.94% 27.78%
Benchmark Comparison
Russell 2000............................ 148.44% 159.41% 49.92% 28.45%
</TABLE>
- ---------------
* 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
QUARTERLY VALUE OF A $10,000 STIPULATED PAYMENT MADE APRIL 29, 1994
<TABLE>
<CAPTION>
GROWTH S&P 500
DIVISION FIFTEEN INDEX
-------------------------------------------------------------------- --------
<S> <C> <C>
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
03/31/95................................................. 11,246 11,557
06/30/95................................................. 12,241 12,660
09/30/95................................................. 13,920 13,666
12/31/95................................................. 14,667 14,489
</TABLE>
CUMULATIVE RETURN COMPARED TO MARKET INDEX
(PERIOD ENDED DECEMBER 31, 1995)
<TABLE>
<CAPTION>
SINCE
INCEPTION* 5 YEARS 3 YEARS 1 YEAR
---------- ------- ------- -------
<S> <C> <C> <C> <C>
Investment Division
Growth Division Fifteen.................. 46.67% -- -- 46.40%
Benchmark Comparison
S&P 500 Index............................ 44.89% -- -- 37.58%
</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
QUARTERLY VALUE OF A $10,000 STIPULATED PAYMENT MADE APRIL 29, 1994
<TABLE>
<CAPTION>
GROWTH & INCOME S&P 500
DIVISION SIXTEEN INDEX
-------------------------------------------------------------------- --------
<S> <C> <C>
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
03/31/95................................................. 10,762 11,557
06/30/95................................................. 11,473 12,660
09/30/95................................................. 12,621 13,666
12/31/95................................................. 12,966 14,489
</TABLE>
31
<PAGE> 76
CUMULATIVE RETURN COMPARED TO MARKET INDEX
(PERIOD ENDED DECEMBER 31, 1995)
<TABLE>
<CAPTION>
SINCE
INCEPTION* 5 YEARS 3 YEARS 1 YEAR
---------- ------- ------- -------
<S> <C> <C> <C> <C>
Investment Division
Growth & Income Division Sixteen......... 29.66% -- -- 30.55%
Benchmark Comparison
S&P 500 Index............................ 44.89% -- -- 37.58%
</TABLE>
- ---------------
* 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
<TABLE>
<CAPTION>
MERRILL
LYNCH
CAPITAL CONSERVATION CORPORATE MASTER
DIVISION SEVEN INDEX
-------------------------------------------------------------------- --------
<S> <C> <C>
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
12/31/95................................................. 18,120 27,097
</TABLE>
CUMULATIVE RETURN COMPARED TO MARKET INDEX
(PERIOD ENDED DECEMBER 31, 1995)
<TABLE>
<CAPTION>
SINCE
INCEPTION* 5 YEARS 3 YEARS 1 YEAR
---------- ------- ------- -------
<S> <C> <C> <C> <C>
Investment Division
Capital Conservation Division Seven..... 81.20% 53.77% 23.25% 19.58%
Benchmark Comparison
Merrill Lynch Corporate Master Index.... 170.97% 70.43% 32.09% 21.58%
</TABLE>
- ---------------
* This Division was initiated on January 16, 1986.
32
<PAGE> 77
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
<TABLE>
<CAPTION>
U.S.
TREASURY
GOVERNMENT SECURITIES COMPOSITE
DIVISION EIGHT INDEX
-------------------------------------------------------------------- --------
<S> <C> <C>
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
12/31/95................................................. 17,995 24,684
</TABLE>
CUMULATIVE RETURN COMPARED TO MARKET INDEX
(PERIOD ENDED DECEMBER 31, 1995)
<TABLE>
<CAPTION>
SINCE
INCEPTION* 5 YEARS 3 YEARS 1 YEAR
---------- ------- ------- -------
<S> <C> <C> <C> <C>
Investment Division
Government Securities Division Eight.... 79.95% 45.46% 20.65% 16.31%
Benchmark Comparison
U.S. Treasury Composite Index........... 146.84% 56.57% 26.57% 18.35%
</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
<TABLE>
<CAPTION>
SALOMON
BROS.
NON-U.S.
DOLLAR
WORLD
GOVERNMENT
INTERNATIONAL GOVERNMENT BOND BOND
DIVISION THIRTEEN INDEX
-------------------------------------------------------------------- --------
<S> <C> <C>
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
12/31/95................................................. 15,308 16,692
</TABLE>
33
<PAGE> 78
CUMULATIVE RETURN COMPARED TO MARKET INDEX
(PERIOD ENDED DECEMBER 31, 1995)
<TABLE>
<CAPTION>
SINCE
INCEPTION* 3 YEARS 1 YEAR
---------- ------- -------
<S> <C> <C> <C>
Investment Division
International Government Bond Division Thirteen...... 53.08% 37.56% 17.63%
Benchmark Comparison
Salomon Bros. Non-U.S. Dollar World Government Bond
Index.............................................. 66.92% 44.64% 19.23%
</TABLE>
- ---------------
* 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
<TABLE>
<CAPTION>
SOCIAL AWARENESS S&P 500
DIVISION TWELVE INDEX
-------------------------------------------------------------------- --------
<S> <C> <C>
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
12/31/95................................................. 18,351 21,323
</TABLE>
CUMULATIVE RETURN COMPARED TO MARKET INDEX
(PERIOD ENDED DECEMBER 31, 1995)
<TABLE>
<CAPTION>
SINCE
INCEPTION* 5 YEARS 3 YEARS 1 YEAR
---------- -------- -------- --------
<S> <C> <C> <C> <C>
Investment Division
Social Awareness Division Twelve....... 83.51% 85.80% 43.42% 37.57%
Benchmark Comparison
S&P 500 Index.......................... 113.23% 115.45% 53.44% 37.58%
</TABLE>
- ---------------
* This Division was initiated on October 2, 1989.
Science & Technology Division Seventeen Compared to S&P 500 Index.
HYPOTHETICAL $10,000 ACCOUNT VALUE
QUARTERLY VALUE OF A $10,000 STIPULATED PAYMENT MADE APRIL 29, 1994
<TABLE>
<CAPTION>
SCIENCE & TECHNOLOGY S&P 500
DIVISION SEVENTEEN INDEX
-------------------------------------------------------------------- --------
<S> <C> <C>
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
03/31/95................................................. 13,753 11,557
06/30/95................................................. 16,805 12,660
09/30/95................................................. 19,444 13,666
12/31/95................................................. 19,972 14,489
</TABLE>
34
<PAGE> 79
CUMULATIVE RETURN COMPARED TO MARKET INDEX
(PERIOD ENDED DECEMBER 31, 1995)
<TABLE>
<CAPTION>
SINCE
INCEPTION* 5 YEARS 3 YEARS 1 YEAR
---------- ------- ------- -------
<S> <C> <C> <C> <C>
Investment Division
Science & Technology Division
Seventeen.............................. 99.72% -- -- 60.07%
Benchmark Comparison
S&P 500 Index............................ 44.89% -- -- 37.58%
</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
<TABLE>
<CAPTION>
MONEY MARKET PRIMARY
DIVISION SIX CD INDEX
-------------------------------------------------------------------- --------
<S> <C> <C>
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
12/31/95................................................. 15,458 17,200
</TABLE>
CUMULATIVE RETURN COMPARED TO MARKET INDEX
(PERIOD ENDED DECEMBER 31, 1995)
<TABLE>
<CAPTION>
SINCE
INCEPTION* 5 YEARS 3 YEARS 1 YEAR
---------- ------- ------- ------
<S> <C> <C> <C> <C>
Investment Division
Money Market Division Six................... 54.58% 16.63% 9.19% 4.51%
Benchmark Comparison
Primary CD Index............................ 72.00% 21.29% 11.50% 4.94%
</TABLE>
- ---------------
* This Division was initiated on January 16, 1986.
35
<PAGE> 80
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
<TABLE>
<CAPTION>
TIMED OPPORTUNITY S&P 500 BLENDED
DIVISION FIVE INDEX INDEX*
--------------------------------------------------------------- -------- --------
<S> <C> <C> <C>
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
12/31/95............................................ 24,110 56,921 45,566
</TABLE>
CUMULATIVE RETURN COMPARED TO MARKET INDEX
(PERIOD ENDED DECEMBER 31, 1995)
<TABLE>
<CAPTION>
SINCE
INCEPTION** 10 YEARS 5 YEARS 3 YEARS 1 YEAR
----------- -------- -------- ------- -------
<S> <C> <C> <C> <C> <C>
Investment Division
Timed Opportunity Division Five... 141.10% 119.10% 54.21% 30.61% 23.55%
Benchmark Comparison
S&P 500 Index..................... 469.21% 300.37% 115.45% 53.44% 37.58%
Blended Index*.................... 355.66% 221.41% 84.12% 39.74% 27.39%
</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.
36
<PAGE> 81
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
<TABLE>
<CAPTION>
MSCI
TEMPLETON ASSET ALLOCATION WORLD BLENDED
DIVISION NINETEEN INDEX INDEX**
---------------------------------------------------------- -------- --------
<S> <C> <C> <C>
08/24/88....................................... $ 10,000 $ 10,000 $ 10,000
12/31/88....................................... 10,237 11,432 11,074
12/31/89....................................... 11,450 13,330 12,346
12/31/90....................................... 10,405 11,062 11,737
12/31/91....................................... 13,124 13,084 13,649
12/31/92....................................... 14,009 12,401 13,553
12/31/93....................................... 17,453 15,191 15,883
12/31/94....................................... 16,714 15,962 16,522
12/31/95....................................... 20,227 19,270 19,578
</TABLE>
CUMULATIVE RETURN COMPARED TO MARKET INDEX*
(PERIOD ENDED DECEMBER 31, 1995)
<TABLE>
<CAPTION>
SINCE
INCEPTION* 5 YEARS 3 YEARS 1 YEAR
---------- ------- ------- --------
<S> <C> <C> <C> <C>
Investment Division
Templeton Asset Allocation Division
Nineteen............................. 102.27% 94.40% 44.39% 21.02%
Benchmark Comparison**
MSCI World Index....................... 92.70% 74.20% 55.39% 20.72%
Blended Index.......................... 95.78% 66.80% 44.45% 18.49%
</TABLE>
- ---------------
* 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 Brothers World Government Bond Index and
10% of investments included in the Certificate of Deposit Primary Offering by
New York City Bank, 30 Day index.
PAYOUT PAYMENTS
ASSUMED INVESTMENT RATE
The discussion concerning the amount of payout 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 payout 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 VALIC Separate Account A.
AMOUNT OF PAYOUT PAYMENTS
The amount of the first variable annuity payment to the Annuitant will
depend on the amount of the Account Value applied to effect the variable annuity
as of the tenth day immediately preceding
37
<PAGE> 82
the date payout payments commence, the amount of any premium tax owed, the
annuity option selected, and the age of the Annuitant.
The Contracts contain tables indicating the dollar amount of the first
payout payment under each payout option for each $1,000 of Account 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 payout payment derived from a
Division of VALIC Separate Account A is divided by the Payout Unit value for
that Division (calculated ten days prior to the date of the first monthly
payment) to determine the number of Payout Units in each Division represented by
the payment. The number of such units will remain fixed during the Payout
Period, assuming the Annuitant makes no transfers of Payout Units to provide
Payout Units under another Division or to provide a fixed annuity.
In any subsequent month, the dollar amount of the variable payout payment
derived from each Division is determined by multiplying the number of Payout
Units in that Division by the value of such Payout Unit on the tenth day
preceding the due date of such payment. The Payout Unit value will increase or
decrease in proportion to the net investment return of the Division or Divisions
underlying the variable payout since the date of the previous payout payment,
less an adjustment to neutralize the 3 1/2% or other Assumed Investment Rate
referred to above.
Therefore, the dollar amount of variable payout 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 payout 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 payout 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 payout payments are to be
made under one of the first four payout 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 payout
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.
PAYOUT UNIT VALUE
The value of a Payout Unit is calculated at the same time that the value of
an Purchase Unit is calculated and is based on the same values for Fund shares
and other assets and liabilities. (See "Purchase Period" in the prospectus.) The
calculation of Payout Unit value is discussed in the prospectus under "Payout
Period."
The following illustrations show, by use of hypothetical examples, the
method of determining the Payout Unit value and the amount of variable annuity
payments.
ILLUSTRATION OF CALCULATION OF PAYOUT UNIT VALUE
Example 8.
<TABLE>
<S> <C>
1. Payout 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. Payout Unit value, end of period (1)X(4)............................ $ 1.002993
</TABLE>
38
<PAGE> 83
ILLUSTRATION OF PAYOUT PAYMENTS
Example 9. Annuitant age 65, Life Annuity with 120 Payments Certain
<TABLE>
<S> <C>
1. Number of Purchase Units at Payout Date........................ 10,000.00
2. Purchase Unit value (see Example 3)............................ $ 1.800000
3. Account Value of Contract (1)X(2).............................. $ 18,000.00
4. First monthly Payout Payment per $1,000 of Account Value....... $ 5.63
5. First monthly Payout Payment (3)X(4)/1,000..................... $ 101.34
6. Payout Unit value (see Example 10)............................. $ .980000
7. Number of Payout Units (5)/(6)................................. 103.408
8. Assume Payout Unit value for second month equal to............. $ .997000
9. Second monthly Payout Payment (7)X(8).......................... $ 103.10
10. Assume Payout Unit value for third month equal to.............. $ .953000
11. Third monthly Payout Payment (7)X(10).......................... $ 98.55
</TABLE>
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 VALIC Separate Account A 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 VALIC Separate Account A in
addition to the charges described under "Fees and Charges" in the prospectus.)
Pursuant to its underwriting agreement with the Underwriter and VALIC
Separate Account A, the Company reimburses the Underwriter for reasonable sales
expenses, including overhead expenses. Sales commissions for year 1995 were
$44,476,000.
EXPERTS
The consolidated financial statements of the Company at December 31, 1995
and 1994, and for each of the three years in the period ended December 31, 1995,
and the financial statements of the Company's Separate Account A at December 31,
1995 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.
39
<PAGE> 84
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, 1995, and for the fiscal year then
ended.
40
<PAGE> 85
THE VARIABLE ANNUITY LIFE INSURANCE COMPANY
- --------------------------------------------------------------------------------
AUDITED CONSOLIDATED
FINANCIAL STATEMENTS
December 31, 1995
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> 86
THE VARIABLE ANNUITY LIFE INSURANCE COMPANY
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, 1995
and 1994, 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, 1995. 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, 1995 and
1994, and the consolidated results of their operations and their cash flows for
each of the three years in the period ended December 31, 1995, 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.
/s/ ERNST & YOUNG LLP
ERNST & YOUNG LLP
Houston, Texas
February 12, 1996
<PAGE> 87
THE VARIABLE ANNUITY LIFE INSURANCE COMPANY
Consolidated Balance Sheet
At December 31,
In Thousands
<TABLE>
<CAPTION>
1995 1994
- ------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
ASSETS Investments - Notes 2, 6, 7, 8:
Fixed maturity securities
(amortized cost: $18,590,102 in 1995 and $16,930,860 in 1994) $19,745,726 $ 16,084,308
Equity securities (cost: $56,825 in 1995 and $69,774 in 1994) 71,770 72,752
Mortgage loans on real estate 1,443,817 1,535,201
Real estate, net of accumulated depreciation
of $99 in 1995 and $134 in 1994 23,365 22,235
Policy loans 557,637 474,830
Other long-term invested assets 16,929 7,232
Short-term investments 39,277 160,022
-------------------------------------------------------------------------------------------------------
Total investments 21,898,521 18,356,580
-------------------------------------------------------------------------------------------------------
Investment income receivable 292,967 280,161
Cash on deposit and on hand 27,794 18,909
Receivable for securities sold 51,947 3,896
Deferred policy acquisition costs - Note 3 182,546 910,479
Due from reinsurer, net 16,873 18,009
Other assets 37,912 26,655
Assets held in Separate Accounts 4,540,889 2,506,810
-------------------------------------------------------------------------------------------------------
Total assets $27,049,449 $ 22,121,499
- ------------------------------------------------------------------------------------------------------------------------
LIABILITIES Policy reserves for fixed annuity investment contracts $20,146,697 $ 18,656,189
Payable for securities purchased 26,885 2,310
Remittances not allocated 52,913 34,275
Commissions, general expenses, and taxes (other than income taxes) 44,380 32,552
Other liabilities 51,768 46,941
Income tax liabilities - Note 4 387,076 109,362
Liabilities related to Separate Accounts 4,540,889 2,506,810
-------------------------------------------------------------------------------------------------------
Total liabilities 25,250,608 21,388,439
- ------------------------------------------------------------------------------------------------------------------------
STOCKHOLDER'S Common stock (voting) par value $1 per share, 5,000 shares authorized
EQUITY and 3,575 issued and outstanding in 1995 and 1994 - Note 5 3,575 3,575
Additional paid-in capital 384,126 382,733
Retained earnings 1,014,520 910,233
Net unrealized investment gains (losses) - Note 2 396,620 (563,481)
-------------------------------------------------------------------------------------------------------
Total stockholder's equity 1,798,841 733,060
-------------------------------------------------------------------------------------------------------
Total liabilities and stockholder's equity $27,049,449 $ 22,121,499
-------------------------------------------------------------------------------------------------------
</TABLE>
See notes to consolidated financial statements.
2
<PAGE> 88
THE VARIABLE ANNUITY LIFE INSURANCE COMPANY
Consolidated Statement of Income
For the Years Ended December 31,
In Thousands
<TABLE>
<CAPTION>
1995 1994 1993
- ---------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
REVENUES Surrender charges $ 9,967 $ 9,964 $ 8,605
Mortality charges 34,965 21,136 15,614
Expense charges 5,122 5,528 5,349
Net investment income - Note 2 1,597,681 1,493,942 1,434,019
Net reinsurance income 1,573 1,908 1,826
Realized investment gains (losses) - Note 2 (7,149) (71,950) 17,969
Other income 6,878 6,517 4,361
-------------------------------------------------------------------------------------------------
Total revenues 1,649,037 1,467,045 1,487,743
- ---------------------------------------------------------------------------------------------------------------------
COSTS AND Policy costs:
EXPENSES Increase in policy reserves for fixed
annuity contracts 1,203,986 1,133,547 1,125,055
-------------------------------------------------------------------------------------------------
Total costs 1,203,986 1,133,547 1,125,055
-------------------------------------------------------------------------------------------------
Expenses:
Commissions 84,670 73,198 66,739
Salaries 48,227 42,742 39,923
Guaranty association assessments - Note 9 18,961 6,300 7,000
Data processing 13,200 10,908 10,262
Postage and telephone 10,710 8,137 7,348
Sales promotion 9,361 8,024 7,305
Printing and supplies 4,721 4,372 3,505
Other expenses 44,055 43,029 36,327
Amortization of deferred policy acquisition
costs - Note 3 16,841 13,263 10,000
Policy acquisition costs deferred - Note 3 (104,702) (88,046) (82,960)
-------------------------------------------------------------------------------------------------
Total expenses 146,044 121,927 105,449
-------------------------------------------------------------------------------------------------
Total costs and expenses 1,350,030 1,255,474 1,230,504
- ---------------------------------------------------------------------------------------------------------------------
EARNINGS Earnings before income taxes and cumulative effect of
accounting changes 299,007 211,571 257,239
Income tax expense:
Excluding tax rate related adjustment - Note 4 99,720 70,183 84,863
Tax rate related adjustment - Note 4 -- -- 4,490
-------------------------------------------------------------------------------------------------
Total 99,720 70,183 89,353
-------------------------------------------------------------------------------------------------
Income before cumulative effect of accounting changes 199,287 141,388 167,886
Cumulative effect of accounting changes - Note 1 -- -- (2,588)
-------------------------------------------------------------------------------------------------
Net income $ 199,287 $ 141,388 $ 165,298
-------------------------------------------------------------------------------------------------
</TABLE>
See notes to consolidated financial statements.
3
<PAGE> 89
THE VARIABLE ANNUITY LIFE INSURANCE COMPANY
Consolidated Statement of Changes in Stockholder's Equity
For the Years Ended December 31,
In Thousands
<TABLE>
<CAPTION>
1995 1994 1993
- ------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
COMMON STOCK Balance at beginning and end of year $ 3,575 $ 3,575 $ 3,575
- ------------------------------------------------------------------------------------------------------------------
ADDITIONAL Balance at beginning of year 382,733 382,727 330,800
PAID-IN-CAPITAL Capital contribution from stockholder 1,393 6 51,927
-------------------------------------------------------------------------------------------
Balance at end of year 384,126 382,733 382,727
- ------------------------------------------------------------------------------------------------------------------
RETAINED Balance at beginning of year 910,233 821,845 656,547
EARNINGS Net income 199,287 141,388 165,298
Dividends paid to stockholder (95,000) (53,000) -
-------------------------------------------------------------------------------------------
Balance at end of year 1,014,520 910,233 821,845
- ------------------------------------------------------------------------------------------------------------------
NET UNREALIZED Balance at beginning of year (563,481) 348,470 4,892
INVESTMENT Change during year 960,101 (911,951) 343,578
-------------------------------------------------------------------------------------------
GAINS (LOSSES) Balance at end of year 396,620 (563,481) 348,470
- ------------------------------------------------------------------------------------------------------------------
STOCKHOLDER'S
EQUITY Total stockholder's equity at end of year $ 1,798,841 $ 733,060 $ 1,556,617
-------------------------------------------------------------------------------------------
</TABLE>
See notes to consolidated financial statements.
4
<PAGE> 90
THE VARIABLE ANNUITY LIFE INSURANCE COMPANY
Consolidated Statement of Cash Flows
For the Years Ended December 31,
In Thousands
<TABLE>
<CAPTION>
1995 1994 1993
- ------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
OPERATING Income before cumulative effect of accounting
changes $ 199,287 $ 141,388 $ 167,886
ACTIVITIES Reconciling adjustments to net cash provided by
operating activities:
Insurance and annuity liabilities 1,203,986 1,133,547 1,125,055
Deferred policy acquisition costs (87,861) (74,783) (72,960)
Other, net 28,179 (41,944) (95,445)
-------------------------------------------------------------------------------------------
Net cash provided by operating activities 1,343,591 1,158,208 1,124,536
- ------------------------------------------------------------------------------------------------------------------
INVESTING Investment purchases (9,671,304) (7,827,877) (5,531,834)
ACTIVITIES Investment calls, maturities, and sales 8,025,420 6,456,637 3,497,419
Net (increase) decrease in short-term investments 120,745 (160,022) -
-------------------------------------------------------------------------------------------
Net cash used for investing activities (1,525,139) (1,531,262) (2,034,415)
- ------------------------------------------------------------------------------------------------------------------
FINANCING Policyholder account deposits 2,553,928 2,227,803 2,129,542
ACTIVITIES Policyholder account withdrawals (996,324) (1,004,953) (751,537)
Transfers to Separate Accounts (1,273,778) (723,994) (504,969)
Capital contribution from stockholder 1,607 6 52,941
Net decrease in short-term debt - (59,000) (20,400)
Dividends paid (95,000) (53,000) -
-------------------------------------------------------------------------------------------
Net cash provided by financing activities 190,433 386,862 905,577
- ------------------------------------------------------------------------------------------------------------------
NET CHANGE Net increase (decrease) in cash 8,885 13,808 (4,302)
IN CASH Cash at beginning of year 18,909 5,101 9,403
-------------------------------------------------------------------------------------------
Cash at end of year $ 27,794 $ 18,909 $ 5,101
-------------------------------------------------------------------------------------------
</TABLE>
See notes to consolidated financial statements.
5
<PAGE> 91
THE VARIABLE ANNUITY LIFE INSURANCE COMPANY
Notes to Consolidated Financial Statements
December 31, 1995
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), provides tax-deferred
retirement annuities and employer-sponsored retirement plans to employees of
educational, health care, public sector, and not-for-profit organizations.
VALIC markets products nationwide to 900,000 customers through a national
network of 850 sales representatives. VALIC is 100% owned by American General
Life Insurance Company (AGL), 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 1995 presentation, certain items in the
prior years' financial statements have been reclassified.
The preparation of financial statements requires management to make
estimates and assumptions that affect (1) the reported amounts of assets and
liabilities, (2) disclosures of contingent assets and liabilities, and (3) the
reported amounts of revenues and expenses during the reporting period. Ultimate
results could differ from those estimates.
1.3 ACCOUNTING CHANGES
Current Year. During 1995, VALIC adopted Statement of Financial Accounting
Standards (SFAS) 121, "Accounting for the Impairment of Long-Lived Assets and
for Long-Lived Assets to be Disposed Of." SFAS 121 establishes accounting
standards for (1) the impairment of long-lived assets, certain identifiable
intangibles, and goodwill related to those assets to be held and used in the
business, and (2) long-lived assets and certain identifiable intangibles to be
disposed of. With the adoption of SFAS 121, VALIC measures impairment of
certain investment real estate based on fair value, rather than net realizable
value as previously required. Adoption of this standard did not have a material
impact on the consolidated financial statements.
Prior Years. Effective January 1, 1993, VALIC adopted the following
accounting standards: (1) SFAS 106, "Employers' Accounting for Postretirement
Benefits Other than Pensions," which resulted in a one-time reduction of net
income of $573 ($868 pretax); (2) SFAS 109, "Accounting for Income Taxes,"
which resulted in a one-time reduction of net income of $1,880; and (3) SFAS
112, "Employers' Accounting for Postemployment Benefits," which resulted in a
one-time reduction of net income of $135 ($205 pretax).
Effective January 1, 1993, VALIC also adopted SFAS 113, "Accounting and
Reporting for Reinsurance of Short-Duration and Long-Duration Contracts," and
SFAS 114, "Accounting by Creditors for Impairment of a Loan." Adoption of these
standards did not have a material impact on the consolidated financial
statements.
At December 31, 1993, VALIC adopted SFAS 115, "Accounting for Certain
Investments in Debt and Equity Securities." This standard 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. Upon adoption, VALIC
reported all debt and equity securities at fair value and recorded net
unrealized gains on securities of $345,645 to shareholder's equity.
1.4 INVESTMENTS
FIXED MATURITY AND EQUITY SECURITIES. All fixed maturity and equity
securities are currently classified as available-for-sale and recorded at fair
value. After adjusting related balance sheet accounts as if the unrealized
gains (losses) had been realized, the net adjustment is recorded in net
unrealized gains (losses) on securities within 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 restructured or delinquent 60 days or more. The allowance
also covers loans for 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 is probable that
all amounts due under the contractual terms will not be collected, are reported
at the lower of amortized cost or fair value of the underlying collateral, less
estimated costs to sell.
POLICY LOANS. Policy loans are reported at cost and are adjusted
periodically for possible uncollectible amounts.
6
<PAGE> 92
THE VARIABLE ANNUITY LIFE INSURANCE COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
December 31, 1995
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 when earned based on the new contractual rate. 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 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).
Gross profits include realized investment gains (losses). In addition, 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. The impact of this adjustment is included in net unrealized gains
(losses) on securities within stockholder's equity.
VALIC reviews the carrying amount of DPAC on at least an annual basis. In
determining whether the carrying amount is appropriate, the company considers
estimated future gross profit margins, as well as, expected mortality, interest
earned and credited rates, persistency, and expenses.
1.6 SEPARATE ACCOUNTS
Separate Accounts are assets and liabilities associated with certain
contracts, principally annuities for which 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, realized investment gains (losses), and policyholder account deposits
and withdrawals related to Separate Accounts are excluded from the consolidated
statements of income and cash flows. Assets held in the Separate Accounts 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
Deferred tax assets and liabilities are established for temporary
differences between the financial reporting basis and the tax basis of assets
and liabilities, at the enacted tax rates expected to be in effect when the
temporary differences reverse. The effect of a tax rate change is recognized in
income in the period of enactment. State income taxes are included in income
tax expense.
A valuation allowance for deferred tax assets is provided if 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 judgment 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 securities is included in net unrealized gains (losses) on
securities in stockholder's equity.
1.10 STATUTORY ACCOUNTING
State insurance laws prescribe accounting practices for calculating
statutory net income and equity (capital and surplus) that differ from GAAP.
Net income and stockholder's equity as determined by statutory accounting
practices at December 31 were as follows:
<TABLE>
<CAPTION>
1995 1994 1993
- -----------------------------------------------------------------------------
<S> <C> <C> <C>
Net income $157,622 $ 171,486 $ 154,231
Stockholder's equity $926,654 $ 869,026 $ 770,385
- -----------------------------------------------------------------------------
</TABLE>
7
<PAGE> 93
THE VARIABLE ANNUITY LIFE INSURANCE COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
December 31, 1995
2. INVESTMENTS
2.1 INVESTMENT INCOME
Income by type of investment was as follows:
<TABLE>
<CAPTION>
1995 1994 1993
- ------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Non-Affiliated fixed
maturity securities $ 1,414,644 $ 1,300,028 $ 1,222,544
Affiliated fixed
maturity securities 3,181 3,342 3,466
Equity securities 4,281 2,529 2,454
Mortgage loans on real estate 149,974 163,263 183,532
Other investments 36,473 36,226 33,993
- ------------------------------------------------------------------------------------------------------------
Gross investment income 1,608,553 1,505,388 1,445,989
Investment expenses 10,872 11,446 11,970
- ------------------------------------------------------------------------------------------------------------
Net investment income $ 1,597,681 $ 1,493,942 $ 1,434,019
- ------------------------------------------------------------------------------------------------------------
</TABLE>
The carrying value of investments that produced no investment income during
1995 totaled $8,675 or .04% of total invested assets. The ultimate disposition
of these assets is not expected to have a material effect on VALIC's
consolidated results of operations and financial position.
2.2 REALIZED INVESTMENT GAINS (LOSSES)
Realized investment gains (losses) were as follows:
<TABLE>
<CAPTION>
1995 1994 1993
- ------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Fixed maturity securities $ 832 $ (83,950) $ 45,166
Equity securities 7,706 2,143 12,060
Mortgage loans on real estate (24,465) (11,640) (30,565)
Real estate 3,767 1,608 (8,519)
Other 5,011 19,889 (173)
- ------------------------------------------------------------------------------------------------------------
Realized gains (losses)
before taxes (7,149) (71,950) 17,969
Income tax expense (benefit) (1,414) (25,183) 6,289
- ------------------------------------------------------------------------------------------------------------
Net realized investment
gains (losses) $ (5,735) $ (46,767) $ 11,680
- ------------------------------------------------------------------------------------------------------------
</TABLE>
Proceeds from sales of fixed maturity securities were $1,432,183,
$1,128,925, and $413,679 during 1995, 1994, and 1993, respectively. Gross gains
of $15,722, $7,610, and $25,737 and gross losses of $30,518, $89,917, and
$32,878, were realized on those sales during 1995, 1994, and 1993,
respectively.
During fourth quarter 1994, AGC initiated a program to realize capital
losses for tax purposes to offset prior period capital gains. During 1995, AGC
received a tax refund of $45,944 generated by $126,285 in net capital losses
realized in fourth quarter 1994 primarily through the sale of fixed maturity
securities. In conjunction with this program, VALIC realized net capital losses
for tax purposes of $110,019 in fourth quarter 1994, primarily through the sale
of $1,186,197 of fixed maturity securities. Due to declining interest rates
during 1995, which resulted in increasing values of VALIC's fixed maturity
securities, no additional capital losses were realized under this program.
2.3 FIXED MATURITY AND EQUITY SECURITIES
VALUATION. All fixed maturity and equity securities are classified as
available-for-sale and reported at fair value (see Note 1.4). Amortized cost
and fair value at December 31 were as follows:
<TABLE>
<CAPTION>
Amortized Cost Gross Unrealized Gains
------------------------------- ------------------------------
1995 1994 1995 1994
- ------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
U.S. Treasury securities and
obligations of U.S. government
corporations and agencies $ 173,879 $ 178,724 $ 33,063 $ 3,623
Obligations of states and
political subdivisions 32,349 13,902 1,467 15
Debt securities issued by
foreign governments 238,592 272,999 19,639 1,310
Corporate securities 11,338,933 9,413,532 792,302 91,402
Mortgage-backed securities 6,771,473 7,016,389 333,436 34,801
Affiliated fixed maturity securities 32,275 35,314 - -
Redeemable preferred stock 2,601 - - -
- ------------------------------------------------------------------------------------------------------------
Total fixed maturity securities $ 18,590,102 $ 16,930,860 $ 1,179,907 $ 131,151
- ------------------------------------------------------------------------------------------------------------
Equity securities $ 56,825 $ 69,774 $ 14,966 $ 4,153
- ------------------------------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
Gross Unrealized Losses Fair Value
------------------------------- --------------------------------
1995 1994 1995 1994
- ------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
U.S. Treasury securities and
obligations of U.S. government
corporations and agencies $ (25) $ (2,165) $ 206,917 $ 180,182
Obligations of states and
political subdivisions (15) (1,290) 33,801 12,627
Debt securities issued by
foreign governments - (14,570) 258,231 259,739
Corporate securities (20,225) (458,242) 12,111,010 9,046,692
Mortgage-backed securities (3,924) (501,436) 7,100,985 6,549,754
Affiliated fixed maturity securities - - 32,275 35,314
Redeemable preferred stock (94) - 2,507 -
- ------------------------------------------------------------------------------------------------------------------
Total fixed maturity securities $ (24,283) $ (977,703) $ 19,745,726 $ 16,084,308
- ------------------------------------------------------------------------------------------------------------------
Equity securities $ (21) $ (1,175) $ 71,770 $ 72,752
- ------------------------------------------------------------------------------------------------------------------
</TABLE>
8
<PAGE> 94
THE VARIABLE ANNUITY LIFE INSURANCE COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- CONTINUED
December 31, 1995
2. INVESTMENTS - (CONTINUED)
MATURITIES. The contractual maturities of fixed maturity securities at
December 31, 1995 were as follows:
<TABLE>
<CAPTION>
Amortized Fair
Cost Value
- -----------------------------------------------------------------------------------------------------------
<S> <C> <C>
Fixed maturity securities, excluding
mortgage-backed securities
Due in one year or less $ 66,864 $ 67,872
Due after one year through five years 1,937,164 2,052,167
Due after five years through ten years 7,744,456 8,260,724
Due after ten years 2,070,145 2,263,978
Mortgage-backed securities 6,771,473 7,100,985
- -----------------------------------------------------------------------------------------------------------
Total fixed maturity securities $ 18,590,102 $ 19,745,726
- -----------------------------------------------------------------------------------------------------------
</TABLE>
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 NET 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:
<TABLE>
<CAPTION>
1995 1994
- -----------------------------------------------------------------------------------------------------------
<S> <C> <C>
Gross unrealized gains $ 1,194,873 $ 135,304
Gross unrealized losses (24,304) (978,877)
DPAC adjustments (551,624) 269,161
Deferred federal income taxes (222,325) 10,931
- -----------------------------------------------------------------------------------------------------------
Net unrealized gains (losses)
on securities $ 396,620 $ (563,481)
- -----------------------------------------------------------------------------------------------------------
</TABLE>
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:
<TABLE>
<CAPTION>
1995 1994
- -----------------------------------------------------------------------------------------------------------
<S> <C> <C>
Geographic distribution:
Atlantic $ 677,739 $ 705,643
Pacific and Mountain 455,009 500,417
Central 365,282 384,806
Allowance for losses (54,213) (55,665)
- -----------------------------------------------------------------------------------------------------------
Total $ 1,443,817 $ 1,535,201
- -----------------------------------------------------------------------------------------------------------
Property type:
Office $ 478,493 $ 512,229
Retail 461,272 486,881
Industrial 223,374 253,760
Apartments 242,469 229,324
Residential and other 92,422 108,672
Allowance for losses (54,213) (55,665)
- -----------------------------------------------------------------------------------------------------------
Total $ 1,443,817 $ 1,535,201
- -----------------------------------------------------------------------------------------------------------
</TABLE>
ALLOWANCE. The allowance for mortgage loan losses was as follows:
<TABLE>
<CAPTION>
1995 1994 1993
- -----------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Balance at January 1 $ 55,665 $ 48,612 $ 25,170
Net additions (a) 12,619 9,926 31,757
Deductions (b) (14,071) (2,873) (8,315)
- -----------------------------------------------------------------------------------------------------------
Balance at December 31 $ 54,213 $ 55,665 $ 48,612
- -----------------------------------------------------------------------------------------------------------
</TABLE>
(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:
<TABLE>
<CAPTION>
1995 1994
- -----------------------------------------------------------------------------------------------------------
<S> <C> <C>
Impaired loans:
With allowance* $ 63,167 $ 100,353
Without allowance 2,577 1,434
- -----------------------------------------------------------------------------------------------------------
Total impaired loans $ 65,744 $ 101,787
- -----------------------------------------------------------------------------------------------------------
Average investment $ 83,049 $ 79,337
Interest income earned 7,012 4,634
Interest income - cash basis 6,539 2,318
- -----------------------------------------------------------------------------------------------------------
</TABLE>
* Represents gross amounts before allowance for mortgage loan losses of
$17,701 and $23,553, respectively.
3. DEFERRED POLICY ACQUISITION COSTS (DPAC)
DPAC at December 31 and the components of the change for the years then
ended, were as follows:
<TABLE>
<CAPTION>
1995 1994 1993
- -----------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Balance at January 1 $ 910,479 $ 113,116 $ 473,764
Capitalization:
Commissions 52,959 44,899 43,131
Other acquisition costs 51,743 43,147 39,829
Accretion of interest 54,086 47,170 42,439
Amortization:
Operating earnings (70,927) (60,433) (52,439)
Offset to realized losses 4,991 19,812 -
Effect of net unrealized
(gains) losses on securities (820,785) 702,768 (433,608)
- -----------------------------------------------------------------------------------------------------------
Balance at December 31 $ 182,546 $ 910,479 $ 113,116
- -----------------------------------------------------------------------------------------------------------
</TABLE>
4. INCOME TAXES
4.1 TAX-SHARING AGREEMENT
VALIC, combined with its Separate Accounts, is taxed as a life insurance
company. VALIC and the Separate Accounts 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.
9
<PAGE> 95
THE VARIABLE ANNUITY LIFE INSURANCE COMPANY
Notes to Consolidated Financial Statements - Continued
December 31, 1995
4.2 TAX LIABILITIES
Components of income tax liabilities and assets at December 31 were as
follows:
<TABLE>
<CAPTION>
1995 1994
- -----------------------------------------------------------------------------------------------------------
<S> <C> <C>
Current tax liabilities (assets) $ 10,740 $ (36,282)
- -----------------------------------------------------------------------------------------------------------
Deferred tax liabilities, applicable to:
Basis differential of investments 428,863 7,105
Deferred policy acquisition costs 61,915 317,015
Other 2,480 2,322
- -----------------------------------------------------------------------------------------------------------
Total deferred tax liabilities 493,258 326,442
- -----------------------------------------------------------------------------------------------------------
Deferred tax assets, applicable to:
Policy reserves (100,014) (71,232)
Other (9,381) (10,287)
Basis differential of investments (7,527) (295,251)
- -----------------------------------------------------------------------------------------------------------
Total deferred tax assets before
valuation allowance (116,922) (376,770)
Valuation allowance -- 195,972
- -----------------------------------------------------------------------------------------------------------
Total deferred tax assets net of,
valuation allowance (116,922) (180,798)
- -----------------------------------------------------------------------------------------------------------
Net deferred tax liabilities 376,336 145,644
- -----------------------------------------------------------------------------------------------------------
Total income tax liabilities $ 387,076 $ 109,362
- -----------------------------------------------------------------------------------------------------------
</TABLE>
The deferred tax asset valuation allowance at December 31, 1994, was
attributable to unrealized losses on securities and had no income statement
impact.
4.3 TAX EXPENSE
Components of income tax expense were as follows:
<TABLE>
<CAPTION>
1995 1994 1993
- -------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Current:
Federal $ 99,273 $ 52,973 $ 93,936
State 3,224 2,368 1,461
- -------------------------------------------------------------------------------------------------------------
Total current income
tax expense 102,497 55,341 95,397
- -------------------------------------------------------------------------------------------------------------
Deferred, applicable to:
Basis differential of
investments (786) 7,189 (2,600)
Deferred policy acquisition
costs 32,174 32,800 25,119
Policy reserves (28,780) (31,085) (32,633)
Other, net (5,385) 5,938 4,070
- -------------------------------------------------------------------------------------------------------------
Total deferred income
tax expense (benefit) (2,777) 14,842 (6,044)
- -------------------------------------------------------------------------------------------------------------
Income tax expense $ 99,720 $ 70,183 $ 89,353
- -------------------------------------------------------------------------------------------------------------
</TABLE>
Effective January 1, 1993, the federal corporate tax rate increased from 34%
to 35%. 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:
<TABLE>
<CAPTION>
1995 1994 1993
- -------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Federal income tax rate 35% 35% 35%
Income tax expense at
applicable rate $ 104,652 $ 74,050 $ 90,034
Dividends received
deduction (3,883) (3,392) (1,819)
Tax-exempt interest (ESOP) (4,426) (4,670) (4,996)
Effect of tax rate change
on deferred tax liabilities - - 4,490
State income taxes 2,918 7,051 1,461
Other items 459 (2,856) 183
- -------------------------------------------------------------------------------------------------------------
Income tax expense $ 99,720 $ 70,183 $ 89,353
- -------------------------------------------------------------------------------------------------------------
</TABLE>
Federal income taxes paid in 1995, 1994, and 1993 were $52,790, $122,608,
and $$59,613, respectively. State income taxes paid in 1995, 1994 and 1993 were
$2,653, $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 1996 is
$172,402.
6. DERIVATIVE FINANCIAL INSTRUMENTS
6.1 USE OF DERIVATIVE FINANCIAL INSTRUMENTS
VALIC's objectives for using interest rate swap agreements on its investment
securities are to effectively convert specific investment securities from a
floating to a fixed-rate basis, or vice versa, and to hedge against the risk of
rising prices on anticipated investment security purchases.
VALIC's objectives for using currency swap agreements are to effectively
convert cash flows from specific investment securities denominated in foreign
currencies into U.S. dollars at specified exchange rates, and to hedge against
currency rate fluctuations on anticipated investment security purchases.
Derivative financial instruments related to investment securities, which
were not used prior to 1994, did not have a material effect on net investment
income in 1995 or 1994. VALIC is neither a dealer nor a trader in derivative
financial instruments.
10
<PAGE> 96
THE VARIABLE ANNUITY LIFE INSURANCE COMPANY
Notes to Consolidated Financial Statements - Continued
December 31, 1995
6.2 CREDIT AND MARKET RISK
VALIC is exposed to credit risk in the event of nonperformance by
counterparties to swap agreements. The company limits this exposure by entering
into swap agreements with counterparties having high credit ratings, basing the
amount and term of agreements on these credit ratings, and regularly monitoring
the ratings.
VALIC's credit exposure on swaps is limited to the fair value of swap
agreements that are favorable to the company. VALIC does not expect any
counterparty to fail to meet its obligation; however, nonperformance would not
have a material impact on the consolidated financial statements.
VALIC's exposure to market risk is mitigated by the offsetting effects of
changes in the value of swap agreements and of the related investment
securities.
6.3 ACCOUNTING POLICIES
The difference between amounts paid and received on swap agreements is
recorded on an accrual basis as an adjustment to investment expense or
investment income, as appropriate, over the periods covered by the agreements.
The related amount payable to or receivable from counterparties is included in
other liabilities or assets.
The fair values of the swap agreements are recognized in the consolidated
balance sheet if they hedge investment securities carried at fair value or
anticipated investment purchases. In this event, changes in the fair value of a
swap agreement are reported in net unrealized gains (losses) on securities
included in shareholder's equity, consistent with the treatment of the related
investment security.
For swap agreements hedging anticipated investment security purchases, the
net swap settlement amount or unrealized gain or loss is deferred and included
in the measurement of the anticipated transaction when it occurs.
Any gain or loss from early termination of swap agreements is recognized in
income if the related investment security is sold. Otherwise, the gain or loss
from early termination is deferred and amortized into income over the remaining
term of the related investment security.
6.4 TERMS OF DERIVATIVE FINANCIAL INSTRUMENTS
Swap agreements generally have terms of two to ten years. Average floating
rates may change significantly, thereby affecting future cash flows.
Derivative financial instruments related to investment securities at
December 31, 1995 were as follows:
<TABLE>
<S> <C>
- -----------------------------------------------------------------------------------
Interest rate swap agreements to pay fixed rate
Notional amount $ 15,000
Average receive rate 7.10%
Average pay rate 5.93
- -----------------------------------------------------------------------------------
Currency swap agreements (receive U.S.$/pay Canadian$)
Notional amount (in U.S.$) $ 62,223
Average exchange rate 1.62
- -----------------------------------------------------------------------------------
</TABLE>
7. FAIR VALUE OF FINANCIAL INSTRUMENTS
Carrying amounts and fair values for certain of VALIC's financial
instruments at December 31 are presented below. Care should be exercised in
drawing conclusions based on fair value, since (1) the fair values presented do
not include the value associated with all VALIC's assets and liabilities, and
(2) the reporting of investments at fair value without a corresponding
revaluation of related policyholder liabilities can be misinterpreted.
<TABLE>
<CAPTION>
1995 1994
---------------------------- -------------------------------
Fair Carrying Fair Carrying
Value Amount Value Amount
- ----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Assets
Fixed maturity and equity securities $ 19,817,496* $ 19,817,496* $ 16,157,060* $ 16,157,060*
Mortgage loans on real estate 1,473,598 1,443,817 1,533,403 1,535,201
Policy Loans 567,199 557,637 474,830 474,830
Liabilities
Insurance investment contracts 19,883,419 20,146,697 16,273,449 18,656,189
- ----------------------------------------------------------------------------------------------------------------------
</TABLE>
* Includes derivative financial instruments with negative fair value of $1,121
in 1995 and positive fair value of $952 in 1994.
11
<PAGE> 97
THE VARIABLE ANNUITY LIFE INSURANCE COMPANY
Notes to Consolidated Financial Statements - Continued
December 31, 1995
7. FAIR VALUE OF FINANCIAL INSTRUMENTS - (CONTINUED)
The following methods and assumptions were used to estimate the fair
values of financial instruments.
FIXED MATURITY AND EQUITY SECURITIES. Fair values of fixed maturity and
equity securities were based on quoted market prices, where available. For
investments not actively traded, fair values were estimated using values
obtained from independent pricing services or, in the case of some private
placements, by discounting expected future cash flows using a current market
rate applicable to yield, credit quality, and average life of the investments.
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.
POLICY LOANS. Fair value of policy loans was estimated using discounted cash
flows and actuarially-determined assumptions, incorporating market rates.
INSURANCE INVESTMENT CONTRACTS. Fair value of insurance investment
contracts, which do not subject VALIC to significant risks arising from
policyholder mortality or morbidity, was estimated using cash flows discounted
at market interest rates. Care should be exercised in drawing conclusions from
the estimated fair value, since the estimates are based on assumptions
regarding future economic activity.
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, 1995 were as follows:
Operating expenses include $21,173 in 1995, $23,138 in 1994, and $23,055 in
1993 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 $1,662 in 1995, $525 in 1994, and $430 in 1993.
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. Principal payments of $592 were received on
November 4, 1995, and 1994. AGC called an amount totaling $410 on November 4,
1993. VALIC recognized $1,452 in interest income during 1995, $1,532 for 1994,
and $1,591 for 1993.
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 29, 1995, December 31,
1994, and December 29, 1993. VALIC recognized $1,729, $1,810, and $1,875 of
interest income on the note during 1995, 1994, and 1993, respectively.
On March 19, 1993, VALIC received a capital contribution of $40,000 from
American General Life Insurance Company (AGL).
On June 30, 1993, VALIC received a capital contribution from AGL 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 AGL bonds of various issuers at a
cost of $11,268.
On February 15, 1994, VALIC acquired from AGL bonds of various issuers at a
cost of $9,900.
On September 30, 1995, VALIC received a capital contribution from AGL of
electronic data processing equipment with a book value of $1,575 and a related
tax liability of $214.
VALIC paid common stock dividends of $95,000, $26.57 per share, and $53,000,
$14.83 per share, to AGL in 1995 and 1994, respectively.
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.
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 companies. State guaranty fund
expense included in operating costs and expenses was $18,961, $6,300, and
$7,000, for the years ended December 31, 1995, 1994, and 1993, respectively.
The accrued liability for anticipated assessments was $20,249, $10,214, and
$13,727, at December 31, 1995, 1994, and 1993, respectively. The 1995 liability
was estimated by VALIC using the latest information available from the National
Organization of Life and Health Insurance Guaranty Associations. Although the
amount accrued represents VALIC's best estimate of its liability, this estimate
may change in the future. Additionally, changes in state laws could decrease
the amount recoverable against future premium taxes.
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.
12
<PAGE> 98
THE VARIABLE ANNUITY LIFE INSURANCE COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
December 31, 1995
10. EMPLOYEE BENEFIT PLANS - (CONTINUED)
The components of pension expense for the defined benefit plan were as
follows:
<TABLE>
<CAPTION>
1995 1994 1993
- -------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Service cost (benefits earned)
during period $ 601 $ 759 $ 567
Interest cost on projected
benefit obligation 635 551 407
Actual (return) loss on
plan assets (1,249) 414 (667)
Amortization of unrecognized
net asset existing at date of
initial application (72) (58) (58)
Amortization of unrecognized
prior service cost 44 35 35
Deferral of net asset gain (loss) 749 (920) 224
- -------------------------------------------------------------------------------------------------------------
Total pension expense $ 708 $ 781 $ 508
- -------------------------------------------------------------------------------------------------------------
</TABLE>
Assumptions used for 1995, 1994, and 1993:
<TABLE>
<S> <C> <C> <C>
Weighted-average discount rate
on benefit obligation 7.25% 8.50% 7.25%
Rate of increase in
compensation levels 4.00% 4.00% 4.00%
Expected long-term rate of
return on plan assets 10.00% 10.00% 10.00%
</TABLE>
The following table sets forth the funded status and amounts recognized in
the Consolidated Balance Sheet at December 31 for VALIC's defined benefit
pension plan:
<TABLE>
<CAPTION>
1995 1994
- ------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Actuarial present value of benefit obligation:
Vested $ 6,983 $ 4,862
Nonvested 1,127 285
- ------------------------------------------------------------------------------------------------------------
Accumulated benefit obligation 8,110 5,147
Effect of increase in compensation levels 2,219 1,607
- ------------------------------------------------------------------------------------------------------------
Projected benefit obligation 10,329 6,754
Plan assets at fair value 6,406 5,211
- ------------------------------------------------------------------------------------------------------------
Plan assets in excess of projected
benefit obligation (3,923) (1,543)
Unrecognized net gain 2,037 306
Unrecognized prior service cost 105 148
Unrecognized net obligation at
January 1, net of amortization (23) (93)
- ------------------------------------------------------------------------------------------------------------
Net pension liability $ (1,804) $ (1,182)
- ------------------------------------------------------------------------------------------------------------
</TABLE>
Equity and fixed maturity securities were 63% and 35%, respectively, of the
plans' assets at the plans' most recent balance sheet dates. The remaining plan
assets consisted primarily of cash equivalents and investment-related
receivables.
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. 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:
<TABLE>
<CAPTION>
1995 1994
- ------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Actuarial present value of benefit obligations
Retirees $ 115 $ 142
Fully eligible active plan participants 26 272
Other active plan participants 1,509 865
- ------------------------------------------------------------------------------------------------------------
Accumulated postretirement
benefit obligation (APBO) 1,650 1,279
Unrecognized net gain (loss) (393) (114)
- ------------------------------------------------------------------------------------------------------------
Accrued benefit cost $ 1,257 $ 1,165
- ------------------------------------------------------------------------------------------------------------
Discount rate on postretirement
benefit obligations 7.25% 8.50%
- ------------------------------------------------------------------------------------------------------------
</TABLE>
Postretirement benefit expense was as follows:
<TABLE>
<S> <C> <C>
- ------------------------------------------------------------------------------------------------------------
Service cost (benefits earned) $ 110 $ 131
Interest cost on accumulated
postretirement benefit obligation 118 150
- ------------------------------------------------------------------------------------------------------------
Postretirement benefit expense $ 228 $ 281
- ------------------------------------------------------------------------------------------------------------
</TABLE>
For measurement purposes, a 11.5% annual rate of increase in the per capita
cost of covered health care benefits was assumed in 1996; 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 $108 increase in the accumulated postretirement benefit obligation
and a $15 increase in postretirement benefit expense.
13
<PAGE> 99
================================================================================
CHAIRMAN'S LETTER SEPARATE ACCOUNT A
- --------------------------------------------------------------------------------
TO OUR PARTICIPANTS:
We are pleased to present the December 31, 1995 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 economic climate in 1995 was positive for investors. Economic growth was
steady and inflation was well controlled. Gross Domestic Product increased
modestly in each of the three quarters that were reported and the same should
hold true for the fourth quarter. The full year GDP gain is estimated at 2.1%.
Monthly Consumer Price Index changes varied between 0.4% and zero. For the year
the CPI change is 2.5%.
In that environment the Federal Reserve Board was accommodative. From the 6%
level in February, Federal Funds were reduced by one quarter point in July and
a like amount in December. That was followed by another quarter point cut in
January. Those actions resulted in an interest rate decline of nearly 2% on the
U.S. Treasury long bond.
VALIC's domestic indexed funds provided returns ranging from 26% to 36%.
Managed domestic equity funds returned 23% to 60%. International funds earned
between 9% and 21%. Market and economic conditions were not as favorable
outside the U.S. as they were domestically.
The three bond funds gained 16% to 20%, benefitting from the decline in
interest rates.
In the Lipper Analytical rankings, all but three of VALIC's funds were in the
top half of the funds with similar objectives. Of the thirteen funds in the top
half, seven were in the top quartile.
In the Morningstar rankings, ten of VALIC's funds were in the top half and of
those six were in the top quartile. If you have any questions about your
contract or this report, we would be happy to hear from you.
Respectfully,
/s/ STEPHEN D. BICKEL
Stephen D. Bickel, Chairman and CEO
The Variable Annuity Life Insurance Company
January 26, 1996
This report is not authorized for distribution as advertising or sales
literature. 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.
1
<PAGE> 100
================================================================================
CHAIRMAN'S LETTER - CONTINUED SEPARATE ACCOUNT A
- --------------------------------------------------------------------------------
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 1995 1994
---------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
INDEXED FUNDS
Stock Index Fund . . . . . . . . . . . 10C 10C 10D 10A, 10B 35.95% (0.30)%
MidCap Index Fund . . . . . . . . . . . 4 4 4 N/A 29.24 (4.70)
Small Cap Index Fund . . . . . . . . . . 14 14 N/A N/A 26.39 (4.30)
International Equities Fund . . . . . . 11 11 N/A N/A 9.67 6.90
MANAGED FUNDS
Growth Fund . . . . . . . . . . . . . . 15 N/A N/A N/A 46.40 0.18 (1)
Growth & Income Fund . . . . . . . . . . 16 N/A N/A N/A 30.55 (0.68) (1)
Science & Technology Fund . . . . . . . 17 N/A N/A N/A 60.07 24.77 (1)
Social Awareness Fund . . . . . . . . . 12 12 N/A N/A 37.57 (2.42)
Timed Opportunity Fund . . . . . . . . . 5 5 5 N/A 23.55 (2.29)
Capital Conservation Fund . . . . . . . 7 7 1 N/A 19.58 (7.04)
Government Securities Fund . . . . . . . 8 8 N/A N/A 16.31 (5.44)
International Government Bond Fund . . . 13 13 N/A N/A 17.63 3.42
Money Market Fund . . . . . . . . . . . 6 6 2 N/A 4.51 2.77
Dreyfus Small Cap Fund . . . . . . . . . 18 N/A N/A N/A 27.78 6.33
Templeton Asset Allocation Fund . . . . 19 N/A N/A N/A 21.02 (4.24)
Templeton International Fund . . . . . . 20 N/A N/A N/A 14.34 (3.49)
</TABLE>
(1) Since April 29, 1994, inception of the Fund.
VARIABLE ACCOUNT PERFORMANCE
FOR THE YEAR ENDED DECEMBER 31, 1995
<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 . . . . . . . . . . . . . . . 35.95% 6/48 88% 35.31 18/267 93% 31.77
MidCap Index Fund . . . . . . . . . . . . . . . 29.24 17/31 45 32.67 272/409 33 31.10
Small Cap Index Fund . . . . . . . . . . . . . 26.39 34/55 38 28.20 123/155 21 30.74
International Equities Fund . . . . . . . . . . 9.67 64/133 52 9.60 126/248 49 10.38
Growth Fund . . . . . . . . . . . . . . . . . . 46.40 3/226 99 30.51 4/409 99 31.10
Growth & Income Fund . . . . . . . . . . . . . 30.55 68/139 51 31.16 177/267 34 31.77
Science & Technology Fund . . . . . . . . . . . 60.07 1/17 100 31.04 1/63 100 20.68
Social Awareness Fund . . . . . . . . . . . . . 37.57 3/17 82 31.04 5/267 98 31.77
Timed Opportunity Fund . . . . . . . . . . . . 23.55 65/184 65 21.58 116/322 64 22.17
Capital Conservation Fund . . . . . . . . . . . 19.58 7/82 91 17.37 33/239 86 16.44
Government Securities Fund . . . . . . . . . . 16.31 27/60 55 15.47 43/113 62 15.83
International Government Bond Fund . . . . . . 17.63 7/46 85 12.87 17/62 73 14.15
Money Market Fund . . . . . . . . . . . . . . . 4.51 65/227 71 4.35 63/219 71 4.34
Dreyfus Small Cap Fund . . . . . . . . . . . . 27.78 29/55 47 28.20 111/155 28 30.74
Templeton Asset Allocation Fund . . . . . . . . 21.02 7/14 50 18.62 193/322 40 22.17
Templeton International Fund . . . . . . . . . 14.34 13/133 90 9.60 48/248 81 10.38
</TABLE>
SOURCES: Morningstar Variable Annuity/Life Performance Report, January 1996
Lipper Variable Insurance Products Performance Analysis Service,
December 1995
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 12/31/95. 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> 101
================================================================================
FINANCIAL STATEMENTS SEPARATE ACCOUNT A
- --------------------------------------------------------------------------------
STATEMENT OF NET ASSETS
December 31, 1995
<TABLE>
<CAPTION>
ASSETS: ALL DIVISIONS
---------------
<S> <C>
Total investment in shares of mutual funds, at market (cost $3,569,502,230) . . . . . $ 4,265,526,052
Balance due from VALIC general account . . . . . . . . . . . . . . . . . . . . . . . 5,104,219
---------------
NET ASSETS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 4,270,630,271
===============
CONTRACT OWNER RESERVES:
Reserves for redeemable annuity contracts
(Net of applicable contract loans - partial withdrawals with right of
reinvestment) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 4,258,190,663
Reserves for annuity contracts on benefit . . . . . . . . . . . . . . . . . . . . . . 12,439,608
---------------
TOTAL CONTRACT OWNER RESERVES . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 4,270,630,271
===============
STATEMENT OF OPERATIONS
For the year ended December 31, 1995
INVESTMENT INCOME: ALL DIVISIONS
---------------
Dividends from mutual funds . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 68,067,158
---------------
EXPENSES:
Mortality risk charge . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 26,346,212
Expense risk charge . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7,529,006
---------------
Total expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 33,875,218
---------------
NET INVESTMENT INCOME . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 34,191,940
===============
REALIZED AND UNREALIZED GAIN ON INVESTMENTS:
Net realized gain on investments . . . . . . . . . . . . . . . . . . . . . . . . . . 54,777,042
Capital gains distributions from mutual funds . . . . . . . . . . . . . . . . . . . . 110,007,833
Net unrealized appreciation of investments during the year . . . . . . . . . . . . . 640,017,922
---------------
Net realized and unrealized gain on investments . . . . . . . . . . . . . . . . . 804,802,797
---------------
INCREASE IN NET ASSETS RESULTING FROM OPERATIONS. . . . . . . . . . . . . . . . . . . $ 838,994,737
===============
STATEMENTS OF CHANGES IN NET ASSETS ALL DIVISIONS
For the year ended December 31: ------------------------------
1995 1994
OPERATIONS: ------------------------------
Net investment income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 34,191,940 $ 32,581,603
Net realized gain on investments . . . . . . . . . . . . . . . . . . . . . . . . . . 54,777,042 14,131,361
Capital gains distributions from mutual funds . . . . . . . . . . . . . . . . . . . . 110,007,833 25,307,836
Net unrealized appreciation (depreciation) of investments during the year . . . . . . 640,017,922 (95,069,796)
--------------- -------------
Increase (decrease) in net assets resulting from operations . . . . . . . . . . . 838,994,737 (23,048,996)
--------------- -------------
PRINCIPAL TRANSACTIONS:
Purchase payments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 820,355,349 581,037,348
Surrenders of accumulation units by terminations, withdrawals, and
maintenance fees. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (114,759,722) (96,084,797)
Annuity benefit payments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (1,588,610) (1,371,515)
Amounts transferred from VALIC general account . . . . . . . . . . . . . . . . . . . 220,818,448 155,830,645
--------------- -------------
Increase in net assets resulting from principal transactions . . . . . . . . . . 924,825,465 639,411,681
--------------- -------------
TOTAL INCREASE IN NET ASSETS . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,763,820,202 616,362,685
NET ASSETS:
Beginning of year . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2,506,810,069 1,890,447,384
--------------- --------------
End of year . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 4,270,630,271 $2,506,810,069
=============== =============
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS.
3
<PAGE> 102
================================================================================
FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
STATEMENTS OF NET ASSETS
December 31, 1995
<TABLE>
<CAPTION>
STOCK INDEX FUND
--------------------------------------------------------------
DIVISION 10A DIVISION 10B DIVISION 10C DIVISION 10D
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
ASSETS:
Investment in shares of mutual funds, at market . . $341,205,299 $28,301,222 $1,066,560,864 $41,200,277
Balance due (to) from VALIC general account . . . . (36,122) (7,529) 822,847 4,929
------------ ----------- -------------- -----------
NET ASSETS . . . . . . . . . . . . . . . . . . . . $341,169,177 $28,293,693 $1,067,383,711 $41,205,206
============ =========== ============== ===========
CONTRACT OWNER RESERVES:
Reserves for redeemable annuity contracts (Net of
applicable contract loans - partial withdrawals
with right of reinvestment) . . . . . . . . . . . $331,057,207 $26,875,071 $1,067,072,765 $41,076,367
Reserves for annuity contracts on benefit . . . . . 10,111,970 1,418,622 310,946 128,839
------------ ----------- -------------- -----------
TOTAL CONTRACT OWNER RESERVES . . . . . . . . . . $341,169,177 $28,293,693 $1,067,383,711 $41,205,206
============ =========== ============== ===========
</TABLE>
STATEMENTS OF NET ASSETS
December 31, 1995
<TABLE>
<CAPTION>
SOCIAL TIMED
AWARENESS OPPORTUNITY CAPITAL CONSERVATION FUND
FUND FUND --------------------------
ASSETS: DIVISION 12 DIVISION 5 DIVISION 1 DIVISION 7
----------- ----------- ---------- ----------
<S> <C> <C> <C> <C>
Investment in shares of mutual funds, at market . . $59,966,151 $182,869,410 $7,770,858 $53,368,978
Balance due (to) from VALIC general account . . . . 133,659 84,295 12,591 219,088
----------- ------------ ---------- -----------
NET ASSETS . . . . . . . . . . . . . . . . . . . . $60,099,810 $182,953,705 $7,783,449 $53,588,066
=========== ============ ========== ===========
CONTRACT OWNER RESERVES:
Reserves for redeemable annuity contracts (Net of
applicable contract loans - partial withdrawals
with right of reinvestment) . . . . . . . . . . . $60,099,810 $182,879,468 $7,778,840 $53,588,066
Reserves for annuity contracts on benefit . . . . -- 74,237 4,609 --
----------- ------------ ---------- -----------
TOTAL CONTRACT OWNER RESERVES . . . . . . . . . . $60,099,810 $182,953,705 $7,783,449 $53,588,066
=========== ============ ========== ===========
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS.
4
<PAGE> 103
================================================================================
SEPARATE ACCOUNT A
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
MIDCAP SMALL CAP INTERNATIONAL GROWTH & SCIENCE &
INDEX INDEX EQUITIES GROWTH INCOME TECHNOLOGY
FUND FUND FUND FUND FUND FUND
DIVISION 4 DIVISION 14 DIVISION 11 DIVISION 15 DIVISION 16 DIVISION 17
------------ ------------ ------------ ------------ ----------- ------------
<S> <C> <C> <C> <C> <C>
$480,090,535 $152,407,245 $199,139,104 $240,566,401 $66,881,957 $374,148,985
316,741 (416,173) 548,336 577,364 253,619 1,064,371
------------ ------------ ------------ ------------ ----------- ------------
$480,407,276 $151,991,072 $199,687,440 $241,143,765 $67,135,576 $375,213,356
============ ============ ============ ============ =========== ============
$480,328,146 $151,918,885 $199,562,349 $241,143,765 $67,135,576 $375,193,754
79,130 72,187 125,091 -- -- 19,602
------------ ------------ ------------ ------------ ----------- ------------
$480,407,276 $151,991,072 $199,687,440 $241,143,765 $67,135,576 $375,213,356
============ ============ ============ ============ =========== ============
</TABLE>
<TABLE>
<CAPTION>
TEMPLETON
GOVERNMENT INTERNATIONAL DREYFUS ASSET TEMPLETON
SECURITIES GOVERNMENT MONEY MARKET FUND SMALL CAP ALLOCATION INTERNATIONAL
FUND BOND FUND ---------------------------- FUND FUND FUND
DIVISION 8 DIVISION 13 DIVISION 2 DIVISION 6 DIVISION 18 DIVISION 19 DIVISION 20
----------- ------------ ---------- ----------- ------------ ----------- -------------
<S> <C> <C> <C> <C> <C> <C>
$71,615,518 $112,179,184 $6,379,563 $80,556,398 $356,075,243 $94,348,477 $249,894,383
88,257 132,996 11,459 (299,003) 828,651 276,875 486,968
----------- ------------ ---------- ----------- ------------ ----------- ------------
$71,703,775 $112,312,180 $6,391,022 $80,257,395 $356,903,894 $94,625,352 $250,381,351
=========== ============ ========== =========== ============ =========== ============
$71,703,775 $112,312,180 $6,391,022 $80,239,114 $356,865,344 $94,600,086 $250,369,073
-- -- -- 18,281 38,550 25,266 12,278
----------- ------------ ---------- ----------- ------------ ----------- ------------
$71,703,775 $112,312,180 $6,391,022 $80,257,395 $356,903,894 $94,625,352 $250,381,351
=========== ============ ========== =========== ============ =========== ============
</TABLE>
5
<PAGE> 104
================================================================================
FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
STATEMENTS OF OPERATIONS
For the year ended December 31, 1995
<TABLE>
<CAPTION>
STOCK INDEX FUND
---------------------------------------------------------------
INVESTMENT INCOME: DIVISION 10A DIVISION 10B DIVISION 10C DIVISION 10D
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
Dividends from mutual funds . . . . . . . . . . . $ 6,876,645 $ 578,463 $ 19,463,430 $ 868,192
----------- ---------- ------------ -----------
EXPENSES:
Mortality risk charge . . . . . . . . . . . . . . 2,492,730 74,835 7,012,079 367,749
Expense risk charge . . . . . . . . . . . . . . . 623,182 10,205 1,753,020 27,680
----------- ---------- ------------ -----------
Total expenses . . . . . . . . . . . . . . . . 3,115,912 85,040 8,765,099 395,429
----------- ---------- ------------ -----------
NET INVESTMENT INCOME . . . . . . . . . . . . . . 3,760,733 493,423 10,698,331 472,763
----------- ---------- ------------ -----------
REALIZED AND UNREALIZED GAIN
(LOSS) ON INVESTMENTS:
Net realized gain on investments . . . . . . . . 5,349,737 631,222 10,775,457 1,335,894
Capital gains distributions from mutual funds . . 6,875,040 570,166 21,483,819 831,333
Net unrealized appreciation (depreciation)
of investments during the period . . . . . . . 78,996,842 6,528,773 221,238,425 9,456,579
----------- ---------- ------------ -----------
Net realized and unrealized gain on investments . 91,221,619 7,730,161 253,497,701 11,623,806
----------- ---------- ------------ -----------
INCREASE IN NET ASSETS
RESULTING FROM OPERATIONS . . . . . . . . . . $94,982,352 $8,223,584 $264,196,032 $12,096,569
=========== ========== ============ ===========
</TABLE>
STATEMENTS OF OPERATIONS
For the year ended December 31, 1995
<TABLE>
<CAPTION>
SOCIAL TIMED
AWARENESS OPPORTUNITY CAPITAL CONSERVATION FUND
FUND FUND --------------------------
INVESTMENT INCOME: DIVISION 12 DIVISION 5 DIVISION 1 DIVISION 7
----------- ----------- ---------- ----------
<S> <C> <C> <C> <C>
Dividends from mutual funds . . . . . . . . . . . . $ 1,076,551 $ 7,221,681 $ 528,894 $3,067,082
----------- ----------- ---------- ----------
EXPENSES:
Mortality risk charge . . . . . . . . . . . . . . . 381,303 1,438,653 74,198 367,628
Expense risk charge . . . . . . . . . . . . . . . . 95,326 330,908 5,585 91,907
----------- ----------- ---------- ----------
Total expenses . . . . . . . . . . . . . . . . . 476,629 1,769,561 79,783 459,535
----------- ----------- ---------- ----------
NET INVESTMENT INCOME . . . . . . . . . . . . . . . 599,922 5,452,120 449,111 2,607,547
----------- ----------- ---------- ----------
REALIZED AND UNREALIZED GAIN
(LOSS) ON INVESTMENTS:
Net realized gain (loss) on investments . . . . . . 371,169 2,006,917 65,122 (138,616)
Capital gains distributions from mutual funds . . . 3,609,468 3,186,462 - -
Net unrealized appreciation of investments . . . .
during the period . . . . . . . . . . . . . . . . . 10,227,915 26,710,438 906,759 5,643,853
----------- ----------- ---------- ----------
Net realized and unrealized gain on investments . . 14,208,552 31,903,817 971,881 5,505,237
----------- ----------- ---------- ----------
INCREASE IN NET ASSETS
RESULTING FROM OPERATIONS . . . . . . . . . . . . . $14,808,474 $37,355,937 $1,420,992 $8,112,784
=========== =========== ========== ==========
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS.
6
<PAGE> 105
================================================================================
SEPARATE ACCOUNT A
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
MIDCAP SMALL CAP INTERNATIONAL GROWTH & SCIENCE &
INDEX INDEX EQUITIES GROWTH INCOME TECHNOLOGY
FUND FUND FUND FUND FUND FUND
DIVISION 4 DIVISION 14 DIVISION 11 DIVISION 15 DIVISION 16 DIVISION 17
------------ ----------- ------------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C>
$ 6,653,173 $ 1,907,029 $ 3,271,083 $ 309,137 $ 301,811 $ 608,070
------------ ----------- ----------- ----------- ---------- -----------
3,436,876 1,074,988 1,572,989 942,972 301,789 1,632,154
824,595 268,747 393,247 235,743 75,447 408,038
------------ ----------- ----------- ----------- ---------- -----------
4,261,471 1,343,735 1,966,236 1,178,715 377,236 2,040,192
------------ ----------- ----------- ----------- ---------- -----------
2,391,702 563,294 1,304,847 (869,578) (75,425) (1,432,122)
------------ ----------- ----------- ----------- ---------- -----------
10,603,188 2,963,270 13,215,875 8,587 19,953 6,545,968
17,377,938 2,945,819 4,363,325 3,650,399 472,785 37,380,606
76,322,743 24,766,420 (725,229) 39,103,633 8,794,032 41,310,631
------------ ----------- ----------- ----------- ---------- -----------
104,303,869 30,675,509 16,853,971 42,762,619 9,286,770 85,237,205
------------ ----------- ----------- ----------- ---------- -----------
$106,695,571 $31,238,803 $18,158,818 $41,893,041 $9,211,345 $83,805,083
============ =========== =========== =========== ========== ===========
</TABLE>
<TABLE>
<CAPTION>
TEMPLETON
GOVERNMENT INTERNATIONAL DREYFUS ASSET TEMPLETON
SECURITIES GOVERNMENT MONEY MARKET FUND SMALL CAP ALLOCATION INTERNATIONAL
FUND BOND FUND --------------------------- FUND FUND FUND
DIVISION 8 DIVISION 13 DIVISION 2 DIVISION 6 DIVISION 18 DIVISION 19 DIVISION 20
---------- ----------- ---------- ---------- ----------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C>
$3,526,257 $4,148,671 $376,138 $4,020,847 $ 1,283,472 $ 1,162,767 $ 817,765
---------- ---------- -------- ---------- ----------- ----------- -----------
435,010 551,505 64,741 594,817 1,743,882 513,382 1,271,932
108,752 137,876 4,873 148,704 980,933 288,777 715,461
---------- ---------- -------- ---------- ----------- ----------- -----------
543,762 689,381 69,614 743,521 2,724,815 802,159 1,987,393
---------- ---------- -------- ---------- ----------- ----------- -----------
2,982,495 3,459,290 306,524 3,277,326 (1,441,343) 360,608 (1,169,628)
---------- ---------- -------- ---------- ----------- ----------- -----------
(28,711) 911,852 - - 26,776 87,754 25,628
- 114,019 - - 6,796,184 - 350,470
5,103,399 3,111,995 - - 47,179,100 11,935,576 23,406,038
---------- ---------- -------- ---------- ----------- ----------- -----------
5,074,688 4,137,866 - - 54,002,060 12,023,330 23,782,136
---------- ---------- -------- ---------- ----------- ----------- -----------
$8,057,183 $7,597,156 $306,524 $3,277,326 $52,560,717 $12,383,938 $22,612,508
========== ========== ======== ========== =========== =========== ===========
</TABLE>
7
<PAGE> 106
================================================================================
FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
STATEMENTS OF CHANGES IN NET ASSETS
For the year ended December 31:
<TABLE>
<CAPTION>
STOCK INDEX FUND
--------------------------------------------------------------
DIVISION 10A DIVISION 10B
----------------------------- -----------------------------
OPERATIONS: 1995 1994 1995 1994
----------------------------- -----------------------------
<S> <C> <C> <C> <C>
Net investment income . . . . . . . . . . . . . . . . . . . $ 3,760,733 $ 4,490,176 $ 493,423 $ 541,395
Net realized gain (loss) on investments . . . . . . . . . . 5,349,737 (266,345) 631,222 (16,715)
Capital gains distributions from mutual funds . . . . . . . 6,875,040 638,819 570,166 54,939
Net unrealized appreciation (depreciation)
of investments during the year . . . . . . . . . . . . . 78,996,842 (5,896,939) 6,528,773 (495,564)
----------------------------- -----------------------------
Increase (decrease) in net assets resulting from
operations . . . . . . . . . . . . . . . . . . . . . 94,982,352 (1,034,289) 8,223,584 84,055
----------------------------- -----------------------------
PRINCIPAL TRANSACTIONS:
Purchase payments . . . . . . . . . . . . . . . . . . . . . 5,033,111 5,464,415 574,384 720,902
Surrenders of accumulation units by terminations,
withdrawals, and maintenance fees . . . . . . . . . . . (16,541,542) (20,019,026) (1,698,590) (1,706,119)
Annuity benefit payments . . . . . . . . . . . . . . . . . (1,296,973) (1,114,443) (218,489) (205,698)
Amounts transferred (to) from VALIC general account . . . . (23,599,151) (6,986,742) (2,885,564) (256,628)
----------------------------- -----------------------------
Increase (decrease) in net assets
resulting from principal transactions . . . . . . . (36,404,555) (22,655,796) (4,228,259) (1,447,543)
----------------------------- -----------------------------
TOTAL INCREASE (DECREASE) IN NET ASSETS . . . . . . . . . . 58,577,797 (23,690,085) 3,995,325 (1,363,488)
NET ASSETS:
Beginning of year . . . . . . . . . . . . . . . . . . . . . 282,591,380 306,281,465 24,298,368 25,661,856
----------------------------- -----------------------------
End of year . . . . . . . . . . . . . . . . . . . . . . . . $341,169,177 $ 282,591,380 $ 28,293,693 $ 24,298,368
============================= =============================
CHANGE IN UNITS OUTSTANDING:
Accumulation units beginning of year . . . . . . . . . . . 33,814,520 36,512,399 1,836,094 1,937,835
Purchase payments . . . . . . . . . . . . . . . . . . . . . 497,922 678,364 39,513 57,856
Surrenders . . . . . . . . . . . . . . . . . . . . . . . . (1,718,657) (2,487,947) (110,735) (138,745)
Transfers -- interdivision and (to) from VALIC general
account . . . . . . . . . . . . . . . . . . . . . . . (2,598,422) (888,296) (204,347) (20,852)
----------------------------- -----------------------------
Accumulation units end of year . . . . . . . . . . . . . . 29,995,363 33,814,520 1,560,525 1,836,094
============================= =============================
<CAPTION>
DECEMBER 31: DECEMBER 31:
----------------------------- -----------------------------
1995 1994 1995 1994
----------------------------- -----------------------------
<S> <C> <C> <C> <C>
Accumulation unit value . . . . . . . . . . . . . . . . . . $ 11.036946 $ 8.116786 $ 17.221812 $ 12.582568
----------------------------- -----------------------------
Annuity unit value assuming a 3.5% discount factor . . . . $ 3.298369 $ 2.510493 $ 4.376632 $ 3.309445
============================= =============================
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS.
8
<PAGE> 107
================================================================================
SEPARATE ACCOUNT A
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION> SMALL CAP
STOCK INDEX FUND MIDCAP INDEX FUND INDEX FUND
- ------------------------------------------------------------- ----------------------------- ----------------------------
DIVISION 10C DIVISION 10D DIVISION 4 DIVISION 14
- ----------------------------- ---------------------------- ---------------------------- ----------------------------
1995 1994 1995 1994 1995 1994 1995 1994
- ----------------------------- ---------------------------- ---------------------------- ----------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
$ 10,698,331 $ 10,610,432 $ 472,763 $ 605,767 $ 2,391,702 $ 2,515,091 $ 563,294 $ 341,917
10,775,457 4,405,234 1,335,894 49,938 10,603,188 2,119,902 2,963,270 1,086,972
21,483,819 1,624,189 831,333 84,388 17,377,938 11,552,151 2,945,819 --
221,238,425 (17,763,623) 9,456,579 (896,531) 76,322,743 (32,449,763) 24,766,420 (5,860,073)
- ----------------------------- ---------------------------- ---------------------------- ----------------------------
264,196,032 (1,123,768) 12,096,569 (156,438) 106,695,571 (16,262,619) 31,238,803 (4,431,184)
- ----------------------------- ---------------------------- ---------------------------- ----------------------------
155,833,642 173,237,158 1,280,197 1,678,616 87,946,264 124,009,106 40,608,391 60,678,232
(30,060,583) (26,626,162) (2,417,823) (2,632,793) (15,264,152) (14,276,915) (4,632,557) (3,630,894)
(29,665) (23,752) (5,520) (3,736) (16,844) (14,576) (3,022) --
(42,300,802) (65,001,259) (7,115,532) (4,630,624) (69,269,652) (27,422,005) (38,506,364) (1,057,342)
- ----------------------------- ---------------------------- ---------------------------- ----------------------------
83,442,592 81,585,985 (8,258,678) (5,588,537) 3,395,616 82,295,610 (2,533,552) 55,989,996
- ----------------------------- ---------------------------- ---------------------------- ----------------------------
347,638,624 80,462,217 3,837,891 (5,744,975) 110,091,187 66,032,991 28,705,251 51,558,812
719,745,087 639,282,870 37,367,315 43,112,290 370,316,089 304,283,098 123,285,821 71,727,009
- ----------------------------- ---------------------------- ---------------------------- ----------------------------
$1,067,383,711 $ 719,745,087 $ 41,205,206 $ 37,367,315 $ 480,407,276 $ 370,316,089 $ 151,991,072 $ 123,285,821
============================= ============================ ============================ ============================
416,234,288 369,550,060 12,207,684 14,043,516 171,442,018 134,621,879 100,383,839 56,159,647
76,950,994 99,449,095 341,405 551,269 35,874,094 55,929,821 30,141,511 48,518,804
(14,254,441) (14,897,712) (663,263) (863,807) (5,995,776) (6,365,496) (3,356,851) (2,868,199)
(23,675,598) (37,867,155) (1,999,953) (1,523,294) (28,706,646) (12,744,186) (28,832,504) (1,426,413)
- ----------------------------- ---------------------------- ---------------------------- ----------------------------
455,255,243 416,234,288 9,885,873 12,207,684 172,613,690 171,442,018 98,335,995 100,383,839
============================= ============================ ============================ ============================
<CAPTION>
DECEMBER 31: DECEMBER 31: DECEMBER 31: DECEMBER 31:
- ----------------------------- ---------------------------- ---------------------------- ----------------------------
1995 1994 1995 1994 1995 1994 1995 1994
- ----------------------------- ---------------------------- ---------------------------- ----------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
$ 2.343900 $ 1.724134 $ 4.155057 $ 3.056808 $ 2.782677 $ 2.153183 $ 1.544896 $ 1.222329
- ----------------------------- ---------------------------- ---------------------------- ----------------------------
$ 1.776053 $ 1.352112 $ 2.582770 $ 1.966534 $ 1.799452 $ 1.441063 $ 1.361960 $ 1.115264
============================= ============================ ============================ ============================
</TABLE>
9
<PAGE> 108
================================================================================
FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
STATEMENTS OF CHANGES IN NET ASSETS
For the year ended December 31:
<TABLE>
<CAPTION>
INTERNATIONAL EQUITIES
FUND GROWTH FUND
----------------------------- -----------------------------
DIVISION 11 DIVISION 15
----------------------------- -----------------------------
OPERATIONS: 1995 1994 1995 1994*
----------------------------- -----------------------------
<S> <C> <C> <C> <C>
Net investment income . . . . . . . . . . . . . . . . . . . $ 1,304,847 $ 586,461 $ (869,578) $ (3,344)
Net realized gain on investments . . . . . . . . . . . . . 13,215,875 4,189,593 8,587 2
Capital gains distributions from mutual funds . . . . . . . 4,363,325 1,224,134 3,650,399 --
Net unrealized appreciation (depreciation)
of investments during the year . . . . . . . . . . . . . (725,229) 1,953,569 39,103,633 330,403
----------------------------- -----------------------------
Increase (decrease) in net assets resulting from
operations . . . . . . . . . . . . . . . . . . . . . 18,158,818 7,953,757 41,893,041 327,061
----------------------------- -----------------------------
PRINCIPAL TRANSACTIONS:
Purchase payments . . . . . . . . . . . . . . . . . . . . . 52,726,233 70,132,976 58,223,803 4,547,841
Surrenders of accumulation units by terminations,
withdrawals, and maintenance fees . . . . . . . . . . . (6,722,321) (6,159,144) (1,776,523) (39,858)
Annuity benefit payments . . . . . . . . . . . . . . . . . (5,870) (2,449) -- --
Amounts transferred (to) from VALIC general account . . . . (63,364,477) 11,350,355 109,893,422 28,074,978
----------------------------- -----------------------------
Increase (decrease) in net assets
resulting from principal transactions . . . . . . . (17,366,435) 75,321,738 166,340,702 32,582,961
----------------------------- -----------------------------
TOTAL INCREASE IN NET ASSETS . . . . . . . . . . . . . . . 792,383 83,275,495 208,233,743 32,910,022
NET ASSETS:
Beginning of year . . . . . . . . . . . . . . . . . . . . . 198,895,057 115,619,562 32,910,022 --
----------------------------- -----------------------------
End of year . . . . . . . . . . . . . . . . . . . . . . . . $199,687,440 $ 198,895,057 $241,143,765 $ 32,910,022
============================= =============================
CHANGE IN UNITS OUTSTANDING:
Accumulation units beginning of year . . . . . . . . . . . 187,749,916 117,215,227 32,633,370 --
Purchase payments . . . . . . . . . . . . . . . . . . . . . 49,402,081 65,406,765 45,984,606 4,373,529
Surrenders . . . . . . . . . . . . . . . . . . . . . . . . (6,214,230) (5,718,100) (1,266,891) (40,064)
Transfers -- interdivision and (to) from VALIC general
account . . . . . . . . . . . . . . . . . . . . . . . . (58,373,749) 10,846,024 87,066,763 28,299,905
----------------------------- -----------------------------
Accumulation units end of year . . . . . . . . . . . . . . 172,564,018 187,749,916 164,417,848 32,633,370
============================= =============================
<CAPTION>
DECEMBER 31: DECEMBER 31:
----------------------------- -----------------------------
1995 1994 1995 1994
----------------------------- -----------------------------
<S> <C> <C> <C> <C>
Accumulation unit value . . . . . . . . . . . . . . . . . . $ 1.156454 $ 1.054460 $ 1.466652 $ 1.001834
----------------------------- -----------------------------
Annuity unit value assuming a 3.5% discount factor . . . . $ 0.933003 $ 0.880460 $ 1.384532 $ 0.978806
============================= =============================
</TABLE>
* For the period from July 11, 1994 to December 31, 1994.
SEE NOTES TO FINANCIAL STATEMENTS.
10
<PAGE> 109
================================================================================
SEPARATE ACCOUNT A
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
GROWTH & INCOME FUND SCIENCE & TECHNOLOGY FUND SOCIAL AWARENESS FUND
- ------------------------------------ ------------------------------------ -----------------------------------
DIVISION 16 DIVISION 17 DIVISION 12
- ------------------------------------ ------------------------------------ -----------------------------------
1995 1994* 1995 1994* 1995 1994
- ------------------------------------ ------------------------------------ -----------------------------------
<S> <C> <C> <C> <C> <C>
$ (75,425) $ 4,055 $ (1,432,122) $ (54,071) $ 599,922 $ 484,291
19,953 160 6,545,968 250,313 371,169 632,326
472,785 -- 37,380,606 549,747 3,609,468 2,328,955
8,794,032 85,633 41,310,631 2,692,873 10,227,915 (4,358,741)
- ------------------------------------ ------------------------------------ -----------------------------------
9,211,345 89,848 83,805,083 3,438,862 14,808,474 (913,169)
- ------------------------------------ ------------------------------------ -----------------------------------
17,507,504 1,630,675 93,027,877 6,652,744 10,849,944 13,160,211
(641,935) (5,453) (3,055,711) (37,889) (1,516,923) (1,413,415)
-- -- (824) -- -- --
28,680,150 10,663,442 147,758,969 43,624,245 (2,864,774) (7,867,172)
- ------------------------------------ ------------------------------------ -----------------------------------
45,545,719 12,288,664 237,730,311 50,239,100 6,468,247 3,879,624
- ------------------------------------ ------------------------------------ -----------------------------------
54,757,064 12,378,512 321,535,394 53,677,962 21,276,721 2,966,455
12,378,512 -- 53,677,962 -- 38,823,089 35,856,634
- ------------------------------------ ------------------------------------ -----------------------------------
$ 67,135,576 $ 12,378,512 $ 375,213,356 $ 53,677,962 $ 60,099,810 $ 38,823,089
==================================== ==================================== ===================================
12,386,602 -- 42,726,137 -- 29,015,764 26,230,566
14,980,745 1,583,044 54,428,033 5,315,122 6,860,477 9,604,919
(455,265) (5,487) (1,584,330) (32,041) (929,671) (983,733)
24,867,007 10,809,045 92,292,392 37,443,056 (2,196,450) (5,835,988)
- ------------------------------------ ------------------------------------ -----------------------------------
51,779,089 12,386,602 187,862,232 42,726,137 32,750,120 29,015,764
==================================== ==================================== ===================================
<CAPTION>
DECEMBER 31: DECEMBER 31: DECEMBER 31:
- ------------------------------------ ------------------------------------ -----------------------------------
1995 1994 1995 1994 1995 1994
- ------------------------------------ ------------------------------------ -----------------------------------
<S> <C> <C> <C> <C> <C>
$ 1.296577 $ 0.993168 $ 1.997175 $ 1.247713 $ 1.835102 $ 1.333899
- ------------------------------------ ------------------------------------ -----------------------------------
$ 1.223980 $ 0.970339 $ 1.885352 $ 1.219034 $ 1.480522 $ 1.113787
==================================== ==================================== ===================================
</TABLE>
11
<PAGE> 110
================================================================================
FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
STATEMENTS OF CHANGES IN NET ASSETS
For the year ended December 31:
<TABLE>
<CAPTION>
TIMED OPPORTUNITY CAPITAL CONSERVATION
FUND FUND
----------------------------- -----------------------------
DIVISION 5 DIVISION 1
----------------------------- -----------------------------
OPERATIONS: 1995 1994 1995 1994
----------------------------- -----------------------------
<S> <C> <C> <C> <C>
Net investment income . . . . . . . . . . . . . . . . . . $ 5,452,120 $ 4,810,838 $ 449,111 $ 517,106
Net realized gain (loss) on investments . . . . . . . . . 2,006,917 735,641 65,122 32,250
Capital gains distributions from mutual funds . . . . . . 3,186,462 6,863,526 -- --
Net unrealized appreciation (depreciation)
of investments during the year . . . . . . . . . . . . 26,710,438 (16,833,221) 906,759 (1,254,436)
----------------------------- -----------------------------
Increase (decrease) in net assets resulting from
operations . . . . . . . . . . . . . . . . . . . . 37,355,937 (4,423,216) 1,420,992 (705,080)
----------------------------- -----------------------------
PRINCIPAL TRANSACTIONS:
Purchase payments . . . . . . . . . . . . . . . . . . . . 20,940,181 36,297,892 286,600 494,060
Surrenders of accumulation units by terminations,
withdrawals, and maintenance fees . . . . . . . . . . (7,824,702) (8,285,289) (623,792) (1,098,891)
Annuity benefit payments . . . . . . . . . . . . . . . . (6,591) (4,816) (499) (478)
Amounts transferred (to) from VALIC general account . . . (42,300,580) (36,353,014) (1,306,120) (1,152,049)
----------------------------- -----------------------------
Increase (decrease) in net assets
resulting from principal transactions . . . . . . (29,191,692) (8,345,227) (1,643,811) (1,757,358)
----------------------------- -----------------------------
TOTAL INCREASE (DECREASE) IN NET ASSETS . . . . . . . . . 8,164,245 (12,768,443) (222,819) (2,462,438)
NET ASSETS:
Beginning of year . . . . . . . . . . . . . . . . . . . . 174,789,460 187,557,903 8,006,268 10,468,706
----------------------------- -----------------------------
End of year . . . . . . . . . . . . . . . . . . . . . . . $182,953,705 $ 174,789,460 $ 7,783,449 $ 8,006,268
============================= =============================
CHANGE IN UNITS OUTSTANDING:
Accumulation units beginning of year . . . . . . . . . . 89,377,860 93,899,802 2,953,861 3,590,916
Purchase payments . . . . . . . . . . . . . . . . . . . . 9,806,864 18,196,642 96,297 145,757
Surrenders . . . . . . . . . . . . . . . . . . . . . . . (3,569,040) (4,118,862) (207,008) (362,666)
Transfers -- interdivision and (to) from VALIC general
account . . . . . . . . . . . . . . . . . . . . . . . (19,764,253) (18,599,722) (441,065) (420,146)
----------------------------- -----------------------------
Accumulation units end of year . . . . . . . . . . . . . 75,851,431 89,377,860 2,402,085 2,953,861
============================= =============================
<CAPTION>
DECEMBER 31: DECEMBER 31:
----------------------------- -----------------------------
1995 1994 1995 1994
----------------------------- -----------------------------
<S> <C> <C> <C> <C>
Accumulation unit value . . . . . . . . . . . . . . . . . $ 2.411022 $ 1.951533 $ 3.238370 $ 2.709029
----------------------------- -----------------------------
Annuity unit value assuming a 3.5% discount factor . . . $ 1.581407 $ 1.324778 $ 1.843690 $ 1.596246
============================= =============================
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS.
12
<PAGE> 111
================================================================================
SEPARATE ACCOUNT A
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
CAPITAL CONSERVATION GOVERNMENT SECURITIES INTERNATIONAL GOVERNMENT
FUND FUND BOND FUND
- ------------------------------------ ------------------------------------ -----------------------------------
DIVISION 7 DIVISION 8 DIVISION 13
- ------------------------------------ ------------------------------------ -----------------------------------
1995 1994 1995 1994 1995 1994
- ------------------------------------ ------------------------------------ -----------------------------------
<S> <C> <C> <C> <C> <C>
$ 2,607,547 $ 2,360,212 $ 2,982,495 $ 2,030,237 $ 3,459,290 $ 1,361,407
(138,616) 350,094 (28,711) 316,682 911,852 245,193
-- -- -- -- 114,019 --
5,643,853 (5,791,380) 5,103,399 (4,822,548) 3,111,995 (642,360)
- ------------------------------------ ------------------------------------ -----------------------------------
8,112,784 (3,081,074) 8,057,183 (2,475,629) 7,597,156 964,240
- ------------------------------------ ------------------------------------ -----------------------------------
10,464,260 14,414,782 15,047,915 13,894,906 31,073,737 12,960,014
(1,972,220) (2,021,727) (1,987,445) (1,878,777) (1,946,252) (981,285)
-- -- -- -- -- --
(3,821,311) (8,653,752) 9,219,172 (11,636,951) 42,026,449 (2,227,507)
- ------------------------------------ ------------------------------------ -----------------------------------
4,670,729 3,739,303 22,279,642 379,178 71,153,934 9,751,222
- ------------------------------------ ------------------------------------ -----------------------------------
12,783,513 658,229 30,336,825 (2,096,451) 78,751,090 10,715,462
40,804,553 40,146,324 41,366,950 43,463,401 33,561,090 22,845,628
- ------------------------------------ ------------------------------------ -----------------------------------
$ 53,588,066 $ 40,804,553 $ 71,703,775 $ 41,366,950 $ 112,312,180 $ 33,561,090
==================================== ==================================== ===================================
26,859,219 24,628,606 26,667,073 26,563,166 25,691,713 18,155,381
6,253,935 9,129,477 9,058,310 8,675,976 21,413,110 10,044,637
(1,058,493) (1,241,827) (1,149,951) (1,181,704) (1,286,336) (763,521)
(2,480,853) (5,657,037) 5,271,621 (7,390,365) 27,550,763 (1,744,784)
- ------------------------------------ ------------------------------------ -----------------------------------
29,573,808 26,859,219 39,847,053 26,667,073 73,369,250 25,691,713
==================================== ==================================== ===================================
<CAPTION>
DECEMBER 31: DECEMBER 31: DECEMBER 31:
- ------------------------------------ ------------------------------------ -----------------------------------
1995 1994 1995 1994 1995 1994
- ------------------------------------ ------------------------------------ -----------------------------------
<S> <C> <C> <C> <C> <C>
$ 1.812011 $ 1.515278 $ 1.799475 $ 1.547150 $ 1.530780 $ 1.301357
- ------------------------------------ ------------------------------------ -----------------------------------
$ 1.289558 $ 1.116084 $ 1.280634 $ 1.139558 $ 1.323493 $ 1.164474
==================================== ==================================== ===================================
</TABLE>
13
<PAGE> 112
================================================================================
FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
STATEMENTS OF CHANGES IN NET ASSETS
For the year ended December 31:
<TABLE>
<CAPTION>
MONEY MARKET FUND
--------------------------------------------------------------
DIVISION 2 DIVISION 6
----------------------------- -----------------------------
OPERATIONS: 1995 1994 1995 1994
----------------------------- -----------------------------
<S> <C> <C> <C> <C>
Net investment income . . . . . . . . . . . . . . . . . . $ 306,524 $ 211,175 $ 3,277,326 $ 1,241,669
Net realized gain 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 . . . . . . . . . . . . . . . . . . . . 306,524 211,175 3,277,326 1,241,669
----------------------------- -----------------------------
PRINCIPAL TRANSACTIONS:
Purchase payments . . . . . . . . . . . . . . . . . . . . 355,756 221,092 26,840,702 13,855,791
Surrenders of accumulation units by terminations,
withdrawals, and maintenance fees . . . . . . . . . . (681,366) (663,266) (7,793,169) (4,406,881)
Annuity benefit payments . . . . . . . . . . . . . . . . -- -- (1,574) (1,567)
Amounts transferred (to) from VALIC general account . . . (806,250) (978,344) (54,484,648) 66,014,809
----------------------------- -----------------------------
Increase (decrease) in net assets
resulting from principal transactions . . . . . . (1,131,860) (1,420,518) (35,438,689) 75,462,152
----------------------------- -----------------------------
TOTAL INCREASE (DECREASE) IN NET ASSETS . . . . . . . . . (825,336) (1,209,343) (32,161,363) 76,703,821
NET ASSETS:
Beginning of year . . . . . . . . . . . . . . . . . . . . 7,216,358 8,425,701 112,418,758 35,714,937
----------------------------- -----------------------------
End of year . . . . . . . . . . . . . . . . . . . . . . . $ 6,391,022 $ 7,216,358 $ 80,257,395 $ 112,418,758
============================= =============================
CHANGE IN UNITS OUTSTANDING:
Accumulation units beginning of year . . . . . . . . . . 3,442,237 4,129,981 75,765,781 24,799,810
Purchase payments . . . . . . . . . . . . . . . . . . . . 165,743 107,142 18,072,687 9,439,315
Surrenders . . . . . . . . . . . . . . . . . . . . . . . (316,475) (314,181) (5,090,822) (3,026,130)
Transfers -- interdivision and (to) from VALIC general
account . . . . . . . . . . . . . . . . . . . . . . (374,144) (480,705) (36,839,889) 44,552,786
----------------------------- -----------------------------
Accumulation units end of year . . . . . . . . . . . . . 2,917,361 3,442,237 51,907,757 75,765,781
============================= =============================
<CAPTION>
DECEMBER 31: DECEMBER 31:
----------------------------- -----------------------------
1995 1994 1995 1994
----------------------------- -----------------------------
<S> <C> <C> <C> <C>
Accumulation unit value . . . . . . . . . . . . . . . . . $ 2.190686 $ 2.096416 $ 1.545802 $ 1.479129
----------------------------- -----------------------------
Annuity unit value assuming a 3.5% discount factor . . . $ 1.392992 $ 1.379656 $ 1.088077 $ 1.077548
============================= =============================
</TABLE>
* For the period from July 11, 1994 to December 31, 1994.
SEE NOTES TO FINANCIAL STATEMENTS.
14
<PAGE> 113
================================================================================
SEPARATE ACCOUNT A
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
TEMPLETON ASSET
DREYFUS SMALL CAP FUND ALLOCATION FUND TEMPLETON INTERNATIONAL FUND
- ------------------------------------ ------------------------------------ -----------------------------------
DIVISION 18 DIVISION 19 DIVISION 20
- ------------------------------------ ------------------------------------ -----------------------------------
1995 1994* 1995 1994* 1995 1994*
- ------------------------------------ ------------------------------------ -----------------------------------
<S> <C> <C> <C> <C> <C>
$ (1,441,343) $ 166,996 $ 360,608 $ (75,725) $ (1,169,628) $ (164,482)
26,776 -- 87,754 -- 25,628 121
6,796,184 386,988 -- -- 350,470 --
47,179,100 (102,019) 11,935,576 (729,094) 23,406,038 (2,235,982)
- ------------------------------------ ------------------------------------ -----------------------------------
52,560,717 451,965 12,383,938 (804,819) 22,612,508 (2,400,343)
- ------------------------------------ ------------------------------------ -----------------------------------
96,201,687 12,217,697 26,412,918 4,656,678 69,120,243 10,111,560
(3,867,838) (111,066) (1,156,891) (47,985) (2,577,387) (41,962)
(915) -- (1,361) -- (463) --
122,606,635 76,845,012 24,133,475 29,049,399 89,125,401 64,431,794
- ------------------------------------ ------------------------------------ -----------------------------------
214,939,569 88,951,643 49,388,141 33,658,092 155,667,794 74,501,392
- ------------------------------------ ------------------------------------ -----------------------------------
267,500,286 89,403,608 61,772,079 32,853,273 178,280,302 72,101,049
89,403,608 -- 32,853,273 -- 72,101,049 --
- ------------------------------------ ------------------------------------ -----------------------------------
$ 356,903,894 $ 89,403,608 $ 94,625,352 $ 32,853,273 $ 250,381,351 $ 72,101,049
==================================== ==================================== ===================================
85,169,871 -- 32,807,602 -- 71,716,511 --
80,950,706 11,303,726 24,212,805 4,421,687 65,697,216 9,484,235
(2,954,777) (107,113) (964,768) (48,133) (2,198,909) (41,499)
104,569,419 73,973,258 22,438,866 28,434,048 83,910,108 62,273,775
- ------------------------------------ ------------------------------------ -----------------------------------
267,735,219 85,169,871 78,494,505 32,807,602 219,124,926 71,716,511
==================================== ==================================== ===================================
<CAPTION>
DECEMBER 31: DECEMBER 31: DECEMBER 31:
- ------------------------------------ ------------------------------------ -----------------------------------
1995 1994 1995 1994 1995 1994
- ------------------------------------ ------------------------------------ -----------------------------------
<S> <C> <C> <C> <C> <C>
$ 1.332904 $ 1.043156 $ 1.205181 $ 0.995860 $ 1.142586 $ 0.999282
- ------------------------------------ ------------------------------------ -----------------------------------
$ 1.267071 $ 1.026303 $ 1.145656 $ 0.979771 $ 1.086152 $ 0.983138
==================================== ==================================== ===================================
</TABLE>
15
<PAGE> 114
================================================================================
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.
INVESTMENT INCOME. Dividend income from mutual funds is 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 applicable state laws.
NOTE C -- TRANSACTIONS WITH AFFILIATES
VALIC acts as investment adviser and transfer agent to AGSPC.
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.
Accordingly, during the years ended December 31, 1995 and 1994, VALIC reduced
expenses of Division 10B by $69,586 and $67,955, respectively.
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 $2,494,903 and $1,857,628 for the years
ended December 31, 1995, and December 31, 1994, respectively.
VALIC received surrender charges of $1,299,069 and $1,233,026 for the years
ended December 31, 1995, and December 31, 1994, respectively. In addition,
VALIC received $100,290 and $18,404 for the year ended December 31, 1995, in
sales load on variable annuity purchase payments for Divisions 10A and 10B,
respectively. 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.
16
<PAGE> 115
================================================================================
NOTES TO FINANCIAL STATEMENTS - CONTINUED SEPARATE ACCOUNT A
- --------------------------------------------------------------------------------
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, 1995:
<TABLE>
<CAPTION>
MARKET UNREALIZED
UNDERLYING FUND DIVISION SHARES PRICE MARKET COST APPRECIATION
- ------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Stock Index Fund . . . . . . . . 10A,B,C,D 77,628,358 $ 19.03 $ 1,477,267,662 $ 1,105,508,457 $371,759,205
MidCap Index Fund . . . . . . . . 4 27,734,866 17.31 480,090,535 397,011,660 83,078,875
Small Cap Index Fund . . . . . . 14 10,710,277 14.23 152,407,245 129,522,422 22,884,823
International Equities Fund . . . 11 18,628,541 10.69 199,139,104 187,888,444 11,250,660
Growth Fund . . . . . . . . . . . 15 16,488,444 14.59 240,566,401 201,132,365 39,434,036
Growth & Income Fund . . . . . . 16 5,184,648 12.90 66,881,957 58,002,292 8,879,665
Science & Technology Fund . . . . 17 20,809,176 17.98 374,148,985 330,145,481 44,003,504
Social Awareness Fund . . . . . . 12 4,237,891 14.15 59,966,151 52,197,124 7,769,027
Timed Opportunity Fund . . . . . 5 15,100,694 12.11 182,869,410 160,827,715 22,041,695
Capital Conservation Fund . . . . 1 & 7 6,169,509 9.91 61,139,836 59,432,080 1,707,756
Government Securities Fund . . . 8 7,014,252 10.21 71,615,518 70,467,996 1,147,522
International Government Bond Fund 13 9,127,680 12.29 112,179,184 109,565,749 2,613,435
Money Market Fund. . . . . . . . 2 & 6 86,935,961 1.00 86,935,961 86,935,961 --
Dreyfus Small Cap Fund . . . . . 18 7,718,952 46.13 356,075,243 308,998,162 47,077,081
Templeton Asset Allocation Fund . 19 5,037,292 18.73 94,348,477 83,141,995 11,206,482
Templeton International Fund . . 20 16,516,483 15.13 249,894,383 228,724,327 21,170,056
-----------------------------------------------
$ 4,265,526,052 $ 3,569,502,230 $696,023,822
===============================================
</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 current 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 31, 1995, the aggregate cost of purchases and
proceeds from sales of investments were:
<TABLE>
<CAPTION>
PURCHASES SALES
-------------------------------------
<S> <C> <C>
Stock Index Fund:
Division 10A . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 17,829,646 $ 43,581,553
Division 10B . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,750,366 4,905,910
Division 10C . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 166,148,042 50,236,291
Division 10D . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2,318,140 9,247,780
MidCap Index Fund Division 4 . . . . . . . . . . . . . . . . . . . . . . . 62,422,985 39,646,090
Small Cap Index Fund Division 14 . . . . . . . . . . . . . . . . . . . . . 24,793,667 23,245,115
International Equities Fund Division 11 . . . . . . . . . . . . . . . . . . 57,671,192 69,714,222
Growth Fund Division 15 . . . . . . . . . . . . . . . . . . . . . . . . . . 168,790,861 57,736
Growth & Income Fund Division 16 . . . . . . . . . . . . . . . . . . . . . 45,865,792 122,058
Science & Technology Fund Division 17 . . . . . . . . . . . . . . . . . . . 290,019,742 18,313,402
Social Awareness Fund Division 12 . . . . . . . . . . . . . . . . . . . . . 14,778,261 4,227,474
Timed Opportunity Fund Division 5 . . . . . . . . . . . . . . . . . . . . . 13,643,488 34,236,462
Capital Conservation Fund:
Division 1 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 766,423 1,960,586
Division 7 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17,499,959 10,443,867
Government Securities Fund Division 8 . . . . . . . . . . . . . . . . . . . 30,092,359 4,775,625
International Government Bond Fund Division 13 . . . . . . . . . . . . . . 85,454,562 10,810,456
Money Market Fund:
Division 2 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2,717,163 3,576,785
Division 6 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 127,237,936 152,993,878
Dreyfus Small Cap Fund Division 18 . . . . . . . . . . . . . . . . . . . . 219,949,004 128,645
Templeton Asset Allocation Fund Division 19 . . . . . . . . . . . . . . . . 50,326,793 783,734
Templeton International Fund Division 20 . . . . . . . . . . . . . . . . . 155,004,679 292,803
-------------------------------------
Total . . . . . . . . . . . . . . . . . . . . . . . $ 1,555,081,060 $ 483,300,472
=====================================
</TABLE>
17
<PAGE> 116
================================================================================
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,
1995. We have also audited the related statements of operations for the year
then ended and the statements of changes in net assets for each of the two
years in the period then ended of Separate Account A and each of its divisions
except for divisions 15, 16, 17, 18, 19, and 20 for which we audited the
statements of changes in net assets for the year ended December 31, 1995 and
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, 1995,
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, 1995, 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 26, 1996
<PAGE> 117
THE VARIABLE ANNUITY LIFE INSURANCE COMPANY ---------------------
SEPARATE ACCOUNT A Bulk Rate
U.S. Postage
P.O. Box 3206 PAID
Houston, Texas 77253-3206 Permit No. 6748
Houston, Texas
---------------------
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