<PAGE> 1
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON: APRIL 18, 1997
REGISTRATION NO. 2-32783/811-3240
================================================================================
FORM N-4
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
---------------------
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933
PRE-EFFECTIVE AMENDMENT NO.
POST-EFFECTIVE AMENDMENT NO. 51
AND/OR
REGISTRATION STATEMENT UNDER
THE INVESTMENT COMPANY ACT OF 1940
AMENDMENT NO. 51
---------------------
THE VARIABLE ANNUITY LIFE INSURANCE
COMPANY SEPARATE ACCOUNT A
(EXACT NAME OF REGISTRANT)
THE VARIABLE ANNUITY LIFE INSURANCE COMPANY
(NAME OF DEPOSITOR)
2929 ALLEN PARKWAY, HOUSTON, TEXAS 77019
(ADDRESS OF DEPOSITOR'S PRINCIPAL EXECUTIVE OFFICES) (ZIP CODE)
(713) 526-5251
(DEPOSITOR'S TELEPHONE NUMBER, INCLUDING AREA CODE)
DAVID H. DEN BOER, ESQ.
THE VARIABLE ANNUITY LIFE INSURANCE COMPANY
P.O. BOX 3206, HOUSTON, TEXAS 77253
(NAME AND ADDRESS OF AGENT FOR SERVICE)
It is proposed that this filing will become effective:
immediately upon filing pursuant to paragraph (b) of
Rule 485.
/x/ on May 1, 1997 pursuant to paragraph (b) of Rule 485.
60 days after filing pursuant to paragraph (a)(1) of
Rule 485.
on (date) pursuant to paragraph (a)(1) of Rule 485.
(1) The contracts will not be issued in a predetermined amount or number of
units.
PURSUANT TO RULE 24f-2(a)(1) UNDER THE INVESTMENT COMPANY ACT OF 1940, THE
REGISTRANT HAS REGISTERED AN INDEFINITE AMOUNT OF SECURITIES. THE REGISTRANT
FILED RULE 24f-2 NOTICES ON FEBRUARY 24, 1997 FOR ITS MOST RECENT FISCAL YEAR
ENDING DECEMBER 31, 1996.
================================================================================
<PAGE> 2
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)
---------------------
CROSS REFERENCE SHEET
PURSUANT TO RULE 481(A) UNDER THE SECURITIES ACT OF 1933
PART A
<TABLE>
<CAPTION>
ITEM NO. PROSPECTUS CAPTION
-------- ------------------
<C> <S> <C>
1. Cover Page..................................... Cover Page
2. Definitions.................................... Definitions
3. Synopsis....................................... Introduction
4. Condensed Financial Information................ Selected Accumulation Unit Data
5. General Description of Registrant, Depositor
and Portfolio Companies...................... The Company and the Separate Account; The
Fund; Voting Rights
6. Deductions and Expenses........................ Charges and Deductions; Accumulation Period
7. General Description of Variable Annuity
Contracts.................................... Types of Contracts; Other Contract Features
8. Annuity Period................................. Annuity Period; Variable Annuity Options
9. Death Benefit.................................. Death Benefit During Accumulation Period
10. Purchases and Contract Value................... Accumulation Period
11. Redemptions.................................... Accumulation Period
12. Taxes.......................................... Federal Tax Matters
13. Legal Proceedings.............................. State Regulation
14. Table of Contents of the Statement of
Additional Information....................... Table of Contents of the Statement of
Additional Information
</TABLE>
PART B
<TABLE>
<CAPTION>
STATEMENT OF ADDITIONAL
ITEM NO. INFORMATION CAPTION
-------- -----------------------
<C> <S> <C>
15. Cover Page..................................... Cover Page
16. Table of Contents.............................. Table of Contents
17. General Information and History................ General Information
18. Services....................................... Experts; Distribution of Variable Annuity
Contracts
19. Purchase of Securities Being Offered........... Distribution of Variable Annuity Contracts
20. Underwriters................................... Distribution of Variable Annuity Contracts
21. Calculation of Performance Data................ Performance Information
22. Annuity Payments............................... Accumulation Unit Value; Annuity Payments
23. Financial Statements........................... Index To Financial Statements
</TABLE>
<PAGE> 3
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, 1997
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, 1997, 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.
1
<PAGE> 4
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<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
Selected Accumulation Unit Data....... 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
</TABLE>
<TABLE>
<CAPTION>
PAGE
----
<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...................... 26
First Option -- Life
Annuity................... 26
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.................... 27
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>
2
<PAGE> 5
<TABLE>
<CAPTION>
PAGE
----
<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
</TABLE>
<TABLE>
<CAPTION>
PAGE
----
<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>
3
<PAGE> 6
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
4
<PAGE> 7
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.
5
<PAGE> 8
FEE TABLE
<TABLE>
<CAPTION>
GUP SERIES GTS-VA 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% .57%
---- ---
Total Separate Account Annual Expenses (Before Reduction)... 1.00% .57%
STOCK INDEX FUND ANNUAL EXPENSES (as a % of Fund average net
assets)
Management fees (4)......................................... .28% .28%
Other expenses (5).......................................... .07% .07%
---- ---
Total Fund Expenses (Before Reduction) (6).................. .35% .35%
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% .25%
---- ---
SEPARATE ACCOUNT AND FUND EXPENSES (After Reduction)........ 1.35% .67%
</TABLE>
6
<PAGE> 9
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 YEAR 3 YEARS 5 YEARS 10 YEARS
------ ------- ------- --------
<S> <C> <C> <C> <C>
GUP Series........................................... $63 $91 $120 $205
GTS-VA Series........................................ 57 70 85 130
</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.
7
<PAGE> 10
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.")
8
<PAGE> 11
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.")
9
<PAGE> 12
SELECTED ACCUMULATION UNIT DATA
The information presented below reflects the Accumulation Unit Value
Information through December 31, 1996 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
--------------------------------
GUP SERIES GTS-VA
UNIT VALUE SERIES
(SERIES UNIT VALUE
10A)(1) (SERIES 10B)(2)
---------- ---------------
<S> <C> <C>
12/31/96 Value.............................................. $13.413891 $21.070956
Number of Units............................................. 27,379,389 1,380,401
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.
10
<PAGE> 13
AVERAGE ANNUAL TOTAL RETURN
CALCULATION OF AVERAGE ANNUAL TOTAL RETURN
<TABLE>
<CAPTION>
GUP GTS-VA
SERIES SERIES
NO. OF YEARS (SERIES 10A) (SERIES 10B)
------------ ------------ ------------
<S> <C> <C>
1 Year............................................ 15.46% 16.23%
3 Years........................................... 16.11 16.89
5 Years........................................... 11.83 12.60
10 Years........................................... 10.69 11.56
</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
11
<PAGE> 14
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.
12
<PAGE> 15
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)
------------------------ ------------------------
ANNUAL CUMULATIVE ANNUAL CUMULATIVE
TEN YEARS: ------ ---------- ------ ----------
<S> <C> <C> <C> <C>
12/31/96.................................................... 21.54% 190.72% 22.35% 214.19%
12/31/95.................................................... 35.98 139.20 36.87 156.79
12/31/94.................................................... -0.29 75.91 0.38 87.62
12/31/93.................................................... 8.80 76.43 9.58 86.91
12/31/92.................................................... 2.70 62.15 3.44 70.57
12/31/91.................................................... 20.49 57.89 21.35 64.90
12/31/90.................................................... -4.53 31.03 -3.84 35.89
12/31/89.................................................... 22.43 37.26 23.29 41.31
12/31/88.................................................... 10.30 12.11 11.08 14.62
12/31/87.................................................... 1.64 1.64 3.18 3.18
</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, the
District of Columbia 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 "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 (the '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 Ac-
13
<PAGE> 16
count One and the Company's Separate Account Two received interests in Division
Nine of the Company's Separate 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> 17
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, 1987.
*(NET OF APPLICABLE FRONT END SALES
AND ADMINISTRATIVE CHARGES)
<TABLE>
<CAPTION>
GUP SERIES GTS-VA SERIES
(SERIES 10A) (SERIES 10B)
------------ -------------
<S> <C> <C>
01/01/87.............. $ 9,550 $ 9,550
12/31/87.............. 9,707 9,854
12/31/88.............. 10,706 10,946
12/31/89.............. 13,108 13,496
12/31/90.............. 12,514 12,977
12/31/91.............. 15,078 15,748
12/31/92.............. 15,485 16,289
12/31/93.............. 16,849 17,850
12/31/94.............. 16,800 17,917
12/31/95.............. 22,844 24,524
12/31/96.............. 27,764 30,005
</TABLE>
CUMULATIVE RETURN FOR STOCK INDEX
DIVISION TEN
<TABLE>
<CAPTION>
10 YEARS 5 YEARS 3 YEARS 1 YEAR
-------- ------- ------- ------
<S> <C> <C> <C> <C>
Cumulative Return
GUP Series (Series
10A) 177.64% 74.92% 56.54% 15.46%
GTS-VA
Series (Series 10B) 200.05% 81.01% 59.69% 16.23%
</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> 18
Hypothetical $10,000 Account
GUP Series Unit Value
(Series 10A)
Value at Monthly Intervals of a $10,000
Stipulated Payment made January 1, 1987
(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> 19
Hypothetical $10,000 Account
GTS-VA Series Unit Value
(Series 10B)
Value at Monthly Intervals of a $10,000
Stipulated Payment made January 1, 1987
(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> 20
HYPOTHETICAL $10,000 ACCOUNT INVESTED IN STOCK INDEX DIVISION TEN AT
REORGANIZATION
The table and charts below show the periodic value of a $10,000 initial
premium invested in Division Ten for the period since the Reorganization, April
17, 1987 through December 31, 1996 (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 Monthly Intervals of a $10,000
Stipulated Payment made April 17, 1987
[CHART]
STOCK INDEX DIVISION 10
SINCE REORGANIZATION
GTS -- VA SERIES
(SERIES 10B)
---------------------------------------------------------
Value at Monthly Intervals of a $10,000
Stipulated Payment made April 17, 1987
[CHART]
<TABLE>
<CAPTION>
ANNUAL VALUE
----------------------------------
STOCK INDEX
DIVISION TEN
----------------------------------
GUP SERIES GTS-VA SERIES
(SERIES 10A) (SERIES 10B)
------------ -------------
<S> <C> <C>
04/17/87.................................................... $ 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
12/31/96.................................................... 24,401 26,113
</TABLE>
18
<PAGE> 21
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
PERCENTAGE PERCENTAGE OF
AGGREGATE GROSS OF PURCHASE NET PURCHASE
PURCHASE PAYMENTS(1) PAYMENTS(2) PAYMENTS
<S> <C> <C>
first $5,000......... 5.0% 5.26%
next $5,000.......... 4.0% 4.17%
next $5,000.......... 3.5% 3.63%
over $15,000......... 3.0% 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> 22
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
CONTRIBUTIONS FLAT 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).
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.
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 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
20
<PAGE> 23
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.
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 re-
21
<PAGE> 24
spect 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. If the Company receives Purchase Payments from your
employer before the Company receives your completed application or enrollment
form, the Company will not be able to open an account for you. Under these
circumstances, the Company will take one of the following actions:
Return Purchase Payments. If the Company does not have your name,
address and social security number, the Company will return the Purchase
Payment to your employer unless this information is immediately provided to
us.
Employer-Directed Account. If the Company has your name, address and
social security number and the Company has an Employer-Directed Account
Agreement from your employer, the Company will deposit your Purchase
Payment in an "Employer-Directed" account invested in a Fixed Account
Option. You may not transfer these amounts until VALIC has received a
completed application or enrollment form.
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
22
<PAGE> 25
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 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
23
<PAGE> 26
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 terminates
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
24
<PAGE> 27
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 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.
25
<PAGE> 28
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 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 previ-
26
<PAGE> 29
ous 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. 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 In-
27
<PAGE> 30
vestment 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.
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
28
<PAGE> 31
attains age 59 1/2 generally are subject to a 10% penalty tax in addition to
regular income tax. Certain distributions are excepted from this penalty tax,
including distributions following (1) death, (2) disability, (3) separation from
service during or after the year the participant reaches age 55, (4) separation
from service at any age if the distribution is in the form of substantially
equal periodic payments over the life (or life expectancy) of the Participant
(or the Participant and Beneficiary), and (5) distributions in excess of tax
deductible medical expenses.
Required Distributions. Generally, distributions from section 403(b)
annuities must commence no later than April 1 of the calendar year following the
later of the calendar year in which the Participant attains age 70 1/2 or the
calendar year in which the Participant retires. 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). 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; however, 5-year forward averaging has been repealed for
distributions occurring after December 31, 1999. 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
29
<PAGE> 32
rates in effect for 1986. In addition, individuals who attained age 50 by
January 1, 1986 may elect capital gains treatment (at a 20% rate) for the
taxable portion of a lump sum distribution attributable to years of service
before 1974; such capital gains treatment has otherwise been repealed. Taxable
distributions received under a Contract purchased under a qualified plan prior
to attainment of age 59 1/2 are subject to the same 10% penalty tax (and the
same exceptions) as described with respect to section 403(b) annuity Contracts.
Required Distributions. The minimum distribution requirements for qualified
plans are generally the same as described with respect to section 403(b) annuity
Contracts, except that no amounts are exempted from the minimum distribution
requirements.
Tax-Free Rollovers. The taxable portion of certain distributions from a
plan qualified under section 401 or 403(a), may be transferred in a tax-free
rollover to 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 (indexed for inflation) 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 generally held for the
exclusive benefit of plan participants, although certain Contacts may remain
subject to the claims of the employer's creditors until 1999. 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 or in amounts under $3,500 for inactive Participants.
These 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.
30
<PAGE> 33
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 Contract
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
[BAR 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
31
<PAGE> 34
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 retirement programs are not required to be
withdrawn until the later of age 70 1/2 or retirement. 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 writ-
32
<PAGE> 35
ing 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 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
33
<PAGE> 36
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 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
34
<PAGE> 37
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.
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> 38
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
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> 39
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> 40
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> 41
================================================================================
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.
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
550 Congressional Blvd.
Suite 280
Carmel, IN 46032
(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 300
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
(972) 490-1515
800 Gessner
Suite 1280
Houston, TX 77024
(713) 465-2253
There are also more than thirty-seven branch offices located throughout the
country.
THE VARIABLE ANNUITY LIFE INSURANCE COMPANY
2929 ALLEN PARKWAY, HOUSTON, TEXAS 77019 1-800-44-VALIC
TDD NUMBER: 1-800-35-VALIC
FOR UNIT VALUE INFORMATION CALL: 1-800-42-VALIC
FOR ASSET TRANSFERS BY TELEPHONE CALL: 1-800-42-VALIC
================================================================================
<PAGE> 42
[VALIC LOGO]
PRINTED MATTER
PRINTED IN U.S.A. VA 1019 REV 5/97
(C)The Variable Annuity Life Insurance Company, Houston, Texas
Recycled Paper LOGO
<PAGE> 43
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, 1997
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, 1997, 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
</TABLE>
<TABLE>
<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. 5/97
<PAGE> 44
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 (the "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> 45
(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)/(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)/(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> 46
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, 1996, 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 70% 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> 47
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, 1987
------------------------------------------------------
(NET OF APPLICABLE FRONT END SALES AND ADMINISTRATIVE CHARGES)
<TABLE>
<CAPTION>
GUP SERIES GTS-VA SERIES S&P
DATE OF PERIOD (SERIES 10A) (SERIES 10B) 500
ENDED ANNUAL VALUE ANNUAL VALUE ANNUAL VALUE
-------------- ------------ ------------- ------------
<S> <C> <C> <C>
01/01/87............................................. $ 9,550 $ 9,550 $10,000
12/31/87............................................. 9,707 9,854 10,525
12/31/88............................................. 10,706 10,946 12,273
12/31/89............................................. 13,108 13,496 16,162
12/31/90............................................. 12,514 12,977 15,660
12/31/91............................................. 15,078 15,748 20,431
12/31/92............................................. 15,485 16,289 21,988
12/31/93............................................. 16,849 17,850 24,204
12/31/94............................................. 16,800 17,917 24,524
12/31/95............................................. 22,844 24,524 33,739
12/31/96............................................. 27,764 30,005 41,488
</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> 48
Example 6.
CUMULATIVE RETURN FOR STOCK INDEX DIVISION TEN COMPARED TO MARKET INDEX
<TABLE>
<CAPTION>
10 YEARS 5 YEARS 3 YEARS 1 YEAR
-------- ------- ------- ------
<S> <C> <C> <C> <C>
Investment Division
Stock Index Division
GUP SERIES (Series 10A)(1).............. 177.64% 74.92% 56.54% 15.46%
GTS-VA SERIES (Series 10B)(1)........... 200.05 81.01 59.69 16.23
Benchmark Comparison S&P 500................... 314.88 103.06 71.41 22.97
</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, 1996. 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 SERIES GTS-VA SERIES S&P
DATE OF PERIOD (DIVISION 10A) (DIVISION 10B) 500
ENDED ANNUAL VALUE ANNUAL VALUE ANNUAL VALUE
----- -------------- -------------- ------------
<S> <C> <C> <C>
04/17/87(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
12/31/96......................................... 24,401 26,113 34,352
</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> 49
(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> 50
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> <S> <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> <S> <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)/1,000................. $ 56.30
6. Annuity Unit value (see Example 6).......................... $ 1.000000
7. Number of Annuity Units (5)/(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> 51
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 1994, 1995 and 1996 were $1,138,000, $811,000 and $549,000, respectively.
EXPERTS
The consolidated financial statements of the Company at December 31, 1996,
and 1995, and for each of the three years in the period ended December 31, 1996
and the financial statements of the Company's Separate Account A at December 31,
1996, 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> 52
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, 1996 and
1995.................................................. 12
Consolidated Statements of Income for the years ended
December 31, 1996, 1995 and 1994..................... 13
Consolidated Statements of Changes in Stockholder's
Equity for the years ended
December 31, 1996, 1995 and 1994..................... 14
Consolidated Statements of Cash Flows for the years
ended
December 31, 1996, 1995 and 1994..................... 15
Notes to Consolidated Financial Statements............. 16
The Variable Annuity Life Insurance Company
Separate Account A
Statement of Net Assets as of December 31, 1996........ 27
Statement of Operations for the year ended December 31,
1996.................................................. 27
Statements of Changes in Net Assets for the years ended
December 31, 1996 and 1995........................... 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, 1996.
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> 53
[PICTURE]
[VALIC LOGO]
<PAGE> 54
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 Subsidiaries as of December 31,
1996 and 1995, 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, 1996. 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 Subsidiaries at December 31, 1996 and 1995,
and the consolidated results of their operations and their cash flows for each
of the three years in the period ended December 31, 1996, in conformity with
generally accepted accounting principles.
/s/ ERNST & YOUNG
Houston, Texas
February 14, 1997
<PAGE> 55
THE VARIABLE ANNUITY LIFE INSURANCE COMPANY
- --------------------------------------------------------------------------------
CONSOLIDATED BALANCE SHEET
At December 31
In Thousands
<TABLE>
<CAPTION>
1996 1995
----------- -----------
<S> <C> <C>
ASSETS
Investments - Notes 2, 6, 7, 8:
Fixed maturity securities
(amortized cost: $19,667,491 in 1996 and $18,590,102 in 1995) $20,189,473 $19,745,726
Equity securities (cost: $8,624 in 1996 and $56,825 in 1995) 8,589 71,770
Mortgage loans on real estate 1,349,855 1,443,817
Real estate, net of accumulated depreciation
of $69 in 1996 and $99 in 1995 37,130 23,365
Policy loans 639,200 557,637
Other long-term invested assets 35,945 16,929
Short-term investments 53,000 39,277
----------- -----------
Total investments 22,313,192 21,898,521
----------- -----------
Investment income receivable 315,118 292,967
Cash on deposit and on hand 24,360 27,794
Receivable for securities sold 18,654 51,947
Deferred policy acquisition costs - Note 3 557,748 182,546
Due from reinsurer, net 15,700 16,873
Other assets 45,798 37,912
Assets held in Separate Accounts 7,134,412 4,540,889
----------- -----------
Total assets $30,424,982 $27,049,449
----------- -----------
LIABILITIES
Policy reserves for fixed annuity investment contracts $21,067,429 $20,146,697
Payable for securities purchased 575 26,885
Remittances not allocated 66,473 52,913
Commissions, general expenses, and taxes (other than income taxes) 41,642 44,380
Other liabilities 75,636 51,768
Income tax liabilities - Note 4 265,160 387,076
Liabilities related to Separate Accounts 7,134,412 4,540,889
----------- -----------
Total liabilities 28,651,327 25,250,608
----------- -----------
STOCKHOLDER'S EQUITY
Common stock (voting) par value $1 per share, 5,000 shares authorized
and 3,575 issued and outstanding in 1996 and 1995 - Note 5 3,575 3,575
Additional paid-in capital 459,281 384,126
Retained earnings 1,143,947 1,014,520
Net unrealized investment gains - Note 2 166,852 396,620
----------- -----------
Total stockholder's equity 1,773,655 1,798,841
----------- -----------
Total liabilities and stockholder's equity $30,424,982 $27,049,449
----------- -----------
</TABLE>
See notes to consolidated financial statements.
2
<PAGE> 56
THE VARIABLE ANNUITY LIFE INSURANCE COMPANY
- --------------------------------------------------------------------------------
CONSOLIDATED STATEMENT OF INCOME
For the Years Ended December 31,
In Thousands
<TABLE>
<CAPTION>
1996 1995 1994
----------- ----------- -----------
<S> <C> <C> <C>
REVENUES
Surrender charges $ 12,348 $ 9,967 $ 9,964
Mortality charges 59,955 34,965 21,136
Expense charges 5,654 5,122 5,528
Net investment income - Note 2 1,654,496 1,597,681 1,493,942
Net reinsurance income 1,528 1,573 1,908
Realized investment gains (losses) - Note 2 21,551 (7,149) (71,950)
Other income 10,920 6,878 6,517
----------- ----------- -----------
Total revenues 1,766,452 1,649,037 1,467,045
----------- ----------- -----------
COSTS AND EXPENSES
Policy costs:
Increase in policy reserves for fixed annuity contracts 1,243,993 1,203,986 1,133,547
----------- ----------- -----------
Total costs 1,243,993 1,203,986 1,133,547
----------- ----------- -----------
Expenses:
Commissions 97,630 84,670 73,198
Salaries 54,016 48,227 42,742
Data processing 12,088 13,200 10,908
Postage and telephone 11,308 10,710 8,137
Sales promotion 10,394 9,361 8,024
Printing and supplies 5,290 4,721 4,372
Guaranty association assessments - Note 9 2,678 18,961 6,300
Other expenses 49,875 44,055 43,029
Amortization of deferred policy acquisition costs - Note 3 31,201 16,841 13,263
Policy acquisition costs deferred - Note 3 (116,818) (104,702) (88,046)
----------- ----------- -----------
Total expenses 157,662 146,044 121,927
----------- ----------- -----------
Total costs and expenses 1,401,655 1,350,030 1,255,474
----------- ----------- -----------
EARNINGS
Income before income tax expense 364,797 299,007 211,571
Income tax expense - Note 4 124,370 99,720 70,183
----------- ----------- -----------
Net income $ 240,427 $ 199,287 $ 141,388
----------- ----------- -----------
</TABLE>
See notes to consolidated financial statements.
3
<PAGE> 57
THE VARIABLE ANNUITY LIFE INSURANCE COMPANY
- --------------------------------------------------------------------------------
CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDER'S EQUITY
For the Years Ended December 31,
In Thousands
<TABLE>
<CAPTION>
1996 1995 1994
----------- ----------- -----------
<S> <C> <C> <C>
COMMON STOCK
Balance at beginning and end of year $ 3,575 $ 3,575 $ 3,575
----------- ----------- -----------
ADDITIONAL PAID-IN-CAPITAL
Balance at beginning of year 384,126 382,733 382,727
Capital contribution from stockholder 75,155 1,393 6
----------- ----------- -----------
Balance at end of year 459,281 384,126 382,733
----------- ----------- -----------
RETAINED EARNINGS
Balance at beginning of year 1,014,520 910,233 821,845
Net income 240,427 199,287 141,388
Dividends paid to stockholder (111,000) (95,000) (53,000)
----------- ----------- -----------
Balance at end of year 1,143,947 1,014,520 910,233
----------- ----------- -----------
NET UNREALIZED INVESTMENT GAINS (LOSSES)
Balance at beginning of year 396,620 (563,481) 348,470
Change during year (229,768) 960,101 (911,951)
----------- ----------- -----------
Balance at end of year 166,852 396,620 (563,481)
----------- ----------- -----------
STOCKHOLDER'S EQUITY
Balance at end of year $ 1,773,655 $ 1,798,841 $ 733,060
----------- ----------- -----------
</TABLE>
See notes to consolidated financial statements.
4
<PAGE> 58
THE VARIABLE ANNUITY LIFE INSURANCE COMPANY
- --------------------------------------------------------------------------------
CONSOLIDATED STATEMENT OF CASH FLOWS
For the Years Ended December 31,
In Thousands
<TABLE>
<CAPTION>
1996 1995 1994
------------ ------------ ------------
<S> <C> <C> <C>
OPERATING ACTIVITIES
Net Income $ 240,427 $ 199,287 $ 141,388
Reconciling adjustments to net cash provided by
operating activities:
Insurance and annuity liabilities 1,243,993 1,203,986 1,133,547
Deferred policy acquisition costs (85,617) (87,861) (74,783)
Other, net (50,233) 28,179 (41,944)
------------ ------------ ------------
Net cash provided by operating activities 1,348,570 1,343,591 1,158,208
------------ ------------ ------------
INVESTING ACTIVITIES
Investment purchases (14,883,271) (9,671,304) (7,827,877)
Investment calls, maturities, and sales 13,897,479 8,025,420 6,456,637
Net (increase) decrease in short-term investments (13,722) 120,745 (160,022)
------------ ------------ ------------
Net cash used for investing activities (999,514) (1,525,139) (1,531,262)
------------ ------------ ------------
FINANCING ACTIVITIES
Policyholder account deposits 2,896,090 2,553,928 2,227,803
Policyholder account withdrawals (1,276,008) (996,324) (1,004,953)
Transfers to Separate Accounts (1,936,727) (1,273,778) (723,994)
Capital contribution from stockholder 75,155 1,607 6
Net decrease in short-term debt -- -- (59,000)
Dividends paid (111,000) (95,000) (53,000)
------------ ------------ ------------
Net cash used for or provided by financing activities (352,490) 190,433 386,862
------------ ------------ ------------
NET CHANGE IN CASH
Net increase (decrease) in cash (3,434) 8,885 13,808
Cash at beginning of year 27,794 18,909 5,101
------------ ------------ ------------
Cash at end of year $ 24,360 $ 27,794 $ 18,909
------------ ------------ ------------
</TABLE>
See notes to consolidated financial statements.
5
<PAGE> 59
THE VARIABLE ANNUITY LIFE INSURANCE COMPANY
- --------------------------------------------------------------------------------
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 1996
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 through exclusive 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) and include the accounts
of VALIC and its wholly owned subsidiaries. All material intercompany
transactions have been eliminated in consolidation. Certain items in the prior
years' financial statements have been reclassified to conform with the 1996
presentation.
The preparation of financial statements requires management to make
estimates and assumptions that affect amounts reported in the financial
statements and disclosures of contingent assets and liabilities. Ultimate
results could differ from these estimates.
1.3 INVESTMENTS
FIXED MATURITY AND EQUITY SECURITIES. All fixed maturity and equity
securities are classified as available-for-sale and recorded at fair value.
After adjusting related balance sheet accounts as if the unrealized gains
(losses) had been realized, the net adjustment is recorded in net unrealized
gains (losses) on securities within stockholder's equity. If the fair value of
a security classified as available-for-sale declines below its cost and this
decline is considered to be other than temporary, the security is reduced to
its fair value, and the reduction is recorded as a realized loss.
MORTGAGE LOANS. Mortgage loans are reported at amortized cost, net of an
allowance for losses. The allowance for losses covers all non-performing loans
and loans for which management has a concern based on its assessment of risk
factors, such as potential non-payment or non-monetary default. The allowance
is based on a loan-specific review and a formula that reflects past results and
current trends.
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 unpaid principal balance.
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 delinquent mortgage loans is
recorded as income when received. Dividends are recorded as income on
ex-dividend dates.
REALIZED INVESTMENT GAINS (LOSSES). Realized investment gains (losses) are
recognized using the specific identification method.
1.4 DERIVATIVES RELATED TO INVESTMENTS
VALIC's use of derivative financial instruments is generally limited to
interest rate and currency swap agreements. The difference between amounts paid
and received on swap agreements is recorded on an accrual basis as an
adjustment to investment income over the periods covered by the agreements. The
related amount payable to or receivable from counterparties is included in
other liabilities or assets.
The fair values of swap agreements are recognized in the consolidated
balance sheet if they hedge investments carried at fair value or if they hedge
anticipated purchases of such investments. In this event, changes in the fair
value of a swap agreement are reported in net unrealized gains (losses) on
securities included in stockholder's equity, consistent with the treatment of
the related investment security.
For swap agreements hedging anticipated investment purchases, the net swap
settlement amount or unrealized gain or loss is deferred and included in the
measurement of the anticipated transaction when it occurs.
Swap agreements generally have terms of two to ten years. Any gain or loss
from early termination of a swap agreement is deferred and amortized into
income over the remaining term of the related investment. If the underlying
investment is extinguished or sold, any related gain or loss on swap agreements
is recognized in income.
6
<PAGE> 60
THE VARIABLE ANNUITY LIFE INSURANCE COMPANY
- --------------------------------------------------------------------------------
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- CONTINUED
December 31, 1996
- --------------------------------------------------------------------------------
1.5 DEFERRED POLICY ACQUISITION COSTS
(DPAC)
Certain costs of writing an insurance policy, including commissions,
underwriting, and marketing expenses, are deferred and reported as DPAC. DPAC
is charged to expense in relation to the estimated gross profits of the
insurance contracts, including realized gains (losses).
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 value of DPAC on at least an annual basis.
Management considers estimated future gross profit margins as well as expected
mortality, interest earned and credited rates, persistency, and expenses in
determining whether the carrying amount is recoverable.
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
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. 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 fixed maturity securities is included in net unrealized
gains (losses) in stockholder's equity.
1.10 STATUTORY ACCOUNTING
State insurance laws and regulations 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>
1996 1995 1994
---------- ---------- ----------
<S> <C> <C> <C>
Net Income $ 213,686 $ 157,622 $ 171,486
---------- ---------- ----------
Stockholder's equity $1,077,366 $ 926,654 $ 869,026
---------- ---------- ----------
</TABLE>
7
<PAGE> 61
THE VARIABLE ANNUITY LIFE INSURANCE COMPANY
- --------------------------------------------------------------------------------
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- CONTINUED
December 31, 1996
- --------------------------------------------------------------------------------
2
===============================================================================
INVESTMENTS
===============================================================================
2.1 INVESTMENT INCOME
Income by type of investment was as follows:
<TABLE>
<CAPTION>
1996 1995 1994
---------- ---------- ----------
<S> <C> <C> <C>
Non-affiliated fixed
maturity securities $1,471,879 $1,414,644 $1,300,028
Affiliated fixed
maturity securities 2,851 3,181 3,342
Equity securities 782 4,281 2,529
Mortgage loans on
real estate 140,492 149,974 163,263
Other 51,040 36,473 36,226
---------- ---------- ----------
Gross investment income 1,667,044 1,608,553 1,505,388
Investment expenses 12,548 10,872 11,446
---------- ---------- ----------
Net investment income $1,654,496 $1,597,681 $1,493,942
---------- ---------- ----------
</TABLE>
The carrying value of investments that produced no investment income
during 1996 totaled $6,455 or 0.03% 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 or financial position.
Derivative financial instruments related to investment securities did not
have a material effect on net investment income in any of the three years ended
December 31, 1996.
2.2 REALIZED INVESTMENT GAINS (LOSSES)
Realized investment gains (losses) were as follows:
<TABLE>
<CAPTION>
1996 1995 1994
-------- -------- --------
<S> <C> <C> <C>
Fixed maturity securities $ 1,417 $ 832 $(83,950)
Equity securities 15,795 7,706 2,143
Mortgage loans on real estate 4,635 (24,465) (11,640)
Real estate 389 3,767 1,608
Other (685) 5,011 19,889
-------- -------- --------
Realized gains (losses)
before taxes 21,551 (7,149) (71,950)
Income tax expense (benefit) 7,543 (1,414) (25,183)
-------- -------- --------
Net realized investment
gains (losses) $ 14,008 $ (5,735) $(46,767)
-------- -------- --------
</TABLE>
Proceeds from sales of fixed maturity securities were $3,052,550,
$1,432,183, and $1,128,925 during 1996, 1995, and 1994, respectively. Gross
gains of $28,173, $15,722, and $7,610 and gross losses of $36,802, $30,518, and
$89,917, were realized on those sales during 1996, 1995, and 1994,
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. Amortized cost and fair value of fixed maturity and equity
securities at December 31 were as follows:
<TABLE>
<CAPTION>
Amortized Cost Gross Unrealized Gains
------------------------- -------------------------
1996 1995 1996 1995
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
U.S. Treasury securities and
obligations of U.S. government
corporations and agencies $ 219,426 $ 173,879 $ 20,025 $ 33,063
Obligations of states and
political subdivisions 32,308 32,349 840 1,467
Debt securities issued by
foreign governments 241,908 238,592 10,958 19,639
Corporate securities 13,211,735 11,338,933 457,461 792,302
Mortgage-backed securities 5,932,878 6,771,473 150,021 333,436
Affiliated fixed maturity securities 29,236 32,275 -- --
Redeemable preferred stock -- 2,601 -- --
----------- ----------- ----------- -----------
Total fixed maturity securities $19,667,491 $18,590,102 $ 639,305 $ 1,179,907
----------- ----------- ----------- -----------
Equity securities $ 8,624 $ 56,825 $ 61 $ 14,966
=========== =========== =========== ===========
<CAPTION>
Gross Unrealized Losses Fair Value
------------------------- -------------------------
1996 1995 1996 1995
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
U.S. Treasury securities and
obligations of U.S. government
corporations and agencies $ (465) $ (25) $ 238,986 $ 206,917
Obligations of states and
political subdivisions (197) (15) 32,951 33,801
Debt securities issued by
foreign governments (122) -- 252,744 258,231
Corporate securities (76,389) (20,225) 13,592,807 12,111,010
Mortgage-backed securities (40,150) (3,924) 6,042,749 7,100,985
Affiliated fixed maturity securities -- -- 29,236 32,275
Redeemable preferred stock -- (94) -- 2,507
----------- ----------- ----------- -----------
Total fixed maturity securities $ (117,323) $ (24,283) $20,189,473 $19,745,726
----------- ----------- ----------- -----------
Equity securities $ (96) $ (21) $ 8,589 $ 71,770
=========== =========== =========== ===========
</TABLE>
8
<PAGE> 62
THE VARIABLE ANNUITY LIFE INSURANCE COMPANY
- --------------------------------------------------------------------------------
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- CONTINUED
December 31, 1996
- --------------------------------------------------------------------------------
2.3 FIXED MATURITY AND EQUITY SECURITIES-
(CONTINUED)
MATURITIES. The contractual maturities of fixed maturity securities at
December 31, 1996 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 $ 125,977 $ 127,799
In years two through five 2,601,072 2,705,686
In years six through ten 7,872,259 8,097,598
After ten years 3,135,304 3,215,641
Mortgage-backed securities 5,932,879 6,042,749
----------- -----------
Total fixed maturity securities $19,667,491 $20,189,473
----------- -----------
</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>
1996 1995
----------- -----------
<S> <C> <C>
Gross unrealized gains $ 639,366 $ 1,194,873
Gross unrealized losses (117,419) (24,304)
DPAC adjustments (261,363) (551,624)
Deferred federal income taxes (93,732) (222,325)
----------- -----------
Net unrealized gains
on securities $ 166,852 $ 396,620
----------- -----------
</TABLE>
2.5 MORTGAGE LOANS ON REAL ESTATE -
(CONTINUED)
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.
2.5 MORTGAGE LOANS ON REAL ESTATE -
(CONTINUED)
At December 31 the mortgage loan portfolio was distributed as follows:
<TABLE>
<CAPTION>
1996 1995
----------- -----------
<S> <C> <C>
Geographic distribution:
Atlantic $ 656,073 $ 677,739
Pacific and Mountain 406,948 455,009
Central 331,411 365,282
Allowance for losses (44,577) (54,213)
----------- -----------
Total mortgage loans $ 1,349,855 $ 1,443,817
----------- -----------
Property type:
Office $ 456,818 $ 478,493
Retail 451,668 461,272
Industrial 221,532 223,374
Apartments 190,583 242,469
Residential and other 73,831 92,422
Allowance for losses (44,577) (54,213)
----------- -----------
Total mortgage loans $ 1,349,855 $ 1,443,817
----------- -----------
</TABLE>
ALLOWANCE. The allowance for mortgage loan losses was as follows:
<TABLE>
<CAPTION>
1996 1995 1994
--------- --------- ---------
<S> <C> <C> <C>
Balance at January 1 $ 54,213 $ 55,665 $ 48,612
Net additions (a) (3,845) 12,619 9,926
Deductions (b) (5,791) (14,071) (2,873)
--------- --------- ---------
Balance at December 31 $ 44,577 $ 54,213 $ 55,665
--------- --------- ---------
</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>
1996 1995
--------- ---------
<S> <C> <C>
Impaired loans:
With allowance* $ 46,346 $ 63,167
Without allowance 236 2,577
--------- ---------
Total impaired loans $ 46,582 $ 65,744
--------- ---------
Average investment $ 56,163 $ 83,049
Interest income earned 4,816 7,012
Interest income - cash basis 4,617 6,539
--------- ---------
</TABLE>
* Represents gross amounts before allowance for mortgage loan losses of
$6,848 and $17,701, respectively.
9
<PAGE> 63
THE VARIABLE ANNUITY LIFE INSURANCE COMPANY
- --------------------------------------------------------------------------------
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- CONTINUED
December 31, 1996
- --------------------------------------------------------------------------------
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>
1996 1995 1994
--------- --------- ---------
<S> <C> <C> <C>
Balance at January 1 $ 182,546 $ 910,479 $ 113,116
Deferrals:
Commissions 62,760 52,959 44,899
Other acquisition costs 54,058 51,743 43,147
Amortization:
Accretion of interest 59,810 54,086 47,170
Operating earnings (91,011) (70,927) (60,433)
Offset to realized
(gains) losses (676) 4,991 19,812
Effect of net unrealized
(gains) losses on securities 290,261 (820,785) 702,768
--------- --------- ---------
Balance at December 31 $ 557,748 $ 182,546 $ 910,479
--------- --------- ---------
</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.
4.2 TAX LIABILITIES
Components of income tax liabilities and assets at December 31 were as
follows:
<TABLE>
<CAPTION>
1996 1995
--------- ---------
<S> <C> <C>
Current tax liabilities (assets) $ (4,551) $ 10,740
Deferred tax liabilities, applicable to:
Basis differential of investments 201,122 428,863
DPAC 192,815 61,915
Other 8,025 2,480
--------- ---------
Total deferred tax liabilities 401,962 493,258
--------- ---------
Deferred tax assets, applicable to:
Policy reserves (118,595) (100,014)
Basis differential of investments (6,219) (7,527)
Other (7,437) (9,381)
--------- ---------
Total deferred tax assets (132,251) (116,922)
--------- ---------
Net deferred tax liabilities 269,711 376,336
--------- ---------
Total income tax liabilities $ 265,160 $ 387,076
--------- ---------
</TABLE>
4.3 TAX EXPENSE
Components of income tax expense were as follows:
<TABLE>
<CAPTION>
1996 1995 1994
--------- --------- ---------
<S> <C> <C> <C>
Current:
Federal $ 99,560 $ 99,273 $ 52,973
State 2,842 3,224 2,368
--------- --------- ---------
Total current income
tax expense 102,402 102,497 55,341
--------- --------- ---------
Deferred, applicable to:
DPAC 29,308 32,174 32,800
Policy reserves (18,581) (28,780) (31,085)
Basis differential of
investments 2,754 (786) 7,189
Other, net 8,487 (5,385) 5,938
--------- --------- ---------
Total deferred income
tax expense (benefit) 21,968 (2,777) 14,842
--------- --------- ---------
Income tax expense $ 124,370 $ 99,720 $ 70,183
--------- --------- ---------
</TABLE>
A reconciliation between the federal income tax rate and the effective tax
rate follows:
<TABLE>
<CAPTION>
1996 1995 1994
--------- --------- ---------
<S> <C> <C> <C>
Federal income tax rate 35% 35% 35%
Income tax expense at
applicable rate $ 127,679 $ 104,652 $ 74,050
Dividends received
deduction (4,935) (3,883) (3,392)
Tax-exempt interest (ESOP) (3,865) (4,426) (4,670)
State income taxes 3,311 2,918 7,051
Other items 2,180 459 (2,856)
--------- --------- ---------
Income tax expense $ 124,370 $ 99,720 $ 70,183
--------- --------- ---------
</TABLE>
Federal income taxes paid in 1996, 1995, and 1994 were $114,478, $52,790,
and $122,608, respectively. State income taxes paid in 1996, 1995 and 1994 were
$3,060, $2,653, and $3,390 respectively.
10
<PAGE> 64
THE VARIABLE ANNUITY LIFE INSURANCE COMPANY
- --------------------------------------------------------------------------------
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- CONTINUED
December 31, 1996
- --------------------------------------------------------------------------------
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 1997 is
$205,992.
6
================================================================================
DERIVATIVE FINANCIAL INSTRUMENTS
================================================================================
Derivative financial instruments related to investment securities at
December 31, 1996 were as follows:
<TABLE>
<S> <C>
Interest rate swap agreements to pay fixed rate
Notional amount $27,000
Average receive rate 6.88%
Average pay rate 5.61
Currency swap agreements (receive U.S.$/pay Canadian$)
Notional amount (in U.S.$) $89,535
Average exchange rate 1.56
</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>
1996 1995
------------------------------ -----------------------------
FAIR CARRYING FAIR CARRYING
VALUE AMOUNT VALUE AMOUNT
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
Assets
Fixed maturity and equity securities $20,198,062* $20,198,062* $19,817,496* $19,817,496*
Mortgage loans on real estate 1,352,994 1,349,855 1,473,598 1,443,817
Policy loans 637,870 639,200 567,199 557,637
Liabilities
Insurance investment contracts 19,753,088 21,067,429 19,883,419 20,146,697
----------- ----------- ----------- -----------
</TABLE>
* Includes derivative financial instruments with negative fair value of $7,872
in 1996 and negative fair value of $1,121 in 1995.
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
risk-adjusted discount rates.
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 was estimated using cash flows discounted at market interest rates.
11
<PAGE> 65
THE VARIABLE ANNUITY LIFE INSURANCE COMPANY
- --------------------------------------------------------------------------------
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- CONTINUED
December 31, 1996
- --------------------------------------------------------------------------------
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, 1996 were as follows:
Operating expenses include $17,533 in 1996, $21,173 in 1995, and $23,138
in 1994 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 $455 in 1996, $1,662 in 1995, and $525 in 1994.
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, 1996, 1995, and 1994. VALIC recognized $1,372 in interest income
during 1996, $1,452 for 1995, and $1,532 for 1994.
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, 1996, December 29,
1995, and December 31, 1994. VALIC recognized $1,479, $1,729, and $1,810 of
interest income on the note during 1996, 1995, and 1994, respectively.
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 $111,000, $31.05 per share; $95,000,
$26.57 per share, and $53,000, $14.83 per share, in 1996, 1995, and 1994,
respectively.
On May 15, 1996, VALIC sold SC Financial Corp Mortgage Notes with a book
value of $13,000 to American General Life Insurance Company of NY. Proceeds
from the sale totaled $13,033 with a profit of $33 recognized on the
transaction.
On December 30, 1996, VALIC received a capital contribution of $75,000
from AGL.
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 $2,678, $18,961, and
$6,300, for the years ended December 31, 1996, 1995, and 1994, respectively.
The accrued liability for anticipated assessments was $13,661, $20,249, and
$10,214, at December 31, 1996, 1995, and 1994, respectively. The 1996 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> 66
THE VARIABLE ANNUITY LIFE INSURANCE COMPANY
- --------------------------------------------------------------------------------
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- CONTINUED
December 31, 1996
- --------------------------------------------------------------------------------
10.1 PENSION PLANS - (CONTINUED)
The components of pension expense and underlying assumptions for the
defined benefit plan were as follows:
<TABLE>
<CAPTION>
1996 1995 1994
------- ------- -------
<S> <C> <C> <C>
Service cost (benefits earned)
during period $ 917 $ 601 $ 759
Interest cost on projected
benefit obligation 843 635 551
Actual (return) loss on
plan assets (2,785) (1,249) 414
Amortization of unrecognized
net asset existing at date of
initial application (23) (72) (58)
Amortization of unrecognized
prior service cost 44 44 35
Deferral of net asset gain (loss) 2,210 749 (920)
------- ------- -------
Total pension expense $ 1,206 $ 708 $ 781
------- ------- -------
Weighted-average discount rate
on benefit obligation 7.50% 7.25% 8.50%
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, 1996 and 1995 for VALIC's
defined benefit pension plan:
<TABLE>
<CAPTION>
1996 1995
-------- --------
<S> <C> <C>
Actuarial present value of benefit obligation:
Vested $ 8,265 $ 6,983
Nonvested 1,251 1,127
-------- --------
Accumulated benefit obligation 9,516 8,110
Effect of increase in compensation levels 2,474 2,219
-------- --------
Projected benefit obligation 11,990 10,329
Plan assets at fair value 9,120 6,406
-------- --------
Plan assets in excess of projected
benefit obligation (2,870) (3,923)
Unrecognized net loss 1,266 2,037
Unrecognized prior service cost 62 105
Unrecognized net obligation at
January 1, net of amortization -- (23)
-------- --------
Net pension liability $ (1,542) $ (1,804)
-------- --------
</TABLE>
Equity and fixed maturity securities were 60% and 35%, respectively, of
the plan's assets at the plan's 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. Postretirement benefit expense in 1996, 1995,
and 1994 was $282, $228, and $281, respectively.
The plans' combined funded status and the accrued postretirement benefit
cost included in other liabilities at December 31 were as follows:
<TABLE>
<CAPTION>
1996 1995
--------- ---------
<S> <C> <C>
Actuarial present value of benefit obligations
Retirees $ 21 $ 115
Fully eligible active plan participants 103 26
Other active plan participants 1,479 1,509
--------- ---------
Accumulated postretirement
benefit obligations 1,603 1,650
Unrecognized net loss (66) (393)
Net funding (17) --
--------- ---------
Accrued benefit cost $ 1,520 $ 1,257
--------- ---------
Discount rate on postretirement
benefit obligations 7.50% 7.25%
--------- ---------
</TABLE>
13
<PAGE> 67
[PICTURE]
[VALIC LOGO]
<PAGE> 68
ANNUAL REPORT
TO CONTRACT OWNERS
DECEMBER 31, 1996
SEPARATE
ACCOUNT A
[VALIC LOGO]
<PAGE> 69
================================================================================
CHAIRMAN'S LETTER SEPARATE ACCOUNT A
- --------------------------------------------------------------------------------
TO OUR PARTICIPANTS:
We are pleased to present the December 31, 1996 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 1, Portfolio Director 2, Independence Plus, Group Unit
Purchase and Impact) appears on page two.
Economic conditions in 1996 continued the recent pattern of modest growth and
low inflation. Gross Domestic Product has been increasing at a 2.5% annual
rate, slightly above the level in 1995 and in line with expectations for 1997.
Inflation, as measured by the Consumer Price Index, has been reported at 3.3%
and is expected to remain at that level through 1997.
The equity markets provided a second year of exceptional returns. The S&P
500(R) recorded a total return of 22.97%. Smaller capitalization stocks returns
were lower but still very satisfactory. The Standard & Poor's MidCap 400 Index
returned 19.24% and the Russell 2000(R) Index produced 16.49%.
The bond market followed an elliptical pattern declining in the first seven
months and rising in the last four months. Yields on the long-term Treasury
bond rose from 6.0% at the beginning of the year to 7.2% in July and declined
to 6.6% at year end. Bond market returns were less than 3.5%, with coupon
returns offsetting a decline in market value.
VALIC's domestic indexed funds provided returns ranging from 15.57% to 21.53%.
Managed domestic equity funds' returns varied widely from 3.53% to 22.75%. A
large part of the variance was caused by the spread in returns as large
capitalization stocks, on balance, outperformed smaller capitalization issues.
In the Morningstar rankings, twelve of VALIC's equity funds were in the top
half of their categories. Of those, eight 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 24, 1997
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.
"S&P 500(R)" and "Standard & Poor's MidCap 400 Index" are trademarks of
Standard & Poor's Corporation (S&P). The Stock Index Fund and MidCap Index Fund
are not sponsored, endorsed, sold or promoted by S&P and S&P makes no
representation regarding the advisability of investing in the funds. The
Russell 2000(R) Index is a trademark / service mark of the Frank Russell
Company. Russell(TM) is a trademark of the Frank Russell Company.
1
<PAGE> 70
================================================================================
CHAIRMAN'S LETTER - CONTINUED SEPARATE ACCOUNT A
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Morningstar, Inc.(1) One Year
- ------------------------ Total Returns
Ranking Portfolio Portfolio Indepen- Group For Year Ending
- ---------------- Director Director dence Unit December 31,
Percen- Average 2 1 Plus Impact Purchase -------------------
Position tile Return Division Division Division Division Division 1996 1995
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
56/356 84 18.52 AGSPC Stock Index Fund .................... 10C 10C 10C 10D 10A, 10B 21.53% 35.95%
279/587 52 16.79 AGSPC MidCap Index Fund ................... - 4 4 4 - 17.61 29.24
128/249 49 14.57 AGSPC Small Cap Index Fund ................ - 14 14 - - 15.57 26.39
347/369 6 13.83 AGSPC International Equities Fund ......... - 11 11 - - 5.75 9.67
262/587 55 16.79 AGSPC Growth Fund ......................... 15 15 - - - 18.18 46.40
46/356 87 18.52 AGSPC Growth & Income Fund ................ - 16 - - - 22.10 30.55
69/127 46 18.52 AGSPC Science & Technology Fund ........... 17 17 - - - 12.68 60.07
26/356 93 18.52 AGSPC Social Awareness Fund ............... 12 12 12 - - 22.75 37.57
331/416 20 12.33 AGSPC Timed Opportunity Fund .............. - 5 5 5 - 9.99 23.55
139/249 44 14.57 Dreyfus Small Cap Portfolio ............... - 18 - - - 15.14 27.78
360/587 39 16.79 Founders Growth Fund ...................... 30 - - - - 15.35 44.15
262/356 26 18.52 Neuberger&Berman Guardian Trust ........... 29 - - - - 16.54 30.70
116/369 69 13.83 Putnam Global Growth Fund ................. 28 - - - - 15.37 13.68
168/249 33 14.57 Putnam New Opportunities Fund ............. 26 - - - - 9.70 44.87
207/249 17 14.57 Putnam OTC & Emerging Growth Fund ......... 27 - - - - 3.53 54.45
132/356 63 18.52 Scudder Growth and Income Fund ............ 21 - - - - 20.63 29.58
31/416 93 12.33 Templeton Asset Allocation Fund ........... - 19 - - - 17.40 21.02
92/369 75 13.83 Templeton Foreign Fund .................... 32 - - - - 16.74 10.07
39/369 89 13.83 Templeton International Fund .............. - 20 - - - 22.50 14.34
155/249 38 14.57 Twentieth Century Ultra Fund .............. 31 - - - - 12.43 36.23
74/416 82 12.33 Vanguard/Wellington Fund .................. 25 - - - - 14.69 31.30
35/356 90 18.52 Vanguard/Windsor II ....................... 24 - - - - 22.56 37.14
255/295 14 2.86 AGSPC Capital Conservation Fund ........... - 7 7 1 - 0.75 19.58
103/143 28 1.50 AGSPC Government Securities Fund .......... - 8 8 - - 0.90 16.31
54/77 30 7.55 AGSPC Intl Government Bond Fund ........... 13 13 13 - - 3.36 17.63
77/262 71 3.79 AGSPC Money Market Fund ................... 6 6 6 2 - 3.97 4.51
280/295 5 2.86 Vanguard Fixed Income Securities Fund -
Long-Term Corporate Portfolio .......... 22 - - - - (0.72) 24.86
138/143 3 1.50 Vanguard Fixed Income Securities Fund -
Long-Term U. S. Treasury Portfolio ..... 23 - - - - (3.08) 28.51
</TABLE>
(1) SOURCE: Morningstar Variable Annuity/Life Performance Report, January 1997
The Portfolio Director 1 and 2 rankings shown in this publication indicate the
total return rankings of Separate Account A's divisions compared to
Morningstar categories for the twelve month period ending 12/31/96. 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 1 and 2 prospectuses. 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> 71
================================================================================
FINANCIAL STATEMENTS SEPARATE ACCOUNT A
- --------------------------------------------------------------------------------
STATEMENT OF NET ASSETS
December 31, 1996
<TABLE>
<CAPTION>
ASSETS: ALL DIVISIONS
--------------
<S> <C>
Total investment in shares of mutual funds, at market (cost $5,613,414,313) ................... $6,848,720,710
Balance due from VALIC general account ........................................................ 7,839,650
--------------
NET ASSETS .................................................................................... $6,856,560,360
--------------
CONTRACT OWNER RESERVES:
Reserves for redeemable annuity contracts
(Net of applicable contract loans - partial withdrawals with right of reinvestment) .. $6,840,617,496
Reserves for annuity contracts on benefit ..................................................... 15,942,864
--------------
TOTAL CONTRACT OWNER RESERVES ................................................................. $6,856,560,360
==============
</TABLE>
STATEMENT OF OPERATIONS
For the year ended December 31, 1996
<TABLE>
<CAPTION>
INVESTMENT INCOME: ALL DIVISIONS
-------------
<S> <C>
Dividends from mutual funds ................................................................... $ 88,556,732
-------------
EXPENSES:
Mortality and expense risk charge ............................................................. 57,564,107
Reimbursement of expenses (Note C) ............................................................ (167,038)
-------------
Total expenses ....................................................................... 57,397,069
-------------
NET INVESTMENT INCOME ......................................................................... 31,159,663
-------------
REALIZED AND UNREALIZED GAIN ON INVESTMENTS:
Net realized gain on investments .............................................................. 96,618,063
Capital gains distributions from mutual funds ................................................. 175,625,286
Net unrealized appreciation of investments during the year .................................... 539,282,575
-------------
Net realized and unrealized gain on investments ............................................. 811,525,924
-------------
INCREASE IN NET ASSETS RESULTING FROM OPERATIONS .............................................. $ 842,685,587
=============
</TABLE>
STATEMENTS OF CHANGES IN NET ASSETS
For the year ended December 31:
<TABLE>
<CAPTION>
ALL DIVISIONS
----------------------------------
1996 1995
--------------- ---------------
<S> <C> <C>
OPERATIONS:
Net investment income ..................................................................... $ 31,159,663 $ 34,191,940
Net realized gain on investments .......................................................... 96,618,063 54,777,042
Capital gains distributions from mutual funds ............................................. 175,625,286 110,007,833
Net unrealized appreciation of investments during the year ................................ 539,282,575 640,017,922
--------------- ---------------
Increase in net assets resulting from operations ........................................ 842,685,587 838,994,737
--------------- ---------------
PRINCIPAL TRANSACTIONS:
Purchase payments ......................................................................... 1,307,543,093 820,355,349
Surrenders of accumulation units by terminations, withdrawals, and maintenance fees ....... (210,060,345) (114,759,722)
Annuity benefit payments .................................................................. (1,897,648) (1,588,610)
Amounts transferred from VALIC general account ............................................ 647,659,402 220,818,448
--------------- ---------------
Increase in net assets resulting from principal transactions ............................ 1,743,244,502 924,825,465
--------------- ---------------
TOTAL INCREASE IN NET ASSETS .............................................................. 2,585,930,089 1,763,820,202
NET ASSETS:
Beginning of year ......................................................................... 4,270,630,271 2,506,810,069
--------------- ---------------
End of year ............................................................................... $ 6,856,560,360 $ 4,270,630,271
=============== ===============
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS.
3
<PAGE> 72
================================================================================
FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
STATEMENTS OF NET ASSETS
December 31, 1996
<TABLE>
<CAPTION>
AGSPC 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 ... $ 378,856,928 $ 30,721,138 $1,529,744,413 $ 42,481,642
Balance due (to) from VALIC general account ....... (207,899) 4,786 601,957 (10,515)
-------------- -------------- -------------- --------------
NET ASSETS ........................................ $ 378,649,029 $ 30,725,924 $1,530,346,370 $ 42,471,127
============== ============== ============== ==============
CONTRACT OWNER RESERVES:
Reserves for redeemable annuity contracts (Net of
applicable contract loans - partial withdrawals
with right of reinvestment) ..................... $ 367,264,137 $ 29,086,370 $1,529,060,822 $ 42,319,960
Reserves for annuity contracts on benefit ......... 11,384,892 1,639,554 1,285,548 151,167
-------------- -------------- -------------- --------------
TOTAL CONTRACT OWNER RESERVES ..................... $ 378,649,029 $ 30,725,924 $1,530,346,370 $ 42,471,127
============== ============== ============== ==============
</TABLE>
STATEMENTS OF NET ASSETS
December 31, 1996
<TABLE>
<CAPTION>
AGSPC NEUBERGER&
TIMED DREYFUS FOUNDERS BERMAN
OPPORTUNITY SMALL CAP GROWTH GUARDIAN
FUND PORTFOLIO FUND TRUST
DIVISION 5 DIVISION 18 DIVISION 30 DIVISION 29
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
ASSETS:
Investment in shares of mutual funds, at market ... $173,145,150 $657,404,003 $ 31,872,619 $ 9,144,621
Balance due (to) from VALIC general account ....... 84,325 982,056 245,857 58,685
------------ ------------ ------------ ------------
NET ASSETS ........................................ $173,229,475 $658,386,059 $ 32,118,476 $ 9,203,306
============ ============ ============ ============
CONTRACT OWNER RESERVES:
Reserves for redeemable annuity contracts (Net of
applicable contract loans - partial withdrawals
with right of reinvestment) ..................... $173,149,425 $658,204,551 $ 32,118,476 $ 9,203,306
Reserves for annuity contracts on benefit ......... 80,050 181,508 -- --
------------ ------------ ------------ ------------
TOTAL CONTRACT OWNER RESERVES ..................... $173,229,475 $658,386,059 $ 32,118,476 $ 9,203,306
============ ============ ============ ============
</TABLE>
STATEMENTS OF NET ASSETS
December 31, 1996
<TABLE>
<CAPTION>
AGSPC
TWENTIETH VANGUARD/ CAPITAL
CENTURY ULTRA WELLINGTON VANGUARD/ CONSERVATION
FUND FUND WINDSOR II FUND
DIVISION 31 DIVISION 25 DIVISION 24 DIVISION 1
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
ASSETS:
Investment in shares of mutual funds, at market ... $17,259,437 $25,025,702 $41,436,294 $ 6,488,667
Balance due (to) from VALIC general account ....... 58,221 163,816 363,484 13,203
----------- ----------- ----------- -----------
NET ASSETS ........................................ $17,317,658 $25,189,518 $41,799,778 $ 6,501,870
=========== =========== =========== ===========
CONTRACT OWNER RESERVES:
Reserves for redeemable annuity contracts (Net of
applicable contract loans - partial withdrawals
with right of reinvestment) ..................... $17,317,658 $25,189,518 $41,799,778 $ 6,497,192
Reserves for annuity contracts on benefit ......... -- -- -- 4,678
----------- ----------- ----------- -----------
TOTAL CONTRACT OWNER RESERVES ..................... $17,317,658 $25,189,518 $41,799,778 $ 6,501,870
=========== =========== =========== ===========
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS.
4
<PAGE> 73
================================================================================
SEPARATE ACCOUNT A
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
AGSPC AGSPC AGSPC AGSPC AGSPC AGSPC
MIDCAP SMALL CAP INTERNATIONAL AGSPC GROWTH & SCIENCE & SOCIAL
INDEX INDEX EQUITIES GROWTH INCOME TECHNOLOGY AWARENESS
FUND FUND FUND FUND FUND FUND FUND
DIVISION 4 DIVISION 14 DIVISION 11 DIVISION 15 DIVISION 16 DIVISION 17 DIVISION 12
- -------------- -------------- -------------- -------------- -------------- -------------- --------------
<C> <C> <C> <C> <C> <C> <C>
$ 565,680,826 $ 184,521,204 $ 191,110,175 $ 633,819,402 $ 171,283,956 $ 709,577,919 $ 104,772,608
30,567 (42,882) 116,353 1,296,205 244,249 1,386,245 143,421
- -------------- -------------- -------------- -------------- -------------- -------------- --------------
$ 565,711,393 $ 184,478,322 $ 191,226,528 $ 635,115,607 $ 171,528,205 $ 710,964,164 $ 104,916,029
============== ============== ============== ============== ============== ============== ==============
$ 565,558,770 $ 184,473,371 $ 191,050,097 $ 634,868,931 $ 171,510,875 $ 710,720,450 $ 104,916,029
152,623 4,951 176,431 246,676 17,330 243,714 -
- -------------- -------------- -------------- -------------- -------------- -------------- --------------
$ 565,711,393 $ 184,478,322 $ 191,226,528 $ 635,115,607 $ 171,528,205 $ 710,964,164 $ 104,916,029
============== ============== ============== ============== ============== ============== ==============
</TABLE>
<TABLE>
<CAPTION>
PUTNAM PUTNAM PUTNAM OTC & SCUDDER
GLOBAL NEW EMERGING GROWTH AND TEMPLETON TEMPLETON TEMPLETON
GROWTH OPPORTUNITIES GROWTH INCOME ASSET ALLOCATION FOREIGN INTERNATIONAL
FUND FUND FUND FUND FUND FUND FUND
DIVISION 28 DIVISION 26 DIVISION 27 DIVISION 21 DIVISION 19 DIVISION 32 DIVISION 20
- -------------- -------------- -------------- -------------- -------------- -------------- --------------
<C> <C> <C> <C> <C> <C> <C>
$ 17,494,577 $ 49,812,851 $ 43,542,866 $ 18,325,255 $ 194,271,899 $ 39,066,749 $ 529,645,484
114,481 410,128 224,089 98,230 328,988 388,324 378,327
- -------------- -------------- -------------- -------------- -------------- -------------- --------------
$ 17,609,058 $ 50,222,979 $ 43,766,955 $ 18,423,485 $ 194,600,887 $ 39,455,073 $ 530,023,811
============== ============== ============== ============== ============== ============== ==============
$ 17,609,058 $ 50,222,979 $ 43,766,955 $ 18,423,485 $ 194,377,876 $ 39,455,073 $ 529,901,911
- - - - 223,011 - 121,900
- -------------- -------------- -------------- -------------- -------------- -------------- --------------
$ 17,609,058 $ 50,222,979 $ 43,766,955 $ 18,423,485 $ 194,600,887 $ 39,455,073 $ 530,023,811
============== ============== ============== ============== ============== ============== ==============
</TABLE>
<TABLE>
<CAPTION>
VANGUARD VANGUARD
AGSPC AGSPC AGSPC FIXED INCOME FIXED INCOME
CAPITAL GOVERNMENT INTERNATIONAL SECURITIES FUND - SECURITIES FUND -
CONSERVATION SECURITIES GOVERNMENT AGSPC MONEY MARKET FUND L/T CORPORATE L/T U.S. TREASURY
FUND FUND BOND FUND -------------------------------- PORTFOLIO PORTFOLIO
DIVISION 7 DIVISION 8 DIVISION 13 DIVISION 2 DIVISION 6 DIVISION 22 DIVISION 23
- -------------- -------------- -------------- -------------- -------------- -------------- --------------
<C> <C> <C> <C> <C> <C> <C>
$ 55,255,834 $ 85,570,274 $ 178,021,807 $ 4,870,208 $ 120,378,551 $ 3,528,351 $ 4,589,300
33,645 1,665 150,364 9,293 380,075 2,506 (212,599)
- -------------- -------------- -------------- -------------- -------------- -------------- --------------
$ 55,289,479 $ 85,571,939 $ 178,172,171 $ 4,879,501 $ 120,758,626 $ 3,530,857 $ 4,376,701
============== ============== ============== ============== ============== ============== ==============
$ 55,289,479 $ 85,571,939 $ 178,161,619 $ 4,879,501 $ 120,740,347 $ 3,530,857 $ 4,376,701
- - 10,552 - 18,279 - -
- -------------- -------------- -------------- -------------- -------------- -------------- --------------
$ 55,289,479 $ 85,571,939 $ 178,172,171 $ 4,879,501 $ 120,758,626 $ 3,530,857 $ 4,376,701
============== ============== ============== ============== ============== ============== ==============
</TABLE>
5
<PAGE> 74
================================================================================
FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
STATEMENTS OF OPERATIONS
For the year ended December 31, 1996
<TABLE>
<CAPTION>
AGSPC STOCK INDEX FUND
------------------------------------------------------------------
DIVISION 10A DIVISION 10B DIVISION 10C DIVISION 10D
-------------- -------------- -------------- --------------
<S> <C> <C> <C> <C>
INVESTMENT INCOME:
Dividends from mutual funds ...................... $ 6,791,052 $ 559,035 $ 24,619,582 $ 775,055
-------------- -------------- -------------- --------------
EXPENSES:
Mortality and expense risk charge ................ 3,604,468 170,656 12,878,174 411,146
Reimbursement of expenses (Note C) ............... -- (73,695) -- --
-------------- -------------- -------------- --------------
Total expenses ................................ 3,604,468 96,961 12,878,174 411,146
-------------- -------------- -------------- --------------
NET INVESTMENT INCOME (LOSS) ..................... 3,186,584 462,074 11,741,408 363,909
-------------- -------------- -------------- --------------
REALIZED AND UNREALIZED GAIN
(LOSS) ON INVESTMENTS:
Net realized gain on investments ................. 12,767,086 2,085,848 10,129,542 2,391,364
Capital gains distributions from mutual funds .... 2,739,498 222,372 11,061,404 307,213
Net unrealized appreciation (depreciation)
of investments during the year ................ 51,675,655 3,182,195 222,475,966 4,964,983
-------------- -------------- -------------- --------------
Net realized and unrealized gain on investments .. 67,182,239 5,490,415 243,666,912 7,663,560
-------------- -------------- -------------- --------------
INCREASE IN NET ASSETS
RESULTING FROM OPERATIONS ..................... $ 70,368,823 $ 5,952,489 $ 255,408,320 $ 8,027,469
============== ============== ============== ==============
</TABLE>
<TABLE>
<CAPTION>
AGSPC AGSPC AGSPC
SCIENCE & SOCIAL TIMED DREYFUS
STATEMENTS OF OPERATIONS TECHNOLOGY AWARENESS OPPORTUNITY SMALL CAP
For the year ended December 31, 1996 FUND FUND FUND PORTFOLIO
DIVISION 17 DIVISION 12 DIVISION 5 DIVISION 18
-------------- -------------- -------------- --------------
<S> <C> <C> <C> <C>
INVESTMENT INCOME:
Dividends from mutual funds ........................... $ -- $ 1,339,307 $ 5,922,604 $ 1,224,730
-------------- -------------- -------------- --------------
EXPENSES:
Mortality and expense risk charge ..................... 5,521,307 792,838 1,788,197 6,549,419
Reimbursement of expenses (Note C) .................... -- -- -- --
-------------- -------------- -------------- --------------
Total expenses ..................................... 5,521,307 792,838 1,788,197 6,549,419
-------------- -------------- -------------- --------------
NET INVESTMENT INCOME (LOSS) .......................... (5,521,307) 546,469 4,134,407 (5,324,689)
-------------- -------------- -------------- --------------
REALIZED AND UNREALIZED GAIN
(LOSS) ON INVESTMENTS:
Net realized gain on investments ...................... 20,659,560 778,115 7,668,485 1,994,033
Capital gains distributions from mutual funds ......... 32,117,202 10,715,745 18,741,770 19,221,026
Net unrealized appreciation (depreciation)
of investments during the year ..................... 15,569,750 4,483,540 (13,565,417) 56,124,110
-------------- -------------- -------------- --------------
Net realized and unrealized gain (loss) on investments 68,346,512 15,977,400 12,844,838 77,339,169
-------------- -------------- -------------- --------------
INCREASE (DECREASE) IN NET ASSETS
RESULTING FROM OPERATIONS .......................... $ 62,825,205 $ 16,523,869 $ 16,979,245 $ 72,014,480
============== ============== ============== ==============
</TABLE>
* For the period from July 1, 1996 to December 31, 1996.
SEE NOTES TO FINANCIAL STATEMENTS.
6
<PAGE> 75
================================================================================
SEPARATE ACCOUNT A
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
AGSPC AGSPC AGSPC AGSPC
MIDCAP SMALL CAP INTERNATIONAL AGSPC GROWTH &
INDEX INDEX EQUITIES GROWTH INCOME
FUND FUND FUND FUND FUND
DIVISION 4 DIVISION 14 DIVISION 11 DIVISION 15 DIVISION 16
- -------------- -------------- -------------- -------------- --------------
<S> <C> <C> <C> <C>
$ 6,776,195 $ 2,324,957 $ 3,599,021 $ 2,128,889 $ 799,107
- -------------- -------------- -------------- -------------- --------------
5,262,899 1,687,562 2,007,600 4,407,390 1,201,329
-- -- -- -- --
5,262,899 1,687,562 2,007,600 4,407,390 1,201,329
- -------------- -------------- -------------- -------------- --------------
1,513,296 637,395 1,591,421 (2,278,501) (402,222)
- -------------- -------------- -------------- -------------- --------------
17,436,698 4,544,601 10,405,298 130,878 483,596
33,690,174 11,216,991 6,021,502 11,891,551 3,131,642
33,029,566 7,711,563 (6,663,813) 58,161,783 19,205,904
- -------------- -------------- -------------- -------------- --------------
84,156,438 23,473,155 9,762,987 70,184,212 22,821,142
- -------------- -------------- -------------- -------------- --------------
$ 85,669,734 $ 24,110,550 $ 11,354,408 $ 67,905,711 $ 22,418,920
============== ============== ============== ============== ==============
</TABLE>
<TABLE>
<CAPTION>
NEUBERGER& PUTNAM PUTNAM PUTNAM OTC &
FOUNDERS BERMAN GLOBAL NEW EMERGING
GROWTH GUARDIAN GROWTH OPPORTUNITIES GROWTH
FUND TRUST FUND FUND FUND
DIVISION 30* DIVISION 29* DIVISION 28* DIVISION 26* DIVISION 27*
- -------------- -------------- -------------- -------------- --------------
<S> <C> <C> <C> <C>
$ 31,678 $ 33,512 $ 386,503 $ -- $ --
- -------------- -------------- -------------- -------------- --------------
74,336 22,319 39,664 113,933 108,371
(14,593) (4,401) (7,712) (22,122) (21,011)
- -------------- -------------- -------------- -------------- --------------
59,743 17,918 31,952 91,811 87,360
- -------------- -------------- -------------- -------------- --------------
(28,065) 15,594 354,551 (91,811) (87,360)
- -------------- -------------- -------------- -------------- --------------
-- 10,864 1,237 9,737 9,014
2,106,129 128,127 765,977 333,297 2,846,114
(1,697,540) 348,451 (504,554) (1,619,779) (4,620,592)
- -------------- -------------- -------------- -------------- --------------
408,589 487,442 262,660 (1,276,745) (1,765,464)
- -------------- -------------- -------------- -------------- --------------
$ 380,524 $ 503,036 $ 617,211 $ (1,368,556) $ (1,852,824)
============== ============== ============== ============== ==============
</TABLE>
7
<PAGE> 76
================================================================================
FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
STATEMENTS OF OPERATIONS
For the year ended December 31, 1996
<TABLE>
<CAPTION>
SCUDDER
GROWTH AND TEMPLETON TEMPLETON
INCOME ASSET ALLOCATION FOREIGN
FUND FUND FUND
DIVISION 21* DIVISION 19 DIVISION 32*
---------------- ---------------- ----------------
<S> <C> <C> <C>
INVESTMENT INCOME: .................................... $ 158,744 $ 3,271,039 $ 550,688
Dividends from mutual funds ........................... --
EXPENSES:
Mortality and expense risk charge ..................... 38,490 1,812,817 84,678
Reimbursement of expenses (Note C) .................... -- -- (16,623)
Total expenses ..................................... 38,490 1,812,817 68,055
NET INVESTMENT INCOME (LOSS) .......................... 120,254 1,458,222 482,633
REALIZED AND UNREALIZED GAIN
(LOSS) ON INVESTMENTS:
Net realized gain on investments ...................... 22,419 430,651 125
Capital gains distributions from mutual funds ......... 607,596 2,566,073 285,587
Net unrealized appreciation (depreciation)
of investments during the year ..................... 84,718 19,843,521 1,121,790
Net realized and unrealized gain on investments ....... 714,733 22,840,245 1,407,502
INCREASE IN NET ASSETS
RESULTING FROM OPERATIONS .......................... $ 834,987 $ 24,298,467 $ 1,890,135
================ ================ ================
</TABLE>
STATEMENTS OF OPERATIONS
For the year ended December 31, 1996
<TABLE>
<CAPTION>
AGSPC
GOVERNMENT
AGSPC CAPITAL CONSERVATION FUND SECURITIES
-------------------------------- FUND
DIVISION 1 DIVISION 7 DIVISION 8
-------------- -------------- --------------
<S> <C> <C> <C>
INVESTMENT INCOME:
Dividends from mutual funds ................................ $ 454,827 $ 3,599,885 $ 4,872,690
-------------- -------------- --------------
EXPENSES:
Mortality and expense risk charge .......................... 69,783 545,929 795,753
Reimbursement of expenses (Note C) ......................... -- -- --
Total expenses .......................................... 69,783 545,929 795,753
-------------- -------------- --------------
NET INVESTMENT INCOME ...................................... 385,044 3,053,956 4,076,937
-------------- -------------- --------------
REALIZED AND UNREALIZED GAIN
(LOSS) ON INVESTMENTS:
Net realized gain (loss) on investments .................... 60,355 (425,696) (378,294)
Capital gains distributions from mutual funds .............. -- -- --
Net unrealized appreciation (depreciation)
of investments during the year .......................... (428,426) (2,170,354) (2,658,037)
-------------- -------------- --------------
Net realized and unrealized gain (loss) on investments ..... (368,071) (2,596,050) (3,036,331)
-------------- -------------- --------------
INCREASE IN NET ASSETS
RESULTING FROM OPERATIONS ............................... $ 16,973 $ 457,906 $ 1,040,606
============== ============== ==============
</TABLE>
* For the period from July 1, 1996 to December 31, 1996.
SEE NOTES TO FINANCIAL STATEMENTS.
8
<PAGE> 77
================================================================================
SEPARATE ACCOUNT A
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
TEMPLETON TWENTIETH VANGUARD/
INTERNATIONAL CENTURY ULTRA WELLINGTON VANGUARD/
FUND FUND FUND WINDSOR II
DIVISION 20 DIVISION 31* DIVISION 25* DIVISION 24*
- -------------- -------------- -------------- --------------
<S> <C> <C> <C>
$ 4,540,296 $ -- $ 379,677 $ 576,345
- -------------- -------------- -------------- --------------
4,934,897 43,940 53,077 88,288
-- (6,881) -- --
- -------------- -------------- -------------- --------------
4,934,897 37,059 53,077 88,288
- -------------- -------------- -------------- --------------
(394,601) (37,059) 326,600 488,057
- -------------- -------------- -------------- --------------
3,551,468 18,993 -- 11,774
1,324,253 884,238 818,129 1,554,790
- -------------- -------------- -------------- --------------
78,888,709 (659,907) (444,072) (217,368)
- -------------- -------------- -------------- --------------
83,764,430 243,324 374,057 1,349,196
- -------------- -------------- -------------- --------------
$ 83,369,829 $ 206,265 $ 700,657 $ 1,837,253
============== ============== ============== ==============
</TABLE>
<TABLE>
<CAPTION>
VANGUARD VANGUARD
AGSPC FIXED INCOME FIXED INCOME
INTERNATIONAL SECURITIES FUND- SECURITIES FUND-
GOVERNMENT AGSPC MONEY MARKET FUND L/T CORPORATE L/T U.S. TREASURY
BOND FUND ------------------------------- PORTFOLIO PORTFOLIO
DIVISION 13 DIVISION 2 DIVISION 6 DIVISION 22* DIVISION 23*
- -------------- -------------- -------------- ---------------- ----------------
<S> <C> <C> <C> <C>
$ 8,037,534 $ 272,228 $ 4,429,817 $ 44,221 $ 57,514
- -------------- -------------- -------------- ---------------- ----------------
1,475,858 55,691 904,012 8,054 11,232
-- -- -- -- --
- -------------- -------------- -------------- ---------------- ----------------
1,475,858 55,691 904,012 8,054 11,232
- -------------- -------------- -------------- ---------------- ----------------
6,561,676 216,537 3,525,805 36,167 46,282
- -------------- -------------- -------------- ---------------- ----------------
1,815,703 -- -- 2,260 2,349
295,588 -- -- 31,298 --
(2,362,017) -- -- (11,407) 33,654
- -------------- -------------- -------------- ---------------- ----------------
(250,726) -- -- 22,151 36,003
- -------------- -------------- -------------- ---------------- ----------------
$ 6,310,950 $ 216,537 $ 3,525,805 $ 58,318 $ 82,285
============== ============== ============== ================ ================
</TABLE>
9
<PAGE> 78
================================================================================
FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
STATEMENTS OF CHANGES IN NET ASSETS
For the year ended December 31:
<TABLE>
<CAPTION>
AGSPC STOCK INDEX FUND
---------------------------------------------------------------
DIVISION 10A DIVISION 10B
------------------------------ ------------------------------
1996 1995 1996 1995
------------- ------------- ------------- -------------
<S> <C> <C> <C> <C>
OPERATIONS:
Net investment income .......................................... $ 3,186,584 $ 3,760,733 $ 462,074 $ 493,423
Net realized gain on investments ............................... 12,767,086 5,349,737 2,085,848 631,222
Capital gains distributions from mutual funds .................. 2,739,498 6,875,040 222,372 570,166
Net unrealized appreciation
of investments during the year .............................. 51,675,655 78,996,842 3,182,195 6,528,773
------------- ------------- ------------- -------------
Increase in net assets resulting from operations .......... 70,368,823 94,982,352 5,952,489 8,223,584
------------- ------------- ------------- -------------
PRINCIPAL TRANSACTIONS:
Purchase payments .............................................. 4,265,439 5,033,111 501,306 574,384
Surrenders of accumulation units by terminations,
withdrawals, and maintenance fees ........................... (22,309,652) (16,541,542) (2,364,484) (1,698,590)
Annuity benefit payments ....................................... (1,401,028) (1,296,973) (250,350) (218,489)
Amounts transferred (to) from VALIC general account ............ (13,443,730) (23,599,151) (1,406,730) (2,885,564)
------------- ------------- ------------- -------------
Increase (decrease) in net assets
resulting from principal transactions ................... (32,888,971) (36,404,555) (3,520,258) (4,228,259)
------------- ------------- ------------- -------------
TOTAL INCREASE IN NET ASSETS ................................... 37,479,852 58,577,797 2,432,231 3,995,325
NET ASSETS:
Beginning of year .............................................. 341,169,177 282,591,380 28,293,693 24,298,368
------------- ------------- ------------- -------------
End of year .................................................... $ 378,649,029 $ 341,169,177 $ 30,725,924 $ 28,293,693
============= ============= ============= =============
CHANGE IN UNITS OUTSTANDING:
Accumulation units beginning of year ........................... 29,995,363 33,814,520 1,560,525 1,836,094
Purchase payments .............................................. 323,038 497,922 26,729 39,513
Surrenders ..................................................... (1,822,126) (1,718,657) (123,291) (110,735)
Transfers - interdivision and (to) from VALIC general account .. (1,116,886) (2,598,422) (83,562) (204,347)
------------- ------------- ------------- -------------
Accumulation units end of year ................................. 27,379,389 29,995,363 1,380,401 1,560,525
============= ============= ============= =============
</TABLE>
<TABLE>
<CAPTION>
DECEMBER 31: DECEMBER 31:
---------------------------- ----------------------------
1996 1995 1996 1995
------------- ------------ ------------- ------------
<S> <C> <C> <C> <C>
Accumulation unit value........................................ $ 13.413891 $ 11.036946 $ 21.070956 $ 17.221812
============= ============ ============= ============
Annuity unit value assuming a 3.5% discount factor............. $ 3.873132 $ 3.298369 $ 5.173716 $ 4.376632
============= ============ ============= ============
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS.
10
<PAGE> 79
================================================================================
SEPARATE ACCOUNT A
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
AGSPC STOCK INDEX FUND
- ------------------------------------------------------------------------
DIVISION 10C DIVISION 10D
- ---------------------------------- ----------------------------------
1996 1995 1996 1995
- --------------- --------------- --------------- ---------------
<S> <C> <C> <C>
$ 11,741,408 $ 10,698,331 $ 363,909 $ 472,763
10,129,542 10,775,457 2,391,364 1,335,894
11,061,404 21,483,819 307,213 831,333
222,475,966 221,238,425 4,964,983 9,456,579
- --------------- --------------- --------------- ---------------
255,408,320 264,196,032 8,027,469 12,096,569
- --------------- --------------- --------------- ---------------
210,185,191 155,833,642 1,004,698 1,280,197
(49,624,470) (30,060,583) (2,219,367) (2,417,823)
(61,625) (29,665) (10,433) (5,520)
47,055,243 (42,300,802) (5,536,446) (7,115,532)
- --------------- --------------- --------------- ---------------
207,554,339 83,442,592 (6,761,548) (8,258,678)
- --------------- --------------- --------------- ---------------
462,962,659 347,638,624 1,265,921 3,837,891
1,067,383,711 719,745,087 41,205,206 37,367,315
- --------------- --------------- --------------- ---------------
$ 1,530,346,370 $ 1,067,383,711 $ 42,471,127 $ 41,205,206
=============== =============== =============== ===============
455,255,243 416,234,288 9,885,873 12,207,684
80,768,570 76,950,994 231,458 341,405
(18,096,464) (14,254,441) (486,940) (663,263)
18,879,616 (23,675,598) (1,248,687) (1,999,953)
- --------------- --------------- --------------- ---------------
536,806,965 455,255,243 8,381,704 9,885,873
=============== =============== =============== ===============
<CAPTION>
DECEMBER 31: DECEMBER 31:
- ---------------------------------- ----------------------------------
1996 1995 1996 1995
- --------------- --------------- --------------- ---------------
<S> <C> <C> <C>
$ 2.848437 $ 2.343900 $ 5.049088 $ 4.155057
=============== =============== =============== ===============
$ 2.085358 $ 1.776053 $ 3.032347 $ 2.582770
=============== =============== =============== ===============
<CAPTION>
AGSPC
AGSPC SMALL CAP
MIDCAP INDEX FUND INDEX FUND
- ---------------------------------- ----------------------------------
DIVISION 4 DIVISION 14
- ---------------------------------- ----------------------------------
1996 1995 1996 1995
- --------------- --------------- --------------- ---------------
<S> <C> <C> <C>
$ 1,513,296 $ 2,391,702 $ 637,395 $ 563,294
17,436,698 10,603,188 4,544,601 2,963,270
33,690,174 17,377,938 11,216,991 2,945,819
33,029,566 76,322,743 7,711,563 24,766,420
- --------------- --------------- --------------- ---------------
85,669,734 106,695,571 24,110,550 31,238,803
- --------------- --------------- --------------- ---------------
76,583,041 87,946,264 31,004,229 40,608,391
(21,727,656) (15,264,152) (7,478,000) (4,632,557)
(19,036) (16,844) (563) (3,022)
(55,201,966) (69,269,652) (15,148,966) (38,506,364)
- --------------- --------------- --------------- ---------------
(365,617) 3,395,616 8,376,700 (2,533,552)
- --------------- --------------- --------------- ---------------
85,304,117 110,091,187 32,487,250 28,705,251
480,407,276 370,316,089 151,991,072 123,285,821
- --------------- --------------- --------------- ---------------
$ 565,711,393 $ 480,407,276 $ 184,478,322 $ 151,991,072
=============== =============== =============== ===============
172,613,690 171,442,018 98,335,995 100,383,839
25,301,831 35,874,094 18,844,484 30,141,511
(7,030,990) (5,995,776) (4,305,572) (3,356,851)
(18,067,553) (28,706,646) (9,554,065) (28,832,504)
- --------------- --------------- --------------- ---------------
172,816,978 172,613,690 103,320,842 98,335,995
=============== =============== =============== ===============
<CAPTION>
DECEMBER 31: DECEMBER 31:
- ---------------------------------- ----------------------------------
1996 1995 1996 1995
- --------------- --------------- --------------- ---------------
<S> <C> <C> <C>
$ 3.272588 $ 2.782677 $ 1.785442 $ 1.544896
=============== =============== =============== ===============
$ 2.044683 $ 1.799452 $ 1.520786 $ 1.361960
=============== =============== =============== ===============
</TABLE>
11
<PAGE> 80
================================================================================
FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
STATEMENTS OF CHANGES IN NET ASSETS
For the year ended December 31:
<TABLE>
<CAPTION>
AGSPC
INTERNATIONAL EQUITIES AGSPC
FUND GROWTH FUND
DIVISION 11 DIVISION 15
------------------------------ ------------------------------
1996 1995 1996 1995
------------- ------------- ------------- -------------
<S> <C> <C> <C> <C>
OPERATIONS:
Net investment income (loss) ................................... $ 1,591,421 $ 1,304,847 $ (2,278,501) $ (869,578)
Net realized gain on investments ............................... 10,405,298 13,215,875 130,878 8,587
Capital gains distributions from mutual funds .................. 6,021,502 4,363,325 11,891,551 3,650,399
Net unrealized appreciation (depreciation)
of investments during the year .............................. (6,663,813) (725,229) 58,161,783 39,103,633
------------- ------------- ------------- -------------
Increase in net assets resulting from operations .......... 11,354,408 18,158,818 67,905,711 41,893,041
------------- ------------- ------------- -------------
PRINCIPAL TRANSACTIONS:
Purchase payments .............................................. 34,022,917 52,726,233 164,255,730 58,223,803
Surrenders of accumulation units by terminations,
withdrawals, and maintenance fees ........................... (8,616,063) (6,722,321) (10,378,550) (1,776,523)
Annuity benefit payments ....................................... (13,432) (5,870) (38,688) --
Amounts transferred (to) from VALIC general account ............ (45,208,742) (63,364,477) 172,227,639 109,893,422
------------- ------------- ------------- -------------
Increase (decrease) in net assets
resulting from principal transactions ................... (19,815,320) (17,366,435) 326,066,131 166,340,702
------------- ------------- ------------- -------------
TOTAL INCREASE (DECREASE) IN NET ASSETS ........................ (8,460,912) 792,383 393,971,842 208,233,743
NET ASSETS:
Beginning of year .............................................. 199,687,440 198,895,057 241,143,765 32,910,022
------------- ------------- ------------- -------------
End of year .................................................... $ 191,226,528 $ 199,687,440 $ 635,115,607 $ 241,143,765
============= ============= ============= =============
CHANGE IN UNITS OUTSTANDING:
Accumulation units beginning of year ........................... 172,564,018 187,749,916 164,417,848 32,633,370
Purchase payments .............................................. 28,526,458 49,402,081 101,043,809 45,984,606
Surrenders ..................................................... (7,207,422) (6,214,230) (5,693,969) (1,266,891)
Transfers - interdivision and (to) from VALIC general account .. (37,656,740) (58,373,749) 106,504,821 87,066,763
------------- ------------- ------------- -------------
Accumulation units end of year ................................. 156,226,314 172,564,018 366,272,509 164,417,848
============= ============= ============= =============
</TABLE>
<TABLE>
<CAPTION>
DECEMBER 31: DECEMBER 31:
------------------------------ -----------------------------
1996 1995 1996 1995
------------- ------------- ------------ ------------
<S> <C> <C> <C> <C>
Accumulation unit value ........................................ $ 1.222906 $ 1.156454 $ 1.733324 $ 1.466652
============= ============= ============ ============
Annuity unit value assuming a 3.5% discount factor ............. $ 0.953246 $ 0.933003 $ 1.580931 $ 1.384532
============= ============= ============ ============
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS.
12
<PAGE> 81
================================================================================
SEPARATE ACCOUNT A
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
AGSPC
AGSPC AGSPC AGSPC TIMED OPPORTUNITY
GROWTH & INCOME FUND SCIENCE & TECHNOLOGY FUND SOCIAL AWARENESS FUND FUND
- ------------------------------ ------------------------------ ------------------------------ ------------------------------
DIVISION 16 DIVISION 17 DIVISION 12 DIVISION 5
- ------------------------------ ------------------------------ ------------------------------ ------------------------------
1996 1995 1996 1995 1996 1995 1996 1995
- ------------- ------------- ------------- ------------- ------------- ------------- ------------- -------------
<S> <C> <C> <C> <C> <C> <C> <C>
$ (402,222) $ (75,425) $ (5,521,307) $ (1,432,122) $ 546,469 $ 599,922 $ 4,134,407 $ 5,452,120
483,596 19,953 20,659,560 6,545,968 778,115 371,169 7,668,485 2,006,917
3,131,642 472,785 32,117,202 37,380,606 10,715,745 3,609,468 18,741,770 3,186,462
19,205,904 8,794,032 15,569,750 41,310,631 4,483,540 10,227,915 (13,565,417) 26,710,438
- ------------- ------------- ------------- ------------- ------------- ------------- ------------- -------------
22,418,920 9,211,345 62,825,205 83,805,083 16,523,869 14,808,474 16,979,245 37,355,937
- ------------- ------------- ------------- ------------- ------------- ------------- ------------- -------------
41,180,652 17,507,504 181,422,903 93,027,877 18,543,307 10,849,944 15,126,160 20,940,181
(2,962,157) (641,935) (14,164,178) (3,055,711) (3,798,307) (1,516,923) (11,037,733) (7,824,702)
(1,598) -- (40,073) (824) -- -- (7,329) (6,591)
43,756,812 28,680,150 105,706,951 147,758,969 13,547,350 (2,864,774) (30,784,573) (42,300,580)
- ------------- ------------- ------------- ------------- ------------- ------------- ------------- -------------
81,973,709 45,545,719 272,925,603 237,730,311 28,292,350 6,468,247 (26,703,475) (29,191,692)
- ------------- ------------- ------------- ------------- ------------- ------------- ------------- -------------
104,392,629 54,757,064 335,750,808 321,535,394 44,816,219 21,276,721 (9,724,230) 8,164,245
67,135,576 12,378,512 375,213,356 53,677,962 60,099,810 38,823,089 182,953,705 174,789,460
- ------------- ------------- ------------- ------------- ------------- ------------- ------------- -------------
$ 171,528,205 $ 67,135,576 $ 710,964,164 $ 375,213,356 $ 104,916,029 $ 60,099,810 $ 173,229,475 $ 182,953,705
============= ============= ============= ============= ============= ============= ============= =============
51,779,089 12,386,602 187,862,232 42,726,137 32,750,120 29,015,764 75,851,431 89,377,860
28,095,895 14,980,745 84,389,312 54,428,033 9,143,695 6,860,477 6,003,535 9,806,864
(1,842,881) (455,265) (6,049,987) (1,584,330) (1,827,332) (929,671) (4,376,494) (3,569,040)
30,309,532 24,867,007 49,608,089 92,292,392 6,507,533 (2,196,450) (12,185,855) (19,764,253)
- ------------- ------------- ------------- ------------- ------------- ------------- ------------- -------------
108,341,635 51,779,089 315,809,646 187,862,232 46,574,016 32,750,120 65,292,617 75,851,431
============= ============= ============= ============= ============= ============= ============= =============
</TABLE>
<TABLE>
<CAPTION>
DECEMBER 31: DECEMBER 31: DECEMBER 31: DECEMBER 31:
- ------------------------------ ------------------------------ ------------------------------ ------------------------------
1996 1995 1996 1995 1996 1995 1996 1995
- ------------- ------------- ------------- ------------- ------------- ------------- ------------ -------------
<S> <C> <C> <C> <C> <C> <C> <C>
$ 1.583056 $ 1.296577 $ 2.250471 $ 1.997175 $ 2.252673 $ 1.835102 $ 2.651899 $ 2.411022
============= ============= ============= ============= ============= ============= ============= =============
$ 1.443874 $ 1.223980 $ 2.052612 $ 1.885352 $ 1.755941 $ 1.480522 $ 1.680570 $ 1.581407
============= ============= ============= ============= ============= ============= ============= =============
</TABLE>
13
<PAGE> 82
================================================================================
FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
STATEMENTS OF CHANGES IN NET ASSETS
For the year ended December 31:
<TABLE>
<CAPTION>
FOUNDERS
GROWTH
DREYFUS SMALL CAP PORTFOLIO FUND
------------------------------ -------------
DIVISION 18 DIVISION 30
------------------------------ -------------
1996 1995 1996*
------------- ------------- -------------
<S> <C> <C> <C>
OPERATIONS:
Net investment income (loss) ..................................... $ (5,324,689) $ (1,441,343) $ (28,065)
Net realized gain on investments ................................. 1,994,033 26,776 --
Capital gains distributions from mutual funds .................... 19,221,026 6,796,184 2,106,129
Net unrealized appreciation (depreciation)
of investments during the year ................................ 56,124,110 47,179,100 (1,697,540)
------------- ------------- -------------
Increase (decrease) in net assets resulting from operations . 72,014,480 52,560,717 380,524
------------- ------------- -------------
PRINCIPAL TRANSACTIONS:
Purchase payments ................................................ 168,538,535 96,201,687 8,595,522
Surrenders of accumulation units by terminations,
withdrawals, and maintenance fees ............................. (13,795,343) (3,867,838) (36,494)
Annuity benefit payments ......................................... (8,413) (915) --
Amounts transferred (to) from VALIC general account .............. 74,732,906 122,606,635 23,178,924
------------- ------------- -------------
Increase in net assets
resulting from principal transactions ..................... 229,467,685 214,939,569 31,737,952
------------- ------------- -------------
TOTAL INCREASE IN NET ASSETS ..................................... 301,482,165 267,500,286 32,118,476
NET ASSETS:
Beginning of year ................................................ 356,903,894 89,403,608 --
------------- -------------
End of year ...................................................... $ 658,386,059 $ 356,903,894 $ 32,118,476
============= ============= =============
CHANGE IN UNITS OUTSTANDING:
Accumulation units beginning of year ............................. 267,735,219 85,169,871 --
Purchase payments ................................................ 117,376,109 80,950,706 9,274,157
Surrenders ....................................................... (8,756,141) (2,954,777) (32,596)
Transfers - interdivision and (to) from VALIC general account .... 52,528,063 104,569,419 21,955,903
------------- ------------- -------------
Accumulation units end of year ................................... 428,883,250 267,735,219 31,197,464
============= ============= =============
</TABLE>
<TABLE>
<CAPTION>
DECEMBER 31: DECEMBER 31,
--------------------------- ------------
1996 1995 1996
------------ ------------ ------------
<S> <C> <C> <C>
Accumulation unit value ............................... $ 1.534694 $ 1.332904 $ 1.029522
============ ============ ============
Annuity unit value assuming a 3.5% discount factor .... $ 1.409551 $ 1.267071 $ 1.011867
============ ============ ============
</TABLE>
* For the period from July 1, 1996 to December 31, 1996.
SEE NOTES TO FINANCIAL STATEMENTS.
14
<PAGE> 83
================================================================================
SEPARATE ACCOUNT A
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
PUTNAM
PUTNAM PUTNAM OTC & SCUDDER
GLOBAL NEW EMERGING GROWTH AND
NEUBERGER&BERMAN GROWTH OPPORTUNITIES GROWTH INCOME
GUARDIAN TRUST FUND FUND FUND FUND
DIVISION 29 DIVISION 28 DIVISION 26 DIVISION 27 DIVISION 21
- -------------- -------------- -------------- -------------- --------------
1996* 1996* 1996* 1996* 1996*
- -------------- -------------- -------------- -------------- --------------
<S> <C> <C> <C> <C>
$ 15,594 $ 354,551 $ (91,811) $ (87,360) $ 120,254
10,864 1,237 9,737 9,014 22,419
128,127 765,977 333,297 2,846,114 607,596
348,451 (504,554) (1,619,779) (4,620,592) 84,718
- -------------- -------------- -------------- -------------- --------------
503,036 617,211 (1,368,556) (1,852,824) 834,987
- -------------- -------------- -------------- -------------- --------------
2,108,685 3,174,282 11,510,093 11,571,920 4,643,308
(21,439) (15,952) (87,148) (77,988) (23,004)
-- -- -- -- --
6,613,024 13,833,517 40,168,590 34,125,847 12,968,194
- -------------- -------------- -------------- -------------- --------------
8,700,270 16,991,847 51,591,535 45,619,779 17,588,498
- -------------- -------------- -------------- -------------- --------------
9,203,306 17,609,058 50,222,979 43,766,955 18,423,485
-- -- -- -- --
- -------------- -------------- -------------- -------------- --------------
$ 9,203,306 $ 17,609,058 $ 50,222,979 $ 43,766,955 $ 18,423,485
============== ============== ============== ============== ==============
-- -- -- -- --
2,109,025 3,377,941 13,342,250 13,681,504 4,726,075
(19,267) (16,466) (87,502) (82,877) (21,254)
6,121,834 13,287,125 39,746,951 35,304,201 11,819,225
- -------------- -------------- -------------- -------------- --------------
8,211,592 16,648,600 53,001,699 48,902,828 16,524,046
============== ============== ============== ============== ==============
</TABLE>
<TABLE>
<CAPTION>
December 31, December 31, December 31, December 31, December 31,
1996 1996 1996 1996 1996
- -------------- -------------- -------------- -------------- --------------
<S> <C> <C> <C> <C>
$ 1.120770 $ 1.057690 $ 0.947573 $ 0.894978 $ 1.114950
============== ============== ============== ============== ==============
$ 1.101550 $ 1.039552 $ 0.931324 $ 0.879630 $ 1.095830
============== ============== ============== ============== ==============
</TABLE>
15
<PAGE> 84
================================================================================
FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
STATEMENTS OF CHANGES IN NET ASSETS
For the year ended December 31:
<TABLE>
<CAPTION>
TEMPLETON
TEMPLETON ASSET FOREIGN
ALLOCATION FUND FUND
------------------------------ -------------
DIVISION 19 DIVISION 32
------------------------------ -------------
1996 1995 1996*
------------- ------------- -------------
<S> <C> <C> <C>
OPERATIONS:
Net investment income (loss) .................................... $ 1,458,222 $ 360,608 $ 482,633
Net realized gain on investments ................................ 430,651 87,754 125
Capital gains distributions from mutual funds ................... 2,566,073 -- 285,587
Net unrealized appreciation (depreciation)
of investments during the year ............................... 19,843,521 11,935,576 1,121,790
------------- ------------- -------------
Increase in net assets resulting from operations ........... 24,298,467 12,383,938 1,890,135
------------- ------------- -------------
PRINCIPAL TRANSACTIONS:
Purchase payments ............................................... 46,026,342 26,412,918 9,386,263
Surrenders of accumulation units by terminations,
withdrawals, and maintenance fees ............................ (3,839,217) (1,156,891) (122,577)
Annuity benefit payments ........................................ (39,584) (1,361) --
Amounts transferred (to) from VALIC general account ............. 33,529,527 24,133,475 28,301,252
------------- ------------- -------------
Increase in net assets
resulting from principal transactions .................... 75,677,068 49,388,141 37,564,938
------------- ------------- -------------
TOTAL INCREASE IN NET ASSETS .................................... 99,975,535 61,772,079 39,455,073
NET ASSETS:
Beginning of year ............................................... 94,625,352 32,853,273 --
------------- ------------- -------------
End of year ..................................................... $ 194,600,887 $ 94,625,352 $ 39,455,073
============= ============= =============
CHANGE IN UNITS OUTSTANDING:
Accumulation units beginning of year ............................ 78,494,505 32,807,602 --
Purchase payments ............................................... 35,369,271 24,212,805 10,156,940
Surrenders ...................................................... (2,676,756) (964,768) (116,295)
Transfers - interdivision and (to) from VALIC general account ... 26,197,650 22,438,866 26,631,183
============= ============= =============
Accumulation units end of year .................................. 137,384,670 78,494,505 36,671,828
============= ============= =============
</TABLE>
<TABLE>
<CAPTION>
DECEMBER 31: DECEMBER 31,
----------------------------- -------------
1996 1995 1996
------------ ------------- -------------
<S> <C> <C> <C>
Accumulation unit value ........................................... $ 1.414844 $ 1.205181 $ 1.075896
============= ============= =============
Annuity unit value assuming a 3.5% discount factor ............... $ 1.299474 $ 1.145656 $ 1.057446
============= ============= =============
</TABLE>
* For the period from July 1, 1996 to December 31, 1996.
SEE NOTES TO FINANCIAL STATEMENTS.
16
<PAGE> 85
================================================================================
SEPARATE ACCOUNT A
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
TWENTIETH
CENTURY VANGUARD/
ULTRA WELLINGTON VANGUARD/
TEMPLETON INTERNATIONAL FUND FUND FUND WINDSOR II
- ------------------------------ ------------- ------------- -------------
DIVISION 20 DIVISION 31 DIVISION 25 DIVISION 24
- ------------------------------ ------------- ------------- -------------
1996 1995 1996* 1996* 1996*
- ------------- ------------- ------------- ------------- -------------
<S> <C> <C> <C> <C>
$ (394,601) $ (1,169,628) $ (37,059) $ 326,600 $ 488,057
3,551,468 25,628 18,993 -- 11,774
1,324,253 350,470 884,238 818,129 1,554,790
78,888,709 23,406,038 (659,907) (444,072) (217,368)
- ------------- ------------- ------------- ------------- -------------
83,369,829 22,612,508 206,265 700,657 1,837,253
- ------------- ------------- ------------- ------------- -------------
121,376,573 69,120,243 4,513,492 7,042,246 10,178,409
(9,699,818) (2,577,387) (29,941) (12,075) (103,527)
(3,367) (463) -- -- --
84,599,243 89,125,401 12,627,842 17,458,690 29,887,643
- ------------- ------------- ------------- ------------- -------------
196,272,631 155,667,794 17,111,393 24,488,861 39,962,525
- ------------- ------------- ------------- ------------- -------------
279,642,460 178,280,302 17,317,658 25,189,518 41,799,778
250,381,351 72,101,049 -- -- --
- ------------- ------------- ------------- ------------- -------------
$ 530,023,811 $ 250,381,351 $ 17,317,658 $ 25,189,518 $ 41,799,778
============= ============= ============= ============= =============
219,124,926 71,716,511 -- -- --
97,229,761 65,697,216 4,747,541 7,335,077 10,359,662
(7,187,616) (2,198,909) (27,374) (12,748) (91,924)
69,414,878 83,910,108 11,933,909 15,544,305 27,025,023
- ------------- ------------- ------------- ------------- -------------
378,581,949 219,124,926 16,654,076 22,866,634 37,292,761
============= ============= ============= ============= =============
<CAPTION>
DECEMBER 31:
- ------------------------------ DECEMBER 31, DECEMBER 31, DECEMBER 31,
1996 1995 1996 1996 1996
- ------------- ------------- ------------- ------------- -------------
<S> <C> <C> <C> <C>
$ 1.399702 $ 1.142586 $ 1.039845 $ 1.101584 $ 1.120855
============= ============= ============= ============= =============
$ 1.285567 $ 1.086152 $ 1.022013 $ 1.082693 $ 1.101634
============= ============= ============= ============= =============
</TABLE>
17
<PAGE> 86
================================================================================
FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
STATEMENTS OF CHANGES IN NET ASSETS
For the year ended December 31:
<TABLE>
<CAPTION>
AGSPC AGSPC
CAPITAL CONSERVATION CAPITAL CONSERVATION
FUND FUND
---------------------------- ----------------------------
DIVISION 1 DIVISION 7
---------------------------- ----------------------------
1996 1995 1996 1995
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
OPERATIONS:
Net investment income ......................................... $ 385,044 $ 449,111 $ 3,053,956 $ 2,607,547
Net realized gain (loss) on investments ....................... 60,355 65,122 (425,696) (138,616)
Capital gains distributions from mutual funds ................. -- -- -- --
Net unrealized appreciation (depreciation)
of investments during the year ............................. (428,426) 906,759 (2,170,354) 5,643,853
------------ ------------ ------------ ------------
Increase in net assets resulting from operations ......... 16,973 1,420,992 457,906 8,112,784
------------ ------------ ------------ ------------
PRINCIPAL TRANSACTIONS:
Purchase payments ............................................. 280,092 286,600 10,990,401 10,464,260
Surrenders of accumulation units by terminations,
withdrawals, and maintenance fees .......................... (624,478) (623,792) (2,515,394) (1,972,220)
Annuity benefit payments ...................................... (512) (499) -- --
Amounts transferred (to) from VALIC general account ........... (953,654) (1,306,120) (7,231,500) (3,821,311)
------------ ------------ ------------ ------------
Increase (decrease) in net assets
resulting from principal transactions .................. (1,298,552) (1,643,811) 1,243,507 4,670,729
------------ ------------ ------------ ------------
TOTAL INCREASE (DECREASE) IN NET ASSETS ....................... (1,281,579) (222,819) 1,701,413 12,783,513
NET ASSETS:
Beginning of year ............................................. 7,783,449 8,006,268 53,588,066 40,804,553
------------ ------------ ------------ ------------
End of year ................................................... $ 6,501,870 $ 7,783,449 $ 55,289,479 $ 53,588,066
============ ============ ============ ============
CHANGE IN UNITS OUTSTANDING:
Accumulation units beginning of year .......................... 2,402,085 2,953,861 29,573,808 26,859,219
Purchase payments ............................................. 87,169 96,297 6,098,740 6,253,935
Surrenders .................................................... (196,821) (207,008) (1,343,357) (1,058,493)
Transfers - interdivision and (to) from VALIC
general account . ........................................... (300,897) (441,065) (4,042,697) (2,480,853)
------------ ------------ ------------ ------------
Accumulation units end of year ................................ 1,991,536 2,402,085 30,286,494 29,573,808
============ ============ ============ ============
<CAPTION>
DECEMBER 31: DECEMBER 31:
---------------------------- ----------------------------
1996 1995 1996 1995
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
Accumulation unit value ....................................... $ 3.262402 $ 3.238370 $ 1.825549 $ 1.812011
============ ============ ============ ============
Annuity unit value assuming a 3.5% discount factor ............ $ 1.794552 $ 1.843690 $ 1.255251 $ 1.289558
============ ============ ============ ============
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS.
18
<PAGE> 87
================================================================================
SEPARATE ACCOUNT A
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
AGSPC AGSPC
GOVERNMENT SECURITIES INTERNATIONAL GOVERNMENT AGSPC
FUND BOND FUND MONEY MARKET FUND
- ----------------------------- ------------------------------ ----------------------------------------------------------------
DIVISION 8 DIVISION 13 DIVISION 2 DIVISION 6
- ----------------------------- ------------------------------ ------------------------------ ------------------------------
1996 1995 1996 1995 1996 1995 1996 1995
- ------------- ------------- ------------- ------------- ------------- ------------- ------------- -------------
<C> <C> <C> <C> <C> <C> <C> <C>
$ 4,076,937 $ 2,982,495 $ 6,561,676 $ 3,459,290 $ 216,537 $ 306,524 $ 3,525,805 $ 3,277,326
(378,294) (28,711) 1,815,703 911,852 -- -- -- --
-- -- 295,588 114,019 -- -- -- --
(2,658,037) 5,103,399 (2,362,017) 3,111,995 -- -- -- --
- ------------- ------------- ------------- ------------- ------------- ------------- ------------- -------------
1,040,606 8,057,183 6,310,950 7,597,156 216,537 306,524 3,525,805 3,277,326
- ------------- ------------- ------------- ------------- ------------- ------------- ------------- -------------
18,451,360 15,047,915 48,300,297 31,073,737 163,293 355,756 40,448,483 26,840,702
(3,354,710) (1,987,445) (4,925,561) (1,946,252) (465,203) (681,366) (13,617,200) (7,793,169)
-- -- (33) -- -- -- (1,584) (1,574)
(2,269,092) 9,219,172 16,174,338 42,026,449 (1,426,148) (806,250) 10,145,727 (54,484,648)
- ------------- ------------- ------------- ------------- ------------- ------------- ------------- -------------
12,827,558 22,279,642 59,549,041 71,153,934 (1,728,058) (1,131,860) 36,975,426 (35,438,689)
- ------------- ------------- ------------- ------------- ------------- ------------- ------------- -------------
13,868,164 30,336,825 65,859,991 78,751,090 (1,511,521) (825,336) 40,501,231 (32,161,363)
71,703,775 41,366,950 112,312,180 33,561,090 6,391,022 7,216,358 80,257,395 112,418,758
- ------------- ------------- ------------- ------------- ------------- ------------- ------------- -------------
$ 85,571,939 $ 71,703,775 $ 178,172,171 $ 112,312,180 $ 4,879,501 $ 6,391,022 $ 120,758,626 $ 80,257,395
============= ============= ============= ============= ============= ============= ============= =============
39,847,053 26,667,073 73,369,250 25,691,713 2,917,361 3,442,237 51,907,757 75,765,781
10,391,393 9,058,310 31,815,367 21,413,110 73,255 165,743 25,572,924 18,072,687
(1,871,516) (1,149,951) (3,112,236) (1,286,336) (208,252) (316,475) (8,565,366) (5,090,822)
(1,236,761) 5,271,621 10,529,212 27,550,763 (639,830) (374,144) 6,208,780 (36,839,889)
- ------------- ------------- ------------- ------------- ------------- ------------- ------------- -------------
47,130,169 39,847,053 112,601,593 73,369,250 2,142,534 2,917,361 75,124,095 51,907,757
============= ============= ============= ============= ============= ============= ============= =============
<CAPTION>
December 31: December 31: December 31: December 31:
- ----------------------------- ------------------------------ ------------------------------ ------------------------------
1996 1995 1996 1995 1996 1995 1996 1995
- ------------- ------------- ------------- ------------- ------------- ------------- ------------- -------------
<S> <C> <C> <C> <C> <C> <C> <C>
$ 1.815651 $ 1.799475 $ 1.582230 $ 1.530780 $ 2.277444 $ 2.190686 $ 1.607212 $ 1.545802
============= ============= ============= ============= ============= ============= ============= =============
$ 1.248443 $ 1.280634 $ 1.321708 $ 1.323493 $ 1.399179 $ 1.392992 $ 1.093041 $ 1.088077
============= ============= ============= ============= ============= ============= ============= =============
</TABLE>
19
<PAGE> 88
================================================================================
FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
STATEMENTS OF CHANGES IN NET ASSETS
For the year ended December 31:
<TABLE>
<CAPTION>
VANGUARD VANGUARD
FIXED FIXED
INCOME INCOME
SECURITIES SECURITIES
FUND - FUND - L/T
L/T CORPORATE U.S. TREASURY
PORTFOLIO PORTFOLIO
------------ ------------
DIVISION 22 DIVISION 23
------------ ------------
1996* 1996*
------------ ------------
<S> <C> <C>
OPERATIONS:
Net investment income ........................................... $ 36,167 $ 46,282
Net realized gain on investments ................................ 2,260 2,349
Capital gains distributions from mutual funds ................... 31,298 --
Net unrealized appreciation (depreciation)
of investments during the year ............................... (11,407) 33,654
------------ ------------
Increase in net assets resulting from operations ........... 58,318 82,285
------------ ------------
PRINCIPAL TRANSACTIONS:
Purchase payments ............................................... 1,030,635 1,117,289
Surrenders of accumulation units by terminations,
withdrawals, and maintenance fees ............................ (3,212) (9,447)
Annuity benefit payments ........................................ -- --
Amounts transferred (to) from VALIC general account ............. 2,445,116 3,186,574
------------ ------------
Increase in net assets
resulting from principal transactions .................... 3,472,539 4,294,416
------------ ------------
TOTAL INCREASE IN NET ASSETS .................................... 3,530,857 4,376,701
NET ASSETS:
Beginning of year ............................................... -- --
------------ ------------
End of year ..................................................... $ 3,530,857 $ 4,376,701
============ ============
CHANGE IN UNITS OUTSTANDING:
Accumulation units beginning of year ............................ -- --
Purchase payments ............................................... 1,099,573 1,138,211
Surrenders ...................................................... (3,347) (9,203)
Transfers - interdivision and (to) from VALIC general account ... 2,274,215 3,045,361
------------ ------------
Accumulation units end of year .................................. 3,370,441 4,174,369
============ ============
<CAPTION>
December 31, December 31,
1996 1996
------------ ------------
<S> <C> <C>
Accumulation unit value ......................................... $ 1.047595 $ 1.048470
============ ============
Annuity unit value assuming a 3.5% discount factor .............. $ 1.029630 $ 1.030490
============ ============
</TABLE>
* For the period from July 1, 1996 to December 31, 1996.
SEE NOTES TO FINANCIAL STATEMENTS.
20
<PAGE> 89
================================================================================
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 thirty-three 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"):
AGSPC Stock Index Fund (Divisions 10A, B, C, and D)
AGSPC MidCap Index Fund (Division 4)
AGSPC Small Cap Index Fund (Division 14)
AGSPC International Equities Fund (Division 11)
AGSPC Growth Fund (Division 15)
AGSPC Growth & Income Fund (Division 16)
AGSPC Science & Technology Fund (Division 17)
AGSPC Social Awareness Fund (Division 12)
AGSPC Timed Opportunity Fund (Division 5)
AGSPC Capital Conservation Fund (Divisions 1 and 7)
AGSPC Government Securities Fund (Division 8)
AGSPC International Government Bond Fund (Division 13)
AGSPC Money Market Fund (Divisions 2 and 6)
Dreyfus Variable Investment Fund --
Dreyfus Small Cap Portfolio (Division 18)
Founders Growth Fund (Division 30)
Neuberger&Berman Guardian Trust (Division 29)
Putnam Global Growth Fund (Division 28)
Putnam New Opportunities Fund (Division 26)
Putnam OTC & Emerging Growth Fund (Division 27)
Scudder Growth and Income Fund (Division 21)
Templeton Foreign Fund (Division 32)
Templeton Variable Products Series Fund:
Templeton Asset Allocation Fund (Division 19)
Templeton International Fund (Division 20)
Twentieth Century Ultra Fund (Division 31)
Vanguard Fixed Income Securities Fund:
Long-Term Corporate Portfolio (Division 22)
Long-Term U.S. Treasury Portfolio (Division 23)
Vanguard/Wellington Fund (Division 25)
Vanguard/Windsor II (Division 24)
Divisions 21 through 32 commenced operations on July 1, 1996.
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 as
reported by the Fund.
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 1983(a) Individual Mortality 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.
21
<PAGE> 90
================================================================================
NOTES TO FINANCIAL STATEMENTS - CONTINUED SEPARATE ACCOUNT A
- --------------------------------------------------------------------------------
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, 0.85% on the first
$10,000,000, 0.425% on the next $90,000,000, and 0.21% 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 through 32, 1.25%. Certain
unaffiliated mutual funds reimburse to VALIC a portion of the distribution or
administrative costs associated with offering their funds through a VALIC
annuity contract. VALIC, in turn reduces the separate account charge to that
division by the amount of the reimbursement. The expense reduction is credited
daily based on the following annual rates: for Divisions 26 through 30 and
Division 32, 0.25%; for Division 31, 0.20%.
Pursuant to the reorganization agreement entered into on April 17, 1987,
which transferred VALIC Separate Accounts One and Two into Separate Account A
Divisions 10A and 10B, respectively, expenses of each division (as defined to
include underlying mutual fund expenses) are limited to the following rates
based on average daily net assets: Division 10A, 1.4157% on the first
$359,065,787, 1.36% on the next $40,934,213, and 1.32% on the excess over
$400,000,000; Division 10B, 0.6966% on the first $25,434,267, 0.5% on the next
$74,565,733, and 0.25% on the excess over $100,000,000. Accordingly, during the
years ended December 31, 1996 and 1995, VALIC reduced expenses of Division 10B
by $73,695 and $69,586, 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 $3,625,368 and $2,494,903 for the years
ended December 31, 1996, and December 31, 1995, respectively.
VALIC received surrender charges of $1,998,356 and $1,299,069 for the years
ended December 31, 1996, and December 31, 1995, respectively. In addition,
VALIC received $76,330 and $11,846 for the year ended December 31, 1996, in
sales load on variable annuity purchase payments for Divisions 10A and 10B,
respectively. 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.
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, 1996:
<TABLE>
<CAPTION>
UNREALIZED
MARKET APPRECIATION
UNDERLYING FUND DIVISION SHARES PRICE MARKET COST (DEPRECIATION)
- ----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
AGSPC Stock Index Fund ............... 10A,B,C,D 87,073,994 $22.76 $1,981,804,121 $1,327,746,117 $ 654,058,004
AGSPC MidCap Index Fund .............. 4 29,632,311 19.09 565,680,826 449,572,385 116,108,441
AGSPC Small Cap Index Fund ........... 14 11,997,478 15.38 184,521,204 153,924,818 30,596,386
AGSPC International Equities Fund .... 11 17,597,622 10.86 191,110,175 186,523,328 4,586,847
AGSPC Growth Fund .................... 15 37,305,439 16.99 633,819,402 536,223,583 97,595,819
AGSPC Growth & Income Fund ........... 16 11,029,231 15.53 171,283,956 143,198,387 28,085,569
AGSPC Science & Technology Fund ...... 17 36,314,121 19.54 709,577,919 650,004,665 59,573,254
AGSPC Social Awareness Fund .......... 12 6,746,465 15.53 104,772,608 92,520,041 12,252,567
AGSPC Timed Opportunity Fund ......... 5 14,900,615 11.62 173,145,150 164,668,872 8,476,278
Dreyfus Small Cap Portfolio .......... 18 12,622,965 52.08 657,404,003 554,202,812 103,201,191
Founders Growth Fund ................. 30 2,008,357 15.87 31,872,619 33,570,159 (1,697,540)
Neuberger&Berman Guardian Trust ...... 29 576,221 15.87 9,144,621 8,796,170 348,451
Putnam Global Growth Fund ............ 28 1,616,874 10.82 17,494,577 17,999,131 (504,554)
Putnam New Opportunities Fund ........ 26 1,226,012 40.63 49,812,851 51,432,630 (1,619,779)
Putnam OTC & Emerging Growth Fund .... 27 2,978,308 14.62 43,542,866 48,163,458 (4,620,592)
Scudder Growth and Income Fund ....... 21 788,862 23.23 18,325,255 18,240,537 84,718
Templeton Asset Allocation Fund ...... 19 9,215,934 21.08 194,271,899 163,221,896 31,050,003
Templeton Foreign Fund ............... 32 3,770,922 10.36 39,066,749 37,944,959 1,121,790
Templeton International Fund ......... 20 28,785,081 18.40 529,645,484 429,586,719 100,058,765
Twentieth Century Ultra Fund ......... 31 614,433 28.09 17,259,437 17,919,344 (659,907)
Vanguard/Wellington Fund ............. 25 957,006 26.15 25,025,702 25,469,774 (444,072)
Vanguard/Windsor II .................. 24 1,738,829 23.83 41,436,294 41,653,662 (217,368)
AGSPC Capital Conservation Fund ...... 1 & 7 6,540,731 9.44 61,744,501 62,635,525 (891,024)
AGSPC Government Securities Fund ..... 8 8,740,580 9.79 85,570,274 87,080,789 (1,510,515)
AGSPC Intl Government Bond Fund ...... 13 14,664,070 12.14 178,021,807 177,770,389 251,418
AGSPC Money Market Fund .............. 2 & 6 125,248,759 1.00 125,248,759 125,248,759 --
Vanguard Fixed Income Securities Fund:
Long-Term Corporate Portfolio ..... 22 401,405 8.79 3,528,351 3,539,758 (11,407)
Long-Term Treasury Portfolio ...... 23 460,773 9.96 4,589,300 4,555,646 33,654
-------------- -------------- --------------
$6,848,720,710 $5,613,414,313 $1,235,306,397
============== ============== ==============
</TABLE>
22
<PAGE> 91
================================================================================
SEPARATE ACCOUNT A
- --------------------------------------------------------------------------------
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, 1996, the aggregate cost of purchases and
proceeds from sales of investments were:
<TABLE>
<CAPTION>
PURCHASES SALES
-------------- --------------
<S> <C> <C>
AGSPCStock Index Fund:
Division 10A ....................................... $ 17,021,738 $ 43,812,850
Division 10B ....................................... 2,580,971 5,429,098
Division 10C ....................................... 256,325,254 25,747,213
Division 10D ....................................... 2,027,471 8,102,453
AGSPCMidCap Index Fund Division 4 ..................... 82,810,931 47,686,904
AGSPCSmall Cap Index Fund Division 14 ................. 39,025,150 19,167,355
AGSPCInternational Equities Fund Division 11 .......... 86,696,926 98,467,340
AGSPCGrowth Fund Division 15 .......................... 335,262,129 301,789
AGSPCGrowth & Income Fund Division 16 ................. 86,012,396 1,299,897
AGSPCScience & Technology Fund Division 17 ............ 352,574,477 53,374,853
AGSPCSocial Awareness Fund Division 12 ................ 42,813,000 3,268,198
AGSPCTimed Opportunity Fund Division 5 ................ 28,638,442 32,465,770
Dreyfus Small Cap Portfolio Division 18 ............... 249,716,319 6,505,702
Founders Growth Fund Division 30 ...................... 33,570,159 --
Neuberger&Berman Guardian Trust Division 29 ........... 8,898,099 112,793
Putnam Global Growth Fund Division 28 ................. 18,021,308 23,414
Putnam New Opportunities Fund Division 26 ............. 51,544,430 121,537
Putnam OTC & Emerging Growth Fund Division 27 ......... 48,276,161 121,717
Scudder Growth and Income Fund Division 21 ............ 18,402,759 184,641
Templeton Asset Allocation Fund Division 19 ........... 82,157,269 2,508,019
Templeton Foreign Fund Division 32 .................... 37,950,945 6,111
Templeton International Fund Division 20 .............. 218,306,492 20,995,568
Twentieth Century Ultra Fund Division 31 .............. 18,018,419 118,068
Vanguard/Wellington Fund Division 25 .................. 25,469,774 --
Vanguard/Windsor II Division 24 ....................... 41,722,849 80,961
AGSPCCapital Conservation Fund:
Division 1 ......................................... 693,471 1,607,591
Division 7 ......................................... 14,085,173 9,602,267
AGSPCGovernment Securities Fund Division 8 ............ 25,289,634 8,298,547
AGSPCInternational Government Bond Fund Division 13 ... 90,682,754 24,293,817
AGSPCMoney Market Fund:
Division 2 ......................................... 1,864,996 3,374,351
Division 6 ......................................... 234,317,827 194,495,674
Vanguard Fixed Income Securities Fund:
Long-Term Corporate Portfolio Division 22 .......... 3,689,310 151,812
Long-Term U.S. Treasury Portfolio Division 23 ...... 4,877,356 324,059
-------------- --------------
Total ........................................... $2,559,344,389 $ 612,050,369
============== ==============
</TABLE>
23
<PAGE> 92
================================================================================
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, and 11 through
32, inclusive) comprising Separate Account A as of December 31, 1996. 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
21 through 32, inclusive, for which we audited the statements of operations and
the statements of changes in net assets for the period from July 1, 1996
(inception) to December 31, 1996. 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, 1996,
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, 1996, 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 24, 1997
24
<PAGE> 93
THE VARIABLE ANNUITY LIFE INSURANCE COMPANY --------------
SEPARATE ACCOUNT A Bulk Rate
U.S. Postal
P.O. Box 3206 PAID
Houston, Texas 77253-3206 Permit No. 6__
Houston, Texas
--------------
VA 4872 VER 12/96
<PAGE> 94
THE VARIABLE ANNUITY LIFE INSURANCE COMPANY
UNITS OF INTEREST UNDER GROUP UNIT PURCHASE AND
GROUP VARIABLE ANNUITY CONTRACTS
(GUP AND GTS-VA CONTRACT SERIES)
SEPARATE ACCOUNT A
PART C. OTHER INFORMATION
<TABLE>
<S> <C>
ITEM 24. FINANCIAL STATEMENTS AND EXHIBITS PAGE*
</TABLE>
(a) Financial statements
Filed as part of Part B:
The Variable Annuity Life Insurance Company
Separate Account A --
Report of Independent Auditors
Statement of Net Assets
Statement of Operations
Statements of Changes in Net Assets
Division Financial Statements
Notes to Financial Statements
The Variable Annuity Life Insurance Company
Report of Independent Auditors
Consolidated Balance Sheets
Consolidated Statements of Income
Consolidated Statements of Changes in Stockholder Equity
Consolidated Statements of Cash Flows
Notes to Consolidated Financial Statements
All other schedules for which provision is made in the applicable
accounting regulation of the Securities and Exchange Commission are not required
under the related instructions, are inapplicable, or the related information is
included in the financial statements and therefore such schedules have been
omitted.
- ---------------
*Page numbers inserted into manually signed copies only.
C-1
<PAGE> 95
(b) Exhibits
<TABLE>
<CAPTION>
PAGE*
-----
<C> <S> <C>
1. -- Copy of resolution adopted by The Variable Annuity Life
Insurance Company Board of Directors at its Annual
Meeting of April 18, 1979 establishing The Variable
Annuity Life Insurance Company Separate Account A is
incorporated herein by reference to initial Form N-4
registration statement of The Variable Annuity Life
Insurance Company Separate Account A filed with the
Securities and Exchange Commission ("SEC") on August 11,
1981 (File No. 2-73636/811-3240).
2. -- Not Applicable.
3. -- Underwriting Agreement between The Variable Annuity Life
Insurance Company, The Variable Annuity Life Insurance
Company Separate Account A and The Variable Annuity
Marketing Company is incorporated herein by reference to
Pre-Effective Amendment Number 1 of The Variable Annuity
Life Insurance Company Separate Account A Form N-4
registration statement filed with the SEC on November 17,
1981 (File No. 2-73636/811-3240).
4. -- Specimen forms of variable annuity contracts representing
units of interest in The Variable Annuity Life Insurance
Company Separate Account A represented in this
registration statement are incorporated herein by
reference to the initial Form N-14 registration statement
of Separate Account A and American General Series
Portfolio Company filed with the SEC on December 31, 1986
(File No. 33-11166).
5(a). -- Form of Application for Annuity Contract Forms IFA-582,
GFA-582, GUP 64/74 and GTSVA incorporated herein by
reference to Post-Effective Amendment Number 47 filed
with the SEC on April 19, 1993 (File No.
2-32783/811-3240).
5(b). -- Form of Group Master Application for Group Unit Purchase
Annuity (GUP 64/74) incorporated herein by reference to
Post-Effective Amendment Number 47 filed with the SEC on
April 19, 1993 (File No. 2-32783/811-3240).
6(a). -- Copy of Amended and Restated Articles of Incorporation of
The Variable Annuity Life Insurance Company is
incorporated herein by reference to Post-Effective
Amendment Number 44 filed with the SEC on April 10, 1990
(File No. 2-32783/811-3240).
6(b). -- Copy of Amendment No. One to Amended and Restated
Articles of Incorporation of The Variable Annuity Life
Insurance Company (as amended through October 30, 1989)
effective March 28, 1990 is incorporated herein by
reference to Post-Effective Amendment Number 45 filed
with the SEC on April 10, 1991 (File No.
2-32783/811-3240).
7. -- Not Applicable.
8. -- Agreement and Plan of Reorganization, dated December 11,
1986, is incorporated herein by reference to Appendix B
of Pre-Effective Amendment Number 1 of the Form N-14
registration statement of the Variable Annuity Life
Insurance Company Separate A Account A and the American
General Series Portfolio Company filed with the SEC on
December 31, 1986 (File No. 33-11166).
</TABLE>
- ---------------
*Page numbers inserted into manually signed copies only.
C-2
<PAGE> 96
<TABLE>
<CAPTION>
PAGE*
-----
<C> <S> <C>
9(a). -- Opinion and consent of counsel as to the legality of
securities issued by The Variable Annuity Life Insurance
Company Separate Account A, represented in this
registration statement, indicating that they will be
legally issued and that they will represent binding
obligations of The Variable Annuity Life Insurance
Company is incorporated herein by reference to
Post-Effective Amendment Number 36 filed with the SEC on
March 17, 1987 (File No. 2-73636/811-3240).
9(b). -- Written consent and opinion of counsel, dated July 7,
1988, concerning the legality of a definitive number of
securities being registered, incorporated by reference to
Post-Effective Amendment Number 42 filed with the SEC on
July 8, 1988 (File No. 2-32783/811-3240).
10. -- Consent of Independent Auditors.
11. -- Not Applicable.
12. -- Not Applicable.
13. -- Calculation of standard and nonstandard performance
information.
14. -- Financial Data Schedule (Exhibit 27 for purposes of
electronic filing)
15. -- Confidential Personal Data Form which discloses Section
403(b)(11) withdrawal restrictions as set forth in a
no-action letter issued by the SEC on November 28, 1988.
Such form requires the signed acknowledgement of
participants who purchase Section 403(b) annuities with
regard to these withdrawal restrictions is incorporated
herein by reference to Post-Effective Amendment Number 45
filed with the SEC on April 10, 1991 (File No.
2-32783/811-3240).
16(a). -- Copies of manually signed powers of attorney for The
Variable Annuity Life Insurance Company Directors Robert
M. Devlin, Peter V. Tuters, Stephen D. Bickel, Joe C.
Osborne, and Sam Magee incorporated herein by reference
to initial Registration Statement filed with the SEC on
February 14, 1994 (File No. 33-75292/811-3240).
16(b). -- Copy of manually signed power of attorney for The
Variable Annuity Life Insurance Company Director Harold
S. Hook is incorporated herein by reference to
Post-Effective Amendment Number 40 filed with the SEC on
April 19, 1988 (File No. 2-32783/811-3240).
16(c). -- Copy of manually signed powers of attorney for The
Variable Annuity Life Insurance Company Director, Jon P.
Newton is incorporated herein by reference to
Post-Effective Amendment Number 50 filed with the SEC on
April 19, 1996 (File No. 2-32783/811-3240).
</TABLE>
- ---------------
*Page numbers inserted into manually signed copies only.
C-3
<PAGE> 97
ITEM 25. DIRECTORS AND OFFICERS OF THE DEPOSITOR
The directors and principal officers of the Company are set forth below,
together with their current principal occupations including any position with
American General Corporation ("AGC"), the indirect parent of The Variable
Annuity Life Insurance Company ("VALIC"), the depositor of the Registrant, and
The Variable Annuity Marketing Company ("VAMCO"), the principal underwriter of
the Contracts issued through the Registrant. The business address of each
officer and director is 2929 Allen Parkway, Houston, Texas 77019.
<TABLE>
<CAPTION>
NAME AND PRINCIPAL
BUSINESS ADDRESS POSITIONS AND OFFICES HELD WITH DEPOSITOR
------------------ -----------------------------------------
<S> <C>
Harold S. Hook Senior Chairman of the Board of Directors, VALIC.
Chairman of the Board, American General Corporation.
Robert M. Devlin Senior Chairman of the Board of Directors, VALIC.
President and Chief Executive Officer, American
General Corporation.
Jon P. Newton Vice Chairman of the Board of Directors, VALIC. Vice
Chairman of the Board of Directors and General
Counsel, American General Corporation.
Peter V. Tuters Director, Vice President and Chief Investment Officer,
VALIC.
Senior Vice President and Chief Investment Officer,
American General Corporation.
Stephen D. Bickel Chairman and Chief Executive Officer, VALIC.
Chairman of the Board of Directors, VAMCO.
Craig R. Rodby Vice Chairman of the Board of Directors, VALIC.
Thomas L. West, Jr. Director and President, VALIC.
Director, VAMCO.
Sam E. Magee Director and Senior Vice President -- Operations,
VALIC.
Joe C. Osborne Director and Senior Vice President -- Marketing,
VALIC. Director and President, VAMCO.
Brent C. Nelson Director, Senior Vice President and Controller,
Finance, VALIC.
Donald L. Sharps Senior Vice President -- Systems, VALIC.
J. David Crank Vice President -- Group Plan Administration, VALIC.
Stephen H. Field Vice President -- Real Estate, VALIC.
Norman Jaskol Vice President and Managing Director -- Investments,
VALIC.
Elizabeth B. Johnson Vice President -- Organizational Services, VALIC.
Stephen G. Kellison Vice President and Chief Actuary, VALIC.
Ronald E. Kopke Vice President -- Sales Operations, VALIC.
Senior Vice President -- VAMCO.
Charles D. Robinson Vice President -- National Markets, VALIC.
Jack L. Rochelle Vice President -- Information Technology Services,
VALIC.
Phillip W. Schraub Vice President -- Customer Service, VALIC.
Conway R. Shaw Vice President -- Group Marketing, VALIC.
William A. Wilson Vice President and General Counsel, VALIC.
</TABLE>
- ---------------
*Page numbers inserted into manually signed copies only.
C-4
<PAGE> 98
<TABLE>
<CAPTION>
NAME AND PRINCIPAL
BUSINESS ADDRESS POSITIONS AND OFFICES HELD WITH DEPOSITOR
------------------ -----------------------------------------
<S> <C>
Bobby Ray Worrell Vice President -- Systems Development Services, VALIC.
Cynthia A. Toles Secretary, VALIC.
Director, Secretary and Assistant Treasurer, VAMCO.
James D. Bonsall Treasurer, VALIC.
Jane E. Bates Chief Compliance Officer, VALIC.
Treasurer, VAMCO.
D. Lynne Walters Tax Officer, VALIC.
Tax Officer, VAMCO.
Vice President -- Taxes, American General Corporation.
</TABLE>
ITEM 26. PERSONS CONTROLLED BY OR UNDER COMMON CONTROL WITH THE DEPOSITOR OR
REGISTRANT
No person is controlled by the Registrant. The Registrant is a segregated
asset account of the Depositor established in accordance with the Texas
Insurance Code. The Registrant supports benefits payable under variable annuity
contracts by investing in American General Series Portfolio Company (the "Series
Company"). The Registrant votes the Series Company shares only as directed by
the Contract Owners. (See "Voting Rights" in the Prospectus for these
Contracts).
The Depositor is indirectly wholly-owned by American General Corporation
(formerly American General Insurance Company). Therefore, the Depositor and
various companies affiliated with the Depositor may be under common control with
the Registrant. These companies, together with their state of incorporation and
the identity of the owners of their common stock, are set forth in Exhibit 21.
"Subsidiaries of American General Corporation," of the Form 10-K of American
General Corporation filed for the year ended December 31, 1996 (File No.
1-7981), which is incorporated herein by reference.
ITEM 27. NUMBER OF CONTRACT OWNERS
As of March 31, 1996, a date within 90 days prior to the date of filing,
VALIC Separate Account A, the registrant, offered the following Contracts in
connection with this Registration Statement: there were 4,764 group Contract
Owners of the Qualified Contracts previously offered through Separate Account
One; No individual Contract Owners of the Qualified Contracts previously offered
through Separate Account One; One group Contract Owner of the Non-Qualified
Contracts previously offered through Separate Account One; and no individual
Contract Owners of the Non-Qualified Contracts previously offered through
Separate Account One. There were 40 group Contract Owners of the Qualified
Contracts previously offered through Separate Account Two; No individual
Contract Owners of the Qualified Contracts previously offered through Separate
Account Two; No group Contract Owners of the Non-Qualified Contracts previously
offered through Separate Account Two; and No individual Contract Owners of the
Non-Qualified Contracts previously offered through Separate Account Two. The
Registrant issues different contracts through other Registration Statements.
ITEM 28. INDEMNIFICATION
Set forth below is a summary of the general effect of applicable provisions
of the Depositor's Bylaws regarding indemnification of, and advancement of legal
expenses to, the Depositor's officers, directors and employees (collectively,
"Indemnitees").
The Depositor shall indemnify any Indemnitee who was or is a named
defendant or respondent or is threatened to be made a party to any threatened,
pending or completed action, suit or proceeding, whether civil, criminal,
administrative, arbitrative, or investigative (including any action by or in the
right of the Depositor), or any appeal of such action, suit or proceeding and
any inquiry or investigation that could lead to such an action, suit or
proceeding, by reason of the fact that the Indemnitee is or was a director, or
officer or employee of the Depositor, or is or was serving at the request of the
Depositor as a director, officer, partner, venturer, proprietor, trustee,
employee, or similar functionary of another foreign
C-5
<PAGE> 99
or domestic corporation or nonprofit corporation, partnership, joint venture,
sole proprietorship, trust, employee benefit plan or other enterprise, against
judgments, penalties (including excise and similar taxes), fines, amounts paid
in settlement, and reasonable expenses (including court costs and attorneys'
fees) actually incurred by him in connection with such action, suit or
proceeding, if Indemnitee acted in good faith and in a manner he reasonably
believed, (i) in the case of conduct in his official capacity as a director of
the Depositor, to be in the best interests of the Depositor and (ii) in all
other cases, to be not opposed to the best interests of the Depositor; and, with
respect to any criminal action or proceeding, if Indemnitee had no reasonable
cause to believe his conduct was unlawful; provided, however that in the case of
any threatened, pending or completed action, suit or proceeding by or in the
right of the Depositor, the indemnity shall be limited to reasonable expenses
(including court costs and attorneys' fees) actually incurred in connection with
such action, suit or proceeding; and no indemnification shall be made in respect
of any claim, issue or matter as to which such person shall have been adjudged
to be liable to the Depositor or liable on the basis that personal benefit was
improperly received by him, whether or not the benefit resulted from an action
taken in the person's official capacity as a director or officer. The
termination of any action, suit or proceeding by judgment, order, settlement, or
conviction, or on a plea of nolo contendere or its equivalent shall not, of
itself, create a presumption that the Indemnitee did not act in good faith and
in a manner which Indemnitee reasonably believed to be in the best interests of
the Depositor; and, with respect to any criminal action or proceeding, shall not
create a presumption that the person had reasonable cause to believe that his
conduct was unlawful.
Where an Indemnitee of the Depositor or other person entitled to indemnity
hereunder has been wholly successful, on the merits or otherwise, in defense of
any such action, suit or proceeding, Indemnitee shall be indemnified against
reasonable expenses (including court costs and attorneys' fees) actually
incurred by him in connection therewith.
Any indemnification (unless otherwise ordered by a court of competent
jurisdiction) shall be made by the Depositor only as authorized in a specific
case upon a determination that the applicable standard of conduct has been met.
Such determination shall be made (i) by the Board of Directors by a majority
vote of a quorum consisting of directors who at the time of the vote have not
been named as defendants or respondents in such action, suit or proceeding, or
(ii) if such a quorum cannot be obtained, by a majority vote of a committee of
the Board of Directors, designated to act in the matter by a majority vote of
all directors, consisting solely of two or more directors who at the time of the
vote are not named defendants or respondents in such action, suit or proceeding,
or (iii) by special legal counsel selected by the Board of Directors (or a
committee thereof) by vote in the manner set forth in subparagraphs (i) and (ii)
immediately above or if such a quorum cannot be obtained and such a committee
cannot be established, by a majority vote of all directors, or (iv) by the
shareholders in a vote that excludes the shares held by any Indemnitee who is
named as a defendant or respondent in such action, suit or proceeding.
Reasonable expenses incurred by an Indemnitee of the Depositor or other
person entitled to indemnity hereunder, who was, is or is threatened to be made
a named defendant or respondent in any such action, suit or proceeding described
above may be paid by the Depositor in advance of the final disposition thereof
upon (i) receipt of a written affirmation by the Indemnitee of his good faith
belief that he has met the standard of conduct necessary for indemnification
under this article and a written undertaking by or on behalf of the Indemnitee
to repay such amount unless it shall ultimately be determined that he is
entitled to be indemnified by the Depositor as authorized under this article and
(ii) a determination that the facts then known to those making the determination
would not preclude indemnification under this article.
Notwithstanding any other provision of this article, the Depositor may pay
or reimburse expenses incurred by any Indemnitee of the Depositor or any other
person entitled to indemnity hereunder in connection with his appearance as a
witness or other participation in any action, suit or a proceeding described
above at a time when he is not named defendant or respondent in such action,
suit or proceeding.
C-6
<PAGE> 100
Insofar as indemnification for liabilities arising under the Securities Act
of 1933, as amended, may be permitted to directors, officers and controlling
persons of the Registrant, as provided above or otherwise, the Registrant has
been advised that in the opinion of the Securities and Exchange Commission such
indemnification by the Depositor is against public policy, as expressed in the
Act, and therefore may be unenforceable. In the event that a claim of such
indemnification (except insofar as it provides for the payment by the Depositor
of expenses incurred or paid by a director, officer or controlling person in the
successful defense of any action, suit or proceeding) is asserted against the
Depositor by such director, officer or controlling person and the Securities and
Exchange Commission is still of the same opinion, the Depositor or Registrant
will, unless in the opinion of its counsel the matter has been settled by
controlling precedent, submit to a court of appropriate jurisdiction the
question of whether such indemnification by the Depositor is against public
policy as expressed by the Act and will be governed by the final adjudication of
such issue.
ITEM 29. VAMCO
(a). The Variable Annuity Marketing Company ("VAMCO") acts as exclusive
distributor and principal underwriter of the Registrant and as principal
underwriter for the American General Series Portfolio Company, a registered
investment company.
(b). The following information is furnished with respect to each officer
and director of VAMCO:
<TABLE>
<CAPTION>
NAME AND PRINCIPAL POSITION AND OFFICES
BUSINESS ADDRESS WITH VAMCO
------------------ --------------------
<S> <C>
Stephen D. Bickel(1) Chairman of the Board of Directors
Joe C. Osborne(1) Director and President
Cynthia A. Toles(1) Director, Assistant Treasurer and
Secretary
Thomas L. West, Jr. Director
Ronald E. Kopke(1) Senior Vice President
Jane E. Bates(1) Treasurer
D. Lynne Walters(1) Tax Officer
Todd M. Adams Vice President
8500 Normandale Lake Blvd.
Suite 750
Bloomington, MN 55437
Edward K. Boero Vice President
222 South Harbor Blvd.
10th Floor
Anaheim, CA 92805
Steven P. Boero Vice President
1900 O'Farrell St.
Suite 390
San Mateo, CA 94403-1311
Evan Cole Vice President
410 Amherst Street
Suite 250
Nashua, NH 03063
Joe H. Connell Vice President
10851 N. Black Canyon Hwy.
Suite 700
Phoenix, AZ 85029
James J. Costello Vice President
1767 Sentry Pkwy. West 19
Suite 300
Blue Bell, PA 19422
</TABLE>
C-7
<PAGE> 101
<TABLE>
<CAPTION>
NAME AND PRINCIPAL POSITION AND OFFICES
BUSINESS ADDRESS WITH VAMCO
------------------ --------------------
<S> <C>
Paige T. Davis Vice President
7310 Ritchie Highway
Suite 800
Glen Burnie, MD 21061
George E. Downing Vice President
100 Ashford Center North
Suite 100
Atlanta, GA 30338
Robert G. Fillmore Vice President
90 Woodbridge Center Dr.
Suite 300
Woodbridge, NJ 07095
James K. Graham Vice President
1301 West Long Lake Road
Suite 340
Troy, MI 48098
Richard R. Gumpert Vice President
5400 LBJ Freeway
Suite 1340
Dallas, TX 75240
Thomas N. Lange Vice President
10006 N. Dale Mabry Hwy.
Suite 113
Tampa, FL 33618
Alden D. Lewis Vice President
1800 S.W. First Avenue
Suite 505
Portland, OR 97201
David R. Lyle Vice President
University Tower
3100 Tower Blvd.
Suite 1601, Box 50
Durham, NC 27707
Sharon J. Novickas Vice President
230 West Monroe
Suite 1550
Chicago, IL 60606
Robert A. Obester Vice President
800 Gessner
Suite 1280
Houston, TX 77024
Bill Scott Vice President
Two Summit Park Drive
Suite 410
Independence, OH 44131
William G. Tubbs Vice President
550 Congressional Blvd.
Suite 280
Carmel, IN 46032
Donald R. Van Putten Vice President
165 South Union Blvd.
Suite 1050
Lakewood, CO 80228
</TABLE>
- ------------
(1) 2929 Allen Parkway, Houston, Texas 77019
C-8
<PAGE> 102
(c) VAMCO is the principal underwriter for Registrant. The licensed agents
who sell the Contracts are compensated for such sales by commissions paid by
Depositor. These commissions do not result in any charge to the Registrant or to
Contract Owners, Participants, Annuitants or Beneficiaries in addition to the
charges described in the prospectus for the Contracts.
ITEM 30. BOOKS AND RECORDS OF VALIC
The books or other documents required to be maintained by Section 31(a) of
the Investment Company Act of 1940 and the Rules promulgated thereunder will be
in the physical possession of:
The Variable Annuity Life Insurance Company
2929 Allen Parkway
Houston, Texas 77019
ITEM 31. MANAGEMENT SERVICES
There have been no management-related services provided to the Separate
Account for the last three fiscal years.
ITEM 32. UNDERTAKINGS
a. VALIC hereby commits itself, on behalf of the Contract Owners, to the
following undertakings:
1. To file a post-effective amendment to this registration statement as
frequently as necessary to ensure that the audited financial statements
in the registration statement are never more than 16 months old for so
long as payments under the variable annuity contracts may be accepted;
2. To include either (1) as part of any application to purchase a contract
offered by the prospectus, a space that an applicant can check to
request a Statement of Additional Information, or (2) a post card or
similar written communication affixed to or included in the prospectus
that the applicant can remove to send for a Statement of Additional
Information;
3. To deliver any Statement of Additional Information and any financial
statements required to be made available under this form promptly upon
written or oral request.
b. The Company hereby represents that the fees and charges deducted under the
Contracts, in the aggregate, are reasonable in relation to the services
rendered, the expenses expected to be incurred and the risks assumed by the
Company.
ITEM 33. WITHDRAWAL RESTRICTIONS FOR 403(B) PLANS
The Tax Reform Act of 1986 added to the Internal Revenue Code a new Section
403(b)(11) which applies to tax years beginning after December 31, 1988. This
paragraph provides that withdrawal restrictions apply to contributions made and
interest earned subsequent to December 31, 1988. Such restrictions require that
distributions not begin before age 59 1/2, separation from service, death,
disability, or hardship (only employee contributions without accrued interest
may be withdrawn in case of hardship). These withdrawal restrictions appear on
page 28 of Part A of this Registration Statement.
VALIC is relying on a no-action letter issued by the Securities and
Exchange Commission on November 28, 1988 stating that no enforcement action
would be taken under sections 22(e), 27(c)(1), or 27(d) of the Investment
Company Act of 1940 if, in effect, VALIC permits restrictions on cash
distributions from elective contributions to the extent necessary to comply with
Section 403(b)(11) of the Internal Revenue Code in accordance with the following
conditions:
(1) Include appropriate disclosure regarding the redemption restrictions
imposed by Section 403(b)(11) in each registration statement, including
the prospectus, used in connection with the offer of the contract;
C-9
<PAGE> 103
(2) Include appropriate disclosure regarding the redemption restrictions
imposed by Section 403(b)(11) in any sales literature used in
connection with the offer of the contract;
(3) Instruct sales representatives who solicit participants to purchase the
contract specifically to bring the redemption restrictions imposed by
Section 403(b)(11) to the attention of the potential participants;
(4) Obtain from each plan participant who purchases a Section 403(b)
annuity contract, prior to or at the time of such purchase, a signed
statement acknowledging the participant's understanding of (1) the
restrictions on redemption imposed by Section 403(b)(11), and (2) the
investment alternatives available under the employer's Section 403(b)
arrangement, to which the participant may elect to transfer his
contract value.
VALIC has complied, and is complying, with the provisions of paragraphs
(1) -- (4) above.
C-10
<PAGE> 104
As required by the Securities Act of 1933 and the Investment Company
Act of 1940, the Registrant, The Variable Annuity Life Insurance Company
Separate Account A, certifies that it meets the requirements of Securities Act
Rule 485(b) for effectiveness of this Registration Statement, and has duly
caused this amendment to be signed on its behalf by the undersigned thereunto
duly authorized, and its seal to be hereunto affixed and attested, all in the
City of Houston, State of Texas, on the 18th day of April, 1997.
THE VARIABLE ANNUITY LIFE
INSURANCE COMPANY SEPARATE
ACCOUNT A
The Variable Annuity Life
Insurance Company
Attest: /s/ CYNTHIA A. TOLES By: /s/ STEPHEN D. BICKEL
-------------------------- ---------------------------
Cynthia A. Toles Stephen D. Bickel
Secretary Chairman and Chief Executive
Officer
<PAGE> 105
As required by the Securities Act of 1933 and the Investment Company
Act of 1940, the Depositor, The Variable Annuity Life Insurance Company,
certifies that it meets the requirements of Securities Act Rule 485(b) for
effectiveness of this Registration Statement, and has duly caused this
amendment to be signed on its behalf by the undersigned thereunto duly
authorized, and its seal to be hereunto affixed and attested, all in the City
of Houston, State of Texas, on the 18th day of April, 1997.
THE VARIABLE ANNUITY LIFE
INSURANCE COMPANY
Attest: /s/ CYNTHIA A. TOLES By: /s/ STEPHEN D. BICKEL
-------------------------- --------------------------
Cynthia A. Toles Stephen D. Bickel
Secretary Chairman and Chief Executive
Officer
<PAGE> 106
Pursuant to the requirements of the Securities Act of 1933, this
amendment has been signed below by the following persons in the capacities and
on the date indicated.
Signature Title Date
--------- ----- ----
/s/ STEPHEN D. BICKEL
- -------------------------- Chairman and Chief Executive April 18, 1997
Stephen D. Bickel Officer
/s/ THOMAS L. WEST, JR. President and Director April 18, 1997
- --------------------------
Thomas L. West, Jr.
/s/ BRENT C. NELSON Senior Vice President, April 18, 1997
- -------------------------- Controller and Director
Brent C. Nelson
/s/ BRENT C. NELSON
- -------------------------- Principal Accounting Officer April 18, 1997
Brent C. Nelson
** Senior Chairman of the Board April __, 1997
- -------------------------- of Directors
Harold S. Hook
*
- -------------------------- Senior Chairman of the Board April __, 1997
Robert M. Devlin of Directors
*
- -------------------------- Vice Chairman of the Board
Jon P. Newton of Directors April __, 1997
<PAGE> 107
Signature Title Date
--------- ----- ----
/s/ CRAIG R. RODBY Vice Chairman of the Board April 18, 1997
- ---------------------- of Directors
Craig R. Rodby
* Senior Vice President- April __, 1997
- ---------------------- Operations and Director
Sam E. Magee
* Senior Vice President- April __, 1997
- ---------------------- Marketing and Director
Joe C. Osborne
* Vice President, Chief April __, 1997
- ---------------------- Investment Officer and
Peter V. Tuters Director
*By: /s/ CYNTHIA A. TOLES
-------------------------------- April 18, 1997
Cynthia A. Toles
Attorney-in-Fact
**By: /s/ STEPHEN D. BICKEL
-------------------------------
Stephen D. Bickel April 18, 1997
Attorney-in-Fact
<PAGE> 1
EXHIBIT 10
CONSENT OF INDEPENDENT AUDITORS
We consent to the reference to our firm under the caption "Experts" and to the
use of our reports dated February 14, 1997 as to The Variable Annuity Life
Insurance Company and January 24, 1997 as to The Variable Annuity Life
Insurance Company Separate Account A in Post-Effective Amendment No. 51 to the
Registration Statement (Form N-4, No. 2-32783) of The Variable Annuity Life
Insurance Company Separate Account A.
/s/ ERNST & YOUNG LLP
ERNST & YOUNG LLP
Houston, Texas
April 16, 1997
<PAGE> 1
EXHIBIT 13
CALCULATIONS FOR PERFORMANCE INFORMATION
IN PROSPECTUS AND STATEMENT OF ADDITIONAL INFORMATION
Illustration of
Calculation of Annual and Cumulative Change in Accumulation Unit Value
DIVISION 10A
<TABLE>
<CAPTION>
(1) (2) (3) [(1)-(2)]/(2) [(1)-(3)]/(3)
Cumulative
AUV AUV AUV Annual Change Year
In Yr N In Yr N-1 In Yr 1 Change Since 12/31/86 N
--------- --------- -------- ------ -------------- ----
<S> <C> <C> <C> <C> <C>
13.413891 11.036946 4.614043 21.54% 190.72% 1996
11.036946 8.116786 4.614043 35.98% 139.20% 1995
8.116786 8.140393 4.614043 -0.29% 75.91% 1994
8.140393 7.481645 4.614043 8.80% 76.43% 1993
7.481645 7.285058 4.614043 2.70% 62.15% 1992
7.285058 6.045955 4.614043 20.49% 57.89% 1991
6.045955 6.333044 4.614043 -4.53% 31.03% 1990
6.333044 5.172709 4.614043 22.43% 37.26% 1989
5.172709 4.689828 4.614043 10.30% 12.11% 1988
4.689828 4.614043 4.614043 1.64% 1.64% 1987
</TABLE>
<PAGE> 2
AVERAGE ANNUAL TOTAL RETURNS GUP & GTS - VA
(including 5% front end sales charges)
As of December 31, 1996
P(1+T)*n = ERV
Division 10A:
<TABLE>
<CAPTION>
1 Year 3 Years 5 Years 10 Years
------ ------- ------- --------
<S> <C> <C> <C> <C> <C> <C> <C>
P= $1,000.00 P= $1,000.00 P= $1,000.00 P= $1,000.00
n= 1 n= 3 n= 5 n= 10
ERV= $1,154.59 ERV= $1,565.43 ERV= $1,749.22 ERV= $2,761.83
T= 15.46% T= 16.11% T= 11.83% T= 10.69%
</TABLE>
<PAGE> 3
Illustration of
Calculation of Cumulative Return
Division 10A
<TABLE>
<CAPTION>
1 Year
------
<S> <C>
Value at 12-31-96 $11,546
Less Value at 12-31-95 $10,000
-------
$ 2,986
Divided by Value at 12-31-95 $10,000
-------
Cumulative Return 15.46%
=======
3 Years
-------
Value at 12-31-96 $15,654
Less Value at 12-31-93 $10,000
-------
$ 4,088
Divided by Value at 12-31-93 $10,000
-------
Cumulative Return 56.54%
=======
5 Years
-------
Value at 12-31-96 $17,492
Less Value at 12-31-92 $10,000
-------
$ 7,434
Divided by Value at 12-31-92 $10,000
-------
Cumulative Return 74.92%
=======
10 Years
--------
Value at 12-31-96 $27,764
Less Value at 12-31-86 $10,000
-------
$14,681
Divided by Value at 12-31-86 $10,000
-------
Cumulative Return 177.64%
=======
</TABLE>
<PAGE> 4
ILLUSTRATION OF CALCULATION OF
HYPOTHETICAL $1,000 ACCOUNT FOR AVERAGE ANNUAL TOTAL RETURN
Data for Division 10A STOCK INDEX
<TABLE>
<CAPTION>
(1) (2) (3) (4) (5) (6)
[(2b-2a)/2a] [(3b+1)*4a] [(3b+1)*5a] [(3b+1)*6a]
Date Unit Value % Change Non-Std. Non-Std. Non-Std.
In Unit $1,000 $1,000 $1,000
Values Investment Investment Investment
for 10 yrs for 5 yrs for 3 yrs
DIV 10A DIV 10A DIV 10A DIV 10A
====================================================================================================================================
<S> <C> <C> <C> <C> <C>
Dec-86 4.614043 -0.021986 1,000.00
Jan-87 5.075821 0.100081 1,100.08
Feb-87 5.342919 0.052622 1,157.97
Mar-87 5.337498 -0.001015 1,156.79
Apr-87 5.261291 -0.014278 1,140.28
May-87 5.275676 0.002734 1,143.40
Jun-87 5.522208 0.046730 1,196.83
Jul-87 5.783246 0.047271 1,253.40
Aug-87 5.985660 0.035000 1,297.27
Sep-87 5.971808 -0.002314 1,294.27
Oct-87 4.637261 -0.223475 1,005.03
Nov-87 4.352477 -0.061412 943.31
Dec-87 4.689828 0.077508 1,016.42
Jan-88 4.746698 0.012126 1,028.75
Feb-88 4.969990 0.047042 1,077.14
Mar-88 4.857133 -0.022708 1,052.68
Apr-88 4.825491 -0.006515 1,045.83
May-88 4.891977 0.013778 1,060.24
Jun-88 5.155843 0.053939 1,117.42
Jul-88 5.030920 -0.024229 1,090.35
Aug-88 4.877328 -0.030530 1,057.06
Sep-88 5.057191 0.036877 1,096.04
Oct-88 5.137679 0.015916 1,113.49
Nov-88 5.049691 -0.017126 1,094.42
Dec-88 5.172709 0.024361 1,121.08
Jan-89 5.551316 0.073193 1,203.13
Feb-89 5.387511 -0.029507 1,167.63
Mar-89 5.472431 0.015762 1,186.04
Apr-89 5.705582 0.042605 1,236.57
May-89 5.942504 0.041525 1,287.92
Jun-89 5.835985 -0.017925 1,264.83
Jul-89 6.220890 0.065954 1,348.25
Aug-89 6.318593 0.015706 1,369.43
Sep-89 6.296486 -0.003499 1,364.64
Oct-89 6.113368 -0.029083 1,324.95
Nov-89 6.222763 0.017894 1,348.66
Dec-89 6.333044 0.017722 1,372.56
Jan-90 5.976358 -0.056321 1,295.25
Feb-90 6.055050 0.013167 1,312.31
Mar-90 6.161023 0.017502 1,335.28
Apr-90 5.993832 -0.027137 1,299.04
May-90 6.560366 0.094519 1,421.83
Jun-90 6.497750 -0.009545 1,408.26
<CAPTION>
(1) (7) (8) (9) (10) (11)
[(3b+1)*7a] [(3b+1)*8a] [(3b+1)*9a] [(3b+1)*10a] [(3b+1)*11a]
Date Non-Std. Standard Standard Standard Standard
$1,000 $1,000 $1,000 $1,000 $1,000
Investment Investment Investment Investment Investment
for 1 yr for 10 yrs for 5 yrs for 3 yrs for 1 yr
DIV 10A DIV 10A DIV 10A DIV 10A DIV 10A
====================================================================================================================================
<S> <C> <C> <C> <C> <C>
Dec-86 950.00
Jan-87 1,045.08
Feb-87 1,100.07
Mar-87 1,098.95
Apr-87 1,083.26
May-87 1,086.23
Jun-87 1,136.98
Jul-87 1,190.73
Aug-87 1,232.41
Sep-87 1,229.55
Oct-87 954.78
Nov-87 896.15
Dec-87 965.60
Jan-88 977.31
Feb-88 1,023.29
Mar-88 1,000.05
Apr-88 993.54
May-88 1,007.22
Jun-88 1,061.55
Jul-88 1,035.83
Aug-88 1,004.21
Sep-88 1,041.24
Oct-88 1,057.81
Nov-88 1,039.70
Dec-88 1,065.03
Jan-89 1,142.98
Feb-89 1,109.25
Mar-89 1,126.74
Apr-89 1,174.74
May-89 1,223.52
Jun-89 1,201.59
Jul-89 1,280.84
Aug-89 1,300.96
Sep-89 1,296.40
Oct-89 1,258.70
Nov-89 1,281.22
Dec-89 1,303.93
Jan-90 1,230.49
Feb-90 1,246.69
Mar-90 1,268.51
Apr-90 1,234.09
May-90 1,350.73
Jun-90 1,337.84
</TABLE>
<PAGE> 5
ILLUSTRATION OF CALCULATION OF
HYPOTHETICAL $1,000 ACCOUNT FOR AVERAGE ANNUAL TOTAL RETURN
Data for Division 10A STOCK INDEX
<TABLE>
<CAPTION>
(1) (2) (3) (4) (5) (6)
[(2b-2a)/2a] [(3b+1)*4a] [(3b+1)*5a] [(3b+1)*6a]
Date Unit Value % Change Non-Std. Non-Std. Non-Std.
In Unit $1,000 $1,000 $1,000
Values Investment Investment Investment
for 10 yrs for 5 yrs for 3 yrs
DIV 10A DIV 10A DIV 10A DIV 10A
====================================================================================================================================
<S> <C> <C> <C> <C> <C>
Jul-90 6.436283 -0.009460 1,394.93
Aug-90 5.858100 -0.089832 1,269.62
Sep-90 5.595342 -0.044854 1,212.68
Oct-90 5.627400 0.005729 1,219.62
Nov-90 5.949522 0.057242 1,289.44
Dec-90 6.045955 0.016209 1,310.34
Jan-91 6.231026 0.030611 1,350.45
Feb-91 6.618601 0.062201 1,434.45
Mar-91 6.700268 0.012339 1,452.15
Apr-91 6.655353 -0.006703 1,442.41
May-91 6.877363 0.033358 1,490.53
Jun-91 6.499168 -0.054991 1,408.56
Jul-91 6.769575 0.041606 1,467.17
Aug-91 6.911869 0.021020 1,498.01
Sep-91 6.802444 -0.015831 1,474.29
Oct-91 6.926237 0.018198 1,501.12
Nov-91 6.612148 -0.045348 1,433.05
Dec-91 7.285058 0.101769 1,578.89 1,000.00
Jan-92 7.042659 -0.033273 1,526.35 966.73
Feb-92 7.120214 0.011012 1,543.16 977.37
Mar-92 6.932696 -0.026336 1,502.52 951.63
Apr-92 7.031375 0.014234 1,523.91 965.18
May-92 7.057638 0.003735 1,529.60 968.78
Jun-92 6.951293 -0.015068 1,506.55 954.18
Jul-92 7.224124 0.039249 1,565.68 991.64
Aug-92 7.064187 -0.022139 1,531.02 969.68
Sep-92 7.150049 0.012155 1,549.63 981.47
Oct-92 7.168040 0.002516 1,553.53 983.94
Nov-92 7.401625 0.032587 1,604.15 1,016.00
Dec-92 7.481645 0.010811 1,621.49 1,026.98
Jan-93 7.548803 0.008976 1,636.05 1,036.20
Feb-93 7.654742 0.014034 1,659.01 1,050.75
Mar-93 7.815733 0.021032 1,693.90 1,072.84
Apr-93 7.621021 -0.024913 1,651.70 1,046.12
May-93 7.811707 0.025021 1,693.03 1,072.29
Jun-93 7.822601 0.001395 1,695.39 1,073.79
Jul-93 7.781141 -0.005300 1,686.40 1,068.10
Aug-93 8.062536 0.036164 1,747.39 1,106.72
Sep-93 7.992628 -0.008671 1,732.24 1,097.13
Oct-93 8.147471 0.019373 1,765.80 1,118.38
Nov-93 8.058940 -0.010866 1,746.61 1,106.23
Dec-93 8.140393 0.010107 1,764.26 1,117.41 1,000.00
Jan-94 8.399026 0.031772 1,820.32 1,152.91 1,031.77
<CAPTION>
(1) (7) (8) (9) (10) (11)
[(3b+1)*7a] [(3b+1)*8a] [(3b+1)*9a] [(3b+1)*10a] [(3b+1)*11a]
Date Non-Std. Standard Standard Standard Standard
$1,000 $1,000 $1,000 $1,000 $1,000
Investment Investment Investment Investment Investment
for 1 yr for 10 yrs for 5 yrs for 3 yrs for 1 yr
DIV 10A DIV 10A DIV 10A DIV 10A DIV 10A
====================================================================================================================================
<S> <C> <C> <C> <C> <C>
Jul-90 1,325.19
Aug-90 1,206.14
Sep-90 1,152.04
Oct-90 1,158.64
Nov-90 1,224.97
Dec-90 1,244.82
Jan-91 1,282.93
Feb-91 1,362.72
Mar-91 1,379.54
Apr-91 1,370.29
May-91 1,416.00
Jun-91 1,338.13
Jul-91 1,393.81
Aug-91 1,423.11
Sep-91 1,400.58
Oct-91 1,426.06
Nov-91 1,361.40
Dec-91 1,499.94 950.00
Jan-92 1,450.04 918.39
Feb-92 1,466.00 928.50
Mar-92 1,427.39 904.05
Apr-92 1,447.71 916.92
May-92 1,453.12 920.34
Jun-92 1,431.22 906.48
Jul-92 1,487.40 942.05
Aug-92 1,454.47 921.20
Sep-92 1,472.15 932.39
Oct-92 1,475.85 934.74
Nov-92 1,523.94 965.20
Dec-92 1,540.42 975.64
Jan-93 1,554.25 984.39
Feb-93 1,576.06 998.21
Mar-93 1,609.21 1,019.20
Apr-93 1,569.12 993.81
May-93 1,608.38 1,018.68
Jun-93 1,610.62 1,020.10
Jul-93 1,602.08 1,014.69
Aug-93 1,660.02 1,051.39
Sep-93 1,645.63 1,042.27
Oct-93 1,677.51 1,062.46
Nov-93 1,659.28 1,050.92
Dec-93 1,676.05 1,061.54 950.00
Jan-94 1,729.30 1,095.27 980.18
</TABLE>
<PAGE> 6
ILLUSTRATION OF CALCULATION OF
HYPOTHETICAL $1,000 ACCOUNT FOR AVERAGE ANNUAL TOTAL RETURN
Data for Division 10A STOCK INDEX
<TABLE>
<CAPTION>
(1) (2) (3) (4) (5) (6)
[(2b-2a)/2a] [(3b+1)*4a] [(3b+1)*5a] [(3b+1)*6a]
Date Unit Value % Change Non-Std. Non-Std. Non-Std.
In Unit $1,000 $1,000 $1,000
Values Investment Investment Investment
for 10 yrs for 5 yrs for 3 yrs
DIV 10A DIV 10A DIV 10A DIV 10A
====================================================================================================================================
<S> <C> <C> <C> <C> <C>
Feb-94 8.160552 -0.028393 1,768.63 1,120.18 1,002.48
Mar-94 7.794580 -0.044846 1,689.32 1,069.94 957.52
Apr-94 7.874636 0.010271 1,706.67 1,080.93 967.35
May-94 7.987925 0.014387 1,731.22 1,096.48 981.27
Jun-94 7.787165 -0.025133 1,687.71 1,068.92 956.61
Jul-94 8.030065 0.031192 1,740.35 1,102.27 986.45
Aug-94 8.352283 0.040126 1,810.19 1,146.50 1,026.03
Sep-94 8.139363 -0.025492 1,764.04 1,117.27 999.87
Oct-94 8.315362 0.021623 1,802.19 1,141.43 1,021.49
Nov-94 8.009365 -0.036799 1,735.87 1,099.42 983.90
Dec-94 8.116786 0.013412 1,759.15 1,114.17 997.10
Jan-95 8.325407 0.025702 1,804.36 1,142.81 1,022.73
Feb-95 8.639892 0.037774 1,872.52 1,185.97 1,061.36
Mar-95 8.880102 0.027802 1,924.58 1,218.95 1,090.87
Apr-95 9.137643 0.029002 1,980.40 1,254.30 1,122.51
May-95 9.491375 0.038712 2,057.06 1,302.86 1,165.96
Jun-95 9.701124 0.022099 2,102.52 1,331.65 1,191.73
Jul-95 10.004823 0.031306 2,168.34 1,373.33 1,229.03
Aug-95 10.018608 0.001378 2,171.33 1,375.23 1,230.73
Sep-95 10.433923 0.041454 2,261.34 1,432.24 1,281.75
Oct-95 10.390799 -0.004133 2,251.99 1,426.32 1,276.45
Nov-95 10.841077 0.043334 2,349.58 1,488.13 1,331.76
Dec-95 11.036946 0.018067 2,392.03 1,515.01 1,355.82
Jan-96 11.403745 0.033234 2,471.53 1,565.36 1,400.88
Feb-96 11.497623 0.008232 2,491.88 1,578.25 1,412.42
Mar-96 11.595723 0.008532 2,513.14 1,591.71 1,424.47
Apr-96 11.754225 0.013669 2,547.49 1,613.47 1,443.94
May-96 12.046216 0.024841 2,610.77 1,653.55 1,479.81
Jun-96 12.078373 0.002669 2,617.74 1,657.97 1,483.76
Jul-96 11.533385 -0.045121 2,499.63 1,583.16 1,416.81
Aug-96 11.758257 0.019497 2,548.36 1,614.02 1,444.43
Sep-96 12.40778 0.055240 2,689.13 1,703.18 1,524.22
Oct-96 12.741171 0.026870 2,761.39 1,748.95 1,565.18
Nov-96 13.664267 0.072450 2,961.45 1,875.66 1,678.58
Dec-96 13.413891 -0.018323 2,907.19 1,841.29 1,647.82
<CAPTION>
Data for Division 10A STOCK INDEX
(1) (7) (8) (9) (10) (11)
[(3b+1)*7a] [(3b+1)*8a] [(3b+1)*9a] [(3b+1)*10a] [(3b+1)*11a]
Date Non-Std. Standard Standard Standard Standard
$1,000 $1,000 $1,000 $1,000 $1,000
Investment Investment Investment Investment Investment
for 1 yr for 10 yrs for 5 yrs for 3 yrs for 1 yr
DIV 10A DIV 10A DIV 10A DIV 10A DIV 10A
====================================================================================================================================
<S> <C> <C> <C> <C> <C>
Feb-94 1,680.20 1,064.17 952.35
Mar-94 1,604.85 1,016.44 909.64
Apr-94 1,621.33 1,026.88 918.99
May-94 1,644.66 1,041.66 932.21
Jun-94 1,603.32 1,015.48 908.78
Jul-94 1,653.34 1,047.15 937.12
Aug-94 1,719.68 1,089.17 974.73
Sep-94 1,675.84 1,061.40 949.88
Oct-94 1,712.08 1,084.36 970.42
Nov-94 1,649.07 1,044.45 934.71
Dec-94 1,671.19 1,058.46 947.25
Jan-95 1,714.14 1,085.67 971.59
Feb-95 1,778.89 1,126.68 1,008.29
Mar-95 1,828.35 1,158.00 1,036.33
Apr-95 1,881.38 1,191.58 1,066.38
May-95 1,954.21 1,237.71 1,107.66
Jun-95 1,997.40 1,265.06 1,132.14
Jul-95 2,059.92 1,304.67 1,167.58
Aug-95 2,062.76 1,306.47 1,169.19
Sep-95 2,148.27 1,360.62 1,217.66
Oct-95 2,139.39 1,355.00 1,212.63
Nov-95 2,232.10 1,413.72 1,265.18
Dec-95 1,000.00 2,272.43 1,439.26 1,288.03 950.00
Jan-96 1,033.23 2,347.95 1,487.09 1,330.84 981.57
Feb-96 1,041.74 2,367.28 1,499.33 1,341.80 989.65
Mar-96 1,050.63 2,387.48 1,512.13 1,353.24 998.10
Apr-96 1,064.99 2,420.11 1,532.80 1,371.74 1,011.74
May-96 1,091.44 2,480.23 1,570.87 1,405.82 1,036.87
Jun-96 1,094.36 2,486.85 1,575.07 1,409.57 1,039.64
Jul-96 1,044.98 2,374.65 1,504.00 1,345.97 992.73
Aug-96 1,065.35 2,420.94 1,533.32 1,372.21 1,012.09
Sep-96 1,124.20 2,554.68 1,618.02 1,448.01 1,067.99
Oct-96 1,154.41 2,623.32 1,661.50 1,486.92 1,096.69
Nov-96 1,238.05 2,813.38 1,781.87 1,594.65 1,176.15
Dec-96 1,215.36 2,761.83 1,749.22 1,565.43 1,154.59
</TABLE>
n= 14.972678 yrs
Note 1: a denotes previous month
b denotes current month
Note 2: A Standard investment includes the front end sales load of 5% on the
first $5,000, 4% on the next $5,000, 3.5% on the next $5,000, and 3% over
$15,000.
<TABLE> <S> <C>
<ARTICLE> 6
<SERIES>
<NUMBER> 101
<NAME> VALIC Separate Account A - Division 10A
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-END> DEC-31-1996
<INVESTMENTS-AT-COST> 236,253,824
<INVESTMENTS-AT-VALUE> 378,856,928
<RECEIVABLES> 0
<ASSETS-OTHER> 0
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 378,856,928
<PAYABLE-FOR-SECURITIES> 207,899
<SENIOR-LONG-TERM-DEBT> 378,649,029
<OTHER-ITEMS-LIABILITIES> 0
<TOTAL-LIABILITIES> 378,856,928
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 0
<SHARES-COMMON-STOCK> 27,379,389
<SHARES-COMMON-PRIOR> 29,995,363
<ACCUMULATED-NII-CURRENT> 0
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 0
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 0
<NET-ASSETS> 378,649,029
<DIVIDEND-INCOME> 6,791,052
<INTEREST-INCOME> 0
<OTHER-INCOME> 0
<EXPENSES-NET> 3,604,468
<NET-INVESTMENT-INCOME> 3,186,584
<REALIZED-GAINS-CURRENT> 15,506,584
<APPREC-INCREASE-CURRENT> 51,675,655
<NET-CHANGE-FROM-OPS> 70,368,823
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 0
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 323,038
<NUMBER-OF-SHARES-REDEEMED> 2,939,012
<SHARES-REINVESTED> 0
<NET-CHANGE-IN-ASSETS> (2,615,974)
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> 0
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 0
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 0
<AVERAGE-NET-ASSETS> 0
<PER-SHARE-NAV-BEGIN> 0
<PER-SHARE-NII> 0
<PER-SHARE-GAIN-APPREC> 0
<PER-SHARE-DIVIDEND> 0
<PER-SHARE-DISTRIBUTIONS> 0
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 0
<EXPENSE-RATIO> 0
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 6
<SERIES>
<NUMBER> 102
<NAME> VALIC Separate Account A - Division 10B
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-END> DEC-31-1996
<INVESTMENTS-AT-COST> 20,016,849
<INVESTMENTS-AT-VALUE> 30,721,138
<RECEIVABLES> 4,786
<ASSETS-OTHER> 30,725,924
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 30,725,924
<PAYABLE-FOR-SECURITIES> 0
<SENIOR-LONG-TERM-DEBT> 30,725,924
<OTHER-ITEMS-LIABILITIES> 0
<TOTAL-LIABILITIES> 30,725,924
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 0
<SHARES-COMMON-STOCK> 1,380,401
<SHARES-COMMON-PRIOR> 1,560,525
<ACCUMULATED-NII-CURRENT> 0
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 0
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 0
<NET-ASSETS> 30,725,924
<DIVIDEND-INCOME> 559,035
<INTEREST-INCOME> 0
<OTHER-INCOME> 0
<EXPENSES-NET> 96,961
<NET-INVESTMENT-INCOME> 462,074
<REALIZED-GAINS-CURRENT> 2,308,220
<APPREC-INCREASE-CURRENT> 3,182,195
<NET-CHANGE-FROM-OPS> 5,952,489
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 0
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 26,729
<NUMBER-OF-SHARES-REDEEMED> 206,853
<SHARES-REINVESTED> 0
<NET-CHANGE-IN-ASSETS> (180,124)
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> 0
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 0
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 0
<AVERAGE-NET-ASSETS> 0
<PER-SHARE-NAV-BEGIN> 0
<PER-SHARE-NII> 0
<PER-SHARE-GAIN-APPREC> 0
<PER-SHARE-DIVIDEND> 0
<PER-SHARE-DISTRIBUTIONS> 0
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 0
<EXPENSE-RATIO> 0
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
