<PAGE> 1
- --------------------------------------------------------------------------------
SEPARATE ACCOUNT A
Units of Interest Under Group
and Individual Variable Annuity Contracts
Independence Plus Contract Series
Prospectus May 1, 1997
[ART]
<PAGE> 2
THE VARIABLE ANNUITY LIFE INSURANCE COMPANY
UNITS OF INTEREST UNDER GROUP AND INDIVIDUAL
VARIABLE ANNUITY CONTRACTS
(INDEPENDENCE PLUS CONTRACT SERIES)
SEPARATE ACCOUNT A
PROSPECTUS MAY 1, 1997
The group and individual Variable Annuity Contracts (the "Contracts") offered by
The Variable Annuity Life Insurance Company ("the Company") in connection with
this prospectus are available to the public primarily through participation in
retirement programs which receive favorable tax deferred treatment under federal
income tax law but include non-qualified contracts as well. The Contracts are
available on a flexible payment deferred, single payment deferred, or single
payment immediate annuity basis. The Independence Plus Contract Series is
composed of Contract forms UIT-585-96 and UITG-585-96.
The Contracts provide benefits related to the Company's General Account and to
the Divisions of the Company's Separate Account A (the "Separate Account"). The
Divisions of the Separate Account available under the Contracts are invested in
the Stock Index Fund, the MidCap Index Fund, the Small Cap Index Fund, the
International Equities Fund, the Social Awareness Fund, the Timed Opportunity
Fund, the Capital Conservation Fund, the Government Securities Fund, the
International Government Bond Fund and the Money Market Fund, which are separate
portfolios 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 back 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> 3
[THIS PAGE INTENTIONALLY LEFT BLANK]
2
<PAGE> 4
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
----
<S> <C>
Definitions................................ 4
Fee Table.................................. 6
Selected Accumulation Unit Data............ 8
Introduction............................... 10
The Company and the Separate Account....... 11
The Funds.................................. 12
Performance Information.................... 13
Average Annual Total Return with
Surrender Charge and Maintenance
Fee Imposed.......................... 15
Average Annual Total Return with No
Surrender Charge and Maintenance
Fee Imposed.......................... 15
Cumulative Return...................... 16
Annual and Cumulative Change in
Accumulation Unit Value.............. 17
Hypothetical $10,000 Account Value
Invested at Inception of Division.... 18
Endorsements and Published Ratings......... 24
Transfers Among Investment Options......... 25
Transfers During the Accumulation Period... 25
Transfers During the Annuity Period.... 25
Other Requirements..................... 25
Charges Under Variable Annuity Contracts... 27
Charge for Premium Taxes............... 27
Charge for Partial and Total
Surrenders........................... 27
Fee for Annual Account Maintenance..... 28
Charge to the Separate Account......... 29
Miscellaneous.......................... 29
Charge for Income Taxes................ 30
Accumulation Period........................ 30
Death Benefits During Accumulation
Period............................... 31
Suspension of Purchase Payments........ 32
Annuity Period............................. 32
Fixed or Variable Annuity Payments..... 32
Annuity Date........................... 33
Annuity Payment Options................ 33
</TABLE>
<TABLE>
<CAPTION>
Page
----
<S> <C>
Enhancements Under Annuity Options..... 34
Death of Annuitant During Annuity
Period............................... 34
Surrender.................................. 34
Other Contract Features.................... 35
Change of Beneficiary.................. 35
Revocation............................. 35
Reservation of Rights.................. 35
Relationship to Employer's Plan........ 36
Federal Tax Matters........................ 36
General................................ 36
Taxes Payable by Participants and
Annuitants........................... 36
Section 403(b) Annuities for Employees
of Certain Tax-Exempt Organizations
or Public Educational Institutions... 36
Section 401 Qualified Pension,
Profit-Sharing or Annuity Plans...... 37
Individual Retirement Annuities........ 38
Simplified Employee Pension Plans...... 38
Section 457 Unfunded Deferred
Compensation Plans of Public
Employers and Tax-Exempt
Organizations........................ 39
Private Employer Unfunded Deferred
Compensation Plans................... 39
Non-Qualified Contracts................ 40
Effect of Tax-Deferred Accumulations... 41
Fund Diversification................... 41
Voting Rights.............................. 42
Other Variable Annuity Contracts........... 42
Exchange Offers............................ 42
General................................ 42
Differences Between New and Existing
Contracts............................ 43
Agents' and Managers' Retirement Plan
Exchange Offer....................... 45
Taxes and Conversion Costs............. 46
Availability of Offer.................. 46
Appendix................................... 47
</TABLE>
3
<PAGE> 5
DEFINITIONS
Accumulation Period -- the time between the date of the first Purchase
Payment with respect to an Annuitant and the Annuity Date.
Accumulation Unit ("Unit") -- a unit of interest in a Separate Account
Division which is accumulated in a Variable Subaccount before annuity payments
begin. The value of a Unit will vary with the net investment experience of the
respective Separate Account Division.
Accumulation Value -- the sum of the values of the Fixed Subaccounts and
the Variable Subaccounts allocated to a Participant Account.
Annuitant -- the Participant on whose life annuity payments will be based
under a group Contract; the individual named in the application for whom
Purchase Payments are made and on whose life annuity payments will be based
under an individual Contract. Annuity payments will be paid to the Annuitant. If
the Annuitant dies before the Annuity Date, the Beneficiary may receive
payments.
Annuity Date -- the date elected by a Contract Owner on which annuity
payments start.
Annuity Period -- the time during which annuity payments are made.
Annuity Unit -- a measuring unit used in calculating the amount of annuity
payments. The value of an Annuity Unit for a Variable Subaccount will vary with
the net investment experience of the Separate Account Division selected. The
value will be adjusted according to the Assumed Investment Rate chosen by the
Annuitant.
Assumed Investment Rate -- the rate used to determine the first monthly
annuity payment per thousand dollars of Accumulation Value in the Variable
Subaccount(s). (See the Statement of Additional Information for a description of
the effect of the Assumed Investment Rate on the level of payments.)
Beneficiary -- the person who will receive payments, if any, on the
Annuitant's death.
Contract -- an individual or group variable annuity contract offered by
this prospectus.
Contract Owner -- the employer, or other organization, which makes
application for a group Contract; the Annuitant under an individual Contract
unless otherwise stated in the application.
Fixed Subaccount -- a particular subaccount under a Participant Account
into which net Purchase Payments and Accumulation Value under a fixed annuity
Contract may be allocated during the Accumulation Period. Allocations to the
Fixed Subaccounts are guaranteed to earn interest of at least 4 1/2% per annum.
Reserves for these allocations are held in the Company's General Account.
Fixed Subaccount One (Fixed Account Plus) -- a Fixed Subaccount which is
suitable for those wishing to make more than a short-term commitment to a fixed
return option. Up to 20% of the Accumulation Value under Fixed Account Plus may
be transferred during each Participant Year. VALIC may permit transfers in
excess of this limit by prior written notice to all Contract Owners. (For a more
complete discussion of transfers and the limitations thereon, see "Transfers
Among Investment Options.") The total interest rates paid by the Company from
time to time on amounts deposited in Fixed Account Plus are expected to more
closely resemble the then-current returns available on intermediate-term debt
investments than would be the case with respect to the Short Term Fixed Account.
Fixed Subaccount Two (Short Term Fixed Account) -- a Fixed Subaccount which
is suitable primarily for those wishing to make only a shorter-term commitment
to a fixed return option. After a transfer to Short Term Fixed Account, no
further transfers from Short Term Fixed Account may be made for 90 days. (For a
more complete discussion of transfers and the limitations thereon, see
"Transfers Among Investment Options.")
Fund -- an investment portfolio which is the underlying investment medium
for net Purchase
4
<PAGE> 6
Payments credited to a Separate Account Division. (For a more complete
description of variable investment options, see "The Funds.")
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.
Home Office -- the main office of the Company at 2929 Allen Parkway,
Houston, Texas 77019.
Participant -- an individual who makes Purchase Payments or for whom
Purchase Payments are made under a group Contract; the Contract Owner under an
individual Contract, usually the Annuitant, unless another person is provided
for in the application.
Participant Account -- an individual account which is established for a
Participant under a group Contract to record the Accumulation Value for the
Participant or, in the case of an individual Contract, the entire Contract.
Participant Year -- a twelve month period starting with the issue date of a
Participant's certificate under a group Contract or the issue date of an
individual Contract and each anniversary of that date.
Purchase Payment -- an amount paid to the Company by, or on behalf of, an
Annuitant.
Separate Account -- the segregated asset account referred to as Separate
Account A. Separate Account A was established by the Company under the Texas
Insurance Code to receive and invest the net Purchase Payments and Accumulation
Value allocated to variable annuity contracts.
Separate Account Divisions ("Divisions") -- subdivisions of the Separate
Account, each of which invests in a different Fund with a particular investment
objective and strategy, and into which the net Purchase Payments and
Accumulation Value under a variable annuity may be applied.
Surrender Value -- the Accumulation Value of a Participant Account less the
surrender charge, if any, which is the amount payable upon surrender of a
Participant Account.
Variable Subaccount -- a particular subaccount under a Participant Account
into which net Purchase Payments and accumulated value under a variable annuity
Contract may be allocated. Amounts in each Variable Subaccount are invested in
one of several Separate Account Divisions. (See "Accumulation Period.")
5
<PAGE> 7
FEE TABLE
<TABLE>
<S> <C>
CONTRACT OWNER/PARTICIPANT TRANSACTION EXPENSES(1)
Surrender Charge (as a % of the lesser of all purchase
payments received during the last 60 months or the amount
withdrawn(2).............................................. 5%
ACCOUNT MAINTENANCE FEE (reduces to $15 after first contract
year)(2).................................................. $ 20
SEPARATE ACCOUNT ANNUAL EXPENSES (as a % of average account
value)
Mortality and Expense Risk Charge........................... 1.00%
</TABLE>
SERIES COMPANY ANNUAL EXPENSES (as a % of Fund average net assets)
<TABLE>
<CAPTION>
INTER-
NATIONAL
SMALL INTER- SOCIAL TIMED CAPITAL GOVERN- GOVERN-
STOCK MIDCAP CAP NATIONAL AWARE- OPPOR- CONSER- MENT MENT MONEY
INDEX INDEX INDEX EQUITIES NESS TUNITY VATION SECURITIES BOND MARKET
EXPENSES FUND FUND FUND FUND FUND FUND FUND FUND FUND FUND
-------- ---- ---- ---- ---- ---- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Management fees(3)..... .28% .35% .35% .35% .50% .50% .50% .50% .50% .50%
Other expenses(4)...... .07 .06 .06 .07 .06 .07 .07 .06 .06 .07
Company
Reduction of
Fund Expenses(5)..... .00 .00 .00 .00 .00 .00 .00 .00 .00 .00
--- --- --- --- --- --- --- --- --- ---
Total Fund Expenses
(after Reduction).... .35% .41% .41% .42% .56% .57% .57% .56% .56% .57%
</TABLE>
Example #1--Assuming surrender at the end of the period shown:
Total Expenses: You would pay the following expenses on a $1,000 investment
under a typical Independence Plus Contract invested in a Separate Account
Division as listed below, assuming a 5% annual return on assets:
<TABLE>
<CAPTION>
1 YEAR 3 YEARS 5 YEARS 10 YEARS
------ ------- ------- --------
<S> <C> <C> <C> <C>
Stock Index Division........................................ $61 $ 95 $128 $171
MidCap Index Division....................................... 62 97 131 177
Small Cap Index Division.................................... 62 97 131 177
International Equities Division............................. 62 97 131 179
Social Awareness Division................................... 63 101 139 194
Timed Opportunity Division.................................. 63 102 139 195
Capital Conservation Division............................... 63 102 139 195
Government Securities Division.............................. 63 101 139 194
International Government Bond Division...................... 63 101 139 194
Money Market Division....................................... 63 102 139 195
</TABLE>
6
<PAGE> 8
Example #2--Assuming no surrender at the end of the period shown:
Total Expenses. You would pay the following expenses on a $1,000 investment
under a typical Independence Plus Contract without a surrender charge imposed,
invested in a Separate Account Division as listed below, assuming a 5% annual
return on assets:
<TABLE>
<CAPTION>
1 YEAR 3 YEARS 5 YEARS 10 YEARS
------ ------- ------- --------
<S> <C> <C> <C> <C>
Stock Index Division........................................ $14 $45 $78 $171
MidCap Index Division....................................... 15 47 81 177
Small Cap Index Division.................................... 15 47 81 177
International Equities Division............................. 15 47 81 179
Social Awareness Division................................... 17 51 89 194
Timed Opportunity Division.................................. 17 52 89 195
Capital Conservation Division............................... 17 52 89 195
Government Securities Division.............................. 17 51 89 194
International Government Bond Division...................... 17 51 89 194
Money Market Division....................................... 17 52 89 195
</TABLE>
Additional Fee Table Examples are shown in the Appendix to this Prospectus.
- ---------------
(1) Premium taxes are not shown here, but may be charged by some states either
on purchase payments or on amounts annuitized. See "Charge for Premium
Taxes."
(2) Reductions in the surrender charge and account maintenance fee are available
if certain conditions are met. See "Appendix." The surrender charge will
disappear after the 15th Participant Year or after the 7th Participant Year
for an individual aged 59 1/2 years. There will be no surrender charge
incurred if no purchase payments were received during the 60 months
immediately prior to the date of surrender. No annual account maintenance
fee will be assessed during the Annuity Period. The first partial surrender
per Participant Year of 10% or less of Accumulation Value with respect to a
Participant Account will not be subject to a surrender charge. See "Charge
for Total and Partial Surrenders" and "Fee for Annual Account Maintenance".
(3) The annual management fees for the MidCap Index Fund, Stock Index Fund,
Small Cap Index Fund and International Equities Fund are based on each
Fund's average daily net asset value at the following rates: .35% of the
first $500 million and .25% on the excess over $500 million. The annual
management fees for Social Awareness Fund, Timed Opportunity Fund, Capital
Conservation Fund, Government Securities Fund, International Government Bond
Fund and Money Market Fund are flat rates as shown regardless of the amount
of Fund assets.
(4) Includes custody, accounting, reports to shareholders, audit, legal, and
other miscellaneous expenses.
(5) 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, calculated on a monthly basis, the Company has voluntarily
undertaken to reduce expenses of any such Fund, in an amount equal to the
difference between such accrued expenses and 2% of the Fund's average daily
net assets for that month. The Company may withdraw this voluntary
undertaking upon 30 days' written notice to the Series Company.
Note: These examples should not be considered representations of past or future
expenses for the Separate Account or for any Fund. Actual expenses may be
greater or less than those shown above. Similarly, the 5% annual rate of return
assumed in the examples is not an estimate or guarantee of future investment
performance. The purpose of the Fee Table above is to help Contract Owners and
Participants understand the various expenses of the Separate Account and the
Funds which are, in effect, passed on to the Contract Owners and Participants.
This Fee Table, including the examples above, shows all charges and expenses
which are deducted from purchase payments, from the assets of the Separate
Account and from the Funds in which the Separate Account invests. For a further
description of these charges and expenses, see "Charges Under Variable Annuity
Contracts" in this prospectus and "Investment Adviser" in the Series Company
prospectus. Any and all limitations on total charges and expenses are reflected
in this Fee Table.
7
<PAGE> 9
SELECTED ACCUMULATION UNIT DATA
<TABLE>
<CAPTION>
STOCK MIDCAP
INDEX INDEX
DIVISION 10(2) DIVISION 4(1)
-------------- -------------
<S> <C> <C>
December 31, 1996
Accumulation Units in Force............................... 536,806,965 172,816,978
Accumulation Unit Value................................... $2.848437 $3.272588
December 31, 1995
Accumulation Units in Force............................... 455,255,243 172,613,690
Accumulation Unit Value................................... $2.343900 $2.782677
December 31, 1994
Accumulation Units in Force............................... 416,234,288 171,442,018
Accumulation Unit Value................................... $1.724134 $2.153183
December 31, 1993
Accumulation Units in Force............................... 369,550,060 134,621,879
Accumulation Unit Value................................... $1.729327 $2.259378
December 31, 1992
Accumulation Units in Force............................... 283,808,045 81,007,871
Accumulation Unit Value................................... $1.589718 $2.021271
May 1, 1992
Accumulation Unit Value(3)................................ -- --
December 31, 1991
Accumulation Units in Force............................... 90,526,907 49,106,844
Accumulation Unit Value................................... $1.505641 $1.858030
October 1, 1991
Accumulation Unit Value(3)................................ -- --
December 31, 1990
Accumulation Units in Force............................... 46,016,297 42,958,640
Accumulation Unit Value................................... $1.179000 $1.538017
December 31, 1989
Accumulation Units in Force............................... 22,325,990 40,618,028
Accumulation Unit Value................................... $1.238782 $1.712671
October 2, 1989
Accumulation Unit Value(3)................................ -- --
December 31, 1988
Accumulation Units in Force............................... 9,213,178 38,747,706
Accumulation Unit Value................................... $.968670 $1.450217
December 31, 1987
Accumulation Units in Force............................... 4,326,102 35,297,367
Accumulation Unit Value................................... $0.856238 $1.282662
April 20, 1987
Accumulation Unit Value(3)................................ $1.000000 --
December 31, 1986
Accumulation Units in Force............................... -- 28,360,188
Accumulation Unit Value................................... -- $1.351553
</TABLE>
- ---------------
(1) Effective October 1, 1991, the Fund underlying this Division changed its
name from the Capital Accumulation Fund to the MidCap Index Fund and amended
its investment objective, investment program and investment restrictions
accordingly. Historical Accumulation Unit values prior to October 1, 1991
reflect investment experience prior to these changes.
(2) Effective with the merger of Quality Growth Fund into Stock Index Fund on
May 1, 1992, Quality Growth Division 9 was merged into Stock Index Division
10. The merger of Divisions was accomplished by an exchange of units of
Quality Growth Division 9 for units of Stock Index Division 10 of equivalent
value as calculated at the close of business on April 30, 1992.
(3) Accumulation Unit Value At Date Of Inception.
The information presented reflects the Accumulation Unit Information
through December 31, 1996 for Divisions of the Separate Account available under
these Contracts.
8
<PAGE> 10
<TABLE>
<CAPTION>
INTER- SOCIAL INTERNATIONAL
SMALL CAP NATIONAL AWARE- TIMED CAPITAL GOVERNMENT GOVERNMENT MONEY
INDEX EQUITIES NESS OPPORTUNITY CONSERVATION SECURITIES BOND MARKET
DIVISION 14 DIVISION 11 DIVISION 12 DIVISION 5 DIVISION 7 DIVISION 8 DIVISION 13 DIVISION 6
----------- ----------- ----------- ---------- ---------- ---------- ----------- ----------
<S> <C> <C> <C> <C> <C> <C> <C>
103,320,842 156,226,314 46,574,016 65,292,617 30,286,494 47,130,169 112,601,593 75,124,095
$1.785442 $1.222906 $2.252673 $2.651899 $1.825549 $1.815651 $1.582230 $1.607212
98,335,995 172,564,018 32,750,120 75,851,431 29,573,808 39,847,053 73,369,250 51,907,757
$1.544896 $1.156454 $1.835102 $2.411022 $1.812011 $1.799475 $1.530780 $1.545802
100,383,839 187,749,916 29,015,764 89,377,860 26,859,219 26,667,073 25,691,713 75,765,781
$1.222329 $1.054460 $1.333899 $1.951533 $1.515278 $1.547150 $1.301357 $1.479129
56,159,647 117,215,227 26,230,566 93,899,802 24,628,606 26,563,166 18,155,381 24,799,810
$1.277199 $0.986387 $1.366979 $1.997266 $1.630069 $1.636228 $1.258340 $1.439327
9,723,477 52,524,165 16,956,437 80,637,090 14,922,749 16,609,444 6,245,713 23,414,474
$1.112790 $0.767135 $1.279516 $1.846025 $1.470167 $1.491537 $1.112826 $1.415690
$1.000000 -- -- -- -- -- -- --
-- 27,011,169 8,447,711 76,624,765 11,069,044 11,694,890 953,038 25,545,494
-- $0.895250 $1.250634 $1.878219 $1.366905 $1.405236 $1.090499 $1.384882
-- -- -- -- -- -- $1.000000 --
-- 13,776,769 2,947,418 72,284,139 9,321,049 8,460,327 -- 25,246,481
-- $0.813423 $0.987666 $1.563444 $1.178361 $1.237104 -- $1.325393
-- 2,247,450 212,636 68,361,149 7,502,717 5,556,464 -- 15,949,534
-- $1.028405 $1.010003 $1.618165 $1.193583 $1.179231 -- $1.240599
-- $1.000000 $1.000000 -- -- -- -- --
-- -- -- 65,817,325 3,996,455 3,408,919 -- 9,429,191
-- -- -- $1.397280 $1.078919 $1.062082 -- $1.149516
-- -- -- 59,631,901 2,343,021 2,074,588 -- 4,121,853
-- -- -- $1.286227 $1.018629 $1.011978 -- $1.087299
-- -- -- -- -- -- -- --
-- -- -- 41,290,244 1,153,481 1,163,907 -- 914,106
-- -- -- $1.198662 $1.047718 $1.046062 -- $1.040484
</TABLE>
Financial statements of the Separate Account are included in the Statement
of Additional Information, which is available upon request. Accumulation units
shown are for an Accumulation Unit outstanding throughout the year under a
representative contract of the type invested in each column shown. The unit
value of each Division of the Separate Account will not be the same on any given
day as the net asset value per share of the underlying Fund of 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 distribution.
9
<PAGE> 11
INTRODUCTION
THIS PROSPECTUS DESCRIBES BOTH GROUP AND INDIVIDUAL CONTRACTS THROUGH WHICH
UNITS OF INTEREST IN THE COMPANY'S SEPARATE ACCOUNT A ARE OFFERED. BOTH GROUP
AND INDIVIDUAL CONTRACTS ARE COMBINATION FIXED/VARIABLE CONTRACTS OFFERING
VARIABLE OR FIXED ACCUMULATIONS AND VARIABLE OR FIXED BENEFITS OR A COMBINATION
OF BOTH. THIS PROSPECTUS DESCRIBES ONLY THE VARIABLE ASPECTS OF THE CONTRACTS,
EXCEPT WHERE FIXED ASPECTS ARE SPECIFICALLY MENTIONED.
The Contracts are designed to provide individuals with retirement benefits
through the accumulation of net Purchase Payments on a fixed or variable basis,
and by the application of such accumulations to provide fixed or variable
annuity payments. The purpose of variable accumulations and annuity payments is
to provide returns to investors which offset or exceed the effects of inflation.
There is, however, no guarantee that this objective will in fact be achieved.
Certain Fund options are indexed funds, a popular approach to investing among
individuals saving for retirement.
The Funds. Ten Separate Account Divisions investing in separate portfolios
(the "Funds") of American General Series Portfolio Company are available under
the Contracts in addition to the Company's General Account. The ten Funds
underlying the available Separate Account Divisions are Stock Index Fund, MidCap
Index Fund, Small Cap Index Fund, International Equities Fund, Social Awareness
Fund, Timed Opportunity Fund, Capital Conservation Fund, Government Securities
Fund, International Government Bond Fund and Money Market Fund.
Accumulation of Purchase Payments. Prior to retirement, the Participant
pursues various investment options on a variable or fixed basis by directing net
Purchase Payments to various Variable or Fixed Subaccounts. Variable investments
are accomplished by allocating or transferring amounts to Variable Subaccounts.
Fixed investments are accomplished by allocating or transferring amounts to
Fixed Subaccounts. Amounts in each of the ten Variable Subaccounts are invested
in a corresponding Separate Account Division which invests, in turn, in an
underlying Fund. As the value of the investment in the Funds increases or
decreases, the value of the Variable Subaccounts accumulations will increase or
decrease. The value of such accumulations is subject to deduction for charges
summarized below. Amounts in each of the two Fixed Subaccounts earn various
rates of interest, with the minimum being the guaranteed rate. The Participant
may pursue up to seven investment options at any one time by allocating and/or
accumulating amounts in up to seven of the twelve available subaccounts. (For
information as to how the Contracts may be purchased, and certain minimums that
apply to Purchase Payments and Accumulation Values, see "Accumulation Period.")
Owners of individual Contracts may exercise a 10-day revocation right (in some
states this may be a 20-day revocation right). (See "Revocation.")
Surrenders. The Participant may, subject to applicable law and the terms of
the employer's plan, make a total or partial surrender at any time during the
Accumulation Period by giving a written request to the Company. (See "Surrender"
and "Federal Tax Matters.") An individual Contract must be returned to the
Company before a total surrender can be effected. A surrender charge may be
assessed.
Surrender Charge. A surrender charge of up to 5% of Purchase Payments
received during the most recent 60 months may be assessed for a partial or total
surrender. The surrender charge is designed to help defray sales and
distribution expenses incurred by the Company. The Company intends to decrease
or eliminate the surrender charge applicable to a particular Contract if it
estimates that its sales expenses will be lower. (See "Charge for Partial and
Total Surrenders.")
Fixed and Variable Annuity Payments. On the Annuity Date, the Accumulation
Value, at the Annuitant's option, may be applied to purchase any combination of
fixed and/or variable annuities, subject to the Company's minimum annuity
payment and other requirements for any one annuity form. (See "Fixed or Variable
Annuity Payments" and "Annuity Payment Options.") Up to seven Divisions, or six
Divisions if a fixed annuity is also selected, may be utilized to provide
annuity payments.
Transfers. During the Accumulation Period, all or part of the Accumulation
Value may be transferred among variable investment options or
10
<PAGE> 12
from variable investment options to fixed investment options. Transfers may be
made from fixed investment options subject to certain conditions. (See
"Transfers Among Investment Options.")
During the Annuity Period, an Annuitant may also transfer amounts among the
variable investment options underlying a variable annuity, or all or part of
amounts underlying a variable annuity to provide a fixed annuity, once every 365
days. Transfers of amounts providing a fixed annuity may not be made to provide
a variable annuity during the Annuity Period.
Transfers are not subject to any charge. (See "Transfers Among Investment
Options" for additional conditions and limitations regarding transfers.) The
transfer privilege may be suspended or terminated at any time.
Other Charges. An annual account maintenance fee, which is currently $20
for the first Participant Year and $15 per Participant Year thereafter during
the Accumulation Period, is due in quarterly installments beginning the first
day of the calendar quarter following the first date a Purchase Payment is
credited to the Participant Account; however, it is not deducted until the last
day of the calendar quarter in which it is due. A full quarterly charge will be
assessed if the Participant Account is surrendered during a calendar quarter.
This fee will reduce the Surrender Value of the Participant Account. This fee
contributes to offsetting the cost of administrative expenses with respect to
each Contract and may be increased or decreased. Contract Owners will be sent
notice of any increase or decrease in this fee. No annual account maintenance
fee will be assessed during the Annuity Period.
The Company intends to decrease or eliminate the annual account maintenance
fee applicable to a particular Contract if it estimates that its administrative
expenses will be lower. (See "Fee for Annual Account Maintenance.")
A daily fee is charged at the annual rate of 1% of the average daily net
asset value allocable to the Variable Subaccounts. This fee is imposed for
certain additional expenses and for assumption by the Company of certain
mortality risks. Additionally, in certain states a deduction for premium tax is
made. (See "Charge to the Separate Account" and "Charge for Premium Taxes.")
A daily charge, based on a percentage of average daily net assets, is paid
by each Fund to its investment adviser for investment management. These charges,
and other Fund charges and expenses more fully described in the prospectuses for
the Funds and summarized in the preceding Fee Table, are borne indirectly by the
Contract Owners.
THE COMPANY AND THE
SEPARATE ACCOUNT
The Company is a stock life insurance company organized under the laws of
the State of Texas as the successor to Variable Annuity Life Insurance Company
of America, a District of Columbia life insurance company organized in 1955. The
Company is engaged primarily in the offering and issuance of fixed and variable
retirement annuity contracts and combinations thereof. The Company's executive
office is located at 2929 Allen Parkway, Houston, Texas 77019; its mailing
address is P.O. Box 3206, Houston, Texas 77253.
The Company is an indirect wholly-owned subsidiary of American General
Corporation. However, the assets of American General Corporation do not support
the obligations of the Company under the Contracts. Members of the American
General Corporation group of companies operate in each of the 50 states, 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 Separate
Account is registered with the U.S. Securities and Exchange Commission as a unit
investment trust under the Investment Company Act of 1940 (the "1940 Act").
Units of interest in the Separate Account under the Contracts are registered as
securities under the Securities Act of 1933 (the "1933 Act"). Under the Texas
Insurance Code and the Contracts, the assets of the Separate Account will not be
chargeable with liabilities arising out of any other business which the Company
may conduct, but will be held exclusively for the benefit of the Contract
Owners, Participants, Annuitants, and the Beneficiaries of the Contracts.
11
<PAGE> 13
Each Division of the Separate Account is administered and accounted for as
part of the general business of the Company, however, the income, capital gains,
or capital losses of each Division of the Separate Account are credited to or
charged against the assets held in that Division in accordance with the terms of
each Contract without regard to the income, capital gains, or capital losses of
any other Division or arising out of any other business the Company may conduct.
Each Division of the Separate Account available under the Contracts will
invest in the shares of a specific Fund. The Separate Account currently is made
up of eighteen Divisions, ten of which are available as variable investment
options under the Contracts to receive net Purchase Payments (Divisions Four,
Five, Six, Seven, Eight, Ten, Eleven, Twelve, Thirteen and Fourteen). All of the
investment portfolios underlying these Divisions are also available under other
variable annuity contracts issued by the Company. (For a description of the
Divisions available under the Contracts and the specific Fund in which each
respective Division invests, see "The Funds.")
The above listed Funds are one of thirteen investment portfolios of
American General Series Portfolio Company (the "Series Company"), a diversified,
open-end, management investment company registered under the 1940 Act.
THE FUNDS
The Company serves as the investment adviser to American General Series
Portfolio Company (the "Series Company"), ten of whose investment portfolios
(the "Funds") act as investment media for Divisions Four, Five, Six, Seven,
Eight, Ten, Eleven, Twelve, Thirteen and Fourteen of the Separate Account.
Certain Funds act as investment media for other variable annuity contracts
issued by the Company and 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 Series Company issues a separate series (class) of stock.
A brief summary of the investment objectives of each Fund appears below.
For more complete information about these Funds, including charges and expenses,
refer to 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 Office at 1-800-44-VALIC
or at the address shown on the inside back cover of this prospectus. Read the
prospectus carefully before you invest or send money.
STOCK INDEX FUND (DIVISION TEN). This Fund seeks long-term capital growth
through investment in common stocks that, as a group, are expected to provide
investment results closely corresponding to the performance of the S&P 500(R)
Index.
MIDCAP INDEX FUND (DIVISION FOUR). This Fund seeks to provide growth of
capital through investments primarily in a diversified portfolio of common
stocks that, as a group, are expected to provide investment results closely
corresponding to the performance of the Standard & Poor's(R) Corporation
(S&P(R)) MidCap 400 Index. Effective October 1, 1991, the Capital Accumulation
Fund changed its name to the MidCap Index Fund and revised its investment
objective, investment program and investment restrictions accordingly, pursuant
to contract owner vote.
SMALL CAP INDEX FUND (DIVISION FOURTEEN). This Fund seeks to provide growth
of capital through investments primarily in a diversified portfolio of common
stocks that, as a group, are expected to provide investment results closely
corresponding to the performance of the Russell 2000(R)** Index.
INTERNATIONAL EQUITIES FUND (DIVISION ELEVEN). The Fund seeks to provide
long-term growth of capital through investments primarily in a diversified
portfolio of equity and equity related securities of foreign issuers that, as a
group, are
- ---------------
* "Standard & Poor's(R)", "S&P(R)", "S&P 500(R)" and "S&P MidCap 400 Index" are
trademarks of Standard and Poor's Corporation. Neither the MidCap Index Fund
nor the Stock Index Fund is sponsored, endorsed, sold or promoted by S&P and
S&P makes no representation regarding the advisability of investing in these
Funds.
** The Russell 2000 Index is a trademark/service mark of the Frank Russell
Company. RussellTM is a trademark of the Frank Russell Company.
12
<PAGE> 14
expected to provide investment results closely corresponding to the performance
of the Morgan Stanley Capital International Europe, Australia and Far East Index
("EAFE Index").
SOCIAL AWARENESS FUND (DIVISION TWELVE). This Fund seeks growth of capital
through investment, primarily in common stocks, in companies which meet the
social criteria established for the Fund.
TIMED OPPORTUNITY FUND (DIVISION FIVE). This Fund seeks maximum aggregate
rate of return over the long-term through controlled investment risk by
adjusting its investment mix among stocks, long-term debt securities and
short-term money market securities.
CAPITAL CONSERVATION FUND (DIVISION SEVEN). This Fund seeks the highest
possible total return consistent with preservation of capital through current
income and capital gains on investments in intermediate and long-term debt
instruments and other income producing securities.
GOVERNMENT SECURITIES FUND (DIVISION EIGHT). This Fund seeks high current
income and protection of capital through investments in intermediate and
long-term U.S. Government debt securities.
INTERNATIONAL GOVERNMENT BOND FUND
(DIVISION THIRTEEN). This Fund seeks high current income through investments
primarily in high quality debt securities issued or guaranteed by foreign
governments.
MONEY MARKET FUND (DIVISION SIX). This Fund seeks liquidity, protection of
capital and current income through investments in short-term money market
instruments. Shares of the Money Market Fund are neither insured nor guaranteed
by the U.S. Government. There is no assurance that this Fund will be able to
maintain a stable net asset value of $1.00 per share.
PERFORMANCE INFORMATION
The Separate Account may from time to time advertise certain performance
information concerning its various Divisions. The Separate Account and certain
Divisions have been offering contracts for periods prior to the commencement of
the offering of the Contracts described in this Prospectus. The performance
information is based on historical results and is not intended to indicate past
performance under an actual Contract or future performance. Each Division may
also, from time to time, advertise its performance relative to certain
performance rankings and indices compiled by independent organizations. More
detailed information as to the calculation of performance information, as well
as comparisons with unmanaged market indices, appears in the Statement of
Additional Information.
Each Division may advertise total return performance information for
various periods of time. Total return performance information is based on the
overall dollar or percentage change in value of a hypothetical investment in the
specific Division over a given period of time. In general, a Division's total
return reflects the overall change in value of the Division from the beginning
of the relevant period to the end of that period.
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 (including any maintenance charge
and surrender charge that would apply if a Contract Owner terminated the
Contract at the end of each period indicated, but excluding any deductions for
premium taxes). The rate is computed for each Division comparing an initial
hypothetical investment of $1,000 in the Division to the redeemable value of
that investment at the end of specifically identified 1, 3, 5 and 10 year
periods. In order to calculate average annual total return, the Company divides
the value of a Division under a Contract terminated on a particular date by a
hypothetical $1,000 investment in the Division made by the Contract Owner at the
beginning of the period illustrated. The resulting total growth rate for the
period is then annualized to obtain the average annual percentage increase (or
decrease) during the period. Annualization assumes that the application of a
single rate of return each year during the period will produce the ending value,
taking into account the effect of compounding.
The Divisions may advertise total return performance information computed
on different bases. First, the Divisions may present total return
13
<PAGE> 15
information computed on the same basis as described above, except deductions
will not include the surrender charge or the maintenance charge. (The Company
refers to this presentation as "Cumulative Return.") This presentation assumes
that the investment in the Contract persists beyond the period when the
surrender charge applies, consistent with the long-term investment and
retirement objectives of the Contract. This presentation may assume 1, 3, 5 and
10 year periods and is based on a hypothetical $10,000 initial investment.
Second, the Divisions may present a nonstandardized average annual total
return that reflects all historical investment results without deduction for
surrender charges, premium taxes or account maintenance fees. The rate for the
nonstandardized version of average annual total return is otherwise computed for
each Division in the same manner as stated above for the standardized version of
average annual total return.
Third, the Divisions may also advertise total return performance
information computed on different bases. For example, the Divisions may present
cumulative total return information computed on the same basis as described
above for total return performance information, except deductions will not
include the surrender charge. (The Company refers to this presentation as
"Cumulative Return.") This presentation assumes that the investment in the
Contract persists beyond the period when the Surrender Charge applies,
consistent with the long-term investment and retirement objectives of the
Contract. This presentation may assume 1, 3, 5 and 10 year periods and is based
on a hypothetical $10,000 initial investment.
Fourth, the Divisions may present total return information calculated by
subtracting a Division's Accumulation Unit value at the beginning of a year from
the Accumulation Unit value of that Division at the end of the year and dividing
the difference by the Accumulation Unit value at the beginning of the year. (The
Company refers to this presentation as "Annual Change in Accumulation Unit
Value.") This computation results in a total growth rate for the period which
the Company annualizes (as described above) in order to obtain the average
annual percentage change in the Accumulation Unit value for that period.
Surrender charges, premium taxes, and maintenance fees are not deducted from the
Accumulation Unit values. These charges, if applicable, are imposed by the
cancellation of Accumulation Units attributable to an individual Contract
Owner's account. The effect of these charges is to reduce total return to the
Contract Owner.
Fifth, the Divisions may present aggregate total return figures for various
periods, reflecting the cumulative change in value of an investment in the
Division for the specified period. This calculation is the same as that for the
Annual Change in Accumulation Unit Value but is based on the Accumulation Unit
value at the beginning and end of a period of years in excess of one year. (The
Company refers to this presentation as "Cumulative Change in Accumulation Unit
Value.")
Sixth, the Divisions may present total return information based on
different amounts of periodic investments into the Division. For example the
Division may present total return information based on a $100 a month investment
for a specified period into the Division.
Finally, the Divisions may present a hypothetical example that applies the
Annual Change in Accumulation Unit Value to an initial investment of $10,000.
(The Company refers to this presentation as "Hypothetical $10,000 Account
Value.")
Each Division other than the Money Market Division may advertise
standardized yield performance in addition to total return information. A
Division's yield is one way of showing the rate of income the Division earns as
a percentage of the value of the Division's Accumulation Units. The yield of
each Division is computed by dividing the average daily net investment income
per Accumulation Unit of the Division earned during a specifically identified
30-day base period, less a maintenance charge, by the Accumulation Unit value on
the last day of the period, and annualizing that result. This calculation takes
into account the average daily number of Accumulation Units outstanding during
the period. The yield of each Division reflects the deduction of all charges,
expenses and fees applicable against the Division, but does not take into
account the surrender charge and premium taxes.
The Money Market Division may advertise current yield and effective yield
performance information. The yield of the Money Market Division refers to the
income generated by an investment
14
<PAGE> 16
in the Money Market Division over a specifically identified 7-day period. (The
yield does not take into account the surrender charge, the maintenance charge or
premium taxes.) This income is annualized by assuming that the amount of income
generated by the investment during that week is generated each week over a
52-week period and is shown as a percentage of the investment. The 7 day current
yield for the seven days ended December 31, 1996 was 3.92%. The effective yield
of the Money Market Division is calculated in a similar manner but, when
annualizing such yield, income earned by the Money Market Division is assumed to
be reinvested. This compounding effect will cause effective yield to be higher
than current yield. The 7 day effective yield for the seven days ended December
31, 1996 was 3.99%.
Certain performance data related to each Division is printed in the tables
below. (See "Performance Calculation" in the Statement of Additional Information
for certain other performance data.)
The information presented does not reflect the advantage under the
Contracts of deferring Federal income tax on increases in Account Value due to
earnings attributable to Purchase Payments. (See "Federal Tax Matters -- Effect
of Tax Deferred Accumulation.") The information presented also does not reflect
the advantage under Qualified Contracts of deferring federal income tax on
Purchase Payment Contributions (See "Federal Tax Matters -- Effect of Tax
Deferred Accumulation.")
The performance results shown in 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.
AVERAGE ANNUAL TOTAL RETURN
WITH SURRENDER CHARGE AND MAINTENANCE FEE IMPOSED
(FOR PERIOD ENDED DECEMBER 31, 1996)
<TABLE>
<CAPTION>
NO.
OF YEARS DIV 4 DIV 5 DIV 6 DIV 7 DIV 8 DIV 10 DIV 11 DIV 12 DIV 13
-------- -------- -------- -------- -------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
1 Year.............. 12.51% 4.95% (0.79)% (3.87)% (3.72)% 16.42% 0.90% 17.65% (1.37)%
3 Years............. 11.69 8.38 2.05 2.15 1.83 16.75 5.83 16.77 6.35
5 Years............. 11.21 6.24 1.99 5.02 4.30 12.86 5.52 11.72 6.84
10 Years............. 9.11 8.13 4.32 5.58 5.54 -- -- -- --
Since Inception*.... 8.59 7.50 4.31 5.54 5.48 11.30 2.72 11.86 9.00
<CAPTION>
NO.
OF YEARS DIV 14
-------- --------
<S> <C>
1 Year.............. 10.47%
3 Years............. 10.33
5 Years............. --
10 Years............. --
Since Inception*.... 12.40
</TABLE>
AVERAGE ANNUAL TOTAL RETURN
WITH NO SURRENDER CHARGE AND MAINTENANCE FEE IMPOSED
(FOR PERIOD ENDED DECEMBER 31, 1996)
<TABLE>
<CAPTION>
NO.
OF YEARS DIV 4 DIV 5 DIV 6 DIV 7 DIV 8 DIV 10 DIV 11 DIV 12 DIV 13
-------- -------- -------- -------- -------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
1 Year.............. 17.61% 9.99% 3.97% 0.75% 0.90% 21.53% 5.75% 22.75% 3.36%
3 Years............. 13.14 9.91 3.75 3.85 3.53 18.10 7.43 18.12 7.93
5 Years............. 11.99 7.14 3.02 5.96 5.26 13.60 6.44 12.49 7.73
10 Years............. 9.25 8.26 4.44 5.71 5.67 -- -- -- --
Since Inception*.... 8.73 7.64 4.44 5.67 5.62 11.44 2.85 12.00 9.13
<CAPTION>
NO.
OF YEARS DIV 14
-------- --------
<S> <C>
1 Year.............. 15.57%
3 Years............. 11.81
5 Years............. --
10 Years............. --
Since Inception*.... 13.23
</TABLE>
- ---------------
* Division Four was initiated on October 13, 1982. Effective October 1, 1991
the Capital Accumulation Fund changed its name to the MidCap Index Fund and
revised its investment objective, investment program and investment
restrictions accordingly, pursuant to contract owner vote. Division Five was
initiated on September 6, 1983. Divisions Six, Seven and Eight were initiated
on January 16, 1986. Division Ten was initiated on April 20, 1987. Divisions
Eleven and Twelve were initiated on October 2, 1989. Division Thirteen was
initiated on October 1, 1991. Division Fourteen was initiated on May 1, 1992.
15
<PAGE> 17
CUMULATIVE RETURN
(PERIOD ENDED DECEMBER 31, 1996)
<TABLE>
<CAPTION>
SINCE
DIVISION INCEPTION* 10 YEARS 5 YEARS 3 YEARS 1 YEAR
-------- ---------- -------- ------- ------- ------
<S> <C> <C> <C> <C> <C>
Stock Index Fund (Division 10)................. 184.84% -- 89.18% 64.71% 21.53%
MidCap Index Fund (Division 4)
Period from 10/01/91 through 12/31/96........ 96.61 -- 76.13 44.84 17.61
Period from 10/13/82 through 12/31/96........ 227.26 142.14% 76.13 44.84 17.61
Small Cap Index Fund (Division 14)............. 78.54 -- -- 39.79 15.57
International Equities Fund (Division 11)...... 22.29 -- 36.60 23.98 5.75
Social Awareness Fund (Division 12)............ 125.27 -- 80.12 64.79 22.75
Timed Opportunity Fund (Division 5)............ 165.19 121.24 41.19 32.78 9.99
Capital Conservation Fund (Division 7)......... 82.55 74.24 33.55 11.99 0.75
Government Securities Fund (Division 8)........ 81.57 73.57 29.21 10.97 0.90
International Government Bond Fund (Division
13).......................................... 58.22 -- 45.09 25.74 3.36
Money Market Fund (Division 6)................. 60.72 54.47 16.05 11.66 3.97
</TABLE>
- ---------------
* See footnote for Average Annual Total Return for the inception date of each
Division.
16
<PAGE> 18
ANNUAL AND CUMULATIVE CHANGE IN ACCUMULATION UNIT VALUE
<TABLE>
<CAPTION>
INTER-
MIDCAP SMALL CAP NATIONAL SOCIAL
STOCK INDEX INDEX INDEX EQUITIES AWARENESS
DIVISION 10(1) DIVISION 4(2) DIVISION 14(3) DIVISION 11(4) DIVISION 12(4)
-------------- ------------- -------------- -------------- --------------
<S> <C> <C> <C> <C> <C>
ANNUAL CHANGE
YEAR ENDED:
12/31/96............. 21.53% 17.61% 15.57% 5.75% 22.75%
12/31/95............. 35.95 29.24 26.39 9.67 37.57
12/31/94............. (0.30) (4.70) (4.30) 6.90 (2.42)
12/31/93............. 8.78 11.78 14.77 28.58 6.84
12/31/92............. 5.58 8.79 11.28 (14.31) 2.31
12/31/91............. 27.70 20.81 -- 10.06 26.63
12/31/90............. (4.83) (10.20) -- (20.90) (2.21)
12/31/89............. 27.88 18.10 -- 2.84 1.00
12/31/88............. 13.13 13.06 -- -- --
12/31/87............. (14.38) (5.10) -- -- --
CUMULATIVE
CHANGE
For each period end
since 12/31/86
12/31/96............. 184.84% 142.14% 78.54% 22.29% 125.27%
12/31/95............. 134.39 105.89 54.49 15.65 83.51
12/31/94............. 72.41 59.31 22.23 5.45 33.39
12/31/93............. 72.93 67.17 27.72 (1.36) 36.70
12/31/92............. 58.97 49.55 11.28 (23.29) 27.95
12/31/91............. 50.56 37.47 -- (10.48) 25.06
12/31/90............. 17.90 13.80 -- (18.66) (1.23)
12/31/89............. 23.88 26.72 -- 2.84 1.00
12/31/88............. (3.13) 7.30 -- -- --
12/31/87............. (14.38) (5.10) -- -- --
<CAPTION>
INTER-
NATIONAL
TIMED CAPITAL GOVERNMENT GOVERNMENT MONEY
OPPORTUNITY CONSERVATION SECURITIES BOND MARKET
DIVISION 5(5) DIVISION 7(6) DIVISION 8(6) DIVISION 13(7) DIVISION 6(6)
------------- ------------- ------------- -------------- -------------
<S> <C> <C> <C> <C> <C>
ANNUAL CHANGE
YEAR ENDED:
12/31/96............. 9.99% 0.75% 0.90% 3.36% 3.97%
12/31/95............. 23.55 19.58 16.31 17.63 4.51
12/31/94............. (2.29) (7.04) (5.44) 3.42 2.77
12/31/93............. 8.19 10.88 9.70 13.08 1.67
12/31/92............. (1.71) 7.55 6.14 2.05 2.22
12/31/91............. 20.13 16.00 13.59 9.05 4.49
12/31/90............. (3.38) (1.28) 4.91 -- 6.83
12/31/89............. 15.81 10.63 11.03 -- 7.92
12/31/88............. 8.63 5.92 4.95 -- 5.72
12/31/87............. 7.31 (2.78) (3.26) -- 4.50
CUMULATIVE
CHANGE
For each period end
since 12/31/86
12/31/96............. 121.24% 74.24% 73.57% 58.22% 54.47%
12/31/95............. 101.14 72.95 72.02 53.08% 48.57
12/31/94............. 62.81 44.63 47.90 30.14 42.16
12/31/93............. 66.62 55.58 56.42 25.83 38.33
12/31/92............. 54.01 40.32 42.59 11.28 36.06
12/31/91............. 56.69 30.47 34.34 9.05 33.10
12/31/90............. 30.43 12.47 18.26 -- 27.38
12/31/89............. 35.00 13.92 12.73 -- 19.23
12/31/88............. 16.57 2.98 1.53 -- 10.48
12/31/87............. 7.31 (2.78) (3.26) -- 4.50
</TABLE>
- ---------------
For the year in which a Division was initiated, less than a full year's
performance has been reflected. Actual, not annualized, performance is
reflected.
(1) Initiated 4/20/87.
(2) Initiated 10/13/82 (formerly the Capital Accumulation Division). Effective
October 1, 1991, the Fund underlying this Division changed its name from the
Capital Accumulation Fund to the MidCap Index Fund and amended its
investment objective, investment program and investment restrictions
accordingly. Historical data prior to October 1, 1991 reflect investment
experience prior to these changes. Investment experience, for MidCap Index
Division 4 subsequent to October 1, 1991 has been as follows: for the period
from October 1, 1991 to December 31, 1991 the change in accumulation unit
value was 11.63%, for the period from October 1, 1991 to December 31, 1992
the cumulative change in accumulation unit value was 21.43%, for the period
from October 1, 1991 to December 31, 1993 the cumulative change in
accumulation unit value was 35.74%; for the period from October 1, 1991 to
December 31, 1994 the cumulative change in accumulation unit value was
29.36%; for the period from October 1, 1991 to December 31, 1995 the
cumulative change in accumulation unit value was 67.18%; and for the period
from October 1, 1991 to December 31, 1996 the cumulative change in
accumulation unit value was 96.61%.
(3) Initiated 5/1/92.
(4) Initiated 10/2/89.
(5) Initiated 9/6/83.
(6) Initiated 1/16/86.
(7) Initiated 10/1/91.
17
<PAGE> 19
HYPOTHETICAL $10,000 ACCOUNT VALUE
INVESTED AT INCEPTION OF DIVISION
The tables and graphs below show the change in accumulation value of a
hypothetical $10,000 investment in each of the Divisions since the inception of
the Division.
STOCK INDEX FUND (DIVISION 10)
<TABLE>
<CAPTION>
ANNUAL VALUE OF A $10,000
STIPULATED PAYMENT MADE VALUE AT MONTHLY INTERVALS OF A $10,000
APRIL 20, 1987 STIPULATED PAYMENT MADE APRIL 20, 1987
- --------------------------------- ---------------------------------------
<S> <C> <C>
04/20/87............... $10,000
12/31/87............... 8,562
12/31/88............... 9,687
12/31/89............... 12,388
12/31/90............... 11,790
12/31/91............... 15,056 [CHART]
12/31/92............... 15,897
12/31/93............... 17,293
12/31/94............... 17,241
12/31/95............... 23,439
12/31/96............... 28,484
</TABLE>
18
<PAGE> 20
MIDCAP INDEX FUND (DIVISION 4)
The performance information for the MidCap Index Division is shown in two
separate sets of tables and graphs for the ten year period beginning January 1,
1987 and for the period beginning October 1, 1991. The latter period shows the
performance of the MidCap Index Division since the change in investment
objectives, investment program and investment restrictions of the underlying
Fund. Selected accumulation unit data for the last ten years for the MidCap
Index Division appears on page 8 of this Prospectus.
<TABLE>
<CAPTION>
ANNUAL VALUE OF A $10,000
STIPULATED PAYMENT MADE VALUE AT MONTHLY INTERVALS OF A $10,000
OCTOBER 1, 1991 STIPULATED PAYMENT MADE OCTOBER 1, 1991
- --------------------------------- ---------------------------------------
<S> <C> <C>
10/01/91............... $10,000
12/31/91............... 11,163
12/31/92............... 12,143
12/31/93............... 13,574 [CHART]
12/31/94............... 12,936
12/31/95............... 16,718
12/31/96............... 19,661
</TABLE>
<TABLE>
<CAPTION>
ANNUAL VALUE OF A $10,000
STIPULATED PAYMENT MADE VALUE AT MONTHLY INTERVALS OF A $10,000
JANUARY 1, 1987 STIPULATED PAYMENT MADE JANUARY 1, 1987
- --------------------------------- ---------------------------------------
<S> <C> <C>
01/01/87............... $10,000
12/31/87............... 9,490
12/31/88............... 10,730
12/31/89............... 12,672
12/31/90............... 11,380
12/31/91............... 13,747 [CHART]
12/31/92............... 14,955
12/31/93............... 16,717
12/31/94............... 15,931
12/31/95............... 20,589
12/31/96............... 24,214
</TABLE>
19
<PAGE> 21
SMALL CAP INDEX FUND (DIVISION 14)
<TABLE>
<CAPTION>
ANNUAL VALUE OF A $10,000
STIPULATED PAYMENT MADE VALUE AT MONTHLY INTERVALS OF A $10,000
MAY 1, 1992 PAYMENT MADE MAY 1, 1992
- --------------------------------- ---------------------------------------
<S> <C> <C>
05/01/92............... $10,000
12/31/92............... 11,128
12/31/93............... 12,772 [CHART]
12/31/94............... 12,223
12/31/95............... 15,449
12/31/96............... 17,854
</TABLE>
INTERNATIONAL EQUITIES FUND (DIVISION 11)
<TABLE>
<CAPTION>
ANNUAL VALUE OF A $10,000
STIPULATED PAYMENT MADE VALUE AT MONTHLY INTERVALS OF A $10,000
OCTOBER 2, 1989 STIPULATED PAYMENT MADE OCTOBER 2, 1989
- --------------------------------- ---------------------------------------
<S> <C> <C>
10/02/89............... $10,000
12/31/89............... 10,284
12/31/90............... 8,134
12/31/91............... 8,952
12/31/92............... 7,671 [CHART]
12/31/93............... 9,864
12/31/94............... 10,545
12/31/95............... 11,565
12/31/96............... 12,229
</TABLE>
20
<PAGE> 22
SOCIAL AWARENESS FUND (DIVISION 12)
<TABLE>
<CAPTION>
ANNUAL VALUE OF A $10,000
STIPULATED PAYMENT MADE VALUE AT MONTHLY INTERVALS OF A $10,000
OCTOBER 2, 1989 STIPULATED PAYMENT MADE OCTOBER 2, 1989
- --------------------------------- ---------------------------------------
<S> <C> <C>
10/02/89............... $10,000
12/31/89............... 10,100
12/31/90............... 9,877
12/31/91............... 12,506
12/31/92............... 12,795 [CHART]
12/31/93............... 13,670
12/31/94............... 13,339
12/31/95............... 18,351
12/31/96............... 22,527
</TABLE>
TIMED OPPORTUNITY FUND (DIVISION 5)
<TABLE>
<CAPTION>
ANNUAL VALUE OF A $10,000
STIPULATED PAYMENT MADE VALUE AT MONTHLY INTERVALS OF A $10,000
JANUARY 1, 1987 STIPULATED PAYMENT MADE JANUARY 1, 1987
- --------------------------------- ---------------------------------------
<S> <C> <C>
01/01/87............... $10,000
12/31/87............... 10,731
12/31/88............... 11,657
12/31/89............... 13,500
12/31/90............... 13,043
12/31/91............... 15,669 [CHART]
12/31/92............... 15,401
12/31/93............... 16,662
12/31/94............... 16,281
12/31/95............... 20,114
12/31/96............... 22,124
</TABLE>
21
<PAGE> 23
CAPITAL CONSERVATION FUND (DIVISION 7)
<TABLE>
<CAPTION>
ANNUAL VALUE OF A $10,000
STIPULATED PAYMENT MADE VALUE AT MONTHLY INTERVALS OF A $10,000
JANUARY 1, 1987 STIPULATED PAYMENT MADE JANUARY 1, 1987
- --------------------------------- ---------------------------------------
<S> <C> <C>
01/01/87............... $10,000
12/31/87............... 9,722
12/31/88............... 10,298
12/31/89............... 11,392
12/31/90............... 11,247
12/31/91............... 13,047 [CHART]
12/31/92............... 14,032
12/31/93............... 15,558
12/31/94............... 14,463
12/31/95............... 17,295
12/31/96............... 17,424
</TABLE>
GOVERNMENT SECURITIES FUND (DIVISION 8)
<TABLE>
<CAPTION>
ANNUAL VALUE OF A $10,000
STIPULATED PAYMENT MADE VALUE AT MONTHLY INTERVALS OF A $10,000
JANUARY 1, 1987 STIPULATED PAYMENT MADE JANUARY 1, 1987
- --------------------------------- ---------------------------------------
<S> <C> <C>
01/01/87............... $10,000
12/31/87............... 9,674
12/31/88............... 10,153
12/31/89............... 11,273
12/31/90............... 11,826
12/31/91............... 13,434 [CHART]
12/31/92............... 14,259
12/31/93............... 15,642
12/31/94............... 14,790
12/31/95............... 17,202
12/31/96............... 17,357
</TABLE>
22
<PAGE> 24
INTERNATIONAL GOVERNMENT BOND FUND (DIVISION 13)
<TABLE>
<CAPTION>
ANNUAL VALUE OF A $10,000
STIPULATED PAYMENT MADE VALUE AT MONTHLY INTERVALS OF A $10,000
OCTOBER 1, 1991 STIPULATED PAYMENT MADE OCTOBER 1, 1991
- --------------------------------- ---------------------------------------
<S> <C> <C>
10/01/91............... $10,000
12/31/91............... 10,905
12/31/92............... 11,128
12/31/93............... 12,583 [CHART]
12/31/94............... 13,014
12/31/95............... 15,308
12/31/96............... 15,822
</TABLE>
MONEY MARKET FUND (DIVISION 6)
<TABLE>
<CAPTION>
ANNUAL VALUE OF A $10,000
STIPULATED PAYMENT MADE VALUE AT MONTHLY INTERVALS OF A $10,000
JANUARY 1, 1987 STIPULATED PAYMENT MADE JANUARY 1, 1987
- --------------------------------- ---------------------------------------
<S> <C> <C>
01/01/87............... $10,000
12/31/87............... 10,450
12/31/88............... 11,048
12/31/89............... 11,923
12/31/90............... 12,738
12/31/91............... 13,310 [CHART]
12/31/92............... 13,606
12/31/93............... 13,833
12/31/94............... 14,216
12/31/95............... 14,857
12/31/96............... 15,447
</TABLE>
23
<PAGE> 25
ENDORSEMENTS AND PUBLISHED RATINGS
From time to time, in advertisements or in reports to Contract Owners, the
Company may refer to endorsements. Endorsements are often in the form of a list
of organizations, individuals or other parties which recommend the Company or
the Contracts. The endorser's name will be used only with the endorser's
consent. It should be noted that the list of endorsements may change from time
to time.
Also from time to time, the rating of the Company as an insurance company
by A. M. Best may be referred to in advertisements or in reports to Contract
Owners. Each year the A. M. Best Company reviews the financial status of
thousands of insurers, culminating in the assignment of Best's Ratings. These
ratings reflect their current opinion of the relative financial strength and
operating performance of an insurance company in comparison to the norms of the
life/health insurance industry. Best's Ratings range from A++ to F. An A++
rating means, in the opinion of A. M. Best, that the insurer has demonstrated
the strongest ability to meet its respective policyholder and other contractual
obligations.
In addition, the claims-paying ability of the Company as measured by the
Standard and Poor's Ratings Group may be referred to in advertisements or in
reports to Contract Owners. A Standard and Poor's insurance claims-paying
ability rating is an assessment of an operating insurance company's financial
capacity to meet the obligations of its insurance policies in accordance with
their terms. Standard and Poor's ratings range from AAA to D.
Further, from time to time the Company may refer to Moody's Investor's
Service's rating of the Company. Moody's Investor's Service's financial strength
ratings indicate an insurance company's ability to discharge senior policyholder
obligations and claims and are based on an analysis of the insurance company and
its relationship to its parent, subsidiaries and affiliates. Moody's Investor's
Service's ratings range from Aaa to C.
The Company will additionally refer to its Duff & Phelp's rating. A Duff &
Phelp's rating is an assessment of a Company's insurance claims-paying ability.
Duff & Phelp's ratings range from AAA to CCC. An AAA rating reflects that the
Company has the highest claims-paying ability.
The Company may from time to time, refer to Lipper Analytical Services
Incorporated ("Lipper"), Morningstar, Inc. ("Morningstar") and CDA/Wiesenberger
Investment Companies ("CDA/Wiesenberger") when discussing the performance of its
Divisions. Lipper, Morningstar and CDA/Wiesenberger are leading publishers of
statistical data about the investment company industry in the United States.
Additionally, the Company may compare the performance of the Divisions to
categories published by Lipper and Morningstar. The published categories which
may be utilized in comparison with the performance of the Divisions include the
Morningstar Growth and Income Mutual Fund Category, Morningstar Aggressive
Growth Mutual Fund Category, Morningstar Growth Mutual Fund Category,
Morningstar International Stock Mutual Fund Category, Lipper Growth and Income
Mutual Fund Category, Lipper Small Company Growth Mutual Fund Category, Lipper
Growth Mutual Fund Category and Lipper International Mutual Fund Category.
Additional Lipper or Morningstar categories may be utilized if they are deemed
by the Company relevant to the performance of the Company's Divisions.
The Company may, from time to time, refer to The Variable Annuity Research
& Data Services (VARDS) Report. The VARDS Report offers monthly analysis of the
variable annuity industry, including marketing and performance information.
VARDS currently tracks over 900 variable separate accounts totaling over $260
Billion in variable annuity assets.
The Company may, from time to time, refer to Bankers Trust Company's
Tactical Asset Allocation Model's historical performance and compare such
performance to that of the S&P 500 Index. Neither the Model nor the S&P 500
Index is a managed fund and neither have identifiable investment objectives.
The Company may, from time to time, refer to a general investment strategy
known as indexing. Several of the Divisions employ this investment strategy. The
Company may compare the performance of these Divisions to the S&P 500 Index, S&P
MidCap 400 Index, Russell 2000 Index, Morgan Stanley Capital International
Europe, Australia and Far East (EAFE) Index, or any other appropriate market
index. The indexes are not
24
<PAGE> 26
managed funds and have no identifiable investment objectives.
Finally the Company will utilize as a comparative measure for the
performance of its Funds the Consumer Price Index ("CPI"). The CPI is a measure
of change in consumer prices, as determined in a monthly survey of the U.S.
Bureau of Labor Statistics. Housing costs, transportation, food, electricity,
changes in taxes and labor costs are among the CPI components. The CPI provides
a tool for determining the impact of inflation on an individual's purchasing
power.
TRANSFERS AMONG INVESTMENT OPTIONS
Transfers of Accumulation Value and Annuity Units among investment options
are permitted subject to the conditions discussed below. The right to make
transfers is exercisable by the Participant during the Accumulation Period and
by the Annuitant during the Annuity Period. The Company reserves the right to
limit or restrict transfers to the extent such limitation or restriction is
allowed by the Contract.
TRANSFERS DURING THE ACCUMULATION PERIOD
Transfers among investment options during the Accumulation Period are
accomplished by transferring Accumulation Value among Variable Subaccounts
(which are invested in Divisions) or Fixed Subaccounts.
The Company has the right to limit transfers. The Company's current policy
is that transfers among Variable Subaccounts or from Variable Subaccount(s) to
Fixed Subaccount(s) currently may be made at any time during the Accumulation
Period.
Transfers from a Fixed Subaccount to one or more Variable Subaccounts or
another Fixed Subaccount may be made during the Accumulation Period, subject to
restrictions. Specifically, during the Accumulation Period, transfers of up to
20% of the Accumulation Value allocated to Fixed Account Plus may be made each
Participant Year. VALIC may permit transfers in excess of this limit by prior
written notice to all Contract Owners. However, if the transfer would result in
a Fixed Account Plus Accumulation Value of less than $500, the entire Fixed
Account Plus Accumulation Value may be transferred at that time. A transfer to
Short Term Fixed Account currently will result in no further transfers from
Short Term Fixed Account being permitted for a period of 90 days. Otherwise,
transfers from Short Term Fixed Account may be made at any time during the
Accumulation Period provided, however, that the 90 day transfer period may be
changed at any time. However, the transfer period may not exceed 180 days.
Plan loans from the Fixed Subaccounts may be permitted by your employer's
plan. Refer to your plan for a description of charges and further information.
TRANSFERS DURING THE ANNUITY PERIOD
During the Annuity Period, transfers among investment options are
accomplished by transferring Annuity Units among the Separate Account's
Divisions or to a fixed annuity. These transfers may be made at intervals of at
least 365 days. During the Annuity Period, transfers from a fixed annuity are
not permitted.
OTHER REQUIREMENTS
Transfers among investment options or changes of future allocation of
Purchase Payments ("reallocations") may be made upon receipt by the Company, at
its Home Office, of written instructions or by telephone at 1-800-621-7792.
Requests for transfers or reallocations by telephone will be automatically
permitted unless the Company has been notified otherwise in writing or by
telephone at 1-800-621-7792. If, after notifying the Company that telephone
transfers or reallocations are not to be allowed, the Contract Owner or
Participant wishes to have the right to effect telephone transfers or
reallocations reactivated, he or she must notify the Company in writing.
Prior to the Company's effecting a transfer request or reallocation by
telephone instruction, the Company will 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 or Participant has instructed the Company not to accept telephone
transfers or reallocations, anyone who represents that he or she is authorized
by the Contract Owner or Participant to effect a transfer
25
<PAGE> 27
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 and to promptly advise the Company of
any inaccuracies within one business day of receipt of the confirmation. The
Company will send to the Contract Owner or Participant a confirmation of the
transfer within five (5) days from the date of any instruction.
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
when received by the Company if received by the Company's Home Office before the
close of regular trading of the New York Stock Exchange, generally 4:00 p.m. New
York time, on a day Accumulation Unit values are calculated; otherwise the next
calculated Accumulation Unit 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.
Up to seven fixed or variable investment options may be used by a
Participant at any one time during the Accumulation Period or the Annuity
Period. (For additional requirements with respect to investment options during
the Annuity Period, see "Fixed or Variable Annuity Payments," "Annuity Payment
Options" and "Death of Annuitant During Annuity Period.")
26
<PAGE> 28
CHARGES UNDER VARIABLE ANNUITY CONTRACTS
All charges under the Contracts are described below.
CHARGE FOR PREMIUM TAXES
Premium taxes ranging from zero to 3% are currently imposed by certain
states and municipalities on Purchase Payments made under the Contracts.
Under deferred Contracts subject to premium tax, an amount for the tax will
be deducted, either from Purchase Payments when received, or from the amount
applied to effect an annuity at the time annuity payments commence, depending on
applicable state law. If an amount for any premium taxes is deducted but
subsequently is determined not to be due, the Company will adjust the excess
amount to reflect investment experience from the date of the deduction to the
date the determination is made. The Company will then apply the excess amount
deducted, as adjusted, to increase the number of Accumulation Units or Annuity
Units under the Participant Account at the time such determination is made.
CHARGE FOR PARTIAL AND TOTAL SURRENDERS
Except as provided below, a total or partial surrender is subject to a
surrender charge calculated as a percentage of the dollar amount of previous
Purchase Payments with respect to a Participant Account which are withdrawn, or
the dollar amount of the surrender, if less. Except as provided below it is
assumed that the most recent Purchase Payments are withdrawn first, and no
surrender charge is ever imposed on any amount not actually withdrawn.
Amounts exchanged to this Contract from other variable annuity contracts
issued by the Company are not considered to be Purchase Payments for purposes of
calculating the surrender charge. For such Contract exchanges, exchanged amounts
shall be deemed to be withdrawn only after all subsequent Purchase Payments have
been withdrawn. See "Exchange Offers" for more complete information about these
exchanges and surrender charges on exchanged amounts.
The surrender charge with respect to any Participant Account may not exceed
5% of the lesser of (a) all Purchase Payments received during the most recent 60
months prior to the receipt of the surrender request by the Company at its Home
Office, or (b) the amount withdrawn. For purposes of this charge, the Company
treats withdrawals of Purchase Payments before any earnings. Additionally, the
most recent Purchase Payments are treated as withdrawn first.
The first partial surrender per Participant Year of 10% or less of
Accumulation Value with respect to a Participant Account will not be subject to
a surrender charge. These 10% withdrawals without charge do not reduce Purchase
Payments for purposes of computing the charge. However, if the first partial
surrender (or total surrender, if there have been no partial surrenders within
the current Participant Year) exceeds 10% of Accumulation Value, the surrender
charge will be applied to the lesser of (a) the amount in excess of 10%, or (b)
the amount of the surrender attributable to Purchase Payments received during
the most recent 60 months. The second or any subsequent surrenders during a
Participant Year may be subject to a surrender charge.
If a surrender charge is assessed against any Purchase Payment, that
Purchase Payment (or, if the surrender charge is assessed against less than the
entire Purchase Payment, that portion against which such charge is assessed)
will not be subject to any further surrender charge in the event of a subsequent
withdrawal.
The surrender charge is not imposed upon annuitization at the Annuity Date
or upon any payments received by an Annuitant or Beneficiary in lieu of annuity
payments during the Annuity Period. Nor is the surrender charge imposed on the
payment of benefits to a Beneficiary or an Annuitant when a Participant dies
during the Accumulation Period. (See "Death Benefits During Accumulation
Period.") There is no surrender charge in any of the following situations: (a)
if no Purchase Payments have been received during the 60 months immediately
prior to surrender; (b) if the Participant Account has been in effect for 15
years or longer; or (c) if the Participant Account has been in effect for 5
years or longer and the Annuitant has attained age 59 1/2. No surrender charge
is imposed if the Annuitant has qualified to receive Social Security disability
benefits as evidenced by a certified copy of a Social
27
<PAGE> 29
Security Administration determination or a doctor's verification of such
disability. For employer sponsored groups, i.e. in the case of Contracts other
than Non-Qualified contracts or IRA contracts, no surrender charges will apply
if the Participant has been in the Contract for 5 or more years, the Participant
has separated from service of his or her employer and the Participant has
attained age 55.
The amount of surrender charges for a particular Contract may be reduced or
eliminated when the Contract is issued pursuant to a retirement plan or similar
arrangement and sales are made to individuals or groups of individuals in a
manner that results in savings of sales expenses. The entitlement to such a
reduction or elimination of surrender charges will be determined by the Company
in the following manner:
1. The size of the group to which such sales are to be made will be
considered. Generally, the sales expenses for a larger group are smaller
than for a smaller group because of the ability to establish a larger
number of Participant Accounts with fewer sales contacts.
2. The total amount of Purchase Payments to be received from a group will
be considered. Per Participant Account sales expenses are likely to be
less on larger Purchase Payments than on smaller ones.
3. The purpose for which the Contracts are being purchased will be
considered. Certain types of qualified plans are more likely to be
stable than are others. Such stability reduces the number of sales
contracts required, reduces sales administration and results in fewer
Participant Account terminations. As a result, sales expenses can be
reduced.
4. The nature of the group for which the Contracts are being purchased will
be considered. Certain types of employee and professional groups are
more likely to continue Contract participation for longer periods than
are other groups with more mobile membership. If fewer Participant
Accounts are surrendered in a given group, the Company's sales expenses
are reduced.
5. The use of mass enrollment procedures or the performance of sales or
related administrative functions by the employer will be considered.
Sales expenses are likely to be lower on Contracts where the need for
individual sales contacts is minimized.
6. There may be other circumstances of which the Company is not presently
aware, which could result in reduced sales expenses.
If, after consideration of the foregoing factors, the Company determines
that a group purchase would result in reduced or eliminated sales expenses, such
a group would be entitled to a reduction or elimination of the charge.
In no event will reduction or elimination of the charge be permitted where
such reduction or elimination will be unfairly discriminatory to any person.
The surrender charge reimburses the Company for part or all of its expenses
related to distributing the Contracts. The Company believes, however, that the
amount of such expenses will exceed the amount of revenues generated by the
surrender charge. The Company will pay such excess out of its general surplus
which, among other things, would include any gains from the asset charge
described below under "Charge to the Separate Account."
Examples of calculation of the surrender charge upon partial and total
surrender are set forth in the Statement of Additional Information--"Calculation
of Surrender Charge."
FEE FOR ANNUAL ACCOUNT MAINTENANCE
An annual account maintenance fee of $20 will be assessed each Contract by
the Company for the first Participant Year. The fee will be reduced to $15 for
the second and later years during the Accumulation Period. The fee is due in
quarterly installments beginning on the first day of the calendar quarter
following the first date a Purchase Payment is credited to the Participant
Account. The fee is assessed on the last day of the calendar quarter in which it
is due. This fee will be assessed proportionately among the Variable and Fixed
Subaccounts which make up the Accumulation Value. The maintenance fee is not
guaranteed and may, with prior regulatory ap-
28
<PAGE> 30
proval if required, be changed for future years. Any change to this fee will
apply to Contracts purchased both before and after such change. This fee is to
reimburse the Company for the cost of administrative expenses, including the
expenses incurred in establishing and maintaining the records relating to the
Contract. The Company does not expect that the revenues it will derive from this
fee will exceed such expenses.
The annual account maintenance fee may be reduced or waived on Contracts
issued under a retirement plan or similar arrangement which does not occasion
all the administrative expenses that otherwise would be incurred. The
entitlement to such a reduction in maintenance fee will be determined by the
Company in the following manner:
1. The purposes for which the Contracts are being purchased will be
considered. Certain types of qualified plans are more likely to be
stable than are others. Such stability reduces sales administration and
results in fewer Participant Account terminations. As a result,
administrative expenses can be reduced.
2. The nature of the group for which the Contracts are being purchased will
be considered. Certain types of employees and professional groups are
more likely to continue Contract participation for longer periods than
are other groups with more mobile membership. If fewer Participant
Accounts are surrendered in a given group, the Company's administrative
expenses are reduced.
3. The frequency of Purchase Payments will be considered. If Participant
Accounts are established or Purchase Payments are received in large
numbers only once a year, administrative costs are dramatically reduced.
4. The performance of administrative functions by the employer or the use
by an employer of automated techniques in submitting Purchase Payments
or information related to Purchase Payments on behalf of its employees
can reduce the Company's administrative expenses associated with a
Contract.
5. There may be other circumstances of which the Company is not presently
aware, which could result in reduced administrative expenses.
If, after consideration of the foregoing factors, the Company determines
that a group purchase would result in reduced administrative expenses, such a
group would be entitled to a reduction of the fee. In no event will reductions
of the fees be permitted where such reductions will be unfairly discriminatory
to any person.
If two or more Participant Accounts are established for the same Annuitant
under the same group Contracts, the Company and the Contract Owner may agree to
assess the maintenance fees related to some or all such Participant Accounts
against one such account.
CHARGE TO THE SEPARATE ACCOUNT
To cover administrative expenses not covered by the maintenance fee
discussed above, and to compensate the Company for assuming mortality risks
under the Contracts, the Separate Account will incur a daily charge at an
annualized rate of 1% 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.
In assuming the mortality risks, the Company is taking the risk that its
actuarial estimate of mortality rates during the Annuity Period may prove
erroneous and that the Annuitant will live longer than expected or that the
Annuitant will die during the Accumulation Period at a time when the death
benefit guaranteed by the Company is higher than the Accumulation Value of the
Participant Account. The Company does not expect to earn a profit on that
portion of the charge which is for administrative expenses, but the Company does
expect to derive a profit from the portion which is for assumption of mortality
risks. There is no necessary relationship between the amount of administrative
charges imposed on a given Contract and the amount of expenses actually
attributable to that Contract.
29
<PAGE> 31
MISCELLANEOUS
A daily charge based on a percentage of average daily net assets is payable
by each Fund to the Company for investment management. These charges, and other
Fund charges and expenses more fully described in the prospectus for the Series
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 or provisions for such taxes against the Separate
Account. Any such charges against the Separate Account or its Divisions could
have an adverse effect on the investment performance of such Division.
ACCUMULATION PERIOD
During the period before the commencement of annuity payments (the
"Accumulation Period"), the Participant or employer may make Purchase Payments
from time to time, and on such dates and in such amounts as may be determined
pursuant to the retirement plan for which the Contract has been purchased.
In all cases, the initial Purchase Payment must be preceded or accompanied
by a properly completed application. Except in the case of IRAs and some
Non-Qualified Contracts, Purchase Payments are generally remitted through or by
an employer and the Company must also receive a premium flow report which
identifies the amount to be credited to each Participant Account held pursuant
to the employer's retirement plan.
The initial and subsequent Purchase Payments for a periodic payment
Contract must be at least $30 per Participant Account. This minimum applies
separately to the amount of each Purchase Payment directed to each Variable
Subaccount or Fixed Subaccount. For single payment Contracts, the minimum
Purchase Payment is $1,000 per Participant Account. However, these minimums may
be waived where one purchaser, such as an employer, purchases a number of
Contracts.
When an initial Purchase Payment accompanies an application (and, if
required, a premium flow report) the Company will, within two business days
after receipt of the application at its Home Office, either (a) process and
accept the application, issue the Contract to the Contract Owner, establish
Participant Accounts and credit amounts or Accumulation Units to those accounts
as of the date of acceptance; (b) reject the application and return the Purchase
Payment; or (c) request additional documents or information if the application
is not complete or is incorrectly completed.
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 or
social security number, the Company will return the Purchase Payment to your
employer unless this information is immediately provided to the Company
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, generally the Company will deposit your Purchase Payment
in an "Employer-Directed" account invested in the Money Market Division
Option. You may not transfer these amounts until the Company has received a
completed application or enrollment form.
Starter Account. If the Company has your name, address and social security
number, but the Company does not have an Employer-Directed Account Agreement
from your employer, the Company will deposit your Purchase Payment in a
"starter" account invested in the Money Market Division. The Company will send
you follow-up letters requesting the information necessary to complete the
application, includ-
30
<PAGE> 32
ing your allocation instructions. Unless a completed application or enrollment
form is received by the Company within 105 days of establishment of your
starter account, the account balance, including earnings, will be returned to
your employer. The Company is not responsible for any adverse tax consequences
to you that may result from the return of your employer's contributions.
For initial and subsequent payments, Accumulation Units will be credited at
the Accumulation Unit value calculated as of the day the Purchase Payment was
received by the Company if received at the Company's Home Office before the
close of regular trading of the New York Stock Exchange, generally 4:00 p.m. New
York Time on a day Accumulation Unit values are calculated; otherwise, the next
calculated Accumulation Unit value is used. As a result, the Participant Account
will be credited with the investment experience of the Separate Account from the
date of the Company's receipt of the Purchase Payment.
Unless otherwise restricted by the Contract, a Participant may allocate
and/or accumulate amounts in up to seven of the fifteen available subaccounts
(the thirteen Variable Investment Options and the two Fixed Interest Options).
The Accumulation Value of a Participant's Account or Contract during the
Accumulation Period is the sum of values of the Fixed Interest Options and the
Variable Investment Options.
A Participant may allocate all or a portion of Purchase Payments to the
Fixed Subaccount. The Fixed Subaccount consists of two Fixed Interest Options
which are part of the Company's General Account. Each Fixed Interest Option pays
interest at a declared rate which may differ depending upon the Fixed Interest
Option selected. The Company bears the full amount of the investment risk for
amounts allocated to either of the Fixed Interest Options. Earned interest on
amounts allocated to the Fixed Subaccount will be paid regardless of the actual
investment experience of the General Account. Because of exemptive and
exclusionary provisions, interests in the Fixed Subaccount have not been
registered under the Securities Act of 1933, and neither the Fixed Subaccount
nor the General Account has been registered as an investment company under the
Investment Company Act of 1940. Accordingly, interests in the Fixed Subaccount
are not subject to regulation under these Acts. As a result, the staff of the
SEC has not reviewed the disclosures which are included in this Prospectus and
which relate to the General Account and the Fixed Subaccount. These disclosures,
however, may be subject to certain provisions of federal securities law relating
to the accuracy and completeness statements made in this Prospectus.
The value of a Participant's Account attributable to the Fixed Subaccount
during the Accumulation Period is the sum of all net Purchase Payments allocated
to either of the Fixed Interest Options in the Fixed Subaccount, amounts
transferred from the Separate Account's Variable Investment Options to any Fixed
Interest Option, and all earned interest. This amount is reduced by amounts
transferred out or withdrawn and may be further reduced by the deduction of
certain charges.
A Participant may allocate all or a portion of Purchase Payments to the
Variable Investment Options. The value of the Contract and of a Participant's
Account attributable to the Variable Investment Options can be determined at any
time by multiplying the number of Accumulation Units outstanding under the
Contract or account by the current Accumulation Unit value. During the
Accumulation Period, the value of the Contract 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 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, the Friday following Christmas if Christmas falls on a
Thursday and the Monday before Christmas if Christmas falls on a Tuesday). Such
rate is (i) the Separate Account's investment income and capital gains and
losses, whether realized or unrealized on such day, from the assets attributable
to each Separate Account
31
<PAGE> 33
Division, divided by (ii) the value of the Separate Account Division for the
immediately preceding day on which such values were calculated. The net
investment rate for any day is determined by deducting from the gross investment
rate, a factor representing the mortality risk and expense charges described
herein (see "Charge to the Separate Account"), and any applicable income taxes.
The Accumulation Unit value for a given day is then determined by multiplying
the Accumulation Unit value for the preceding day by a net investment factor
equal to the net investment rate plus 1.00.
Illustrations showing the calculation of an Accumulation Unit value and the
purchase of Accumulation Units (using hypothetical examples) are contained in
the Statement of Additional Information -- "Accumulation Unit Value."
DEATH BENEFITS DURING ACCUMULATION PERIOD
If an Annuitant under a Contract dies during the Accumulation Period, there
will be an amount payable to the Beneficiary 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 "Surrender.") The
Beneficiary may exercise the right to receive the death benefit as a lump-sum
settlement or in the form of any of the annuity options provided in the Contract
(within such time limits required by federal tax law). (See "Annuity Payment
Options.") Beneficiaries other than the spouse of an Annuitant must receive the
death benefit in full by the date five years after the Annuitant's death unless
payments commence within one year of the Annuitant's death under a life annuity,
a life annuity with payments certain or payments for a designated period.
Payments certain or payments for a designated period in any case cannot be
selected for a period exceeding the Beneficiary's life expectancy. The
Beneficiary thereafter will be entitled to exercise many of the investment
options and other rights an Annuitant would have under the Contract.
SUSPENSION OF PURCHASE PAYMENTS
Flexible payment Contracts contain provisions protecting against
forfeiture. If, at any time, additional Purchase Payments are not made, the
number of Accumulation Units outstanding under the Participant Account at that
time will remain constant (so long as no transfer election is made), and the
value of the Units will continue to vary. The Accumulation Value will continue
to be subject to charges during the period of suspension. The Contract Owner may
resume making Purchase Payments at any time during the Accumulation Period, so
long as the Participant Account (or Contract) has not been surrendered and the
Contract has not otherwise been terminated.
Under group Contracts, if the Accumulation Value of a Participant Account
falls below $300, the Company, at its option, may cause the Participant Account
to be automatically surrendered, in which case a surrender charge may be
deducted from the amount paid to the Participant. Under individual Contracts,
the Company may cause such automatic surrender if all of the following
conditions are satisfied: (1) The total of Purchase Payments, reduced by amounts
deducted in connection with any partial surrenders, falls below $300; (2) the
total of Accumulation Value, reduced by amounts deducted in connection with any
partial surrenders, falls below $300; and (3) no Purchase Payments have been
made for two Participant Years.
ANNUITY PERIOD
FIXED OR VARIABLE ANNUITY PAYMENTS
If the plan so permits, the Annuitant may elect to have any portion of the
Accumulation Value applied to provide either a variable annuity or a fixed
annuity, or a combination of both.
Fixed annuity payments are monthly payments from the Company to an
individual, the amount of which is fixed and guaranteed by the Company. The
amount of the monthly payments will depend only on the form and duration of
annuity payments chosen, the age of the Annuitant or the Beneficiary (and sex,
under individual retirement annuity ("IRA") contracts), the total Accumulation
Value applied to purchase the annuity, and the applicable annuity rate. If it
would produce greater benefits, the amount of the monthly payment will be that
produced by a then currently issued immediate annuity of the same form.
Variable annuity payments are similar to fixed annuity payments, except
that the amount of
32
<PAGE> 34
each monthly payment from the Company will vary reflecting the net investment
experience of each Division of the Separate Account in which the net Purchase
Payments are accumulated. (For an illustration of the calculation of annuity
payments and Annuity Unit value see the Statement of Additional
Information -- "Amount of Annuity Payments" and "Annuity Unit Value.") The value
of an Annuity Unit is calculated at the same time that the value of an
Accumulation Unit is calculated and is based on the same values for Fund shares
and other assets and liabilities. (See "Accumulation Period.") If the net
investment experience for a given month, after all charges summarized below,
exceeds the Assumed Investment Rate (3 1/2% per annum unless a different rate is
selected), the monthly payment will be greater than the previous payment. If the
net investment experience for a month is less than such Assumed Investment Rate,
the monthly payment will be less than the previous monthly payment. (See the
Statement of Additional Information -- "Assumed Investment Rate.")
The use of an Assumed Investment Rate higher than 3 1/2% per annum would
cause the first annuity payment to be larger, but subsequent payments would
increase more slowly or decrease more quickly and ultimately be less than they
would under a 3 1/2% Assumed Investment Rate, provided that annuity payments
continue for a sufficient period of time. A 3 1/2% Assumed Investment Rate will
be used in the absence of a selection otherwise.
Up to seven Divisions may be applied to provide a variable annuity, or up
to six Divisions if a fixed annuity is also selected. The first payment provided
under a fixed annuity and each portion of a variable annuity based on a Division
must each be at least $25.
ANNUITY DATE
Annuity payments under deferred Contracts may begin on the first day of any
month before the Annuitant's 75th birthday, as selected by the Contract Owner on
a form approved by the Company. However, special rules apply to payments under
403(b), 401, 403(a) and 457 plans or simplified employee plans ("SEPs"). (See
the discussion of required distributions for each plan type under "Federal Tax
Matters.")
ANNUITY PAYMENT OPTIONS
The Annuitant may elect to have the Accumulation Value of the Participant
Account applied on the Annuity Date to any one of the options listed below. The
amount applied to effect an annuity will be the Accumulation Value on the tenth
day preceding the Annuity Date.
In most cases, if the Annuitant does not specify one of the options at
least thirty days prior to the Annuity Date, annuity payments are made in
accordance with the second option, with payments being guaranteed for a ten year
period. If the Contract is issued under certain retirement plans, however,
federal pension law may require that payments be made pursuant to the fourth
option unless otherwise elected. Tax laws and regulations may impose further
restrictions to assure that the primary purpose of the plan is distribution of
the accumulated funds to the employee. Absent a contrary election at least
thirty days in advance, Fixed Subaccount accumulations will be used to provide a
fixed annuity, and Variable Subaccount accumulations will be used to provide a
variable annuity based on the same Divisions in which the Variable Subaccount(s)
were invested immediately prior thereto. If the fifth annuity option is
selected, annuity payments must be made on a fixed basis. An Annuitant wishing
to receive a lump sum rather than an annuity may surrender the Contract as
described below under "Surrender."
Once annuity payments have begun, an annuity option may not be terminated.
First Option -- Life Annuity. Variable annuity payments are payable monthly
during the lifetime of the Annuitant, and the annuity terminates with the last
payment preceding death. This option offers the maximum amount per variable
annuity payment since there is no provision for a death benefit for
Beneficiaries. It would be possible under this option for the annuitant to
receive only one annuity payment if he died prior to the date of the second
payment, two if he died before the third annuity payment date, etc.
Second Option -- Life Annuity With 60, 120, 180 or 240 Monthly Payments
Certain. Variable annuity payments are payable monthly during the lifetime of an
Annuitant with the provision that, if the Annuitant dies during the certain
period, the Beneficiary may receive monthly payments for the remainder of the
certain period.
33
<PAGE> 35
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 equal to the then-current value
of any Annuity Units credited to the Participant Account at the Annuity Date
which have not theretofore been paid out in the form of annuity payments. For
this purpose, the number of Annuity Units credited to the Participant Account at
the Annuity Date will be the total value applied to this option divided by the
Annuity Unit value at the date used to calculate the first annuity payment.
Fourth Option -- Joint and Last Survivor Life Annuity. Variable annuity
payments are payable monthly during the joint lifetimes of two Annuitants and
continue during the lifetime of the surviving Annuitant. This option is designed
primarily for couples who require maximum possible variable annuity payments
during their joint lives and who are not concerned with providing for
Beneficiaries at the death of the last to survive. It would be possible under
this option for the joint Annuitants to receive only one payment if both
Annuitants died prior to the date of the second payment, or for the joint
Annuitants to receive only one payment and the surviving Annuitant to receive
only one payment if one Annuitant died prior to the date of the second payment
and the surviving Annuitant died prior to the date of the third payment, etc.
Fifth Option -- Payments for Designated Period. Annuity payments are
payable monthly for a selected number of years between three and thirty.
Payments under this option may be made on a fixed basis only. If payments would
amount to less than $25 each, the Company may make payments less frequently than
monthly.
ENHANCEMENTS UNDER ANNUITY OPTIONS
Enhancements of the annuity options described above recently are available
under the Contracts. These include partial annuitization, flexible payments of
varying amounts and inflation protection payments. To the extent some or all of
these options do not result in "substantially equal payments" over the life
expectancy of the Annuitant, electing such options may result in unfavorable tax
consequences to Annuitants under age 59 1/2. (See "Federal Tax Matters.")
Additionally certain options may be available with a one to twenty payment
certain period. The Fourth Option also may be available with a one to twenty
payment certain option. Not all of the enhancements are available under each
option.
DEATH OF ANNUITANT DURING ANNUITY PERIOD
If the Annuitant dies during the Annuity Period, the Beneficiary may be
entitled to payment of an additional amount or amounts, and may be entitled to
certain alternatives discussed below. If, prior to death, the Annuitant had been
receiving payments under the first or fourth options, no additional amounts
would be due. If, however, the Annuitant had been receiving payments under the
second, the third or the fifth options, the Beneficiary may:
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, any time
thereafter, to receive the present value of remaining variable annuity
payments, discounted at the Assumed Investment Rate, based on the
Annuity Unit value next determined after request for such payment is
received at the Company's Home Office; or
3. 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 (2) above on a
variable basis may be treated in the same manner as a surrender of the Contract.
If the Contract is surrendered, usually the full amount received would be
includable in income for that year, and, to the extent so included, would be
taxed at ordinary rates.
SURRENDER
All or part of the Surrender Value of a Participant Account may be
withdrawn by the Participant at any time before the commencement of
34
<PAGE> 36
annuity payments, provided that the Annuitant is alive at the time of surrender.
This right is subject to any restrictions on surrender under applicable law and
the employer's plan. An individual Contract must be returned to and be received
by the Company before a total surrender will be effected. (See "Charge for
Partial and Total Surrenders" for an explanation of charges which may be
assessed upon surrender.)
The Surrender Value of a Participant Account at any time is equal to the
Accumulation Value under the Participant Account at the time of surrender, less
any surrender charge. For this purpose, the value of an Accumulation Unit is
that next computed after the request for surrender is received at the Company's
Home Office. There is no assurance that the Surrender Value under Variable
Subaccounts will equal or exceed the aggregate amount of Purchase Payments at
any time.
A partial surrender under a Participant Account will result in a reduction
of the Accumulation Value credited to a Participant Account. The reduction will
equal the dollar amount surrendered plus the surrender charge, if any, and will
be allocated among subaccounts in the same proportion as the surrender requested
by the Participant. The reduction in the number of Accumulation Units credited
to a Variable Subaccount will equal the amount surrendered from that subaccount
plus the surrender charge allocable to that subaccount, if any, divided by the
applicable Accumulation Unit value next computed after the written request for
surrender is received at the Company's Home Office. If the entire value under a
subaccount is surrendered in a partial surrender, the dollar amount surrendered
will be reduced by the surrender charge allocable to that subaccount. The
Surrender Value will be reduced by a full quarterly maintenance charge
assessment in the case of a full surrender during a calendar quarter.
Under the Texas State Optional Retirement Program or in most Section 403(b)
contracts, no surrender or partial surrender by a Participant will be permitted
prior to termination of employment, retirement or death. (See "Federal Tax
Matters.")
Under the Florida State Optional Retirement Program no surrender or partial
surrender by a Participant of Accumulation Values attributable to Purchase
Payments contributed by the Participant's employer will be permitted. Benefits
based on employer contributions may only be paid upon the Participant's death,
retirement or termination of employment. Except in the case of the Participant's
death, and except for certain small amounts as approved by the State of Florida,
such benefit payments may not be paid in a lump sum or for a period certain, but
will only be paid through a life contingency option.
For an explanation of possible adverse tax consequences from a partial
redemption or surrender see "Federal Tax Matters."
Payments of Surrender Values as well as lump-sum payments available under
an annuity option will be made within seven calendar days after receipt of the
written request by the Company at its Home Office; however, payments
attributable to a Division may be suspended or postponed at any time when
redemption of the Fund's shares is suspended or postponed. See "Offering,
Purchase and Redemption of Fund Shares" in the Series Company's Statement of
Additional Information for a discussion of the circumstances under which the
Series Company may suspend or postpone redemption of its shares.
Occasionally, the Company may receive a request for total or partial
surrender which includes Accumulation Values derived from Purchase Payments
which have not cleared the banking system. The Company may delay mailing that
portion of the Surrender Value which relates to such amounts until the check for
the payment has cleared. The Accumulation Unit value used to determine the
remaining Surrender Value to be remitted will be on the basis of the valuation
next computed after receipt of the request for surrender.
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
35
<PAGE> 37
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
Individual Contracts allow the Contract Owner to revoke the Contract by
returning it to the Company within ten days of delivery or such longer
revocation period as is required by state law. The Company will refund any
Purchase Payments received for the Contract without regard to investment
results, unless a larger refund is required by state law.
RESERVATION OF RIGHTS
The Company reserves the right to amend the Contract to conform with
substitutions of investments or to comply with tax or other laws applicable to
these types of Contracts. The Company also reserves the right to operate the
Separate Account as a management investment company under the 1940 Act, in
consideration of receipt of an investment management fee, or in any other form
permitted by law, and to deregister the Separate Account under the 1940 Act, in
the event such registration is no longer required.
RELATIONSHIP TO EMPLOYER'S PLAN
Since it is contemplated that most Contracts offered by this prospectus
will be used for retirement programs, reference should be made to specific plan
provisions and restrictions, if any, contained in the employer's plan in
connection with this description of the Contracts.
Plan loans from the Fixed Subaccounts may be permitted by your employer's
plan. Refer to your plan for a description of charges and further information.
FEDERAL TAX MATTERS
GENERAL
Major changes in federal income tax laws in the past several years may
affect the tax treatment of investments in the Contracts. It is not feasible to
comment on all of these changes, and Contract owners should consult a qualified
tax advisor for more complete information. Contract owners should also be aware
that future legislation may change some of the rules discussed in the following
materials.
TAXES PAYABLE BY PARTICIPANTS
AND ANNUITANTS
The Contracts offered in connection with this prospectus are primarily used
with retirement programs which receive favorable tax deferred treatment under
federal income tax law, although deferred annuity contracts may be purchased
with after tax dollars.
Annuity payments or other amounts received under all Contracts generally
are subject to some form of federal income tax withholding. The withholding
requirement will vary among 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,
36
<PAGE> 38
employer contributions must comply with various nondiscrimination rules; these
rules may have the effect of further limiting the rate of employer contributions
for highly compensated employees.
Taxation of Distributions. Distributions of voluntary salary reduction
amounts are restricted. The restrictions apply to amounts accumulated after
December 31, 1988 (including voluntary contributions after that date and
earnings on prior and current voluntary contributions). These restrictions
require that no distributions will be permitted prior to one of the following
events: (1) attainment of age 59 1/2, (2) separation from service, (3) death,
(4) disability, or (5) hardship (hardship distributions will be limited to the
amount of salary reduction contributions exclusive of earnings thereon).
Other distributions from a section 403(b) annuity Contract are taxed as
ordinary income to the recipient in accordance with section 72 of the Code.
Distributions received before the recipient attains age 59 1/2 generally are
subject to a 10% penalty tax in addition to regular income tax. Certain
distributions are excepted from this penalty tax, including distributions
following (1) death, (2) disability, (3) separation from service during or after
the year the participant reaches age 55, (4) separation from service at any age
if the distribution is in the form of substantially equal periodic payments over
the life (or life expectancy) of the Participant (or the Participant and
Beneficiary), and (5) distributions in excess of tax deductible medical
expenses.
Required Distributions. Generally, distributions from section 403(b)
annuities must commence no later than April 1 of the calendar year following the
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). Following the death
of the Participant, the distribution requirements are generally the same as
those described with respect to Non-Qualified Contracts. However, amounts
accumulated under a Contract on December 31, 1986, are not subject to these
minimum distribution requirements. Pre-January 1, 1987 amounts may be paid in a
manner that meets the above rule or (i) must begin to be paid when the
Participant attains age 75; and (ii) the present value of payments expected to
be made over the life of the Participant under the option chosen must exceed 50%
of the present value of all payments expected to be made (the "50% rule".) The
50% rule will not apply to joint Annuitant 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 Rulings 90-24)
that total or partial amounts may be transferred tax free between section 403(b)
annuity contracts and/or 403(b)(7) custodial accounts under certain
circumstances. In addition, section 403(b)(8) of the Code permits tax-free
rollovers from section 403(b) programs to IRAs or other section 403(b) programs
under certain circumstances. Such a rollover must be completed within 60 days of
receipt of the distribution. The portion of any distribution which is eligible
to be rolled over to an IRA or another 403(b) program is subject to 20% federal
income tax withholding unless the Participant elects a direct rollover of such
distribution to an IRA or other section 403(b) program.
SECTION 401 QUALIFIED PENSION, PROFIT-
SHARING OR ANNUITY PLANS
Purchase Payments. Purchase Payments made by an employer (or a
self-employed individual) under a pension, profit-sharing or annuity plan
qualified under section 401(a) or section 403(a) of the Code are excluded from
the gross income of the employee for Federal income tax purposes. Payments made
by an employee generally are made on an after-tax basis unless they are made on
a pre-tax basis by reason of sections 401(k) or 414(h) of the Code.
Taxation of Distributions. Distributions from Contracts purchased under
qualified plans are taxable as ordinary income, except to the extent allocable
to an employee's after-tax contributions (which constitute "investment in the
Contract.") However, if an employee or the Beneficiary re-
37
<PAGE> 39
ceives 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 rates in effect for 1986. In
addition, individuals who attained age 50 by January 1, 1986 may elect capital
gains treatment (at a 20% rate) for the taxable portion of a lump sum
distribution attributable to years of service before 1974; such capital gains
treatment has otherwise been repealed. Taxable distributions received under a
Contract purchased under a qualified plan prior to attainment of age 59 1/2 are
subject to the same 10% penalty tax (and the same exceptions) as described with
respect to section 403(b) annuity Contracts.
Required Distributions. The minimum distribution requirements for qualified
plans are generally the same as described with respect to section 403(b) annuity
Contracts, except that no amounts are exempted from the minimum distribution
requirements.
Tax-Free Rollovers. The taxable portion of certain distributions from a
plan qualified under section 401 or 403(a) may be transferred in a tax-free
rollover to an individual retirement account or annuity or to another such plan.
Such a rollover must be completed within 60 days of receipt of the qualifying
distribution. The portion of any distribution which is eligible to be rolled
over to an IRA or another section 401(a) or 403(a) plan is subject to 20%
federal income tax withholding unless the Participant elects a direct rollover
of such distribution to an IRA or other section 401(a) or 403(a) plan.
INDIVIDUAL RETIREMENT ANNUITIES
Purchase Payments. The Tax Reform Act of 1986 has limited the extent to
which individuals may make tax-deductible contributions for IRA Contracts.
Deductible contributions equal to the lesser of $2,000 or 100% of compensation
are permitted only for individuals who (i) are not (and whose spouses are not)
active participants in another retirement plan; (ii) are active participants in
another retirement plan, but are unmarried and have adjusted gross income of
$25,000 or less; or (iii) are active participants (or have spouses who are) in
another retirement plan, but are married and have adjusted gross income of
$40,000 or less. Such individuals may also establish an IRA for a nonworking
spouse who receives no compensation during the tax year; the annual
tax-deductible Purchase Payments for both spouses' Contracts cannot exceed the
lesser of $4,000 or 100% of the working spouse's earned income; no more than
$2,000 may be contributed to either spouse's IRA for any year. Individuals who
are active participants in other retirement plans and whose adjusted gross
income exceeds the cut-off point ($25,000 for unmarried and $40,000 for married)
by less than $10,000 are entitled to make deductible IRA contributions in
proportionately reduced amounts.
An individual may make nondeductible IRA contributions to the extent of the
excess of (i) the lesser of $2,000 ($4,000 in the case of contributions to both
the individual's IRA and spousal IRA) or 100% of compensation over (ii) the IRA
deduction limit with respect to the individual.
Taxation of Distributions. Distributions from IRA Contracts are taxed as
ordinary income to the recipient. In addition, a 10% penalty tax will be imposed
on taxable distributions received before the year in which the recipient attains
age 59 1/2, except that distributions made on account of death, disability or in
the form of substantially equal periodic payments over the life (or life
expectancy) of the Participant (or the Participant and Beneficiary) are not
subject to the penalty tax.
Required Distributions. The minimum distribution requirements for IRA
Contracts are generally the same as described with respect to Section 403(b)
annuity Contracts, except that no amounts are exempted from the minimum
distribution requirements and in all events such distributions must commence no
later than April 1 of the calendar year following the calendar year in which the
Participant attains age 70 1/2.
Tax Free Rollovers. Federal law permits funds to be transferred in a tax
free rollover from a qualified employer pension, profit-sharing, or annuity
plan, or a Section 403(b) annuity Contract to an IRA Contract under certain
conditions. Amounts accumulated under such a rollover IRA generally may
subsequently be rolled over on a
38
<PAGE> 40
tax-free basis to another such plan or Section 403(b) annuity Contract. In
addition, a tax-free rollover may be made from one IRA to another, provided that
not more than one such rollover may be made during any twelve month period. In
order to qualify for tax-free treatment, all rollovers must be completed within
60 days after the distribution is received.
SIMPLIFIED EMPLOYEE PENSION PLANS
Purchase Payments. Under section 408(k) of the Code, employers may
establish a type of IRA plan referred to as a simplified employee pension plan
(SEP). Employer contributions under a SEP, which generally must be made at a
rate representing a uniform percent of the compensation of participating
employees, are excluded from the gross income of employees for federal income
tax purposes. Employer contributions to a SEP cannot exceed the lesser of
$30,000 or 15% of an employee's compensation for plan years beginning after
December 31, 1993.
Salary Reduction SEPs. Federal tax law allows employees of certain small
employers to have contributions made to the SEP on their behalf on a salary
reduction basis. These salary reduction contributions may not exceed $7,000,
indexed for inflation in later years. Employees of tax-exempt organizations are
not eligible for this type of SEP. No new salary reduction SEPs may be
established after 1996.
Taxation of Distributions. SEP distributions are subject to taxation in the
same manner as other IRA distributions.
Required Distributions. SEP distributions are subject to the same minimum
required distribution rules applicable to other IRAs.
Tax Free Rollovers. Funds may be rolled over tax free from one SEP to
another as long as the rollover is completed within 60 days after the
distribution is received and is done no more frequently than once every twelve
months.
SECTION 457 UNFUNDED DEFERRED
COMPENSATION PLANS OF PUBLIC
EMPLOYERS AND TAX-EXEMPT
ORGANIZATIONS
Purchase Payments. Under section 457 of the Code, individuals who perform
services for a unit of a state or local government may participate in a deferred
compensation program. Tax-exempt employers may establish deferred compensation
plans under section 457 only for a select group of management or highly
compensated employees and/or independent contractors.
This type of program allows individuals to defer the receipt of
compensation which would otherwise be presently payable and to therefore defer
the payment of federal income taxes on the amounts. Assuming that the program
meets the 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 Contracts 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 includible in the gross income of the individual in the
year in which paid.
Required Distributions. Beginning January 1, 1989, the minimum distribution
requirements for EDCP's are generally the same as those for qualified plans and
section 403(b) annuity Contracts, except that no amounts are exempted from
minimum distribution requirements.
Tax Free Transfers and Rollovers. Federal income tax law permits the tax
free transfer of EDCP amounts to another EDCP, but not to an IRA or other type
of plan.
39
<PAGE> 41
PRIVATE EMPLOYER UNFUNDED DEFERRED
COMPENSATION PLANS
Purchase Payments. Private taxable employers may establish unfunded and
non-qualified deferred compensation plans for a select group of management or
highly compensated employees and/or for independent contractors.
Certain arrangements of nonprofit employers entered into prior to August
16, 1986, and not subsequently modified, are subject to the rules for private
taxable employer deferred compensation plans discussed below.
Deferred compensation plans represent a bare contractual promise on the
part of the employer to pay current wages at some future time. The Contract is
owned by the employer and is subject to the claims of the employer's creditors.
The individual has no present right or vested interest in the Contract and is
only entitled to payment in accordance with plan provisions. Private taxable
employers that are not natural persons, however, are currently taxable on any
increase in the Accumulation Value attributable to Purchase Payments made to
such Contracts after February 28, 1986.
Taxation of Distributions. Amounts received by an individual from a private
employer deferred compensation plan are includible in gross income for the
taxable year in which such amounts are paid or otherwise made available.
Tax Free Transfers and Rollovers. Federal income tax law does not allow tax
free transfers or rollovers for amounts accumulated in a private employer
deferred compensation plan.
NON-QUALIFIED CONTRACTS
Purchase Payments. Purchase Payments made under certain Contracts are not
excludible from the gross income of the Contract Owner or deductible for tax
purposes ("Non-Qualified Contracts"). However, any increase in the Accumulation
Value of a Non-Qualified Contract resulting from the investment performance of
the Separate Account is not taxable to the Contract Owner until received by him.
Contract Owners that are not natural persons, however, are currently taxable on
any increase in the Accumulation Value attributable to Purchase Payments made to
such Contracts after February 28, 1986.
Taxation of Distributions. In general, partial redemptions that are not
received as an annuity under a Non-Qualified Contract purchased after August 13,
1982 (or allocated to post-August 13 Purchase Payments under a pre-existing
Contract) are taxed as ordinary income to the extent of the accumulated income
or gain under the Contract. Partial redemptions from a Non-Qualified Contract
purchased before August 14, 1982, are taxed only after the Contract Owner has
received all of his "investment in the Contract" (Purchase Payments less any
amounts previously received and excluded from gross income.)
In the case of a complete redemption of a Non-Qualified Contract
(regardless of the date of purchase), the amount received will be taxed as
ordinary income to the extent that it exceeds the Contract Owner's investment in
the Contract.
If a Contract Owner purchases two or more Contracts from the Company (or an
affiliated company) within any twelve month period after October 21, 1988, those
Contracts are treated as a single Contract for purposes of measuring the income
on a partial redemption or complete surrender.
When payments are received as an annuity, the Contract Owner's investment
in the Contract is treated as received ratably over the expected payment period
of the annuity and excluded from gross income as a tax-free return of capital.
Individuals who start receiving annuity payments on or after January 1, 1987,
can exclude from income only their unrecovered investment in the Contract. Where
such individuals die before they have recovered their entire investment in the
Contract on a tax-free basis, they generally are entitled to a deduction of the
unrecovered amount on their final tax return.
In addition to regular income taxes, there is a 10% penalty tax on the
taxable portion of a distribution received before age 59 1/2 under a
Non-Qualified Contract, unless the distribution is: (1) made to a Beneficiary on
or after death of the Contract Owner; (2) made upon the disability of the
Contract Owner; (3) part of a series of substantially equal annuity payments for
the life or life expectancy of the Contract Owner or the Contract Owner and
Beneficiary; (4) made under an immediate annuity contract; or (5) allocable to
Purchase Payments made prior to August 14, 1982.
Required Distributions. In contrast with the required distribution rules
described above for
40
<PAGE> 42
Contracts purchased under employer-sponsored retirement programs, the Code does
not require a Contract Owner under a Non-Qualified Contract to commence
receiving distributions at any particular time and does not limit the duration
of annuity payments. However, upon the death of the Contract Owner prior to the
commencement of annuity payments, the amount accumulated under the Contract must
be distributed within five years or, if distributions to a beneficiary
designated under the Contract start within one year of the Contract Owner's
death, distributions are permitted over the life of the beneficiary or over a
period not extending beyond the beneficiary's life expectancy. If the Contract
Owner has started receiving annuity distributions prior to his death,
distributions must continue at least as rapidly as under the method in effect at
the date of his death.
Tax-Free Exchanges. Certain of the Non-Qualified single payment deferred
annuity contracts permit the Contract Owner to exchange his contract for a new
deferred annuity contract prior to the commencement of annuity payments. Under
section 1035 of the Code, the exchange of one annuity contract for another is
not a taxable transaction, but is reportable to the IRS.
EFFECT OF TAX-DEFERRED ACCUMULATIONS
The charts below compare accumulations attributable to contributions to (1)
Contracts purchased with pre-tax contributions under tax-favored retirement
programs, (2) Non-Qualified Contracts purchased with after tax contributions and
(3) conventional savings vehicles such as savings accounts.
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 withdrawn. As shown above, investing in a
tax-favored program increases the accumulation power of savings over time. The
more taxes saved and reinvested in the program, the more the accumulation power
effectively grows over the years.
To further illustrate the advantages of tax-deferred savings using a 28%
federal tax bracket, an annual fixed yield (BEFORE THE DEDUCTION OF ANY FEES OR
CHARGES) of 8% under a tax-favored retirement program in which tax savings were
reinvested has an equivalent annual fixed yield of 5.76% under a conventional
savings program. THE 8% YIELD ON THE TAX-FAVORED PROGRAM WILL BE REDUCED BY THE
IMPACT OF INCOME TAXES UPON WITHDRAWAL. The yield will vary depending upon the
timing of withdrawals. The previous chart shows the actual after-tax amounts
that would be received.
As indicated above, contributions to tax-favored retirement programs are
not subject to federal income tax unless and until withdrawn. Accumulations
under tax-favored retirement programs are 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
to tax-favored retirement programs, increase the amount available for savings by
decreasing the relative current out-of-pocket cost of the investment. The chart
below illustrates this principle:
41
<PAGE> 43
PAYCHECK COMPARISON
<TABLE>
<CAPTION>
TAX-FAVORED
RETIREMENT SAVINGS
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
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.
Each of the portfolios of 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.
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 Divisions
attributable to the Participant Account or variable annuity should be voted at
meetings of shareholders of the Series Company. Those persons entitled to give
voting instructions will be determined as of the record date for the meeting.
During the Accumulation Period, each Annuitant (other than Annuitants under
Contracts issued in connection with non-qualified and unfunded deferred
compensation plans) will have the right to give instructions for those votes,
notwithstanding that the Contract Owner may be the Annuitant's employer.
Contract Owners will instruct the Company in accordance with such instructions.
The number of Fund shares held in a Division deemed attributable to a
Participant Account prior to the Annuity Date and during the lifetime of the
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 Annuitant, the number of Fund shares
deemed attributable to the Participant Account will be based on the liability
for future variable annuity payments to the payee under the Contract as of the
record date. Such liability for future payments will be calculated on the basis
of the mortality assumptions and the Assumed Investment Rate used in determining
the number of Annuity Units credited to the Participant Account and the
applicable Annuity Unit value on the record date. During the Annuity Period, the
number of votes attributable to a variable annuity will generally decrease since
funds set aside for an Annuitant will decrease.
Persons who are entitled to vote will receive proxy material and a form on
which voting instructions may be given. Fund shares held in the Separate Account
or any other registered separate account of the Company or its affiliates that
are or are not attributable to annuity contracts as to which no instructions
have been received will be voted for or against any proposition in the same
proportion as the shares for which voting instructions have been received by
that separate account. Fund shares held in unregistered separate accounts of the
Company or its affiliates will be voted in the same proportion as the aggregate
of (a) the shares for which voting instructions are received and (b) the shares
that are voted in proportion to such voting instructions. However, if the
Company or an affiliate 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.
OTHER VARIABLE ANNUITY
CONTRACTS
In addition to the Contracts described in this prospectus, the Company has
made the Separate Account available to fund other group and individual variable
annuity contracts, formerly funded through the Company's Separate Account One
42
<PAGE> 44
and the Company's Separate Account Two. These Contracts, which are funded
exclusively through Division Ten of the Separate Account, impose different
charges at the Separate Account level than the ones imposed on the Contracts
described in this prospectus.
The other contracts listed above are described in and offered pursuant to
separate prospectuses.
EXCHANGE OFFERS
GENERAL
The Company is making an exchange offer to annuitants and contract owners
under certain of its outstanding fixed annuity contracts (including both "Fixed
Contracts" and "Compounder Contracts") or under certain outstanding variable
annuity contracts formerly issued through the Company's Separate Account One
("SA-1 Contracts"), Separate Account Two ("SA-2 Contracts"), and certain
variable annuity contracts currently issued through Separate Account A ("UIT-981
Contracts"). The exchange will be available only as to contracts under which the
Company has not yet started making annuity payments. Eligible annuitants and
contract owners may exchange their current Fixed, Compounder SA-1, SA-2, and/or
UIT-981 Contracts ("Existing Contracts") for one of the new variable annuity
Contracts ("New Contracts") of the type described in this prospectus.
The New Contract will have the same accumulation value as the exchanged
Existing Contract and, in addition, will have certain new features which may
prove advantageous. Annuitants under New Contracts may choose up to seven of the
ten available investment options, including two fixed accumulation options,
whereas fewer options are available under the Existing Contracts. Also, the New
Contracts have a surrender charge rather than the front end sales load imposed
under the SA-1, SA-2 and Compounder Contracts. Fees and charges under the New
Contracts are different from those under Existing Contracts, and in some cases
may be higher, and the guaranteed annuity rates may be less favorable.
Differences between New and Existing Contracts are described more fully below.
DIFFERENCES BETWEEN NEW AND EXISTING CONTRACTS
If you currently have a Fixed or a Compounder Contract, you should refer to
the form of contract (or certificate thereunder) for its terms and conditions.
You should refer to the most recently dated prospectus for a complete
description of your variable annuity contract's terms and conditions. That
prospectus is incorporated herein by reference, and you may obtain an additional
copy free of charge by contacting the nearest Regional Office of the Company.
(The addresses for these offices appear on the inside back cover of this
prospectus.) The most important differences between Existing Contracts and New
Contracts are discussed below.
Sales Charges. Under the SA-1, SA-2 and Compounder Contracts, a sales and
administrative charge is deducted from each purchase payment. This charge ranges
from 5% on the first $5,000 of purchase payments to 3% of purchase payments in
excess of $15,000.
Under the Fixed and UIT-981 Contracts, no sales charge is deducted at the
time a purchase payment is made, but a surrender charge may be imposed on total
or partial surrenders. The surrender charge under UIT-981 Contracts is equal to
5% of any purchase payments withdrawn within three years of the date such
purchase payments were made. The surrender charge under the Fixed Contracts is
equal to 7% of purchase payments withdrawn within five years of the date such
purchase payments were made. For these purposes, the most recent purchase
payments are deemed to be withdrawn first. A partial surrender of up to 10% of
the account value may be made once in a Participant Year without any surrender
charge being imposed. No surrender charge is imposed if an account under a Fixed
Contract has been in effect for fifteen years, if an individual type Existing
Contract is exchanged for a group type New Contract, different state
nonforfeiture law provisions may be applicable, which could result in a lesser
amount being payable on surrender than otherwise would be the case.
The New Contracts also impose a charge upon total or partial surrenders and
do not deduct a sales charge at the time a purchase payment is made. The
surrender charge under the New Contracts may not exceed 5% of any purchase pay-
43
<PAGE> 45
ments which are withdrawn within five years of the date such purchase payments
were made. The most recent purchase payments are deemed to be withdrawn first.
Furthermore, a partial surrender of up to 10% of the account value may be made
once in a Participant Year free of any surrender charge which would otherwise
apply. The Company may decrease the surrender charge applicable to a particular
New Contract if it estimates that its expenses will be lower for that Contract.
No surrender charge is imposed: (a) if an account has been in effect for fifteen
years, (b) if the employee has maintained the account for a period of seven
years and has attained the age of 59 1/2, or (c) the Participant is disabled.
For purposes of satisfying these fifteen-year and seven-year holding period
requirements, the New Contract or certificate thereunder will be deemed to have
been issued on the same date as the Existing Contract or certificate thereunder,
but no earlier than January 1, 1982.
A sales charge has already been paid on purchase payments made in the past
under SA-1, SA-2 and Compounder Contracts. Therefore, if an SA-1, SA-2 or
Compounder Contract is exchanged for a New Contract, the surrender charge under
the New Contract will not apply to the amount of accumulation value applied to
the New Contracts (the "Exchanged Amount.") Purchase payments made subsequent to
the exchange, however, will be subject to the surrender charge under the New
Contracts. In the case of a partial surrender, all such subsequent purchase
payments will be deemed to be withdrawn before any of the Exchanged Amount is
deemed to be withdrawn. No exchange pursuant to this offer will be allowed
within 120 days of a transfer of fixed accumulations under an SA-1 or SA-2
contract to the variable portion of such contract.
If a UIT-981 or Fixed Contract is exchanged for a New Contract, the
surrender charge under the UIT-981 or Fixed Contract will not apply to the
exchanged amount. However, in the case of a total or partial surrender, Purchase
Payments under the UIT-981 Contract or under the Fixed Contract, which were
exchanged into a New Contract and which were made within three years before the
date of the exchange in the case of the UIT-981 Contract or within five years
before the date of the exchange in the case of the Fixed Contract (Exchanged
Purchase Payments) will be subject to a surrender charge under the New Contract
if withdrawn within five years of the date the Exchanged Purchase Payments were
made. Exchanged Purchase Payments will be deemed to have been made under the New
Contract on the date they were made to the Fixed or the UIT-981 Contract for
purposes of calculating the surrender charge under the New Contracts. A 2%
additional surrender charge will be imposed on Exchanged Purchase Payments which
were made under a Fixed Contract within the preceding five years, which were not
previously subject to any surrender charge, and which are withdrawn within one
year after a Fixed Contract is exchanged for a New Contract. For purposes of
this 2% charge, such Exchanged Purchase Payments will be deemed to be withdrawn
first.
Administrative and Risk Charges. Under the SA-1, SA-2 and Compounder
Contracts, a charge of a percentage of each purchase payment is made for
administrative expenses. For Compounder Contracts and most SA-1 and SA-2
Contracts, the charge is 1.25%. For SA-1 and SA-2 Contracts, the charges are
included in the sales charges (see discussion above). An additional daily charge
(at an annual rate of 1% of total net assets attributable to a SA-1 Contract and
ranging from .21% to .85% of total net assets attributable to a SA-2 Contract)
is made for mortality and expense risks assumed by the Company. The total of
these expense charges and certain other charges imposed against SA-1 and SA-2
Contracts is limited to a maximum of the rate imposed on SA-1 and SA-2 Contracts
which was charged on April 1, 1987. (See prospectus for SA-1 and SA-2 Contracts,
dated April 20, 1987.)
Under UIT-981 Contracts, a $30 annual charge is assessed once a year to
cover administrative expenses. The charge may, with prior regulatory approval if
required, be increased or decreased. In addition, a daily charge is made at an
annual rate of 1% of the net asset value allocable to the UIT-981 Contracts to
cover administrative expenses (other than those covered by the annual charge)
and the mortality risk assumed by the Company.
There are no administrative and risk charges under the Fixed Contracts.
Under the New Contracts, a maintenance fee of $20 is assessed for the first
year and an annual fee of $15 is assessed for the second and later years during
the accumulation period. The fee is
44
<PAGE> 46
due in quarterly installments. The fee may, with prior regulatory approval, if
necessary, be increased or decreased and may be reduced or waived on particular
New Contracts if the Company's administrative expenses are expected to be lower
for that contract.
If a UIT-981 Contract is exchanged for a New Contract on or after the
annual fee is assessed, the maintenance fee will not be refunded. In addition,
the New Contract will be subject to the maintenance fee under the New Contract.
Variable Investment Alternatives. Under SA-1 and SA-2 Contracts, only one
division of Separate Account A is available, which invests in a portfolio of the
Series Company. This portfolio is managed by the Company for advisory fees at
annual rates ranging from .35% to .75% of the portfolio's average monthly net
assets. (Under a "grandfathering" arrangement, the total advisory fees and
certain other charges imposed against SA-1 and SA-2 Contracts are limited to a
maximum of the rate charged on April 1, 1987. (See the prospectus for those
Contracts dated April 20, 1987.))
Under UIT-981 Contracts, five divisions of Separate Account A are
available, each investing in shares of a different underlying mutual fund of the
Series Company portfolio. The five mutual funds are managed by the Company for
advisory fees at annual rates ranging from .32% to .75% of each respective
portfolio's average daily net assets.
Under the New Contracts, ten divisions of Separate Account A are available,
each investing in a different investment portfolio of the Series Company. The
investment portfolios are managed by the Company for advisory fees at annual
rates ranging from .35% to .75% of each portfolio's average monthly net assets.
In addition, two fixed investment options are available.
Annuity payments under SA-1, SA-2 and UIT-981 Contracts and the New
Contracts may be made on a fixed or variable basis, or a combination of both.
During the period following commencement of annuity payments (the annuity
period), SA-1 and SA-2 Contracts make no provision for transfers from a separate
account to provide a fixed annuity. The option, subject to certain conditions,
is available under the New Contracts as well as under UIT-981 Contracts.
Annuity Options. One option under the New Contracts provides for annuity
payments to be made for a selected number of years between 3 and 30 on a fixed
basis only. Under SA-1, UIT-981, Fixed and Compounder Contracts, this option is
limited to 15 years. Under the SA-1 and SA-2 Contracts, such payments may be on
either a fixed or variable basis. SA-2 Contracts do not provide a designated
period option. Under the UIT-981, SA-1, Fixed and Compounder Contracts, the
designated period option may, subject to adverse tax consequences, be commuted
at any time for its remaining value. No such commutation is available under the
New Contracts.
The SA-1 Contracts provide an option for monthly variable annuity payments
to be made at a level payment basis during each year of the annuity period. The
New Contracts do not provide this option.
To satisfy a federal tax law requirement, non-spouse beneficiaries under a
New Contract generally must receive the entire benefit payable upon the death of
the Annuitant over their life expectancy or within five years of the Annuitant's
death. This requirement is inapplicable to Existing Contracts or certificates
issued before January 19, 1985 if not exchanged.
Betterment of Rates. The New Contracts, the UIT-981 Contracts and the Fixed
Contracts provide that annuity payments for fixed annuities will be based on
mortality tables then being used by the Company, if more favorable to the
Annuitant than those included in the Contract. The SA-1 Contracts contain a
similar "betterment of rates" provision which is applicable to both fixed and
variable annuities. The Compounder and SA-2 Contracts contain no betterment of
rates provision.
Guaranteed Annuity Rates. Mortality rates have improved since annuity rates
were developed for the Existing Contracts. Therefore, the annuity rates
guaranteed in the New Contracts are less favorable to Contract Owners and
annuitants than those guaranteed in the Existing Contracts. However, the current
annuity rates being charged for fixed annuities under the "betterment of rates"
provisions discussed above are more favorable than those guaranteed under the
New or the Existing Contracts. Of course, no assurance can be given that this
will continue to be true at the time of annuitization for a given con-
45
<PAGE> 47
tract. Guaranteed annuity rate tables are set forth in your Existing Contract or
in current endorsements thereto. Those guaranteed for New Contracts are set
forth therein, and copies may be obtained from one of the Company's Regional
Offices listed on the inside back cover of this prospectus.
AGENTS' AND MANAGERS' RETIREMENT PLAN
EXCHANGE OFFER
General. All eligible agents and managers of the Company are allowed to
participate in the Company's Agents' and Managers' Retirement Plan ("Plan"). The
Company is granting to participants in the Plan the right to effect a voluntary
exchange of their units of interest under the SA-1 contracts for the equivalent
units of interest in the New Contracts.
Participants who enter into the voluntary exchange will not incur under the
New Contracts any surrender charges or annual maintenance fees. Other
individuals who are not eligible agents and managers of the Company who may
exchange their units of interest under the SA-1 contracts for the equivalent
units of interest in the New Contracts may have imposed under the New Contract
such charges and fees. All other provisions with regard to exchange offers
referenced in the section entitled "Exchange Offers" will apply to the Agents'
and Managers' Retirement Plan Exchange Offer.
Pursuant to this voluntary exchange offer, participants in the Plan will
have three options to choose from. As to the funding vehicle for their purchase
payment plan, the participant may choose to:
1. remain in the SA-1 contract.
2. leave current assets in the SA-1 contract and direct future purchase
payments to the New Contract; or
3. transfer all current assets and future purchase payments to the New
Contract.
If the participant chooses to remain in the SA-1 contract, future purchase
payments and current assets will be controlled by the provisions of the SA-1
contract. If the participant chooses to leave current assets in the SA-1
contract and direct future purchase payments to the New Contract, the current
assets will be controlled by the provisions of the SA-1 contract. The future
purchase payments will be controlled by the terms of the New Contract subject to
the exception that surrender charges and annual maintenance fees will not be
imposed under the New Contract. If the participant chooses to transfer all
current assets and future purchase payments to the New Contract, such current
assets and future purchase payments will be controlled by the provisions of the
New Contract subject to the exception that surrender charges and annual
maintenance fees will not be imposed under the New Contract.
Once a participant transfers assets and future purchase payments to the New
Contract the participant will not be permitted to exchange back to the SA-1
contract. If a participant chooses to transfer future purchase payments but not
current assets to the New Contract, the participant will be allowed at a later
date to transfer the current assets to the New Contract. For a complete analysis
of the differences between the SA-1 contract and the New Contract, you should
refer to the section entitled "Differences Between New and Existing Contracts"
and the form of the contract or certificate for its terms and conditions.
TAXES AND CONVERSION COSTS
The Company will impose no fee or charge in connection with conversion.
Please see discussion of "Federal Tax Matters" in the prospectus regarding the
federal income tax treatment of the New Contracts.
AVAILABILITY OF OFFER
Current owners or annuitants wishing to exchange should contact any
Regional Office at 1-800-44-VALIC for assistance. Partial exchanges are not
permitted and, once this privilege has been exercised, any exchange back to the
Existing Contract will not be made on these terms. This exchange offer is not
applicable to any outstanding fixed annuity contracts except the Compounder
series contracts (Contract Forms C-I-75 and IFA-78) and those fixed contracts on
forms GFA-582 and IFA-582. THE COMPANY RESERVES THE RIGHT TO TERMINATE OR
SUSPEND THE EXCHANGE OFFER AT ANY TIME.
46
<PAGE> 48
APPENDIX
Additional Fee Table Example for Independence Plus Contract without a
surrender charge or maintenance fees imposed.
Example #3 -- Assuming no surrender charge or maintenance fees.
Total Expenses. You would pay the following expenses on a $1,000 investment
under a typical Independence Plus Contract without a surrender charge or
maintenance fees imposed, invested in a Separate Account Division as listed
below, assuming a 5% annual return on assets:
<TABLE>
<CAPTION>
1 YEAR 3 YEARS 5 YEARS 10 YEARS
------ ------- ------- --------
<S> <C> <C> <C> <C>
Stock Index Division................................... $14 $43 $74 $163
MidCap Index Division(1)............................... 14 45 77 170
Small Cap Index Division............................... 14 45 77 170
International Equities Division........................ 14 45 78 171
Social Awareness Division.............................. 16 49 85 186
Timed Opportunity Division............................. 16 50 86 187
Capital Conservation Division.......................... 16 50 86 187
Government Securities Division......................... 16 49 85 186
International Government Bond Division................. 16 49 85 186
Money Market Division.................................. 16 50 86 187
</TABLE>
- ---------------
(1) Effective October 1, 1991 the Capital Accumulation Fund changed its name to
the MidCap Index Fund and amended its investment objective, investment
program and investment restrictions accordingly. Total Fund expenses
expressed as a percentage of Fund assets represent expenses of the Capital
Accumulation Fund prior to October 1, 1991.
47
<PAGE> 49
CONTENTS OF STATEMENT OF ADDITIONAL INFORMATION
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
General Information......................................... 2
Marketing Information....................................... 2
Types of Variable Annuity Contracts......................... 3
Calculation of Surrender Charge............................. 5
Illustration of Surrender Charge on Total Surrender.... 5
Illustration of Surrender Charge on a 10% Partial
Surrender Followed by a Full Surrender................ 6
Accumulation Unit Value..................................... 7
Illustration of Calculation of Accumulation Unit
Value................................................. 7
Illustration of Purchase of Accumulation Units......... 7
Performance Calculations.................................... 7
Money Market Division Yields........................... 7
Calculation of Yield for Money Market Division
Six................................................ 7
Illustration of Calculation of Yield for Money
Market Division Six................................ 7
Calculation of Effective Yield for Money Market
Division Six....................................... 7
Illustration of Calculation of Effective Yield for
Money Market Division Six.......................... 7
Standardized Yield for Divisions Seven, Eight and
Thirteen.............................................. 8
Calculation of Standardized Yield for Divisions
Seven, Eight and Thirteen.......................... 8
Illustration of Calculation of Standardized Yield
for Divisions Seven, Eight and Thirteen............ 8
Calculation of Average Annual Total Return........ 8
Performance Information..................................... 9
Performance Compared to Market Indices................. 9
Stock Index Division Ten Performance Compared to S&P
500 Index............................................. 11
MidCap Index Division Four Performance Compared to
Relevant Index........................................ 12
Small Cap Index Division Fourteen Performance Compared
to Russell 2000 Index................................. 13
International Equities Division Eleven Performance
Compared to EAFE Index................................ 13
Social Awareness Division Twelve Performance Compared
to S&P 500 Index...................................... 14
Timed Opportunity Division Five Performance Compared to
S&P 500 Index, Merrill Lynch Corporate and Government
Master Index and Certificate of Deposit Primary
Offering by
New York City Banks, 30 Day Index.................... 14
Capital Conservation Division Seven Performance
Compared to Merrill Lynch
Corporate Master Index............................... 15
Government Securities Division Eight Performance
Compared to Lehman Brothers
U.S. Treasury Composite Index........................ 16
International Government Bond Division Thirteen
Performance Compared to Salomon
Brothers Non U.S. Dollar World Government Bond
Index................................................. 16
Money Market Division Six Performance Compared to
Certificate of Deposit Primary
Offering by New York City Banks, 30 Day Index........ 17
Annuity Payments............................................ 17
Assumed Investment Rate................................ 17
Amount of Annuity Payments............................. 17
Annuity Unit Value..................................... 19
Illustration of Calculation of Annuity Unit Value...... 19
Illustration of Annuity Payments....................... 19
Distribution of Variable Annuity Contracts.................. 19
Experts..................................................... 19
Comments on Financial Statements............................ 21
</TABLE>
48
<PAGE> 50
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
Mail this form to any Regional Office (see the last page of your prospectus for addresses)
or to the Home Office at the following address: VALIC, Customer Service A3-01, 2929 Allen
Parkway, Houston, TX 77019.
</TABLE>
49
<PAGE> 51
Please tear off, complete and return the form below to one of our Regional
Offices at the address shown on the inside back cover of this Prospectus. A
Statement of Additional Information may also be ordered by calling
1-800-44-VALIC.
................................................................................
INDEPENDENCE PLUS CONTRACTS
Please send me a free copy of the Statement of Additional Information for The
Variable Annuity Life Insurance Company Separate Account A (Independence Plus
Contract Series).
(Please Print or Type)
- --------------------------------------------------------------------------------
Name: G.A. #
---------------------------------------------------------
---------------------------------------------------------
Address: Policy #
---------------------------------------------------------
---------------------------------------------------------
-----------------------------------------------------
Social Security Number:
-----------------------------------------------------
- --------------------------------------------------------------------------------
50
<PAGE> 52
================================================================================
FOR ADDITIONAL INFORMATION ABOUT THE CONTRACTS
CONTACT YOUR NEAREST REGIONAL OFFICE:
10851 N. Black Canyon Hwy.
Suite 700
Phoenix, AZ 85029
(602) 678-1700
222 South Harbor Blvd.
10th Floor
Anaheim, CA 92805
(714) 774-7844
1900 O'Farrell St.
Suite 390
San Mateo, CA 94403
(415) 574-5433
165 South Union Blvd.
Suite 1050
Lakewood, CO 80228
(303) 988-3344
10006 N. Dale Mabry Hwy.
Suite 113
Tampa, FL 33618
(813) 961-1611
100 Ashford Center North
Suite 100
Atlanta, GA 30338
(770) 395-4700
230 West Monroe
Suite 1550
Chicago, IL 60606
(312) 368-1001
550 Congressional Blvd.
Suite 280
Carmel, IN 46032
(317) 574-7145
7310 Ritchie Highway
Suite 800
Glen Burnie, MD 21061
(410) 768-2330
1301 West Long Lake Road
Suite 340
Troy, MI 48098
(810) 641-0022
8500 Normandale Lake Blvd.
Suite 750
Bloomington, MN 55437
(612) 893-1099
410 Amherst Street
Suite 250
Nashua, NH 03063
(603) 883-3840
90 Woodbridge Ctr. Dr.
Suite 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 1-800-44VALIC
TDD NUMBER 1-800-35VALIC
FOR UNIT VALUE INFORMATION CALL: 1-800-42VALIC & TDD 1-800-24VALIC
FOR ASSET TRANSFERS BY TELEPHONE CALL: 1-800-621-7792
TDD 1-800-35VALIC
EASYACCESS 1-800-42VALIC
TDD EASYACCESS 1-800-24VALIC
================================================================================
<PAGE> 53
[VALIC LOGO]
Printed Matter
Printed in U.S.A. VA 9079 REV 5/97
(C)The Variable Annuity Life Insurance Company, Houston, Texas
Recycled Paper [LOGO]
<PAGE> 54
THE VARIABLE ANNUITY LIFE INSURANCE COMPANY
SEPARATE ACCOUNT A
UNITS OF INTEREST UNDER GROUP AND
INDIVIDUAL VARIABLE ANNUITY CONTRACTS
INDEPENDENCE PLUS 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 that set forth in the Prospectus for the Independence
Plus Contract Series* dated May 1, 1997 ("Contracts") and should be read in
conjunction with the Prospectus. The terms used in this Statement of Additional
Information have the same meaning as those set forth in the Prospectus. A
Prospectus may be obtained by calling or writing the Company, or The Variable
Annuity Marketing Company (the "Underwriter") at 2929 Allen Parkway, Houston,
Texas 77019; 1-800-44-VALIC. Prospectuses are also available from regional sales
offices of the Underwriter or from its registered sales representatives.
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
General Information.............................. 2
Marketing Information............................ 2
Types of Variable Annuity Contracts.............. 3
Calculation of Surrender Charge.................. 5
Illustration of Surrender Charge on Total
Surrender.................................... 5
Illustration of Surrender Charge on a 10%
Partial Surrender Followed by a Full
Surrender.................................... 6
Accumulation Unit Value.......................... 7
Illustration of Calculation of Accumulation
Unit Value................................... 7
Illustration of Purchase of Accumulation
Units........................................ 7
Performance Calculations......................... 7
Money Market Division Yields................... 7
Calculation of Yield for Money Market Division
Six.......................................... 7
Illustration of Calculation of Yield for Money
Market Division Six.......................... 7
Calculation of Effective Yield for Money Market
Division Six................................. 7
Illustration of Calculation of Effective Yield
for
Money Market Division Six.................... 7
Standardized Yield for Divisions Seven, Eight and
Thirteen....................................... 8
Calculation of Standardized Yield for Divisions
Seven, Eight and Thirteen.................... 8
Illustration of Calculation of Standardized
Yield for Divisions Seven, Eight and
Thirteen..................................... 8
Calculation of Average Annual Total Return..... 8
Performance Information.......................... 9
Performance Compared to Market Indices......... 9
Stock Index Division Ten Performance Compared
to S&P 500 Index............................. 11
MidCap Index Division Four Performance
Compared to Relevant Index................... 12
</TABLE>
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Small Cap Index Division Fourteen Performance
Compared to Russell 2000([) Index............ 13
International Equities Division Eleven
Performance Compared to EAFE Index........... 13
Social Awareness Division Twelve Performance
Compared to S&P 500 Index.................... 14
Timed Opportunity Division Five Performance
Compared to S&P 500([) Index, Merrill Lynch
Corporate and Government Master Index and
Certificate of Deposit Primary Offering by
New York City Banks, 30 Day Index............ 14
Capital Conservation Division Seven Performance
Compared to Merrill Lynch Corporate Master
Index........................................ 15
Government Securities Division Eight
Performance Compared to Lehman Brothers U.S.
Treasury Composite Index..................... 16
International Government Bond Division Thirteen
Performance Compared to Salomon Brothers Non
U.S. Dollar World Government Bond Index...... 16
Money Market Division Six Performance Compared
to Certificate of Deposit Primary Offering by
New York City Banks, 30 Day Index............ 17
Annuity Payments................................. 17
Assumed Investment Rate........................ 17
Amount of Annuity Payments..................... 17
Annuity Unit Value............................. 19
Illustration of Calculation of Annuity Unit
Value........................................ 19
Illustration of Annuity Payments............... 19
Distribution of Variable Annuity Contracts..... 19
Experts........................................ 19
Comments on Financial Statements............... 21
</TABLE>
(*The Independence Plus Contract Series is composed of Contract Forms UIT-585-96
and UITG-585-96.)
VA 9079-1, REV. 5/97
1
<PAGE> 55
GENERAL INFORMATION
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 indirectly wholly owned subsidiary of American General Corporation (formerly
American General Insurance Company).
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 Investment Company Act of 1940
(the "1940 Act").
Each Division of the Separate Account invests in the shares of a
diversified, open-end, management-type investment company registered under the
1940 Act, or one of thirteen investment portfolios of a diversified, open-end,
management investment company registered under the 1940 Act. The Separate
Account currently is made up of twenty one Divisions, ten of which are available
as variable investment options under the Contracts (Divisions Four, Five, Six,
Seven, Eight, Ten, Eleven, Twelve, Thirteen and Fourteen), except that Division
Eight is currently not available to Non-Qualified Contracts.
MARKETING INFORMATION
The Company has targeted not-for-profit organizations as the central focus
of its marketing efforts for its Contracts. The Company has utilized as its
general marketing theme the concept that the Company is "America's Retirement
Plan Specialists." Specifically, the Company's marketing thrust is aimed at
individuals and groups associated with public and private schools, colleges and
universities, not-for-profit health care organizations, state and local
governments and other not-for-profit organizations.
This marketing concept has proven to be successful. In the aggregate,
premium deposits to the Company have grown from $37,000 in 1956 to more than
$2.9 billion as of December 31, 1996. The number of aggregate participant
accounts has increased from 155,000 accounts in 1980 to more than 1,539,015
accounts as of December 31, 1996. The number of employer groups which have
purchased Contracts has increased by 178 percent in the past ten years to more
than 22,464 as of December 31, 1996. As of December 31, 1996, the Company was
ranked in the top 1 percent of all U.S. life insurance companies with regard to
asset size. As of December 31, 1996 the Company's assets totaled $30 billion.
The Company's growth can also be reviewed by examining the growth in each
market segment that the Company targets.
As of December 31, 1996, the Company was marketing Contracts in more than
8,282 public and private, primary and secondary schools with more than 427,224
participant accounts for employees in public and private schools nationwide.
From December 31, 1986 to December 31, 1996, the cash value of investments in
these Contracts has increased by 327 percent while the number of public and
private school groups in these Contracts increased 86 percent and the number of
participant accounts in these Contracts increased by 119 percent.
The Company has also increased its marketing efforts to colleges and
universities. From December 31, 1986 to December 31, 1996, the number of
colleges and universities which allow the Company to market Contracts to its
faculty and staff members has increased 144 percent and for the same period the
number of participant accounts has increased 147 percent. For the same time
period cash values for participants have increased 319 percent. As of December
31, 1996 more than 43 percent of United States colleges and universities allow
the Company to market Contracts to their faculty and staff members.
The Company has utilized as the central focus in its marketing to college
and university faculty and staff members the theme that the Company is the
"Alternative of Choice."
2
<PAGE> 56
The Company has also had growth in the health care segment of the
not-for-profit organization market. From December 31, 1986 to December 31, 1996
Contract cash values have increased 792 percent. During the same period the
number of health care groups that have purchased these Contracts increased 241
percent and the number of participants who were in the Contracts increased 748
percent.
The Company has also experienced growth in contracts sold to state and
local governmental groups. From December 31, 1986 to December 31, 1996, Contract
cash values for participants in these groups have increased 319 percent. For the
same period the number of participant accounts for individuals in these groups
in these Contracts increased 250 percent and the number of employer groups has
increased 399 percent.
Additionally, several states have enacted, as an alternative to state
administered defined benefit retirement programs, Optional Retirement Plans
(ORPs). A state that sponsors an ORP will select the carriers which will be
allowed to participate in the ORP. The Company has been selected as one of the
carriers permitted to market Contracts to state employees who elect to
participate in the ORP in 26 of the last 28 states to sponsor ORPs with multiple
carriers, as of December 31, 1996. From December 31, 1990 to December 31, 1996
in these ORPs the number of participant accounts increased 149 percent and cash
values increased 147 percent to more than $1.8 billion. In addition, during this
time period annual ORP premiums more than doubled.
The Company, in its marketing efforts to each of the market segments, may
from time to time design sales literature and material specifically for that
market segment, e.g., the health care segment of the not-for-profit organization
market. This sales literature and material may also be specific to a certain
group. For example, sales literature and material may be designed for a specific
hospital. The sales literature and material would address specifically the
group's contract and retirement plan.
From time to time the Company may refer to the diversifying process of
asset allocation based on the Modern Portfolio Theory developed by Nobel Prize
winning economist Harry Markowitz. The basic assumptions of Modern Portfolio
Theory are the selection of individual investments has little impact on
portfolio performance, market timing strategies seldom work, markets are
efficient, and portfolio selection should be made among asset classes. Modern
Portfolio Theory allows an investor to determine an efficient portfolio
selection that will provide a higher return with the same risk or the same
return with lower risk.
When presenting the asset allocation process the Company may outline the
process of personal and investment risk analysis including determining
individual risk tolerances and a discussion of the different types of investment
risk. The Company may classify investors into five categories based on their
risk tolerance and will quote various industry experts on which types of
investments are best suited to each of the five risk categories. The industry
experts quoted may include Ibbotson Associates, CDA Investment Technologies,
Lipper Analytical Services, Wilson & Associates and any other expert which has
been deemed by the Company to be appropriate. The Company may also provide a
historical overview of the performance of a variety of investment market
indexes, the performance of these indexes over time, and the performance of
different assets classes, such as stocks, bonds, cash equivalents, etc. The
Company may also discuss investment volatility including the range of returns
for different asset classes and over different time horizons, and the
correlation between the returns of different asset classes. The Company may also
discuss the basis of portfolio optimization including the required inputs and
the construction of efficient portfolios using sophisticated computer-based
techniques. Finally, the Company may describe various investment strategies and
methods of implementation such as the use of index funds vs. actively managed
funds, the use of dollar cost averaging techniques, the tax status of
contributions, and the periodic rebalancing of diversified portfolios.
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;
3
<PAGE> 57
(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.
4
<PAGE> 58
CALCULATION OF SURRENDER CHARGE
The surrender charge is discussed in the Prospectus under "Charges Under
Variable Annuity Contracts -- Charge for Partial and Total Surrenders." Examples
of calculation of the surrender charge upon total and partial surrender are set
forth below:
ILLUSTRATION OF SURRENDER CHARGE ON TOTAL SURRENDER
Example 1.
TRANSACTION HISTORY
<TABLE>
<CAPTION>
DATE TRANSACTION AMOUNT
---- ----------- ------
<S> <C> <C>
2/1/91......................... Purchase Payment $10,000
2/1/92......................... Purchase Payment 5,000
2/1/93......................... Purchase Payment 15,000
2/1/94......................... Purchase Payment 2,000
2/1/95......................... Purchase Payment 3,000
2/1/96......................... Purchase Payment 4,000
7/1/96......................... Total Purchase Payments (Assumes
Accumulation Value is $50,000)
Surrender Charge is lesser of (a) or (b):
a. Surrender Charge calculated on 60 months of Purchase Payments
1. Surrender Charge against Purchase Payment of 2/1/91......... $ 0
2. Surrender Charge against Purchase Payment of 2/1/92 (0.05 X
$5,000)..................................................... $ 250
3. Surrender Charge against Purchase Payment of 2/1/93 (0.05 X
$15,000).................................................... $ 750
4. Surrender Charge against Purchase Payment of 2/1/94 (0.05 X
$2,000)..................................................... $ 100
5. Surrender Charge against Purchase Payment of 2/1/95 (0.05 X
$3,000)..................................................... $ 150
6. Surrender Charge against Purchase Payment of 2/1/96 (0.05 X
$4,000)..................................................... $ 200
Surrender Charge based on Purchase Payments (1 + 2 + 3 + 4 +
5 + 6)...................................................... $1,450
b. Surrender Charge calculated on the excess over 10% of the
Accumulation Value at the time of surrender:
Accumulation Value at time of surrender $50,000
Less 10% not subject to surrender charge -5,000
---------
Subject to surrender charge 45,000
X .05
---------
Surrender Charge based on Accumulation
Value $ 2,250 ........ $2,250
c. Surrender Charge is the lesser of a or b......................... $1,450
</TABLE>
5
<PAGE> 59
ILLUSTRATION OF SURRENDER CHARGE ON A 10% PARTIAL SURRENDER FOLLOWED BY A FULL
SURRENDER
Example 2.
TRANSACTION HISTORY (ASSUMES NO INTEREST EARNED)
<TABLE>
<CAPTION>
DATE TRANSACTION AMOUNT
---- ----------- ------
<S> <C> <C>
2/1/91......................... Purchase Payment $5,000
2/1/92......................... Purchase Payment 15,000
2/1/93......................... Purchase Payment 2,000
2/1/94......................... Purchase Payment 3,000
2/1/95......................... Purchase Payment 4,000
2/1/96......................... Purchase Payment 10,000
7/1/96......................... 10% Partial Surrender (Assumes 3,900
Accumulation Value is $39,000)
8/1/96......................... Full Surrender 35,100
</TABLE>
a. Since this is the first partial surrender in this participant year,
calculate the excess over 10% of the value of the Accumulation Units.
10% of $39,000 = $3,900 [no charge on this 10% withdrawal]
b. The Accumulation Value upon which Surrender Charge on the Full Surrender
may be calculated (levied) is $39,000 - $3,900 = $35,100
c. The Surrender Charge calculated on the Accumulation Value withdrawn
$35,100 X .05 = $1,755
d. Since only $29,000 has been paid in Purchase Payments in the 60 months
prior to the Full Surrender, the charge can only be calculated on
$29,000. The $3,900 partial withdrawal does not reduce this amount.
Thus, the charge is $29,000 X (0.05) = $1,450.
6
<PAGE> 60
ACCUMULATION UNIT VALUE
The calculation of Accumulation Unit value is discussed in the Prospectus
under "Accumulation Period." The following illustrations show a calculation of a
new Unit value and the purchase of Accumulation Units (using hypothetical
examples):
ILLUSTRATION OF CALCULATION OF ACCUMULATION UNIT VALUE
Example 3.
<TABLE>
<S> <C>
1. Accumulation Unit value, beginning of period............. $ 1.800000
2. Value of Fund share, beginning of period................. 21.200000
3. Change in value of Fund share............................ .500000
4. Gross investment return (3)/(2).......................... .023585
5. Daily mortality and expense charge....................... .000027
6. Net investment return (4)-(5)............................ .023558
7. Net investment factor 1.000000+(6)....................... 1.023558
8. Accumulation Unit value, end of period (1)X(7)........... $ 1.842404
</TABLE>
ILLUSTRATION OF PURCHASE OF ACCUMULATION UNITS (ASSUMING NO STATE PREMIUM TAX)
Example 4.
<TABLE>
<S> <C>
1. First Periodic Purchase Payment.......................... $100.00
2. Accumulation Unit value on effective date of purchase
(see Example 3).......................................... $ 1.800000
3. Number of Accumulation Units purchased (1)/(2)........... 55.556
4. Accumulation Unit value for valuation date following
purchase (see Example 3)................................. $ 1.842404
5. Value of Accumulation Units in account for valuation date
following purchase (3)X(4)............................... $102.36
</TABLE>
PERFORMANCE CALCULATIONS
MONEY MARKET DIVISION YIELDS
CALCULATION OF YIELD FOR MONEY MARKET DIVISION SIX
7-Day Current Yield: 3.92%
ILLUSTRATION OF CALCULATION OF YIELD FOR MONEY MARKET DIVISION SIX
Example 5.
The yield quotation above is based on the seven days ended December 31,
1996, the date of the most recent balance sheet included in the registration
statement ("base period"). It is computed by determining the net change,
exclusive of capital changes, in the value of a hypothetical pre-existing
account having a balance of one Accumulation Unit at the beginning of the
period, subtracting a hypothetical charge reflecting deductions from Contract
Owner accounts, and dividing the difference by the value of the account at the
beginning of the base period to obtain the base period return and then
multiplying the base period return by 365/7.
CALCULATION OF EFFECTIVE YIELD FOR MONEY MARKET DIVISION SIX
7-Day Effective Yield: 3.99%
ILLUSTRATION OF CALCULATION OF EFFECTIVE YIELD FOR MONEY MARKET DIVISION SIX
Example 6.
The effective yield quotation above is based on the seven days ended
December 31, 1996, the date of the most recent balance sheet included in the
registration statement ("base period"). It is computed by determining the net
change, exclusive of capital changes, in the value of a hypothetical
pre-existing account having a balance of one Accumulation Unit at the beginning
of the period, subtracting a hypothetical charge reflecting deductions from
Contract Owner accounts, and dividing the difference by the value of the account
at the beginning of the
7
<PAGE> 61
base period to obtain the base period return and then compounding the base
period return by adding 1, raising the sum to a power equal to 365 divided by 7,
and subtracting 1 from the result, according to the following formula:
EFFECTIVE YIELD = [ (BASE PERIOD RETURN + 1) 365/7] - 1
STANDARDIZED YIELD FOR DIVISIONS SEVEN, EIGHT AND THIRTEEN
CALCULATION OF STANDARDIZED YIELD FOR DIVISIONS SEVEN, EIGHT AND THIRTEEN
<TABLE>
<CAPTION>
DIV 7 DIV 8 DIV 13
----- ----- ------
<S> <C> <C> <C>
Standardized Yield........................................ 5.34% 4.92% 3.49%
</TABLE>
ILLUSTRATION OF CALCULATION OF STANDARDIZED YIELD FOR DIVISIONS SEVEN, EIGHT AND
THIRTEEN
Example 7.
The yield quotation based on a 30-day period ended December 31, 1996, the
date of the most recent balance sheet of the Registrant included in the
registration statement is computed by dividing the net investment income per
Accumulation Unit earned during the period by the maximum offering price per
Unit on the last day of the period, according to the following formula:
YIELD = 2 [ ( a - b + 1 )6 - 1 ]
-----
cd
Where:
<TABLE>
<S> <C>
a = net investment income earned during the period by the Fund
attributable to shares owned by the Division
b = expenses accrued for the period (net of reimbursements)
c = the average daily number of Accumulation Units outstanding
during the period
d = the maximum offering price per Accumulation Unit on the last
day of the period
</TABLE>
Yield on each Division is earned from dividends declared and paid by the
Fund, which are automatically reinvested in Fund shares.
CALCULATION OF AVERAGE ANNUAL TOTAL RETURN
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>
P = a hypothetical initial Purchase Payment of $1,000
T = average annual total return
n = number of years
ERV = redeemable value at the end of the 1, 3, 5 or 10 year
periods of a hypothetical $1,000 Purchase Payment made at
the beginning of the 1, 3, 5, or 10 year periods (or
fractional portion thereof)
</TABLE>
The Company may advertise standardized average annual total return which
includes the surrender charge of up to 5% of Gross Purchase Payments received
during the most recent
60 months as well as non-standardized average annual total returns which does
not include a surrender charge or maintenance fee.
8
<PAGE> 62
There is no sales charge for reinvested dividends. All recurring fees have
been deducted. For fees which vary with the account size, an account size equal
to that of the median account size has been assumed. Ending redeemable
value has been determined assuming a complete redemption at the end of the 1, 5
or 10 year period and deduction of all nonrecurring charges at the end of each
such period.
PERFORMANCE INFORMATION
PERFORMANCE COMPARED TO MARKET INDICES
The following tables show the Hypothetical $10,000 Account Value and
Cumulative Return of each Division as compared to the benchmarks shown.
These performance calculations for the Divisions, and the methods used for
calculating them, are explained in the Prospectus. (See "Performance
Information" and "The Fund.")
These tables compare hypothetical investment performance and percentage
changes in Accumulation Unit values with the results of several benchmarks,
representing unmanaged market indices. The comparisons should be considered in
light of the investment policies and objectives of the Funds. Rates of return
for the Divisions include reinvestment of investment income, including capital
gains, interest and dividends. The rates of return on the market indices also
have been adjusted to reflect reinvestment of interest and dividends.
Price returns for the market indices are calculated by subtracting the
price level at the beginning of the year from the price level at the end of the
year and dividing the difference by the price level at the beginning of the
year. To calculate dollar values for the indices' Hypothetical $10,000 Account
Value presentation, price index values were substituted for Unit values in the
calculation described in the Prospectus, and where applicable, dividend yields
were then added to determine the total returns applied in the dollar value
calculations. Similarly, to calculate Cumulative Return for the indices, the
Cumulative Return calculation described in the Prospectus for Unit values of the
Divisions is used, substituting the Hypothetical $10,000 Account Value at the
end of each year for the Accumulation Unit Value. No sales load, administrative
charges, or any other expenses have been deducted from the index calculations.
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 and Social Awareness Division
Twelve may be compared to the record of the Standard & Poor's([) Corporation
("S&P([)")* Composite Stock Price Index ("S&P 500 Index"). The S&P 500([) Index
is a well known measure of the price performance of 500 leading larger domestic
stocks which represents 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.
The performance of MidCap Index Division Four may be compared to the record
of the S&P MidCap 400 Index. The S&P MidCap 400 Index was developed in 1991 by
S&P to track the stock market performance of medium-capitalization domestic
stocks. The S&P MidCap 400 Index is market weighted and consists of 400 stocks
of domestic companies having a median market capitalization of approximately
$1.37 billion. Stocks included in the S&P MidCap 400 Index are chosen on the
basis of their market size, liquidity and industry group representation. No
stocks included in the S&P 500 Index are included in the S&P MidCap 400 Index.
The performance of Money Market Division Six may be compared to the
Certificate of Deposit Primary Offering by New York City Banks, 30 Day Index.
The index is a money market index which reflects the average rate paid by New
York Banks on certificates of deposit of more than $100,000. The Index for 30
days is published daily.
The performance of Capital Conservation Division Seven may be compared to
the Merrill Lynch Corporate Master Index. The Merrill Lynch Corporate Master
Index consists of an index of approximately 3,600 corporate bond holdings of
which assets are rated BBB- to AAA. The average years to maturity of these
corporate bond holdings are approximately 7 years.
Performance of Government Securities Division Eight may be compared to the
Lehman Brothers U.S. Treasury Composite Index. The Lehman Brothers U.S. Treasury
Composite Index consists of an index of approximately 500 govern-
9
<PAGE> 63
ment securities issues with all such issues having a maturity of greater than
one year.
The performance of International Equities Division Eleven may be compared
to the Morgan Stanley Capital International Europe, Australia and Far East Index
("EAFE Index"). The EAFE Index, which commenced in 1969, is an unmanaged stock
index consisting of more than 1,000 companies from Europe, Australia and the Far
East. The index is capitalization weighted. It is a well known measure for
international stock performance. This index is published using two methods, each
of which includes reinvestment of dividends received. The first method includes
gross dividends declared without subtracting foreign income taxes which may be
withheld from foreign investors. The second method includes net dividends after
subtracting estimated foreign taxes from gross dividends declared. The Division
currently compares its performance with the index using the second method.
The performance of the International Government Bond Fund Division Thirteen
may be compared to the Salomon Brothers Non-US Dollar World Government Bond Fund
("Salomon Index"). This index is published using two methods. The first method
includes income earned without subtracting foreign income taxes which may be
withheld from foreign investors. The second method includes income earned after
subtracting estimated foreign taxes. The Division currently compares its
performance with the index using the second method. The Salomon Index is an
unmanaged aggregate index composed of 673 issues from thirteen foreign
countries. These countries include Austria, Australia, Belgium, Canada, Denmark,
Finland, France, Germany, Italy, Japan, the Netherlands, Spain, Sweden,
Switzerland and the United Kingdom.
The performance of the Small Cap Index Division Fourteen may be compared
with the Russell 2000([) Index ("Russell 2000").** The Russell 2000 was
developed in 1984 by the Frank Russell Company to track the stock market
performance of small capitalization domestic stocks. The Russell 2000 is market
weighted and consists of approximately 2000 stocks. Stocks included in the
Russell 2000 are chosen by the Frank Russell Company on the basis of their
market size.
The performance of Timed Opportunity Division Five may be compared to a
benchmark comprised of a weighted average of three market sectors corresponding
to the three market sectors in which the Division, through the Timed Opportunity
Fund, will invest as follows: 55% in equity securities, 35% in intermediate or
long-term debt securities and 10% in money market or short-term debt securities,
regardless of the Division's actual asset allocation. The performance of the
equity securities sector of the Division may be compared to the S&P 500 Index.
The performance of the intermediate or long-term debt securities sector may be
compared to the Merrill Lynch Corporate and Government Master Index. The Merrill
Lynch Corporate and Government Master Index consists of an index of
approximately 5000 corporate and government bond holdings. The average maturity
of these corporate bond holdings is approximately 10 years. The performance of
the money market or short-term debt securities sector may be compared to the
Certificate of Deposit Primary Offering by New York City Banks, 30 Day Index.
Additionally, the performance of a Division may from time to time be
compared with other Indexes which have been deemed by the Company relevant to
the Division.
These benchmarks do not reflect any charges for investment advisory fees,
brokerage commissions or other fees and expenses of the type charged at either
the Separate Account or Fund level. Therefore, the comparisons with these
benchmarks are of limited use.
- ---------------
* "Standard & Poor's(R)", "S&P(R)", "S&P 500(R)" and "S&P MidCap 400" are
trademarks of Standard and Poor's Corporation. Neither the MidCap Index Fund
nor the Stock Index Fund is sponsored, endorsed, sold or promoted by S&P and
S&P makes no representation regarding the advisability of investing in these
Funds.
** The Russell 2000(R) Index is a trademark/service mark of the Frank Russell
Trust Company. RussellTM is a trademark of the Frank Russell Company.
10
<PAGE> 64
Stock Index Division Ten Performance Compared to S&P 500 Index
HYPOTHETICAL $10,000 ACCOUNT VALUE
ANNUAL VALUE OF A $10,000 STIPULATED PAYMENT MADE APRIL 20, 1987
<TABLE>
<CAPTION>
STOCK INDEX S&P 500
DIVISION TEN INDEX
- ------------------------------------------------------------------- --------
<S> <C> <C>
04/20/87................................................. $10,000 $10,000
12/31/87................................................. 8,562 8,722
12/31/88................................................. 9,687 10,171
12/31/89................................................. 12,388 13,394
12/31/90................................................. 11,790 12,978
12/31/91................................................. 15,056 16,932
12/31/92................................................. 15,897 18,222
12/31/93................................................. 17,293 20,059
12/31/94................................................. 17,241 20,323
12/31/95................................................. 23,439 27,960
12/31/96................................................. 28,484 34,383
</TABLE>
CUMULATIVE RETURN COMPARED TO MARKET INDEX
(PERIOD ENDED DECEMBER 31, 1996)
<TABLE>
<CAPTION>
SINCE
INCEPTION* 5 YEARS 3 YEARS 1 YEAR
---------- ------- ------- ------
<S> <C> <C> <C> <C>
Investment Division
Stock Index Division Ten...... 184.84% 89.18% 64.71% 21.53%
Benchmark Comparison
S&P 500 Index................. 243.83% 103.06% 71.41% 22.97%
</TABLE>
- ---------------
* This Division was initiated on April 20, 1987.
11
<PAGE> 65
MidCap Index Division Four* Performance Compared to S&P 500 Index and S&P MidCap
400 Index
HYPOTHETICAL $10,000 ACCOUNT VALUE
ANNUAL VALUE OF A $10,000 STIPULATED PAYMENT MADE OCTOBER 13, 1982
<TABLE>
<CAPTION>
S&P S&P
500 MIDCAP 400
DIVISION FOUR INDEX INDEX
- ------------------------------------------------ -------- ----------
<S> <C> <C> <C>
10/13/82.............................. $10,000 $10,000 $ 10,000
12/31/82.............................. 10,096 11,352 11,564
12/31/83.............................. 11,608 13,913 14,583
12/31/84.............................. 11,721 14,786 14,755
12/31/85.............................. 13,195 19,477 20,004
12/31/86.............................. 13,516 23,113 23,247
12/31/87.............................. 12,827 24,326 22,774
12/31/88.............................. 14,502 28,367 27,527
12/31/89.............................. 17,127 37,355 37,310
12/31/90.............................. 15,380 36,195 35,401
12/31/91.............................. 18,580 47,223 53,136
12/31/92.............................. 20,213 50,820 59,466
12/31/93.............................. 22,594 55,943 67,762
12/31/94.............................. 21,532 56,681 65,332
12/31/95.............................. 27,827 77,981 85,547
12/31/96.............................. 32,726 95,892 102,009
</TABLE>
CUMULATIVE RETURN COMPARED TO MARKET INDEX
(PERIOD ENDED DECEMBER 31, 1996)
<TABLE>
<CAPTION>
SINCE
INCEPTION** 10 YEARS 5 YEARS 3 YEARS 1 YEAR
----------- -------- ------- ------- ------
<S> <C> <C> <C> <C> <C>
Investment Division
Division Four............. 227.26% 142.14% 76.13% 44.84% 17.61%
Benchmark Comparison
S&P 500 Index............. 858.92% 314.88% 103.06% 71.41% 22.97%
S&P MidCap 400 Index...... 920.09% 338.81% 91.98% 50.54% 19.24%
</TABLE>
- ---------------
* Effective October 1, 1991, the Capital Accumulation Fund changed its name to
the MidCap Index Fund and revised its investment objective, investment
program and investment restrictions accordingly, pursuant to contract owner
vote. Selected accumulation unit data for the last ten years for this
Division appears in the Prospectus. Figures appearing above for the S&P
MidCap 400 Index for years prior to 1991 are based on estimates provided by
Standard & Poor's for illustrative purposes.
** This Division was initiated on October 13, 1982.
12
<PAGE> 66
Small Cap Index Division Fourteen Performance Compared to Russell 2000 Index(R)
HYPOTHETICAL $10,000 ACCOUNT VALUE
ANNUAL VALUE OF A $10,000 STIPULATED PAYMENT MADE MAY 1, 1992
<TABLE>
<CAPTION>
RUSSELL
SMALL CAP INDEX 2000
DIVISION 14 INDEX
- ------------------------------------------------------------------- -------
<S> <C> <C>
05/01/92................................................. $10,000 $10,000
12/31/92................................................. 11,128 11,416
12/31/93................................................. 12,772 13,571
12/31/94................................................. 12,223 13,324
12/31/95................................................. 15,449 17,114
12/31/96................................................. 17,854 19,937
</TABLE>
CUMULATIVE RETURN COMPARED TO MARKET INDEX
(PERIOD ENDED DECEMBER 31, 1996)
<TABLE>
<CAPTION>
SINCE
INCEPTION* 3 YEARS 1 YEAR
---------- ------- ------
<S> <C> <C> <C>
Investment Division
Small Cap Index Division 14........................ 78.54% 39.79% 15.57%
Benchmark Comparison
Russell 2000....................................... 99.37% 46.91% 16.49%
</TABLE>
- ---------------
* This Division was initiated May 1, 1992.
International Equities Division Eleven Performance Compared to EAFE Index
HYPOTHETICAL $10,000 ACCOUNT VALUE
ANNUAL VALUE OF A $10,000 STIPULATED PAYMENT MADE OCTOBER 2, 1989
<TABLE>
<CAPTION>
INTERNATIONAL EQUITIES EAFE
DIVISION ELEVEN INDEX
- ------------------------------------------------------------------- -----
<S> <C> <C>
10/02/89................................................. $10,000 $10,000
12/31/89................................................. 10,284 10,467
12/31/90................................................. 8,134 8,013
12/31/91................................................. 8,952 8,984
12/31/92................................................. 7,671 7,891
12/31/93................................................. 9,864 10,460
12/31/94................................................. 10,545 11,274
12/31/95................................................. 11,565 12,537
12/31/96................................................. 12,229 13,295
</TABLE>
CUMULATIVE RETURN COMPARED TO MARKET INDEX
(PERIOD ENDED DECEMBER 31, 1996)
<TABLE>
<CAPTION>
SINCE
INCEPTION* 5 YEARS 3 YEARS 1 YEAR
---------- ------- ------- ------
<S> <C> <C> <C> <C>
Investment Division
International Equities
Division Eleven............... 22.29% 36.60% 23.98% 5.75%
Benchmark Comparison
EAFE Index...................... 32.95% 47.98% 27.11% 6.05%
</TABLE>
- ---------------
* This Division was initiated on October 2, 1989.
13
<PAGE> 67
Social Awareness Division Twelve Performance Compared to S&P 500 Index
HYPOTHETICAL $10,000 ACCOUNT VALUE
ANNUAL VALUE OF A $10,000 STIPULATED PAYMENT MADE OCTOBER 2, 1989
<TABLE>
<CAPTION>
SOCIAL AWARENESS S&P 500
DIVISION TWELVE INDEX
- ------------------------------------------------------------------- --------
<S> <C> <C>
10/02/89................................................. $10,000 $10,000
12/31/89................................................. 10,100 10,214
12/31/90................................................. 9,877 9,897
12/31/91................................................. 12,506 12,912
12/31/92................................................. 12,795 13,896
12/31/93................................................. 13,670 15,297
12/31/94................................................. 13,339 15,499
12/31/95................................................. 18,351 21,323
12/31/96................................................. 22,527 26,220
</TABLE>
CUMULATIVE RETURN COMPARED TO MARKET INDEX
(PERIOD ENDED DECEMBER 31, 1996)
<TABLE>
<CAPTION>
SINCE
INCEPTION* 5 YEARS 3 YEARS 1 YEAR
---------- ------- ------- ------
<S> <C> <C> <C> <C>
Investment Division
Social Awareness Division Twelve.... 125.27% 80.12% 64.79% 22.75%
Benchmark Comparison
S&P 500 Index....................... 162.20% 103.06% 71.41% 22.97%
</TABLE>
- ---------------
* This Division was initiated on October 2, 1989.
Timed Opportunity Division Five Performance Compared to S&P 500 Index,
Merrill Lynch Corporate and Government Master Index and Certificate of
Deposit Primary Offering by New York City Banks, 30 Day Index
HYPOTHETICAL $10,000 ACCOUNT VALUE
ANNUAL VALUE OF A $10,000 STIPULATED PAYMENT MADE SEPTEMBER 6, 1983
<TABLE>
<CAPTION>
TIMED OPPORTUNITY S&P 500 BLENDED
DIVISION FIVE INDEX INDEX**
- -------------------------------------------------- -------- --------
<S> <C> <C> <C>
09/06/83................................ $10,000 $10,000 $10,000
12/31/83................................ 9,857 10,156 10,252
12/31/84................................ 9,853 10,793 11,269
12/31/85................................ 11,004 14,217 14,177
12/31/86................................ 11,987 16,871 16,536
12/31/87................................ 12,862 17,757 17,472
12/31/88................................ 13,973 20,706 19,669
12/31/89................................ 16,182 27,267 24,213
12/31/90................................ 15,634 26,420 24,748
12/31/91................................ 18,782 34,470 30,404
12/31/92................................ 18,460 37,095 32,608
12/31/93................................ 19,973 40,834 35,770
12/31/94................................ 19,515 41,373 35,769
12/31/95................................ 24,110 56,921 45,566
12/31/96................................ 26,519 69,995 51,871
</TABLE>
14
<PAGE> 68
CUMULATIVE RETURN COMPARED TO MARKET INDEX
(PERIOD ENDED DECEMBER 31, 1996)
<TABLE>
<CAPTION>
SINCE
INCEPTION* 10 YEARS 5 YEARS 3 YEARS 1 YEAR
---------- -------- ------- ------- ------
<S> <C> <C> <C> <C> <C>
Investment Division
Timed Opportunity Division Five... 165.19% 121.24% 41.19% 32.78% 9.99%
Benchmark Comparison**
S&P 500 Index................. 599.95% 314.88% 103.06% 71.41% 22.97%
Blended Index................. 418.71% 213.69% 70.61% 45.01% 13.84%
</TABLE>
- ---------------
* This Division was initiated on September 6, 1983.
** The Blended Index reflects an allocation of investments in the following
Indexes: 55% of investments included in the S&P 500 Index, 35% of investments
included in the Merrill Lynch Corporate and Government Master Index, and 10%
of investments included in the Certificate of Deposit Primary Offering by New
York City Banks, 30 Day Index.
Capital Conservation Division Seven Performance Compared to Merrill Lynch
Corporate Master Index
HYPOTHETICAL $10,000 ACCOUNT VALUE
ANNUAL VALUE OF A $10,000 STIPULATED PAYMENT MADE JANUARY 16, 1986
<TABLE>
<CAPTION>
MERRILL LYNCH
CAPITAL CONSERVATION CORPORATE MASTER
DIVISION SEVEN INDEX
- --------------------------------------------------------------- ----------------
<S> <C> <C>
01/16/86............................................. $10,000 $10,000
12/31/86............................................. 10,477 11,609
12/31/87............................................. 10,186 11,823
12/31/88............................................. 10,789 12,976
12/31/89............................................. 11,936 14,808
12/31/90............................................. 11,784 15,899
12/31/91............................................. 13,669 18,799
12/31/92............................................. 14,702 20,514
12/31/93............................................. 16,301 23,064
12/31/94............................................. 15,153 22,288
12/31/95............................................. 18,120 27,097
12/31/96............................................. 18,255 28,015
</TABLE>
<TABLE>
<CAPTION>
SINCE
INCEPTION* 10 YEARS 5 YEARS 3 YEARS 1 YEAR
---------- -------- ------- ------- ------
<S> <C> <C> <C> <C> <C>
Investment Division
Capital Conservation Division
Seven.............................. 82.55% 74.24% 33.55% 11.99% 0.75%
Benchmark Comparison
Merrill Lynch Corporate Master
Index.............................. 180.15% 141.33% 49.02% 21.47% 3.39%
</TABLE>
- ---------------
* This Division was initiated on January 16, 1986.
15
<PAGE> 69
Government Securities Division Eight Performance Compared to Lehman Brothers
U.S. Treasury Composite Index
HYPOTHETICAL $10,000 ACCOUNT VALUE
ANNUAL VALUE OF A $10,000 STIPULATED PAYMENT MADE JANUARY 16, 1986
<TABLE>
<CAPTION>
GOVERNMENT SECURITIES U.S. TREASURY
DIVISION EIGHT COMPOSITE INDEX
- ------------------------------------------------------------------- ---------------
<S> <C> <C>
01/16/86................................................. $10,000 $10,000
12/31/86................................................. 10,461 11,630
12/31/87................................................. 10,120 11,862
12/31/88................................................. 10,621 12,694
12/31/89................................................. 11,792 14,516
12/31/90................................................. 12,371 15,765
12/31/91................................................. 14,052 18,187
12/31/92................................................. 14,915 19,502
12/31/93................................................. 16,362 21,597
12/31/94................................................. 15,472 20,857
12/31/95................................................. 17,995 24,684
12/31/96................................................. 18,157 25,369
</TABLE>
CUMULATIVE RETURN COMPARED TO MARKET INDEX
(PERIOD ENDED DECEMBER 31, 1996)
<TABLE>
<CAPTION>
SINCE
INCEPTION* 10 YEARS 5 YEARS 3 YEARS 1 YEAR
---------- -------- ------- ------- ------
<S> <C> <C> <C> <C> <C>
Investment Division
Government Securities Division
Eight.............................. 81.57% 73.57% 29.21% 10.97% 0.90%
Benchmark Comparison
U.S. Treasury Composite Index........ 153.69% 118.13% 39.49% 17.47% 2.77%
</TABLE>
- ---------------
* This Division was initiated on January 16, 1986.
International Government Bond Division Thirteen Performance Compared to Salomon
Brothers Non-U.S. Dollar World Government Bond Index
HYPOTHETICAL $10,000 ACCOUNT VALUE
ANNUAL VALUE OF A $10,000 STIPULATED PAYMENT MADE OCTOBER 1, 1991
<TABLE>
<CAPTION>
SALOMON BROS.
NON-U.S. DOLLAR
WORLD
INTERNATIONAL GOVERNMENT BOND GOVERNMENT
DIVISION THIRTEEN BOND INDEX
- ------------------------------------------------------------------- ---------------
<S> <C> <C>
10/01/91................................................. $10,000 $10,000
12/31/91................................................. 10,905 11,042
12/31/92................................................. 11,128 11,540
12/31/93................................................. 12,583 13,246
12/31/94................................................. 13,014 13,999
12/31/95................................................. 15,308 16,692
12/31/96................................................. 15,822 17,331
</TABLE>
16
<PAGE> 70
CUMULATIVE RETURN COMPARED TO MARKET INDEX
(PERIOD ENDED DECEMBER 31, 1996)
<TABLE>
<CAPTION>
SINCE
INCEPTION* 5 YEARS 3 YEARS 1 YEAR
---------- ------- ------- ------
<S> <C> <C> <C> <C>
Investment Division
International Government Bond Division
Thirteen.................................. 58.22% 45.09% 25.74% 3.36%
Benchmark Comparison
Salomon Bros. Non-U.S. Dollar World Government
Bond Index.................................. 73.31% 56.96% 30.84% 3.83%
</TABLE>
- ---------------
* This Division was initiated on October 1, 1991.
Money Market Division Six Performance Compared to Certificate of Deposit Primary
Offering by New York City Banks, 30 Day Index (Primary CD Index)
HYPOTHETICAL $10,000 ACCOUNT VALUE
ANNUAL VALUE OF A $10,000 STIPULATED PAYMENT MADE JANUARY 16, 1986
<TABLE>
<CAPTION>
MONEY MARKET PRIMARY
DIVISION SIX CD INDEX
- ------------------------------------------------------------------- --------
<S> <C> <C>
01/16/86................................................. $10,000 $10,000
12/31/86................................................. 10,405 10,591
12/31/87................................................. 10,873 11,253
12/31/88................................................. 11,495 12,083
12/31/89................................................. 12,406 13,130
12/31/90................................................. 13,254 14,181
12/31/91................................................. 13,849 14,955
12/31/92................................................. 14,157 15,427
12/31/93................................................. 14,393 15,826
12/31/94................................................. 14,791 16,390
12/31/95................................................. 15,458 17,200
12/31/96................................................. 16,072 17,980
</TABLE>
CUMULATIVE RETURN COMPARED TO MARKET INDEX
(PERIOD ENDED DECEMBER 31, 1996)
<TABLE>
<CAPTION>
SINCE
INCEPTION* 10 YEARS 5 YEARS 3 YEARS 1 YEAR
---------- -------- ------- ------- ------
<S> <C> <C> <C> <C> <C>
Investment Division
Money Market Division
Six................... 60.72% 54.47% 16.05% 11.66% 3.97%
Benchmark Comparison
Primary CD Index........ 79.80% 69.78% 20.23% 13.61% 4.53%
</TABLE>
- ---------------
* This Division was initiated on January 16, 1986.
ANNUITY PAYMENTS
ASSUMED INVESTMENT RATE
The discussion concerning the amount of annuity payments which follows this
section is based on an Assumed Investment Rate of 3 1/2% per annum. However, the
Company will permit each Annuitant choosing a variable annuity payment option to
select an Assumed Investment Rate permitted by state law or regulations other
than the 3 1/2% rate described in this prospectus as follows: 4 1/2%, 5% or 6%
per annum. (Note: an Assumed Investment Rate higher than 5% may not be selected
under individual Contracts.) The foregoing Assumed Investment Rates are used
merely in order to determine the first monthly payment per thousand dollars of
value. It should
17
<PAGE> 71
not be inferred that such rates will bear any relationship to the actual net
investment experience of the Separate Account.
AMOUNT OF ANNUITY PAYMENTS
The amount of the first variable annuity payment to the Annuitant will
depend on the amount of the Accumulation Value applied to effect the variable
annuity as of the tenth day immediately preceding the date annuity payments
commence, the amount of any premium tax owed, the annuity option selected, and
the age of the Annuitant. The Contracts contain tables indicating the dollar
amount of the first annuity payment under each annuity option for each $1,000 of
Accumulation Value (after the deduction for any premium tax) at various ages.
These tables are based upon the 1983 Table A (promulgated by the Society of
Actuaries) and an Assumed Investment Rate of 3 1/2%, 4% and 5% per annum (3 1/2%
in the group Contract).
The portion of the first monthly variable annuity payment derived from a
Division of the Separate Account is divided by the Annuity Unit value for that
Division (calculated ten days prior to the date of the first monthly payment) to
determine the number of Annuity Units in each Division represented by the
payment. The number of such units will remain fixed during the Annuity Period,
assuming the Annuitant makes no transfers of Annuity Units to provide Annuity
Units under another Division or to provide a fixed annuity.
In any subsequent month, the dollar amount of the variable annuity payment
derived from each Division is determined by multiplying the number of Annuity
Units in that Division by the value of such Annuity Unit on the tenth day
preceding the due date of such payment. The Annuity Unit value will increase or
decrease in proportion to the net investment return of the Division or Divisions
underlying the variable annuity since the date of the previous annuity payment,
less an adjustment to neutralize the 3 1/2% or other Assumed Investment Rate
referred to above.
Therefore, the dollar amount of variable annuity payments after the first
will vary with the amount by which the net investment return is greater or less
than 3 1/2% per annum. For example, if a Division has a cumulative net
investment return of 5% over a one year period, the first annuity payment in the
next year will be approximately 1 1/2 percentage points greater than the payment
on the same date in the preceding year, and subsequent payments will continue to
vary with the investment experience of the Division. If such net investment
return is 1% over a one year period, the first annuity payment in the next year
will be approximately 2 1/2 percentage points less than the payment on the same
date in the preceding year, and subsequent payments will continue to vary with
the investment experience of the applicable Division.
Each deferred Contract provides that, when fixed annuity payments are to be
made under one of the first four annuity options, the monthly payment to the
Annuitant will not be less than the monthly payment produced by the then current
settlement option rates, which will not be less than the rates used for a
currently issued single payment immediate annuity contract. The purpose of this
provision is to assure the Annuitant that, at retirement, if the fixed annuity
purchase rates then required by the Company for new single payment immediate
annuity contracts are significantly more favorable than the annuity rates
guaranteed by a Contract, the Annuitant will be given the benefit of the new
annuity rates.
18
<PAGE> 72
ANNUITY UNIT VALUE
The value of an Annuity Unit is calculated at the same time that the value
of an Accumulation Unit is calculated and is based on the same values for Fund
shares and other assets and liabilities. (See "Accumulation Period" in the
Prospectus.) The calculation of Annuity Unit value is discussed in the
Prospectus under "Annuity Period."
The following illustrations show, by use of hypothetical examples, the
method of determining the Annuity Unit value and the amount of variable annuity
payments.
ILLUSTRATION OF CALCULATION OF ANNUITY UNIT VALUE
Example 8.
<TABLE>
<S> <C>
1. Annuity Unit value, beginning of period................. $ .980000
2. Net investment factor for Period (see Example 3)........ 1.023558
3. Daily adjustment for 3 1/2% Assumed Investment Rate..... .999906
4. (2)X(3)................................................. 1.023462
5. Annuity Unit value, end of period (1)X(4)............... $ 1.002993
</TABLE>
ILLUSTRATION OF ANNUITY PAYMENTS
Example 9. Annuitant age 65, Life Annuity with 120 Payments Certain
<TABLE>
<S> <C>
1. Number of Accumulation Units at Annuity Date............ 10,000.00
2. Accumulation Unit value (see Example 3)................. $ 1.800000
3. Accumulation Value of Contract (1)X(2).................. $18,000.00
4. First monthly annuity payment per $1,000 of Accumulation
Value..................................................... $ 5.63
5. First monthly annuity payment (3)X(4)/1,000............. $ 101.34
6. Annuity Unit value (see Example 10)..................... $ .980000
7. Number of Annuity Units (5)/(6)......................... 103.408
8. Assume Annuity Unit value for second month equal to..... $ .997000
9. Second monthly Annuity Payment (7)X(8).................. $ 103.10
10. Assume Annuity Unit value for third month equal to...... $ .953000
11. Third monthly Annuity Payment (7)X(10).................. $ 98.55
</TABLE>
DISTRIBUTION OF VARIABLE ANNUITY CONTRACTS
The Company has qualified or intends to qualify the Contracts for sale in
all fifty states and the District of Columbia and will commence offering the
Contracts promptly upon qualification in each such jurisdiction.
The Contracts are sold in a continuous offering by licensed insurance
agents who are registered representatives of broker-dealers which are members of
the National Association of Securities Dealers, Inc. (the "NASD"). The principal
underwriter for the Separate Account is the Underwriter as defined above, a
wholly-owned subsidiary of the Company. The Underwriter's address is 2929 Allen
Parkway, Houston, Texas 77019. The Underwriter is a Texas corporation organized
in 1970 and is a member of the NASD.
The licensed agents who sell the Contracts will be compensated for such
sales by commissions ranging from 1% to 4.5% 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 under "Charges Under Variable Annuity Contracts.")
Pursuant to its underwriting agreement with the Underwriter and the
Separate Account, the Company reimburses the Underwriter for reasonable sales
expenses, including overhead expenses. Sales commissions paid for the years
1994, 1995 and 1996 were $26,632,000, $10,260,000 and $6,038,000, 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
19
<PAGE> 73
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.
20
<PAGE> 74
COMMENTS ON FINANCIAL STATEMENTS
The financial statements of The Variable Annuity Life Insurance Company
should be considered only as bearing upon the ability of the Company to meet its
obligations under the Contracts, which include death benefits, and its
assumption of the mortality and expense risks.
Divisions Four, Five, Six, Seven, Eight, Ten, Eleven, Twelve, Thirteen and
Fourteen are the only Divisions available under the Contracts described in the
Prospectus. The Separate Account financial statements contained herein reflect
the composition of the Separate Account as of December 31, 1996.
21
<PAGE> 75
[THIS PAGE INTENTIONALLY LEFT BLANK]
22
<PAGE> 76
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> 77
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> 78
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> 79
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> 80
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> 81
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> 82
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> 83
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> 84
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> 85
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> 86
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> 87
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> 88
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> 89
================================================================================
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.
14
<PAGE> 90
================================================================================
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.
15
<PAGE> 91
================================================================================
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.
16
<PAGE> 92
================================================================================
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.
17
<PAGE> 93
================================================================================
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>
18
<PAGE> 94
================================================================================
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.
19
<PAGE> 95
================================================================================
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>
20
<PAGE> 96
================================================================================
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.
21
<PAGE> 97
================================================================================
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>
22
<PAGE> 98
================================================================================
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.
23
<PAGE> 99
================================================================================
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>
24
<PAGE> 100
================================================================================
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.
25
<PAGE> 101
================================================================================
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>
26
<PAGE> 102
================================================================================
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.
27
<PAGE> 103
================================================================================
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>
28
<PAGE> 104
================================================================================
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.
29
<PAGE> 105
================================================================================
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>
30
<PAGE> 106
================================================================================
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.
31
<PAGE> 107
================================================================================
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>
32
<PAGE> 108
================================================================================
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.
33
<PAGE> 109
================================================================================
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.
34
<PAGE> 110
================================================================================
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>
35
<PAGE> 111
================================================================================
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>
36
<PAGE> 112
================================================================================
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
37
<PAGE> 113
[VALIC LOGO]
PRINTED MATTER
PRINTED IN U.S.A. VA 9079-1 REV 5/97
(C)The Variable Annuity Life Insurance Company, Houston, Texas
[RECYCLED PAPER LOGO]
