<PAGE> 1
THE VARIABLE ANNUITY LIFE INSURANCE
COMPANY
UNITS OF INTERESTS UNDER
GROUP UNIT PURCHASE AND
GROUP VARIABLE ANNUITY CONTRACTS
(GUP AND GTS-VA CONTRACT SERIES)
SEPARATE ACCOUNT A MAY 1, 1996
PROSPECTUS
This prospectus describes Group Unit Purchase Variable Annuity and Group
Variable Annuity Contracts (the "Contracts") and the units of interest offered
thereunder, which were formerly offered through Separate Account One and
Separate Account Two of The Variable Annuity Life Insurance Company ("the
Company"). These Contracts are used in connection with retirement plans which
receive special tax-deferred treatment under Federal income tax law. The
Contracts are designed to be used on a flexible payment deferred, single payment
deferred, or single payment immediate annuity basis.
The Contracts provide benefits related to the Company's General Account and to
Division Ten of the Company's Separate Account A, which invests in the Stock
Index Fund, a portfolio of American General Series Portfolio Company (the
"Series Company").
- --------------------------------------------------------------------------------
This prospectus provides investors the information they should know before
investing in the Contracts. Investors should read and retain this prospectus for
future reference.
Additional information, including a Statement of Additional Information dated
May 1, 1996, has been filed with the Securities and Exchange Commission and
contains further information about Separate Account A. The Statement of
Additional Information is incorporated herein by reference. A copy may be
obtained without charge by completing and returning the form at the end of this
prospectus or by calling 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.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION NOR HAS THE COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY
OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
THIS PROSPECTUS IS ACCOMPANIED BY THE CURRENT PROSPECTUS FOR THE FUNDS BEING
CONSIDERED. EACH OF THESE PROSPECTUSES SHOULD BE READ CAREFULLY AND RETAINED FOR
FUTURE REFERENCE.
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TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
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<S> <C>
Definitions........................... 4
Fee Table............................. 6
Introduction.......................... 8
The Fund......................... 8
Accumulation of Purchase
Payments....................... 8
Surrenders....................... 8
Fixed and Variable Annuity
Payments....................... 8
Transfers........................ 9
Charges.......................... 9
Deductions from Purchase
Payments.................. 9
Charges Against the Separate
Account................... 9
Charges Against the Fund.... 9
Maximum Expense Limitation.. 9
Condensed Financial Information....... 10
Performance Information............... 11
Endorsements and Published
Ratings........................ 12
Annual and Cumulative Change in
Accumulation Unit Value............. 13
The Company and The Separate
Account............................. 13
The Fund.............................. 14
Investment by the Fund........... 14
Performance Data................. 14
Types of Contracts.................... 19
Charges and Deductions................ 19
General.......................... 19
Deduction for Premium Taxes...... 19
Charges Under Specific
Contracts...................... 19
GUP Contracts............... 19
GVA SA-1 Contracts.......... 19
GVA SA-2 Contracts.......... 20
Charges to the Separate
Account........................ 20
Mortality and Expense
Risk...................... 20
Charges to the Fund......... 20
Charge for Income Taxes..... 20
Limitations on Charges........... 21
Accumulation Period................... 21
General.......................... 21
Minimum Purchase Payments........ 21
Application of Net Purchase
Payments to the Separate
Account........................ 22
Accumulation Unit Value.......... 22
Death Benefits During
Accumulation Period............ 23
Suspension of Payments........... 23
Partial Redemption or
Surrender...................... 23
Annuity Period........................ 24
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<S> <C>
Fixed or Variable Annuity
Payments....................... 24
Assumed Investment Rate.......... 24
Annuity Date..................... 25
Variable Annuity Options.............. 25
Options Available Under Specific
Contracts...................... 25
GUP Contracts............... 25
GVA SA-1 Contracts.......... 25
GVA SA-2 Contracts.......... 25
Description of Options
Available...................... 25
First Option -- Life
Annuity................... 25
Second Option -- Life
Annuity with Monthly
Payments Certain.......... 26
Third Option -- Unit Refund
Life Annuity.............. 26
Fourth Option -- Joint and
Last Survivor Life
Annuity................... 26
Fifth Option -- Payments for
Designated Period......... 26
Sixth Option -- Payments of
a Specified Dollar
Amount.................... 26
Seventh Option -- Investment
Income.................... 26
Enhancements..................... 27
Level Payments Varying
Annually....................... 27
Right of Commutation............. 27
Death of Annuitant During Annuity
Period......................... 27
Federal Tax Matters................... 28
General.......................... 28
Taxes Payable by Participants and
Annuitants..................... 28
Section 403(b) Annuities for
Employees of Certain Tax-Exempt
Organizations or Public
Educational Institutions....... 28
Purchase Payments........... 28
Taxation of Distributions... 28
Required Distributions...... 29
Tax Free Transfers and
Rollovers................. 29
Section 401 Qualified Pension,
Profit-Sharing or Annuity
Plans.......................... 29
Purchase Payments........... 29
Taxation of Distributions... 29
Required Distributions...... 30
Tax Free Rollovers.......... 30
Section 457 Unfunded Deferred
Compensation Plans of Public
Employers and Tax-Exempt
Organizations.................. 30
</TABLE>
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<TABLE>
<CAPTION>
PAGE
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<S> <C>
Purchase Payments........... 30
Taxation of Distributions... 30
Distributions Before
Separation from Service... 30
Required Distributions...... 30
Tax Free Transfers and
Rollovers................. 30
Private Employer Unfunded
Deferred Compensation Plans.... 30
Purchase Payments........... 30
Taxation of Distributions... 31
Tax Free Transfers and
Rollovers................. 31
Effect of Tax-Deferred
Accumulations.................. 31
Fund Diversification.................. 32
Transfers Under the Contracts......... 32
Transfers During the Accumulation
Period......................... 32
<CAPTION>
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<S> <C>
Transfers During the Annuity
Period......................... 32
Other Requirements............... 32
Other Contract Features............... 33
Change of Beneficiary............ 33
Revocation....................... 33
Reservation of Rights............ 33
Relationship to Employer's
Plan........................... 34
Payment and Deferment............ 34
Nonassignability of Qualified
Contracts...................... 34
Other Variable Annuity Contracts...... 34
Voting Rights......................... 35
State Regulation...................... 35
Table of Contents of the Statement of
Additional Information.............. 36
</TABLE>
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DEFINITIONS
Accumulation Period -- The period before the Annuity Date, during which
Purchase Payments are made by or on behalf of Participants and Net Purchase
Payments are accumulated for payment of future annuity benefits.
Accumulation Unit ("Unit") -- An accounting unit of measure used to
calculate the value of the portion of a Participant Account allocated to the
Separate Account during the Accumulation Period.
Accumulation Value -- The sum of the values in the Separate Account and the
General Account allocated to a Participant Account.
Annuitant -- A retired Participant or Beneficiary who receives annuity
payments.
Annuity -- An insurance contract under which the insurance company agrees,
in return for the Purchase Payments, to pay a series of payments to the
Annuitant for life; or for life with a minimum number of payments guaranteed; or
for the joint lifetime of the Annuitant and a second person and thereafter
during the remaining lifetime of the survivor. Annuities may be further
classified into two categories, fixed-dollar annuities and variable annuities,
each of which are defined below.
Annuity Period -- The period following the commencement of annuity payments
to the Annuitant.
Annuity Date -- The date elected by a Contract Owner on which annuity
payments start.
Annuity Unit -- An accounting unit of measure used to calculate the dollar
amount of annuity payments under a Variable Annuity that will be paid to an
Annuitant during the Annuity Period.
Assumed Investment Rate -- The rate used to determine the first monthly
annuity payment per thousand dollars of Accumulation Value in the Separate
Account. (See the Statement of Additional Information for a description of the
effect of the Assumed Investment Rate on the level of payments.)
Beneficiary -- The person who will receive payments, if any, on the death
of the Annuitant or Participant.
Contract(s) -- One or more of the GTS-VA Series Contracts or GUP Series
Contracts described in this prospectus.
Contract Owner -- The employer to which a Contract is issued; also referred
to as the Owner.
Fixed Dollar Annuity -- An Annuity providing for a series of periodic
payments which remain fixed as to dollar amount for a certain period throughout
the lifetime of the Annuitant or Annuitants and which do not vary with
investment experience.
Fund -- The Stock Index Fund, the investment portfolio which is the
underlying investment medium for Net Purchase Payments credited to the Separate
Account under the Contracts. (For a more complete description of the variable
investment option under these Contracts, see "The Fund.")
General Account -- The assets of the Company other than those in the
Separate Account or any other separate account. Reserves for any fixed annuity
are maintained in the General Account.
GTS-VA Series (Series 10B) Contracts -- Forms of contracts formerly issued
by the Company's Separate Account Two, including the Group Variable Annuity,
(GTS-VA), Contracts and the Group Variable Annuity, (GVA SA-2), Contracts. All
GTS-VA Series Contracts are funded through Series 10B of Division Ten of the
Separate Account.
GUP Series (Series 10A) Contracts --
Forms of contracts formerly issued by the Company's Separate Account One,
including the Group Unit Purchase (GUP) Contracts and Group Variable Annuity
(GVA SA-1) Contracts. All GUP Series Contracts are funded through Series 10A of
Division Ten of the Separate Account.
Home Office -- The main office of the Company at 2929 Allen Parkway,
Houston, Texas 77019.
Net Purchase Payment -- A Purchase Payment less sales and administrative
charges and any applicable premium taxes.
Participant -- An individual who makes Purchase Payments, or for whom
Purchase Payments are made under a group Contract, but who has not begun to
receive annuity payments; a
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person participating in the annuity purchase, pension, or profit-sharing plan
pursuant to which a Contract was issued.
Participant Account -- An individual account which is established for a
Participant under a group Contract to record the Accumulation Value for the
Participant.
Purchase Payments -- Amounts paid to the Company by or on behalf of a
Participant to provide for the accumulation of fixed and/or variable
Accumulation Units for immediate or later purchase of an annuity.
Separate Account -- The segregated asset account also referred to as
Separate Account A. Separate Account A was established by the Company under the
Texas Insurance Code to receive and invest net purchase payments made under
variable annuity Contracts.
Variable Annuity -- An annuity providing for a series of periodic payments,
the dollar amounts of which will increase or decrease to reflect the investment
experience of the Separate Account throughout the lifetime of the Annuitant or
Annuitants.
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FEE TABLE
<TABLE>
<CAPTION>
GUP GTS-VA
SERIES SERIES
CONTRACT CONTRACT
-------- --------
<S> <C> <C>
CONTRACT OWNER/PARTICIPANT TRANSACTION EXPENSES(3)
Sales and Administrative Charge Imposed on Purchase Payments
(as a % of purchase payments) (1)..................................... 5% 5%
Surrender Charge........................................................ 0% 0%
SEPARATE ACCOUNT DIVISION TEN ANNUAL EXPENSES (as a % of
Average account value)
Mortality & Expense Risk Fees........................................... 1.00% .60%
---- ----
Total Separate Account Annual Expenses (Before Reduction)............... 1.00% .60%
STOCK INDEX FUND ANNUAL EXPENSES (as a % of Fund average net assets)
Management fees (4)..................................................... .29% .29%
Other expenses (5)...................................................... .09% .09%
---- ----
Total Fund Expenses (Before Reduction) (6).............................. .38% .38%
REDUCTION FROM TOTAL EXPENSES DUE TO PERMANENT GUARANTEED
EXPENSE LIMITATIONS (for total Fund and Separate Account
expense limitations, limiting these expenses under GUP Series and
GTS-VA Series Contracts to approximately 1.42% and .70%,
respectively, of average net assets, see "Limitations on
Charges")(2).......................................................... 0% .29%
---- ----
SEPARATE ACCOUNT AND FUND EXPENSES (After Reduction).................... 1.38% .69%
</TABLE>
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Example
Total Expenses. You would pay the following expenses on a $1,000 investment
under a typical GUP and GTS-VA Series Contract, as listed below, assuming a 5%
annual return on assets:
<TABLE>
<CAPTION>
1 3 5 10
YEAR YEARS YEARS YEARS
---- ---- ----- -----
<S> <C> <C> <C> <C>
GUP Series........................................... $63 $92 $122 $208
GTS-VA Series........................................ 57 71 87 132
</TABLE>
(1) The average sales and administrative charge on an account may be less than
that disclosed depending on the dollar amount of the Purchase Payments.
Other reductions are available under certain circumstances. See "Charges
Under Specific Contracts."
(2) If the assets attributable to GUP Series Contracts or GTS-VA Series
Contracts increase appreciably, new total expense limitations could become
applicable. The fees set forth above are based on dollar value of average
net assets as follows:
<TABLE>
<CAPTION>
SERIES 10A SERIES 10B
GUP SERIES LIMITATIONS AND GTS-VA SERIES LIMITATIONS AND
NET ASSET RANGE NET ASSET RANGE
- ------------------------------------------------- ----------------------------------------
<S> <C>
1.4157% on the first $359,065,787 .6966% on the first $25,434,267
1.36% on the next $40,934,213 .5% on the next $74,565,733
1.32% of the excess over $400 million .25% of the excess over $100 million
</TABLE>
(3) Premium taxes are not shown here, but may be charged by some states either
on purchase payments or on amounts annuitized. See "Deduction for Premium
Taxes."
(4) Annual management fee for the Stock Index Fund is based on the Fund's
average annual net asset value at the following rates: .35% of the first
$500 million and .25% on the excess over $500 million.
(5) Includes custody, accounting, reports to shareholders, audit, legal, and
other miscellaneous expenses.
(6) To the extent that any of the Series Company Funds accrued expenses for a
given month exceed on an annualized basis 2% of estimated average daily net
assets, the Company has voluntarily undertaken to reduce expenses of any
such Fund, in an amount equal to the difference between such accrued
expenses and 2% of the Fund's average daily net assets for that month. The
Company may withdraw this voluntary undertaking upon 30 days written notice
to the Series Company.
Note: These examples should not be considered representations of past or future
expenses for the Separate Account or for the 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 Participants and
Contract Owners understand the various expenses of the Separate Account and the
Fund which are, in effect, passed on to the Participants and Contract Owners.
This Fee Table, including the example above, shows all charges and expenses
which are deducted under the Contract whether from purchase payments, from the
assets of the Separate Account or by the Fund in which the Separate Account
invests. For a further description of such charges and expenses, see "Charges
and Deductions" in this prospectus and "Investment Adviser" in the American
General Series Portfolio Company prospectus. Any and all limitations on total
charges and expenses are reflected in this Example to this Fee Table.
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INTRODUCTION
THIS PROSPECTUS DESCRIBES GROUP CONTRACTS THROUGH WHICH UNITS OF INTEREST
IN THE COMPANY'S SEPARATE ACCOUNT A ARE OFFERED. THE CONTRACTS ARE COMBINATION
FIXED/VARIABLE CONTRACTS OFFERING VARIABLE OR FIXED ACCUMULATIONS AND VARIABLE
OR FIXED BENEFITS OR A COMBINATION OF BOTH. THIS PROSPECTUS DESCRIBES ONLY THE
VARIABLE ASPECTS OF THE CONTRACTS, EXCEPT WHERE FIXED ASPECTS ARE SPECIFICALLY
MENTIONED.
THESE CONTRACTS ARE NO LONGER BEING ACTIVELY MARKETED.
The Contracts are designed to provide individuals with retirement benefits
through the accumulation of Net Purchase Payments on a fixed or variable basis,
and by the application of such accumulations to provide fixed or variable
annuity payments. The purpose of variable accumulations and annuity payments is
to provide returns to investors which offset or exceed the effects of inflation.
There is, however, no guarantee that this objective will in fact be achieved.
The variable investment Fund option under the Contracts is an indexed fund, a
popular approach to investing among individuals saving for retirement. The
amounts of variable annuity payments will vary with the investment performance
of Separate Account A Division Ten, as described below. (See "Charges and
Deductions.") The Contracts provide for various optional forms of available
annuity payments, which are described elsewhere herein. (See "Variable Annuity
Options.") The following summary is qualified in its entirety by the detailed
information and financial statements appearing elsewhere in the prospectus.
THE FUND
Net Purchase Payments allocated to the Separate Account are invested in
Separate Account A Division Ten. Division Ten invests in a separate portfolio,
the Stock Index Fund (the "Fund"), of American General Series Portfolio Company.
(See "The Fund.") This Fund, in addition to the Company's General Account, is
available under all Contracts described in this prospectus. Division Ten is also
available for allocations of Net Purchase Payments under other contracts not
offered pursuant to this prospectus.
ACCUMULATION OF PURCHASE PAYMENTS
Prior to retirement, the Participant pursues investment options on a
variable or fixed basis by directing Net Purchase Payments to the Separate
Account or the General Account. Variable investments are accomplished by
allocating or transferring amounts to the Separate Account. Fixed investments
are accomplished by allocating or transferring amounts to the General Account.
Amounts in the Separate Account are allocated to Division Ten which invests in
turn in the Fund. As the value of the investment in the Fund increases or
decreases, the value of the Separate Account accumulations will increase or
decrease. The value of such accumulations is subject to deduction for charges
summarized herein. Amounts in the General Account earn a rate of interest
guaranteed by the Contract, which may be augmented by additional interest
declared by the Company from time to time. The Participant may pursue both fixed
and variable options at any one time by allocating and/or accumulating amounts
in both the Separate Account and the General Account. (For information as to how
the Contracts may be purchased, and certain minimums that apply to Purchase
Payments and Accumulation Values, see "Accumulation Period.") Owners of certain
Contracts may exercise a 10-day revocation right. (See "Other Contract
Features.") (In some states this may be a 20-day revocation right.)
SURRENDERS
The Participant may, subject to applicable law and the terms of the
employer's plan, if applicable, make a total or partial surrender at any time
during the Accumulation Period by giving a written request to the Company. No
surrender charge will be assessed by the Company, but tax law may impose
penalties for premature withdrawal under certain Contracts. (See "Federal Tax
Matters.")
FIXED AND VARIABLE ANNUITY PAYMENTS
On the Annuity Date, the Accumulation Value, at the Annuitant's option, may
be applied to purchase a combination of fixed and/or variable annuities, subject
to the Company's minimum annuity payment and other requirements. (See "Annuity
Period.")
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TRANSFERS
During the Accumulation Period, all or part of the Accumulation Value in
the Separate Account may be transferred to the General Account. Transfers may be
made from the General Account subject to certain conditions. (See "Transfers
Under the Contracts.")
During the Annuity Period, an Annuitant may also transfer all or part of
amounts underlying a Variable Annuity to provide a Fixed Dollar Annuity, once
every 365 days. Transfers of amounts providing a Fixed Dollar Annuity may not be
made to provide a Variable Annuity during the Annuity Period.
No transfer charge will be assessed by the Company. (See "Transfers Under
the Contracts" and "Charges and Deductions" for additional conditions and
limitations regarding transfers.) The transfer privilege may be limited to the
extent allowed under the Contract.
CHARGES
Deductions from Purchase Payments. All of the Contracts deduct charges for
sales and administrative expenses from Purchase Payments. (See "Charges and
Deductions -- Charges Under Specific Contracts.")
Premium taxes may also be deducted from Purchase Payments. (See "Charges
and Deductions -- Deduction for Premium Taxes.")
Charges Against the Separate Account. A daily charge on the average daily
net asset value of the Separate Account allocable to the Contracts is imposed
for assumption by the Company of mortality and expense risks. (See "Charges and
Deductions -- Charges to the Separate Account.")
Charges Against the Fund. A daily charge, based on a percentage of average
monthly net assets, is paid by the Fund to its investment adviser for investment
management, which charge is borne indirectly by the Separate Account. Additional
charges and expenses are borne by the Fund which also indirectly affect the
Separate Account. These and other charges are more fully described in the
prospectus for American General Series Portfolio Company.
Maximum Expense Limitation. As a result of the Reorganization described
herein, the Company has agreed to assume certain charges and expenses, over a
certain limit, that apply to the Contracts. (See "Charges and Deductions --
Limitations on Charges.")
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SELECTED ACCUMULATION UNIT DATA
The information presented below reflects the Accumulation Unit Value
Information through December 31, 1995 for the Division of the Separate Account
available under these Contracts. Financial Statements for the Separate Account
are included in the Statement of Additional Information, which is available upon
request. Accumulation Unit values shown are for an Accumulation Unit outstanding
throughout the year under a representative contract of the type shown in each
column. The unit value of each Division of the Separate Account will not be the
same on any given day as the net asset value per share of the underlying Fund of
American General Series Portfolio Company in which that Division invests. This
is because each Unit Value consists of the underlying share's net asset value
minus the charges to the Separate Account. In addition, dividends declared by
the underlying Fund are reinvested by the Division in additional shares. These
distributions have the effect of reducing the value of each share of the Fund
and increasing the number of Fund shares outstanding. However, the total cash
value in the Separate Account does not change as a result of such distributions.
<TABLE>
<CAPTION>
STOCK INDEX DIVISION TEN
------------------------------
GTS-VA
GUP SERIES SERIES
UNIT VALUE UNIT VALUE
(SERIES (SERIES
10A)(1) 10B)(2)
------------ -----------
<S> <C> <C>
12/31/95 Value.............................................. $ 11.036946 $ 17.221812
Number of Units............................................. 29,995,363 1,560,525
12/31/94 Value.............................................. $ 8.116786 $ 12.582568
Number of Units............................................. 33,814,520 1,836,094
12/31/93 Value.............................................. $ 8.140393 $ 12.535147
Number of Units............................................. 36,512,399 1,937,835
12/31/92 Value.............................................. $ 7.481645 $ 11.439143
Number of Units............................................. 38,339,955 1,980,063
12/31/91 Value.............................................. $ 7.285058 $ 11.058834
Number of Units............................................. 39,793,938 2,027,028
12/31/90 Value.............................................. $ 6.045955 $ 9.113417
Number of Units............................................. 42,428,504 2,077,905
12/31/89 Value.............................................. $ 6.333044 $ 9.477254
Number of Units............................................. 46,272,953 2,159,779
12/31/88 Value.............................................. $ 5.172709 $ 7.686761
Number of Units............................................. 52,026,851 2,534,199
12/31/87 Value.............................................. $ 4.689828 $ 6.920097
Number of Units............................................. 62,036,020 2,896,466
4/17/87 Value............................................... $ 5.249858 $ 7.706113
Number of Units............................................. 65,120,508 3,002,931
12/31/86 Value.............................................. $ 4.614043 $ 6.706508
Number of Units............................................. 64,808,521 3,070,198
</TABLE>
- ---------------
(1) The GUP Series unit value history which pre-dates the April 17, 1987
Reorganization relates to the Company's former Separate Account One.
Effective with the merger of the Quality Growth Fund into the Stock Index
Fund on May 1, 1992, Quality Growth Division 9A was renamed Stock Index
Division 10A.
(2) The GTS-VA Series unit value history which pre-dates the April 17, 1987
Reorganization relates to the Company's former Separate Account Two,
Contract Series 6F. Effective with the merger of the Quality Growth Fund
into the Stock Index Fund on May 1, 1992, Quality Growth Division 9B was
renamed Stock Index Division 10B.
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AVERAGE ANNUAL TOTAL RETURN
CALCULATION OF AVERAGE ANNUAL TOTAL RETURN
<TABLE>
<CAPTION>
GUP GTS-VA
SERIES SERIES
(SERIES (SERIES
NO. OF YEARS 10A) 10B)
--------------------------------------------------- ------ ------
<S> <C> <C>
1 Year............................................ 29.18% 30.03%
3 Years........................................... 11.91 12.67
5 Years........................................... 11.63 12.41
10 Years........................................... 9.39 10.23
</TABLE>
Division 10A and 10B was initiated on July 28, 1982. The Contracts offered
through the Prospectus have different Unit values and different return
calculations, due to the different charge structures under each series of
Contracts. Effective with the merger of the Quality Growth Fund into the Stock
Index Fund on May 1, 1992, Quality Growth Divisions 9A and 9B were renamed Stock
Index Divisions 10A and 10B, respectively.
PERFORMANCE INFORMATION
The Separate Account may from time to time advertise certain performance
information concerning Division Ten. The performance information is based on
historical results and is not intended to indicate either past performance under
an actual Contract or future performance. Division Ten may also, from time to
time, advertise its performance relative to certain performance rankings and
indices compiled by independent organizations. More detailed information as to
the calculation of performance information, as well as comparisons with
unmanaged market indices, appears in the Statement of Additional Information.
Division Ten may advertise total return performance information for various
periods of time. Total return performance information is based on the overall
dollar or percentage change in value of a hypothetical investment in Division
Ten over a given period of time. In general, Division Ten's total return
reflects its overall change in value of the Division from the beginning of the
relevant period to the end of that period.
Average annual total return information shows the average percentage change
in the value of an investment in the Division from the beginning date of the
measuring period to the end of that period. This standardized version of average
annual total return reflects all historical investment results, less all charges
and deductions applied against the Division (excluding any deductions for
premium taxes). The rate is computed for Division Ten by comparing an initial
hypothetical investment of $1,000 in the Division to the redeemable value of
that investment at the end of specifically identified 1, 3, 5 and 10 year
periods. In order to calculate average annual total return, the Company divides
the value of the Division under a Contract terminated on a particular date by a
hypothetical $1,000 investment in the Division made by the Contract Owner at the
beginning of the period illustrated. The resulting total growth rate for the
period is then annualized to obtain the average annual percentage increase (or
decrease) during the period. Annualization assumes that the application of a
single rate of return each year during the period will produce the ending value,
taking into account the effect of compounding.
Division Ten may, in addition, advertise total return performance
information computed on different bases. First, Division Ten may present total
return information computed on the same basis as described above except that
this presentation may assume 1, 3, 5 and 10 year periods and is based on a
hypothetical $10,000 initial investment. (The Company refers to this
presentation as "Cumulative Return.")
Second, Division Ten may present total return information calculated by
subtracting the Division's Accumulation Unit value at the beginning of a year
from the Accumulation Unit value at the end of the year and dividing the
difference by the Accumulation Unit value at the beginning of the year. (The
Company refers to this presentation as "Annual Change in Accumulation Unit
Value.") This computation results in a total growth rate for the period which
the Company annualizes (as described above) in order to obtain the average
annual percentage change in the Accumulation Unit value for that period. Premium
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taxes are not deducted from the Accumulation Unit values. These taxes, if
applicable, are imposed by the cancellation of Accumulation Units attributable
to a Participant's Account. The effect of these taxes is to reduce total return
to the Participant.
Third, Division Ten may present aggregate total return figures for various
periods, reflecting the cumulative change in value of an investment in the
Division for the specified period. This calculation is the same as that for the
Annual Change in Accumulation Unit Value but is based on the Accumulation Unit
value at the beginning and end of a period of years in excess of one year. (The
Company refers to this presentation as "Cumulative Change in Accumulation Unit
Value.")
Finally, Division Ten may present a hypothetical example that applies the
Annual Change in Accumulation Unit Value to an initial investment of $10,000.
(The Company refers to this presentation as "Hypothetical $10,000 Account
Value.")
Division Ten may advertise standardized yield performance in addition to
total return information. Division Ten's yield is one way of showing the rate of
income the Division earns as a percentage of the value of the Division's
Accumulation Units. The yield is computed by dividing the average daily net
investment income per Accumulation Unit earned during a specifically identified
30-day base period by the Accumulation Unit value on the last day of the period
and annualizing that result. This calculation takes into account the average
daily number of Accumulation Units outstanding during the period. The yield
reflects the deduction of all charges, expenses and fees applicable against
Division Ten, but does not take premium taxes into account.
ENDORSEMENTS AND PUBLISHED RATINGS
From time to time, in advertisements or in reports to Contract Owners, the
Company may reflect 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. 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, 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. An A++
rating means, in the opinion of A.M. Best, that the insurer has demonstrated the
strongest ability to meet its policyholder and other contractual obligations.
In addition, the claims-paying ability of the Company as measured by the
Standard & Poor's Ratings Group may be referred to in advertisements or in
reports to Contract Owners. A Standard & 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 & Poor's ratings range from AAA to D. The Company's rating is
AA+ which is defined as excellent financial security.
12
<PAGE> 13
ANNUAL AND CUMULATIVE CHANGE IN ACCUMULATION UNIT VALUE
<TABLE>
<CAPTION>
STOCK INDEX DIVISION TEN
---------------------------------------------------
GUP SERIES GTS-VA SERIES
UNIT VALUE UNIT VALUE
(SERIES 10A) (SERIES 10B)
--------------------- ---------------------
TEN YEARS: ANNUAL CUMULATIVE ANNUAL CUMULATIVE
------- ------- ------- -------
<S> <C> <C> <C> <C>
12/31/95......................................................... 35.98% 158.44% 36.87% 178.93%
12/31/94......................................................... -0.29 90.06 0.38 103.79
12/31/93......................................................... 8.80 90.62 9.58 103.02
12/31/92......................................................... 2.70 75.19 3.44 85.27
12/31/91......................................................... 20.49 70.59 21.35 79.11
12/31/90......................................................... -4.53 41.57 -3.84 47.60
12/31/89......................................................... 22.43 48.30 23.29 53.50
12/31/88......................................................... 10.30 21.12 11.08 24.50
12/31/87......................................................... 1.64 9.82 3.18 12.08
12/31/86......................................................... 8.04 8.04 8.62 8.62
</TABLE>
THE COMPANY AND THE SEPARATE
ACCOUNT
The Company is a stock life insurance company organized under the laws of
the State of Texas as the successor to The Variable Annuity Life Insurance
Company of America, a District of Columbia insurance company organized in 1955.
The Company is engaged primarily in the offering and issuance of fixed and
variable retirement annuity contracts and combinations thereof. The Company's
executive office is located at 2929 Allen Parkway, Houston, Texas 77019; its
mailing address is P.O. Box 3206, Houston, Texas 77253 and its telephone number
is (713) 526-5251.
The Company is an indirect wholly-owned subsidiary of American General
Corporation. However, the assets of American General Corporation do not support
the obligations of the Company under the Contracts. Members of the American
General Corporation group of companies operate in each of the 50 states and
Canada, and collectively are engaged in substantially all forms of financial
services, with activities heavily weighted toward insurance.
On April 18, 1979, the Board of Directors of the Company established the
Separate Account in accordance with the Texas Insurance Code. The Separate
Account is registered with the U.S. Securities and Exchange Commission as a unit
investment trust under the Investment Company Act of 1940 (the "1940 Act").
Units of interest in the Separate Account under the Contracts are registered as
securities under the Securities Act of 1933 (the "1933 Act"). Under the Texas
Insurance Code, the assets of the Separate Account will not be chargeable with
liabilities arising out of any other business which the Company may conduct, but
will be held exclusively for the benefit of the Contract Owners, Participants,
Annuitants and Beneficiaries of the Contracts.
Each Separate Account Division is administered and accounted for as part of
the general business of the Company; however, the income, capital gains or
capital losses of each Separate Account Division are credited to or charged
against the assets held in that Separate Account Division in accordance with the
terms of each Contract without regard to the income, capital gains or capital
losses of any other Separate Account Division or arising out of any other
business the Company may conduct.
Each Separate Account Division invests in the shares of a specific
investment portfolio of American General Series Portfolio Company or another
registered investment company. The Separate Account currently is made up of
thirteen Divisions. However, only Division Ten is available as a variable
investment option under the Contracts. All of the investment portfolios
underlying these Divisions are available under other variable annuity contracts
issued by the Company. (For a description of the specific Fund in which Division
Ten invests, see "The Fund.")
Prior to May 1, 1992, Division Nine which was invested in the Quality
Growth Fund, was the available variable investment option under the Contracts.
Division Nine was the result of a Reorganization, effective April 17, 1987, of
the Company's Separate Account One and Separate Account Two. As a result of the
Reorganization, Contract Owners holding interests in the Company's Separate
Account One and the Company's Separate Account Two received interests in
Division Nine of the Company's Separate
13
<PAGE> 14
Account A which were economically equivalent to their prior interests. Effective
with the Merger of the Quality Growth Fund into the Stock Index Fund on May 1,
1992 Quality Growth Division 9A and 9B were renamed Stock Index Division 10A and
10B.
THE FUND
INVESTMENT BY THE FUND
The Stock Index Fund (the "Fund") is an investment portfolio of American
General Series Portfolio Company, (the "Series Company"), a diversified open-end
management investment company registered under the 1940 Act.
The Company serves as the investment adviser to American General Series
Portfolio Company, whose thirteen investment portfolios (the Funds) act as
investment media for various Divisions of the Separate Account. Certain Funds
act as investment media for other variable annuity contracts issued by the
Company and are not offered pursuant to this prospectus. Also, certain of the
Funds act as investment media for variable annuity contracts issued by
affiliates of the Company. Each investment portfolio is, in effect, a separate
"fund" for which the American General Series Portfolio Company issues a separate
series (class) of stock.
A brief summary of the principal characteristics of the Fund appears below.
FOR MORE COMPLETE INFORMATION ABOUT THE FUND, INCLUDING CHARGES AND EXPENSES,
REFER TO YOUR AMERICAN GENERAL SERIES PORTFOLIO COMPANY PROSPECTUS, ADDITIONAL
COPIES OF WHICH ARE AVAILABLE FROM THE VARIABLE ANNUITY MARKETING COMPANY, P.O.
BOX 3206, HOUSTON, TEXAS 77253 OR CONTACT ANY REGIONAL SALES OFFICE, AT
1-800-44-VALIC OR REFER TO THE ADDRESSES SHOWN ON THE INSIDE BACK COVER OF THIS
PROSPECTUS. READ THE PROSPECTUS CAREFULLY BEFORE YOU INVEST OR SEND MONEY.
The Fund seeks investment results that correspond to the performance of the
S&P 500(R)* Index, through investments in common stocks traded on the New York
Stock Exchange and the American Stock Exchange and to a limited extent, the
over-the-counter markets.
PERFORMANCE DATA
The following tables and related graphs show the investment performances of
the Division under a Hypothetical $10,000 Account and Cumulative Return,
described in "Performance Information" above. For an example showing total
return calculated in a different manner, see the Statement of Additional
Information.
The information presented does not reflect the advantage under the
Contracts of deferring federal income tax on increases in Account Value due to
earnings attributable to Purchase Payments. (See "Federal Tax Matters -- Effect
of Tax Deferred Accumulation.") The information presented also does not reflect
the advantage under Qualified Contracts of deferring federal
income tax on Purchase Payments. (See "Federal Tax Matters -- Effect of Tax
Deferred Accumulation.")
While the prior Separate Accounts were initiated in 1968, only the most
recent ten years of performance are shown. 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.
In the Statement of Additional Information, the performance data for the
Division is compared to the price returns of a relevant market index.
- ---------------
* "Standard & Poor's(R)", "S&P(R)" and "S&P 500(R)" are trademarks of Standard &
Poor's Corporation. The Stock Index Fund is NOT sponsored, endorsed, sold or
promoted by S&P and S&P makes no representation regarding the advisability of
investing in the Fund.
14
<PAGE> 15
HYPOTHETICAL $10,000 ACCOUNT INVESTED TEN YEARS AGO IN STOCK INDEX DIVISION TEN*
ANNUAL VALUE AT YEAR END OF A $10,000
STIPULATED PAYMENT MADE JANUARY 1, 1986.
*(NET OF APPLICABLE FRONT END SALES
AND ADMINISTRATIVE CHARGES)
<TABLE>
<CAPTION>
GUP GTS-VA
SERIES SERIES
(SERIES 10A) (SERIES 10B)
-------- --------
<S> <C> <C>
1/1/86................ $ 9,550 $ 9,550
12/31/86.............. 10,318 10,373
12/31/87.............. 10,488 10,704
12/31/88.............. 11,567 11,889
12/31/89.............. 14,162 14,659
12/31/90.............. 13,520 14,096
12/31/91.............. 16,291 17,105
12/31/92.............. 16,731 17,693
12/31/93.............. 18,204 19,389
12/31/94.............. 18,151 19,462
12/31/95.............. 24,681 26,638
</TABLE>
CUMULATIVE RETURN FOR STOCK INDEX
DIVISION TEN
<TABLE>
<CAPTION>
10 5 3
YEARS YEARS YEARS 1 YEAR
------- ------ ------ ------
<S> <C> <C> <C> <C>
Cumulative
Return
GUP Series
(Series 10A) 146.81% 74.34% 40.88% 29.86%
GTS-VA
Series (Series
10B) 166.38% 80.47% 43.78% 30.71%
</TABLE>
- ---------------
* Performance includes Separate Account One and Separate Account Two Performance
before the April 17, 1987 Reorganization. Effective with the merger of the
Quality Growth Fund into the Stock Index Fund on May 1, 1992, Quality Growth
Divisions 9A and 9B were renamed Stock Index Divisions 10A and 10B.
15
<PAGE> 16
Hypothetical $10,000 Account
GUP Series Unit Value
(Series 10A)
Value at Quarterly Intervals of a $10,000
Stipulated Payment made January 1, 1986
(net of applicable front end sales and administrative charges)
Chart
On April 17, 1987 the Company's Separate Account One was reorganized and merged
into the American General Series Portfolio Company Quality Growth Fund and as a
result then became part of the Company's Separate Account Division Nine, and its
unit value history became identified as GUP Series (Quality Growth Division 9A)
Unit Value. Performance prior to the reorganization date, therefore, represents
results obtained by the Company's Separate Account One. Subsequent to the
Reorganization, performance represents results obtained by the Company's
Separate Account, GUP Series (Quality Growth Division 9A). Effective with the
merger of the Quality Growth Fund into the Stock Index Fund on May 1, 1992
Quality Growth Division 9A was renamed Stock Index Division 10A.
16
<PAGE> 17
Hypothetical $10,000 Account
GTS-VA Series Unit Value
(Series 10B)
Value at Quarterly Intervals of a $10,000
Stipulated Payment made January 1, 1986
(net of applicable front end sales and administrative charges)
Chart
On April 17, 1987 the Company's Separate Account Two was reorganized and merged
into the Company's Separate Account One which was merged into the American
General Series Portfolio Company Quality Growth Fund. Separate Account Two then
became part of the Company's Separate Account Division Nine, and its unit value
history became identified as GTS-VA Series (Quality Growth Division 9B) Unit
Value. Performance prior to the reorganization date, therefore, represents
results obtained by the Company's Separate Account Two. Subsequent to the
Reorganization, performance represents results obtained by the Company's
Separate Account, GTS-VA Series (Quality Growth Division 9B). Effective with the
merger of the Quality Growth Fund into the Stock Index Fund on May 1, 1992
Quality Growth Division 9B was renamed Stock Index Division 10B.
17
<PAGE> 18
HYPOTHETICAL $10,000 ACCOUNT INVESTED IN STOCK INDEX DIVISION TEN AT
REORGANIZATION
The table and charts below show the quarterly value of a $10,000 initial
premium invested in Division Ten for the period since the Reorganization, April
17, 1987 through December 31, 1995 (net of applicable front end sales and
administrative charges). On May 1, 1992 the Quality Growth Fund was merged into
the Stock Index Fund. Effective with that merger Quality Growth Divisions 9A and
9B were renamed Stock Index Divisions 10A and 10B, respectively.
STOCK INDEX DIVISION 10
SINCE REORGANIZATION
GUP SERIES
(SERIES 10A)
- -------------------------------------------------------
Value at Quarterly Intervals of a $10,000
Stipulated Payment made April 17, 1987
STOCK INDEX DIVISION 10
SINCE REORGANIZATION
GTS -- VA SERIES
(SERIES 10B)
--------------------------------------------------------
Value at Quarterly Intervals of a $10,000
Stipulated Payment made April 17, 1987
<TABLE>
<S> <C>
Chart Chart
ANNUAL VALUE
-------------------------
STOCK INDEX
DIVISION TEN
-------------------------
GUP GTS-VA
SERIES SERIES
(SERIES 10A) (SERIES 10B)
------------ -----------
<S> <C> <C>
4/17/87.......................................................... $ 9,550 $ 9,550
12/31/87......................................................... 8,531 8,576
12/31/88......................................................... 9,410 9,526
12/31/89......................................................... 11,520 11,745
12/31/90......................................................... 10,998 11,294
12/31/91......................................................... 13,252 13,705
12/31/92......................................................... 13,610 14,176
12/31/93......................................................... 14,808 15,535
12/31/94......................................................... 14,765 15,593
12/31/95......................................................... 20,077 21,343
</TABLE>
18
<PAGE> 19
TYPES OF CONTRACTS
GUP Contracts are sold under section 403(b), 401 and 457 plans. The GVA
SA-1 Contracts are sold on an unallocated basis as a group deposit
administration contract in connection with a section 401 plan. The GVA SA-2
Contracts are sold in connection with section 403(b) plans and in connection
with a section 401 plan on an unallocated basis. (See "Federal Tax Matters" for
a discussion of the various plan types referred to above.)
CHARGES AND DEDUCTIONS
The Company assesses three basic types of charges under the Contracts:
deductions from Participants' Purchase Payments, charges against the Separate
Account, and charges against the Fund.
GENERAL
The Company deducts a fee from each Purchase Payment of each Participant to
cover sales and administrative expenses. Sales expenses include such things as
commissions paid to sales representatives and advertising costs. Administrative
expenses include such things as salaries to the Company's home office personnel,
rent, office equipment, legal fees and auditing fees. Sales Load is expected to
cover distribution costs.
DEDUCTION FOR PREMIUM TAXES
Some states impose premium taxes, currently ranging from zero to 3% on
annuity considerations. A deduction for premium taxes will be made only when
annuity considerations are subject to such taxes. When permitted by state law,
it is the Company's policy to postpone the computation and deduction of premium
taxes until the Annuity Date. The amount of any applicable premium taxes will
then be deducted from the Participant Account. However, when state law does not
permit such postponement, premium taxes will be deducted from Purchase Payments
when received. If any premium taxes are deducted, but subsequently determined
not due, the Company will apply the amount deducted to increase the number of
Accumulation or Annuity Units under the Contract at the time the determination
is made. If premium tax was not deducted, but subsequently is determined to be
due, the Company reserves the right to reduce the Accumulation Units or Annuity
Units by the amount of the tax due.
CHARGES UNDER SPECIFIC CONTRACTS
GUP Contracts. The fee schedule for GUP Contracts, excluding premium taxes,
follows:
<TABLE>
<CAPTION>
DEDUCTION DEDUCTION
AS A AS A
AGGREGATE GROSS PERCENTAGE PERCENTAGE OF
PURCHASE OF PURCHASE NET PURCHASE
PAYMENTS(1) PAYMENTS(2) PAYMENTS
<S> <C> <C>
first $5,000...... 5% 5.26%
next $5,000....... 4% 4.17%
next $5,000....... 3.5% 3.63%
over $15,000...... 3% 3.09%
</TABLE>
- ---------------
1. A Participant's Aggregate Gross Purchase Payment is the sum of all gross
Purchase Payments to the Company under a Contract, under one or more
Accumulation Accounts maintained by the same Participant.
2. Approximately 1.25% is for administrative expenses while the balance is for
sales expenses.
The Company deducts only 2% (0.6% sales expense; 1.4% administrative
expense) from single lump sum Purchase Payments except those lump sum payments
which consist of amounts transferred from other Company contracts, from which no
deduction is made. Additional Purchase Payments made after the single lump sum
are subject to a deduction calculated according to the above fee schedule with
the lump sum included in the Aggregate Gross Purchase Payment.
The Company's retirement plan for agents and managers may purchase interest
in a GUP Contract at net asset value, without sales and administrative charges.
Such purchases are for full-time sales representatives of the Company who have
acted as such for not less than 90 days.
GVA SA-1 Contract. In the case of the deposit administration contract
described below, any premium taxes applicable will be added to the annuity rates
at the time benefits are purchased rather than deducted from Purchase Payments.
The Contract is being administered by professional actuarial consultants
and the Contract Owner. The annual deduction consists of a percentage charge of
5% of Purchase Payments received (5.26% of Net Purchase Payments) after an
annual charge for administrative expenses
19
<PAGE> 20
is made according to the schedule below. The deduction for administrative
expenses is determined based on cumulative contributions, the total
contributions, from the effective date to the end of the contract year for which
the charge is being determined.
<TABLE>
<CAPTION>
CUMULATIVE FLAT
CONTRIBUTIONS AMOUNT
------------------------------ -------
<S> <C>
Less than $100,000............ $ 1,000
$100,000 but less than
$200,000...................... 750
$200,000 but less than
$300,000...................... 500
$300,000 but less than
$400,000...................... 250
$400,000 and over............. 0
</TABLE>
Only one of these Contracts is currently outstanding and it has reached the
$0 level.
GVA SA-2 Contracts. In the case of GVA SA-2 Contracts sold in connection
with section 403(b) plans, the amount of the deduction from each Purchase
Payment for sales, administrative, and other expenses is the same as that for
the GUP Contracts, above. In addition, single lump sum payments received by the
Company that represent amounts accumulated in section 403(b) plans, but not
previously accumulated with the Company, shall be subject to a deduction of 2%
to cover (i) sales expenses (1.2%) and (ii) administrative expenses (.8%). The
amount of this deduction is based on differences in cost and services which the
Company has determined to exist in this type of transaction. Single lump sum
distributions that represent amounts accumulated in other Company section 403(b)
contracts will be transferred without charge. Any additional payments received
after such single lump sum payment shall be equal to the total payments less: 5%
thereof for the first $5,000 of total Purchase Payments to the Participant
Account, including the single lump sum payment; 4% thereof for the next $5,000
of total Purchase Payments to the Participant Account, including the single lump
sum payment; 3.5% for the next $5,000 of total Purchase Payments to the
Participant Account, including the single lump sum payment; and 3% thereof for
any payments in excess of $15,000 of total Purchase Payments to the
Participant's Account, including the single lump sum payment.
In the case of unallocated contracts, the deduction for sales and
administrative expenses is 2% (1% for sales expenses and 1% for administrative
expenses) for each Purchase Payment.
CHARGES TO THE SEPARATE ACCOUNT
Mortality and Expense Risk. While Variable Annuity payments will reflect
the investment performance of the Separate Account, they will not be affected by
adverse mortality experience or by the excess of the Company's expenses over the
expense deductions provided in the Contract. The Company assumes the risk that
Annuitants will live longer than anticipated and that reserves set aside on the
basis of these estimates will prove insufficient to meet annuity payment
obligations. The Company also assumes the risk that deductions for
administrative and other expenses may not be sufficient to cover the actual cost
of these activities. To compensate the Company for undertaking these risks, the
Separate Account will incur a daily charge on the average daily net asset value
of the Separate Account attributable to the Contracts. This charge is guaranteed
and may not be increased by the Company. For assets attributable to GUP Series
Contracts, the charge is .00274% (1.00% on an annual basis: .80% for mortality
risk undertakings, and .20% for expense risk undertakings).
For assets attributable to GTS-VA Series Contracts, the charge is .002329%
(.85% on an annual basis) on the first $10,000,000, .0011645% (.425% on an
annual basis) on the next $90,000,000, and .000578% (.21% on an annual basis) on
such assets over $100,000,000. Of the daily deduction, the Company estimates
that 88% of the total charge is for mortality risk undertakings, and 12% of the
total charge is for expense risk undertakings.
Charges to The Fund. A daily charge based on a percentage of daily net
assets is payable by The Fund to the Company for investment management.
Additional charges and expenses are also incurred by The Fund. The charges to
The Fund, which are more fully described in the prospectus for American General
Series Portfolio Company, are borne indirectly by Participants.
Charge for Income Taxes. Currently, no charge is made against the Separate
Account for the Company's Federal income taxes, or provisions for such taxes
that may be attributable to the Separate Account. The Company may charge each
Division in the Separate Account for its portion of any income tax charged to
the
20
<PAGE> 21
Company or the Division on its assets. Under present laws, the Company may incur
state and local taxes (in addition to premium taxes) in several states. At
present, these taxes are not significant. If they increase, however, the Company
may decide to make charges for such taxes or provisions for such taxes against
the Separate Account. Any such charges against the Separate Account or its
Division could have an adverse effect on the investment performance of such
Division.
LIMITATIONS ON CHARGES
In connection with the Division Nine Reorganization (See "The Company and
The Separate Account" in this Prospectus for more information), the Company
guaranteed that the overall level of fees and charges borne, directly or
indirectly, by Participants would not be greater because of the Reorganization.
The Company has filed endorsements to the Contracts to provide that the advisory
fee applied against the assets of the Fund, and the mortality and expense risk
charges applied against the assets of Division Ten of the Separate Account with
respect to the Contracts, will not exceed the levels existing immediately prior
to the Reorganization.
Specifically, the endorsements provide as follows: for each of Separate
Account One and Separate Account Two, the Company determined the ratio of the
advisory fee plus mortality and expense risk charges to the total net assets of
that Separate Account ("Expense Ratio") at the close of business on April 1,
1987 ("Maximum Expense Ratio.") The Company guarantees that the Expense Ratio of
the Contracts will never exceed the applicable Maximum Expense Ratio. The
Maximum Expense Ratio is equal to 1.4157% for GUP Series (Series 10A) Contracts
and .6966% for GTS-VA Series (Series 10B) Contracts. Consequently, if assets
attributable to the Contracts increase, the expense limit would decrease to
reflect the lower levels of charges that would have been borne by Participants
had the Reorganization not occurred. However, if assets attributable to the
Contracts decrease, expenses will never exceed the Maximum Expense Ratio
determined on April 1, 1987. In 1993, reduction of expenses under GUP Series
(Series 10A) Contracts totalled $0 and reduction of expenses under GTS-VA Series
(Series 10B) Contracts totalled $74,923.
The Company will not, however, assume extraordinary or non-recurring
expenses of the Fund, such as legal claims and liabilities and litigation costs
and indemnification payments in connection with litigation. In addition,
although the Fund intends to operate in such a way that it will have no Federal
income tax liability (see the American General Series Portfolio Company
prospectus), if any liability is nevertheless incurred due to the Fund's failure
to qualify as a "regulated investment company" under the applicable provision of
the Code, the investment performance of the Fund could be adversely affected, to
the detriment of Participants. The Company believes that such expenses and
liabilities, although theoretically possible, are quite unlikely.
ACCUMULATION PERIOD
GENERAL
During the Accumulation Period, the Contract Owner or Participant may make
Purchase Payments on such dates and in such amounts as may be determined
pursuant to the retirement plan for which the Contract has been purchased.
In all cases, the initial Purchase Payment must be preceded or accompanied
by a properly completed application. In addition, since all Purchase Payments
are remitted through an employer, they must also be accompanied by a premium
flow report which identifies the amount to be credited to each Participant
Account under the employer's retirement plan.
MINIMUM PURCHASE PAYMENTS
Under GUP Contracts, the minimum initial and subsequent monthly Purchase
Payment per Participant is $25, if the Purchase Payment is to be allocated
entirely to the Separate Account, and is $30 (with $12 minimum allocated to the
Separate Account) if a Purchase Payment is allocated to the General Account and
the Separate Account. The Company may waive the minimum purchase requirements,
on a fair and equitable basis, for plans established for employers with 500 or
more employees. With regard to GUP Contracts issued under section 401 plans, the
initial annual Purchase Payment must be at least $2,000, with subsequent annual
Purchase Payments of at least $5,000.
21
<PAGE> 22
Under GUP Series (Series 10A) Contracts, minimum initial Purchase Payments
are specified in each Contract.
Under GTS-VA Series (Series 10B) Contracts, the minimum initial and
subsequent Purchase Payments under section 403(b) and 401 plans are $10,000 per
year. There are no minimum initial or subsequent limitations with respect to
other GTS-VA Series (Series 10B) Contracts.
APPLICATION OF NET PURCHASE PAYMENTS TO
THE SEPARATE ACCOUNT
When an initial Purchase Payment accompanies an application (and a premium
flow report) the Company will, within two business days after receipt of the
application at its Home Office, either (a) process and accept the application,
issue the Contract to the Contract Owner, establish Participant Accounts and
credit Accumulation Units to those accounts as of the date of acceptance; (b)
reject the application and return the Purchase Payment; or (c) request
additional documents or information if the application is not complete or is
incorrectly completed. With respect to (c), a Purchase Payment will be returned
if a correctly completed application is not received within five business days
unless the Contract Owner agrees otherwise. For initial and subsequent payments,
Accumulation Units will be credited at the Accumulation Unit value calculated as
of the day the Purchase Payment was received by the Company, if received at the
Company's Home Office before the close of regular trading of the New York Stock
Exchange, generally 4:00 p.m. New York time on a day Accumulation Unit values
are calculated; otherwise, the next calculated Accumulation Unit value is used.
As a result, the Participant Account will be credited with the investment
experience of the Separate Account from the date of the Company's receipt.
ACCUMULATION UNIT VALUE
The Accumulation Unit value was originally established at $1.00 for both
Separate Account One and Separate Account Two. Due to varying charges imposed
against different Contracts, a number of Accumulation Unit values developed
since that time. Upon the Reorganization described under "The Company and the
Separate Account," the different Contract Accumulation Unit values were
converted to one common Unit value for GUP Series (Series 10A) Contracts and one
common Unit value for GTS-VA Series (Series 10B) Contracts, to simplify
accounting and reduce costs. For hypothetical illustrations of the
recalculation, see the Statement of Additional Information -- "Accumulation Unit
Value." The conversion had no effect upon the Accumulation Value of any
Participant's interest or upon the total net assets attributable to any
Participant Account.
The value of a Participant Account can be determined at any time by
multiplying the number of Accumulation Units outstanding under the Participant
Account by the current Accumulation Unit value. During the Accumulation Period,
the value of a Participant Account varies with the performance of the
investments of the Separate Account, and there is no assurance that such value
will equal or exceed Purchase Payments. The number of Accumulation Units
credited will not be changed by any subsequent change in the value of an
Accumulation Unit, but the dollar value of an Accumulation Unit may vary from
day to day depending upon the investment experience of the Separate Account.
The Accumulation Unit value for Division Ten is calculated as follows.
First, a gross investment rate is determined from the investment performance of
the Separate Account. The gross investment rate is calculated as of 4:00 p.m.
New York time on each business day when the New York Stock Exchange is open
(except the Friday following Thanksgiving). Such rate is (i) the Separate
Account's investment income and capital gains and losses, whether realized or
unrealized on such day, from the assets attributable to Division Ten, divided by
(ii) the value of Division Ten for the immediately preceding day on which such
values were calculated. The net investment rate for any day is determined by
deducting from the gross investment rate a factor representing the mortality and
expense risk charges described herein (see "Charges and Deductions -- Charges to
the Separate Account"), and any applicable income taxes. Reimbursement factors
are also added to reimburse owners of all Contracts for the expenses which they
would not have borne had the Reorganization not occurred. (See "Charges and
Deductions -- Limitations on Charges.") The Accumulation Unit value for a given
day is then determined by multiplying the Accumulation Unit value for the
preceding day by
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a net investment factor equal to the net investment rate plus 1.00.
For hypothetical illustrations showing the calculation of an Accumulation
Unit value and the purchase of Accumulation Units, see the Statement of
Additional Information -- "Accumulation Unit Value." Fund shares, in which
Division Ten of the Separate Account invests, are valued at their net asset
value at the same time Accumulation Units are valued. For information as to the
computation of the net asset value of Fund shares, please refer to the
prospectus for American General Series Portfolio Company.
DEATH BENEFITS DURING ACCUMULATION PERIOD
If a Participant under a Contract dies during the Accumulation Period,
there will be an amount payable to the Beneficiary. This amount is usually equal
to the greater of (a) the Accumulation Value of the Participant Account on the
date proof of death is received by the Company; or (b) 100% of Purchase
Payments, reduced by the amount deducted in connection with any partial
surrenders. (See "Partial Redemption or Surrender.") Under all GVA SA-2
Contracts and GVA SA-1 Contracts, the death payment is limited to the value of
the Participant's Account. The Beneficiary may exercise the right to receive the
death benefit as a lump-sum settlement or in the form of any of the annuity
options provided in the Contract (within such time limits required by Federal
tax law). (See "Variable Annuity Options.") Beneficiaries other than the spouse
of a Participant must receive the death benefit in full by the date 5 years
after the Participant's death unless payments commence within 1 year of the
Participant's death under a life annuity, a life annuity with payments certain
or with payments for a designated period. Payments certain or payments for a
designated period in any case cannot be selected for a period exceeding the
Beneficiary's life expectancy. The Beneficiary thereafter will be entitled to
exercise many of the investment options and other rights an Annuitant would have
under the Contract.
SUSPENSION OF PAYMENTS
GUP Contracts contain provisions protecting against forfeiture. If at any
time a Purchase Payment is not made when due, the number of Accumulation Units
outstanding under the Contract at that time will remain constant (so long as no
transfer election is made), and the value of the Contract will continue to vary
in accordance with the Accumulation Unit value. If the Contract has not been
redeemed, the Contract Owner may resume making Purchase Payments at any time. If
an unallocated GVA SA-2 Contract of the Group Deposit Administration type is
suspended for non-payment, it may be reinstated at any time within two years
after the date of such suspension.
PARTIAL REDEMPTION OR SURRENDER
Under GUP Contracts, upon written request to the Company at its Home Office
at any time before the commencement of annuity payments, a Participant may
receive part of the value of his Participant Account. A partial redemption will
result in the cancellation of a proportionate number of Accumulation Units
credited to the Participant Account. Receipt by a Participant of a partial
redemption is subject to the requirement that, after each such payment, a
minimum number of 30 Accumulation Units must remain in the Participant Account.
The amounts of any partial redemption may not be repaid.
At any time before the Annuity Date and subject to the provisions of the
plan, a Participant may elect to surrender the Contract for cash. The surrender
value, which is the value of the Accumulation Units under the Contract, will be
computed as of the next valuation of Accumulation Units following receipt of
election by the Company at its Home Office.
For an explanation of possible adverse tax consequences of a partial
redemption or surrender, see "Federal Tax Matters."
Occasionally, the Company may receive a request for partial redemption or
surrender which includes Accumulation Values derived from Purchase Payments
which have not cleared the banking system. The Company may delay mailing that
portion of the surrender value which relates to such amounts until the check for
the payment has cleared. The Accumulation Unit value used to determine the
remaining surrender value to be remitted will be on the basis of the valuation
next computed after receipt of the request.
The Attorney General of Texas has interpreted the Texas State Optional
Retirement Program to prohibit participating employees from surrendering annuity
contracts which fund benefits under the program unless the employee termi-
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nates employment, retires or dies. Therefore, pursuant to an order obtained from
the Securities and Exchange Commission, the Company cannot permit surrenders or
partial surrenders by Participants in the Texas State Optional Retirement
Program without the occurrence of one of these events.
Under the Florida State Optional Retirement Program no surrender or partial
surrender by a Participant of Accumulation Values attributable to purchase
payments contributed by the Participant's employer will be permitted. Benefits
based on employer contributions may only be paid upon the Participant's death,
retirement or termination of employment. Except in the case of the Participant's
death and except for certain small amounts as approved by the State of Florida,
such benefit payments may not be paid in a lump sum or for a period certain, but
will only be paid through a life contingency option.
Upon proper termination of participation in any plan a Participant may
elect to have his Participant Account valued and applied to the purchase of an
individual Variable Annuity contract of a type then being issued by the Company
for this class of Annuitant. Such election may be made without the imposition of
any charge and, in the opinion of the Company's counsel, without any adverse tax
consequences to the Participant. Future Purchase Payments, if made, will not be
subject to the tax benefits of section 403(b) of the Code, and will be subject
to the charges and deductions described in the prospectus pursuant to which
individual Variable Annuity contracts are then being offered.
In the case of GUP Contracts, if a Participant becomes an employee of
another employer which is the owner of a similar GUP Contract issued by the
Company, the Participant may elect to have his Participant Account transferred
to such other Contract, without the imposition of any charge.
ANNUITY PERIOD
FIXED OR VARIABLE ANNUITY PAYMENTS
If the plan so permits, the Annuitant may elect to have any portion of the
Participant Account applied to provide either a Variable Annuity or a Fixed
Dollar Annuity, or a combination of both. That portion of the Participant
Account which is applied to provide a Fixed Dollar Annuity will be withdrawn
from the Separate Account and thereafter will not participate in the investment
experience of the Separate Account. The election of a Fixed Dollar Annuity is
subject to certain conditions provided under the Contract that (i) set a time
period (such as one month or one year prior to the Annuity Date) by which such
election must be received by the Company and (ii) set minimum amounts (such as
$25) for the first payment provided under each of the Variable Annuity and the
Fixed Dollar Annuity.
ASSUMED INVESTMENT RATE
The objective of a Variable Annuity is to provide level payments during
periods when the economy is relatively stable and to reflect as increased
payments only the excess investment results flowing from inflation or an
increase in productivity. The achievement of this objective will depend in part
upon the extent to which the net investment rate of the Separate Account equals
the Assumed Investment Rate, described below, during periods of stable prices.
The Assumed Investment Rates built into the annuity tables in the Contracts
reflect the Company's opinion that such rates were conservative estimates of the
average investment result to be expected from a diversified portfolio of common
stocks during a relatively stable economy at the time such Contracts were
actively marketed.
For all Contracts, the Company will permit each Annuitant to select an
Assumed Investment Rate permitted by state law or regulations. GUP Contracts and
GVA SA-1 Contracts have an Assumed Investment Rate of 3.5%, but Annuitants may
select 4.5%, 5% or 6%. GVA SA-2 Contracts, except those sold in connection with
section 403(b) plans, have a 3.5% Assumed Investment Rate but Annuitants may
select 4.5% or 5%. Other GVA SA-2 Contracts have a 3% Assumed Investment Rate,
but Annuitants may select 3.5%, 5%, or 6%. The foregoing Assumed Investment
Rates are used merely in order to determine the first monthly payment per
thousand dollars of value. (See Statement of Additional Information -- "Annuity
Payments.") It should not be inferred that such rates will bear any relationship
to the actual net investment experience of the Separate Account.
The choice of an Assumed Investment Rate affects the pattern of annuity
payments. A higher Assumed Investment Rate will produce a higher initial
payment, but a more slowly rising series of
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subsequent payments (or a more rapidly falling series of subsequent payments)
than a lower Assumed Investment Rate. Although a higher initial payment would be
received under a higher Assumed Investment Rate, there is a point in time after
which payments under a lower Assumed Investment Rate would be greater, assuming
payments continue through that point in time. Subsequent payments will be
smaller than, equal to or greater than the first payment depending upon whether
the actual net investment rate is smaller than, equal to or greater than the
Assumed Investment Rate.
The amount of the first Variable Annuity payment is divided by the Annuity
Unit value calculated ten days prior to the date of the first payment, to
determine the number of Annuity Units represented by the payment. The number of
such Annuity Units represented by each subsequent payment thereafter remains
fixed during the Annuity Period, except under the Variable Annuity option
providing payouts of a specified dollar amount. (See "Variable Annuity
Options.") An illustration showing, by use of a hypothetical example, the method
of determining the Annuity Unit value and the amount of monthly annuity payments
is contained in the Statement of Additional Information.
ANNUITY DATE
A Contract Owner may elect to have a Participant Account valued and, after
deduction of any applicable premium taxes, applied to provide Fixed Dollar or
Variable Annuity payments, or a combination thereof, for a particular
Participant or Beneficiary, according to the annuity option selected by the
Participant, Beneficiary, or Contract Owner. Annuity payments commence on the
Annuity Date. The Annuity Date is the first day of the month immediately
following the expiration of the period of time designated in the Contract (such
as 30 days) from the date written notification is received at the Home Office of
the Company. For a description of available annuity options, see "Variable
Annuity Options." Any premiums not received and credited prior to the valuation
date (i.e., the tenth day prior to the end of the month) may not be applied to
purchase an immediate annuity, but will be refunded.
The Annuity Date is usually elected in the application at the time of
issue, subject to later changes by the Participant, and can be the first day of
any month before the Annuitant's 75th birthday. However, special rules apply to
payments under 403(b), 401, 403(a) and 457 plans. (See the discussion of
required distributions for each plan type under "Federal Tax Matters.")
VARIABLE ANNUITY OPTIONS
OPTIONS AVAILABLE UNDER SPECIFIC CONTRACTS
GUP Contracts. The Annuitant generally is given the option of receiving
annuity payments in accordance with any one of the first five Variable Annuity
options. (See "Description of Options Available.") The second option is
available with 60, 120, 180 or 240 monthly payments certain. If the retirement
plan so provides, some of the options may be excluded. Level payments (see
"Level Payments Varying Annually") may also be used in combination with any of
the available Variable Annuity options.
If the Annuitant does not specify one of the available options at the time
he becomes eligible for annuity payments, Variable Annuity payments are made in
accordance with the second option with payments guaranteed for a ten-year
period, except in those cases in which a joint and survivor annuity payout is
required by law.
GVA SA-1 Contracts. The first four options are available under these
Contracts. (See "Description of Options Available.") The second option is
available with 60, 120, 180 or 240 monthly payments certain.
GVA SA-2 Contracts. The first four options are available under these
Contracts. (See "Description of Options Available.") The second option is
available with the number of monthly payments certain specified in the Contract.
The monthly payment under the variable annuity selected must be at least $25.
Once annuity payments have begun, an annuity option may not be terminated.
DESCRIPTION OF OPTIONS AVAILABLE
First Option -- Life Annuity. Variable Annuity payments are payable during
the lifetime of the Annuitant, and the annuity terminates with the last payment
preceding death. This option offers the maximum amount/level of Variable Annuity
payments since there is no provision for a death benefit for Beneficiaries. IT
WOULD BE POSSIBLE UNDER THIS OPTION FOR THE ANNUITANT TO RECEIVE ONLY ONE
ANNUITY PAYMENT IF HE DIED PRIOR TO
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THE DATE OF THE SECOND PAYMENT, TWO IF HE DIED BEFORE THE THIRD PAYMENT ETC.
Under GVA SA-2 Contracts this is the Third Option, and is called "Life Annuity
Ceasing on Death."
Second Option -- Life Annuity with Monthly Payments Certain. Variable
Annuity payments are made monthly during the lifetime of an Annuitant with the
provision that, if the Annuitant dies during the certain period, the Beneficiary
may receive monthly payments for the remainder of the certain period and at any
time during such period may elect to receive in one sum the present value of the
remaining payments, calculated on the basis of the same Assumed Investment Rate
used to calculate the initial annuity payment. (See "Death of Annuitant During
Annuity Period.") Under GVA SA-2 Contracts, this is the Fourth Option and is
called "Life Annuity with a Specified Number of Payments Guaranteed."
Third Option -- Unit Refund Life Annuity. Variable Annuity payments are
payable monthly during the lifetime of the Annuitant with an additional payment
to the Beneficiary at the death of the Annuitant. Under GVA SA-2 Contracts, this
is the First Option, and is called "Equity Refund Life Annuity."
The payment to the Beneficiary is equal to the excess, if any, of (a) minus
(b) times the Annuity Unit value, where (a) is the total amount applied under
the option (or the total employee contribution) divided by the Annuity Unit
value for the date on which annuity payments commence, and (b) is the number of
Annuity Units represented by each monthly payment multiplied by the number of
monthly payments made. (See "Death of Annuitant During Annuity Period.")
Example: If under a Contract, $10,000 were applied under this option for a
male at adjusted age 65 on the Annuity Date, the Annuity Unit value on such date
was $1.50, the number of Annuity Units represented by each annuity payment was
40.71 (since the amount of the first annuity payment would be $61.06), ten
annuity payments were paid prior to the date of death, and the value of an
Annuity Unit on the date of the Annuitant's death was $1.60, the amount paid to
the Beneficiary would be $10,015.31, computed as follows:
(($10,000/1.50) - (40.71 X 10)) X $1.60 = $10,015.31.
Fourth Option -- Joint and Last Survivor Life Annuity. Variable Annuity
payments are payable during the joint lifetimes of two Annuitants and continue
during the lifetime of the surviving Annuitant. This option is also available
with a one to twenty year payments certain period. This option is designed
primarily for couples who require maximum possible Variable Annuity payments
during their joint lives and who are not concerned with providing for
Beneficiaries at the death of the last to survive. Under GVA SA-2 Contracts,
this is the Second Option, and is called "Joint and Last Survivor Life Annuity."
Fifth Option -- Payments for Designated Period. Variable Annuity payments
are paid monthly for a selected number of years (between one and fifteen for GUP
Contracts and between one and twenty for GTS-VA Contracts). At any time during
such period the Annuitant may elect to receive in one sum the present value of
the remaining payments, calculated on the basis of an interest rate per annum
equal to that rate used to calculate the Annuitant's first annuity payment. The
Annuitant may receive this sum only if the Annuitant has previously elected
rights of commutation. Under the Federal tax laws, the election of this option
may be treated in the same manner as a total surrender of the Participant
Account. If an employee's Participant Account is surrendered, usually the full
amount received would be includible in income for that year, and, to the extent
so included, would be taxed at ordinary rates. (See "Federal Tax Matters.")
Sixth Option -- Payments of a Specified Dollar Amount. The amount due may
be paid in equal annual, semi-annual, quarterly or monthly installments of a
designated dollar amount (not less than $75 per annum per $1,000 of the original
amount due) until the remaining balance is less than the amount of one
installment. To determine the remaining balance at the end of any month, such
balance at the end of the previous month is decreased by the amount of any
installment paid during the month and the result multiplied by the net
investment factor for the month. If the remaining balance at any time is less
than the amount of one installment, such balance will be paid and will be the
final payment under the option. At any time, the Annuitant may elect to receive
in one sum the remaining value of his account.
Seventh Option -- Investment Income. This Option is available only for the
SA-2 Contracts.
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The amount due may be left on deposit with the Company in its General Account,
and a sum will be paid annually, semiannually, quarterly or monthly, as
selected, which shall be equal to the net investment rate for the period
multiplied by the amount remaining on deposit. The Annuitant may elect to
receive at any time the remaining value of his account in one sum.
ENHANCEMENTS
Enhancements of the annuity options described above are available under the
Contracts. These include partial annuitization, flexible payments of varying
amounts and inflation protection payments. To the extent some or all of these
options do not result in "substantially equal payments" over the life expectancy
of the Annuitant, electing such options may result in unfavorable tax
consequences to Annuitants under age 59 1/2. (See "Federal Tax Matters.")
Additionally, Option Four is available with a one to twenty payment certain
period. Not all of the enhancements are available under each option.
LEVEL PAYMENTS VARYING ANNUALLY
The level payment series is an alternative mode of payment which is used
only in combination with the first through the fourth Variable Annuity options
discussed above. It is not available for GVA SA-2 Contracts, but is available
for GUP and GVA-SA1 Contracts. Under this plan, annuity payments are made
monthly during each annuity year at a level determined for that year based on
the investment performance of the Separate Account.
The amount of the annual Variable Annuity payment level shall be determined
in the same manner as monthly Variable Annuity payments except that annual
rather than monthly purchase rates are used. The amount of the first annual
Variable Annuity payment level is divided by the current Annuity Unit value to
determine the number of Annuity Units in each subsequent annual Variable Annuity
payment level. In any annuity year, the dollar amount of the annual Variable
Annuity payment level is determined by multiplying this constant number of
Annuity Units by the then current Annuity Unit value.
The amount of each certain monthly payment during a given annuity year
shall be no less than the annual Variable Annuity payment level times .084654,
based on an Assumed Investment Rate of 3.5%. This factor may be changed at the
sole discretion of the Company to reflect an interest rate of greater than 3.5%.
If an Annuitant dies prior to receiving all twelve payments during any one
annuity year, the payments remaining during that annuity year will be paid
either to his estate or to the named Beneficiary.
RIGHT OF COMMUTATION
Any right of commutation pursuant to the available Variable Annuity options
or the Fixed Dollar Annuity shall be calculated on the basis of the Assumed
Investment Rate used to calculate the initial annuity payment.
DEATH OF ANNUITANT DURING ANNUITY PERIOD
If the Annuitant dies during the Annuity Period, the Beneficiary may be
entitled to payment of an additional amount or amounts, and may be entitled to
certain alternatives discussed below. If, prior to death, the Annuitant had been
receiving payments under the first or fourth options, no additional amounts
would be due. If, however, the Annuitant had been receiving payments under any
of the other options, the Beneficiary may elect one of the following three
alternatives:
1. Elect to receive in a lump sum the present value, discounted at the
Assumed Investment Rate, of any remaining annuity payments owed under
the Contract based on the then-current Annuity Unit value;
2. Elect to continue receiving annuity payments under the terms of the
Contract, in which case the Beneficiary would be entitled at any time
thereafter to receive the present value of remaining annuity payments,
discounted at the Assumed Investment Rate, based on the Annuity Unit
value next determined after request for such payment is received at the
Company's Home Office; or
3. Elect to have the present value, discounted at the Assumed Investment
Rate, of any annuity payments owed on the Contract, based on the
then-current Annuity Unit value, applied to the fifth option for a
period shorter than the period remaining under the annuity option
selected by the Annuitant.
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Under the Federal tax laws, the election of alternative two above may be
treated in the same manner as a surrender of the Contract. If the Contract is
surrendered, usually the full amount received would be includable in income for
that year, and, to the extent so included, would be taxed at ordinary rates.
(See "Federal Tax Matters.")
Normally, death benefits, other than possible vested interest, are not
provided under unallocated GVA SA-1 and GVA SA-2 Contracts.
FEDERAL TAX MATTERS
GENERAL
Major changes in Federal income tax laws in the past several years may
affect the tax treatment of investments in the Contracts. It is not feasible to
comment on all of these changes, and Contract Owners should consult a qualified
tax advisor for more complete information. Contract Owners should also be aware
that future legislation may change some of the rules discussed in the following
materials.
TAXES PAYABLE BY PARTICIPANTS AND
ANNUITANTS
The Contracts offered in connection with this prospectus are primarily used
with retirement programs which receive favorable tax deferred treatment under
Federal income tax law, although deferred annuity contracts may be purchased
with after tax dollars.
Annuity payments or other amounts received under all Contracts are subject
to some form of federal income tax withholding. The withholding requirement will
vary among recipients depending on the type of program, the tax status of the
individual and the type of payments from which taxes are withheld. Additionally,
annuity payments or other amounts received under all contracts may be subject to
state income tax withholding requirements.
SECTION 403(b) ANNUITIES FOR EMPLOYEES OF CERTAIN TAX-EXEMPT ORGANIZATIONS OR
PUBLIC EDUCATIONAL INSTITUTIONS
Purchase Payments. Under section 403(b) of the Code, payments made by
certain employers (i.e., tax-exempt organizations, meeting the requirements of
section 501(c)(3) of the Code, and public educational institutions) to purchase
annuity Contracts for their employees are excludable from the gross income of
employees to the extent that the aggregate Purchase Payments do not exceed the
limitations prescribed by section 402(g), section 403(b)(2), and section 415 of
the Code. This gross income exclusion applies to employer contributions and
voluntary salary reduction contributions.
An individual's voluntary salary reduction contributions under section
403(b) are generally limited to the lesser of $9,500 or 20 percent of salary;
additional catch-up contributions are permitted under certain circumstances.
Combined employer and salary reduction contributions are generally limited to
the lesser of $30,000 or approximately 20 percent of salary. In addition, for
plan years beginning after December 31, 1988, employer contributions must comply
with various nondiscrimination rules; these rules may have the effect of further
limiting the rate of employer contributions for highly compensated employees.
Taxation of Distributions. Distributions of voluntary salary reduction
amounts are restricted. These restrictions apply to amounts accumulated after
December 31, 1988 (including voluntary contributions after that date and
earnings on prior and current voluntary contributions). These restrictions
require that no distributions will be permitted prior to one of the following
events: (1) attainment of age 59 1/2, (2) separation from service, (3) death,
(4) disability, or (5) hardship (hardship distributions will be limited to the
amount of salary reduction contributions exclusive of earnings thereon).
Distributions from a section 403(b) annuity Contract are taxed as ordinary
income to the recipient in accordance with section 72 of the Code. Distributions
received before the recipient attains age 59 1/2 generally are subject to a 10%
penalty tax in addition to regular income tax. Certain distributions are
excepted from this penalty tax, including distributions following (1) death, (2)
disability, (3) separation from service during or after the year the participant
reaches age 55, (4) separation from service at any age if the distribution is in
the form of substantially equal periodic payments over the life (or life
expectancy) of the Participant (or the Participant and Beneficiary), and (5)
distribu-
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tions in excess of tax deductible medical expenses.
Required Distributions. Generally, distributions from section 403(b)
annuities must commence no later than April 1 of the calendar year following the
calendar year in which the Participant attains age 70 1/2 and such distributions
must be made over a period that does not exceed the life expectancy of the
Participant (or joint life expectancy of the Participant and Beneficiary).
Participants employed by governmental entities and certain church organizations
may delay the commencement of payments until April 1 of the calendar year
following retirement if they remain employed after attaining age 70 1/2. Upon
the death of the Contract Owner prior to the commencement of annuity payments,
the amount accumulated under the Contract must be distributed within five years
or, if distributions to a beneficiary designated under the Contract commence
within one year of the Contract Owner's death, distribution is permitted over
the life of the beneficiary or over a period not extending beyond the
beneficiary's life expectancy. If the Contract Owner has commenced receiving
annuity distributions prior to his death, distributions must continue at least
as rapidly as under the method in effect at the date of his death. However,
amounts accumulated under a Contract on December 31, 1986, are not subject to
these minimum distribution requirements. Pre-January 1, 1987 amounts may be paid
in a manner that meets the above rule or (i) must begin to be paid when the
Participant attains age 75; and (ii) the present value of payments expected to
be made over the life of the Participant under the option chosen must exceed 50%
of the present value of all payments expected to be made (the "50% rule"). The
50% rule will not apply to joint annuitants if a Participant's spouse is the
joint annuitant. Notwithstanding these rules for pre-January 1, 1987 amounts
held under 403(b) Contracts, the entire Contract balance must meet the minimum
distribution incidental benefit requirement of Section 403(b)(10). A penalty tax
of 50% will be imposed on the amount by which the minimum required distribution
in any year exceeds the amount actually distributed in that year.
Tax Free Transfers and Rollovers. The IRS has ruled (Revenue Ruling 90-24)
that total or partial amounts may be transferred tax free between section 403(b)
annuity contracts and/or section 403(b)(7) custodial accounts under certain
circumstances. In addition, section 403(b)(8) of the Code permits tax free
rollovers from section 403(b) programs to IRAs or other section 403(b) programs
under certain circumstances. Such a rollover must be completed within 60 days of
receipt of the distribution. The portion of any distribution which is eligible
to be rolled over to an IRA or another 403(b) program is subject to 20% Federal
income tax withholding unless the participant elects a direct rollover of such
distribution to an IRA or other section 403(b) program.
SECTION 401 QUALIFIED PENSION, PROFIT-
SHARING OR ANNUITY PLANS
Purchase Payments. Purchase Payments made by an employer (or a
self-employed individual) under a pension, profit-sharing or annuity plan
qualified under section 401(a) or section 403(a) of the Code are excluded from
the gross income of the employee for Federal income tax purposes. Payments made
by an employee generally are made on an after-tax basis, unless they are made on
a pre-tax basis by reason of Sections 401(k) or 414(h) of the code.
Taxation of Distributions. Distributions from Contracts purchased under
qualified plans are taxable as ordinary income, except to the extent allocable
to an employee's after-tax contributions (which constitute "investment in the
Contract"). However, if an employee or the Beneficiary receives a lump sum
distribution, as defined in the Code, from an exempt employees' trust, the
taxable portion of the distribution may be subject to special tax treatment. For
most individuals receiving lump sum distributions after attainment of age
59 1/2, the rate of tax may be determined under a special 5-year income
averaging provision. Those who attained age 50 by January 1, 1986 may instead
elect to use a 10-year income averaging provision based on the income tax rates
in effect for 1986. In addition, individuals who attained age 50 by January 1,
1986 may elect capital gains treatment (at a 20% rate) for the taxable portion
of a lump sum distribution attributable to years of service before 1974; such
capital gains treatment has otherwise been repealed. Taxable distributions
received under a Contract purchased under a qualified plan prior to attainment
of age 59 1/2 are subject to the same 10% penalty tax (and the
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same exceptions) as described with respect to section 403(b) annuity Contracts.
Required Distributions. The minimum distribution requirements for qualified
plans are generally the same as described with respect to section 403(b) annuity
Contracts, except that no amounts are exempted from the minimum distribution
requirements.
Tax-Free Rollovers. The taxable portion of certain distributions from a
plan qualified under section 401 or 403(a), may be transferred in a tax-free
rollover to another such plan or to an individual retirement account or annuity.
Such a rollover must be completed within 60 days of receipt of the qualifying
distribution. The portion of any distribution which is eligible to be rolled
over to an IRA or another section 401(a) or 403(a) plan is subject to 20%
Federal income tax withholding unless the Participant elects a direct rollover
of such distribution to an IRA or other section 401(a) or 403(a) plan.
SECTION 457 UNFUNDED DEFERRED
COMPENSATION PLANS OF PUBLIC
EMPLOYERS AND TAX-EXEMPT
ORGANIZATIONS
Purchase Payments. Under section 457 of the Code, individuals who perform
services for a unit of a state or local government may participate in a deferred
compensation program. Tax-exempt employers may establish deferred compensation
plans under section 457 only for a select group of management or highly
compensated employees and/or independent contractors.
This type of program allows individuals to defer the receipt of
compensation which would otherwise be presently payable and to therefore defer
the payment of Federal income taxes on the amounts. Assuming that the program
meets the requirements to be considered an eligible deferred compensation plan
(an "EDCP"), an individual may contribute (and thereby defer from current income
for tax purposes) the lesser of $7,500 or 33 1/3% of the individual's includible
compensation. (Includible compensation means compensation from the employer
which is currently includible in gross income for Federal tax purposes.) During
the last three years before an individual attains normal retirement age,
additional catch-up deferrals are permitted.
The amounts which are deferred may be used by the employer to purchase the
Contracts offered by this prospectus. The Contract is owned by the employer and,
in fact, is subject to the claims of the employer's creditors. The employee has
no present rights or vested interest in the Contract and is only entitled to
payment in accordance with the EDCP provisions.
Taxation of Distributions. Amounts received by an individual from an EDCP
are includible in gross income for the taxable year in which such amounts are
paid or otherwise made available.
Distributions Before Separation from Service. Distributions generally are
not permitted under an EDCP prior to separation from service except for
unforeseeable emergencies. Emergency distributions are includable in the gross
income of the individual in the year in which paid.
Required Distributions. Beginning January 1, 1989, the minimum distribution
requirements for EDCP's are generally the same as those for qualified plans and
section 403(b) annuity Contracts except that no amounts are exempted from
minimum distribution requirements.
Tax Free Transfers and Rollovers. Federal income tax law permits the tax
free transfer of EDCP amounts to another EDCP, but not to an IRA or other type
of plan.
PRIVATE EMPLOYER UNFUNDED DEFERRED
COMPENSATION PLANS
Purchase Payments. Private taxable employers may establish unfunded and
non-qualified deferred compensation plans for a select group of management or
highly compensated employees and/or for independent contractors.
Certain arrangements of nonprofit employers entered into prior to August
16, 1986, and not subsequently modified, are subject to the rules for private
taxable employer deferred compensation plans discussed below.
Where a Contract is purchased under a 457 or private employer unfunded
deferred compensation plan, it constitutes a Non-Qualified Contract. Ordinary
Non-Qualified Contracts, not sold pursuant to such an employer's plan, are not
available under this Contract. Purchase Payments made under ordinary
Non-Qualified Contracts are not excludible from the gross income of the Con-
30
<PAGE> 31
tract Owner or deductible for tax purposes. Private employer unfunded deferred
compensation plans, however, allow individuals to defer receipt of up to 100% of
compensation which would otherwise be includable in income and to therefore
defer the payment of Federal income taxes on the amounts. Increases in the
Accumulation Value of Non-Qualified Contracts resulting from the investment
performance of the Separate Account are not taxable to the Contract Owner until
received by him. Contract owners that are not natural persons, however, are
currently taxable on any increase in the Accumulation Value.
Deferred compensation plans represent a bare contractual promise on the
part of the employer to pay current wages at some future time. The Contract is
owned by the employer and is subject to the claims of the employer's creditors.
The individual has no present right or vested interest in the Contract and is
only entitled to payment in accordance with plan provisions. Private taxable
employers that are not natural persons, however, are currently taxable on any
increase in the Accumulation Value attributable to purchase payments made to
such contracts after February 28, 1986.
Taxation of Distributions. Amounts received by an individual from a private
employer deferred compensation plan are includable in gross income for the
taxable year in which such amounts are paid or otherwise made available.
Tax Free Transfers and Rollovers. Federal income tax law does not allow tax
free transfers or rollovers for amounts accumulated in a private employer
deferred compensation plan.
EFFECT OF TAX-DEFERRED ACCUMULATIONS
The chart below compares accumulations attributable to contributions to (1)
Contracts purchased with pre-tax contributions under tax-favored retirement
programs, (2) Non-Qualified Contracts purchased with after tax contributions and
(3) conventional savings vehicles such as savings accounts.
TAX-DEFERRED ACCUMULATION
[CHART]
This hypothetical chart compares the results of contributing $100 per month
($138.89 for the tax-favored program because contributions are before-tax). It
assumes a 28% tax rate and an 8% fixed rate of return (before fees and charges).
The deduction of fees and charges is reflected in the chart. The dotted lines
represent amounts remaining after withdrawal and payment of taxes and any
surrender charges. An additional 10% tax penalty may apply to withdrawals before
age 59 1/2.
Unlike savings accounts, contributions to tax-favored retirement programs
and Non-Qualified Contracts provide tax-deferred treatment on earnings. In
addition, contributions to tax-favored retirement programs ordinarily are not
subject to income tax until such amounts are distributed. 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 on the
timing of withdrawals. The previous chart shows the actual after-tax amounts
that would be received.
As indicated above, contributions to tax-favored retirement programs are
ordinarily not subject to Federal income tax unless and until withdrawn.
Accumulations under tax-favored re-
31
<PAGE> 32
tirement programs are not required to be withdrawn until age 70 1/2. There may
be restrictions on withdrawals of certain types of contributions until age
59 1/2, separation from service, death, disability or hardship. Withdrawals
before age 59 1/2 generally are subject to a 10% penalty tax in addition to
regular income tax, but withdrawals may be eligible for total or partial
rollover to an IRA or another retirement program.
By taking into account the current deferral of taxes, these contributions
increase the amount available for savings by decreasing the relative current
out-of-pocket cost of the investment. The chart below illustrates this
principle:
PAYCHECK COMPARISON
<TABLE>
<CAPTION>
TAX-FAVORED SAVINGS
RETIREMENT PROGRAM ACCOUNT
------------------ -------
<S> <C> <C>
Set Aside $ 2,500 $2,500
Tax Deferred until
withdrawal (700) --
Current Out-of-
Pocket $ 1,800 $2,500
</TABLE>
This chart compares a $2,500 contribution and assumes a 28% Federal tax
bracket.
FUND DIVERSIFICATION
Non-Qualified contracts, as discussed above, are not sold under this
Contract. Separate Account investments for Non-Qualified contracts are available
under other Company contracts, however.
Separate Account investments must be adequately diversified in order for
the increase in the value of Non-Qualified contracts to receive tax-deferred
treatment. In order to be adequately diversified, each portfolio of the Fund
must, as of the end of each calendar quarter or within 30 days thereafter, have
no more than 55% of its assets invested in any one investment, 70% in any two
investments, 80% in any three investments and 90% in any four investments.
Failure of a Fund portfolio to meet the diversification requirements could
result in tax liability to Non-Qualified contract owners. The Fund expects to
meet the diversification requirements above and assure tax deferred treatment
for holders of any Non-Qualified contracts.
The investment opportunities of the Fund could conceivably be limited by
adhering to the above diversification requirements. This would affect all
contract owners, including those owners of Qualified Contracts for whom
diversification is not a requirement for tax-deferred treatment.
TRANSFERS UNDER THE CONTRACTS
Transfers between the General Account and the Separate Account are
permitted subject to the conditions discussed below. The right to make transfers
is exercisable by the Participant during the Accumulation Period and by the
Annuitant during the Annuity Period. The Company reserves the right to limit
transfers to the extent such limitation is allowed by the Contract.
TRANSFERS DURING THE ACCUMULATION PERIOD
During the Accumulation Period, transfers of Accumulation Value between the
Separate Account and the General Account may be made at any time. However,
transfers to the General Account, if made within 120 days of a transfer from the
General Account, may affect the interest rate earned on those payments in the
General Account under the terms of the Contract.
TRANSFERS DURING THE ANNUITY PERIOD
During the Annuity Period, transfers of Annuity Units may be made from the
Separate Account to a Fixed Dollar Annuity at intervals of at least 365 days or
as provided for in the Contract. During the Annuity Period, transfers from a
Fixed Dollar Annuity are not permitted.
OTHER REQUIREMENTS
Transfers among investment options or changes of future allocation of
Purchase Payments ("reallocations") may be made upon receipt by the Company, at
its Home Office, of written instructions or by telephone at 1-800-621-7792.
Requests for transfers or reallocations by telephone will be automatically
permitted unless the Company has been notified otherwise in writing or by
telephone at 1-800-621-7792. If, after notifying the Company that telephone
transfers or reallocations are not to be allowed, the Contract Owner or
Participant wishes to have the right to effect telephone transfers or
reallocations reactivated, he or she must notify the Company in writing.
Prior to the Company's effecting a transfer request or reallocation by
telephone instruction, the Company will employ reasonable procedures to confirm
that instructions communicated by
32
<PAGE> 33
telephone are genuine by requiring certain identifying information about the
Contract Owner or Participant. Unless the Contract Owner instructs the Company
not to accept telephone transfers or reallocations, anyone who represents that
he or she is authorized by the Contract Owner or Participant to effect a
transfer or reallocation may do so if they have the requisite Contract Owner or
Participant account information. Officers, directors, agents, representatives
and employees of the Company may not give or be authorized to give telephone
instructions on behalf of Contract Owners or Participants (other than for
contracts within their immediate family) without prior written permission of the
Company.
It is the responsibility of the Contract Owner or Participant to verify the
accuracy of all confirmations of transfers or reallocations and to promptly
advise the Company of any inaccuracies within one business day of receipt of the
confirmation. The Company will send to the Contract Owner or Participant a
confirmation of the transfer or reallocation within five (5) days from the date
of the instruction.
Any telephone instructions reasonably believed by the Company to be genuine
will be the Contract Owner's or Participant's responsibility, including losses
arising from any errors in the communication of instructions. As a result of
this policy, the Contract Owner or Participant will bear the risk of loss. If
the Company does not employ reasonable procedures to confirm that instructions
communicated by telephone are genuine, it may be liable for any losses due to
unauthorized or fraudulent instructions.
Transfers or reallocations will be effected pursuant to the Contract
Owner's or Participant's written or telephone transfer request as of the day
received by the Company if received by the Company's Home Office before the
close of regular trading of the New York Stock Exchange, generally 4:00 p.m. New
York time, on a day Accumulation Unit values are calculated; otherwise the next
calculated Accumulation Unit or Annuity Unit Value will be used. Telephone
transfer requests will not be accepted during the Annuity Period. The Company
reserves the right to discontinue the telephone transfer facility at any time.
OTHER CONTRACT FEATURES
CHANGE OF BENEFICIARY
Once a Participant Account has been established, the Contract Owner, the
Participant and the Annuitant may not be changed.
The Beneficiary is designated by the Participant. The Annuitant generally
may change the Beneficiary designation at any time unless such designation has
been made irrevocable. Under certain retirement programs, however, spousal
consent may be required to name or change a Beneficiary, and the right to name a
Beneficiary other than the spouse may be subject to applicable tax laws and
regulations. If no Beneficiary is living at the time of an Annuitant's death,
any benefits otherwise payable under the Contract to the Beneficiary will be
payable to the Annuitant's estate. If a Beneficiary dies while receiving
payments under the Contract, and if no other Beneficiary is then living, any
remaining benefits owed under the Contract will be paid to such Beneficiary's
estate.
REVOCATION
Each Participant under a GUP Contract shall have the right for a period of
10 days (commencing with the date of the execution of his individual
application) or such longer revocation period as required by state law. The
Company will refund any Purchase Payments received for the contract without
regard to investment results, unless a larger refund is required by state law.
RESERVATION OF RIGHTS
The Company reserves the right to amend a Contract (1) to conform with
substitutions of investments (2) to comply with tax or other laws applicable to
these types of Contracts, except as discussed below. The Company also reserves
the right (3) to operate the Separate Account as a management investment company
under the 1940 Act, in consideration of receipt of an investment management fee,
or in any other form permitted by law, and (4) to deregister the Separate
Account under the 1940 Act in the event such registration is no longer required.
The Company reserves the right to increase all charges and the annuity
purchase rates under GUP Contracts from time to time. However, such change will
not be effective retroactively, and will
33
<PAGE> 34
not affect contributions of Participants who were in plans prior to the
effective date of such change, to the extent that any such Participant's
contributions in any year do not exceed 200% of the amount of first year
Purchase Payments made on his behalf. The Company may modify the GUP Contract
(except where modification is prohibited by the 1940 Act) with respect to
Purchase Payments in excess of such amount after the effective date of the
modification.
Under GVA SA-1 Contracts, the Company has the right after the fifth
Contract year to change any terms of the Contract upon written notice given to
the Contract Owner ninety (90) days in advance, except where modification is
prohibited by the 1940 Act. However, no such change may affect the annuity
purchase rates or expense charges as they apply to Accumulation Units purchased
by Purchase Payments made prior to such change or to the application of those
Accumulation Units to provide retirement annuities.
Under GVA SA-2 Contracts issued in connection with section 403(b) plans and
certain section 401 plans for self-employed individuals, the Company may
increase the deduction for sales and administrative expenses after the end of
the first Contract year. However, Contract amendments can affect the annuity
purchase rates or the daily charge for expense and mortality undertakings and
investment advisory services applicable to a Participant for Purchase Payments
at an annual rate of up to 200% of the first annual Purchase Payment made for
each such Participant.
For Unallocated GVA SA-2 Contracts, the annuity purchase rates are
guaranteed for ten years. The Company reserves the right to modify the annuity
purchase rates applicable to Purchase Payments made to the Company after the
tenth Contract year.
The Company has issued endorsements under the Contracts that limit its
ability to increase certain charges and expenses. (See "Charges and
Deductions -- Limitations on Charges.")
RELATIONSHIP TO EMPLOYER'S PLAN
Since it is contemplated that most Contracts offered by this prospectus
will be used for retirement programs, reference should be made to specific plan
provisions and restrictions, if any, contained in the Employer's plan in
connection with this description of the Contracts.
Plan loans from the portion of your Participant Account attributable to the
General Account may be permitted by your employer's plan. Refer to your plan for
a description of charges and further information.
PAYMENT AND DEFERMENT
Payments of termination values, as well as lump sum payments available
under an annuity option, will be made within five business days after receipt of
the written request by the Company at its Home Office; however, payments
attributable to Division Ten may be suspended or postponed at any time when
redemption of the Fund's shares is suspended or postponed. See the American
General Series Portfolio Company prospectus for a discussion of the
circumstances under which American General Series Portfolio Company may suspend
or postpone redemption of its shares.
NONASSIGNABILITY OF QUALIFIED CONTRACTS
In order to qualify for favorable tax treatment, each Variable Annuity
issued under a Qualified plan must provide, at issue, that it may not be sold,
assigned, or pledged as collateral for a loan or as security for the performance
of an obligation or for any other purpose, to any person or organization other
than the Company when owned by any person other than the trustees of any trust
described in section 401(a), or the administrator of any annuity plan described
in section 403(a) of the Code. GUP and GVA SA-2 Contracts are not assignable
unless permitted by applicable law. GVA SA-1 Contracts may not be assigned.
OTHER VARIABLE ANNUITY CONTRACTS
In addition to the Contracts described in this prospectus, the Company has
made the Separate Account available to fund other group and individual variable
annuity contracts, including the Independence Plus Series, and the UIT-981
contracts. These other contracts entail different charges at the Separate
Account level from those imposed on the Contracts described in this prospectus.
The other contracts listed above are described in and offered pursuant to
separate prospectuses.
34
<PAGE> 35
VOTING RIGHTS
The Contract Owner during the Accumulation Period, the Annuitant during the
Annuity Period, or the Beneficiary after the Annuitant's death, will be entitled
to give instructions to the Company as to how Fund shares held in the Separate
Account Division Ten attributable to the Participant Account or Variable Annuity
are to be voted at meetings of shareholders of American General Series Portfolio
Company. Those persons entitled to give voting instructions will be determined
as of the record date for each meeting.
Each Participant under an allocated group Contract and each Participant
receiving Variable Annuity benefits under an unallocated Contract, has the right
to give instructions to the Contract Owner for those votes. Votes for which
instructions have not been received from Participants will be cast by the
Contract Owner in the same proportion as those votes for which instructions have
been received. The Contract Owner may vote without instructions from
Participants under unallocated group Contracts involving contributions solely by
Contract Owners.
The number of Fund shares held in Division Ten deemed attributable to a
Participant Account prior to the Annuity Date and during the lifetime of the
Annuitant will be determined on the basis of the value of Accumulation Units
credited to the Participant Account as of the record date. On or after the
Annuity Date or after the death of the Participant or Annuitant, the number of
Fund shares deemed attributable to a Participant Account will be equal to the
dollar value of the assets maintained in Division Ten to fund the annuity
benefit payment obligations under the Contract as of the record date. During the
Annuity Period, the number of votes attributable to a Variable Annuity will
generally decrease since funds set aside for an Annuitant will decrease.
Persons who are entitled to vote will receive proxy material and a form on
which voting instructions may be given. The Company will vote Fund shares held
by the Separate Account attributable to the Contracts or to other variable
annuity contracts issued by Division Ten, in accordance with instructions
received. Fund shares held by the Separate Account as to which no instructions
have been received will be voted for or against any proposition in the same
proportion as the shares to which instructions have been received. Fund shares
held in the Separate Account or any other separate account of the Company or its
affiliates that are not attributable to contracts investing in Division Ten also
will be voted for or against any proposition in the same proportion for which
voting instructions are received for shares attributable to contracts investing
in Division Ten. However, if the Company determines that it is permitted to vote
any such shares of the Fund in its own right, it may elect to do so, subject to
the then current interpretation of the 1940 Act and the rules thereunder.
STATE REGULATION
The Company is subject to the laws of Texas governing life insurance
companies and to regulation by the Texas Commissioner of Insurance. Each year,
the Company files an annual statement with the Commissioner covering its
operations for the preceding year and its financial condition on December 31 of
the preceding year. The Commissioner may examine the Company's books and assets
at any time. In addition, the National Association of Insurance Commissioners
conducts a complete examination and audit of the Company's books and operations
at least once every three years. The Company is also subject to the laws and
regulations of all the states in which it does business. Generally, the
insurance departments of most states apply the laws of Texas to determine
permissible investments for the Company and the Separate Account.
35
<PAGE> 36
TABLE OF CONTENTS OF THE STATEMENT OF ADDITIONAL INFORMATION
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
General Information and Separate Account History..................................... 2
Types of Variable Annuity Contracts.................................................. 2
Accumulation Unit Value.............................................................. 3
Illustration of Calculation of Accumulation Unit Value.......................... 3
Illustration of Purchase of Accumulation Units.................................. 3
Performance Calculations............................................................. 4
Illustration of Calculation of Average Annual Total Return...................... 4
Performance Information.............................................................. 4
Performance Compared to Market Index............................................ 4
Stock Index Division Ten Performance Compared to S&P 500 Index.................. 5
Annuity Payments..................................................................... 6
Assumed Investment Rate......................................................... 6
Amount of Annuity Payments...................................................... 6
Annuity Unit Value.............................................................. 7
Generally.................................................................. 7
Adjusted Age Chart......................................................... 8
Illustration of Calculation of Annuity Unit Value.......................... 8
Illustration of Annuity Payments........................................... 8
Distribution of Variable Annuity Contracts........................................... 9
Experts.............................................................................. 9
Comments on Financial Statements..................................................... 10
</TABLE>
36
<PAGE> 37
REVOCATION OF TELEPHONE ASSET TRANSFER AUTHORITY
Participant/Contract Owner Name:
------------------------------------------------------------------------
Social Security Number:
------------------------------------------------------------------------
Birth Date:
------------------------------------------------------------------------
I am the Participant under or Contract Owner of one or more variable
annuity contracts issued by The Variable Annuity Life Insurance Company
("VALIC"). I hereby instruct VALIC not to accept any telephone instructions to
transfer Accumulation Values among investment options or change the allocation
of future Purchase Payments from me, anyone representing me or anyone
representing himself or herself to be me. I understand as a result of executing
this form that the transfer of Accumulation Values or Annuity Values among
investment options or changes in the allocation of future Purchase Payments may
only be effected upon the receipt by VALIC of my written instructions.
<TABLE>
<S> <C>
- ---------------------------------------------------------------- -------------------------
Participant/Contract Owner Signature Date
</TABLE>
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.
37
<PAGE> 38
Please tear off, complete and return the form below to order a Statement of
Additional Information for the Contracts offered under the prospectus (Contract
Forms formerly offered by VALIC Separate Account One and VALIC Separate Account
Two). Address the form to any Regional Office, the addresses of which appear on
the last page of this prospectus. A Statement of Additional Information may also
be ordered by calling 1-(800)-44-VALIC.
- --------------------------------------------------------------------------------
GUP AND GTS-VA CONTRACTS
Please send me a free copy of the Statement of Additional Information for
The Variable Annuity Life Insurance Company Separate Account A (Contract forms
GUP and GTS-VA).
(Please Print or Type)
<TABLE>
<S> <C>
Name: G.A. #
---------------------------------------- ----------------------------------
Address: Policy: #
---------------------------------------- ----------------------------------
----------------------------------------
Social Security Number:
----------------------------------------
</TABLE>
38
<PAGE> 39
===============================================================================
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 Harbour 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
(404) 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
(301) 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
THE VARIABLE ANNUITY LIFE INSURANCE COMPANY
2929 ALLEN PARKWAY, HOUSTON, TEXAS 77019 (713) 526-5251
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> 40
THE VARIABLE ANNUITY LIFE INSURANCE
COMPANY
SEPARATE ACCOUNT A
UNITS OF INTEREST UNDER
GROUP UNIT PURCHASE AND
GROUP VARIABLE ANNUITY CONTRACTS
(GUP AND GTS-VA CONTRACT SERIES)
----------------------------------------------------------------
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 and more detailed than that set forth in the
prospectus for the Contracts, dated May 1, 1996, 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.
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
General Information and Separate
Account History...................... 2
Types of Variable Annuity Contracts.... 2
Accumulation Unit Value................ 3
Illustration of Calculation of
Accumulation Unit Value........... 3
Illustration of Purchase of
Accumulation Units................ 3
Performance Calculations............... 4
Calculation of Average Annual Total
Return............................ 4
Performance Information................ 4
Performance Compared to Market
Index............................. 4
Stock Index Division Ten Performance
Compared to S&P 500(R)............ 5
<CAPTION>
PAGE
----
<S> <C>
Annuity Payments....................... 6
Assumed Investment Rate.............. 6
Amount of Annuity Payments........... 6
Annuity Unit Value................... 7
Generally......................... 7
Adjusted Age Chart................ 8
Illustration of Calculation of
Annuity Unit Value................ 8
Illustration of Annuity Payments..... 8
Distribution of Variable Annuity
Contracts............................ 9
Experts................................ 9
Comments on Financial Statements....... 10
</TABLE>
VA 1019-1, Rev. 5/96
<PAGE> 41
GENERAL INFORMATION AND SEPARATE ACCOUNT HISTORY
The Variable Annuity Life Insurance Company ("the Company") is a stock life
insurance company organized under the laws of the State of Texas and is engaged
primarily in the offering and issuance of fixed and variable retirement annuity
contracts and combinations thereof. The Company also is licensed to write life
insurance in all states (other than Connecticut) and the District of Columbia,
and annuities in all fifty states and the District of Columbia. The Company is
an indirect wholly-owned subsidiary of American General Corporation (formerly
American General Insurance Company) of Houston, Texas. American General
Corporation is a holding company, whose various subsidiaries operate in each of
the fifty states and Canada, and collectively engage in substantially all forms
of financial services, with activities heavily weighted towards insurance.
American General Corporation businesses include life insurance,
property-liability insurance, casualty and health insurance, mortgage banking,
and the management and distribution of mutual funds, among others.
On August 9, 1967, VALIC Washington, the predecessor of the Company,
acquired for its Separate Account Two all of the assets and outstanding business
of The Equity Annuity Life Insurance Company ("EALIC"), Washington, D.C., which
was 34% owned by American General Corporation. The assets acquired were
attributable to variable annuity contracts issued by EALIC and outstanding on
August 9, 1967.
On September 25, 1968, the Board of Directors of the Company established
the Company's Separate Account One ("Separate Account One") and the Company's
Separate Account Two ("Separate Account Two"). Both were established as
"separate accounts" under the Texas Insurance Code and registered as diversified
open-end management investment companies under the Investment Company Act of
1940 (the "1940 Act").
On May 1, 1969, when the Company succeeded VALIC Washington, the assets
maintained in Separate Account Two of VALIC Washington were transferred to the
Company's Separate Account Two. At that time, the owners of and participants
under outstanding variable annuity contracts issued by EALIC were credited with
the same number of applicable accumulation units or annuity units with which
they were credited in Separate Account Two of the Company Washington immediately
prior to the succession.
On April 18, 1979, the Board of Directors of the Company established
Separate Account A (the "Separate Account") in accordance with the Texas
Insurance Code. The Separate Account is registered with the U.S. Securities and
Exchange Commission as a unit investment trust under the 1940 Act.
Each Division of the Separate Account invests in the shares of a
diversified, open-end management investment company registered under the 1940
Act or a portfolio of such an investment company. The Separate Account currently
is made up of eighteen Divisions. However, only Division Ten is available as a
variable investment option under the Contracts. Other Divisions are offered only
through certain other variable annuity contracts issued by the Company through
the Separate Account. Division Ten is also available under certain of these
other variable annuity contracts.
On April 17, 1987, Contract Owners investing in Separate Accounts One and
Two approved a reorganization (the "Reorganization") in which the investment
assets of Separate Account Two were contributed to Separate Account One and the
resulting investment assets held in Separate Account One were contributed to the
Quality Growth Fund ("the Fund"), a portfolio of American General Series
Portfolio Company, in exchange for which Division Nine of the Separate Account
received shares of the Fund, and Separate Accounts One and Two ceased to exist.
(See "the Company and the Separate Account" in the Prospectus.)
Effective May 1, 1992 the Quality Growth Fund merged with the Stock Index
Fund. On that date Quality Growth Division Nine was renamed Stock Index Division
Ten.
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
<PAGE> 42
(2) single payment deferred annuity Contracts; and
(3) flexible payment deferred annuity Contracts.
Under single payment Contracts, only one Purchase Payment is made by the
Contract Owner. Under flexible payment Contracts, Purchase Payments generally
are made until retirement age is reached. However, no Purchase Payments are
required to be made after the first payment. Purchase Payments are subject to
any minimum payment requirements under the Contract.
Under deferred annuity Contracts, Purchase Payments are invested and
accumulate on a fixed or variable basis until the date the Contract Owner
selects to commence annuity payments.
Under immediate annuity Contracts, the first annuity payment is made on the
first day of the second month after the Purchase Payment is received. During the
period before the Annuity Date, the Purchase Payments are invested in the same
manner, and the other terms and conditions (including the options and rights of
Contract Owners, Annuitants and Beneficiaries) are the same under immediate
annuity Contracts as under deferred annuity Contracts.
The Contracts are non-participating and will not share in any of the
profits of the Company.
ACCUMULATION UNIT VALUE
The calculation of Accumulation Unit value is discussed in the Prospectus
under "Accumulation Period." Amounts allocated to Division Ten will be valued on
the basis of one of three Accumulation Unit values: one for GUP Series
Contracts, one for GTS-VA Series Contracts, and one for other variable annuity
contracts investing in Division Ten. The following illustrations show a
calculation of an Accumulation Unit value and the purchase of Accumulation Units
(using hypothetical examples):
ILLUSTRATION OF CALCULATION OF ACCUMULATION UNIT VALUE
Example 1.
<TABLE>
<S> <C> <C>
1. Accumulation Unit value, beginning of period............................ $ 1.000000
2. Value of Fund share, beginning of period................................ $ 10.000000
3. Change in value of Fund share........................................... $ .200000
4. Gross investment rate (3) divided by (2)................................ .020000
5. Daily mortality and expense charge...................................... .000027
6. Plus adjustment for expense limitations................................. .000018
7. Net investment rate (4)-(5)+(6)......................................... .019991
8. Net investment factor (1.000000)+(7).................................... 1.019991
9. Accumulation Unit Value, end of period (1)X(8).......................... $ 1.019991
</TABLE>
ILLUSTRATION OF PURCHASE OF ACCUMULATION UNITS (ASSUMING NO STATE PREMIUM TAX)
Example 2.
<TABLE>
<S> <C> <C>
1. First Periodic Purchase Payment......................................... $ 100.00
2. Accumulation Unit value on effective date of purchase (see Example 1)... $ 1.000000
3. Number of Accumulation Units purchased (1) divided by (2)............... 100.00
4. Accumulation Unit value for valuation date following purchase (see
Example 1).............................................................. $ 1.019991
5. Value of Accumulation Units in account for valuation date following
purchase (3)X(4)........................................................ $ 101.9991
</TABLE>
3
<PAGE> 43
PERFORMANCE CALCULATIONS
CALCULATION OF AVERAGE ANNUAL TOTAL RETURN
Example 3.
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 return 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> <C>
P = a hypothetical initial Gross 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 period of a
hypothetical $1,000 Gross Purchase Payment made at the beginning of the
1, 3, 5, or 10 year period
</TABLE>
In the calculation above, the maximum 5% sales load was deducted from the
initial $1,000 Gross Purchase Payment for GUP Series Contracts and for GTS-VA
Series Contracts.
None of the Contracts include sales charges 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 non-recurring charges at
the end of each such period.
PERFORMANCE INFORMATION
PERFORMANCE COMPARED TO MARKET INDEX
The following tables show the Hypothetical $10,000 Account Value and
Cumulative Return of Division Ten as compared to the benchmarks shown.
These performance calculations for Division Ten and the methods used for
calculating them are described in the Prospectus. (See "Performance Information"
and "The Funds.")
These tables compare hypothetical investment performance and percentage
changes in Contract Accumulation Unit values with the results of a benchmark,
representing an unmanaged market index. The comparisons should be considered in
light of the investment policies and objectives of the Fund. Rates of return for
the Division include reinvestment of investment income, including capital gains,
interest and dividends. The rate of return on the market index also has been
adjusted to reflect reinvestment of interest and dividends.
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.
The performance of Stock Index Division Ten may be compared to the record
of the Standard & Poor's(R) Corporation Composite Stock Price Index ("S&P
500(R)")*. The S&P 500 is a well known measure of the price performance of 500
leading larger domestic stocks which represent 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. This benchmark is not subject to any charges for investment advisory
fees or other expenses of the type charged at either the Separate Account or the
fund level. Therefore, the comparison with this benchmark is of limited use.
4
<PAGE> 44
STOCK INDEX DIVISION TEN PERFORMANCE
COMPARED TO S&P 500
Price returns for the S&P 500 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 S&P 500 Index column shown below in the
Hypothetical $10,000 Account Value presentation, price index values were
substituted for Unit values in the calculation described in the Prospectus, and
dividend yields were then added to determine the total returns applied in the
dollar value calculations. Similarly, to calculate Cumulative Return for the S&P
500, the Cumulative Return calculation described in the Prospectus for Unit
values of Division Ten was used, substituting the Hypothetical $10,000 Account
Value at the end of each year for the Accumulation Unit value. No sales load,
administrative charges, or expenses were deducted from any S&P 500 Index
calculations.
Example 4.
HYPOTHETICAL $10,000 ACCOUNT VALUE
INVESTED TEN YEARS AGO (1) COMPARED TO MARKET INDEX
ANNUAL VALUES OF A $10,000 STIPULATED
PAYMENT MADE JANUARY 1, 1986
------------------------------------------------------
(NET OF APPLICABLE FRONT END SALES AND ADMINISTRATIVE CHARGES)
<TABLE>
<CAPTION>
GUP GTS-VA
SERIES SERIES
(SERIES (SERIES S&P
10A) 10B) 500
DATE OF PERIOD ANNUAL ANNUAL ANNUAL
ENDED VALUE VALUE VALUE
- ----------------------------------------------------- -------- -------- --------
<S> <C> <C> <C>
1/1/86............................................... $ 9,550 $ 9,550 $ 10,000
12/31/86............................................. 10,318 10,373 11,867
12/31/87............................................. 10,488 10,704 12,490
12/31/88............................................. 11,567 11,889 14,564
12/31/89............................................. 14,162 14,659 19,179
12/31/90............................................. 13,520 14,096 18,583
12/31/91............................................. 16,291 17,105 24,245
12/31/92............................................. 16,731 17,693 26,092
12/31/93............................................. 18,204 19,389 28,722
12/31/94............................................. 18,151 19,462 29,101
12/31/95............................................. 24,681 26,638 40,037
</TABLE>
- ---------------
(1) On April 17, 1987 the Company's Separate Account One and Two were
reorganized and then merged into the American General Series Portfolio
Company's Quality Growth Fund. Separate Account One and Two then became a
part of the Company's Separate Account Division Nine. Separate Account One's
unit value history became identified as GUP Series (Quality Growth Division
9A) Unit Value. Separate Account Two's unit value history became identified
as GTS Series (Quality Growth Division 9B) Unit Value. Performance prior to
the reorganization date, therefore, represents results obtained by the
Company's Separate Account One and Two. Subsequent to the Reorganization,
performance represents results obtained by the Company's GUP Series (Quality
Growth Division 9A) and GTS Series (Quality Growth Division 9B). Effective
with the merger of the Quality Growth Fund on May 1, 1992 into the Stock
Index Fund, Quality Growth Divisions 9A and 9B were renamed Stock Index
Divisions 10A and 10B, respectively.
5
<PAGE> 45
Example 6.
CUMULATIVE RETURN FOR STOCK INDEX DIVISION TEN COMPARED TO MARKET INDEX
<TABLE>
<CAPTION>
10 3
YEARS 5 YEARS YEARS 1 YEAR
------- ------- ------ ------
<S> <C> <C> <C> <C>
Investment Division
Stock Index Division
GUP SERIES (Series 10A)(1).............. 146.81% 74.34% 40.88% 29.86%
GTS-VA SERIES (Series 10B)(1)........... 166.38 80.47 43.78 30.71
Benchmark Comparison S&P 500................... 300.37 115.45 53.44 37.58
</TABLE>
HYPOTHETICAL $10,000 ACCOUNT VALUE
INVESTED IN STOCK INDEX
DIVISION TEN AT APRIL 17, 1987
COMPARED TO MARKET INDEX
The table below shows the annual value of a $10,000 initial Gross Purchase
Payment invested in Division Ten, as compared to the price returns for the S&P
500 Index, for the period since the Reorganization, April 17, 1987 through
December 31, 1995. Effective with the merger of the Quality Growth Fund into the
Stock Index Fund, Quality Growth Division 9A and 9B were renamed Stock Index
Division 10A and 10B.
<TABLE>
<CAPTION>
STOCK INDEX DIVISION TEN
-------------------------
GUP GTS-VA
SERIES SERIES
(DIVISION (DIVISION S&P
10A) 10B) 500
DATE OF PERIOD ANNUAL ANNUAL ANNUAL
ENDED VALUE VALUE VALUE
- ------------------------------------------------- -------- -------- --------
<S> <C> <C> <C>
April 17, 1987(1)................................ $ 9,550 $ 9,550 $ 10,000
12/31/87......................................... 8,531 8,576 8,715
12/31/88......................................... 9,410 9,526 10,162
12/31/89......................................... 11,520 11,745 13,382
12/31/90......................................... 10,998 11,294 12,966
12/31/91......................................... 13,252 13,705 16,917
12/31/92......................................... 13,610 14,176 18,206
12/31/93......................................... 14,808 15,535 20,041
12/31/94......................................... 14,765 15,593 20,305
12/31/95......................................... 20,077 21,343 27,935
</TABLE>
- ---------------
(1) Initial investment net of applicable front end sales and administrative
charges
ANNUITY PAYMENTS
ASSUMED INVESTMENT RATE
The discussion concerning the amount of annuity payments which follows this
section is based on an Assumed Investment Rate of 3.5% per annum. (The same
principles apply to GVA SA-2 Contracts sold in connection with section 403(b)
plans, although the Assumed Investment Rate is 3%.) The Company will permit each
Annuitant to select an assumed Investment Rate permitted by state law or
regulations other than the 3.5% (or 3%) rate described above as discussed in the
Prospectus under "Annuity Period."
AMOUNT OF ANNUITY PAYMENTS
The amount of the first variable annuity payment will depend on the
Accumulation Value of the Participant's Account applied to effect the variable
annuity as of the tenth day immediately preceding the Annuity Date, the amount
of any premium tax owed and the annuity purchase rates contained in the
Contract. Under an immediate annuity contract, Purchase Payments not received
and credited prior to the valuation date
6
<PAGE> 46
(i.e. the tenth day immediately preceding the end of the month) may not be
applied to effect the variable annuity, but will be refunded. The annuity
purchase rates under group contracts (i.e. GUP Series & GTS-VA Series) show the
amount necessary to provide a monthly retirement benefit of $1. The rates vary
with the form of annuity selected and the date of birth of the Annuitant and of
the contingent annuitant, if any, and, for certain annuity options, the adjusted
age at which the annuity is effected.
Annuity purchase rates are based upon the Progressive Annuity Tables for
GUP and GVA SA-1 Contracts. GVA SA-2 Contracts use the 1949 male annuity
mortality tables at 3% for Contracts sold in connection with section 403(b)
plans and the Progressive Annuity Table (assuming all births in 1915) at 3.5%
for all other Contracts.
The portion of the first variable annuity payment is divided by the
applicable Annuity Unit value for the Contract (calculated ten days prior to the
date of the first monthly payment) to determine the number of Annuity Units
represented by the payment. The number of such units will remain fixed during
the Annuity Period, assuming the Annuitant makes no transfers of Annuity Units
to provide a Fixed Dollar Annuity.
The dollar amount of each subsequent Variable Annuity payment is determined
by multiplying the number of Annuity Units in the Participant Account by the
applicable Annuity Unit value on the tenth day preceding the due date of such
payment. The Annuity Unit value will increase or decrease in proportion to the
net investment factor for the Contract since the date of the previous annuity
payment, less an adjustment to neutralize the Assumed Investment Rate referred
to above. For example, a factor of .999919 is applied to Contracts containing a
3% Assumed Investment Rate and a factor of .999906 is applied to Contracts
containing a 3.5% Assumed Investment Rate. (Calculation of the net investment
factor is discussed in the Prospectus under "Accumulation Period -- Accumulation
Unit Value.") This is true for all annuity options except the sixth annuity
option described in the Prospectus (see "Description of Options Available").
Under the sixth annuity option, the amount of subsequent payments remains fixed,
but the number of payments varies with the experience of Division Ten.
Therefore, the dollar amount of variable annuity payments after the first
will vary with the amount by which the net investment rate is greater or less
than the Assumed Investment Rate. For example, if the Assumed Investment Rate is
3.5%, and the cumulative net investment rate for a Contract (as calculated in
Example 1) is 5% over a one year period, the first annuity payment in the next
year will be approximately 1.5 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 Division Ten. If such net investment rate is
1% over a one year period, the first annuity payment in the next year will be
approximately 2.5 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 Division Ten.
Each deferred Contract provides that, when Fixed Dollar Annuity payments
are to be made under one of the first four annuity options, the monthly payment
to the Annuitant will not be less than the monthly payment produced by the rate
for a currently issued single payment immediate annuity contract or the current
settlement option rate, if better. The purpose of this provision is to assure
the Annuitant that, at retirement, if the fixed annuity purchase rates then
required by the Company for new single payment immediate annuity contracts are
significantly more favorable than the annuity rates guaranteed by a Contract,
the Annuitant will be given the benefit of the new annuity rates. Single payment
immediate annuity Contracts do not contain such a provision.
ANNUITY UNIT VALUE
Generally. The value of an Annuity Unit is calculated at the same time and
in the same manner that the value of an Accumulation Unit is calculated. (See
"Accumulation Period -- Accumulation Unit Value," in the Prospectus.) Due to
varying charges imposed against different Contracts, a number of Annuity Unit
values developed since the Annuity Unit values for Separate Account One and for
Separate Account Two were originally established. At the time of Reorganization,
the Company converted the different Annuity Unit values to common bases by use
of conversion factors.
7
<PAGE> 47
Since the Reorganization, the Annuity Unit value for any period is
determined by multiplying the Annuity Unit value for the immediately preceding
period by the net investment factor for the date for which the Annuity Unit
value is being calculated. (The net investment factor used is the net investment
factor used to calculate the Accumulation Unit value described in the Prospectus
under "Accumulation Period.") In order to avoid the crediting of "double
interest," the result is then multiplied by a factor to neutralize the Assumed
Investment Rate built into the annuity table contained in the Contract. For
example, a factor of .999919 is applied to Contracts containing a 3% Assumed
Investment Rate, and a factor of .999906 is applied to Contracts containing a
3.5% rate.
Adjusted Age Chart. The Annuitant's adjusted age at the time the first
payment is due shall be determined in accordance with the table in the Contract.
(For an explanation of the application of the adjusted age, see "Amount of
Annuity Payments.") The following chart shows adjusted age as calculated for the
various Contracts. Actual age, adjusted by the table, means age nearest the
Annuitant's birthday at the time the first payment is due.
<TABLE>
<CAPTION>
CALENDAR YEAR ADJUSTED AGE
CONTRACT TYPE OF BIRTH IS ACTUAL AGE
- --------------------- -------------- --------------
<S> <C> <C>
GUP Contracts........ Before 1916 minus 0
1916-1935 minus 1
1936-1955 minus 2
1956-1976 minus 3
GVA SA-1 Before 1901 plus 1
Contracts.......... 1901-1915 minus 0
1916-1935 minus 1
1936-1955 minus 2
1956-1976 minus 3
GVA SA-2 Before 1901 plus 2
Contracts.......... 1901-1915 plus 1
1916-1930 minus 0
1931-1945 minus 1
</TABLE>
The calculation of Annuity Unit value is discussed in the Prospectus under
"Annuity Period." Amounts allocated to Division Ten will be valued on the basis
of one of three Annuity Unit Values for each available Assumed Investment Rate:
one for SA-1 Contracts, one for SA-2 Contracts, and one for other variable
annuity contracts investing in Division Ten, depending on the net investment
factor for each of Series 10A, 10B and 10C. The following illustrations show a
calculation of an Annuity Unit value and the amount of variable annuity payments
(using hypothetical examples):
ILLUSTRATION OF CALCULATION OF ANNUITY UNIT VALUE
Example 6.
<TABLE>
<S> <C> <C>
1. Annuity Unit value, beginning of period............................. $ 1.000000
2. Net investment factor for period (see Example 1).................... 1.019991
3. Daily adjustment for 3.5% Assumed Investment Rate................... .999906
4. (2)X(3)............................................................. 1.019895
5. Annuity Unit value, end of period (1)X(4)........................... $ 1.019895
</TABLE>
ILLUSTRATION OF ANNUITY PAYMENTS
Example 7. Any Annuitant age 65, Life Annuity with 120 Payments Certain
<TABLE>
<S> <C> <C>
1. Number of Accumulation Units at Annuity Date..................... 10,000.00
2. Accumulation Unit value (see Example 1).......................... $ 1.000000
3. Accumulation Value of Contract (1)X(2)........................... $ 10,000.00
4. First monthly annuity payment per $1,000 of Accumulation Value... $ 5.63
5. First monthly annuity payment (3)X(4) divided by 1,000........... $ 56.30
6. Annuity Unit value (see Example 6)............................... $ 1.000000
7. Number of Annuity Units (5) divided by (6)....................... 56.30
8. Assume Annuity Unit value for second month equal to.............. $ .997000
9. Second monthly Annuity Payment (7)X(8)........................... $ 56.13
10. Assume Annuity Unit value for third month equal to............... $ .980000
11. Third monthly Annuity Payment (7)X(10)........................... $ 55.17
</TABLE>
8
<PAGE> 48
DISTRIBUTION OF VARIABLE ANNUITY CONTRACTS
The Contracts are sold in a continuous offering by licensed insurance
agents who are registered representatives of broker-dealers which are members of
the National Association of Securities Dealers, Inc. (the "NASD"). The principal
underwriter for the Separate Account is the Variable Annuity Marketing Company
("Underwriter"), 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 Contracts are not
currently being actively marketed.
The licensed agents who sell the Contracts are compensated for such sales
by commissions ranging from 1% to 4% of each Purchase Payment. Managers who
supervise the agents will receive overriding commissions ranging to 1% of
Purchase Payments. (These various commissions are paid by the Company and do not
result in any charge to Contract Owners or to the Separate Account in addition
to the charges described in the Prospectus under "Charges and
Deductions -- Charges Under Specific Contracts.")
Pursuant to its underwriting agreement with the underwriter and the
Separate Account, the Company reimburses the underwriter for reasonable sales
expenses, including overhead expenses (see "Charges and Deductions -- Charges
under Specific Contracts," in the Prospectus). As of December 31, 1991, the
Company had paid no underwriting commissions attributable to the Contracts.
Sales commissions attributable to the Contracts paid by the Company for the
years 1993, 1994 and 1995 were $1,200,154, $1,138,000 and $811,000,
respectively.
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.
9
<PAGE> 49
INDEX TO FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
The Variable Annuity Life Insurance Company
Report of Independent Auditors.................................................. 11
Consolidated Balance Sheets as of December 31, 1995 and 1994.................... 12
Consolidated Statements of Income for the years ended
December 31, 1995, 1994 and 1993.............................................. 13
Consolidated Statements of Changes in Stockholder's Equity for the years ended
December 31, 1995, 1994 and 1993.............................................. 14
Consolidated Statements of Cash Flows for the years ended
December 31, 1995, 1994 and 1993.............................................. 15
Notes to Consolidated Financial Statements...................................... 16
The Variable Annuity Life Insurance Company
Separate Account A
Statement of Net Assets as of December 31, 1995................................. 27
Statement of Operations for the year ended December 31, 1995.................... 27
Statements of Changes in Net Assets for the years ended
December 31, 1995 and 1994.................................................... 27
Division Financial Statements................................................... 28
Notes of Financial Statements................................................... 38
Report of Independent Auditors.................................................. 40
</TABLE>
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.
Ten A and Ten B unit values, as reflected in the financial statements for
the Separate Account, are the only unit values 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.
Effective with the merger of the Quality Growth Fund into the Stock Index Fund
on May 1, 1992, Quality Growth Divisions 9A and 9B were renamed Stock Index
Divisions 10A and 10B.
10
<PAGE> 50
[VALIC LOGO]
Printed Matter
Printed in U.S.A. VA 1019 REV 5/96
(c)The Variable Annuity Life Insurance Company, Houston, Texas
Recycled Paper [LOGO]
<PAGE> 51
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> 52
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> 53
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> 54
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> 55
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> 56
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> 57
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> 58
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> 59
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> 60
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> 61
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> 62
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> 63
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> 64
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> 65
================================================================================
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> 66
================================================================================
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> 67
================================================================================
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> 68
================================================================================
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> 69
================================================================================
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> 70
================================================================================
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> 71
================================================================================
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> 72
================================================================================
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> 73
================================================================================
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> 74
================================================================================
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> 75
================================================================================
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> 76
================================================================================
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> 77
================================================================================
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> 78
================================================================================
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> 79
================================================================================
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> 80
================================================================================
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> 81
================================================================================
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> 82
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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> 83
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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