<PAGE> 1
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON APRIL 29, 1998
REGISTRATION NOS. 33-75292/811-3240
================================================================================
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM N-4
---------------------
<TABLE>
<S> <C>
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933
Pre-Effective Amendment No. [ ]
Post Effective Amendment No. 12 [X]
and/or
REGISTRATION STATEMENT UNDER THE INVESTMENT
COMPANY ACT OF 1940
Amendment No. 56 [X]
</TABLE>
---------------------
THE VARIABLE ANNUITY LIFE INSURANCE COMPANY
SEPARATE ACCOUNT A
(EXACT NAME OF REGISTRANT)
THE VARIABLE ANNUITY LIFE INSURANCE COMPANY
(NAME OF DEPOSITOR)
2929 ALLEN PARKWAY, HOUSTON, TEXAS 77019
(ADDRESS OF DEPOSITOR'S PRINCIPAL EXECUTIVE OFFICES) (ZIP CODE)
(713) 526-5251
(DEPOSITOR'S TELEPHONE NUMBER, INCLUDING AREA CODE)
---------------------
NORI L. GABERT, ESQ.
THE VARIABLE ANNUITY LIFE INSURANCE COMPANY
2929 ALLEN PARKWAY, HOUSTON, TEXAS 77019
(NAME AND ADDRESS OF AGENT FOR SERVICE)
---------------------
It is proposed that this filing will become effective:
___ immediately upon filing pursuant to paragraph (b) of Rule 485
X on May 1, 1998 pursuant to paragraph (b) of Rule 485
___ 60 days after filing pursuant to paragraph (a)(1) of Rule 485
___ on (date) pursuant to paragraph (a)(1) of Rule 485
TITLE OF SECURITIES BEING REGISTERED: Group and Individual
Variable Annuity Contracts
SEQUENTIAL NUMBER SYSTEM: PAGE ___ OF ___ PAGES
EXHIBIT INDEX ON SEQUENTIAL PAGE NUMBER ___
================================================================================
<PAGE> 2
THE VARIABLE ANNUITY LIFE INSURANCE COMPANY
SEPARATE ACCOUNT A
PORTFOLIO DIRECTOR
FORM N-4
UNDER
THE SECURITIES ACT OF 1933 AND
THE INVESTMENT COMPANY ACT OF 1940
---------------------
CROSS REFERENCE SHEET
(PURSUANT TO RULE 481(A))
<TABLE>
<CAPTION>
ITEM NO. PROSPECTUS CAPTION
-------- ------------------
<C> <S> <C>
PART A
1. Cover Page........................................ Cover Page
Profile...........................................
2. Definitions....................................... About the Prospectus
3. Synopsis.......................................... About Portfolio Director, About VALIC, About
VALIC Separate Account A
4. Condensed Financial Information................... Selected Purchase Unit Data
5. General Description of Registrant, Depositor and
Portfolio Companies............................... About VALIC, About VALIC Separate Account A,
Variable Account Options
6. Deductions and Expenses........................... Fees and Charges, Surrender of Account Value,
Separate Account Expense Reimbursement
7. General Description of Variable Annuity
Contracts......................................... Transfers Between Investment Options Purchase
Period, Payout Period, Surrender of Account
Value, Other Contract Features
8. Annuity Period.................................... Payout Period
9. Death Benefit..................................... Death Benefits
10. Purchase and Contract Value....................... Fees and Charges, Purchase Period
11. Redemptions....................................... Surrender of Account Value
12. Taxes............................................. Federal Tax Matters
13. Legal Proceedings................................. Not Applicable
14. Table of Contents of the Statement of Additional
Information....................................... Contents of Statement of Additional Information
</TABLE>
<TABLE>
<CAPTION>
STATEMENT OF ADDITIONAL
ITEM NO. INFORMATION CAPTION
-------- -----------------------
<C> <S> <C>
PART B
15. Cover Page........................................ Cover Page
16. Table of Contents................................. Table of Contents
17. General Information and History................... General Information
18. Services.......................................... Experts; Distribution of Variable Annuity
Contracts
19. Purchase of Securities Being Offered.............. Calculation of Surrender Charge; Purchase Unit
Value; Exchange Privilege
20. Underwriters...................................... Distribution of Variable Annuity Contracts
21. Calculation of Performance Data................... Performance Calculations
22. Payout Payments................................... Payout Payments
23. Financial Statements.............................. Financial Statements
</TABLE>
PART C
Information required to be set forth in Part C is set forth under the
appropriate item, so numbered, in Part C of the Registration Statement.
<PAGE> 3
THE VARIABLE ANNUITY LIFE INSURANCE COMPANY
SEPARATE ACCOUNT A
PORTFOLIO DIRECTOR 2
SERIES 2.1 TO 2.12
FORM N-4
UNDER
THE SECURITIES ACT OF 1933 AND
THE INVESTMENT COMPANY ACT OF 1940
---------------------
CROSS REFERENCE SHEET
(PURSUANT TO RULE 481(A))
<TABLE>
<CAPTION>
ITEM NO. PROSPECTUS CAPTION
-------- ------------------
<C> <S> <C>
PART A
1. Cover Page........................................ Cover Page
Profile...........................................
2. Definitions....................................... About the Prospectus
3. Synopsis.......................................... About Portfolio Director 2, About VALIC, About
VALIC Separate Account A
4. Condensed Financial Information................... Selected Purchase Unit Data
5. General Description of Registrant, Depositor and
Portfolio Companies............................... About VALIC, About VALIC Separate Account A,
Variable Account Options
6. Deductions and Expenses........................... Fees and Charges, Surrender of Account Value,
Separate Account Expense Reimbursement
7. General Description of Variable Annuity
Contracts......................................... Transfers Between Investment Options Purchase
Period, Payout Period, Surrender of Account
Value, Other Contract Features
8. Annuity Period.................................... Payout Period
9. Death Benefit..................................... Death Benefits
10. Purchase and Contract Value....................... Fees and Charges, Purchase Period
11. Redemptions....................................... Surrender of Account Value
12. Taxes............................................. Federal Tax Matters
13. Legal Proceedings................................. Not Applicable
14. Table of Contents of the Statement of Additional
Information....................................... Contents of Statement of Additional Information
</TABLE>
<TABLE>
<CAPTION>
STATEMENT OF ADDITIONAL
ITEM NO. INFORMATION CAPTION
-------- -----------------------
<C> <S> <C>
PART B
15. Cover Page........................................ Cover Page
16. Table of Contents................................. Table of Contents
17. General Information and History................... General Information
18. Services.......................................... Experts; Distribution of Variable Annuity
Contracts
19. Purchase of Securities Being Offered.............. Calculation of Surrender Charge; Purchase Unit
Value; Exchange Privilege
20. Underwriters...................................... Distribution of Variable Annuity Contracts
21. Calculation of Performance Data................... Performance Calculations
22. Payout Payments................................... Payout Payments
23. Financial Statements.............................. Financial Statements
</TABLE>
PART C
Information required to be set forth in Part C is set forth under the
appropriate item, so numbered, in Part C of the Registration Statement.
<PAGE> 4
THE VARIABLE ANNUITY LIFE INSURANCE COMPANY
SEPARATE ACCOUNT A
PORTFOLIO DIRECTOR 2
SERIES 2.1.20 TO 2.12.20
FORM N-4
UNDER
THE SECURITIES ACT OF 1933 AND
THE INVESTMENT COMPANY ACT OF 1940
---------------------
CROSS REFERENCE SHEET
(PURSUANT TO RULE 481(A))
<TABLE>
<CAPTION>
ITEM NO. PROSPECTUS CAPTION
-------- ------------------
<C> <S> <C>
PART A
1. Cover Page........................................ Cover Page
Profile...........................................
2. Definitions....................................... About the Prospectus
3. Synopsis.......................................... About Portfolio Director 2, About VALIC, About
VALIC Separate Account A
4. Condensed Financial Information................... Selected Purchase Unit Data
5. General Description of Registrant, Depositor and
Portfolio Companies............................... About VALIC, About VALIC Separate Account A,
Variable Account Options
6. Deductions and Expenses........................... Fees and Charges, Surrender of Account Value,
Separate Account Expense Reimbursement
7. General Description of Variable Annuity
Contracts......................................... Transfers Between Investment Options Purchase
Period, Payout Period, Surrender of Account
Value, Other Contract Features
8. Annuity Period.................................... Payout Period
9. Death Benefit..................................... Death Benefits
10. Purchase and Contract Value....................... Fees and Charges, Purchase Period
11. Redemptions....................................... Surrender of Account Value
12. Taxes............................................. Federal Tax Matters
13. Legal Proceedings................................. Not Applicable
14. Table of Contents of the Statement of Additional
Information....................................... Contents of Statement of Additional Information
</TABLE>
<TABLE>
<CAPTION>
STATEMENT OF ADDITIONAL
ITEM NO. INFORMATION CAPTION
-------- -----------------------
<C> <S> <C>
PART B
15. Cover Page........................................ Cover Page
16. Table of Contents................................. Table of Contents
17. General Information and History................... General Information
18. Services.......................................... Experts; Distribution of Variable Annuity
Contracts
19. Purchase of Securities Being Offered.............. Calculation of Surrender Charge; Purchase Unit
Value; Exchange Privilege
20. Underwriters...................................... Distribution of Variable Annuity Contracts
21. Calculation of Performance Data................... Performance Calculations
22. Payout Payments................................... Payout Payments
23. Financial Statements.............................. Financial Statements
</TABLE>
PART C
Information required to be set forth in Part C is set forth under the
appropriate item, so numbered, in Part C of the Registration Statement.
<PAGE> 5
THE VARIABLE ANNUITY LIFE INSURANCE COMPANY
SEPARATE ACCOUNT A
PORTFOLIO DIRECTOR 2
SERIES 2.1.40 TO 2.12.40
FORM N-4
UNDER
THE SECURITIES ACT OF 1933 AND
THE INVESTMENT COMPANY ACT OF 1940
---------------------
CROSS REFERENCE SHEET
(PURSUANT TO RULE 481(A))
<TABLE>
<CAPTION>
ITEM NO. PROSPECTUS CAPTION
-------- ------------------
<C> <S> <C>
PART A
1. Cover Page........................................ Cover Page
Profile...........................................
2. Definitions....................................... About the Prospectus
3. Synopsis.......................................... About Portfolio Director 2, About VALIC, About
VALIC Separate Account A
4. Condensed Financial Information................... Selected Purchase Unit Data
5. General Description of Registrant, Depositor and
Portfolio Companies............................... About VALIC, About VALIC Separate Account A,
Variable Account Options
6. Deductions and Expenses........................... Fees and Charges, Surrender of Account Value,
Separate Account Expense Reimbursement
7. General Description of Variable Annuity
Contracts......................................... Transfers Between Investment Options Purchase
Period, Payout Period, Surrender of Account
Value, Other Contract Features
8. Annuity Period.................................... Payout Period
9. Death Benefit..................................... Death Benefits
10. Purchase and Contract Value....................... Fees and Charges, Purchase Period
11. Redemptions....................................... Surrender of Account Value
12. Taxes............................................. Federal Tax Matters
13. Legal Proceedings................................. Not Applicable
14. Table of Contents of the Statement of Additional
Information....................................... Contents of Statement of Additional Information
</TABLE>
<TABLE>
<CAPTION>
STATEMENT OF ADDITIONAL
ITEM NO. INFORMATION CAPTION
-------- -----------------------
<C> <S> <C>
PART B
15. Cover Page........................................ Cover Page
16. Table of Contents................................. Table of Contents
17. General Information and History................... General Information
18. Services.......................................... Experts; Distribution of Variable Annuity
Contracts
19. Purchase of Securities Being Offered.............. Calculation of Surrender Charge; Purchase Unit
Value; Exchange Privilege
20. Underwriters...................................... Distribution of Variable Annuity Contracts
21. Calculation of Performance Data................... Performance Calculations
22. Payout Payments................................... Payout Payments
23. Financial Statements.............................. Financial Statements
</TABLE>
PART C
Information required to be set forth in Part C is set forth under the
appropriate item, so numbered, in Part C of the Registration Statement.
<PAGE> 6
THE VARIABLE ANNUITY LIFE INSURANCE COMPANY
SEPARATE ACCOUNT A
PORTFOLIO DIRECTOR T
FORM N-4
UNDER
THE SECURITIES ACT OF 1933 AND
THE INVESTMENT COMPANY ACT OF 1940
---------------------
CROSS REFERENCE SHEET
(PURSUANT TO RULE 481(A))
<TABLE>
<CAPTION>
ITEM NO. PROSPECTUS CAPTION
-------- ------------------
<C> <S> <C>
PART A
1. Cover Page........................................ Cover Page
Profile...........................................
2. Definitions....................................... About the Prospectus
3. Synopsis.......................................... About Portfolio Director, About VALIC, About
VALIC Separate Account A
4. Condensed Financial Information................... Selected Purchase Unit Data
5. General Description of Registrant, Depositor and
Portfolio Companies............................... About VALIC, About VALIC Separate Account A,
Variable Account Options
6. Deductions and Expenses........................... Fees and Charges, Surrender of Account Value,
Separate Account Expense Reimbursement
7. General Description of Variable Annuity
Contracts......................................... Transfers Between Investment Options Purchase
Period, Payout Period, Surrender of Account
Value, Other Contract Features
8. Annuity Period.................................... Payout Period
9. Death Benefit..................................... Death Benefits
10. Purchase and Contract Value....................... Fees and Charges, Purchase Period
11. Redemptions....................................... Surrender of Account Value
12. Taxes............................................. Federal Tax Matters
13. Legal Proceedings................................. Not Applicable
14. Table of Contents of the Statement of Additional
Information....................................... Contents of Statement of Additional Information
</TABLE>
<TABLE>
<CAPTION>
STATEMENT OF ADDITIONAL
ITEM NO. INFORMATION CAPTION
-------- -----------------------
<C> <S> <C>
PART B
15. Cover Page........................................ Cover Page
16. Table of Contents................................. Table of Contents
17. General Information and History................... General Information
18. Services.......................................... Experts; Distribution of Variable Annuity
Contracts
19. Purchase of Securities Being Offered.............. Calculation of Surrender Charge; Purchase Unit
Value; Exchange Privilege
20. Underwriters...................................... Distribution of Variable Annuity Contracts
21. Calculation of Performance Data................... Performance Calculations
22. Payout Payments................................... Payout Payments
23. Financial Statements.............................. Financial Statements
</TABLE>
PART C
Information required to be set forth in Part C is set forth under the
appropriate item, so numbered, in Part C of the Registration Statement.
<PAGE> 7
THE VARIABLE ANNUITY LIFE INSURANCE COMPANY
UNITS OF INTEREST UNDER GROUP AND INDIVIDUAL
VARIABLE ANNUITY CONTRACTS
PORTFOLIO DIRECTOR 2
SEPARATE ACCOUNT A
FOR SERIES 2.1 TO 2.12 May 1, 1998
PROSPECTUS
Portfolio Director 2 consists of group and individual variable annuity contracts
that are offered by The Variable Annuity Life Insurance Company to Participants
in certain employer sponsored retirement plans. Portfolio Director 2 may be
available to you when you participate in a retirement program that qualifies for
deferral of federal income taxes. Non-qualified contracts are also available for
certain employer plans only. Portfolio Director 2 is composed of the following
contract forms: UIT-194, UITG-194, UITN-194, UIT-IRA-194 and UIT-SEP-194.
Portfolio Director 2 permits you to invest in and receive retirement benefits
from Fixed Account Options and/or Variable Account Options. Each of these
investment options is explained more fully in this prospectus. Here is a list of
these investment options:
TWO FIXED ACCOUNT OPTIONS: Fixed Account Plus
Short-Term Fixed Account
EIGHTEEN VARIABLE ACCOUNT OPTIONS*
<TABLE>
<S> <C> <C>
American General Series Portfolio Founders Funds, Inc.: Templeton Funds, Inc.:
Company (AGSPC): Founders Growth Fund Templeton Foreign Fund --
Growth Fund Neuberger&Berman Management Inc.: Class 1
International Government Bond Fund Neuberger&Berman Guardian Trust
Money Market Fund The Vanguard Group, Inc.:
Science & Technology Fund Putnam Investments: Vanguard Fixed Income
Social Awareness Fund Putnam Global Growth Fund Securities Fund --
Stock Index Fund Putnam New Opportunities Fund Long-Term Corporate
Putnam OTC & Emerging Growth Portfolio
American Century Investment Fund Vanguard Fixed Income
Management, Inc.: Securities Fund --
American Century -- Twentieth Scudder Kemper Investments, Inc.: Long-Term U.S.
Century Ultra Fund Scudder Growth and Income Fund Treasury Portfolio
Vanguard/Wellington Fund
Vanguard/Windsor II
</TABLE>
* Each of these mutual funds is publicly available except for the six AGSPC
Funds.
- --------------------------------------------------------------------------------
This prospectus provides you with information you should know before investing
in Portfolio Director 2. This prospectus is accompanied by the current
prospectuses for the mutual fund options listed above. Please read and retain
each of these prospectuses for future reference.
A Statement of Additional Information, dated May 1, 1998, has been filed with
the Securities and Exchange Commission. This Statement of Additional Information
contains additional information about Portfolio Director 2 and is part of this
prospectus. For a free copy, complete and return the form contained in the back
of this prospectus or call 1-800-44-VALIC.
NO PERSON HAS BEEN AUTHORIZED TO GIVE ANY INFORMATION OR TO MAKE ANY
REPRESENTATIONS OTHER THAN THOSE CONTAINED IN THIS PROSPECTUS IN CONNECTION WITH
THE OFFER CONTAINED IN THIS PROSPECTUS, AND IF GIVEN OR MADE, SUCH INFORMATION
OR REPRESENTATION MUST NOT BE RELIED UPON AS HAVING BEEN AUTHORIZED. THIS
PROSPECTUS DOES NOT CONSTITUTE AN OFFER IN ANY JURISDICTION TO ANY PERSON TO
WHOM SUCH OFFER WOULD BE UNLAWFUL THEREIN.
THE SECURITIES AND EXCHANGE COMMISSION HAS NOT APPROVED OR DISAPPROVED THESE
SECURITIES. ALSO, IT HAS NOT PASSED ON WHETHER THIS PROSPECTUS IS ADEQUATE OR
ACCURATE. IT IS A CRIMINAL OFFENSE TO STATE OTHERWISE.
<PAGE> 8
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
ABOUT THE PROSPECTUS.......................... 1
PROFILE OF PORTFOLIO DIRECTOR 2............... 3
FEE TABLE..................................... 5
SELECTED PURCHASE UNIT DATA................... 8
ABOUT PORTFOLIO DIRECTOR 2.................... 10
ABOUT VALIC................................... 10
ABOUT VALIC SEPARATE ACCOUNT A................ 10
UNITS OF INTERESTS............................ 10
VARIABLE ACCOUNT OPTIONS...................... 11
Summary of Funds......................... 11
PURCHASE PERIOD............................... 21
Purchase Payments........................ 21
Purchase Units........................... 21
Calculation of Purchase Unit Value....... 21
Choosing Investment Options.............. 22
Fixed Account Options............... 22
Variable Account Options............ 22
Stopping Purchase Payments............... 22
TRANSFERS BETWEEN INVESTMENT OPTIONS.......... 23
During the Purchase Period............... 23
During the Payout Period................. 23
Communicating Transfer or Reallocation
Instructions........................... 23
Effective Date of Transfer............... 23
FEES AND CHARGES.............................. 24
Account Maintenance Fee.................. 24
Surrender Charge......................... 24
Amount of Surrender Charge.......... 24
10% Free Withdrawal................. 24
Exceptions to Surrender Charge...... 24
Premium Tax Charge....................... 25
Separate Account Charges................. 25
Fund Annual Expense Charges.............. 25
Other Tax Charges........................ 25
Reduction or Waiver of Account
Maintenance Fee, Surrender, Mortality
and Expense Risk Fee or Administration
and Distribution Fee Charges........... 26
Separate Account Expense Reimbursement... 26
PAYOUT PERIOD................................. 27
Fixed Payout............................. 27
Variable Payout.......................... 27
Combination Fixed and Variable Payout.... 27
Payout Date.............................. 27
Payout Options........................... 27
Enhancements to Payout Options........... 28
Payout Information....................... 28
SURRENDER OF ACCOUNT VALUE.................... 29
When Surrenders are Allowed.............. 29
Amount That May Be Surrendered........... 29
Surrender Restrictions................... 29
Partial Surrenders....................... 29
Systematic Withdrawals................... 29
Distributions Required By Federal Tax
Law.................................... 30
EXCHANGE PRIVILEGE............................ 31
Restrictions on Exchange Privilege....... 31
Taxes and Conversion Costs............... 31
</TABLE>
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Surrender Charges........................ 31
Exchange Offers for Contracts Other Than
Portfolio Director and Portfolio
Director 2............................. 31
Exchange Offer for Portfolio Director and
Portfolio Director 2................... 32
Comparison of Contracts.................. 32
Features of Portfolio Director 2......... 32
Agents' and Managers' Retirement Plan
Exchange Offer......................... 32
DEATH BENEFITS................................ 34
Beneficiary Information.................. 34
Special Information for Individual
Non-Tax Qualified Contracts............ 34
During the Purchase Period............... 34
Interest Guaranteed Death Benefit... 34
Standard Death Benefit.............. 35
During the Payout Period................. 35
HOW TO REVIEW INVESTMENT PERFORMANCE OF
SEPARATE ACCOUNT DIVISIONS.................. 36
Types of Investment Performance
Information Advertised................. 36
Total Return Performance Information... 36
Standard Average Annual Total Return... 36
Nonstandard Average Annual Total
Return................................. 36
Cumulative Total Return................ 36
Annual Change in Purchase Unit Value... 36
Cumulative Change in Purchase Unit
Value............................... 37
Total Return Based on Different
Investment Amounts.................. 37
An Assumed Account Value of $10,000.... 37
Yield Performance Information............ 37
AGSPC Money Market Division............ 37
Divisions Other Than The AGSPC Money
Market Division..................... 37
Performance Information: Average Annual
Total Return, Cumulative Return and
Annual and Cumulative Change in
Purchase Unit Value Tables............. 37
OTHER CONTRACT FEATURES....................... 44
Changes That May Not Be Made............. 44
Change of Beneficiary.................... 44
Contingent Owner......................... 44
Cancellation -- The 20 Day "Free Look"... 44
We Reserve Certain Rights................ 44
Relationship to Employer's Plan.......... 44
VOTING RIGHTS................................. 45
Who May Give Voting Instructions......... 45
Determination of Fund Shares Attributable
to Your Account........................ 45
During Purchase Period................. 45
During Payout Period or after a Death
Benefit Has Been Paid............... 45
How Fund Shares Are Voted................ 45
FEDERAL TAX MATTERS........................... 46
Type of Plans............................ 46
Tax Consequences in General.............. 46
Effect of Tax-Deferred Accumulations..... 47
YEAR 2000..................................... 49
Year 2000 Risks.......................... 49
</TABLE>
(i)
<PAGE> 9
ABOUT THE PROSPECTUS
- --------------------------------------------------------------------------------
Unless otherwise specified in this prospectus, the words we, our, Company, and
VALIC mean The Variable Annuity Life Insurance Company. The words you and your,
unless otherwise specified in this prospectus, mean the participant, contract
owner, annuitant or beneficiary.
We will use a number of other specific terms in this prospectus. We will, when
that term is used in the prospectus, provide you with a definition of that term.
The terms used in this prospectus for which we will provide you a definition
are:
<TABLE>
<CAPTION>
DEFINED TERMS PAGE NO.
- ------------- --------
<S> <C>
Account Value 23
Annuitant 34
Assumed Investment Rate 27
Beneficiary 34
Contract Owner 34
Division 36
Fixed Account Options 34
Home Office 23
Mutual Fund or Fund 10
Participant 01
Participant Year 24
Payout Period 23
Payout Unit 27
Purchase Payments 21,36
Purchase Period 23
Purchase Unit 22
VALIC Separate Account A 45
Variable Account Options 11,34
</TABLE>
This prospectus is being given to you to help you make decisions for selecting
various investment options and benefits to plan and save for your retirement. It
is intended to provide you with information about VALIC, Portfolio Director 2,
and saving for your retirement.
The purpose of Variable Account Options and Variable Payout Options is to
provide you investment returns which are greater than the effects of inflation.
We cannot, however, guarantee that this purpose will be achieved.
This prospectus describes a contract in which units of interest in VALIC's
Separate Account A are offered. Portfolio Director 2 will allow you to
accumulate retirement dollars in Fixed Account Options and/or Variable Account
Options. This prospectus describes only the variable aspects of Portfolio
Director 2 except where the Fixed Account Options are specifically mentioned.
For specific information about the Variable Account Options, you should refer to
the mutual fund prospectuses you have been given with this document. You should
keep these prospectuses to help answer any questions you may have in the future.
Following this introduction is a summary of the major features and options of
Portfolio Director 2. This summary is called the "Profile of Portfolio Director
2." It is intended to provide you with a brief overview of those sections
discussed in more detail in this prospectus.
PARTICIPANT -- the individual,
(in most cases you are the
Participant) for whom
Purchase Payments are made.
1
<PAGE> 10
(This page intentionally left blank)
2
<PAGE> 11
PROFILE OF PORTFOLIO DIRECTOR 2
- --------------------------------------------------------------------------------
Portfolio Director 2 is VALIC's combination fixed and variable annuity that
offers you a wide choice of investment options and flexibility. A summary of
Portfolio Director 2's major features is presented below. For a more detailed
discussion of Portfolio Director 2, please read the entire prospectus carefully.
FIXED AND VARIABLE OPTIONS
Portfolio Director 2 offers you a choice from among 18 Variable Account Options
and two Fixed Account Options. You may invest in up to seven of these investment
options at any one time.
- --------------------------------------------------------------------------------
<TABLE>
<S> <C> <C> <C>
FIXED ACCOUNT
OPTIONS
- -------------------------------------------------------------------------------------------------------------------------------
FIXED Fixed Guaranteed high current --
OPTIONS Account Plus interest income
-----------------------------------------------------------------------------------------------------------
Short-Term Guaranteed current --
Fixed Account interest income
- -------------------------------------------------------------------------------------------------------------------------------
VARIABLE ACCOUNT INVESTMENT
OPTIONS STRATEGY ADVISER
- -------------------------------------------------------------------------------------------------------------------------------
INDEX AGSPC Stock Growth through investments tracking VALIC
EQUITY Index the S&P 500(R) Index
FUND Fund
- -------------------------------------------------------------------------------------------------------------------------------
ACTIVELY AGSPC Growth Growth through investments VALIC
MANAGED Fund in service sector companies
-----------------------------------------------------------------------------------------------------------
EQUITY American Century -- Capital growth through American Century
FUNDS Twentieth Century investments in common
Ultra Fund stock
-----------------------------------------------------------------------------------------------------------
Founders Long-term growth of capital through Founders
Growth investment in common stocks of well
Fund established, high-quality growth companies
-----------------------------------------------------------------------------------------------------------
Neuberger&Berman Capital appreciation, and secondarily Neuberger&Berman
Guardian Trust current income by investing primarily Management Inc.
in common stocks of long-established,
high quality companies
-----------------------------------------------------------------------------------------------------------
Putnam Global Capital appreciation through a globally Putnam
Growth Fund diversified portfolio of common stocks
-----------------------------------------------------------------------------------------------------------
Putnam New Long-term capital appreciation Putnam
Opportunities Fund through investment in common stock
-----------------------------------------------------------------------------------------------------------
Putnam OTC & Capital appreciation through Putnam
Emerging Growth investments in common stocks of
Fund small-to-medium companies
-----------------------------------------------------------------------------------------------------------
Scudder Growth Long-term growth of capital, current Scudder
and Income Fund income and growth of income
-----------------------------------------------------------------------------------------------------------
Templeton Long-term capital growth through investments Templeton
Foreign in equity and debt securities of companies and
Fund -- Class 1 governments outside the U.S.
-----------------------------------------------------------------------------------------------------------
Vanguard/ Growth and income through Vanguard
Windsor II investment in common stock
- -------------------------------------------------------------------------------------------------------------------------------
BALANCED Vanguard/ Income and growth through 30 to 40% Vanguard
FUND Wellington investment in high quality corporate bonds
Fund and 60 to 70% investment in common stocks
- -------------------------------------------------------------------------------------------------------------------------------
INCOME AGSPC International Income and possible growth through VALIC
FUNDS Government investments in high quality foreign
Bond Fund government debt securities
-----------------------------------------------------------------------------------------------------------
Vanguard Fixed Income Income through investment Vanguard
Securities in long-term high quality corporate bonds
Fund-Long-Term
Corporate Portfolio
-----------------------------------------------------------------------------------------------------------
Vanguard Fixed Income Income through investment in Vanguard
Securities long-term U.S. Treasury bonds
Fund-Long-Term
U.S. Treasury Portfolio
- -------------------------------------------------------------------------------------------------------------------------------
SPECIALTY AGSPC Science & Growth through investments in stocks VALIC
FUNDS Technology of companies which benefit from
Fund development of science and technology
-----------------------------------------------------------------------------------------------------------
AGSPC Social Growth through investments in VALIC
Awareness stocks of companies meeting social
Fund criteria of the Fund
- -------------------------------------------------------------------------------------------------------------------------------
MONEY AGSPC Money Income through investments in VALIC
MARKET Market short-term money market
FUND Fund securities
- -------------------------------------------------------------------------------------------------------------------------------
<CAPTION>
<S> <C>
- ------------------------------------------------------------
FIXED --
OPTIONS
------------------------------------------------------------
--
- -----------------------------------------------------------------------------------------------------------------------
SUBADVISER
- -------------------------------------------------------------------------------------------------------------------------------
INDEX Bankers Trust
EQUITY
FUND
- -------------------------------------------------------------------------------------------------------------------------------
ACTIVELY T. Rowe Price
MANAGED
-----------------------------------------------------------------------------------------------------------
EQUITY N/A
FUNDS
-----------------------------------------------------------------------------------------------------------
N/A
-----------------------------------------------------------------------------------------------------------
Neuberger&
Berman, LLC
-----------------------------------------------------------------------------------------------------------
N/A
-----------------------------------------------------------------------------------------------------------
N/A
-----------------------------------------------------------------------------------------------------------
N/A
-----------------------------------------------------------------------------------------------------------
N/A
-----------------------------------------------------------------------------------------------------------
N/A
-----------------------------------------------------------------------------------------------------------
N/A
- -------------------------------------------------------------------------------------------------------------------------------
BALANCED N/A
FUND
- -------------------------------------------------------------------------------------------------------------------------------
INCOME N/A
FUNDS
-----------------------------------------------------------------------------------------------------------
N/A
-----------------------------------------------------------------------------------------------------------
N/A
- -------------------------------------------------------------------------------------------------------------------------------
SPECIALTY T. Rowe Price
FUNDS
-----------------------------------------------------------------------------------------------------------
N/A
- -------------------------------------------------------------------------------------------------------------------------------
MONEY N/A
MARKET
FUND
- -------------------------------------------------------------------------------------------------------------------------------
</TABLE>
3
<PAGE> 12
- --------------------------------------------------------------------------------
A detailed description of the investment objective of each Fund can be found in
the section of the prospectus entitled "Variable Account Options," and also in
the current prospectus for each Fund mentioned.
INTEREST GUARANTEED DEATH
BENEFIT
Portfolio Director 2 offers a death benefit with an interest guarantee when
death occurs prior to your reaching age 70.
This contract provision is not available in some states.
LOANS
Portfolio Director 2 offers a tax-free loan provision for tax-qualified
contracts that gives you access to your money in either of the Fixed Account
Options, subject to a minimum loan amount of $1,000. The availability of loans
is subject to government regulations, as well as your employer's plan
provisions.
Keep in mind that tax laws place restrictions on withdrawals (i.e. loans which
are not repaid) if made prior to age 59 1/2.
TRANSFERS
There is no charge to transfer the money in your account among Portfolio
Director 2's investment options. You may transfer your Account Values between
Variable Account Options at any time during the Purchase Period.
Your Account Value in the Short-Term Fixed Account must remain there for at
least 90 days before it can be transferred to other investment options. In Fixed
Account Plus, up to 20% of your Account Value may be transferred during each
contract year to other investment options.
Once you begin receiving payments from your account (called the Payout Period),
you may still transfer funds among Variable Account Options once each contract
year.
Transfers can be made by calling VALIC's toll-free transfer service at
1-800-621-7792. For more information on account transfers, see the "Transfers
Between Investment Options" section in the prospectus.
FEES AND CHARGES
ACCOUNT MAINTENANCE FEE
If any of your account is invested in Variable Account Options, a quarterly
account maintenance fee of $3.75 is charged to your account. If you invest only
in Fixed Account Options during a calendar quarter no account maintenance fee is
assessed. Reductions in the account maintenance fee may be available if certain
conditions are met.
SURRENDER CHARGE
Under some circumstances a surrender charge is made to your account. These
situations are discussed in detail in the section of the prospectus entitled
"Fees and Charges -- Surrender Charge." When this happens the surrender charge
is computed in two ways and you are charged whichever amount is less. The first
amount is simply 5% of whatever amount you have withdrawn. The second amount is
5% of the contributions you made to your account during the last 60 months.
Withdrawals are always subject to your plan provisions and federal tax
restrictions, which generally include a tax penalty on withdrawals made prior to
age 59 1/2.
PREMIUM TAX CHARGE
Premium taxes ranging from zero to 3% are currently imposed by certain states
and municipalities on Purchase Payments made under the contract.
SEPARATE ACCOUNT CHARGES
Depending on the Variable Account Option you choose you may incur a mortality
and expense risk fee and an administration and distribution fee computed at an
aggregate annualized rate of 1.00% to 1.25% on the average daily net asset value
of VALIC Separate Account A. Reductions in the mortality and expense risk fee
and administration and distribution fee may be available for plan types meeting
certain criteria.
FUND ANNUAL EXPENSE CHARGE
A daily charge based on a percentage of each Fund's average daily net asset
value is payable by each Fund to its investment adviser. In addition to the
management fees, each Fund incurs other operating expenses which may vary.
Since some of these fees may not apply to your contract, consult your VALIC
Retirement Plan Specialist to see how these provisions apply to you.
SEPARATE ACCOUNT
EXPENSE REIMBURSEMENT
The Company will reimburse to certain Divisions any fees it receives from the
Fund or its affiliate for providing the Fund administrative and shareholder
services. In addition, the Company currently reimburses certain Divisions a
portion of the Company's administration and distribution fee for providing
Variable Account Options. Such reimbursement arrangements are voluntary. For
more information as to which Variable Account Options have a Separate Account
Expense Reimbursement see the Fee Table.
When you withdraw your money, you can select from several payout options: a
lifetime annuity (which guarantees payment for as long as you live), periodic
withdrawals and systematic withdrawals. More information on payout options can
be found in the "Payout Period" section of the prospectus.
FEDERAL TAX INFORMATION
PAYOUT OPTIONS
Although deferred annuity contracts such as Portfolio Director 2 can be
purchased with after-tax dollars, they are primarily used in connection with
retirement programs which receive favorable tax treatment under federal law.
PURCHASE REQUIREMENTS
Purchase Payments may be made at any time and in any amount, subject to plan
limitations.
To learn more about the
INTEREST GUARANTEED DEATH
BENEFIT, refer to the section
in the prospectus entitled
"Death Benefits."
More information on FEES
may be found in the
prospectus under the
headings "FEES AND
CHARGES" AND "FEE TABLE."
For a more detailed
discussion of these income
tax provisions, see the
"FEDERAL TAX MATTERS"
section of the prospectus and
of the Statement of Additional
Information.
For more information on
PURCHASE PAYMENTS, refer
to the "Purchase Period"
section of the prospectus.
4
<PAGE> 13
FEE TABLE
- --------------------------------------------------------------------------------
CONTRACT OWNER/PARTICIPANT EXPENSES(1)
<TABLE>
<S> <C>
Account Maintenance Fee ($3.75 per quarter, annualized)(2) $ 15
Maximum Surrender Charge(2) 5.00%
</TABLE>
SEPARATE ACCOUNT EXPENSES
(as a percentage of Separate Account net assets):
<TABLE>
<CAPTION>
MORTALITY ADMINISTRATION SEPARATE
AND AND ACCOUNT TOTAL
EXPENSE RISK DISTRIBUTION EXPENSE SEPARATE
FUND FEE(3) FEE(3) REIMBURSEMENT ACCOUNT FEE
---- ------------ -------------- ------------- -----------
<S> <C> <C> <C> <C>
AGSPC Growth 0.25% 0.75% -- 1.00%
AGSPC International Government
Bond 0.25 0.75 -- 1.00
AGSPC Money Market 0.25 0.75 -- 1.00
AGSPC Science & Technology 0.25 0.75 -- 1.00
AGSPC Social Awareness 0.25 0.75 -- 1.00
AGSPC Stock Index 0.25 0.75 -- 1.00
American Century -- Twentieth
Century Ultra(4) 0.25 1.00 (0.21%) 1.04
Founders Growth(4) 0.25 1.00 (0.25) 1.00
Neuberger&Berman Guardian Trust(4) 0.25 1.00 (0.25) 1.00
Putnam Global Growth(4) 0.25 1.00 (0.25) 1.00
Putnam New Opportunities(4) 0.25 1.00 (0.25) 1.00
Putnam OTC & Emerging Growth(4) 0.25 1.00 (0.25) 1.00
Scudder Growth and Income(4) 0.25 1.00 (0.25) 1.00
Templeton Foreign(4) 0.25 1.00 (0.25) 1.00
Vanguard Fixed Income Securities
Fund -- Long-Term Corporate
Portfolio(5) 0.25 1.00 (0.25) 1.00
Vanguard Fixed Income Securities
Fund -- Long-Term U.S. Treasury
Portfolio(5) 0.25 1.00 (0.25) 1.00
Vanguard/Wellington 0.25 1.00 -- 1.25
Vanguard/Windsor II 0.25 1.00 -- 1.25
</TABLE>
FUND ANNUAL EXPENSES
(as a percentage of Fund net assets):
<TABLE>
<CAPTION>
MANAGEMENT 12B-1 OTHER TOTAL FUND
FUND FEES FEES EXPENSES(6) EXPENSES
---- ---------- ----- ----------- ----------
<S> <C> <C> <C> <C>
AGSPC Growth 0.80% -- 0.06% 0.86%
AGSPC International Government Bond 0.50 -- 0.06 0.56
AGSPC Money Market 0.50 -- 0.07 0.57
AGSPC Science & Technology 0.90 -- 0.06 0.96
AGSPC Social Awareness 0.50 -- 0.06 0.56
AGSPC Stock Index 0.27 -- 0.07 0.34
American Century -- Twentieth Century Ultra 1.00 -- 0.00 1.00
Founders Growth 0.67 0.25%(4) 0.18 1.10
Neuberger&Berman Guardian Trust(7) 0.84 -- 0.04 0.88
Putnam Global Growth 0.64 0.25 0.35 1.24
Putnam New Opportunities 0.50 0.25(4) 0.31 1.06
Putnam OTC & Emerging Growth 0.56 0.25(4) 0.35 1.16
Scudder Growth and Income 0.46 -- 0.30 0.76
Templeton Foreign 0.61 0.25(4) 0.22 1.08
Vanguard Fixed Income Securities Fund --
Long-Term Corporate Portfolio 0.03 -- 0.29 0.32
Vanguard Fixed Income Securities Fund --
Long-Term U.S. Treasury Portfolio 0.01 -- 0.26 0.27
Vanguard/Wellington 0.04 -- 0.25 0.29
Vanguard/Windsor II 0.15 -- 0.22 0.37
</TABLE>
See footnotes on page 7.
5
<PAGE> 14
EXAMPLE #1 -- Assuming No Account Maintenance Fee and
No Surrender at the End of the Period Shown:
- --------------------------------------------------------------------------------
Total Expenses. You would pay the following expenses on a $1,000 investment
under a typical Portfolio Director 2 Contract without a surrender charge or
account maintenance fee imposed, invested in a single Separate Account Division
as listed below, assuming a 5% annual return on assets:
<TABLE>
<CAPTION>
1 YEAR 3 YEARS 5 YEARS 10 YEARS
------ ------- ------- --------
<S> <C> <C> <C> <C>
AGSPC Growth Division 15 $19 $ 59 $101 $218
AGSPC International Government Bond Division 13 16 49 85 186
AGSPC Money Market Division 6 16 50 86 187
AGSPC Science & Technology Division 17 20 62 106 229
AGSPC Social Awareness Division 12 16 49 85 186
AGSPC Stock Index Division 10 14 42 74 162
American Century -- Twentieth Century Ultra
Division 31 21 64 110 237
Founders Growth Division 30 21 66 113 244
Neuberger&Berman Guardian Trust
Division 29 19 59 102 221
Putnam Global Growth Division 28 23 70 120 258
Putnam New Opportunities Division 26 21 65 111 239
Putnam OTC & Emerging Growth Division 27 22 68 116 250
Scudder Growth and Income Division 21 18 55 96 208
Templeton Foreign Division 32 21 65 112 242
Vanguard Fixed Income Securities
Fund -- Long-Term Corporate Portfolio Division
22 13 42 72 160
Vanguard Fixed Income Securities
Fund -- Long-Term U.S. Treasury Portfolio
Division 23 13 40 70 154
Vanguard/Wellington Division 25 16 49 84 184
Vanguard/Windsor II Division 24 16 51 88 193
</TABLE>
EXAMPLE #2 -- Assuming No Surrender at the End of the
Period Shown:
- --------------------------------------------------------------------------------
Total Expenses. You would pay the following expenses on a $1,000 investment
under a typical Portfolio Director 2 Contract without a surrender charge
imposed, invested in a single Separate Account Division as listed below,
assuming a 5% annual return on assets:
<TABLE>
<CAPTION>
1 YEAR 3 YEARS 5 YEARS 10 YEARS
------ ------- ------- --------
<S> <C> <C> <C> <C>
AGSPC Growth Division 15 $19 $ 60 $104 $224
AGSPC International Government Bond Division 13 16 51 88 192
AGSPC Money Market Division 6 17 51 89 193
AGSPC Science & Technology Division 17 20 63 109 235
AGSPC Social Awareness Division 12 16 51 88 192
AGSPC Stock Index Division 10 14 44 76 168
American Century -- Twentieth Century Ultra
Division 31 21 66 113 243
Founders Growth Division 30 22 68 116 249
Neuberger&Berman Guardian Trust
Division 29 20 61 105 226
Putnam Global Growth Division 28 23 72 123 264
Putnam New Opportunities Division 26 21 66 114 245
Putnam OTC & Emerging Growth Division 27 22 69 119 255
Scudder Growth and Income Division 21 18 57 98 214
Templeton Foreign Division 32 22 67 115 247
Vanguard Fixed Income Securities
Fund -- Long-Term Corporate Portfolio Division
22 14 44 75 166
Vanguard Fixed Income Securities
Fund -- Long-Term U.S. Treasury Portfolio
Division 23 14 42 73 160
Vanguard/Wellington Division 25 16 50 87 190
Vanguard/Windsor II Division 24 17 53 91 199
</TABLE>
6
<PAGE> 15
EXAMPLE #3 -- Assuming Surrender at the End of the Period Shown:
- --------------------------------------------------------------------------------
Total Expenses: You would pay the following expenses on a $1,000 investment
under a typical Portfolio Director 2 Contract invested in a single Separate
Account Division as listed below, assuming a 5% annual return on assets:
<TABLE>
<CAPTION>
1 YEAR 3 YEARS 5 YEARS 10 YEARS
------ ------- ------- --------
<S> <C> <C> <C> <C>
AGSPC Growth Division 15 $66 $110 $154 $224
AGSPC International Government Bond Division 13 63 101 138 192
AGSPC Money Market Division 6 63 101 139 193
AGSPC Science & Technology Division 17 67 112 159 235
AGSPC Social Awareness Division 12 63 101 138 192
AGSPC Stock Index Division 10 61 94 126 168
American Century -- Twentieth Century Ultra Division
31 68 115 163 243
Founders Growth Division 30 68 116 166 249
Neuberger&Berman Guardian Trust
Division 29 66 110 155 226
Putnam Global Growth Division 28 69 121 173 264
Putnam New Opportunities Division 26 68 115 164 245
Putnam OTC & Emerging Growth Division 27 69 118 169 255
Scudder Growth and Income Division 21 65 107 148 214
Templeton Foreign Division 32 68 116 165 247
Vanguard Fixed Income Securities Fund -- Long-Term
Corporate Portfolio Division 22 61 94 125 166
Vanguard Fixed Income Securities Fund -- Long-Term
U.S. Treasury Portfolio Division 23 60 92 123 160
Vanguard/Wellington Division 25 63 100 137 190
Vanguard/Windsor II Division 24 64 103 141 199
</TABLE>
- ------------
(1) Premium taxes are not shown here, but may be charged by some states. See:
"Premium Tax Charge" in this prospectus.
(2) Reductions in the surrender charge and the account maintenance fee are
available if certain conditions are met. See "Reduction or Waiver of Account
Maintenance Fee, Surrender, Mortality and Expense Risk Fee or Administration
and Distribution Fee Charges" and "Exceptions to Surrender Charge" in this
prospectus.
(3) Reductions in the mortality and expense risk fee or administration and
distribution fee may be available for plan types meeting certain criteria.
See "Reduction or Waiver of Account Maintenance Fee, Surrender, Mortality
and Expense Risk Fee or Administration Fee Charges" in this prospectus.
(4) For these Funds the Total Separate Account Fee equals the VALIC Separate
Account A mortality and expense risk fee plus the administration and
distribution fee reduced by the Separate Account Expense Reimbursement.
Pursuant to the Separate Account Expense Reimbursement the Company's charges
to these Divisions are reduced by an amount equal to payments from the
underlying Fund and/or its affiliate for administrative and shareholder
services provided by the Company. See "Fees and Charges -- Separate Account
Expense Reimbursement" in this prospectus for more information.
The following Funds and/or their affiliates pay administrative, shareholder
service or distribution fees to the Company: American Century -- Twentieth
Century (0.21%), Founders (0.25%), Neuberger&Berman (0.25%), Putnam (0.25%),
Scudder (0.25%) and Templeton (0.25%) With respect to American
Century -- Twentieth Century Ultra Fund, the Fund pays fees to the Company
of 0.20% on assets in excess of $0 but less than $75 million, and 0.25% on
assets in excess of $75 million.
(5) For these Funds the Total Separate Account Fee equals the VALIC Separate
Account A mortality and expense risk fee plus the administration and
distribution fee reduced by the Separate Account Expense Reimbursement. The
Separate Account Expense Reimbursement reflects a voluntary expense
reimbursement made by the Company, effective May 1, 1998, directly to the
Division which may be terminated by the Company at any time without notice.
(6) OTHER EXPENSES includes custody, accounting, reports to shareholders, audit,
legal and other miscellaneous expenses. See each Fund's prospectus for a
detailed explanation of these fees.
(7) Neuberger&Berman Management Incorporated voluntarily bears certain expenses
of the Neuberger&Berman Guardian Trust ("Trust") so that the Trust's expense
ratio per annum will not exceed the expense ratio per annum of the Fund by
more than 0.10% of the Trust's average daily net assets. This arrangement
can be terminated on sixty days' notice. For this Fund, MANAGEMENT FEES
include administration expenses.
Note: These examples should not be considered representations of past or future
expenses for VALIC Separate Account A or for any Fund. Actual expenses may be
greater or less than those shown above. Similarly, the 5% annual rate of return
assumed in the examples is not an estimate or guarantee of future investment
performance. The purpose of the Fee Table above is to help Contract Owners and
Participants understand the various expenses of VALIC Separate Account A and the
Funds which are, in effect, passed on to the Contract Owners and Participants.
This Fee Table shows all charges and expenses which may be deducted from the
assets of VALIC Separate Account A and from the Funds in which VALIC Separate
Account A invests. For a further description of these charges and expenses, see
"Fees and Charges" in this prospectus and the descriptions of fees and charges
in each of the Fund's prospectuses. Any and all limitations on total charges and
expenses are reflected in this Fee Table.
7
<PAGE> 16
Selected Purchase Unit Data
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
AMERICAN
AGSPC CENTURY-
INTERNATIONAL AGSPC AGSPC AGSPC TWENTIETH
AGSPC GOVERNMENT MONEY SCIENCE & SOCIAL AGSPC CENTURY
GROWTH BOND MARKET TECHNOLOGY AWARENESS STOCK INDEX ULTRA
DIVISION 15 DIVISION 13 DIVISION 6 DIVISION 17 DIVISION 12 DIVISION 10(1) DIVISION 31
----------- ----------- ---------- ----------- ----------- -------------- -----------
<S> <C> <C> <C> <C> <C> <C> <C>
December 31, 1997
Purchase Units in Force 453,172,490 111,480,591 84,182,521 397,842,959 81,577,104 615,053,124 97,745,282
Purchase Unit Value $2.076503 $1.490645 $1.673590 $2.285739 $2.985333 $3.753436 $1.265937
December 31, 1996
Purchase Units in Force 366,272,509 112,601,593 75,124,095 315,809,646 46,574,016 536,806,965 16,654,076
Purchase Unit Value $1.733324 $1.582230 $1.607212 $2.250471 $2.252673 $2.848437 $1.039845
July 1, 1996
Initial Offering Value $1.000000
December 31, 1995
Purchase Units in Force 164,417,848 73,369,250 51,907,757 187,862,232 32,750,120 455,255,243
Purchase Unit Value $1.466652 $1.530780 $1.545802 $1.997175 $1.835102 $2.343900
December 31, 1994
Purchase Units in Force 32,633,370 25,691,713 75,765,781 42,726,137 29,015,764 416,234,288
Purchase Unit Value $1.001834 $1.301357 $1.479129 $1.247713 $1.333899 $1.724134
April 29, 1994
Purchase Unit Value(2) $1.000000 -- -- $1.000000 -- --
December 31, 1993
Purchase Units in Force -- 18,155,381 24,799,810 -- 26,230,566 369,550,060
Purchase Unit Value -- $1.258340 $1.439327 -- $1.366979 $1.729327
December 31, 1992
Purchase Units in Force -- 6,245,713 23,414,474 -- 16,956,437 283,808,045
Purchase Unit Value -- $1.112826 $1.415690 -- $1.279516 $1.589718
December 31, 1991
Purchase Units in Force -- 953,038 25,545,494 -- 8,447,711 90,526,907
Purchase Unit Value -- $1.090499 $1.384882 -- $1.250634 $1.505641
October 1, 1991
Purchase Unit Value(2) -- $1.000000 -- -- -- --
December 31, 1990
Purchase Units in Force -- -- 25,246,481 -- 2,947,418 46,016,297
Purchase Unit Value -- -- $1.325393 -- $0.987666 $1.179000
December 31, 1989
Purchase Units in Force -- -- 15,949,534 -- 212,636 22,325,990
Purchase Unit Value -- -- $1.240599 -- $1.010003 $1.238782
October 2, 1989
Purchase Unit Value(2) -- -- -- -- $1.000000 --
December 31, 1988
Purchase Units in Force -- -- 9,429,191 -- -- 9,213,178
Purchase Unit Value -- -- $1.149516 -- -- $0.968670
<CAPTION>
NEUBERGER&
BERMAN
FOUNDERS GUARDIAN
GROWTH TRUST
DIVISION 30 DIVISION 29
----------- -----------
<S> <C> <C>
December 31, 1997
Purchase Units in Force 132,167,162 35,406,663
Purchase Unit Value $1.289513 $1.307438
December 31, 1996
Purchase Units in Force 31,197,464 8,211,592
Purchase Unit Value $1.029522 $1.120770
July 1, 1996
Initial Offering Value $1.000000 $1.000000
December 31, 1995
Purchase Units in Force
Purchase Unit Value
December 31, 1994
Purchase Units in Force
Purchase Unit Value
April 29, 1994
Purchase Unit Value(2)
December 31, 1993
Purchase Units in Force
Purchase Unit Value
December 31, 1992
Purchase Units in Force
Purchase Unit Value
December 31, 1991
Purchase Units in Force
Purchase Unit Value
October 1, 1991
Purchase Unit Value(2)
December 31, 1990
Purchase Units in Force
Purchase Unit Value
December 31, 1989
Purchase Units in Force
Purchase Unit Value
October 2, 1989
Purchase Unit Value(2)
December 31, 1988
Purchase Units in Force
Purchase Unit Value
</TABLE>
- ------------
(1) 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.
(2) Purchase Unit Value At Date Of Inception.
8
<PAGE> 17
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
VANGUARD VANGUARD
FIXED FIXED
INCOME INCOME
SECURITIES SECURITIES
PUTNAM SCUDDER FUND- FUND-
PUTNAM OTC & GROWTH LONG-TERM LONG-TERM
GLOBAL PUTNAM NEW EMERGING AND TEMPLETON CORPORATE U.S. TREASURY VANGUARD/ VANGUARD/
GROWTH OPPORTUNITIES GROWTH INCOME FOREIGN PORTFOLIO PORTFOLIO WELLINGTON WINDSOR II
DIVISION 28 DIVISION 26 DIVISION 27 DIVISION 21 DIVISION 32 DIVISION 22 DIVISION 23 DIVISION 25 DIVISION 24
- ----------- ----------- ----------- ----------- ----------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
49,548,732 143,395,066 99,785,041 94,225,984 159,201,107 17,371,407 20,041,920 116,429,781 187,929,868
$1.186775 $1.149453 $0.976262 $1.436011 $1.135778 $1.176649 $1.178938 $1.340109 $1.464949
16,648,600 53,001,699 48,902,828 16,524,046 36,671,828 3,370,441 4,174,369 22,866,634 37,292,761
$1.057690 $0.947573 $0.894978 $1.114950 $1.075896 $1.047595 $1.048470 $1.101584 $1.120855
$1.000000 $1.000000 $1.000000 $1.000000 $1.000000 $1.000000 $1.000000 $1.000000 $1.000000
</TABLE>
- ------------
Financial statements of VALIC Separate Account A are included in the Statement
of Additional Information, which is available upon request. Purchase units shown
are for a Purchase Unit outstanding throughout the year under a representative
Contract of the type invested in each column shown. The unit value of each
Division of VALIC Separate Account A will not be the same on any given day as
the net asset value per share of the underlying Fund of the Series Company and
the other mutual fund portfolios described in this prospectus in which that
Division invests. This is because each unit value consists of the underlying
share's net asset value minus the charges to VALIC Separate Account A. In
addition, dividends declared by the underlying Fund are reinvested by the
Division in additional shares. These distributions have the effect of reducing
the value of each share of the Fund and increasing the number of Fund shares
outstanding. However, the total cash value in VALIC Separate Account A does not
change as a result of such distributions.
9
<PAGE> 18
- --------------------------------------------------------------------------------
ABOUT PORTFOLIO DIRECTOR 2
Portfolio Director 2 was developed to help you save money for your retirement.
It offers you a combination of fixed and variable investment options that you
can invest in to help you reach your retirement savings goals. Your
contributions to Portfolio Director 2 can come from different sources, like
payroll deductions or money transfers. Your retirement savings process with
Portfolio Director 2 will involve two stages: the Purchase Period; and the
Payout Period. The first is when you make contributions into Portfolio Director
2 called "Purchase Payments." The second, is when you receive your retirement
payouts. For more information, see "Purchase Period" and the "Payout Period" in
this prospectus.
You may choose, depending upon your retirement savings goals, your personal risk
tolerances, and your retirement plan, to invest in the Fixed Account Options
and/or the Variable Account Options described in this prospectus. When you
decide to retire, or otherwise withdraw your money, you can select from a wide
array of payout options including both fixed and variable payments. In addition,
this prospectus will describe for you all fees and charges that may apply to
your participation in Portfolio Director 2.
ABOUT VALIC
We are a life insurance company organized in 1955 and located in the State of
Texas. Our main business is issuing and offering fixed and variable retirement
annuity contracts, like Portfolio Director 2. Our principal offices are located
at 2929 Allen Parkway, Houston, Texas 77019. We have Regional Offices throughout
the United States. The addresses for these offices are given in the back of this
prospectus.
VALIC is a member of the American General Corporation group of companies.
Members of the American General Corporation group of companies operate in each
of the 50 states, the District of Columbia, and Canada and collectively provide
financial services with activities heavily weighted toward insurance.
ABOUT VALIC SEPARATE ACCOUNT A
When you direct money to Portfolio Director 2's Variable Account Options, you
will be sending that money through VALIC's Separate Account A. You do not invest
directly in the Mutual Funds made available in Portfolio Director 2. VALIC's
Separate Account A invests in the Mutual Funds on behalf of your account.
VALIC Separate Account A is made up of what we call "Divisions." Eighteen
Divisions are available and represent the Variable Account Options in Portfolio
Director 2. Each of these Divisions invests in a different Mutual Fund made
available through Portfolio Director 2. For example, Division Ten represents and
invests in the Stock Index Fund. The earnings (or losses) of each Division are
credited to (or charged against) the assets of that Division, and do not affect
the performance of the other Divisions of VALIC Separate Account A.
VALIC established Separate Account A in 1979 under Texas insurance law to allow
you to be able to invest in a number of Variable Account Options available in
Portfolio Director 2. VALIC Separate Account A is registered with the Securities
and Exchange Commission (SEC) as a unit investment trust under the Investment
Company Act of 1940. Units of interest in VALIC Separate Account A are
registered as securities under the Securities Act of 1933.
VALIC Separate Account A is administered and accounted for as part of VALIC's
business operations. However, the income, capital gains or capital losses,
whether or not realized of each Division of VALIC Separate Account A are
credited to or charged against the assets held in that Division without regard
to the income, capital gains or capital losses of any other Division or arising
out of any other business the Company may conduct. In accordance with the terms
of Portfolio Director 2, VALIC Separate Account A may not be charged with the
liabilities of any other VALIC operation. As stated in Portfolio Director 2, the
Texas Insurance Code requires that the assets of VALIC Separate Account A
attributable to Portfolio Director 2 be held exclusively for the benefit of the
contract owner, participants, annuitants, and beneficiaries of Portfolio
Director 2. When we discuss performance information in this prospectus, we mean
the performance of a VALIC Separate Account A Division.
UNITS OF INTERESTS
Your investment in a Division of VALIC Separate Account A is represented by
units of interest issued by VALIC Separate Account A. On a daily basis, the
units of interest issued by VALIC Separate Account A are revalued to reflect
that day's performance of the underlying mutual fund minus any applicable fees
and charges to VALIC Separate Account A.
All inquiries regarding
PORTFOLIO DIRECTOR 2
may be directed to your
VALIC Regional Office at
the addresses shown in the
back of this prospectus.
MUTUAL FUND OR FUND --
the investment portfolio(s)
of a registered open-end
management investment
company, which serves as
the underlying investment
vehicle for each Division
represented in VALIC
Separate Account A.
For more information about
VALIC, see the Statement of
Additional Information
10
<PAGE> 19
VARIABLE ACCOUNT OPTIONS
- --------------------------------------------------------------------------------
Portfolio Director 2 enables you to participate in Divisions that represent
eighteen Variable Account Options. These Divisions comprise all of the Variable
Account Options that are made available to you through VALIC Separate Account A.
See "About VALIC Separate Account A" in this prospectus.
Each individual Division represents and invests, through VALIC's Separate
Account A, in specific mutual funds. Twelve of the Mutual Funds are also
available to the general public. These mutual funds serve as the investment
vehicles for Portfolio Director 2 and include:
- - American General Series Portfolio
Company (AGSPC) -- offers 6 funds, for which VALIC serves as investment
adviser.
- - American Century Investments -- offers 1 fund for which American Century
Investment Management, Inc. serves as investment adviser.
- - Founders Funds, Inc. -- offers 1 fund for which Founders Asset Management LLC
serves as investment adviser.
- - Neuberger&Berman Management Inc. -- offers 1 fund for which Neuberger&Berman
Management Inc. serves as investment manager and Neuberger&Berman LLC, serves
as sub-adviser.
- - Putnam Investments -- offers 3 funds for which Putnam Investment Management
Inc., serves as investment adviser.
- - Scudder Kemper Investments, Inc. -- offers 1 fund for which Scudder Kemper
Investments, Inc. serves as investment adviser.
- - Templeton Funds Inc. -- offers 1 fund for which Templeton Global Advisors
Limited serves as investment adviser.
- - The Vanguard Group Inc. -- offers 4 funds for which Barrow, Hanley, Mewhinney
& Strauss, Inc., Equinox Capital Management, Inc., Tukman Capital Management,
Inc., Vanguard Core Management Group, Wellington Management Company, LLP and
Vanguard Fixed Income Group serve as investment advisers.
Each of these Funds (except for AGSPC's International Government Bond Fund which
is a non-diversified Fund) is registered as a diversified open-end, management
investment company and is regulated under the Investment Company Act of 1940.
For complete information about each of these Funds, including charges and
expenses, you should refer to the prospectus for that Fund. Additional copies
are available from VALIC or you may contact your VALIC Regional Office at the
addresses shown in the back of this prospectus.
SUMMARY OF FUNDS
A brief summary of the investment objectives of each Mutual Fund is shown below.
In addition to the investment objectives, the Account Value of an assumed
$10,000 investment in each of the Divisions is shown in both table and graph
form. This will reflect a deduction for separate account fees (mortality and
expense risk fees plus administration and distribution fees minus any applicable
reimbursements) and underlying fund charges. This will not reflect any deduction
for account maintenance fees, surrender charges and premium taxes. These charges
would further reduce your return. The Account Values shown in the graphs reflect
Separate Account performance based on the performance of the underlying Fund for
the last 10 fiscal years or, since inception of the underlying Fund if for less
than 10 years. The returns shown in the tables reflect for the AGSPC Funds
actual historical performance of the related Separate Account Divisions. The
returns shown in the tables for the other Funds (Divisions 21-32) reflect actual
historical performance of the related Separate Account Divisions since inception
of each Division (July 1, 1996) and hypothetical performance for periods prior
to July 1, 1996. Hypothetical performance is based on the actual performance of
the underlying Fund reduced by Separate Account fees that would have been
incurred during the hypothetical period. Investment return and principal value
will fluctuate with market conditions, and for foreign investments, currencies
and the economic and political climates of the countries where investments are
made. Past performance cannot predict or guarantee future results.
For more information about how these returns were calculated including a
statement of the charges reflected and tables showing historical performance
information see "How to Review Investment Performance of Separate Account
Divisions" in this prospectus.
VARIABLE ACCOUNT
OPTIONS -- investment
options that correspond
to Separate Account
Divisions offered by
Portfolio Director 2.
Investment returns on
Variable Account
Options may be positive
or negative depending on
the investment
performance of the
underlying Mutual Fund.
11
<PAGE> 20
AGSPC
GROWTH FUND
(Division 15)
- ---------------------------------------------------------------
INVESTMENT OBJECTIVE
Seeks to provide long-term growth of capital through investment primarily in
common stocks of U.S. growth companies engaged in service-related activities.
<TABLE>
<CAPTION>
Annual Value of a $10,000
Stipulated Payment made
April 29,1994 $ Value
- ------------------------- -------
<S> <C>
04/29/94 $10,000
12/31/94 10,018
12/31/95 14,667
12/31/96 17,333
12/31/97 20,765
</TABLE>
VALUE AT MONTHLY INTERVALS OF A $10,000
STIPULATED PAYMENT MADE APRIL 29, 1994
[CHART]
PERIOD ENDED DECEMBER 31
AGSPC
INTERNATIONAL GOVERNMENT
BOND FUND
(Division 13)
- ---------------------------------------------------------------
INVESTMENT OBJECTIVE
Seeks high current income through investments primarily in high quality debt
securities issued or guaranteed by foreign governments.
<TABLE>
<CAPTION>
Annual Value of a $10,000
Stipulated Payment made
October 1, 1991 $ Value
- ------------------------- -------
<S> <C>
10/01/91 $10,000
12/31/91 10,905
12/31/92 11,128
12/31/93 12,583
12/31/94 13,014
12/31/95 15,308
12/31/96 15,822
12/31/97 14,906
</TABLE>
VALUE AT MONTHLY INTERVALS OF A $10,000
STIPULATED PAYMENT MADE OCTOBER 1, 1991
[CHART]
PERIOD ENDED DECEMBER 31
12
<PAGE> 21
AGSPC
MONEY MARKET FUND
(Division 6)
- ---------------------------------------------------------------
INVESTMENT OBJECTIVE
Seeks liquidity, protection of capital and current income through investments in
short-term money market instruments.
<TABLE>
<CAPTION>
Annual Value of a $10,000
Stipulated Payment made
January 1, 1988 $ Value
- ------------------------- -------
<S> <C>
01/01/88 $10,000
12/31/88 10,572
12/31/89 11,410
12/31/90 12,190
12/31/91 12,737
12/31/92 13,020
12/31/93 13,238
12/31/94 13,604
12/31/95 14,217
12/31/96 14,782
12/31/97 15,392
</TABLE>
VALUE AT MONTHLY INTERVALS OF A $10,000
STIPULATED PAYMENT MADE JANUARY 1, 1988
[CHART]
PERIOD ENDED DECEMBER 31
AGSPC
SCIENCE & TECHNOLOGY FUND
(Division 17)
- ---------------------------------------------------------------
INVESTMENT OBJECTIVE
Seeks long-term growth of capital through investment primarily in the common
stocks and equity-related securities of companies that are expected to benefit
from the development, advancement and use of science and technology.
<TABLE>
<CAPTION>
Annual Value of a $10,000
Stipulated Payment made
April 29, 1994 $ Value
- ------------------------- -------
<S> <C>
04/29/94 $10,000
12/31/94 12,477
12/31/95 19,972
12/31/96 22,505
12/31/97 22,857
</TABLE>
VALUE AT MONTHLY INTERVALS OF A $10,000
STIPULATED PAYMENT MADE APRIL 29, 1994
[CHART]
PERIOD ENDED DECEMBER 31
13
<PAGE> 22
AGSPC
SOCIAL AWARENESS FUND
(Division 12)
- ---------------------------------------------------------------
INVESTMENT OBJECTIVE
Seeks to obtain growth of capital through investment, primarily in common
stocks, in companies which meet the social criteria established for the Fund.
<TABLE>
<CAPTION>
Annual Value of a $10,000
Stipulated Payment made
October 2, 1989 $ Value
- ------------------------- -------
<S> <C>
10/02/89 $10,000
12/31/89 10,100
12/31/90 9,877
12/31/91 12,506
12/31/92 12,795
12/31/93 13,670
12/31/94 13,339
12/31/95 18,351
12/31/96 22,527
12/31/97 29,853
</TABLE>
VALUE AT MONTHLY INTERVALS OF A $10,000
STIPULATED PAYMENT MADE OCTOBER 2, 1989
[CHART]
PERIOD ENDED DECEMBER 31
AGSPC
STOCK INDEX FUND
(Division 10)
- ---------------------------------------------------------------
INVESTMENT OBJECTIVE
Seeks long-term capital growth through investment in common stocks that, as a
group, are expected to provide investment results closely corresponding to the
performance of the Standard & Poor's 500 Stock Index(R)*.
<TABLE>
<CAPTION>
Annual Value of a $10,000
Stipulated Payment made
January 1, 1988 $ Value
- ------------------------- -------
<S> <C>
01/01/88 $10,000
12/31/88 11,313
12/31/89 14,468
12/31/90 13,770
12/31/91 17,584
12/31/92 18,566
12/31/93 20,197
12/31/94 20,136
12/31/95 27,374
12/31/96 33,267
12/31/97 43,836
</TABLE>
VALUE AT MONTHLY INTERVALS OF A $10,000
STIPULATED PAYMENT MADE JANUARY 1, 1988
[CHART]
PERIOD ENDED DECEMBER 31
* "Standard & Poor's(R)", "S&P(R)" and "S&P 500(R)" are trademarks of Standard
and Poor's ("S&P"). The Stock Index Fund is not sponsored, endorsed, sold or
promoted by S&P and S&P makes no representation regarding the advisability of
investing in this Fund.
14
<PAGE> 23
AMERICAN CENTURY --
TWENTIETH CENTURY ULTRA
FUND
Investor Class Shares
(Division 31)
- ---------------------------------------------------------------
INVESTMENT OBJECTIVE
Seeks capital growth. The Fund invests primarily in common stocks that are
considered to have better-than-average prospects for appreciation.
<TABLE>
<CAPTION>
Annual Value of a $10,000
Stipulated Payment made
January 1, 1988 $ Value
- ------------------------- -------
<S> <C>
01/01/88 $10,000
12/31/88 11,212
12/31/89 15,192
12/31/90 16,440
12/31/91 30,331
12/31/92 30,392
12/31/93 36,634
12/31/94 34,939
12/31/95 47,599
12/31/96 53,516
12/31/97 65,152
</TABLE>
VALUE AT MONTHLY INTERVALS OF A $10,000
STIPULATED PAYMENT MADE JANUARY 1, 1988
[CHART]
PERIOD ENDED DECEMBER 31
FOUNDERS GROWTH FUND
(Division 30)
- ---------------------------------------------------------------
INVESTMENT OBJECTIVE
Seeks long-term growth of capital. Fund invests primarily in common stocks of
well established, high-quality growth companies.
<TABLE>
<CAPTION>
Annual Value of a $10,000
Stipulated Payment made
January 1, 1988 $ Value
- ------------------------- -------
<S> <C>
01/01/88 $10,000
12/31/88 10,378
12/31/89 14,565
12/31/90 12,893
12/31/91 18,817
12/31/92 19,422
12/31/93 24,143
12/31/94 23,107
12/31/95 33,312
12/31/96 38,426
12/31/97 48,130
</TABLE>
VALUE AT MONTHLY INTERVALS OF A $10,000
STIPULATED PAYMENT MADE JANUARY 1, 1988
[CHART]
PERIOD ENDED DECEMBER 31
15
<PAGE> 24
NEUBERGER&BERMAN
GUARDIAN TRUST*
(Division 29)
- ---------------------------------------------------------------
INVESTMENT OBJECTIVE
Seeks capital appreciation and, secondarily, current income. The Trust invests
primarily in common stocks of long-established, high quality companies.
<TABLE>
<CAPTION>
Annual Value of a $10,000
Stipulated Payment made
January 1, 1988 $ Value
- ------------------------- -------
<S> <C>
01/01/88 $10,000
12/31/88 12,679
12/31/89 15,254
12/31/90 14,393
12/31/91 19,146
12/31/92 22,560
12/31/93 25,359
12/31/94 25,492
12/31/95 33,316
12/31/96 38,826
12/31/97 45,293
</TABLE>
VALUE AT MONTHLY INTERVALS OF A $10,000
STIPULATED PAYMENT MADE JANUARY 1, 1988
[CHART]
PERIOD ENDED DECEMBER 31
PUTNAM GLOBAL GROWTH
FUND
Class A Shares (Division 28)
- ---------------------------------------------------------------
INVESTMENT OBJECTIVE
Seeks capital appreciation. Current income is only an incidental consideration
in selecting investments for the Fund. The Fund is designed for investors
seeking above-average capital growth potential through a globally diversified
portfolio of common stocks. Dividend and interest income is only an incidental
consideration.
<TABLE>
<CAPTION>
Annual Value of a $10,000
Stipulated Payment made
January 1, 1988 $ Value
- ------------------------- -------
<S> <C>
01/01/88 $10,000
12/31/88 10,797
12/31/89 13,315
12/31/90 11,972
12/31/91 13,985
12/31/92 13,880
12/31/93 18,120
12/31/94 17,789
12/31/95 20,224
12/31/96 23,331
12/31/97 26,179
</TABLE>
VALUE AT MONTHLY INTERVALS OF A $10,000
STIPULATED PAYMENT MADE JANUARY 1, 1988
[CHART]
PERIOD ENDED DECEMBER 31
* Neuberger&Berman Guardian Trust ("Trust") started operating on August 3,
1993. It has identical investment objectives and policies and invests in the
same portfolio as Neuberger&Berman Guardian Fund(SM) ("Fund"), which is also
managed by Neuberger& Berman Management Incorporated ("N&B Management"). The
performance information for the Trust before August 3, 1993 is for the Fund.
N&B Management voluntarily bears certain operating expenses of the Trust so
that the Trust's expense ratio per annum will not exceed the expense ratio
per annum of the Fund by more than 0.10% of the Trust's average daily net
assets per annum. This arrangement can be terminated on sixty days' prior
written notice. Absent such arrangement, the average annual total returns of
the Trust would have been less. The total returns for the periods prior to
the Trust's commencement of operations would have been lower had they
reflected the higher expense ratios of the Trust as compared to those of the
Fund.
16
<PAGE> 25
PUTNAM NEW OPPORTUNITIES
FUND
Class A Shares
(Division 26)
- ---------------------------------------------------------------
INVESTMENT OBJECTIVE
Seeks long-term capital appreciation. Current income is only an incidental
consideration. The Fund invests principally in common stocks of companies in
sectors of the economy which the Fund's investment adviser believes possess
above-average long-term growth potential.
<TABLE>
<CAPTION>
Annual Value of a $10,000
Stipulated Payment made
August 31, 1990 $ Value
- ------------------------- -------
<S> <C>
08/31/90 $10,000
12/31/90 11,041
12/31/91 18,317
12/31/92 22,780
12/31/93 29,932
12/31/94 30,620
12/31/95 44,354
12/31/96 48,656
12/31/97 59,023
</TABLE>
VALUE AT MONTHLY INTERVALS OF A $10,000
STIPULATED PAYMENT MADE AUGUST 31, 1990
[CHART]
PERIOD ENDED DECEMBER 31
PUTNAM OTC & EMERGING
GROWTH FUND
Class A Shares
(Division 27)
- ---------------------------------------------------------------
INVESTMENT OBJECTIVE
Seeks capital appreciation. The Fund invests primarily in common stocks traded
in the over-the-counter ("OTC") market and common stocks, of "emerging growth"
companies listed on securities exchanges. The Fund is designed for investors
willing to assume above-average risk in return for above average capital growth
potential. The Fund may trade securities for short-term profits.
<TABLE>
<CAPTION>
Annual Value of a $10,000
Stipulated Payment made
January 1, 1988 $ Value
- ------------------------- -------
<S> <C>
01/01/88 $10,000
12/31/88 11,505
12/31/89 14,692
12/31/90 13,117
12/31/91 18,292
12/31/92 20,410
12/31/93 26,687
12/31/94 27,018
12/31/95 41,720
12/31/96 43,191
12/31/97 47,114
</TABLE>
VALUE AT MONTHLY INTERVALS OF A $10,000
STIPULATED PAYMENT MADE JANUARY 1, 1988
[CHART]
PERIOD ENDED DECEMBER 31
17
<PAGE> 26
SCUDDER GROWTH AND
INCOME FUND
(Division 21)
- ---------------------------------------------------------------
INVESTMENT OBJECTIVE
Seeks long-term growth of capital, current income and growth of income. The Fund
invests primarily in common stocks, preferred stocks, and securities convertible
into common stocks of companies which offer the prospect for growth of earnings
while paying current dividends.
<TABLE>
<CAPTION>
Annual Value of a $10,000
Stipulated Payment made
January 1, 1988 $ Value
- ------------------------- -------
<S> <C>
01/01/88 $10,000
12/31/88 11,063
12/31/89 13,807
12/31/90 13,319
12/31/91 16,861
12/31/92 18,244
12/31/93 20,829
12/31/94 21,107
12/31/95 27,346
12/31/96 32,987
12/31/97 42,486
</TABLE>
VALUE AT MONTHLY INTERVALS OF A $10,000
STIPULATED PAYMENT MADE JANUARY 1, 1988
[CHART]
PERIOD ENDED DECEMBER 31
TEMPLETON FOREIGN FUND
Class 1 Shares
(Division 32)
- ---------------------------------------------------------------
INVESTMENT OBJECTIVE
Seeks long-term capital growth. Any income realized will be incidental. The Fund
tries to achieve its goal by a flexible policy of investing in stocks and debt
obligations of companies and governments outside the United States.
<TABLE>
<CAPTION>
Annual Value of a $10,000
Stipulated Payment made
January 1, 1988 $ Value
- ------------------------- -------
<S> <C>
01/01/88 $10,000
12/31/88 12,083
12/31/89 15,616
12/31/90 14,998
12/31/91 17,564
12/31/92 17,407
12/31/93 23,581
12/31/94 23,432
12/31/95 25,792
12/31/96 30,110
12/31/97 31,786
</TABLE>
VALUE AT MONTHLY INTERVALS OF A $10,000
STIPULATED PAYMENT MADE JANUARY 1, 1988
[CHART]
PERIOD ENDED DECEMBER 31
18
<PAGE> 27
VANGUARD FIXED
INCOME SECURITIES
FUND -- LONG-TERM
CORPORATE PORTFOLIO
Institutional Class Shares
(Division 22)
- ---------------------------------------------------------------
INVESTMENT OBJECTIVE
Seeks high level of current income consistent with the maintenance of principal
and liquidity. The Portfolio invests in a diversified portfolio of investment
grade bonds.
<TABLE>
<CAPTION>
Annual Value of a $10,000
Stipulated Payment made
January 1, 1988 $ Value
- ------------------------- -------
<S> <C>
01/01/88 $10,000
12/31/88 10,835
12/31/89 12,325
12/31/90 12,929
12/31/91 15,440
12/31/92 16,740
12/31/93 18,931
12/31/94 17,708
12/31/95 22,107
12/31/96 21,947
12/31/97 24,651
</TABLE>
VALUE AT MONTHLY INTERVALS OF A $10,000
STIPULATED PAYMENT MADE JANUARY 1, 1988
[CHART]
PERIOD ENDED DECEMBER 31
VANGUARD FIXED
INCOME SECURITIES
FUND -- LONG-TERM
U.S. TREASURY PORTFOLIO
Institutional Class Shares
(Division 23)
- ---------------------------------------------------------------
INVESTMENT OBJECTIVE
Seeks high level of current income consistent with the maintenance of principal
and liquidity. The Portfolio invests primarily in long-term U.S. Treasury
securities backed by the full faith and credit of the U.S. Government. At least
65% of the Fund assets will be invested in U.S. Treasury bills, notes and bonds.
<TABLE>
<CAPTION>
Annual Value of a $10,000
Stipulated Payment made
January 1, 1988 $ Value
- ------------------------- -------
<S> <C>
01/01/88 $10,000
12/31/88 10,781
12/31/89 12,558
12/31/90 13,120
12/31/91 15,218
12/31/92 16,143
12/31/93 18,621
12/31/94 17,097
12/31/95 21,972
12/31/96 21,295
12/31/97 23,945
</TABLE>
VALUE AT MONTHLY INTERVALS OF A $10,000
STIPULATED PAYMENT MADE JANUARY 1, 1988
[CHART]
PERIOD ENDED DECEMBER 31
19
<PAGE> 28
VANGUARD/WELLINGTON FUND
Institutional Class Shares
(Division 25)
- ---------------------------------------------------------------
INVESTMENT OBJECTIVE
Seeks conservation of principal, a reasonable income return, and profits without
undue risk.
This Fund seeks relative capital stability, a reasonable level of income, and
the potential for capital appreciation. By balancing its investments among
common stocks and bonds, the Fund is expected to provide lower investment risk
and share price volatility (and a lower return in the long run) than a mutual
fund which invests exclusively in common stocks.
<TABLE>
<CAPTION>
Annual Value of a $10,000
Stipulated Payment made
January 1, 1988 $ Value
- ------------------------- -------
<S> <C>
01/01/88 $10,000
12/31/88 11,467
12/31/89 13,773
12/31/90 13,221
12/31/91 16,147
12/31/92 17,211
12/31/93 19,297
12/31/94 18,966
12/31/95 24,901
12/31/96 28,559
12/31/97 34,743
</TABLE>
VALUE AT MONTHLY INTERVALS OF A $10,000
STIPULATED PAYMENT MADE JANUARY 1, 1988
[CHART]
PERIOD ENDED DECEMBER 31
VANGUARD/WINDSOR II
Institutional Class Shares
(Division 24)
- ---------------------------------------------------------------
INVESTMENT OBJECTIVE
Seeks to provide long-term growth of capital and income by investing primarily
in common stocks. The Fund's secondary objective is to provide current income.
<TABLE>
<CAPTION>
Annual Value of a $10,000
Stipulated Payment made
January 1, 1988 $ Value
- ------------------------- -------
<S> <C>
01/01/88 $10,000
12/31/88 12,319
12/31/89 15,553
12/31/90 13,828
12/31/91 17,577
12/31/92 19,441
12/31/93 21,814
12/31/94 21,294
12/31/95 29,200
12/31/96 35,788
12/31/97 46,775
</TABLE>
VALUE AT MONTHLY INTERVALS OF A $10,000
STIPULATED PAYMENT MADE JANUARY 1, 1988
[CHART]
PERIOD ENDED DECEMBER 31
20
<PAGE> 29
PURCHASE PERIOD
- --------------------------------------------------------------------------------
The Purchase Period begins when your first Purchase Payment is made and
continues until you begin your Payout Period. The Purchase Period can also end
when a Portfolio Director 2 account is surrendered before the Payout Period. The
amount, number, and frequency of your Purchase Payments is determined by the
retirement plan for which Portfolio Director 2 was purchased.
PURCHASE PAYMENTS
You may establish an account only through a VALIC representative. Initial
Purchase Payments must be received by VALIC either with, or after, a completed
application. Your employer is usually responsible for remitting Purchase
Payments to us. The employer is responsible for furnishing instructions to us (a
premium flow report) as to the amount being applied to your account.
Minimum initial and subsequent Purchase Payments are as follows:
<TABLE>
<CAPTION>
Initial Subsequent
Contract Type Payment Payment
<S> <C> <C>
Periodic Payment $ 30 $ 30
Single Payment $1,000 -0-
</TABLE>
Periodic Payment minimums apply to each Fixed Account Option or Variable Account
Option selected. The Single Payment minimum applies to each of your accounts.
Purchase Payments are received in VALIC's Home Office. When an initial Purchase
Payment is accompanied by an application, within 2 business days we will:
- - Accept the Application -- and issue a contract. We will also establish your
account and apply your Purchase Payment by crediting the amount to the Fixed
Account Option or Variable Account Option selected;
- - Reject the Application -- and return the Purchase Payment; or
- - Request Additional Information -- to correct or complete the application.
If we receive Purchase Payments from your employer before we receive your
completed application or enrollment form, we will not be able to establish a
permanent account for you. Under those circumstances, we will take one of the
following actions:
Return Purchase Payments. If we do not have your name, address or social
security number, we will return the Purchase Payment to your employer unless
this information is immediately provided to us.
Employer-Directed Account. If we have your name, address and social security
number and we have an Employer-Directed Account Agreement from your employer,
generally we will deposit your Purchase Payment
in an "Employer-Directed" account invested in our Money Market Division
Option. You may not transfer these amounts until VALIC has received a
completed application or enrollment form.
Starter Account. If we have your name, address and social security number, but
we do not have an Employer-Directed Account Agreement from your employer, we
will deposit your Purchase Payment in a "starter" account invested in the
Money Market Division. We will send you follow-up letters requesting the
information necessary to complete the application, including your allocation
instructions. Unless a completed application or enrollment form is received by
us within 105 days of establishment of your starter account, the account
balance, including earnings, will be returned to your employer. We are not
responsible for any adverse tax consequences to you that may result from the
return of your employer's contributions.
PURCHASE UNITS
A Purchase Unit is a unit of interest owned by you in your Variable Account
Option. Purchase Units apply only to the Variable Account Options selected for
your account. Purchase Unit values are calculated at the close of regular
trading of the New York Stock Exchange (the "Exchange"), currently 4:00 p.m. New
York time (see Calculation of Purchase Unit Value below for more information.)
Purchase Units will be credited the same business day if Purchase Payments are
received by our Home Office before the close of the Exchange. If not, they will
be calculated and credited the next business day. Purchase Unit values will vary
depending on the net investment results of each of the Variable Account Options.
This means the value of your Variable Account Option will fluctuate.
CALCULATION OF PURCHASE UNIT VALUE
The Purchase Unit value for a Division is calculated as shown below:
Step 1: Calculate the gross investment rate:
Gross Investment Rate
= (EQUALS)
The Division's investment income and capital gains and losses (whether
realized or unrealized) on that day from the assets attributable to the
Division.
/ (DIVIDED BY)
The value of the Division for the immediately preceding day on which the
values are calculated.
PURCHASE PAYMENTS -- an
amount of money you pay to
VALIC to receive the benefits
of an annuity Contract offered
by Portfolio Director 2.
For more information as to
how PURCHASE UNIT VALUES
are calculated, see the
Statement of Additional
Information.
21
<PAGE> 30
- --------------------------------------------------------------------------------
We calculate the gross investment rate as of 4:00 p.m. New York time on each
business day when the New York Stock Exchange is open.
Step 2: Calculate net investment rate for any day as follows:
Net Investment Rate
= (EQUALS)
Gross Investment Rate (calculated in Step 1)
- - (MINUS)
Separate Account charges and any income tax charges.
Step 3: Determine Purchase Unit Value for that day.
Purchase Unit Value for that day.
= (EQUALS)
Purchase Unit Value for immediate preceding day.
X (MULTIPLIED BY)
Net Investment Rate (as calculated in Step 2) plus 1.00.
CHOOSING INVESTMENT OPTIONS
There are 20 investment options offered in Portfolio Director 2. This includes 2
Fixed Account Options and 18 Variable Account Options. Unless provided
otherwise, you
may select and combine up to 7 of the 20 options. The Funds that underlie the
Variable Account Options are registered as investment companies under and are
subject to regulation of the Investment Company Act of 1940 (the Act). The Fixed
Account Options are not subject to regulation under the Act and are not required
to be registered under the Securities Act of 1933. As a result, the SEC has not
reviewed data in this prospectus that relates to the Fixed Account Options.
However, federal securities law does require such data to be accurate and
complete.
FIXED ACCOUNT OPTIONS
Each of the Fixed Account Options are part of the Company's general assets. You
may allocate all or a portion of your Purchase Payment to the Fixed Account
Options listed in "Profile of Portfolio Director 2 Contract" appearing in this
prospectus. Purchase Payments you allocate to these Fixed Account Options are
guaranteed to earn at least a minimum rate of interest. Interest is paid on each
of the Fixed Account Options at declared rates, which may be different for each
option. We bear the entire investment risk for the Fixed Account Option. All
Purchase Payments and interest earned on such amounts in your Fixed Account
Option will be paid regardless of the investment results experienced by the
Company's general assets.
Here is how you may calculate the value of your Fixed Account Option during the
Purchase Period:
Value of Your Fixed Account Options
= (EQUALS)
All Purchase Payments made to the Fixed Account Options
+ (PLUS)
Amounts transferred from Variable Account Options to the Fixed
Account Options
+ (PLUS)
All interest earned
- - (MINUS)
Amounts transferred or withdrawn from Fixed Account Options
(including applicable fees and charges)
VARIABLE ACCOUNT OPTIONS
You may allocate all or a portion of your Purchase Payments to the Variable
Account Options listed in this prospectus. A complete discussion of each of the
Variable Account Options may be found in the "Variable Account Options" section
in this prospectus. Based upon a Variable Account Option's Purchase Unit Value
your account will be credited with the applicable number of Purchase Units. The
Purchase Unit Value of each Variable Account Option will change daily depending
upon the investment performance of the underlying fund (which may be positive or
negative) and the deduction of VALIC Separate Account A charges. See the "Fees
and Charges" section in this prospectus. Because Purchase Unit Values change
daily, the number of Purchase Units your account will be credited with for
subsequent Purchase Payments will vary. Each Variable Account Option bears its
own investment risk. Therefore, the value of your account may be worth more or
less at retirement or withdrawal.
Here is how to calculate the value of each Variable Account Option in your
account during the Purchase Period:
Value of Your Variable Account Option
= (EQUALS)
Total Number of Purchase Units
X (MULTIPLIED BY)
Current Purchase Unit Value
STOPPING PURCHASE PAYMENTS
Purchase Payments may be stopped at any time. Purchase Payments may be resumed
at any time before your Portfolio Director 2 account has been surrendered. While
no Purchase Payments are being made, the number of Purchase Units outstanding
will remain the same. (This is assuming no transfers or withdrawals are made.)
The value of the Purchase Units will continue to vary. Your Account Value will
continue to be subject to charges.
If your Account Value falls below $300, and you do not make any Purchase
Payments for two years from the date we established your account, we may close
the account and pay the Account Value (less any surrender charge) to you.
PURCHASE UNIT -- a
measuring unit used to
calculate your Account Value
during the Purchase Period.
The value of a Purchase Unit
will vary with the investment
experience of the Separate
Account Division you have
selected.
22
<PAGE> 31
TRANSFERS BETWEEN INVESTMENT OPTIONS
- --------------------------------------------------------------------------------
You may transfer all or part of your Account Value between the various Fixed
Account and Variable Account Options in Portfolio Director 2 without a charge.
Transfer instructions may be made either in writing or by telephone as discussed
below. Transfers may be made during the Purchase Period or during the Payout
Period. We reserve the right to limit transfers as discussed below. Your
employer's plan may also limit your rights to transfer.
DURING THE PURCHASE PERIOD
During the Purchase Period, transfers may be made between Portfolio Director 2's
Fixed Account Options and Variable Account Options.
We currently permit transfers between Variable Account Options or from Variable
Account Options to Fixed Account Options, at any time. We may, however, limit
the number of transfers you can make.
Transfers are also permitted from the Fixed Account Options subject to the
following limitations:
<TABLE>
<CAPTION>
FIXED OTHER
ACCOUNT OPTION VALUE FREQUENCY RESTRICTIONS
- -------------- ------------- ----------- ------------
<S> <C> <C> <C>
Fixed Account
Plus: Up to 20% per At any time None (1)
contract year
100% At any time If Account Value
is
less than or
equal
to $500
Short-Term
Fixed
Account: Up to 100% At any time 90-day Holding
Period If
transfer
was previously
made
into Short-Term
Fixed
Account.(2)
</TABLE>
- ---------------
(1) Your employer may further limit or expand the restrictions. We may charge
for those modified restrictions if specified in your employer's retirement
plan.
(2) VALIC may change this holding period at any time in the future, but it will
never be more than 180 days.
DURING THE PAYOUT PERIOD
During the Payout Period, transfers may be made between Portfolio Director 2's
investment options subject to the following limitations:
<TABLE>
<CAPTION>
% OF ACCOUNT
----------------------------------- OTHER
ACCOUNT OPTION VALUE FREQUENCY RESTRICTIONS
-------------- -------------- ------------------- ------------
<S> <C> <C> <C>
Variable: Up to 100% Once every 365 days None
Combination
Fixed
and Variable Up to 100% Once every 365 days None
Payout: of money in
variable
option payout
Fixed: Not permitted -- --
</TABLE>
COMMUNICATING TRANSFER OR
REALLOCATION INSTRUCTIONS
A written instruction to transfer or reallocate all or part of your Account
Value between the various investment options in Portfolio Director, should be
sent to VALIC's Home Office.
Instructions for transfers or reallocations may be made by calling
1-800-621-7792. Telephone transfers will be allowed unless we have been notified
not to accept such telephone instructions. In this event, we must receive
written instructions, in order to permit future telephone transfers to be made.
Before a transfer will be made by telephone, you must give us the requested
identifying information concerning your account(s).
Unless we have been instructed not to accept requests for telephone transfers,
anyone may effect a telephone transfer if they furnish the requested
information. You will bear any loss resulting from such instructions, whether
the caller was specifically authorized by you or not.
No one that we employ or that represents VALIC may give telephone instructions
on your behalf without VALIC's prior written permission. (This does not apply to
a contract with the immediate family of an employee or representative of VALIC).
We will send you a confirmation of the completed transfer within 5 days from the
date of your instruction. When you receive your confirmation, it is your duty to
verify the information shown, and advise us of any errors within one business
day.
You will bear the risk of loss arising from instructions received by telephone.
We are not responsible for the authenticity of such instructions. Any telephone
instructions which we reasonably believe to be genuine will be your
responsibility. This includes losses from errors in communication. Telephone
transfer instruction may not be made during the Payout Period. We reserve the
right to stop telephone transfers at any time.
EFFECTIVE DATE OF TRANSFER
The effective date of a transfer will be:
- - The date of receipt, if received in our Home Office before the close of
regular trading of the New York Stock Exchange on a day values are calculated;
(Normally, this will be 4:00 P.M. New York time); otherwise
- - The next date values are calculated.
ACCOUNT VALUE -- the total
sum of your Fixed Account
and/or Variable Account
Options that have not yet
been applied to your Payout
Payments.
PURCHASE PERIOD -- the time
between your first Purchase
Payment and your Payout
Period (or surrender).
HOME OFFICE -- Our
principal office at 2929 Allen
Parkway, Houston, Texas
77019.
PAYOUT PERIOD -- the time
that starts when you begin to
withdraw your money in a
steady stream of payments.
23
<PAGE> 32
FEES AND CHARGES
- --------------------------------------------------------------------------------
By investing in Portfolio Director 2, you may be subject to six basic types of
fees and charges:
- - Account Maintenance Fee
- - Surrender Charge
- - Premium Tax Charge
- - Separate Account Charges
- - Fund Annual Expense Charge
- - Other Tax Charges
These fees and charges are explained below. For additional information about
these fees and charges, see the Fee Table in this prospectus.
ACCOUNT MAINTENANCE FEE
An account maintenance fee of $3.75 will be deducted on the last day of each
calendar quarter if any of your money is invested in the Variable Account
Options. We will sell Purchase Units from your Account to pay the account
maintenance fee. If you invest only in Fixed Account Options during a calendar
quarter, this fee will not apply. If all your money in a Variable Account Option
is withdrawn, or transferred to a Fixed Account Option, the fee will be deducted
at that time. The fee will be assessed equally among the Variable Account
Options that make up your Account Value.
The account maintenance fee is to reimburse the Company for our administrative
expenses for providing Variable Account Options. This includes the expense for
establishing and maintaining the record keeping for the Variable Account
Options. We do not expect that the amount of fees we receive will be greater
than our expenses.
The amount of the account maintenance fee may be reduced or waived if Portfolio
Director 2 is issued to certain types of plans which are expected to result in
lower costs to VALIC. To learn more about how we determine if account
maintenance fees may be reduced or waived, see the "Reduction or Waiver of
Account Maintenance Fee, Surrender, Mortality and Expense Risk Fee or
Administration and Distribution Fee Charges" section in this prospectus. If you
have two or more accounts established under the same group contract, we may
agree to deduct an account maintenance fee from only one account.
SURRENDER CHARGE
When you withdraw money from your account, you may be subject to a surrender
charge. For information about your right to surrender, see "Surrender of Account
Value" in this prospectus.
It is assumed that the most recent Purchase Payments are withdrawn first. No
surrender charge will be applied unless an amount is
actually withdrawn. We consider all Purchase Payments to be withdrawn before
earnings are withdrawn.
Amounts exchanged from other contracts issued by the Company may or may not be
subject to a surrender charge. After exchange, it is assumed that any new
Purchase Payments are withdrawn before the exchanged amount. For more
information, see "Exchange Privilege" in the Statement of Additional
Information.
AMOUNT OF SURRENDER CHARGE
A surrender charge may not be greater than:
- - Five percent (5%) of the amount of all Purchase Payments received during the
past 60 months; or
- - Five percent (5%) of the amount withdrawn.
10% FREE WITHDRAWAL
In any Participant Year, up to 10% of the Account Value may be withdrawn without
a surrender charge. The surrender charge will apply to any amount withdrawn that
exceeds this 10% limit. The percentage withdrawn will be determined by dividing
the amount withdrawn by the Account Value just prior to the withdrawal. If more
than one withdrawal is made during a Participant Year, each percentage will be
added to determine at what point the 10% limit has been reached.
These 10% withdrawals without charge do not reduce Purchase Payments for the
purpose of computing the surrender charge. If a surrender charge is applied to
all or part of a Purchase Payment, no surrender charge will be applied to such
Purchase Payment (or portion thereof) again.
EXCEPTIONS TO SURRENDER CHARGE
No surrender charge will be applied:
- - To money applied to provide a Payout Option;
- - To death benefits;
- - If no Purchase Payments have been received during the 60 months prior to the
date of surrender;
- - If your account has been in effect for 15 years or longer;
- - If your account has been in effect for 5 years or longer, and you have
attained age 59 1/2;
- - To "No Charge Systematic Withdrawals";
- - Under certain contracts, to withdrawals under the No Charge Minimum
Distribution provisions;
PARTICIPANT YEAR -- the first
twelve month period and
then each yearly anniversary
of that period following the
issue date of the contract or
certificate.
24
<PAGE> 33
- --------------------------------------------------------------------------------
- - If you have become totally and permanently disabled, defined as follows: You
are unable, due to mental or physical impairment, to perform the material and
substantial duties of any occupation for which you are suited by means of
education, training or experience; the impairment must have been in existence
for more than 180 days; the impairment must be expected to result in death or
be long-standing and indefinite and proof of disability must be evidenced by a
certified copy of a Social Security Administration determination or a doctor's
verification; or
- - If you are at least 55 years old, are no longer employed by the employer that
established the plan, and your account under the plan was established at least
5 years prior to the date of surrender.
The surrender charge may be reduced or waived if Portfolio Director 2 is issued
to certain types of plans which are expected to result in lower costs to VALIC.
To learn more about how we determine if a surrender charge may be reduced or
waived, see the "Reduction or Waiver of Account Maintenance Fee, Surrender,
Mortality and Expense Risk Fee or Administration and Distribution Fee Charges"
section in this prospectus.
PREMIUM TAX CHARGE
Taxes on Purchase Payments are imposed by some states, cities, and towns. The
rate will range from zero to 3%.
If the law of a state, city, or town requires premium taxes to be paid when
Purchase Payments are made, we will, of course, comply. Otherwise, such tax will
be deducted from the Payout Value when annuity payments are to begin.
If we deduct an amount for premium taxes, but later find the tax was not due, we
will:
- - Adjust the amount deducted in error to reflect investment experience from the
date of the deduction to the date we determined the tax was not due; and
- - Apply the excess amount, as adjusted, to increase the number of Pay-in or
Payout Units.
SEPARATE ACCOUNT CHARGES
There will be a mortality and expense risk fee and an administration and
distribution fee applied to VALIC Separate Account A. This is a daily charge at
an annualized rate of 1.00% to 1.25% on the average daily net asset value of
VALIC Separate Account A. The exact rate depends on the Variable Account Option
selected. This charge is guaranteed and cannot be increased by the Company. The
mortality and expense risk fee is to compensate the Company for assuming
mortality and expense risks under Portfolio Director. The mortality risk that
the Company assumes is the obligation to provide payments during the Payout
Period for your life no matter how long that might be. In addition, the Company
assumes the obligation to pay during the Purchase Period an interest guaranteed
death benefit. For more information about the interest guaranteed death benefit
see the "Death Benefit" section of this prospectus. The expense risk is our
obligation to cover the cost of issuing and administering Portfolio Director 2,
no matter how large the cost may be.
The Company may make a profit on the mortality and expense risk fee and on the
administration and distribution fee.
The administration and distribution fee is to reimburse the Company for our
administrative expenses for providing Variable Account Options. This includes
the expense of administration and marketing (including but not limited to
enrollment, participant communication and education).
For more information about the mortality and expense risk fee and administration
and distribution fee, see the Fee Table in this prospectus.
The mortality and expense risk fee or administration and distribution fee may be
reduced or waived if issued to certain types of plans that are expected to
result in lower costs to VALIC. To learn more about how we determine if the
mortality and expense risk fee or administration and distribution fee may be
reduced or waived, see the "Reduction or Waiver of Account Maintenance Fee,
Surrender, Mortality and Expense Risk Fee or Administration and Distribution Fee
Charges" section of this prospectus.
FUND ANNUAL EXPENSE CHARGES
Investment management charges based on a percentage of each Fund's average daily
net assets are payable by each Fund. Depending on the Variable Account Option
selected, the charges will be paid by each Fund to its investment adviser. These
charges and other Fund charges and expenses are fully described in the
prospectuses for the Funds. These charges indirectly cost you because they lower
your return.
OTHER TAX CHARGES
We reserve the right to charge for certain taxes (other than premium taxes) that
we may have to pay. This could include federal income taxes. Currently, no such
charges are being made.
25
<PAGE> 34
- --------------------------------------------------------------------------------
REDUCTION OR WAIVER OF ACCOUNT
MAINTENANCE FEE, SURRENDER,
MORTALITY AND EXPENSE RISK FEE OR ADMINISTRATION AND DISTRIBUTION FEE CHARGES
We may, as described below, determine that the account maintenance fee,
surrender charges, mortality and expense risk fee or administration and
distribution fee for Portfolio Director 2 may be reduced or waived. We may
reduce or waive these fees and charges if we determine that your retirement
program will allow us to reduce or eliminate administrative or sales expenses
that we usually incur for retirement programs. There are a number of factors we
will review in determining whether your retirement program will allow us to
reduce or eliminate these administrative or sales expenses:
- The type of retirement program.
Certain types of retirement programs because of their stability can result
in lower administrative costs.
- The nature of your retirement program.
Certain types of retirement programs, due to the types of employees who
participate, experience fewer account surrenders thus reducing
administrative costs.
- Other factors of which we are not presently aware which could reduce
administrative costs.
We review the following additional factors to determine whether we can reduce
or waive account maintenance fees:
- The frequency of Purchase Payments for your retirement program.
Purchase Payments received no more than once a year can reduce
administrative costs.
- The administrative tasks performed by your employer for your retirement
program.
The employer sponsoring your retirement program can, through their method of
remitting Purchase Payments, reduce administrative costs.
We review the following additional factors to determine whether we can reduce or
waive surrender charges:
- The size of your retirement program.
A retirement program which involves a larger group of employees may allow us
to reduce sales expenses.
- The total amount of Purchase Payments to be received for your retirement
program.
Larger Purchase Payments can reduce sales expenses.
- The use of mass enrollment or related administrative tasks performed by your
employer for your retirement program.
We review the following additional factors to determine whether we can reduce
or waive the mortality and expense risk fee or administration and distribution
fee:
- The frequency of Purchase Payments for your retirement program.
- The size of your retirement program.
- The amount of your retirement program's periodic purchase payment.
We will only do this if permitted by this Contract and by VALIC guidelines in
effect at the time. In no event will the reduction or waiver of fees and
charges be permitted where the reduction or waiver will unfairly discriminate
against any person.
SEPARATE ACCOUNT EXPENSE
REIMBURSEMENT
Some of the Mutual Funds or their affiliates may have an agreement with the
Company to pay the Company for certain administrative and shareholder services
it provides to the underlying Fund. The Company will reduce its charges to the
Division investing in that Fund by the full amount of any of these payments it
receives. In addition, the Company currently reimburses certain Divisions a
portion of the Company's administration and distribution fee. Such
reimbursement arrangements are voluntary. See the Fee Table in this prospectus
for an identification of those Funds for which a reimbursement applies.
26
<PAGE> 35
PAYOUT PERIOD
- --------------------------------------------------------------------------------
The Payout Period (Annuity Period) begins when you decide to retire or otherwise
withdraw your money in a steady stream of payments. If your employer's plan
permits, you may apply any portion of your Account Value to one of the types of
Payout Options listed below. You may choose to have your Payout Option on either
a fixed, a variable, or a combination payout basis. When you choose to have your
Payout Option on a variable basis, you may keep the same Variable Account
Options in which your Purchase Payments were made, or transfer to different
ones.
FIXED PAYOUT
Under Fixed Payout, you will receive payments from the Company. These payments
are fixed and guaranteed by the Company. The amount of these payments will
depend on:
- Type and duration of Payout Option chosen;
- Your age or your age and the age of your survivor (1);
- Your sex or your sex and the sex of your survivor (1) (IRA's and certain
nonqualified contracts);
- The portion of your Account Value being applied; and
- The payout rate being applied and the frequency of the payments.
(1) This applies only to joint and survivor payouts.
If the benefit would be greater, the amount of your payments will be based on
the current payout rate the Company uses for immediate annuity contracts.
VARIABLE PAYOUT
With a Variable Payout, you may select up to 7 Variable Account Options. Your
payments will vary accordingly. This is due to the varying investment results
that will be experienced by each of the Variable Account Options you selected.
The Payout Unit Value is calculated just like the Purchase Unit Value for each
Variable Account Option except that the Payout Unit Value includes a factor for
the Assumed Investment Rate you select. For additional information on how Payout
Payments and Payout Unit Values are calculated, see the Statement of Additional
Information.
In determining your first Payout Payment, an Assumed Investment Rate of 3 1/2%
is used (unless you select a higher rate.) If the net investment experience of
the Variable Account Option exceeds your Assumed Investment Rate, your next
payment will be greater than your first payment. If the investment experience
of the Variable Account Option is lower than your Assumed Investment Rate, your
next payment will be less than your first payment.
COMBINATION FIXED AND VARIABLE
PAYOUT
With a Combination Fixed and Variable Payout, you may choose:
- Up to 6 Variable Account Options (payments will vary); with a
- Fixed Payout (payment is fixed and guaranteed).
PAYOUT DATE
The Payout Date is the date elected by you on which your payout (annuity)
payments will start. The date elected must be the first of any month provided 30
days advance notice has been given to VALIC. Your account will be valued ten
days prior to the end of the month preceding the Payout Date. A request to start
payments must be sent to our Home Office on a form approved by VALIC. Generally,
for qualified contracts, the Payout Date may begin when you attain age 59 1/2 or
separate from service, but must begin no later than April 1 following the
calendar year you reach age 70 1/2 or the calendar year in which you retire. For
nonqualified contracts, the Payout Date may begin at any time prior to your 85th
birthday. For additional information on the minimum distribution rules that
apply to payments under 403(b), 401, 403(a) and 457 plans or simplified employee
plans ("SEPs"), see "Federal Tax Matters" in this prospectus and in the
Statement of Additional Information.
PAYOUT OPTIONS
You may specify the manner in which your Payout Payments are made. You may
select one of the following options:
- LIFE ONLY -- payments are made only to you during your lifetime. Under this
option there is no provision for a death benefit for the beneficiary. For
example, it would be possible under this option for the Annuitant to receive
only one payout payment if he died prior to the date of the second payment,
two if he died before the third payment.
- LIFE WITH GUARANTEED PERIOD -- payments are made to you during your
lifetime; but if you die before the guaranteed period has expired, your
beneficiary will receive payments for the rest of your guaranteed period.
PAYOUT UNIT -- a measuring
unit used to calculate Payout
Payments from your Variable
Account Option. Payout Unit
values will vary with the
investment experience of the
VALIC Separate Account A
Division you have selected.
ASSUMED INVESTMENT
RATE -- the rate used to
determine your first monthly
Payout Payment per
thousand dollars of Account
Value in your Variable
Account Option(s).
27
<PAGE> 36
- --------------------------------------------------------------------------------
- LIFE WITH CASH OR UNIT REFUND -- payments are made to you during your
lifetime. Upon your death, your beneficiary will receive a lump sum
payment equal to the remaining Annuity Value.
- JOINT AND SURVIVOR LIFE -- payments are made to you during the joint
lifetime of you and your beneficiary. Upon the death of one, payments
continue during the lifetime of the survivor. This option is designed
primarily for couples who require maximum possible variable payouts during
their joint lives and are not concerned with providing for beneficiaries
at death of the last survivor. For example, it would be possible under
this option for the Joint Annuitants to receive only one payment if both
Annuitants died prior to the date of the second payment, or for the Joint
Annuitants to receive only one payment and the surviving Annuitant to
receive only one payment if one Annuitant died prior to the date of the
second payment and the surviving Annuitant dies prior to the date of the
third payment.
- PAYMENT FOR A DESIGNATED PERIOD -- payments are made to you for a select
number of years between five and thirty. Upon your death, payments will
continue to your beneficiary until the designated period is completed.
ENHANCEMENTS TO PAYOUT OPTIONS
You may be able to select enhancements to the Payout Options described above.
These enhancements include partial annuitization, flexible payments of varying
amounts and inflation protection payments. Additionally, certain options may be
available with a one to twenty year guaranteed period. The Joint and Survivor
Life Option may be available with a one to twenty year guaranteed period option.
Not all of the enhancements are available under each option.
PAYOUT INFORMATION
Once your Payout Payments have begun, the option you have chosen may not be
stopped or changed. Any one of the Variable Account Options may result in your
receiving unequal payments during your life expectancy. If payments begin before
age 59 1/2, you may suffer unfavorable tax consequences if you do not meet an
exception to federal tax law. See "Federal Tax Matters" in this prospectus.
Your Payment Option should be selected at least 30 days before your Payout Date.
If such selection is not made:
- Payments will be made under the Life with Guaranteed Period Option, and
- The payments will be guaranteed for a 10 year period, and
- The payments will be based on the allocation used for your Purchase
Payments,
- Fixed Account Option will be used to distribute payments to you on a Fixed
Payout basis,
- Variable Account Options will be used to distribute payments to you on a
Variable Payout basis.
Your first Payout Payment must total at least $25.
Most Payout Payments are made monthly. If the amount of your payment is less
than $25, we reserve the right to reduce the number of payments made each year
so each of your payments are at least $25.
For more information about
PAYOUT OPTIONS OR
ENHANCEMENTS
of those Payout Options
available under the Contract,
see the "Statement of
Additional Information".
28
<PAGE> 37
SURRENDER OF ACCOUNT VALUE
- --------------------------------------------------------------------------------
WHEN SURRENDERS ARE ALLOWED
You may withdraw all or part of your Account Value at any time before the Payout
Period begins if:
- allowed under federal and state law; and
- allowed under your employer's plan.
For an explanation of charges that may apply if you surrender your Account
Value, see "Fees and Charges" in this prospectus.
AMOUNT THAT MAY BE SURRENDERED
The amount that may be surrendered at any time can be determined as follows:
<TABLE>
<S> <C> <C>
Your
Account
Allowed Value(1)
Surrender = (EQUALS) - (MINUS)
Value Any Applicable
Surrender
Charge
</TABLE>
1: Equals the Account Value next computed after your properly completed
request for surrender is received in our Home Office.
There is no guarantee that the Surrender Value in a Variable Account Option will
ever equal or exceed the total amount of your Purchase Payments received by us.
We will mail to you the Surrender Value within 7 calendar days after we receive
your properly completed surrender request at our Home Office. However, we may be
required to suspend or postpone payments if redemption of an underlying Fund's
shares have been suspended or postponed. See "Offering, Purchase and Redemption
of Fund Shares" in the Series Company Statement of Additional Information. See
your current Fund(s)' prospectuses for a discussion of the reasons why the
redemption of shares may be suspended or postponed.
We may receive a surrender for a Purchase Payment which has not cleared the
banking system. We may delay payment of that portion of your Surrender Value
until the check clears. The rest of the Surrender Value will be processed as
usual.
SURRENDER RESTRICTIONS
Generally, Internal Revenue Code Section 403(b)(11) permits total or partial
distributions from a 403(b) contract only on account of hardship (employee
contributions only without accrued interest), attainment of age 59 1/2,
separation from service, death or disability.
Under the TEXAS STATE OPTIONAL RETIREMENT PROGRAM, and in many Section 403(b)
contracts, no surrender or partial surrender will be allowed except for
termination of employment, retirement or death.
Under the FLORIDA STATE OPTIONAL RETIREMENT PROGRAM, no surrender or partial
surrender of Purchase Payments made by the employer will be allowed except for
termination of employment, retirement or death. Benefit payments based on
payments from the employer may not be paid in a lump sum or for a period
certain, but must be paid under a life contingency option, except for:
- death benefits; and
- certain small amounts approved by the State of Florida.
PARTIAL SURRENDERS
You may request a partial surrender of your Account Value at any time. A partial
surrender plus any surrender charge will reduce your Account Value. Partial
surrenders will be paid from the Fixed Account Options first unless otherwise
specified by you.
The reduction in the number of Purchase Units credited to your Variable Account
Option Account Value will equal:
<TABLE>
<S> <C> <C>
The amount Your Purchase
surrendered Units next
from the Variable computed after
Account Option the written
+ (PLUS) / (DIVIDED BY) request for
Any Surrender surrender is
Charge received at our
Home Office.
</TABLE>
The Surrender Value will be reduced by a full quarterly account maintenance fee
charged in the case of a full surrender during a quarter.
SYSTEMATIC WITHDRAWALS
You may elect to withdraw all or part of your Account Value under a systematic
withdrawal method described in your annuity contract offered by Portfolio
Director 2. There will be no surrender charge for withdrawals using this method,
which provides for:
- Payments to be made to you;
- Payment over a stated period of time (but not less than five years);
- Payment of a stated yearly dollar amount or percentage (the amount or
percentage may not exceed 20% of your Account Value at the time election is
made).
We may require a minimum withdrawal amount under this method. The portion of
your account that has not been withdrawn will continue to receive the investment
return of the Variable Account Options which you selected. A systematic
withdrawal election may not be changed but can be revoked at no charge. Once
revoked, a systematic withdrawal may not be elected again. No more than one
systematic
29
<PAGE> 38
- --------------------------------------------------------------------------------
withdrawal election may be in effect at any one time. We reserve the right to
discontinue any or all systematic withdrawals or to change its terms, at any
time.
DISTRIBUTIONS REQUIRED BY FEDERAL TAX LAW. There will be no surrender charge on
a minimum distribution required by federal tax law (known as No Charge Minimum
Distribution), if the withdrawal:
- Is made payable to you; and
- Does not exceed the amount required under federal tax law as determined by
the values in your Portfolio Director 2 Contract and VALIC.
This contract feature will not be available in any year that an amount has been
withdrawn under the no charge systematic withdrawal method. See "Federal Tax
Matters" in this prospectus and in the Statement of Additional Information for
more information about required distributions imposed by tax law.
For an explanation of possible adverse tax consequences of a surrender, see
"Federal Tax Matters" in this prospectus and in the Statement of Additional
Information.
30
<PAGE> 39
EXCHANGE PRIVILEGE
- --------------------------------------------------------------------------------
We issue other fixed and/or variable annuity contracts (other contracts) in
addition to Portfolio Director 2. These other contracts are listed below. We
will allow you, under certain conditions, to exchange from one of these other
contracts to Portfolio Director 2. This exchange privilege will be available
only to other contracts purchased through your employer-sponsored retirement
plan and for which we have not yet started making payments under a Payout
Option. If you elect to exercise one of these exchange offers, you should
contact any of our Regional Offices at the addresses shown in the back of this
prospectus.
RESTRICTIONS ON EXCHANGE PRIVILEGE
We will impose certain general restrictions and rules on the exchange
privileges.
- Partial exchanges are not permitted.
- Exchanges from Portfolio Director 2 to other contract forms are not
permitted, (Exchanges between Portfolio Director 2 and other contracts in
the Portfolio Director series of annuities are permitted.)
- This exchange privilege is only available for those other contracts listed
below.
Additionally, if you have your money in a fixed account of one of the below
listed other contracts, you must exchange directly into the Fixed Account
Options of Portfolio Director 2. You will be subject to all of the rules that
apply to the Fixed Account Options in Portfolio Director 2. For example, you
will be subject to the rules concerning transfers among investment options as
stated in the Transfers Between Investment Options section in this prospectus.
We may, at our option, waive any transfer restrictions for a stated period of
time. If we waive these transfer restrictions, you will be allowed to exchange
to any investment option available in Portfolio Director 2.
WE RESERVE THE RIGHT TO TERMINATE, MODIFY OR SUSPEND THESE EXCHANGE PRIVILEGES
AT ANY TIME.
TAXES AND CONVERSION COSTS
We will impose no fee or charge for these exchanges. Please read the "Federal
Tax Matters" section in this prospectus for information about the federal income
tax treatment of Portfolio Director 2.
SURRENDER CHARGES
We will generally not impose nor waive existing surrender charges as a result of
your electing to exchange from one of the other contracts.
For purposes of determining surrender charges, we often consider time in the
contract. For SPQ181 and SPQ181-1 Contracts, the contract date for determining
surrender charges under Portfolio Director 2 will be the SPQ181 and SPQ181-1
contract date plus one year. For example, if you have an SPQ181 contract with a
contract date of January 1, 1993, upon exchange into Portfolio Director 2, the
contract date for surrender charges purposes becomes January 1, 1994.
For any other contract, the contract date for determining surrender charges
under Portfolio Director 2 will be the same date as the other contract, but no
earlier than January 1, 1982. (The effect of this is to potentially shorten the
charge period for Purchase Payments subsequently made to Portfolio Director 2.)
If there is no surrender charge on assets within another contract, we will not
impose charges on those assets as a result of an exchange. If surrender charges
are to be based on Purchase Payments within a contract, we will consider
purchase payments in the other contract to have been transferred to Portfolio
Director 2 for purposes of calculating the surrender charge. The effective dates
of these Purchase Payments will also be retained for surrender charge purposes.
The Portfolio Director 2 surrender charge is calculated assuming the most recent
Purchase Payments are removed first. This policy may cause exchanged funds to be
accessible only after charges are imposed.
EXCHANGE OFFERS FOR CONTRACTS OTHER THAN
PORTFOLIO DIRECTOR AND PORTFOLIO DIRECTOR 2
The following other contracts may be exchanged.
- V-Plan Contracts (IFA-582 and GFA-582 Contracts)
- Compounder Contracts (C-1-75 and IFA-78 Contracts)
- Independence Plus Contracts (UIT-585 and UITG-585 Contracts)
- Impact Contracts (UIT-981 Contracts)
- SA-1 or SA-2 (GUP-64, GUP-74 and GTS-VA Contracts)
- FSPA-75, FSPA-73-3, FSPA-779 Contracts
- SPQ181, SPQ181-1 Contracts
- CTA 978 Contract
- TFA-379 Contract
- SDA-578, SDA-773-T Contract
- IRA-579 Contracts
31
<PAGE> 40
- --------------------------------------------------------------------------------
Portfolio Director 2 will have the same Account Value (called Accumulation Value
in the other contracts) as the other contracts.
EXCHANGE OFFER FOR PORTFOLIO DIRECTOR AND PORTFOLIO DIRECTOR 2
Subject to the restrictions stated below and the general restrictions on
exchange privileges stated above you may exchange from Portfolio Director to
Portfolio Director 2. You may also exchange from Portfolio Director 2 to
Portfolio Director. Additionally, you may also make exchanges among the series
of Portfolio Director 2. Once you have made any of the exchanges described in
this paragraph you must wait 120 days before making another exchange between
Portfolio Director and Portfolio Director 2.
Both Portfolio Director and Portfolio Director 2 are available to qualified
contracts and certain non-qualified contracts. Portfolio Director 2 is not
available to non-qualified contracts issued to individuals. Please read the
"Federal Tax Matters" in this prospectus for information about the federal
income tax treatment of Portfolio Director 2.
COMPARISON OF CONTRACTS
You should carefully compare the features, charges and restrictions of the other
contracts to those of Portfolio Director 2. A more detailed comparison of the
features, charges, and restrictions between each above listed other contract and
Portfolio Director 2 is provided in the Statement of Additional Information.
Portfolio Director and Portfolio Director 2 contain the same provisions except
as to the level of fees and as to available Variable Account Options and certain
Separate Account Expense Reimbursements. See "Fees and Changes" in this
prospectus.
For the V-Plan and Compounder Contract you should refer to the terms of the
contract or certificate. For the other contracts please refer to its most
recently dated prospectus for a complete description of the contract terms and
conditions. Those prospectuses are incorporated herein by reference. If you want
an additional copy of any of these prospectuses or Statements of Additional
Information, please contact us at the address shown in the introduction of the
prospectus.
Please refer to the prospectus and Statement of Additional Information for
Portfolio Director and the different series of Portfolio Director 2 for
information about the specific features and charges of such products.
FEATURES OF PORTFOLIO DIRECTOR 2
In deciding whether you want to exercise these exchange privileges, you should
consider the following factors of Portfolio Director 2.
- Portfolio Director 2 has more investment options to select from.
- Portfolio Director 2 has 12 publicly available mutual funds as investment
options.
- The Portfolio Director 2 surrender charge is calculated assuming the most
recent Purchase Payments are removed first. This policy may cause exchanged
funds to be accessible only after charges are imposed.
- Portfolio Director 2 has an Interest Guaranteed Death Benefit.
- Portfolio Director 2's Fund fees and charges are different than the other
contracts and in some cases may be higher.
- Different series of Portfolio Director 2 may charge fees higher or lower
than other series of Portfolio Director 2.
- Portfolio Director 2's guaranteed annuity rates and guaranteed interest
rates may be less favorable than the other contracts.
AGENTS' AND MANAGERS' RETIREMENT PLAN
EXCHANGE OFFER
General. All eligible agents and managers of the Company are allowed to
participate in the Company's Agents' and Managers' Retirement Plan ("Plan"). We
grant to participants in the Plan the right to effect a voluntary exchange of
their units of interest under the SA-1 Contracts, Independence Plus Contracts
and Portfolio Director for the equivalent units of interest in Portfolio
Director 2.
Agents and managers of VALIC who enter into the voluntary exchange will not
incur under Portfolio Director 2 any surrender charges or account maintenance
fees. Other individuals who may exchange to Portfolio Director 2 from SA-1,
Independence Plus or Portfolio Director Contracts may have surrender charges and
account maintenance fees imposed under Portfolio Director 2. 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
32
<PAGE> 41
- --------------------------------------------------------------------------------
their purchase payment plan, the participant may choose to:
- Remain in the SA-1 Contract, Independence Plus Contract or Portfolio
Director.
- Leave current assets in the SA-1 Contract, Independence Plus or Portfolio
Director and direct future Purchase Payments to Portfolio Director 2; or
- Transfer all current assets and future Purchase Payments to Portfolio
Director 2.
If the participant chooses to remain in either the SA-1 Contract, Independence
Plus Contract or Portfolio Director, future Purchase Payments and current assets
will be controlled by the provisions of the SA-1 Contract, Independence Plus
Contract or Portfolio Director, respectively. If the participant chooses to
leave current assets in the SA-1 Contract, the Independence Plus Contract or
Portfolio Director and direct future Purchase Payments to Portfolio Director 2,
the current assets will be controlled by the provisions of the SA-1 Contract,
the Independence Plus Contract or Portfolio Director, respectively. The future
Purchase Payments will be controlled by the terms of Portfolio Director 2
subject to the exception that surrender charges and account maintenance fees
will not be imposed under Portfolio Director 2. If the participant chooses to
transfer all current assets and future Purchase Payments to Portfolio Director
2, such current assets and future Purchase Payments will be controlled by the
provisions of Portfolio Director 2 subject to the exception that surrender
charges and account maintenance fees will not be imposed under Portfolio
Director 2.
Once a participant transfers assets and future Purchase Payments to Portfolio
Director 2 the participant will not be permitted to exchange back to the SA-1
Contract or Independence Plus Contract. Exchanges to Portfolio Director will be
permitted. See "Exchange Offer for Portfolio Director and Portfolio Director 2"
in this prospectus. If a participant chooses to transfer future Purchase
Payments but not current assets to Portfolio Director 2, the participant will be
allowed at a later date to transfer the current assets to Portfolio Director 2.
For a complete analysis of the differences between the SA-1 contract, the
Independence Plus Contract or Portfolio Director and Portfolio Director 2, you
should refer to the Statement of Additional Information and the form of the
contract or certificate for its terms and conditions.
33
<PAGE> 42
DEATH BENEFITS
- --------------------------------------------------------------------------------
Portfolio Director 2 will pay death benefits during either the Purchase Period
or the Payout Period. How these death benefits will be paid are discussed below.
The death benefit provisions in Portfolio Director 2 may vary from state to
state.
BENEFICIARY INFORMATION
The Beneficiary may receive death benefits:
- - In a lump sum; or
- - In the form of an annuity under any of the Payout Options stated in the Payout
Period section of this prospectus subject to the restrictions of that Payout
Option.
Payment of any death benefits must be within the time limits set by federal tax
law.
Beneficiaries Other Than Spouses.
If the Beneficiary is not the spouse of the Annuitant, death benefits must be
paid.
- - In full within 5 years after the Annuitant's death; or
- - By payments beginning within 1 year after the Annuitant's death under:
- A life annuity;
- A life annuity with payments certain; or
- An annuity for a designated period.
If the Annuitant dies before the Annuity Date, the Beneficiary as named by you
may receive the payout.
Payments certain or payments for a designated period cannot be for a greater
period of time than the Beneficiary's life expectancy. After choosing a payment
option, a Beneficiary may exercise many of the investment options and other
rights that the Participant or Contract Owner had under Portfolio Director 2.
SPECIAL INFORMATION FOR INDIVIDUAL
NON-TAX QUALIFIED CONTRACTS
It is possible that the Contract Owner and the Annuitant under a Non-Tax
Qualified Contract are not the same person. If this is the case, and the
Contract Owner dies, there will be no death benefit payable since the death
benefit is only due in the event of the Annuitant's death. However, the Contract
will be transferred to the Contingent Owner,
if any, or to the Contract Owner's estate. Such transfers will be considered a
taxable event by the IRS.
DURING THE PURCHASE PERIOD
Two types of benefits are available if death occurs during the Purchase Period.
Interest Guaranteed Death Benefit and Standard Death Benefit.
INTEREST GUARANTEED DEATH BENEFIT
The interest guaranteed death benefit is payable when death occurs prior to your
reaching the age of 70. This contract provision is not available in some states.
The amount payable under the interest guaranteed death benefit will be at least
equal to the sum of your Account Value in the Fixed Account Option(s) and the
Variable Account Option(s) on the date VALIC receives proof of death.
Here is how to calculate the death benefit:
Step 1: Determine your Fixed Account Option Value by taking the greater of:
<TABLE>
<S> <C> <C>
Value of Fixed Account Option on date
proof of death Is received by VALIC
OR
100% of Purchase Payments placed
in Fixed Account Option
- - (minus)
Amount of all prior withdrawals, charges and
any portion of Account Value applied under
a Payout Option
</TABLE>
Step 2: Determine your Variable Account Option Value by taking the greater of:
<TABLE>
<S> <C> <C>
Value of Variable Account Option on date
proof of death is received by VALIC
OR
100% of Purchase Payments placed in
Variable Account Options
- - (minus)
Prior withdrawals (out of) or transfers
(out of) the Variable Account Option
+ (plus)
Interest at an annual rate of 3%
</TABLE>
- --------------------------------------------------
Step 3: Add step 1 + 2 = Death Benefit
For purposes of this calculation amounts transferred into the Variable Account
Option will be treated as Purchase Payments.
BENEFICIARY -- the person
designated to receive Payout
Payments upon the death of
an Annuitant.
ANNUITANT -- the individual,
(in most cases this person is
you) to whom Payout
Payments will be paid.
CONTRACT OWNER -- either
your employer or organization
in the case of a group
contract or the Annuitant in
the case of an individual
contract. If the contract is an
individual non-qualified type,
this is generally the Annuitant
but a Contingent Contract
Owner may also be provided
for.
FIXED ACCOUNT OPTIONS -- a
particular subaccount into
which your Purchase
Payments and Account Value
may be allocated to fixed
investment options. Currently,
the Fixed Account Options in
Portfolio Director 2 are Fixed
Account Plus and Short-Term
Fixed Account. Each option
of this type is guaranteed to
earn at least a minimum rate
of interest.
VARIABLE ACCOUNT
OPTIONS -- Investment
Options that correspond to
VALIC Separate Account A
Divisions offered by Portfolio
Director 2. Investment returns
on Variable Account Options
will be positive or negative
depending on the investment
performance of the
underlying mutual fund.
34
<PAGE> 43
- --------------------------------------------------------------------------------
STANDARD DEATH BENEFIT
The standard death benefit is payable if death occurs on or after age 70.
The Standard Death Benefit will be the greater of:
<TABLE>
<S> <C> <C>
Your Account Value on the Date Proof of Death is
Received by VALIC
OR
100% of Purchase Payments (to Fixed
and/or Variable Account Options)
- -- (MINUS)
Amount of all Prior Withdrawals, Charges
and any portion of Account Value applied
under a Payout Option
</TABLE>
DURING THE PAYOUT PERIOD
If death occurs during the Payout Period, your Beneficiary may receive a death
benefit depending on the Payout Option selected. The amount of death benefits
will also depend on the Payout Option that you selected. The Payout Options
available in Portfolio Director 2 are described in the "Payout Period" section
of this prospectus.
- If the Life Only Option or Joint and Survivor Life Option were chosen, there
will be no death benefit.
- If the Life With Guaranteed Period Option, Joint and Survivor Life with
Guaranteed Periods Option, Life with Cash or Unit Refund Option or Payment
for a Designated Period Option were chosen, and the entire amount guaranteed
has not been paid, the Beneficiary may choose one of the following within 60
days after death benefits are payable:
- Receive the present value of any remaining payments in a lump sum; or
- Receive the remaining payments under the same terms of the guaranteed
period option chosen by the deceased Participant; or
- Receive the present value of any remaining payments applied under the
Payment for a Designated Period Option for a period equal to or shorter
than the period remaining. Spouse beneficiaries may be entitled to more
favorable treatment under federal tax law.
35
<PAGE> 44
HOW TO REVIEW INVESTMENT PERFORMANCE
OF SEPARATE ACCOUNT DIVISIONS
- --------------------------------------------------------------------------------
We will advertise information about the investment performance of VALIC Separate
Account A Divisions. Our advertising of past investment performance results does
not mean that future performance will be the same. The performance information
will not predict what your actual investment experience will be in that Division
or show past performance under an actual contract. We may also show how the
Divisions rank on the basis of data compiled by independent ranking services.
Some of the Divisions (and underlying Funds) offered in this prospectus were
previously available through other annuity contracts or to the general public
before Portfolio Director 2 was first available to you. We may therefore,
advertise investment performance since the inception of the underlying Funds.
However, in doing so, we will use the charges and fees imposed by Portfolio
Director 2 in calculating the Division's investment performance for earlier time
frames.
TYPES OF INVESTMENT PERFORMANCE
INFORMATION ADVERTISED
We may advertise the Division's Total Return Performance information and Yield
Performance information.
TOTAL RETURN PERFORMANCE
INFORMATION
Total Return Performance Information is based on the overall dollar or
percentage change in value of an assumed investment in a Division over a given
period of time.
There are seven ways Total Return Performance Information may be advertised:
- Standard Average Annual Total Return
- Nonstandard Average Annual Total Return
- Cumulative Total Return
- Annual Change in Purchase Unit Value
- Cumulative Change in Purchase Unit Value
- Total Return Based on Different Investment Amounts
- An Assumed Account Value of $10,000
Each of these is described below.
STANDARD AVERAGE ANNUAL TOTAL RETURN
Standard Average Annual Total Return shows the average percentage change in the
value of an investment in the Division from the beginning to the end of a given
historical period. The results shown are after all charges and fees have been
applied against the Division. This will include
account maintenance fees and surrender charges that would have been deducted if
you surrendered Portfolio Director 2 at the end of each period shown. Premium
taxes are not deducted. This information is calculated for each Division based
on how an initial assumed payment of $1,000 performed at the end of 1, 3, 5 and
10 year periods.
The return for periods of more than one year are annualized to obtain the
average annual percentage increase (or decrease) during the period.
Annualization assumes that the application of a single rate of return each year
during the period will produce the ending value, taking into account the effect
of compounding.
NONSTANDARD AVERAGE ANNUAL TOTAL
RETURN
Nonstandard Average Annual Total Return is calculated in the same manner as the
Standard Average Annual Total Return. However, Nonstandard Average Annual Total
Return shows only the historic investment results of the Division. Account
maintenance fees, surrender charges and premium taxes are not deducted.
CUMULATIVE TOTAL RETURN
Cumulative Total Return assumes the investment in Portfolio Director 2 will stay
in the Division beyond the time that a surrender charge would apply. It may be
calculated for 1, 3, 5 and 10 year periods. It is based on an assumed initial
investment of $10,000. The Cumulative Return will be calculated without
deduction of account maintenance fees, surrender charges or premium taxes.
ANNUAL CHANGE IN PURCHASE UNIT VALUE
Annual Change in Purchase Unit Value is a percentage change during a one year
period. This is calculated as follows:
- The Purchase Unit Value at the start of the year is subtracted from the
Purchase Unit Value at the end of the year;
- The difference is divided by the Purchase Unit Value at the start of the
year.
Account maintenance fees, surrender charges and premium taxes are not deducted.
The effect of these charges, if deducted, would reduce the Division's Annual
Change in Purchase Unit Value.
DIVISIONS -- Subaccounts of
VALIC Separate Account A
which represent the Variable
Account Options in Portfolio
Director 2. Each Division
invests in a different mutual
fund, each having its own
investment objective and
strategy.
PURCHASE PAYMENTS -- an
amount of money you pay to
VALIC to receive the benefits
of an annuity Contract offered
by Portfolio Director 2.
For more information on how
TOTAL RETURN PERFORMANCE
INFORMATION is calculated,
see the Statement of
Additional Information.
36
<PAGE> 45
- --------------------------------------------------------------------------------
CUMULATIVE CHANGE IN PURCHASE UNIT VALUE
Cumulative Change in Purchase Unit Value is a percentage change from the
beginning to the ending of a period usually greater than one year. Otherwise, it
is calculated in the same way as the Annual Change in Purchase Unit Value.
TOTAL RETURN BASED ON DIFFERENT
INVESTMENT AMOUNTS
We may show total return information based on different investment amounts. For
example, we may show $200 a month for 10 years, or $100 a month to age 65. Fees
may or may not be included. Each performance illustration will explain the
Portfolio Director 2 charges and fees imposed on the Division.
AN ASSUMED ACCOUNT VALUE OF $10,000
We may show annual values based on an initial investment of $10,000. This will
not reflect any deduction for account maintenance fees, surrender charges and
premium taxes.
YIELD PERFORMANCE INFORMATION
We may advertise Yield Performance, at a given point in time. A Division's yield
is one way of showing the rate of income the Division is earning as a percentage
of the Division's Purchase Unit Value.
AGSPC Money Market Division
We may advertise the AGSPC Money Market Division's Current Yield and Effective
Yield.
The Current Yield refers to the income produced by an investment in the AGSPC
Money Market Division over a given 7-day period. The Current Yield does not take
into account surrender charges, account maintenance fees or premium taxes. The
income produced over a 7 day period is then "annualized." This means we are
assuming the amount of income produced during the 7-day period will continue to
be produced each week for an entire year. The annualized amount is shown as a
percentage of the investment. The 7-day Current Yield for the last 7 days ended
December 31, 1997 was 4.22%.
The Effective Yield is calculated in a manner similar to the Current Yield. But,
when the yield is annualized the income earned is assumed to be reinvested. The
compounding effect will cause the Effective Yield to be higher than the Current
Yield. The 7-day Effective Yield for the last 7 days ended December 31, 1997 was
4.31%.
DIVISIONS OTHER THAN THE AGSPC MONEY MARKET DIVISION
We may advertise the standardized yield performance for each Division other than
the AGSPC Money Market Division. The yield for each of these Divisions will be
determined as follows:
- We will subtract the account maintenance fee from the average daily net
investment income per Purchase Unit;
- We will divide the remainder by the Purchase Unit Value on the last day of
the period; and
- We will annualize the result.
PERFORMANCE INFORMATION:
AVERAGE ANNUAL TOTAL RETURN, CUMULATIVE RETURN AND ANNUAL AND CUMULATIVE CHANGE
IN PURCHASE UNIT VALUE TABLES.
In the sections above we have described a number of ways we may advertise
information about the investment performance of VALIC Separate Account A
Divisions. Certain performance information for each VALIC Separate Account A
Division is printed in the four tables below.
The information presented does not reflect the advantage under Portfolio
Director 2 of deferring federal income tax on increases in Account Value due to
earnings attributable to Purchase Payments (see "Federal Tax Matters" in the
prospectus and in the Statement of Additional Information.) The information
presented also does not reflect the advantage under Qualified Contracts of
deferring federal income tax on Purchase Payments.
The performance results shown in the following tables are not an estimate or
guarantee of future investment performance, and do not represent the actual
experience of amounts invested by a particular Participant.
37
<PAGE> 46
TABLE I
AVERAGE ANNUAL TOTAL RETURN
WITH SURRENDER CHARGE AND ACCOUNT MAINTENANCE FEE IMPOSED
(FROM SEPARATE ACCOUNT DIVISION INCEPTION TO DECEMBER 31, 1997)
<TABLE>
<CAPTION>
DIVISION
INCEPTION SINCE
FUND AND DIVISION DATE INCEPTION 10 YEARS 5 YEARS 3 YEARS 1 YEAR
----------------- --------- --------- -------- ------- ------- ------
<S> <C> <C> <C> <C> <C> <C>
AGSPC Growth (Division 15)............................ 04/29/94 21.11% -- -- 26.34% 14.71%
AGSPC International Government Bond (Division 13)..... 10/01/91 6.47 -- 5.10% 2.98 (10.09)
AGSPC Money Market (Division 6)....................... 01/16/86 -- 4.28% 2.40 2.54 (0.63)
AGSPC Science & Technology (Division 17).............. 04/29/94 24.40 -- -- 21.12 (3.07)
AGSPC Social Awareness (Division 12).................. 10/02/89 14.19 -- 17.82 29.70 27.43
AGSPC Stock Index (Division 10)....................... 04/20/87 -- 15.79 18.11 28.48 26.68
American Century -- Twentieth Century Ultra (Division
31)................................................. 07/01/96 13.77 -- -- -- 16.66
Founders Growth (Division 30)......................... 07/01/96 15.22 -- -- -- 20.16
Neuberger&Berman Guardian Trust (Division 29)(1)...... 07/01/96 16.33 -- -- -- 11.57
Putnam Global Growth (Division 28).................... 07/01/96 8.80 -- -- -- 7.12
Putnam New Opportunities (Division 26)................ 07/01/96 6.41 -- -- -- 16.22
Putnam OTC & Emerging Growth (Division 27)............ 07/01/96 (4.62) -- -- -- 4.10
Scudder Growth and Income (Division 21)(2)............ 07/01/96 24.09 -- -- -- 23.71
Templeton Foreign (Division 32)....................... 07/01/96 5.53 -- -- -- 0.74
Vanguard Fixed Income Securities Fund --
Long-Term Corporate Portfolio (Division 22)**....... 07/01/96 8.15 -- -- -- 7.24
Vanguard Fixed Income Securities Fund --
Long-Term U.S. Treasury Portfolio (Division 23)**... 07/01/96 8.30 -- -- -- 7.36
Vanguard/Wellington (Division 25)..................... 07/01/96 18.33 -- -- -- 16.57
Vanguard/Windsor II (Division 24)..................... 07/01/96 25.80 -- -- -- 25.61
</TABLE>
- ---------------
** The performance figures for the Vanguard Fixed Income Securities
Fund -- Long-Term Corporate Portfolio (Division 22) and the Vanguard Fixed
Income Securities Fund -- Long-Term U.S. Treasury Portfolio (Division 23) in
the Table do not take into account the Separate Account Reimbursement made
by the Company directly to those Divisions. If such reimbursements were
included, the performance figures for the Divisions would be higher.
(1) Neuberger&Berman Guardian Trust ("Trust") started operating on August 3,
1993. It has identical investment objectives and policies and invests in the
same portfolio as Neuberger&Berman Guardian Fund ("Fund"), which is also
managed by Neuberger&Berman Management Incorporated ("N&B Management"). The
performance information for the Trust before August 3, 1993 is for the Fund.
N&B Management voluntarily bears certain operating expenses of the Trust so
that the Trust's expense ratio per annum will not exceed the expense ratio
per annum of the Fund by more than 0.10% of the Trust's average daily net
assets per annum. This arrangement can be terminated on sixty days' prior
written notice. Absent such arrangement, the average annual total returns of
the Trust would have been less. The total returns for periods prior to the
Trust's commencement of operations would have been lower had they reflected
the higher expense ratios of the Trust as compared to those of the Fund.
(2) The Fund adopted its current name and objective on November 13, 1984. Its
predecessor commenced operations on May 31, 1929.
38
<PAGE> 47
TABLE II
AVERAGE ANNUAL TOTAL RETURN
WITH SURRENDER CHARGE AND ACCOUNT MAINTENANCE FEE IMPOSED
(FROM UNDERLYING FUND INCEPTION TO DECEMBER 31, 1997)
<TABLE>
<CAPTION>
INCEPTION SINCE
FUND AND DIVISION* DATE INCEPTION 10 YEARS 5 YEARS 3 YEARS 1 YEAR
------------------ --------- --------- -------- ------- ------- ------
<S> <C> <C> <C> <C> <C> <C>
American Century-Twentieth Century Ultra (Division
31).................................................. 11/02/81 -- 20.51% 15.83% 21.87% 16.66%
Founders Growth (Division 30).......................... 01/05/62 -- 16.92 19.31 26.58 20.16
Neuberger&Berman Guardian Trust (Division 29)(1)....... 06/01/50 -- 16.21 14.28 19.87 11.57
Putnam Global Growth (Division 28)..................... 09/01/67 -- 10.01 12.83 12.35 7.12
Putnam New Opportunities (Division 26)................. 08/31/90 27.25% -- 20.40 23.27 16.22
Putnam OTC & Emerging Growth (Division 27)............. 11/01/82 -- 16.67 17.60 19.11 4.10
Scudder Growth and Income (Division 21)................ 11/13/84 -- 15.47 17.81 25.11 23.71
Templeton Foreign (Division 32)........................ 10/05/82 -- 12.17 12.08 9.23 0.74
Vanguard Fixed Income Securities Fund-
Long-Term Corporate Portfolio (Division 22)**........ 07/09/73 -- 9.35 7.21 10.21 7.24
Vanguard Fixed Income Securities Fund-
Long-Term U.S. Treasury Portfolio (Division 23)**.... 05/19/86 -- 9.03 7.38 10.44 7.36
Vanguard/Wellington (Division 25)...................... 07/01/29 -- 13.17 14.41 21.13 16.57
Vanguard/Windsor II (Division 24)...................... 06/24/85 -- 16.58 18.60 28.89 25.61
</TABLE>
- ---------------
* The Table reflects actual historical performance of the related Separate
Account Divisions since inception of each Division (July 1, 1996) and
hypothetical performance for periods prior to July 1, 1996. Hypothetical
performance is based on the actual performance of the underlying Fund
reduced by Separate Account fees that would have been incurred during the
hypothetical period.
** The performance figures for the Vanguard Fixed Income Securities
Fund -- Long-Term Corporate Portfolio (Division 22) and the Vanguard Fixed
Income Securities Fund -- Long-Term U.S. Treasury Portfolio (Division 23) in
the Table do not take into account the Separate Account Reimbursement made
by the Company directly to those Divisions. If such reimbursements were
included, the performance figures for the Divisions would be higher.
TABLE III
AVERAGE ANNUAL TOTAL RETURN
WITH NO SURRENDER CHARGE OR ACCOUNT MAINTENANCE FEE IMPOSED
(FROM SEPARATE ACCOUNT DIVISION INCEPTION TO DECEMBER 31, 1997)
<TABLE>
<CAPTION>
INCEPTION SINCE
FUND AND DIVISION DATE INCEPTION 10 YEARS 5 YEARS 3 YEARS 1 YEAR
----------------- --------- --------- -------- ------- ------- ------
<S> <C> <C> <C> <C> <C> <C>
AGSPC Growth (Division 15)................................. 04/29/94 22.05% -- -- 27.50% 19.80%
AGSPC International Government Bond
(Division 13)............................................ 10/01/91 6.60 -- 6.02% 4.63 (5.79)
AGSPC Money Market (Division 6)............................ 01/16/86 -- 4.41% 3.40 4.20 4.13
AGSPC Science & Technology (Division 17)................... 04/29/94 25.29 -- -- 22.36 1.57
AGSPC Social Awareness (Division 12)....................... 10/02/89 14.33 18.46 30.80 32.52
AGSPC Stock Index (Division 10)............................ 04/20/87 -- 15.93 18.75 29.60 31.77
American Century -- Twentieth Century Ultra (Division
31)...................................................... 07/01/96 16.94 -- -- -- 21.74
Founders Growth (Division 30).............................. 07/01/96 18.38 -- -- -- 25.25
Neuberger&Berman Guardian Trust (Division 29)(1)........... 07/01/96 19.47 -- -- -- 16.66
Putnam Global Growth (Division 28)......................... 07/01/96 12.03 -- -- -- 12.20
Putnam New Opportunities (Division 26)..................... 07/01/96 9.68 -- -- -- 21.31
Putnam OTC & Emerging Growth (Division 27)................. 07/01/96 (1.58) -- -- -- 9.08
Scudder Growth and Income (Division 21).................... 07/01/96 27.14 -- -- -- 28.80
Templeton Foreign (Division 32)............................ 07/01/96 8.82 -- -- -- 5.57
Vanguard Fixed Income Securities Fund
Long-Term Corporate Portfolio (Division 22)**............ 07/01/96 11.40 -- -- -- 12.32
Vanguard Fixed Income Securities Fund
Long-Term U.S. Treasury Portfolio (Division 23)**........ 07/01/96 11.54 -- -- -- 12.44
Vanguard/Wellington (Division 25).......................... 07/01/96 21.44 -- -- -- 21.65
Vanguard/Windsor II (Division 24).......................... 07/01/96 28.84 -- -- -- 30.70
</TABLE>
- ---------------
** The performance figures for the Vanguard Fixed Income Securities
Fund -- Long-Term Corporate Portfolio (Division 22) and the Vanguard Fixed
Income Securities Fund -- Long-Term U.S. Treasury Portfolio (Division 23) in
the Table do not take into account the Separate Account Reimbursement made
by the Company directly to those Divisions. If such reimbursements were
included, the performance figures for the Divisions would be higher.
39
<PAGE> 48
TABLE IV
AVERAGE ANNUAL TOTAL RETURN
WITH NO SURRENDER CHARGE AND ACCOUNT MAINTENANCE FEE IMPOSED
(FROM UNDERLYING FUND INCEPTION TO DECEMBER 31, 1997)
<TABLE>
<CAPTION>
FUND
INCEPTION SINCE
FUND AND DIVISION* DATE INCEPTION 10 YEARS 5 YEARS 3 YEARS 1 YEAR
------------------ --------- --------- -------- ------- ------- ------
<S> <C> <C> <C> <C> <C> <C>
American Century -- Twentieth Century Ultra (Division
31)...................................................... 11/02/81 -- 20.61% 16.48% 23.08% 21.74%
Founders Growth (Division 30).............................. 01/05/62 -- 17.01 19.90 27.71 25.25
Neuberger&Berman Guardian Trust (Division 29)(1)........... 06/01/50 -- 16.31 14.96 21.12 16.66
Putnam Global Growth (Division 28)......................... 09/01/67 -- 10.10 13.53 13.74 12.20
Putnam New Opportunities (Division 26)..................... 08/31/90 27.39% -- 20.97 24.45 21.31
Putnam OTC & Emerging Growth (Division 27)................. 11/01/82 -- 16.77 18.21 20.37 9.08
Scudder Growth and Income (Division 21).................... 11/13/84 -- 15.56 18.42 26.26 28.80
Templeton Foreign (Division 32)............................ 10/05/82 -- 12.26 12.80 10.70 5.57
Vanguard Fixed Income Securities Fund --
Long-Term Corporate Portfolio (Division 22)**............ 07/09/73 -- 9.44 8.05 11.66 12.32
Vanguard Fixed Income Securities Fund --
Long-Term U.S. Treasury Portfolio (Division 23)**........ 05/19/86 -- 9.12 8.20 11.88 12.44
Vanguard/Wellington (Division 25).......................... 07/01/29 -- 13.26 15.08 22.36 21.65
Vanguard/Windsor II (Division 24).......................... 06/24/85 -- 16.68 19.20 29.99 30.70
</TABLE>
- ---------------
* The Table reflects actual historical performance of the related Separate
Account Divisions since inception of each Division (July 1, 1996) and
hypothetical performance for periods prior to July 1, 1996. Hypothetical
performance is based on the actual performance of the underlying Fund
reduced by Separate Account fees that would have been incurred during the
hypothetical period.
** The performance figures for the Vanguard Fixed Income Securities
Fund -- Long-Term Corporate Portfolio (Division 22) and the Vanguard Fixed
Income Securities Fund -- Long-Term U.S. Treasury Portfolio (Division 23) in
the Table do not take into account the Separate Account Reimbursement made
by the Company directly to those Divisions. If such reimbursements were
included, the performance figures for the Divisions would be higher.
TABLE V
CUMULATIVE RETURN
WITH NO SURRENDER CHARGE OR ACCOUNT MAINTENANCE FEE IMPOSED
(FROM SEPARATE ACCOUNT DIVISION INCEPTION TO DECEMBER 31, 1997)
<TABLE>
<CAPTION>
DIVISION
INCEPTION SINCE
FUND AND DIVISION DATE INCEPTION 10 YEARS 5 YEARS 3 YEARS 1 YEAR
----------------- --------- --------- -------- ------- ------- ------
<S> <C> <C> <C> <C> <C> <C>
AGSPC Growth (Division 15).................................. 04/29/94 107.65% -- -- 107.27% 19.80%
AGSPC International Government Bond (Division 13)........... 10/01/91 49.06 -- 33.95% 14.55 (5.79)
AGSPC Money Market (Division 6)............................. 01/16/86 -- 53.92% 18.22 13.15 4.13
AGSPC Science & Technology (Division 17).................... 04/29/94 128.57 -- -- 83.19 1.57
AGSPC Social Awareness (Division 12)........................ 10/02/89 198.53 -- 133.32 123.81 32.52
AGSPC Stock Index (Division 10)............................. 04/20/87 -- 338.36 136.11 117.70 31.77
American Century -- Twentieth Century Ultra (Division 31)... 07/01/96 26.59 -- -- -- 21.74
Founders Growth (Division 30)............................... 07/01/96 28.95 -- -- -- 25.25
Neuberger&Berman Guardian Trust (Division 29)(1)............ 07/01/96 30.75 -- -- -- 16.66
Putnam Global Growth (Division 28).......................... 07/01/96 18.68 -- -- -- 12.20
Putnam New Opportunities (Division 26)...................... 07/01/96 14.95 -- -- -- 21.31
Putnam OTC & Emerging Growth (Division 27).................. 07/01/96 (2.37) -- -- -- 9.08
Scudder Growth and Income (Division 21)..................... 07/01/96 43.60 -- -- -- 28.80
Templeton Foreign (Division 32)............................. 07/01/96 13.58 -- -- -- 5.57
Vanguard Fixed Income Securities Fund --
Long-Term Corporate Portfolio (Division 22)**............. 07/01/96 17.67 -- -- -- 12.32
Vanguard Fixed Income Securities Fund --
Long-Term U.S. Treasury Portfolio (Division 23)**......... 07/01/96 17.89 -- -- -- 12.44
Vanguard/Wellington (Division 25)........................... 07/01/96 34.01 -- -- -- 21.65
Vanguard/Windsor II (Division 24)........................... 07/01/96 46.50 -- -- -- 30.70
</TABLE>
- ---------------
** The performance figures for the Vanguard Fixed Income Securities
Fund -- Long-Term Corporate Portfolio (Division 22) and the Vanguard Fixed
Income Securities Fund -- Long-Term U.S. Treasury Portfolio (Division 23) in
the Table do not take into account the Separate Account Reimbursement made
by the Company directly to those Divisions. If such reimbursements were
included, the performance figures for the Divisions would be higher.
40
<PAGE> 49
TABLE VI
CUMULATIVE RETURN
WITH NO SURRENDER CHARGE OR ACCOUNT MAINTENANCE FEE IMPOSED
(FROM UNDERLYING FUND INCEPTION TO DECEMBER 31, 1997)
<TABLE>
<CAPTION>
FUND
INCEPTION SINCE
FUND AND DIVISION* DATE INCEPTION 10 YEARS 5 YEARS 3 YEARS 1 YEAR
------------------ --------- --------- -------- ------- ------- ------
<S> <C> <C> <C> <C> <C> <C>
American Century -- Twentieth Century Ultra (Division 31)... 11/02/81 -- 551.52% 114.37% 86.47% 21.74%
Founders Growth (Division 30)............................... 01/05/62 -- 381.30 147.81 108.29 25.25
Neuberger&Berman Guardian Trust (Division 29)(1)............ 06/01/50 -- 352.93 100.77 77.68 16.66
Putnam Global Growth (Division 28).......................... 09/01/67 -- 161.79 88.61 47.16 12.20
Putnam New Opportunities (Division 26)...................... 08/31/90 490.23% -- 159.10 92.76 21.31
Putnam OTC & Emerging Growth (Division 27).................. 11/01/82 -- 371.14 130.84 74.38 9.08
Scudder Growth and Income (Division 21)..................... 11/13/84 -- 324.86 132.88 101.29 28.80
Templeton Foreign (Division 32)............................. 10/05/82 -- 217.86 82.60 35.65 5.57
Vanguard Fixed Income Securities Fund --
Long-Term Corporate Portfolio (Division 22)**............. 07/09/73 -- 146.51 47.25 39.21 12.32
Vanguard Fixed Income Securities Fund --
Long-Term U.S. Treasury Portfolio (Division 23)**......... 05/19/86 -- 139.45 48.33 40.05 12.44
Vanguard/Wellington (Division 25)........................... 07/01/29 -- 247.43 101.87 83.18 21.65
Vanguard/Windsor II (Division 24)........................... 06/24/85 -- 367.75 140.60 119.67 30.70
</TABLE>
- ---------------
* The Table reflects actual historical performance of the related Separate
Account Divisions since inception of each Division (July 1, 1996) and
hypothetical performance for periods prior to July 1, 1996. Hypothetical
performance is based on the actual performance of the underlying Fund
reduced by Separate Account fees that would have been incurred during the
hypothetical period.
** The performance figures for the Vanguard Fixed Income Securities
Fund -- Long-Term Corporate Portfolio (Division 22) and the Vanguard Fixed
Income Securities Fund -- Long-Term U.S. Treasury Portfolio (Division 23) in
the Table do not take into account the Separate Account Reimbursement made
by the Company directly to those Divisions. If such reimbursements were
included, the performance figures for the Divisions would be higher.
41
<PAGE> 50
TABLE VII
ANNUAL AND CUMULATIVE CHANGE IN PURCHASE UNIT VALUE
WITH NO SURRENDER CHARGE OR ACCOUNT MAINTENANCE FEE IMPOSED
(PERIOD FROM SEPARATE ACCOUNT DIVISION INCEPTION)
<TABLE>
<CAPTION>
ANNUAL CHANGE IN PURCHASE UNIT VALUE FOR THE 12 MONTHS ENDED DECEMBER 31*
--------------------------------------------------------
FUND AND DIVISION 1997 1996 1995 1994 1993
- ----------------------------------- ------- ------ ------ ------ ------
<S> <C> <C> <C> <C> <C>
AGSPC Growth (Division 15)......... 19.80% 18.18% 46.40% 0.18% --
AGSPC International Government Bond
(Division 13)..................... (5.79) 3.36 17.63 3.42 13.08%
AGSPC Money Market (Division 6).... 4.13 3.97 4.51 2.77 1.67
AGSPC Science & Technology
(Division 17)..................... 1.57 12.68 60.07 24.77 --
AGSPC Social Awareness (Division
12)............................... 32.52 22.75 37.57 (2.42) 6.84
AGSPC Stock Index (Division 10).... 31.77 21.53 35.95 (0.30) 8.78
American Century -- Twentieth
Century Ultra (Division 31)....... 21.74 3.99 -- -- --
Founders Growth (Division 30)...... 25.25 2.95 -- -- --
Neuberger&Berman Guardian Trust
(Division 29)(1).................. 16.66 12.08 -- -- --
Putnam Global Growth (Division
28)............................... 12.20 5.77 -- -- --
Putnam New Opportunities (Division
26)............................... 21.31 (5.53) -- -- --
Putnam OTC & Emerging Growth
(Division 27)..................... 9.08 (11.73) -- -- --
Scudder Growth and Income (Division
21)............................... 28.80 11.50 -- -- --
Templeton Foreign (Division 32).... 5.57 7.59 -- -- --
Vanguard Fixed Income Securities
Fund -- Long-Term Corporate
Portfolio (Division 22)**......... 12.32 4.76 -- -- --
Vanguard Fixed Income Securities
Fund -- Long-Term U.S. Treasury
Portfolio (Division 23)**......... 12.44 4.85 -- -- --
Vanguard/Wellington (Division
25)............................... 21.65 10.16 -- -- --
Vanguard/Windsor II (Division
24)............................... 30.70 12.09 -- -- --
<CAPTION>
ANNUAL CHANGE IN PURCHASE UNIT VALUE FOR THE 12 MONTHS ENDED DECEMBER 31*
------------------------------------------------------
FUND AND DIVISION 1992 1991 1990 1989 1988
- ----------------------------------- ------ ------ ------ ------ ------
<S> <C> <C> <C> <C> <C>
AGSPC Growth (Division 15)......... -- -- -- -- --
AGSPC International Government Bond
(Division 13)..................... 2.05% 9.05% -- -- --
AGSPC Money Market (Division 6).... 2.22 4.49 6.83% 7.92% 5.72%
AGSPC Science & Technology
(Division 17)..................... -- -- -- -- --
AGSPC Social Awareness (Division
12)............................... 2.31 26.63 (2.21) 1.00 --
AGSPC Stock Index (Division 10).... 5.58 27.70 (4.83) 27.88 13.13
American Century -- Twentieth
Century Ultra (Division 31)....... -- -- -- -- --
Founders Growth (Division 30)...... -- -- -- -- --
Neuberger&Berman Guardian Trust
(Division 29)(1).................. -- -- -- -- --
Putnam Global Growth (Division
28)............................... -- -- -- -- --
Putnam New Opportunities (Division
26)............................... -- -- -- -- --
Putnam OTC & Emerging Growth
(Division 27)..................... -- -- -- -- --
Scudder Growth and Income (Division
21)............................... -- -- -- -- --
Templeton Foreign (Division 32).... -- -- -- -- --
Vanguard Fixed Income Securities
Fund -- Long-Term Corporate
Portfolio (Division 22)**......... -- -- -- -- --
Vanguard Fixed Income Securities
Fund -- Long-Term U.S. Treasury
Portfolio (Division 23)**......... -- -- -- -- --
Vanguard/Wellington (Division
25)............................... -- -- -- -- --
Vanguard/Windsor II (Division
24)............................... -- -- -- -- --
</TABLE>
<TABLE>
<CAPTION>
CUMULATIVE CHANGE IN PURCHASE UNIT VALUE FOR EACH PERIOD END SINCE 12/31/97*
--------------------------------------------------------
FUND AND DIVISION 1997 1996 1995 1994 1993
- ----------------------------------- ------ ------ ------ ------ ------
<S> <C> <C> <C> <C> <C>
AGSPC Growth (Division 15)......... 107.65% 73.33% 46.67% 0.18% --
AGSPC International Government Bond
(Division 13)..................... 49.06 58.22 53.08 30.14 25.83%
AGSPC Money Market (Division 6).... 53.92 47.82 42.17 36.04 32.38
AGSPC Science & Technology
(Division 17)..................... 128.57 125.05 99.72 24.77 --
AGSPC Social Awareness (Division
12)............................... 198.53 125.27 83.51 33.39 36.70
AGSPC Stock Index (Division 10).... 338.36 232.67 173.74 101.36 101.97
American Century -- Twentieth
Century Ultra (Division 31)....... 26.59 3.99 -- -- --
Founders Growth (Division 30)...... 28.95 2.95 -- -- --
Neuberger&Berman Guardian Trust
(Division 29)(1).................. 30.75 12.08 -- -- --
Putnam Global Growth (Division
28)............................... 18.68 5.77 -- -- --
Putnam New Opportunities (Division
26)............................... 14.95 (5.53) -- -- --
Putnam OTC & Emerging Growth
(Division 27)..................... (2.37) (11.73) -- -- --
Scudder Growth and Income (Division
21)............................... 43.60 11.50 -- -- --
Templeton Foreign (Division 32).... 13.58 7.59 -- -- --
Vanguard Fixed Income Securities
Fund -- Long-Term Corporate
Portfolio (Division 22)**......... 17.67 4.76 -- -- --
Vanguard Fixed Income Securities
Fund -- Long-Term U.S. Treasury
Portfolio (Division 23)**......... 17.89 4.85 -- -- --
Vanguard/Wellington (Division
25)............................... 34.01 10.16 -- -- --
Vanguard/Windsor II (Division
24)............................... 46.50 12.09 -- -- --
<CAPTION>
CUMULATIVE CHANGE IN PURCHASE UNIT VALUE FOR EACH PERIOD END SINCE 12/31/97*
------------------------------------------------------
FUND AND DIVISION 1992 1991 1990 1989 1988
- ----------------------------------- ------ ------ ------ ------ ------
<S> <C> <C> <C> <C> <C>
AGSPC Growth (Division 15)......... -- -- -- -- --
AGSPC International Government Bond
(Division 13)..................... 11.28% 9.05% -- -- --
AGSPC Money Market (Division 6).... 30.20 27.37 21.90% 14.10% 5.72%
AGSPC Science & Technology
(Division 17)..................... -- -- -- -- --
AGSPC Social Awareness (Division
12)............................... 27.95 25.06 (1.23) 1.00 --
AGSPC Stock Index (Division 10).... 85.66 75.84 37.70 44.68 13.13
American Century -- Twentieth
Century Ultra (Division 31)....... -- -- -- -- --
Founders Growth (Division 30)...... -- -- -- -- --
Neuberger&Berman Guardian Trust
(Division 29)(1).................. -- -- -- -- --
Putnam Global Growth (Division
28)............................... -- -- -- -- --
Putnam New Opportunities (Division
26)............................... -- -- -- --
Putnam OTC & Emerging Growth
(Division 27)..................... -- -- -- -- --
Scudder Growth and Income (Division
21)............................... -- -- -- -- --
Templeton Foreign (Division 32).... -- -- -- -- --
Vanguard Fixed Income Securities
Fund -- Long-Term Corporate
Portfolio (Division 22)**......... -- -- -- -- --
Vanguard Fixed Income Securities
Fund -- Long-Term U.S. Treasury
Portfolio (Division 23)**......... -- -- -- -- --
Vanguard/Wellington (Division
25)............................... -- -- -- -- --
Vanguard/Windsor II (Division
24)............................... -- -- -- -- --
</TABLE>
- ------------
* For the year in which the underlying Fund commenced operations, less than a
full year's performance has been reflected, which is not annualized.
** The performance figures for the Vanguard Fixed Income Securities
Fund -- Long-Term Corporate Portfolio (Division 22) and the Vanguard Fixed
Income Securities Fund -- Long-Term U.S. Treasury Portfolio (Division 23) in
the Table do not take into account the Separate Account Reimbursement made
by the Company directly to those Divisions. If such reimbursements were
included, the performance figures for the Divisions would be higher.
42
<PAGE> 51
TABLE VIII
ANNUAL AND CUMULATIVE CHANGE IN PURCHASE UNIT VALUE
WITH NO SURRENDER CHARGE OR ACCOUNT MAINTENANCE FEE IMPOSED
(PERIOD FROM UNDERLYING FUND INCEPTION)
<TABLE>
<CAPTION>
ANNUAL CHANGE IN PURCHASE UNIT VALUE FOR THE 12 MONTHS ENDED DECEMBER 31*
--------------------------------------------------------
FUND AND DIVISION** 1997 1996 1995 1994 1993
- ----------------------------------- ------- ------ ------ ------ ------
<S> <C> <C> <C> <C> <C>
American Century -- Twentieth
Century Ultra (Division 31)....... 21.74% 12.43% 36.23% (4.62)% 20.54%
Founders Growth (Division 30)...... 25.25 15.35 44.15 (4.29) 24.30
Neuberger&Berman Guardian Trust
(Division 29)(1).................. 16.66 16.54 30.70 0.51 12.43
Putnam Global Growth (Division
28)............................... 12.20 15.37 13.68 (1.84) 30.56
Putnam New Opportunities (Division
26)............................... 21.31 9.70 44.87 2.29 31.40
Putnam OTC & Emerging Growth
(Division 27)..................... 9.08 3.53 54.45 1.22 30.77
Scudder Growth and Income (Division
21)............................... 28.80 20.63 29.58 1.33 14.17
Templeton Foreign (Division 32).... 5.57 16.74 10.07 (0.62) 35.48
Vanguard Fixed Income Securities
Fund -- Long-Term Corporate
Portfolio (Division 22)***........ 12.32 (0.72) 24.86 (6.47) 13.08
Vanguard Fixed Income Securities
Fund -- Long-Term U.S. Treasury
Portfolio (Division 23)***........ 12.44 (3.08) 28.51 (8.17) 15.36
Vanguard/Wellington (Division
25)............................... 21.65 14.69 31.30 (1.71) 12.12
Vanguard/Windsor II (Division
24)............................... 30.70 22.56 37.14 (2.38) 12.21
<CAPTION>
ANNUAL CHANGE IN PURCHASE UNIT VALUE FOR THE 12 MONTHS ENDED DECEMBER 31*
------------------------------------------------------
FUND AND DIVISION** 1992 1991 1990 1989 1988
- ----------------------------------- ------ ------ ------ ------ ------
<S> <C> <C> <C> <C> <C>
American Century -- Twentieth
Century Ultra (Division 31)....... 0.20% 84.49% 8.21% 35.50% 12.12%
Founders Growth (Division 30)...... 3.21 45.94 (11.48) 40.37 3.77
Neuberger&Berman Guardian Trust
(Division 29)(1).................. 17.87 32.86 (5.63) 20.27 26.84
Putnam Global Growth (Division
28)............................... (0.76) 16.81 (10.11) 23.23 7.95
Putnam New Opportunities (Division
26)............................... 24.37 65.93 10.41 -- --
Putnam OTC & Emerging Growth
(Division 27)..................... 11.58 39.47 (10.75) 27.70 15.04
Scudder Growth and Income (Division
21)............................... 8.22 26.60 (3.55) 24.82 10.63
Templeton Foreign (Division 32).... (0.89) 17.10 (3.95) 29.25 20.82
Vanguard Fixed Income Securities
Fund -- Long-Term Corporate
Portfolio (Division 22)***........ 8.41 19.42 4.90 13.76 8.35
Vanguard Fixed Income Securities
Fund -- Long-Term U.S. Treasury
Portfolio (Division 23)***........ 6.09 15.98 4.48 16.48 7.81
Vanguard/Wellington (Division
25)............................... 6.58 22.13 (4.01) 20.11 14.67
Vanguard/Windsor II (Division
24)............................... 10.59 27.11 (11.10) 26.25 23.19
</TABLE>
<TABLE>
<CAPTION>
CUMULATIVE CHANGE IN PURCHASE UNIT VALUE FOR EACH PERIOD END SINCE 12/31/97*
--------------------------------------------------------
FUND AND DIVISION** 1997 1996 1995 1994 1993
- ----------------------------------- ------ ------ ------ ------ ------
<S> <C> <C> <C> <C> <C>
American Century -- Twentieth
Century Ultra (Division 31)....... 551.52% 435.16% 375.99% 249.39% 266.34%
Founders Growth (Division 30)...... 381.30 284.26 233.12 131.07 141.43
Neuberger&Berman Guardian Trust
(Division 29)(1).................. 352.93 288.26 233.16 154.92 153.59
Putnam Global Growth (Division
28)............................... 161.79 133.31 102.24 77.89 81.20
Putnam New Opportunities (Division
26)............................... 490.23 386.56 343.65 206.25 199.40
Putnam OTC & Emerging Growth
(Division 27)..................... 371.14 331.91 317.20 170.18 166.87
Scudder Growth and Income (Division
21)............................... 324.86 229.87 173.46 111.07 108.29
Templeton Foreign (Division 32).... 217.86 201.10 157.92 134.32 135.81
Vanguard Fixed Income Securities
Fund -- Long-Term Corporate
Portfolio (Division 22)***........ 146.51 119.47 121.07 77.08 89.31
Vanguard Fixed Income Securities
Fund -- Long-Term U.S. Treasury
Portfolio (Division 23)***........ 139.45 112.95 119.72 70.97 86.21
Vanguard/Wellington (Division
25)............................... 247.43 185.59 149.01 89.66 92.97
Vanguard/Windsor II (Division
24)............................... 367.75 257.88 192.00 112.94 118.14
<CAPTION>
CUMULATIVE CHANGE IN PURCHASE UNIT VALUE FOR EACH PERIOD END SINCE 12/31/97*
------------------------------------------------------
FUND AND DIVISION** 1992 1991 1990 1989 1988
- ----------------------------------- ------ ------ ------ ------ ------
<S> <C> <C> <C> <C> <C>
American Century -- Twentieth
Century Ultra (Division 31)....... 203.92% 203.31% 64.40% 51.92% 12.12%
Founders Growth (Division 30)...... 94.22 88.17 28.93 45.65 3.78
Neuberger&Berman Guardian Trust
(Division 29)(1).................. 125.60 91.46 43.93 52.54 26.79
Putnam Global Growth (Division
28)............................... 38.80 39.85 19.72 33.15 7.97
Putnam New Opportunities (Division
26)............................... 127.85 83.20 10.41 -- --
Putnam OTC & Emerging Growth
(Division 27)..................... 104.10 82.92 31.17 46.92 15.05
Scudder Growth and Income (Division
21)............................... 82.44 68.61 33.19 38.07 10.63
Templeton Foreign (Division 32).... 74.07 75.64 49.98 56.16 20.83
Vanguard Fixed Income Securities
Fund -- Long-Term Corporate
Portfolio (Division 22)***........ 67.40 54.40 29.29 23.25 8.35
Vanguard Fixed Income Securities
Fund -- Long-Term U.S. Treasury
Portfolio (Division 23)***........ 61.43 52.18 31.20 25.58 7.81
Vanguard/Wellington (Division
25)............................... 72.11 61.47 32.21 37.73 14.67
Vanguard/Windsor II (Division
24)............................... 94.41 75.77 38.28 55.53 23.19
</TABLE>
- ------------
* For the year in which the underlying Fund commenced operations, less than a
full year's performance has been reflected, which is not annualized.
** The Tables reflect actual historical performance of the related Separate
Account Divisions since inception of each Division (July 1, 1996) and
hypothetical performance for periods prior to July 1, 1996. Hypothetical
performance is based on the actual performance of the underlying Fund
reduced by Separate Account fees that would have been incurred during the
hypothetical period.
*** The performance figures for the Vanguard Fixed Income Securities
Fund -- Long-Term Corporate Portfolio (Division 22) and the Vanguard Fixed
Income Securities Fund -- Long-Term U.S. Treasury Portfolio (Division 23)
in the Table do not take into account the Separate Account Reimbursement
made by the Company directly to those Divisions. If such reimbursements
were included, the performance figures for the Divisions would be higher.
43
<PAGE> 52
OTHER CONTRACT FEATURES
- --------------------------------------------------------------------------------
CHANGES THAT MAY NOT BE MADE
The following terms in Portfolio Director 2 may not be changed once your account
has been established:
- The Contract Owner;
- The Participant; and
- The Annuitant.
CHANGE OF BENEFICIARY
The Beneficiary (if not irrevocable) may usually be changed at any time.
Under some retirement programs, the right to name or change a Beneficiary is
subject to approval by the spouse. Also, the right to name a Beneficiary other
than the spouse may be subject to certain tax laws and regulations.
If the Annuitant dies, and there is no Beneficiary, any death benefit will be
payable to the Annuitant's estate.
If a Beneficiary dies while receiving payments, and there is no co-Beneficiary
to continue to receive payments, any amount still due will be paid to the
Beneficiary's estate.
CONTINGENT OWNER
The Contract Owner may name a Contingent Owner under an individual non-tax
qualified Contract. During the Purchase Period, the Contingent Owner may be
changed. However, if the Contract Owner dies, benefits must be distributed as
required by the federal tax law.
CANCELLATION -- THE 20 DAY "FREE LOOK"
The Contract Owner may cancel an individual contract by returning it to the
Company within 20 days after delivery. (A longer period will be allowed if
required under state law.) A refund will be made to the Contract Owner within 7
days after receipt of the Contract within the required period. The amount of the
refund will be equal to all Purchase Payments received or the amount required
under state law, if larger.
WE RESERVE CERTAIN RIGHTS
We reserve the right to:
- Amend the Contract to conform with substitutions of investments;
- Amend the Contract to comply with tax or other laws;
- Make changes (upon written notice) to group Contracts that would apply only
to new Participants after the effective date of the changes;
- Operate VALIC Separate Account A as a management investment company under
the 1940 Act, in consideration of an investment management fee or in any
other form permitted by law;
- Deregister VALIC Separate Account A under the 1940 Act, if registration is
no longer required;
- Stop accepting new Participants under a group Contract.
RELATIONSHIP TO EMPLOYER'S PLAN
If the Contract is being offered as a retirement plan through your employer, you
should always refer to the terms and conditions in your employer's plan when
reviewing the description of Portfolio Director 2 in this prospectus.
Plan loans from the Fixed Account Options may be allowed by your employer's
plan. Refer to your plan for a description of charges and other information.
44
<PAGE> 53
VOTING RIGHTS
- --------------------------------------------------------------------------------
As discussed in the "About VALIC Separate Account A" section of this prospectus,
VALIC Separate Account A holds on your behalf shares of the Funds which comprise
the Variable Account Options. From time to time the Funds are required to hold a
shareholder meeting to obtain approval from their shareholders for certain
matters. As a Participant, you may be entitled to give voting instructions to us
as to how VALIC Separate Account A should vote its Fund shares on these matters.
Those persons entitled to give voting instructions will be determined before the
shareholders meeting is held. For more information about these shareholder
meetings and when they may be held, see the Funds' prospectuses.
WHO MAY GIVE VOTING INSTRUCTIONS
In most cases during the Purchase Period, you will have the right to give voting
instructions for the shareholder meetings. This will be true even if your
employer is the Contract Owner. Contract Owners will instruct VALIC Separate
Account A in accordance with these instructions. You will receive proxy material
and a form on which voting instructions may be given before the shareholder
meeting is held.
You will not have the right to give voting instructions if Portfolio Director 2
was issued in connection with a nonqualified and unfunded deferred compensation
plan.
DETERMINATION OF FUND SHARES
ATTRIBUTABLE TO YOUR ACCOUNT
DURING PURCHASE PERIOD
The number of Fund shares attributable to your account will be determined on the
basis of the Purchase Units credited to your account on the record date set for
the Fund shareholder meeting.
DURING PAYOUT PERIOD OR AFTER A DEATH
BENEFIT HAS BEEN PAID
The number of Fund shares attributable to your account will be based on the
liability for future variable annuity payments to your payees on the record date
set for the Fund shareholder meeting.
HOW FUND SHARES ARE VOTED
The Funds which comprise the Variable Account Options in Portfolio Director 2
may have a number of shareholders including VALIC Separate Account A, VALIC
other affiliated insurance company separate accounts and retirement plans within
the American General group of companies and public shareholders.
VALIC Separate Account A will vote all of the shares of the Funds it holds based
on, and in the same proportion as, the instructions given by all the
Participants invested in that Fund entitled to give instructions at that
shareholder meeting. VALIC Separate Account A will vote the shares of the Funds
it holds for which it receives no voting instruction in the same proportion as
the shares for which voting instructions have been received.
VALIC will vote the shares of the Funds it holds based on, and in the same
proportion as, the voting instructions received from participants in VALIC
Separate Account A.
In the future, we may decide how to vote the shares of VALIC or VALIC Separate
Account A in a different manner if permitted at that time under federal
securities law.
VALIC SEPARATE
ACCOUNT A -- a segregated
asset account established by
VALIC under the Texas
Insurance Code. The purpose
of VALIC Separate Account A
is to receive and invest your
Purchase Payments and
Account Value in the Variable
Account Options you have
selected.
45
<PAGE> 54
FEDERAL TAX MATTERS
- --------------------------------------------------------------------------------
Portfolio Director 2 provides tax-deferred accumulation over time, but is
subject to federal income and excise taxes, mentioned briefly below. You should
refer to the Statement of Additional Information for further details. Section
references are to the Internal Revenue Code ("Code"). We do not attempt to
describe any potential estate or gift tax, or any applicable state, local or
foreign tax law other than possible premium taxes mentioned under "Premium Tax
Charge." Remember that future legislation could modify the rules discussed
below, and always consult your personal tax adviser regarding how the current
rules apply to your specific situation.
TYPE OF PLANS
Tax rules vary, depending on whether the Contract is offered under your
employer's tax-qualified retirement program or 408(b) IRA, or is instead a
nonqualified Contract. Portfolio Director 2 is used under the following types of
retirement arrangements:
- Section 403(b) annuities for employees
of public schools and
Section 501(c)(3) tax-exempt
organizations;
- Section 401(a) and 403(a) qualified plans of for-profit employers and other
employers (including self-employed individuals);
- Section 408(b) individual retirement annuities;
- Section 457 deferred compensation plans of governmental and tax-exempt
employers;
- Section 408(k) simplified deferred
compensation plans of private
employers;
- Section 408(p) SIMPLE retirement accounts.
The foregoing Contracts are "Qualified Contracts." Certain series of Portfolio
Director 2 may also be available through a nondeductible Section 408A "Roth"
individual retirement annuity.
Note that the specific terms of the governing employer plan may limit rights and
options otherwise available under a Contract.
In addition, Portfolio Director 2 is also available through "Non-Qualified
Contracts" to the extent acquired by "Non-Natural Persons." Such Non-Qualified
Contracts generally include unfunded, nonqualified deferred compensation plans
of corporate employers.
TAX CONSEQUENCES IN GENERAL
Purchase Payments, distributions, withdrawals, transfers and surrender of a
Contract can each have a tax effect, which varies with the governing retirement
arrangement. Please refer to the detailed explanation in the Statement of
Additional Information, the documents (if any) controlling the retirement
arrangement through which the contract is offered, and your personal tax
adviser.
Purchase Payments under Portfolio Director 2 can be made as contributions by
employers, or as pre-tax or after-tax contributions by employees, depending on
the type of retirement program. After-tax employee contributions constitute
"investment in the Contract." All Qualified Contracts receive deferral of tax on
the inside build-up of earnings on invested Purchase Payments, until a
distribution occurs. See the Statement of Additional Information for special
rules, including those applicable to taxable, non-natural owners of
Non-Qualified Contracts.
Distributions are taxed differently depending on the program through which
Portfolio Director 2 is offered and the previous tax characterization of the
contributions to which the distribution relates. Generally, the portion of a
distribution which is not considered a return of investment in the Contract is
subject to income tax. For annuity payments, investment in the contract is
recovered ratably over the expected payout period. Special recovery rules might
apply in certain situations.
Amounts subject to income tax may also incur excise tax, under the circumstances
described in the Statement of Additional Information. Generally, they would also
be subject to some form of federal income tax withholding unless rolled into
another tax-deferred vehicle. Required withholding will vary according to type
of program, type of payment and your tax status. In addition, amounts received
under all Contracts may be subject to state income tax withholding requirements.
It is the opinion of VALIC and its tax counsel that a Qualified Contract
described in Section 403(a), 403(b), or 408(b) of the Code does not lose its
deferred tax treatment if purchase payments under the contract are invested in
publicly available mutual funds. In a ruling published in 1981, the Internal
Revenue Service ("IRS") had taken the position that, where purchase payments
under a variable annuity contract are invested in publicly available mutual
funds, the contract owner should be treated as the owner of the mutual fund
shares, and deferred tax treatment under the contract should not be available.
In the opinion of VALIC and its tax counsel, the 1981 ruling has been superseded
by subsequent legislation (Code Section 817(h))
46
<PAGE> 55
- --------------------------------------------------------------------------------
which specifically exempts these Qualified Contracts, and the IRS has no viable
legal basis or reason to apply the theory of the 1981 ruling to these Qualified
Contracts under current law. In any event, were the IRS to challenge the
deferred tax treatment of these Qualified Contracts under the theory of the 1981
ruling, VALIC and its tax counsel believe that Contract owners would prevail.
It is also the opinion of VALIC and its tax counsel that for each other type of
Qualified Contract an independent exemption provides tax deferral regardless of
ownership of the Mutual Fund shares.
Generally, investment earnings on contributions to Non-Qualified Contracts will
be taxed currently to the owner and such contracts will not be treated as
annuities for federal income tax purposes.
EFFECT OF TAX-DEFERRED ACCUMULATIONS
The chart below compares the results from
Premium Payments made to:
- Portfolio Director 2 Contract issued to a tax favored retirement program
purchased with pre-tax premium payments;
- A non-qualified Contract purchased with after-tax Premium Payments and;
- Conventional savings vehicles such as savings accounts.
THE POWER OF TAX-DEFERRED GROWTH
[BAR GRAPH]
This hypothetical chart compares the results of (1) contributing $100 per month
to a conventional, non-tax deferred plan, (2) contributing $100 to a
nonqualified, tax-deferred annuity, and (3) contributing $100 per month ($138.89
since contributions are made before tax) to a qualified tax-deferred plan. The
chart assumes a 28% tax rate and an 8% fixed rate of return. The deduction of
fees and charges for both tax-deferred plans is reflected in the chart. Variable
options incur mortality and expense risk fee and administration and distribution
fee charges (1% - 1.25%) and may also incur account maintenance fees ($3.75 per
quarter) and surrender charges (5% of the lesser of all contributions received
during the last 60 months or the amount withdrawn). The dotted lines represent
the amounts remaining after withdrawal and payment of taxes and any surrender
charge. An additional 10% tax penalty may apply to withdrawals before age
59 1/2. This information is for illustrative purposes only and is not a
guarantee of future return.
Unlike savings accounts, Premium Payments made to tax-favored retirement
programs and Non-Qualified Contracts generally provide tax deferred treatment on
earnings. In addition, Premium Payments made to tax-favored retirement programs
ordinarily are not subject to income tax until withdrawn. As shown above,
investing in a tax-favored program increases the accumulation power of savings
over time. The more taxes saved and reinvested in the program, the more the
accumulation power effectively grows over the years.
To further illustrate the advantages of tax deferred savings using a 28% Federal
tax bracket, an annual fixed yield (BEFORE THE DEDUCTION OF ANY FEES OR CHARGES)
of 8% under a tax-favored retirement program in which tax savings were
reinvested has an equivalent after-tax annual fixed yield of 5.76% under a
conventional savings program. THE 8% YIELD ON THE TAX-FAVORED PROGRAM WILL BE
REDUCED BY THE IMPACT OF INCOME TAXES UPON WITHDRAWAL. The yield will vary
depending upon the timing of withdrawals. The previous chart represents (without
factoring in fees and charges) after-tax amounts that would be received.
By taking into account the current deferral of taxes, contributions to
tax-favored retirement programs increase the amount available for savings by
decreasing the relative current out-of-pocket cost (referring to the effect on
annual net take-home pay) of the investment. The chart below illustrates this
principle by comparing a
47
<PAGE> 56
- --------------------------------------------------------------------------------
pre-tax contribution to a tax-favored retirement plan with an after-tax
contribution to a conventional savings account:
PAYCHECK COMPARISON
<TABLE>
<CAPTION>
TAX-FAVORED CONVENTIONAL
RETIREMENT SAVINGS
PROGRAM ACCOUNT
----------- ------------
<S> <C> <C>
Annual amount available
for savings before
federal taxes......... $2,500 $2,500
Current federal income
tax due on Purchase
Payments.............. 0 (700)
Net retirement plan
Purchase Payments..... $2,500 $1,800
</TABLE>
This chart assumes a 28% federal income tax rate. The $700 which is paid toward
current federal income taxes reduces the actual amount saved in the conventional
savings account to $1,800 while the full $2,500 is contributed to the
tax-qualified program, subject to being taxed upon withdrawal. Stated otherwise,
to reach an annual retirement savings goal of $2,500, the contribution to a tax-
qualified retirement program results in a current out-of-pocket expense of
$1,800 while the contribution to a conventional savings account requires the
full $2,500 out-of-pocket expense. The tax-qualified retirement program
represented in this chart is a plan type, such as one under Section 403(b) of
the Code, which allows participants to exclude contributions within limits, from
gross income.
48
<PAGE> 57
YEAR 2000
- --------------------------------------------------------------------------------
YEAR 2000 RISKS
Like other insurance companies, financial and business organizations around the
world, each of the Variable Account Options and the underlying mutual funds
could be adversely affected if the computer systems used by the Company, other
service providers and entities with computer systems that are linked to the
Company's records do not properly process and calculate date-related information
and data from and after January 1, 2000. This is commonly known as the "Year
2000 Issue." The Company is taking steps that it believes are reasonably
designed to address the Year 2000 Issue with respect to the computer systems
that its uses and to obtain satisfactory assurances that comparable steps are
being taken by each of the Variable Account Options' other major service
providers. The Company expects to be substantially complete with its computer
systems projects to address year 2000 issues by the end of 1998. However, there
can be no assurance that these steps will be sufficient to avoid any adverse
impact on the Variable Account Options.
49
<PAGE> 58
REVOCATION OF TELEPHONE ASSET TRANSFER AUTHORITY
Participant/Contract Owner Name:
------------------------------------------------------------------------
Social Security Number:
------------------------------------------------------------------------
Birth Date:
I am the Participant under or Contract Owner of one or more variable annuity
contracts issued by The Variable Annuity Life Insurance Company ("VALIC"). I
hereby instruct VALIC not to accept any telephone instructions to transfer
Account Values among investment options or change the allocation of future
Purchase Payments from me, anyone representing me or anyone representing himself
or herself to be me. I understand as a result of executing this form that the
transfer of Account Values or Payout Values among investment options or changes
in the allocation of future Purchase Payments may only be effected upon the
receipt by VALIC of my written instructions.
<TABLE>
<S> <C>
- ------------------------------------------------------------ ---------------------------------------
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>
<PAGE> 59
(This page intentionally left blank)
<PAGE> 60
Please tear off, complete and return the form below to one of our Regional
Offices at the address shown on the inside back cover of this Prospectus. A
Statement of Additional Information may also be ordered by calling
1-800-44-VALIC.
................................................................................
PORTFOLIO DIRECTOR CONTRACTS
Please send me a free copy of the Statement of Additional Information for The
Variable Annuity Life Insurance Company Separate Account A (Portfolio Director
2).
(Please Print or Type)
- --------------------------------------------------------------------------------
Name: G.A. #
Address: Policy #
Social Security Number:
- --------------------------------------------------------------------------------
<PAGE> 61
(This page intentionally left blank)
<PAGE> 62
CONTENTS OF STATEMENT OF ADDITIONAL INFORMATION
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
General Information................................. 4
Marketing Information........................... 4
Endorsements and Published Ratings.............. 7
Types of Variable Annuity Contracts................. 8
Federal Tax Matters................................. 8
Tax Consequences of Purchase Payments........... 9
Tax Consequences of Distributions............... 10
Special Tax Consequences -- Early
Distribution.................................. 11
Special Tax Consequences -- Required
Distributions................................. 12
Tax Free Rollovers, Transfers and Exchanges..... 13
Exchange Privilege.................................. 13
Exchanges From Portfolio Director, Exchanges
From Portfolio Director 2..................... 13
Exchanges From Independence Plus Contracts...... 14
Exchanges From V-Plan Contracts................. 16
Exchanges From SA-1 and SA-2 Contracts.......... 17
Exchanges From Impact Contracts................. 18
Exchanges From Compounder Contracts............. 19
Information Which May Be Applicable To Any
Exchange...................................... 20
Calculation of Surrender Charge..................... 21
Illustration of Surrender Charge on Total
Surrender..................................... 21
Illustration of Surrender Charge on a 10%
Partial Surrender Followed by a Full
Surrender..................................... 21
Purchase Unit Value................................. 22
Illustration of Calculation of Purchase Unit
Value......................................... 22
Illustration of Purchase of Purchase Units...... 22
Performance Calculations............................ 22
AGSPC Money Market Division Yields.............. 22
Calculation of Current Yield for AGSPC Money
Market Division Six........................... 22
Illustration of Calculation of Current Yield for
AGSPC Money Market Division Six............... 22
Calculation of Effective Yield for AGSPC Money
Market Division Six........................... 23
Illustration of Calculation of Effective Yield
for AGSPC Money Market Division Six........... 23
Standardized Yield for Bond Fund Divisions.......... 23
Calculation of Standardized Yield for Bond Fund
Divisions..................................... 23
Illustration of Calculation of Standardized
Yield for Bond Fund Divisions................. 23
Calculation of Average Annual Total Return...... 24
Performance Information............................. 25
Hypothetical $10,000 Account Value and
Cumulative Return as Compared to Benchmark
Tables........................................ 25
Performance Compared to Market Indices.......... 25
AGSPC Growth Division Fifteen Performance
Compared to S&P 500 Index..................... 28
AGSPC International Government Bond Division
Thirteen Performance Compared to Salomon
Brothers Non-U.S. Dollar World Government Bond
Index......................................... 28
</TABLE>
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
AGSPC Money Market Division Six Performance
Compared to Certificate of Deposit Primary
Offering by New York City Banks, 30 Day
Index......................................... 29
AGSPC Science & Technology Division Seventeen
Performance Compared to S&P 500 Index......... 29
AGSPC Social Awareness Division Twelve
Performance Compared to S&P 500 Index......... 30
AGSPC Stock Index Division Ten Performance
Compared to S&P 500 Index..................... 30
American Century -- Twentieth Century Ultra
Division Thirty-one Compared to S&P 500 Index
and NASDAQ Composite Index.................... 31
Founders Growth Division Thirty Compared to S&P
500 Index..................................... 31
Neuberger&Berman Guardian Trust Division
Twenty-nine Compared to S&P 500 Index......... 32
Putnam Global Growth Division Twenty-eight
Compared to MCSI World Index and S&P 500
Index......................................... 32
Putnam New Opportunities Division Twenty-six
Compared to S&P 500 Index..................... 33
Putnam OTC & Emerging Growth Division
Twenty-seven Compared to Russell 2000 Index
and S&P 500 Index............................. 34
Scudder Growth and Income Division Twenty-one
Compared to S&P 500 Index..................... 34
Templeton Foreign Division Thirty-two Compared
to EAFE Index................................. 35
Vanguard Fixed Income Securities
Fund -- Long-Term Corporate Portfolio Division
Twenty-two Compared to Merrill Lynch Corporate
Master Index.................................. 35
Vanguard Fixed Income Securities
Fund -- Long-Term U.S. Treasury Portfolio
Division Twenty-three Compared to Lehman
Brothers U.S. Treasury Long-Term Index........ 36
Vanguard/Wellington Division Twenty-five
Compared to S&P 500 Index and Merrill Lynch
Corporate Master Index........................ 36
Vanguard/Windsor II Division Twenty-four
Compared to S&P 500 Index..................... 37
Payout Payments..................................... 38
Assumed Investment Rate......................... 38
Amount of Payout Payments....................... 38
Payout Unit Value............................... 38
Illustration of Calculation of Payout Unit
Value......................................... 39
Illustration of Payout Payments................. 39
Distribution of Variable Annuity Contracts.......... 40
Experts............................................. 40
Comments on Financial Statements.................... 41
</TABLE>
<PAGE> 63
================================================================================
FOR ADDITIONAL INFORMATION ABOUT THE CONTRACTS
CONTACT YOUR NEAREST REGIONAL OFFICE:
3535 Grandview Parkway
Suite 200
Birmingham, AL 35243
(205) 967-8955
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
(650) 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 1900
Chicago, IL 60606
(312) 368-1001
11711 N. Meridian St.
Suite 300
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
(248) 641-0022
8500 Normandale Lake Blvd.
Suite 750
Bloomington, MN 55437
(612) 893-1099
4266 Interstate 55N
Suite 108
Jackson, MS 39211
(601) 981-5801
410 Amherst Street
Suite 250
Nashua, NH 03063
(603) 883-3840
90 Woodbridge Ctr. Dr.
Suite 300
Woodbridge, NJ 07095
(732) 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
Two International Plaza
Suite 601
Nashville, TN 37217
(615) 254-4822
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-six branch offices located throughout the
country.
THE VARIABLE ANNUITY LIFE INSURANCE COMPANY
2929 ALLEN PARKWAY, HOUSTON, TEXAS 77019
1-800-44-VALIC
FOR UNIT VALUE INFORMATION CALL: 1-800-42-VALIC & TDD 1-800-24-VALIC
FOR ASSET TRANSFERS BY TELEPHONE CALL: 1-800-621-7792
TDD 1-800-35-VALIC
EASYACCESS 1-800-42-VALIC
TDD EASYACCESS 1-800-24-VALIC
================================================================================
<PAGE> 64
THE VARIABLE ANNUITY LIFE INSURANCE COMPANY
UNITS OF INTEREST UNDER GROUP AND INDIVIDUAL
VARIABLE ANNUITY CONTRACTS
PORTFOLIO DIRECTOR 2
SEPARATE ACCOUNT A
FOR SERIES 2.1.20 TO 2.12.20 May 1, 1998
PROSPECTUS
Certain series of Portfolio Director 2 consist of group and individual variable
annuity contracts that are offered by The Variable Annuity Life Insurance
Company ("VALIC") to Participants in certain employer sponsored retirement
plans. Portfolio Director 2 Series 2.1.20 to 2.12.20 consists of group variable
annuity contracts that are offered by VALIC to Participants in certain employer
sponsored retirement plans. Portfolio Director 2 may be available to you when
you participate in a retirement program that qualifies for deferral of federal
income taxes. Non-qualified contracts are also available for certain employer
plans only. Portfolio Director 2 is composed of the following contract forms:
UIT-194, UITG-194, UITN-194, UIT-IRA-194 and UIT-SEP-194.
Portfolio Director 2 permits you to invest in and receive retirement benefits
from Fixed Account Options and/or Variable Account Options. Each of these
investment options is explained more fully in this prospectus. Here is a list of
these investment options:
TWO FIXED ACCOUNT OPTIONS: Fixed Account Plus
Short-Term Fixed Account
EIGHTEEN VARIABLE ACCOUNT OPTIONS*
<TABLE>
<S> <C> <C>
American General Series Portfolio Founders Funds, Inc.: Templeton Funds, Inc.:
Company (AGSPC): Founders Growth Fund Templeton Foreign Fund --
Growth Fund Neuberger&Berman Management Inc.: Class 1
International Government Bond Fund Neuberger&Berman Guardian Trust
Money Market Fund The Vanguard Group, Inc.:
Science & Technology Fund Putnam Investments: Vanguard Fixed Income
Social Awareness Fund Putnam Global Growth Fund Securities Fund --
Stock Index Fund Putnam New Opportunities Fund Long-Term Corporate
Putnam OTC & Emerging Growth Portfolio
American Century Investment Fund Vanguard Fixed Income
Management, Inc.: Securities Fund --
American Century -- Twentieth Scudder Kemper Investments, Inc.: Long-Term U.S.
Century Ultra Fund Scudder Growth and Income Fund Treasury Portfolio
Vanguard/Wellington Fund
Vanguard/Windsor II
</TABLE>
* Each of these mutual funds is publicly available except for the six AGSPC
Funds.
- --------------------------------------------------------------------------------
This prospectus provides you with information you should know before investing
in Portfolio Director 2. This prospectus is accompanied by the current
prospectuses for the mutual fund options listed above. Please read and retain
each of these prospectuses for future reference.
A Statement of Additional Information, dated May 1, 1998, has been filed with
the Securities and Exchange Commission. This Statement of Additional Information
contains additional information about Portfolio Director 2 and is part of this
prospectus. For a free copy, complete and return the form contained in the back
of this prospectus or call 1-800-44-VALIC.
NO PERSON HAS BEEN AUTHORIZED TO GIVE ANY INFORMATION OR TO MAKE ANY
REPRESENTATIONS OTHER THAN THOSE CONTAINED IN THIS PROSPECTUS IN CONNECTION WITH
THE OFFER CONTAINED IN THIS PROSPECTUS, AND IF GIVEN OR MADE, SUCH INFORMATION
OR REPRESENTATION MUST NOT BE RELIED UPON AS HAVING BEEN AUTHORIZED. THIS
PROSPECTUS DOES NOT CONSTITUTE AN OFFER IN ANY JURISDICTION TO ANY PERSON TO
WHOM SUCH OFFER WOULD BE UNLAWFUL THEREIN.
THE SECURITIES AND EXCHANGE COMMISSION HAS NOT APPROVED OR DISAPPROVED THESE
SECURITIES. ALSO, IT HAS NOT PASSED ON WHETHER THIS PROSPECTUS IS ADEQUATE OR
ACCURATE. IT IS A CRIMINAL OFFENSE TO STATE OTHERWISE.
<PAGE> 65
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
ABOUT THE PROSPECTUS........................... 1
PROFILE OF PORTFOLIO DIRECTOR 2................ 2
FEE TABLE...................................... 4
SELECTED PURCHASE UNIT DATA.................... 7
ABOUT PORTFOLIO DIRECTOR 2..................... 8
ABOUT VALIC.................................... 8
ABOUT VALIC SEPARATE ACCOUNT A................. 8
UNITS OF INTERESTS............................. 8
VARIABLE ACCOUNT OPTIONS....................... 9
Summary of Funds.......................... 9
PURCHASE PERIOD................................ 19
Purchase Payments......................... 19
Purchase Units............................ 19
Calculation of Purchase Unit Value........ 19
Choosing Investment Options............... 20
Fixed Account Options................ 20
Variable Account Options............. 20
Stopping Purchase Payments................ 20
TRANSFERS BETWEEN INVESTMENT OPTIONS........... 21
During the Purchase Period................ 21
During the Payout Period.................. 21
Communicating Transfer or Reallocation
Instructions............................ 21
Effective Date of Transfer................ 21
FEES AND CHARGES............................... 22
Account Maintenance Fee................... 22
Surrender Charge.......................... 22
Amount of Surrender Charge........... 22
10% Free Withdrawal.................. 22
Exceptions to Surrender Charge....... 22
Premium Tax Charge........................ 23
Separate Account Charges.................. 23
Fund Annual Expense Charges............... 23
Other Tax Charges......................... 23
Reduction or Waiver of Account Maintenance
Fee, Surrender, Mortality and Expense
Risk Fee or Administration and
Distribution Fee Charges................ 24
Separate Account Expense Reimbursement.... 24
PAYOUT PERIOD.................................. 25
Fixed Payout.............................. 25
Variable Payout........................... 25
Combination Fixed and Variable Payout..... 25
Payout Date............................... 25
Payout Options............................ 25
Enhancements to Payout Options............ 26
Payout Information........................ 26
SURRENDER OF ACCOUNT VALUE..................... 27
When Surrenders are Allowed............... 27
Amount That May Be Surrendered............ 27
Surrender Restrictions.................... 27
Partial Surrenders........................ 27
Systematic Withdrawals.................... 27
Distributions Required By Federal Tax
Law..................................... 28
EXCHANGE PRIVILEGE............................. 29
Restrictions on Exchange Privilege........ 29
Taxes and Conversion Costs................ 29
</TABLE>
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Surrender Charges......................... 29
Exchange Offers for Contracts Other Than
Portfolio Director and Portfolio
Director 2.............................. 29
Exchange Offer for Portfolio Director and
Portfolio Director 2.................... 30
Comparison of Contracts................... 30
Features of Portfolio Director 2.......... 30
Agents' and Managers' Retirement Plan
Exchange Offer.......................... 30
DEATH BENEFITS................................. 32
Beneficiary Information................... 32
Special Information for Individual Non-Tax
Qualified Contracts..................... 32
During the Purchase Period................ 32
Interest Guaranteed Death Benefit.... 32
Standard Death Benefit............... 33
During the Payout Period.................. 33
HOW TO REVIEW INVESTMENT PERFORMANCE OF
SEPARATE ACCOUNT DIVISIONS................... 34
Types of Investment Performance
Information Advertised.................. 34
Total Return Performance Information.... 34
Standard Average Annual Total Return.... 34
Nonstandard Average Annual Total
Return.................................. 34
Cumulative Total Return................. 34
Annual Change in Purchase Unit Value.... 34
Cumulative Change in Purchase Unit
Value................................ 35
Total Return Based on Different
Investment Amounts................... 35
An Assumed Account Value of $10,000..... 35
Yield Performance Information............. 35
AGSPC Money Market Division............. 35
Divisions Other Than The AGSPC Money
Market Division...................... 35
Performance Information: Average Annual
Total Return, Cumulative Return and
Annual and Cumulative Change in Purchase
Unit Value Tables....................... 35
OTHER CONTRACT FEATURES........................ 42
Changes That May Not Be Made.............. 42
Change of Beneficiary..................... 42
Contingent Owner.......................... 42
Cancellation -- The 20 Day "Free Look".... 42
We Reserve Certain Rights................. 42
Relationship to Employer's Plan........... 42
VOTING RIGHTS.................................. 43
Who May Give Voting Instructions.......... 43
Determination of Fund Shares Attributable
to Your Account......................... 43
During Purchase Period.................. 43
During Payout Period or after a Death
Benefit Has Been Paid................ 43
How Fund Shares Are Voted................. 43
FEDERAL TAX MATTERS............................ 44
Type of Plans............................. 44
Tax Consequences in General............... 44
Effect of Tax-Deferred Accumulations...... 45
YEAR 2000...................................... 47
Year 2000 Risks........................... 47
</TABLE>
(i)
<PAGE> 66
ABOUT THE PROSPECTUS
- --------------------------------------------------------------------------------
Unless otherwise specified in this prospectus, the words we, our, Company, and
VALIC mean The Variable Annuity Life Insurance Company. The words you and your,
unless otherwise specified in this prospectus, mean the participant, contract
owner, annuitant or beneficiary.
We will use a number of other specific terms in this prospectus. We will, when
that term is used in the prospectus, provide you with a definition of that term.
The terms used in this prospectus for which we will provide you a definition
are:
<TABLE>
<CAPTION>
DEFINED TERMS PAGE NO.
- ------------- --------
<S> <C>
Account Value 21
Annuitant 32
Assumed Investment Rate 25
Beneficiary 32
Contract Owner 32
Division 34
Fixed Account Options 32
Home Office 21
Mutual Fund or Fund 08
Participant 01
Participant Year 22
Payout Period 21
Payout Unit 25
Purchase Payments 19,34
Purchase Period 21
Purchase Unit 20
VALIC Separate Account A 39
Variable Account Options 09,32
</TABLE>
This prospectus is being given to you to help you make decisions for selecting
various investment options and benefits to plan and save for your retirement. It
is intended to provide you with information about VALIC, Portfolio Director 2,
and saving for your retirement.
The purpose of Variable Account Options and Variable Payout Options is to
provide you investment returns which are greater than the effects of inflation.
We cannot, however, guarantee that this purpose will be achieved.
This prospectus describes a contract in which units of interest in VALIC's
Separate Account A are offered. Portfolio Director 2 will allow you to
accumulate retirement dollars in Fixed Account Options and/or Variable Account
Options. This prospectus describes only the variable aspects of Portfolio
Director 2 except where the Fixed Account Options are specifically mentioned.
For specific information about the Variable Account Options, you should refer to
the mutual fund prospectuses you have been given with this document. You should
keep these prospectuses to help answer any questions you may have in the future.
Following this introduction is a summary of the major features and options of
Portfolio Director 2. This summary is called the "Profile of Portfolio Director
2." It is intended to provide you with a brief overview of those sections
discussed in more detail in this prospectus.
PARTICIPANT -- the individual,
(in most cases you are the
Participant) for whom
Purchase Payments are made.
1
<PAGE> 67
PROFILE OF PORTFOLIO DIRECTOR 2
- --------------------------------------------------------------------------------
Portfolio Director 2 is VALIC's combination fixed and variable annuity that
offers you a wide choice of investment options and flexibility. A summary of
Portfolio Director 2's major features is presented below. For a more detailed
discussion of Portfolio Director 2, please read the entire prospectus carefully.
FIXED AND VARIABLE OPTIONS
Portfolio Director 2 offers you a choice from among 18 Variable Account Options
and two Fixed Account Options. You may invest in up to seven of these investment
options at any one time.
- --------------------------------------------------------------------------------
<TABLE>
<S> <C> <C> <C>
FIXED ACCOUNT
OPTIONS
- -------------------------------------------------------------------------------------------------------------------------------
FIXED Fixed Guaranteed high current --
OPTIONS Account Plus interest income
-----------------------------------------------------------------------------------------------------------
Short-Term Guaranteed current --
Fixed Account interest income
- -------------------------------------------------------------------------------------------------------------------------------
VARIABLE ACCOUNT INVESTMENT
OPTIONS STRATEGY ADVISER
- -------------------------------------------------------------------------------------------------------------------------------
INDEX AGSPC Stock Growth through investments tracking VALIC
EQUITY Index the S&P 500(R) Index
FUND Fund
- -------------------------------------------------------------------------------------------------------------------------------
ACTIVELY AGSPC Growth Growth through investments VALIC
MANAGED Fund in service sector companies
-----------------------------------------------------------------------------------------------------------
EQUITY American Century -- Capital growth through American Century
FUNDS Twentieth Century investments in common
Ultra Fund stock
-----------------------------------------------------------------------------------------------------------
Founders Long-term growth of capital through Founders
Growth investment in common stocks of well
Fund established, high-quality growth companies
-----------------------------------------------------------------------------------------------------------
Neuberger&Berman Capital appreciation, and secondarily Neuberger&Berman
Guardian Trust current income by investing primarily Management Inc.
in common stocks of long-established,
high quality companies
-----------------------------------------------------------------------------------------------------------
Putnam Global Capital appreciation through a globally Putnam
Growth Fund diversified portfolio of common stocks
-----------------------------------------------------------------------------------------------------------
Putnam New Long-term capital appreciation Putnam
Opportunities Fund through investment in common stock
-----------------------------------------------------------------------------------------------------------
Putnam OTC & Capital appreciation through Putnam
Emerging Growth investments in common stocks of
Fund small-to-medium companies
-----------------------------------------------------------------------------------------------------------
Scudder Growth Long-term growth of capital, current Scudder
and Income Fund income and growth of income
-----------------------------------------------------------------------------------------------------------
Templeton Long-term capital growth through investments Templeton
Foreign in equity and debt securities of companies
Fund -- Class 1 and governments outside the U.S.
-----------------------------------------------------------------------------------------------------------
Vanguard/ Growth and income through Vanguard
Windsor II investment in common stock
- -------------------------------------------------------------------------------------------------------------------------------
BALANCED Vanguard/ Income and growth through 30 to 40% Vanguard
FUND Wellington investment in high quality corporate bonds
Fund and 60 to 70% investment in common stocks
- -------------------------------------------------------------------------------------------------------------------------------
INCOME AGSPC International Income and possible growth through VALIC
FUNDS Government investments in high quality foreign
Bond Fund government debt securities
-----------------------------------------------------------------------------------------------------------
Vanguard Fixed Income Income through investment Vanguard
Securities in long-term high quality corporate bonds
Fund-Long-Term
Corporate Portfolio
-----------------------------------------------------------------------------------------------------------
Vanguard Fixed Income Income through investment in Vanguard
Securities long-term U.S. Treasury bonds
Fund-Long-Term
U.S. Treasury Portfolio
- -------------------------------------------------------------------------------------------------------------------------------
SPECIALTY AGSPC Science & Growth through investments in stocks VALIC
FUNDS Technology of companies which benefit from
Fund development of science and technology
-----------------------------------------------------------------------------------------------------------
AGSPC Social Growth through investments in VALIC
Awareness stocks of companies meeting social
Fund criteria of the Fund
- -------------------------------------------------------------------------------------------------------------------------------
MONEY AGSPC Money Income through investments in VALIC
MARKET Market short-term money market
FUND Fund securities
- -------------------------------------------------------------------------------------------------------------------------------
<CAPTION>
<S> <C>
- ------------------------------------------------------------
FIXED --
OPTIONS
------------------------------------------------------------
--
- -----------------------------------------------------------------------------------------------------------------------
SUBADVISER
- -------------------------------------------------------------------------------------------------------------------------------
INDEX Bankers Trust
EQUITY
FUND
- -------------------------------------------------------------------------------------------------------------------------------
ACTIVELY T. Rowe Price
MANAGED
-----------------------------------------------------------------------------------------------------------
EQUITY N/A
FUNDS
-----------------------------------------------------------------------------------------------------------
N/A
-----------------------------------------------------------------------------------------------------------
Neuberger&
Berman, LLC
-----------------------------------------------------------------------------------------------------------
N/A
-----------------------------------------------------------------------------------------------------------
N/A
-----------------------------------------------------------------------------------------------------------
N/A
-----------------------------------------------------------------------------------------------------------
N/A
-----------------------------------------------------------------------------------------------------------
N/A
-----------------------------------------------------------------------------------------------------------
N/A
- -------------------------------------------------------------------------------------------------------------------------------
BALANCED N/A
FUND
- -------------------------------------------------------------------------------------------------------------------------------
INCOME N/A
FUNDS
-----------------------------------------------------------------------------------------------------------
N/A
-----------------------------------------------------------------------------------------------------------
N/A
- -------------------------------------------------------------------------------------------------------------------------------
SPECIALTY T. Rowe Price
FUNDS
-----------------------------------------------------------------------------------------------------------
N/A
- -------------------------------------------------------------------------------------------------------------------------------
MONEY N/A
MARKET
FUND
- -------------------------------------------------------------------------------------------------------------------------------
</TABLE>
2
<PAGE> 68
- --------------------------------------------------------------------------------
A detailed description of the investment objective of each Fund can be found in
the section of the prospectus entitled "Variable Account Options," and also in
the current prospectus for each Fund mentioned.
INTEREST GUARANTEED DEATH
BENEFIT
Portfolio Director 2 offers a death benefit with an interest guarantee when
death occurs prior to your reaching age 70.
This contract provision is not available in some states.
LOANS
Portfolio Director 2 offers a tax-free loan provision for tax-qualified
contracts that gives you access to your money in either of the Fixed Account
Options, subject to a minimum loan amount of $1,000. The availability of loans
is subject to government regulations, as well as your employer's plan
provisions.
Keep in mind that tax laws place restrictions on withdrawals (i.e. loans which
are not repaid) if made prior to age 59 1/2.
TRANSFERS
There is no charge to transfer the money in your account among Portfolio
Director 2's investment options. You may transfer your Account Values between
Variable Account Options at any time during the Purchase Period.
Your Account Value in the Short-Term Fixed Account must remain there for at
least 90 days before it can be transferred to other investment options. In Fixed
Account Plus, up to 20% of your Account Value may be transferred during each
contract year to other investment options.
Once you begin receiving payments from your account (called the Payout Period),
you may still transfer funds among Variable Account Options once each contract
year.
Transfers can be made by calling VALIC's toll-free transfer service at
1-800-621-7792. For more information on account transfers, see the "Transfers
Between Investment Options" section in the prospectus.
FEES AND CHARGES
ACCOUNT MAINTENANCE FEE
If any of your account is invested in Variable Account Options, a quarterly
account maintenance fee of $3.75 is charged to your account. If you invest only
in Fixed Account Options during a calendar quarter no account maintenance fee is
assessed. Reductions in the account maintenance fee may be available if certain
conditions are met.
SURRENDER CHARGE
Under some circumstances a surrender charge is made to your account. These
situations are discussed in detail in the section of the prospectus entitled
"Fees and Charges -- Surrender Charge." When this happens the surrender charge
is
computed in two ways and you are charged whichever amount is less. The first
amount is simply 5% of whatever amount you have withdrawn. The second amount is
5% of the contributions you made to your account during the last 60 months.
Withdrawals are always subject to your plan provisions and federal tax
restrictions, which generally include a tax penalty on withdrawals made prior to
age 59 1/2.
PREMIUM TAX CHARGE
Premium taxes ranging from zero to 3% are currently imposed by certain states
and municipalities on Purchase Payments made under the contract.
SEPARATE ACCOUNT CHARGES
Depending on the Variable Account Option you choose you may incur a mortality
and expense risk fee and an administration and distribution fee computed at an
aggregate annualized rate of 0.80% to 1.05% during the purchase period and 1.00%
to 1.25% during the payout period on the average daily net asset value of VALIC
Separate Account A. Reductions in the mortality and expense risk fee and
administration and distribution fee may be available for plan types meeting
certain criteria.
FUND ANNUAL EXPENSE CHARGE
A daily charge based on a percentage of each Fund's average daily net asset
value is payable by each Fund to its investment adviser. In addition to the
management fees, each Fund incurs other operating expenses which may vary.
Since some of these fees may not apply to your contract, consult your VALIC
Retirement Plan Specialist to see how these provisions apply to you.
SEPARATE ACCOUNT
EXPENSE REIMBURSEMENT
The Company will reimburse to certain Divisions any fees it receives from the
Fund or its affiliate for providing the Fund administrative and shareholder
services. In addition, the Company currently reimburses to certain Divisions a
portion of the Company's administration and distribution fee for providing
Variable Account Options. Such reimbursement arrangements are voluntary. For
more information as to which Variable Account Options have a Separate Account
Expense Reimbursement see the Fee Table.
PAYOUT OPTIONS
When you withdraw your money, you can select from several payout options: a
lifetime annuity (which guarantees payment for as long as you live), periodic
withdrawals and systematic withdrawals. More information on payout options can
be found in the "Payout Period" section of the prospectus.
FEDERAL TAX INFORMATION
Although deferred annuity contracts such as Portfolio Director 2 can be
purchased with after-tax dollars, they are primarily used in connection with
retirement programs which receive favorable tax treatment under federal law.
PURCHASE REQUIREMENTS
Purchase Payments may be made at any time and in any amount, subject to plan
limitations.
To learn more about the
INTEREST GUARANTEED DEATH
BENEFIT, refer to the section
in the prospectus entitled
"Death Benefits."
More information on FEES
may be found in the
prospectus under the
headings "FEES AND
CHARGES" AND "FEE TABLE."
For a more detailed
discussion of these income
tax provisions, see the
"FEDERAL TAX MATTERS"
section of the prospectus and
of the Statement of Additional
Information.
For more information on
PURCHASE PAYMENTS, refer
to the "Purchase Period"
section of the prospectus.
3
<PAGE> 69
FEE TABLE
- --------------------------------------------------------------------------------
CONTRACT OWNER/PARTICIPANT EXPENSES(1)
<TABLE>
<S> <C>
Account Maintenance Fee ($3.75 per quarter, annualized)(2) $ 15
Maximum Surrender Charge(2) 5.00%
</TABLE>
SEPARATE ACCOUNT EXPENSES
(as a percentage of Separate Account net assets):
<TABLE>
<CAPTION>
MORTALITY ADMINISTRATION SEPARATE
AND AND ACCOUNT TOTAL
EXPENSE RISK DISTRIBUTION EXPENSE SEPARATE
FUND FEE(3) FEE(3) REIMBURSEMENT ACCOUNT FEE
---- ------------ -------------- ------------- -----------
<S> <C> <C> <C> <C>
AGSPC Growth 0.25% 0.55% -- 0.80%
AGSPC International Government Bond 0.25 0.55 -- 0.80
AGSPC Money Market 0.25 0.55 -- 0.80
AGSPC Science & Technology 0.25 0.55 -- 0.80
AGSPC Social Awareness 0.25 0.55 -- 0.80
AGSPC Stock Index 0.25 0.55 -- 0.80
American Century -- Twentieth
Century Ultra(4) 0.25 0.80 (0.21%) 0.84
Founders Growth(4) 0.25 0.80 (0.25) 0.80
Neuberger&Berman Guardian Trust(4) 0.25 0.80 (0.25) 0.80
Putnam Global Growth(4) 0.25 0.80 (0.25) 0.80
Putnam New Opportunities(4) 0.25 0.80 (0.25) 0.80
Putnam OTC & Emerging Growth(4) 0.25 0.80 (0.25) 0.80
Scudder Growth and Income(4) 0.25 0.80 (0.25) 0.80
Templeton Foreign(4) 0.25 0.80 (0.25) 0.80
Vanguard Fixed Income Securities
Fund --
Long-Term Corporate Portfolio(5) 0.25 0.80 (0.25) 0.80
Vanguard Fixed Income Securities
Fund --
Long-Term U.S. Treasury
Portfolio(5) 0.25 0.80 (0.25) 0.80
Vanguard/Wellington 0.25 0.80 -- 1.05
Vanguard/Windsor II 0.25 0.80 -- 1.05
</TABLE>
FUND ANNUAL EXPENSES
(as a percentage of Fund net assets):
<TABLE>
<CAPTION>
MANAGEMENT 12B-1 OTHER TOTAL FUND
FUND FEES FEES EXPENSES(6) EXPENSES
---- ---------- ----- ----------- ----------
<S> <C> <C> <C> <C>
AGSPC Growth 0.80% -- 0.06% 0.86%
AGSPC International Government Bond 0.50 -- 0.06 0.56
AGSPC Money Market 0.50 -- 0.07 0.57
AGSPC Science & Technology 0.90 -- 0.06 0.96
AGSPC Social Awareness 0.50 -- 0.06 0.56
AGSPC Stock Index 0.27 -- 0.07 0.34
American Century -- Twentieth Century Ultra 1.00 -- 0.00 1.00
Founders Growth 0.67 0.25%(4) 0.18 1.10
Neuberger&Berman Guardian Trust(7) 0.84 -- 0.04 0.88
Putnam Global Growth 0.64 0.25(4) 0.35 1.24
Putnam New Opportunities 0.50 0.25(4) 0.31 1.06
Putnam OTC & Emerging Growth 0.56 0.25(4) 0.35 1.16
Scudder Growth and Income 0.46 -- 0.30 0.76
Templeton Foreign 0.61 0.25(4) 0.22 1.08
Vanguard Fixed Income Securities Fund --
Long-Term Corporate Portfolio 0.03 -- 0.29 0.32
Vanguard Fixed Income Securities Fund --
Long-Term U.S. Treasury Portfolio 0.01 -- 0.26 0.27
Vanguard/Wellington 0.04 -- 0.25 0.29
Vanguard/Windsor II 0.15 -- 0.22 0.37
</TABLE>
See footnotes on page 6.
4
<PAGE> 70
EXAMPLE #1 -- Assuming No Account Maintenance Fee and
No Surrender at the End of the Period Shown:
- --------------------------------------------------------------------------------
Total Expenses. You would pay the following expenses on a $1,000 investment
under a typical Portfolio Director 2 Contract without a surrender charge or
account maintenance fee imposed, invested in a single Separate Account Division
as listed below, assuming a 5% annual return on assets:
<TABLE>
<CAPTION>
1 YEAR 3 YEARS 5 YEARS 10 YEARS
------ ------- ------- --------
<S> <C> <C> <C> <C>
AGSPC Growth Division 15 $17 $ 52 $ 90 $197
AGSPC International Government Bond Division 13 14 43 75 164
AGSPC Money Market Division 6 14 43 75 165
AGSPC Science & Technology Division 17 18 55 96 208
AGSPC Social Awareness Division 12 14 43 75 164
AGSPC Stock Index Division 10 12 36 63 139
American Century -- Twentieth Century Ultra
Division 31 19 58 100 216
Founders Growth Division 30 19 60 103 223
Neuberger&Berman Guardian Trust
Division 29 17 53 91 199
Putnam Global Growth Division 28 21 64 110 237
Putnam New Opportunities Division 26 19 59 101 218
Putnam OTC & Emerging Growth Division 27 20 62 106 229
Scudder Growth and Income Division 21 16 49 85 186
Templeton Foreign Division 32 19 59 102 221
Vanguard Fixed Income Securities
Fund -- Long-Term Corporate Portfolio Division
22 11 36 62 137
Vanguard Fixed Income Securities
Fund -- Long-Term U.S. Treasury Portfolio
Division 23 11 34 59 131
Vanguard/Wellington Division 25 14 42 74 162
Vanguard/Windsor II Division 24 14 45 78 171
</TABLE>
EXAMPLE #2 -- Assuming No Surrender at the End of the
Period Shown:
- --------------------------------------------------------------------------------
Total Expenses. You would pay the following expenses on a $1,000 investment
under a typical Portfolio Director 2 Contract without a surrender charge
imposed, invested in a single Separate Account Division as listed below,
assuming a 5% annual return on assets:
<TABLE>
<CAPTION>
1 YEAR 3 YEARS 5 YEARS 10 YEARS
------ ------- ------- --------
<S> <C> <C> <C> <C>
AGSPC Growth Division 15 $17 $ 54 $ 93 $203
AGSPC International Government Bond Division 13 14 45 78 170
AGSPC Money Market Division 6 15 45 78 171
AGSPC Science & Technology Division 17 18 57 98 214
AGSPC Social Awareness Division 12 14 45 78 170
AGSPC Stock Index Division 10 12 38 66 145
American Century -- Twentieth Century Ultra
Division 31 19 60 103 222
Founders Growth Division 30 20 61 106 229
Neuberger&Berman Guardian Trust
Division 29 18 55 94 205
Putnam Global Growth Division 28 21 66 113 243
Putnam New Opportunities Division 26 19 60 104 224
Putnam OTC & Emerging Growth Division 27 20 63 109 235
Scudder Growth and Income Division 21 16 51 88 192
Templeton Foreign Division 32 20 61 105 226
Vanguard Fixed Income Securities
Fund -- Long-Term Corporate Portfolio Division
22 12 37 65 143
Vanguard Fixed Income Securities
Fund -- Long-Term U.S. Treasury Portfolio
Division 23 11 36 62 137
Vanguard/Wellington Division 25 14 44 76 168
Vanguard/Windsor II Division 24 15 47 81 177
</TABLE>
5
<PAGE> 71
EXAMPLE #3 -- Assuming Surrender at the End of the Period Shown:
- --------------------------------------------------------------------------------
Total Expenses: You would pay the following expenses on a $1,000 investment
under a typical Portfolio Director 2 Contract invested in a single Separate
Account Division as listed below, assuming a 5% annual return on assets:
<TABLE>
<CAPTION>
1 YEAR 3 YEARS 5 YEARS 10 YEARS
------ ------- ------- --------
<S> <C> <C> <C> <C>
AGSPC Growth Division 15 $64 $104 $143 $203
AGSPC International Government Bond Division 13 61 95 128 170
AGSPC Money Market Division 6 61 95 128 171
AGSPC Science & Technology Division 17 65 107 148 214
AGSPC Social Awareness Division 12 61 95 128 170
AGSPC Stock Index Division 10 59 88 116 145
American Century -- Twentieth Century Ultra Division
31 66 109 153 222
Founders Growth Division 30 66 111 156 229
Neuberger&Berman Guardian Trust
Division 29 64 104 144 205
Putnam Global Growth Division 28 68 115 163 243
Putnam New Opportunities Division 26 66 110 154 224
Putnam OTC & Emerging Growth Division 27 67 112 159 235
Scudder Growth and Income Division 21 63 101 138 192
Templeton Foreign Division 32 66 110 155 226
Vanguard Fixed Income Securities Fund -- Long-Term
Corporate Portfolio Division 22 59 87 115 143
Vanguard Fixed Income Securities Fund -- Long-Term
U.S. Treasury Portfolio Division 23 58 86 112 137
Vanguard/Wellington Division 25 61 94 126 168
Vanguard/Windsor II Division 24 62 97 131 177
</TABLE>
- ------------
(1) Premium taxes are not shown here, but may be charged by some states. See:
"Premium Tax Charge" in this prospectus.
(2) Reductions in the surrender charge and the account maintenance fee are
available if certain conditions are met. See "Reduction or Waiver of Account
Maintenance Fee, Surrender, Mortality and Expense Risk Fee or Administration
and Distribution Fee Charges" and "Exceptions to Surrender Charge" in this
prospectus.
(3) The mortality and expense risk fee and administration and distribution fee
reflected in the Fee Table is deducted during the Purchase Period. The
mortality and expense risk fee and administration and distribution fee
deducted during the Payout Period is computed at an annualized rate of 1.00%
to 1.25%, depending upon the Variable Account Option selected.
(4) For these Funds the Total Separate Account Fee equals the VALIC Separate
Account A mortality and expense risk fee plus the administration and
distribution fee reduced by the Separate Account Expense Reimbursement.
Pursuant to the Separate Account Expense Reimbursement the Company's charges
to these Divisions are reduced by an amount equal to payments from the
underlying Fund and/or its affiliate for administrative and shareholder
services provided by the Company. See "Fees and Charges -- Separate Account
Expense Reimbursement" in this prospectus for more information.
The following Funds and/or their affiliates pay administrative, shareholder
service or distribution fees to the Company: American Century -- Twentieth
Century (0.21%), Founders (0.25%), Neuberger&Berman (0.25%), Putnam (0.25%),
Scudder (0.25%) and Templeton (0.25%). With respect to American
Century -- Twentieth Century Ultra Fund, the Fund pays fees to the Company
of 0.20% on assets in excess of $0 but less than $75 million, and 0.25% on
assets in excess of $75 million.
(5) For these Funds the Total Separate Account Fee equals the VALIC Separate
Account mortality and expense risk fee plus the administration and
distribution fee reduced by the Separate Account Expense Reimbursement. The
Separate Account Expense Reimbursement reflects a voluntary expense
reimbursement made by the Company, effective May 1, 1998, directly to the
Division which may be terminated by the Company at any time without notice.
(6) OTHER EXPENSES includes custody, accounting, reports to shareholders, audit,
legal and other miscellaneous expenses. See each Fund's prospectus for a
detailed explanation of these fees.
(7) Neuberger&Berman Management Incorporated voluntarily bears certain expenses
of the Neuberger&Berman Guardian Trust ("Trust") so that the Trust's expense
ratio per annum will not exceed the expense ratio per annum of the Fund by
more than 0.10% of the Trust's average daily net assets. This arrangement
can be terminated on sixty days' notice. For this Fund, MANAGEMENT FEES
include administration expenses.
Note: These examples should not be considered representations of past or future
expenses for VALIC Separate Account A or for any Fund. Actual expenses may be
greater or less than those shown above. Similarly, the 5% annual rate of return
assumed in the examples is not an estimate or guarantee of future investment
performance. The purpose of the Fee Table above is to help Contract Owners and
Participants understand the various expenses of VALIC Separate Account A and the
Funds which are, in effect, passed on to the Contract Owners and Participants.
This Fee Table shows all charges and expenses which may be deducted from the
assets of VALIC Separate Account A and from the Funds in which VALIC Separate
Account A invests. For a further description of these charges and expenses, see
"Fees and Charges" in this prospectus and the descriptions of fees and charges
in each of the Fund's prospectuses. Any and all limitations on total charges and
expenses are reflected in this Fee Table.
6
<PAGE> 72
Selected Purchase Unit Data
- --------------------------------------------------------------------------------
Portfolio Director 2 Series 2.1.20 to 2.12.20 is a new variable annuity product;
therefore, there is no Selected Purchase Unit Data available at this time.
7
<PAGE> 73
- --------------------------------------------------------------------------------
ABOUT PORTFOLIO DIRECTOR 2
Portfolio Director 2 was developed to help you save money for your retirement.
It offers you a combination of fixed and variable investment options that you
can invest in to help you reach your retirement savings goals. Your
contributions to Portfolio Director 2 can come from different sources, like
payroll deductions or money transfers. Your retirement savings process with
Portfolio Director 2 will involve two stages: the Purchase Period; and the
Payout Period. The first is when you make contributions into Portfolio Director
2 called "Purchase Payments." The second, is when you receive your retirement
payouts. For more information, see "Purchase Period" and the "Payout Period" in
this prospectus.
You may choose, depending upon your retirement savings goals, your personal risk
tolerances, and your retirement plan, to invest in the Fixed Account Options
and/or the Variable Account Options described in this prospectus. When you
decide to retire, or otherwise withdraw your money, you can select from a wide
array of payout options including both fixed and variable payments. In addition,
this prospectus will describe for you all fees and charges that may apply to
your participation in Portfolio Director 2.
ABOUT VALIC
We are a life insurance company organized in 1955 and located in the State of
Texas. Our main business is issuing and offering fixed and variable retirement
annuity contracts, like Portfolio Director 2. Our principal offices are located
at 2929 Allen Parkway, Houston, Texas 77019. We have Regional Offices throughout
the United States. The addresses for these offices are given in the back of this
prospectus.
VALIC is a member of the American General Corporation group of companies.
Members of the American General Corporation group of companies operate in each
of the 50 states, the District of Columbia, and Canada and collectively provide
financial services with activities heavily weighted toward insurance.
ABOUT VALIC SEPARATE ACCOUNT A
When you direct money to Portfolio Director 2's Variable Account Options, you
will be sending that money through VALIC's Separate Account A. You do not invest
directly in the Mutual Funds made available in Portfolio Director 2. VALIC's
Separate Account A invests in the Mutual Funds on behalf of your account.
VALIC Separate Account A is made up of what we call "Divisions." Eighteen
Divisions are available and represent the Variable Account Options in Portfolio
Director 2. Each of these Divisions invests in a different Mutual Fund made
available through Portfolio Director 2. For example, Division Ten represents and
invests in the Stock Index Fund. The earnings (or losses) of each Division are
credited to (or charged against) the assets of that Division, and do not affect
the performance of the other Divisions of VALIC Separate Account A.
VALIC established Separate Account A in 1979 under Texas insurance law to allow
you to be able to invest in a number of Variable Account Options available in
Portfolio Director 2. VALIC Separate Account A is registered with the Securities
and Exchange Commission (SEC) as a unit investment trust under the Investment
Company Act of 1940. Units of interest in VALIC Separate Account A are
registered as securities under the Securities Act of 1933.
VALIC Separate Account A is administered and accounted for as part of VALIC's
business operations. However, the income, capital gains or capital losses,
whether or not realized of each Division of VALIC Separate Account A are
credited to or charged against the assets held in that Division without regard
to the income, capital gains or capital losses of any other Division or arising
out of any other business the Company may conduct. In accordance with the terms
of Portfolio Director 2, VALIC Separate Account A may not be charged with the
liabilities of any other VALIC operation. As stated in Portfolio Director 2, the
Texas Insurance Code requires that the assets of VALIC Separate Account A
attributable to Portfolio Director 2 be held exclusively for the benefit of the
contract owner, participants, annuitants, and beneficiaries of Portfolio
Director 2. When we discuss performance information in this prospectus, we mean
the performance of a VALIC Separate Account A Division.
UNITS OF INTERESTS
Your investment in a Division of VALIC Separate Account A is represented by
units of interest issued by VALIC Separate Account A. On a daily basis, the
units of interest issued by VALIC Separate Account A are revalued to reflect
that day's performance of the underlying mutual fund minus any applicable fees
and charges to VALIC Separate Account A.
All inquiries regarding
PORTFOLIO DIRECTOR 2
may be directed to your
VALIC Regional Office at
the addresses shown in the
back of this prospectus.
MUTUAL FUND OR FUND --
the investment portfolio(s)
of a registered open-end
management investment
company, which serves as
the underlying investment
vehicle for each Division
represented in VALIC
Separate Account A.
For more information about
VALIC, see the Statement of
Additional Information
8
<PAGE> 74
VARIABLE ACCOUNT OPTIONS
- --------------------------------------------------------------------------------
Portfolio Director 2 enables you to participate in Divisions that represent
eighteen Variable Account Options. These Divisions comprise all of the Variable
Account Options that are made available to you through VALIC Separate Account A.
See "About VALIC Separate Account A" in this prospectus.
Each individual Division represents and invests, through VALIC's Separate
Account A, in specific mutual funds. Twelve of the Mutual Funds are also
available to the general public. These mutual funds serve as the investment
vehicles for Portfolio Director 2 and include:
- - American General Series Portfolio
Company (AGSPC) -- offers 6 funds, for which VALIC serves as investment
adviser.
- - American Century Investments -- offers 1 fund for which American Century
Investment Management, Inc. serves as investment adviser.
- - Founders Funds, Inc. -- offers 1 fund for which Founders Asset Management LLC
serves as investment adviser.
- - Neuberger&Berman Management Inc. -- offers 1 fund for which Neuberger&Berman
Management Inc. serves as investment manager and Neuberger&Berman LLC, serves
as sub-adviser.
- - Putnam Investments -- offers 3 funds for which Putnam Investment Management
Inc., serves as investment adviser.
- - Scudder Kemper Investments, Inc. -- offers 1 fund for which Scudder Kemper
Investments, Inc. serves as investment adviser.
- - Templeton Funds Inc. -- offers 1 fund for which Templeton Global Advisors
Limited serves as investment adviser.
- - The Vanguard Group Inc. -- offers 4 funds for which Barrow, Hanley, Mewhinney
& Strauss, Inc., Equinox Capital Management, Inc., Tukman Capital Management,
Inc., Vanguard Core Management Group, Wellington Management Company, LLP and
Vanguard Fixed Income Group serve as investment advisers.
Each of these Funds (except for AGSPC's International Government Bond Fund which
is a non-diversified Fund) is registered as a diversified open-end, management
investment company and is regulated under the Investment Company Act of 1940.
For complete information about each of these Funds, including charges and
expenses, you should refer to the prospectus for that Fund. Additional copies
are available from VALIC or you may contact your VALIC Regional Office at the
addresses shown in the back of this prospectus.
SUMMARY OF FUNDS
A brief summary of the investment objectives of each Mutual Fund is shown below.
In addition to the investment objectives, the Account Value of an assumed
$10,000 investment in each of the Divisions is shown in both table and graph
form. This will reflect a deduction for separate account fees (mortality and
expense risk fees plus administration and distribution fees minus any applicable
reimbursements) and underlying fund charges. This will not reflect any deduction
for account maintenance fees, surrender charges and premium taxes. These charges
would further reduce your return. The Account Values in the graphs shown reflect
Separate Account performance based on the performance of the underlying Fund for
the last 10 fiscal years or, since inception of the underlying Fund if for less
than 10 years. The returns shown in the tables reflect the historical
performance of each Fund based on investment in a hypothetical Contract from the
date of the Fund's inception. The actual performance of each Fund has been
reduced by Separate Account fees that would have been incurred under the
Contract. Investment return and principal value will fluctuate with market
conditions, and for foreign investments, currencies and the economic and
political climates of the countries where investments are made. Past performance
cannot predict or guarantee future results.
For more information about how these returns were calculated including a
statement of the charges reflected and tables showing historical performance
information see "How to Review Investment Performance of Separate Account
Divisions" in this prospectus.
VARIABLE ACCOUNT
OPTIONS -- investment
options that correspond
to Separate Account
Divisions offered by
Portfolio Director 2.
Investment returns on
Variable Account
Options may be positive
or negative depending on
the investment
performance of the
underlying Mutual Fund.
9
<PAGE> 75
AGSPC
GROWTH FUND
(Division 15)
- ---------------------------------------------------------------
INVESTMENT OBJECTIVE
Seeks to provide long-term growth of capital through investment primarily in
common stocks of U.S. growth companies engaged in service-related activities.
<TABLE>
<CAPTION>
Annual Value of a $10,000
Stipulated Payment made
April 29,1994 $ Value
- ------------------------- -------
<S> <C>
04/29/94 $10,000
12/31/94 10,032
12/31/95 14,715
12/31/96 17,425
12/31/97 20,916
</TABLE>
VALUE AT MONTHLY INTERVALS OF A $10,000
STIPULATED PAYMENT MADE APRIL 29, 1994
[CHART]
PERIOD ENDED DECEMBER 31
AGSPC
INTERNATIONAL GOVERNMENT
BOND FUND
(Division 13)
- ---------------------------------------------------------------
INVESTMENT OBJECTIVE
Seeks high current income through investments primarily in high quality debt
securities issued or guaranteed by foreign governments.
<TABLE>
<CAPTION>
Annual Value of a $10,000
Stipulated Payment made
October 1, 1991 $ Value
- ------------------------- -------
<S> <C>
10/01/91 $10,000
12/31/91 10,910
12/31/92 11,156
12/31/93 12,640
12/31/94 13,098
12/31/95 15,437
12/31/96 15,988
12/31/97 15,093
</TABLE>
VALUE AT MONTHLY INTERVALS OF A $10,000
STIPULATED PAYMENT MADE OCTOBER 1, 1991
[CHART]
PERIOD ENDED DECEMBER 31
10
<PAGE> 76
AGSPC
MONEY MARKET FUND
(Division 6)
- ---------------------------------------------------------------
INVESTMENT OBJECTIVE
Seeks liquidity, protection of capital and current income through investments in
short-term money market instruments.
<TABLE>
<CAPTION>
Annual Value of a $10,000
Stipulated Payment made
January 1, 1988 $ Value
- ------------------------- -------
<S> <C>
01/01/88 $10,000
12/31/88 10,593
12/31/89 11,455
12/31/90 12,263
12/31/91 12,839
12/31/92 13,151
12/31/93 13,397
12/31/94 13,795
12/31/95 14,445
12/31/96 15,049
12/31/97 15,702
</TABLE>
VALUE AT MONTHLY INTERVALS OF A $10,000
STIPULATED PAYMENT MADE JANUARY 1, 1988
[CHART]
PERIOD ENDED DECEMBER 31
AGSPC
SCIENCE & TECHNOLOGY FUND
(Division 17)
- ---------------------------------------------------------------
INVESTMENT OBJECTIVE
Seeks long-term growth of capital through investment primarily in the common
stocks and equity-related securities of companies that are expected to benefit
from the development, advancement and use of science and technology.
<TABLE>
<CAPTION>
Annual Value of a $10,000
Stipulated Payment made
April 29, 1994 $ Value
- ------------------------- -------
<S> <C>
04/29/94 $10,000
12/31/94 12,494
12/31/95 20,036
12/31/96 22,623
12/31/97 23,023
</TABLE>
VALUE AT MONTHLY INTERVALS OF A $10,000
STIPULATED PAYMENT MADE APRIL 29, 1994
[CHART]
PERIOD ENDED DECEMBER 31
11
<PAGE> 77
AGSPC
SOCIAL AWARENESS FUND
(Division 12)
- ---------------------------------------------------------------
INVESTMENT OBJECTIVE
Seeks to obtain growth of capital through investment, primarily in common
stocks, in companies which meet the social criteria established for the Fund.
<TABLE>
<CAPTION>
Annual Value of a $10,000
Stipulated Payment made
October 2, 1989 $ Value
- ------------------------- -------
<S> <C>
10/02/89 $10,000
12/31/89 10,105
12/31/90 9,901
12/31/91 12,562
12/31/92 12,878
12/31/93 13,786
12/31/94 13,479
12/31/95 18,580
12/31/96 22,853
12/31/97 30,345
</TABLE>
VALUE AT MONTHLY INTERVALS OF A $10,000
STIPULATED PAYMENT MADE OCTOBER 2, 1989
[CHART]
PERIOD ENDED DECEMBER 31
AGSPC
STOCK INDEX FUND
(Division 10)
- ---------------------------------------------------------------
INVESTMENT OBJECTIVE
Seeks long-term capital growth through investment in common stocks that, as a
group, are expected to provide investment results closely corresponding to the
performance of the Standard & Poor's 500 Stock Index(R)*.
<TABLE>
<CAPTION>
Annual Value of a $10,000
Stipulated Payment made
January 1, 1988 $ Value
- ------------------------- -------
<S> <C>
01/01/88 $10,000
12/31/88 11,336
12/31/89 14,525
12/31/90 13,852
12/31/91 17,724
12/31/92 18,751
12/31/93 20,439
12/31/94 20,418
12/31/95 27,812
12/31/96 33,865
12/31/97 44,712
</TABLE>
VALUE AT MONTHLY INTERVALS OF A $10,000
STIPULATED PAYMENT MADE JANUARY 1, 1988
[CHART]
PERIOD ENDED DECEMBER 31
* "Standard & Poor's(R)", "S&P(R)" and "S&P 500(R)" are trademarks of Standard
and Poor's ("S&P"). The Stock Index Fund is not sponsored, endorsed, sold or
promoted by S&P and S&P makes no representation regarding the advisability of
investing in this Fund.
12
<PAGE> 78
AMERICAN CENTURY --
TWENTIETH CENTURY ULTRA
FUND
Investor Class Shares
(Division 31)
- ---------------------------------------------------------------
INVESTMENT OBJECTIVE
Seeks capital growth. The Fund invests primarily in common stocks that are
considered to have better-than-average prospects for appreciation.
<TABLE>
<CAPTION>
Annual Value of a $10,000
Stipulated Payment made
January 1, 1988 $ Value
- ------------------------- -------
<S> <C>
01/01/88 $10,000
12/31/88 11,234
12/31/89 15,252
12/31/90 16,538
12/31/91 30,570
12/31/92 30,693
12/31/93 37,070
12/31/94 35,426
12/31/95 48,356
12/31/96 54,475
12/31/97 66,451
</TABLE>
VALUE AT MONTHLY INTERVALS OF A $10,000
STIPULATED PAYMENT MADE JANUARY 1, 1988
[CHART]
PERIOD ENDED DECEMBER 31
FOUNDERS GROWTH FUND
(Division 30)
- ---------------------------------------------------------------
INVESTMENT OBJECTIVE
Seeks long-term growth of capital. Fund invests primarily in common stocks of
well established, high-quality growth companies.
<TABLE>
<CAPTION>
Annual Value of a $10,000
Stipulated Payment made
January 1, 1988 $ Value
- ------------------------- -------
<S> <C>
01/01/88 $10,000
12/31/88 10,399
12/31/89 14,623
12/31/90 12,971
12/31/91 18,967
12/31/92 19,616
12/31/93 24,431
12/31/94 23,429
12/31/95 33,842
12/31/96 39,116
12/31/97 49,090
</TABLE>
VALUE AT MONTHLY INTERVALS OF A $10,000
STIPULATED PAYMENT MADE JANUARY 1, 1988
[CHART]
PERIOD ENDED DECEMBER 31
13
<PAGE> 79
NEUBERGER&BERMAN
GUARDIAN TRUST*
(Division 29)
- ---------------------------------------------------------------
INVESTMENT OBJECTIVE
Seeks capital appreciation and, secondarily, current income. The Trust invests
primarily in common stocks of long-established, high quality companies.
<TABLE>
<CAPTION>
Annual Value of a $10,000
Stipulated Payment made
January 1, 1988 $ Value
- ------------------------- -------
<S> <C>
01/01/88 $10,000
12/31/88 12,704
12/31/89 15,315
12/31/90 14,479
12/31/91 19,298
12/31/92 22,784
12/31/93 25,661
12/31/94 25,848
12/31/95 33,847
12/31/96 39,523
12/31/97 46,198
</TABLE>
VALUE AT MONTHLY INTERVALS OF A $10,000
STIPULATED PAYMENT MADE JANUARY 1, 1988
[CHART]
PERIOD ENDED DECEMBER 31
PUTNAM GLOBAL GROWTH
FUND
Class A Shares (Division 28)
- ---------------------------------------------------------------
INVESTMENT OBJECTIVE
Seeks capital appreciation. Current income is only an incidental consideration
in selecting investments for the Fund. The Fund is designed for investors
seeking above-average capital growth potential through a globally diversified
portfolio of common stocks. Dividend and interest income is only an incidental
consideration.
<TABLE>
<CAPTION>
Annual Value of a $10,000
Stipulated Payment made
January 1, 1988 $ Value
- ------------------------- -------
<S> <C>
01/01/88 $10,000
12/31/88 10,818
12/31/89 13,368
12/31/90 12,043
12/31/91 14,096
12/31/92 14,019
12/31/93 18,337
12/31/94 18,039
12/31/95 20,548
12/31/96 23,752
12/31/97 26,704
</TABLE>
VALUE AT MONTHLY INTERVALS OF A $10,000
STIPULATED PAYMENT MADE JANUARY 1, 1988
[CHART]
PERIOD ENDED DECEMBER 31
* Neuberger&Berman Guardian Trust ("Trust") started operating on August 3,
1993. It has identical investment objectives and policies and invests in the
same portfolio as Neuberger&Berman Guardian Fund ("Fund"), which is also
managed by Neuberger& Berman Management Incorporated ("N&B Management"). The
performance information for the Trust before August 3, 1993 is for the Fund.
N&B Management voluntarily bears certain operating expenses of the Trust so
that the Trust's expense ratio per annum will not exceed the expense ratio
per annum of the Fund by more than 0.10% of the Trust's average daily net
assets per annum. This arrangement can be terminated on sixty days prior
written notice. Absent such arrangement, the average annual total returns of
the Trust would have been less. The total returns for periods prior to the
Trust's commencement of operations would have been lower had they reflected
the higher expense ratios of the Trust as compared to those of the Fund.
14
<PAGE> 80
PUTNAM NEW OPPORTUNITIES
FUND
Class A Shares
(Division 26)
- ---------------------------------------------------------------
INVESTMENT OBJECTIVE
Seeks long-term capital appreciation. Current income is only an incidental
consideration. The Fund invests principally in common stocks of companies in
sectors of the economy which the Fund's investment adviser believes possess
above-average long-term growth potential.
<TABLE>
<CAPTION>
Annual Value of a $10,000
Stipulated Payment made
August 31, 1990 $ Value
- ------------------------- -------
<S> <C>
08/31/90 $10,000
12/31/90 11,049
12/31/91 18,364
12/31/92 22,884
12/31/93 30,127
12/31/94 30,881
12/31/95 44,819
12/31/96 49,265
12/31/97 59,879
</TABLE>
VALUE AT MONTHLY INTERVALS OF A $10,000
STIPULATED PAYMENT MADE AUGUST 31, 1990
[CHART]
PERIOD ENDED DECEMBER 31
PUTNAM OTC & EMERGING
GROWTH FUND
Class A Shares
(Division 27)
- ---------------------------------------------------------------
INVESTMENT OBJECTIVE
Seeks capital appreciation. The Fund invests primarily in common stocks traded
in the over-the-counter ("OTC") market and common stocks, of "emerging growth"
companies listed on securities exchanges. The Fund is designed for investors
willing to assume above-average risk in return for above average capital growth
potential. The Fund may trade securities for short-term profits.
<TABLE>
<CAPTION>
Annual Value of a $10,000
Stipulated Payment made
January 1, 1988 $ Value
- ------------------------- -------
<S> <C>
01/01/88 $10,000
12/31/88 11,528
12/31/89 14,750
12/31/90 13,196
12/31/91 18,438
12/31/92 20,613
12/31/93 27,006
12/31/94 27,395
12/31/95 42,384
12/31/96 43,967
12/31/97 48,055
</TABLE>
VALUE AT MONTHLY INTERVALS OF A $10,000
STIPULATED PAYMENT MADE JANUARY 1, 1988
[CHART]
PERIOD ENDED DECEMBER 31
15
<PAGE> 81
SCUDDER GROWTH AND
INCOME FUND
(Division 21)
- ---------------------------------------------------------------
INVESTMENT OBJECTIVE
Seeks long-term growth of capital, current income and growth of income. The Fund
invests primarily in common stocks, preferred stocks, and securities convertible
into common stocks of companies which offer the prospect for growth of earnings
while paying current dividends.
<TABLE>
<CAPTION>
Annual Value of a $10,000
Stipulated Payment made
January 1, 1988 $ Value
- ------------------------- -------
<S> <C>
01/01/88 $10,000
12/31/88 11,085
12/31/89 13,862
12/31/90 13,399
12/31/91 16,995
12/31/92 18,425
12/31/93 21,078
12/31/94 21,402
12/31/95 27,783
12/31/96 33,580
12/31/97 43,335
</TABLE>
VALUE AT MONTHLY INTERVALS OF A $10,000
STIPULATED PAYMENT MADE JANUARY 1, 1988
[CHART]
PERIOD ENDED DECEMBER 31
TEMPLETON FOREIGN FUND
Class 1 Shares
(Division 32)
- ---------------------------------------------------------------
INVESTMENT OBJECTIVE
Seeks long-term capital growth. Any income realized will be incidental. The Fund
tries to achieve its goal by a flexible policy of investing in stocks and debt
obligations of companies and governments outside the United States.
<TABLE>
<CAPTION>
Annual Value of a $10,000
Stipulated Payment made
January 1, 1988 $ Value
- ------------------------- -------
<S> <C>
01/01/88 $10,000
12/31/88 12,107
12/31/89 15,678
12/31/90 15,088
12/31/91 17,704
12/31/92 17,581
12/31/93 23,863
12/31/94 23,759
12/31/95 26,204
12/31/96 30,652
12/31/97 32,422
</TABLE>
VALUE AT MONTHLY INTERVALS OF A $10,000
STIPULATED PAYMENT MADE JANUARY 1, 1988
[CHART]
PERIOD ENDED DECEMBER 31
16
<PAGE> 82
VANGUARD FIXED
INCOME SECURITIES
FUND -- LONG-TERM
CORPORATE PORTFOLIO
Institutional Class Shares
(Division 22)
- ---------------------------------------------------------------
INVESTMENT OBJECTIVE
Seeks high level of current income consistent with the maintenance of principal
and liquidity. The Portfolio invests in a diversified portfolio of investment
grade bonds.
<TABLE>
<CAPTION>
Annual Value of a $10,000
Stipulated Payment made
January 1, 1988 $ Value
- ------------------------- -------
<S> <C>
01/01/88 $10,000
12/31/88 10,856
12/31/89 12,374
12/31/90 13,007
12/31/91 15,563
12/31/92 16,907
12/31/93 19,157
12/31/94 17,956
12/31/95 22,460
12/31/96 22,343
12/31/97 25,145
</TABLE>
VALUE AT MONTHLY INTERVALS OF A $10,000
STIPULATED PAYMENT MADE JANUARY 1, 1988
[CHART]
PERIOD ENDED DECEMBER 31
VANGUARD FIXED
INCOME SECURITIES
FUND -- LONG-TERM
U.S. TREASURY PORTFOLIO
Institutional Class Shares
(Division 23)
- ---------------------------------------------------------------
INVESTMENT OBJECTIVE
Seeks high level of current income consistent with the maintenance of principal
and liquidity. The Portfolio invests primarily in long-term U.S. Treasury
securities backed by the full faith and credit of the U.S. Government. At least
65% of the Fund assets will be invested in U.S. Treasury bills, notes and bonds.
<TABLE>
<CAPTION>
Annual Value of a $10,000
Stipulated Payment made
January 1, 1988 $ Value
- ------------------------- -------
<S> <C>
01/01/88 $10,000
12/31/88 10,802
12/31/89 12,608
12/31/90 13,199
12/31/91 15,339
12/31/92 16,304
12/31/93 18,844
12/31/94 17,337
12/31/95 22,323
12/31/96 21,679
12/31/97 24,425
</TABLE>
VALUE AT MONTHLY INTERVALS OF A $10,000
STIPULATED PAYMENT MADE JANUARY 1, 1988
[CHART]
PERIOD ENDED DECEMBER 31
17
<PAGE> 83
VANGUARD/WELLINGTON FUND
Institutional Class Shares
(Division 25)
- ---------------------------------------------------------------
INVESTMENT OBJECTIVE
Seeks conservation of principal, a reasonable income return, and profits without
undue risk.
This Fund seeks relative capital stability, a reasonable level of income, and
the potential for capital appreciation. By balancing its investments among
common stocks and bonds, the Fund is expected to provide lower investment risk
and share price volatility (and a lower return in the long run) than a mutual
fund which invests exclusively in common stocks.
<TABLE>
<CAPTION>
Annual Value of a $10,000
Stipulated Payment made
January 1, 1988 $ Value
- ------------------------- -------
<S> <C>
01/01/88 $10,000
12/31/88 11,490
12/31/89 13,828
12/31/90 13,300
12/31/91 16,276
12/31/92 17,382
12/31/93 19,528
12/31/94 19,232
12/31/95 25,299
12/31/96 29,073
12/31/97 35,438
</TABLE>
VALUE AT MONTHLY INTERVALS OF A $10,000
STIPULATED PAYMENT MADE JANUARY 1, 1988
[CHART]
PERIOD ENDED DECEMBER 31
VANGUARD/WINDSOR II
Institutional Class Shares
(Division 24)
- ---------------------------------------------------------------
INVESTMENT OBJECTIVE
Seeks to provide long-term growth of capital and income by investing primarily
in common stocks. The Fund's secondary objective is to provide current income.
<TABLE>
<CAPTION>
Annual Value of a $10,000
Stipulated Payment made
January 1, 1988 $ Value
- ------------------------- -------
<S> <C>
01/01/88 $10,000
12/31/88 12,343
12/31/89 15,615
12/31/90 13,910
12/31/91 17,717
12/31/92 19,635
12/31/93 22,075
12/31/94 21,591
12/31/95 29,666
12/31/96 36,431
12/31/97 47,709
</TABLE>
VALUE AT MONTHLY INTERVALS OF A $10,000
STIPULATED PAYMENT MADE JANUARY 1, 1988
[CHART]
PERIOD ENDED DECEMBER 31
18
<PAGE> 84
PURCHASE PERIOD
- --------------------------------------------------------------------------------
The Purchase Period begins when your first Purchase Payment is made and
continues until you begin your Payout Period. The Purchase Period can also end
when a Portfolio Director 2 account is surrendered before the Payout Period. The
amount, number, and frequency of your Purchase Payments is determined by the
retirement plan for which Portfolio Director 2 was purchased.
PURCHASE PAYMENTS
You may establish an account only through a VALIC representative. Initial
Purchase Payments must be received by VALIC either with, or after, a completed
application. Your employer is usually responsible for remitting Purchase
Payments to us. The employer is responsible for furnishing instructions to us (a
premium flow report) as to the amount being applied to your account.
Minimum initial and subsequent Purchase Payments are as follows:
<TABLE>
<CAPTION>
Initial Subsequent
Contract Type Payment Payment
<S> <C> <C>
Periodic Payment $ 30 $ 30
Single Payment $1,000 -0-
</TABLE>
Periodic Payment minimums apply to each Fixed Account Option or Variable Account
Option selected. The Single Payment minimum applies to each of your accounts.
Purchase Payments are received in VALIC's Home Office. When an initial Purchase
Payment is accompanied by an application, within 2 business days we will:
- - Accept the Application -- and issue a contract. We will also establish your
account and apply your Purchase Payment by crediting the amount to the Fixed
Account Option or Variable Account Option selected;
- - Reject the Application -- and return the Purchase Payment; or
- - Request Additional Information -- to correct or complete the application.
If we receive Purchase Payments from your employer before we receive your
completed application or enrollment form, we will not be able to establish a
permanent account for you. Under these circumstances, we will take one of the
following actions:
Return Purchase Payments. If we do not have your name, address or social
security number, we will return the Purchase Payment to your employer unless
this information is immediately provided to us.
Employer-Directed Account. If we have your name, address and social security
number and we have an Employer-Directed Account Agreement from your employer,
generally we will deposit your Purchase Payment
in an "Employer-Directed" account invested in our Money Market Division
Option. You may not transfer these amounts until VALIC has received a
completed application or enrollment form.
Starter Account. If we have your name, address and social security number, but
we do not have an Employer-Directed Account Agreement from your employer, we
will deposit your Purchase Payment in a "starter" account invested in the
Money Market Division. We will send you follow-up letters requesting the
information necessary to complete the application, including your allocation
instructions. Unless a completed application or enrollment form is received by
us within 105 days of establishment of your starter account, the account
balance, including earnings, will be returned to your employer. We are not
responsible for any adverse tax consequences to you that may result from the
return of your employer's contributions.
PURCHASE UNITS
A Purchase Unit is a unit of interest owned by you in your Variable Account
Option. Purchase Units apply only to the Variable Account Options selected for
your account. Purchase Unit values are calculated at the close of regular
trading of the New York Stock Exchange (the "Exchange"), currently 4:00 p.m. New
York time (see Calculation of Purchase Unit Value below for more information.)
Purchase Units will be credited the same business day if Purchase Payments are
received by our Home Office before the close of the Exchange. If not, they will
be calculated and credited the next business day. Purchase Unit values will vary
depending on the net investment results of each of the Variable Account Options.
This means the value of your Variable Account Option will fluctuate.
CALCULATION OF PURCHASE UNIT VALUE
The Purchase Unit value for a Division is calculated as shown below:
Step 1: Calculate the gross investment rate:
Gross Investment Rate
= (EQUALS)
The Division's investment income and capital gains and losses (whether
realized or unrealized) on that day from the assets attributable to the
Division.
/ (DIVIDED BY)
The value of the Division for the immediately preceding day on which the
values are calculated.
PURCHASE PAYMENTS -- an
amount of money you pay to
VALIC to receive the benefits
of an annuity Contract offered
by Portfolio Director 2.
For more information as to
how PURCHASE UNIT VALUES
are calculated, see the
Statement of Additional
Information.
19
<PAGE> 85
- --------------------------------------------------------------------------------
We calculate the gross investment rate as of 4:00 p.m. New York time on each
business day when the New York Stock Exchange is open.
Step 2: Calculate net investment rate for any day as follows:
Net Investment Rate
= (EQUALS)
Gross Investment Rate (calculated in Step 1)
- - (MINUS)
Separate Account charges and any income tax charges.
Step 3: Determine Purchase Unit Value for that day.
Purchase Unit Value for that day.
= (EQUALS)
Purchase Unit Value for immediate preceding day.
X (MULTIPLIED BY)
Net Investment Rate (as calculated in Step 2) plus 1.00.
Choosing Investment Options
There are 20 investment options offered in Portfolio Director 2. This includes 2
Fixed Account Options and 18 Variable Account Options. Unless provided
otherwise, you
may select and combine up to 7 of the 20 options. The Funds that underlie the
Variable Account Options are registered as investment companies under and are
subject to regulation of the Investment Company Act of 1940 (the Act). The Fixed
Account Options are not subject to regulation under the Act and are not required
to be registered under the Securities Act of 1933. As a result, the SEC has not
reviewed data in this prospectus that relates to the Fixed Account Options.
However, federal securities law does require such data to be accurate and
complete.
FIXED ACCOUNT OPTIONS
Each of the Fixed Account Options are part of the Company's general assets. You
may allocate all or a portion of your Purchase Payment to the Fixed Account
Options listed in "Profile of Portfolio Director 2 Contract" appearing in this
prospectus. Purchase Payments you allocate to these Fixed Account Options are
guaranteed to earn at least a minimum rate of interest. Interest is paid on each
of the Fixed Account Options at declared rates, which may be different for each
option. We bear the entire investment risk for the Fixed Account Option. All
Purchase Payments and interest earned on such amounts in your Fixed Account
Option will be paid regardless of the investment results experienced by the
Company's general assets.
Here is how you may calculate the value of your Fixed Account Option during the
Purchase Period:
Value of Your Fixed Account Options
= (EQUALS)
All Purchase Payments made to the Fixed Account Options
+ (PLUS)
Amounts transferred from Variable Account Options to the Fixed Account Options
+ (PLUS)
All interest earned
- - (MINUS)
Amounts transferred or withdrawn from Fixed Account Options (including
applicable fees and charges)
VARIABLE ACCOUNT OPTIONS
You may allocate all or a portion of your Purchase Payments to the Variable
Account Options listed in this prospectus. A complete discussion of each of the
Variable Account Options may be found in the "Variable Account Options" section
in this prospectus. Based upon a Variable Account Option's Purchase Unit Value
your account will be credited with the applicable number of Purchase Units. The
Purchase Unit Value of each Variable Account Option will change daily depending
upon the investment performance of the underlying fund (which may be positive or
negative) and the deduction of VALIC Separate Account A charges. See the "Fees
and Charges" section in this prospectus. Because Purchase Unit Values change
daily, the number of Purchase Units your account will be credited with for
subsequent Purchase Payments will vary. Each Variable Account Option bears its
own investment risk. Therefore, the value of your account may be worth more or
less at retirement or withdrawal.
Here is how to calculate the value of each Variable Account Option in your
account during the Purchase Period:
Value of Your Variable Account Option
= (EQUALS)
Total Number of Purchase Units
X (MULTIPLIED BY)
Current Purchase Unit Value
STOPPING PURCHASE PAYMENTS
Purchase Payments may be stopped at any time. Purchase Payments may be resumed
at any time before your Portfolio Director 2 account has been surrendered. While
no Purchase Payments are being made, the number of Purchase Units outstanding
will remain the same. (This is assuming no transfers or withdrawals are made.)
The value of the Purchase Units will continue to vary. Your Account Value will
continue to be subject to charges.
If your Account Value falls below $300, and you do not make any Purchase
Payments for two years from the date we established your account, we may close
the account and pay the Account Value (less any surrender charge) to you.
PURCHASE UNIT -- a
measuring unit used to
calculate your Account Value
during the Purchase Period.
The value of a Purchase Unit
will vary with the investment
experience of the Separate
Account Division you have
selected.
20
<PAGE> 86
TRANSFERS BETWEEN INVESTMENT OPTIONS
- --------------------------------------------------------------------------------
You may transfer all or part of your Account Value between the various Fixed
Account and Variable Account Options in Portfolio Director 2 without a charge.
Transfer instructions may be made either in writing or by telephone as discussed
below. Transfers may be made during the Purchase Period or during the Payout
Period. We reserve the right to limit transfers as discussed below. Your
employer's plan may also limit your rights to transfer.
DURING THE PURCHASE PERIOD
During the Purchase Period, transfers may be made between Portfolio Director 2's
Fixed Account Options and Variable Account Options.
We currently permit transfers between Variable Account Options or from Variable
Account Options to Fixed Account Options, at any time. We may, however, limit
the number of transfers you can make.
Transfers are also permitted from the Fixed Account Options subject to the
following limitations:
<TABLE>
<CAPTION>
FIXED OTHER
ACCOUNT OPTION VALUE FREQUENCY RESTRICTIONS
- -------------- ------------- ----------- ------------
<S> <C> <C> <C>
Fixed Account
Plus: Up to 20% per At any time None (1)
contract year
100% At any time If Account Value
is
less than or
equal
to $500
Short-Term
Fixed
Account: Up to 100% At any time 90-day Holding
Period If
transfer
was previously
made
into Short-Term
Fixed
Account.(2)
</TABLE>
- ---------------
(1) Your employer may further limit or expand the restrictions. We may charge
for those modified restrictions if specified in your employer's retirement
plan.
(2) VALIC may change this holding period at any time in the future, but it will
never be more than 180 days.
DURING THE PAYOUT PERIOD
During the Payout Period, transfers may be made between Portfolio Director 2's
investment options subject to the following limitations:
<TABLE>
<CAPTION>
% OF ACCOUNT
---------------------------------- OTHER
ACCOUNT OPTION VALUE FREQUENCY RESTRICTIONS
-------------- ------------- ------------------- ------------
<S> <C> <C> <C>
Variable: Up to 100% Once every 365 days None
Combination
Fixed
and Variable Up to 100% Once every 365 days None
Payout: of money in
variable
option payout
Fixed: Not permitted -- --
</TABLE>
COMMUNICATING TRANSFER OR
REALLOCATION INSTRUCTIONS
A written instruction to transfer or reallocate all or part of your Account
Value between the various investment options in Portfolio Director, should be
sent to VALIC's Home Office.
Instructions for transfers or reallocations may be made by calling
1-800-621-7792. Telephone transfers will be allowed unless we have been notified
not to accept such telephone instructions. In this event, we must receive
written instructions, in order to permit future telephone transfers to be made.
Before a transfer will be made by telephone, you must give us the requested
identifying information concerning your account(s).
Unless we have been instructed not to accept requests for telephone transfers,
anyone may effect a telephone transfer if they furnish the requested
information. You will bear any loss resulting from such instructions, whether
the caller was specifically authorized by you or not.
No one that we employ or that represents VALIC may give telephone instructions
on your behalf without VALIC's prior written permission. (This does not apply to
a contract with the immediate family of an employee or representative of VALIC).
We will send you a confirmation of the completed transfer within 5 days from the
date of your instruction. When you receive your confirmation, it is your duty to
verify the information shown, and advise us of any errors within one business
day.
You will bear the risk of loss arising from instructions received by telephone.
We are not responsible for the authenticity of such instructions. Any telephone
instructions which we reasonably believe to be genuine will be your
responsibility. This includes losses from errors in communication. Telephone
transfer instruction may not be made during the Payout Period. We reserve the
right to stop telephone transfers at any time.
EFFECTIVE DATE OF TRANSFER
The effective date of a transfer will be:
- - The date of receipt, if received in our Home Office before the close of
regular trading of the New York Stock Exchange on a day values are calculated;
(Normally, this will be 4:00 P.M. New York time); otherwise
- - The next date values are calculated.
ACCOUNT VALUE -- the total
sum of your Fixed Account
and/or Variable Account
Options that have not yet
been applied to your Payout
Payments.
PURCHASE PERIOD -- the time
between your first Purchase
Payment and your Payout
Period (or surrender).
HOME OFFICE -- Our
principal office at 2929 Allen
Parkway, Houston, Texas
77019.
PAYOUT PERIOD -- the time
that starts when you begin to
withdraw your money in a
steady stream of payments.
21
<PAGE> 87
FEES AND CHARGES
- --------------------------------------------------------------------------------
By investing in Portfolio Director 2, you may be subject to six basic types of
fees and charges:
- - Account Maintenance Fee
- - Surrender Charge
- - Premium Tax Charge
- - Separate Account Charges
- - Fund Annual Expense Charge
- - Other Tax Charges
These fees and charges are explained below. For additional information about
these fees and charges, see the Fee Table in this prospectus.
ACCOUNT MAINTENANCE FEE
An account maintenance fee of $3.75 will be deducted on the last day of each
calendar quarter if any of your money is invested in the Variable Account
Options. We will sell Purchase Units from your Account to pay the account
maintenance fee. If you invest only in Fixed Account Options during a calendar
quarter, this fee will not apply. If all your money in a Variable Account Option
is withdrawn, or transferred to a Fixed Account Option, the fee will be deducted
at that time. The fee will be assessed equally among the Variable Account
Options that make up your Account Value.
The account maintenance fee is to reimburse the Company for our administrative
expenses for providing Variable Account Options. This includes the expense for
establishing and maintaining the record keeping for the Variable Account
Options. We do not expect that the amount of fees we receive will be greater
than our expenses.
The amount of the account maintenance fee may be reduced or waived if Portfolio
Director 2 is issued to certain types of plans which are expected to result in
lower costs to VALIC. To learn more about how we determine if account
maintenance fees may be reduced or waived, see the "Reduction or Waiver of
Account Maintenance Fee, Surrender, Mortality and Expense Risk Fee or
Administration and Distribution Fee Charges" section in this prospectus. If you
have two or more accounts established under the same group contract, we may
agree to deduct an account maintenance fee from only one account.
SURRENDER CHARGE
When you withdraw money from your account, you may be subject to a surrender
charge. For information about your right to surrender, see "Surrender of Account
Value" in this prospectus.
It is assumed that the most recent Purchase Payments are withdrawn first. No
surrender charge will be applied unless an amount is
actually withdrawn. We consider all Purchase Payments to be withdrawn before
earnings are withdrawn.
Amounts exchanged from other contracts issued by the Company may or may not be
subject to a surrender charge. After exchange, it is assumed that any new
Purchase Payments are withdrawn before the exchanged amount. For more
information, see "Exchange Privilege" in the Statement of Additional
Information.
AMOUNT OF SURRENDER CHARGE
A surrender charge may not be greater than:
- - Five percent (5%) of the amount of all Purchase Payments received during the
past 60 months; or
- - Five percent (5%) of the amount withdrawn.
10% FREE WITHDRAWAL
In any Participant Year, up to 10% of the Account Value may be withdrawn without
a surrender charge. The surrender charge will apply to any amount withdrawn that
exceeds this 10% limit. The percentage withdrawn will be determined by dividing
the amount withdrawn by the Account Value just prior to the withdrawal. If more
than one withdrawal is made during a Participant Year, each percentage will be
added to determine at what point the 10% limit has been reached.
These 10% withdrawals without charge do not reduce Purchase Payments for the
purpose of computing the surrender charge. If a surrender charge is applied to
all or part of a Purchase Payment, no surrender charge will be applied to such
Purchase Payment (or portion thereof) again.
EXCEPTIONS TO SURRENDER CHARGE
No surrender charge will be applied:
- - To money applied to provide a Payout Option;
- - To death benefits;
- - If no Purchase Payments have been received during the 60 months prior to the
date of surrender;
- - If your account has been in effect for 15 years or longer;
- - If your account has been in effect for 5 years or longer, and you have
attained age 59 1/2;
- - To "No Charge Systematic Withdrawals";
- - Under certain contracts, to withdrawals under the No Charge Minimum
Distribution provisions;
PARTICIPANT YEAR -- the first
twelve month period and
then each yearly anniversary
of that period following the
issue date of the contract or
certificate.
22
<PAGE> 88
- --------------------------------------------------------------------------------
- - If you have become totally and permanently disabled, defined as follows: You
are unable, due to mental or physical impairment, to perform the material and
substantial duties of any occupation for which you are suited by means of
education, training or experience; the impairment must have been in existence
for more than 180 days; the impairment must be expected to result in death or
be long-standing and indefinite and proof of disability must be evidenced by a
certified copy of a Social Security Administration determination or a doctor's
verification; or
- - If you are at least 55 years old, are no longer employed by the employer that
established the plan, and your account under the plan was established at least
5 years prior to the date of surrender.
The surrender charge may be reduced or waived if Portfolio Director 2 is issued
to certain types of plans which are expected to result in lower costs to VALIC.
To learn more about how we determine if a surrender charge may be reduced or
waived, see the "Reduction or Waiver of Account Maintenance Fee, Surrender,
Mortality and Expense Risk Fee or Administration and Distribution Fee Charges"
section in this prospectus.
PREMIUM TAX CHARGE
Taxes on Purchase Payments are imposed by some states, cities, and towns. The
rate will range from zero to 3%.
If the law of a state, city, or town requires premium taxes to be paid when
Purchase Payments are made, we will, of course, comply. Otherwise, such tax will
be deducted from the Payout Value when annuity payments are to begin.
If we deduct an amount for premium taxes, but later find the tax was not due, we
will:
- - Adjust the amount deducted in error to reflect investment experience from the
date of the deduction to the date we determined the tax was not due; and
- - Apply the excess amount, as adjusted, to increase the number of Pay-in or
Payout Units.
SEPARATE ACCOUNT CHARGES
There will be a mortality and expense risk fee and an administration and
distribution fee applied to VALIC Separate Account A. This is a daily charge at
an aggregate annualized rate of 0.80% to 1.05% during the Purchase Period and
1.00% to 1.25% during the Payout Period on the average daily net asset value of
VALIC Separate Account A. The exact rate depends on the Variable Account Option
selected. This charge is guaranteed and cannot be increased by the Company. The
mortality and expense risk fee is to compensate the Company for assuming
mortality and expense risks under Portfolio Director. The mortality risk that
the Company assumes is the obligation to provide payments during the Payout
Period for your life no matter how long that might be. In addition, the Company
assumes the obligation to pay during the Purchase Period an interest guaranteed
death benefit. For more information about the interest guaranteed death benefit
see the "Death Benefit" section of this prospectus. The expense risk is our
obligation to cover the cost of issuing and administering Portfolio Director 2,
no matter how large the cost may be.
The Company may make a profit on the mortality and expense risk fee and on the
administration and distribution fee.
The administration and distribution fee is to reimburse the Company for our
administrative expenses for providing Variable Account Options. This includes
the expense of administration and marketing (including but not limited to
enrollment, participant communication and education).
For more information about the mortality and expense risk fee, and
administration and distribution fee see the Fee Table in this prospectus.
The mortality and expense risk fee or administration and distribution fee may be
reduced or waived if issued to certain types of plans that are expected to
result in lower costs to VALIC. To learn more about how we determine if the
mortality and expense risk fee or administration and distribution fee may be
reduced or waived, see the "Reduction or Waiver of Account Maintenance Fee,
Surrender, Mortality and Expense Risk Fee or Administration and Distribution Fee
Charges" section of this prospectus.
FUND ANNUAL EXPENSE CHARGES
Investment management charges based on a percentage of each Fund's average daily
net assets are payable by each Fund. Depending on the Variable Account Option
selected, the charges will be paid by each Fund to its investment adviser. These
charges and other Fund charges and expenses are fully described in the
prospectuses for the Funds. These charges indirectly cost you because they lower
your return.
OTHER TAX CHARGES
We reserve the right to charge for certain taxes (other than premium taxes) that
we may have to pay. This could include federal income taxes. Currently, no such
charges are being made.
23
<PAGE> 89
- --------------------------------------------------------------------------------
REDUCTION OR WAIVER OF ACCOUNT
MAINTENANCE FEE, SURRENDER,
MORTALITY AND EXPENSE RISK FEE OR ADMINISTRATION AND DISTRIBUTION FEE CHARGES
We may, as described below, determine that the account maintenance fee,
surrender charges, mortality and expense risk fee or administration and
distribution fee for Portfolio Director 2 may be reduced or waived. We may
reduce or waive these fees and charges if we determine that your retirement
program will allow us to reduce or eliminate administrative or sales expenses
that we usually incur for retirement programs. There are a number of factors we
will review in determining whether your retirement program will allow us to
reduce or eliminate these administrative or sales expenses:
- The type of retirement program.
Certain types of retirement programs because of their stability can result
in lower administrative costs.
- The nature of your retirement program.
Certain types of retirement programs, due to the types of employees who
participate, experience fewer account surrenders thus reducing
administrative costs.
- Other factors of which we are not presently aware which could reduce
administrative costs.
We review the following additional factors to determine whether we can reduce
or waive account maintenance fees:
- The frequency of Purchase Payments for your retirement program.
Purchase Payments received no more than once a year can reduce
administrative costs.
- The administrative tasks performed by your employer for your retirement
program.
The employer sponsoring your retirement program can, through their method of
remitting Purchase Payments, reduce administrative costs.
We review to following additional factors to determine whether we can reduce or
waive surrender charges:
- The size of your retirement program.
A retirement program which involves a larger group of employees may allow us
to reduce sales expenses.
- The total amount of Purchase Payments to be received for your retirement
program.
Larger Purchase Payments can reduce sales expenses.
- The use of mass enrollment or related administrative tasks performed by your
employer for your retirement program.
We review the following additional factors to determine whether we can reduce
or waive the mortality and expense fee or administration and distribution fee:
- The frequency of Purchase Payments for your retirement program.
- The size of your retirement program.
- The amount of your retirement program's periodic purchase payment.
We will only do this if permitted by this Contract and by VALIC guidelines in
effect at the time. In no event will the reduction or waiver of fees and
charges be permitted where the reduction or waiver will unfairly discriminate
against any person.
SEPARATE ACCOUNT EXPENSE
REIMBURSEMENT
Some of the Mutual Funds or their affiliates may have an agreement with the
Company to pay the Company for certain administrative and shareholder services
it provides to the underlying Fund. The Company will reduce its charges to the
Division investing in that Fund by the full amount of any of these payments it
receives. In addition, the Company currently reimburses certain Divisions a
portion of the Company's administration and distribution fee. Such
reimbursement arrangements are voluntary. See the Fee Table in this prospectus
for an identification of those Funds for which a reimbursement applies.
24
<PAGE> 90
PAYOUT PERIOD
- --------------------------------------------------------------------------------
The Payout Period (Annuity Period) begins when you decide to retire or otherwise
withdraw your money in a steady stream of payments. If your employer's plan
permits, you may apply any portion of your Account Value to one of the types of
Payout Options listed below. You may choose to have your Payout Option on either
a fixed, a variable, or a combination payout basis. When you choose to have your
Payout Option on a variable basis, you may keep the same Variable Account
Options in which your Purchase Payments were made, or transfer to different
ones.
FIXED PAYOUT
Under Fixed Payout, you will receive payments from the Company. These payments
are fixed and guaranteed by the Company. The amount of these payments will
depend on:
- Type and duration of Payout Option chosen;
- Your age or your age and the age of your survivor (1);
- Your sex or your sex and the sex of your survivor (1) (IRA's and certain
nonqualified contracts);
- The portion of your Account Value being applied; and
- The payout rate being applied and the frequency of the payments.
(1) This applies only to joint and survivor payouts.
If the benefit would be greater, the amount of your payments will be based on
the current payout rate the Company uses for immediate annuity contracts.
VARIABLE PAYOUT
With a Variable Payout, you may select up to 7 Variable Account Options. Your
payments will vary accordingly. This is due to the varying investment results
that will be experienced by each of the Variable Account Options you selected.
The Payout Unit Value is calculated just like the Purchase Unit Value for each
Variable Account Option except that the Payout Unit Value includes a factor for
the Assumed Investment Rate you select. For additional information on how Payout
Payments and Payout Unit Values are calculated, see the Statement of Additional
Information.
In determining your first Payout Payment, an Assumed Investment Rate of 3 1/2%
is used (unless you select a higher rate.) If the net investment experience of
the Variable Account Option exceeds your Assumed Investment Rate, your next
payment will be greater than your first payment. If the investment experience of
the Variable Account Option is lower than your Assumed Investment Rate, your
next payment will be less than your first payment.
COMBINATION FIXED AND VARIABLE
PAYOUT
With a Combination Fixed and Variable Payout, you may choose:
- Up to 6 Variable Account Options (payments will vary); with a
- Fixed Payout (payment is fixed and guaranteed).
PAYOUT DATE
The Payout Date is the date elected by you on which your payout (annuity)
payments will start. The date elected must be the first of any month provided 30
days advance notice has been given to VALIC. Your account will be valued ten
days prior to the end of the month preceding the Payout Date. A request to start
payments must be sent to our Home Office on a form approved by VALIC. Generally,
for qualified contracts, the Payout Date may begin when you attain age 59 1/2 or
separate from service, but must begin no later than April 1 following the
calendar year you reach age 70 1/2 or the calendar year in which you retire. For
nonqualified contracts, the Payout Date may begin at any time prior to your 85th
birthday. For additional information on the minimum distribution rules that
apply to payments under 403(b), 401, 403(a) and 457 plans or simplified employee
plans ("SEPs"), see "Federal Tax Matters" in this prospectus and in the
Statement of Additional Information.
PAYOUT OPTIONS
You may specify the manner in which your Payout Payments are made. You may
select one of the following options:
- LIFE ONLY -- payments are made only to you during your lifetime. Under this
option there is no provision for a death benefit for the beneficiary. For
example, it would be possible under this option for the Annuitant to receive
only one payout payment if he died prior to the date of the second payment,
two if he died before the third payment.
- LIFE WITH GUARANTEED PERIOD -- payments are made to you during your
lifetime; but if you die before the guaranteed period has expired, your
beneficiary will receive payments for the rest of your guaranteed period.
PAYOUT UNIT -- a measuring
unit used to calculate Payout
Payments from your Variable
Account Option. Payout Unit
values will vary with the
investment experience of the
VALIC Separate Account A
Division you have selected.
ASSUMED INVESTMENT
RATE -- the rate used to
determine your first monthly
Payout Payment per
thousand dollars of Account
Value in your Variable
Account Option(s).
25
<PAGE> 91
- --------------------------------------------------------------------------------
- LIFE WITH CASH OR UNIT REFUND -- payments are made to you during your
lifetime. Upon your death, your beneficiary will receive a lump sum
payment equal to the remaining Annuity Value.
- JOINT AND SURVIVOR LIFE -- payments are made to you during the joint
lifetime of you and your beneficiary. Upon the death of one, payments
continue during the lifetime of the survivor. This option is designed
primarily for couples who require maximum possible variable payouts during
their joint lives and are not concerned with providing for beneficiaries
at death of the last survivor. For example, it would be possible under
this option for the Joint Annuitants to receive only one payment if both
Annuitants died prior to the date of the second payment, or for the Joint
Annuitants to receive only one payment and the surviving Annuitant to
receive only one payment if one Annuitant died prior to the date of the
second payment and the surviving Annuitant dies prior to the date of the
third payment.
- PAYMENT FOR A DESIGNATED PERIOD -- payments are made to you for a select
number of years between five and thirty. Upon your death, payments will
continue to your beneficiary until the designated period is completed.
ENHANCEMENTS TO PAYOUT OPTIONS
You may be able to select enhancements to the Payout Options described above.
These enhancements include partial annuitization, flexible payments of varying
amounts and inflation protection payments. Additionally, certain options may be
available with a one to twenty year guaranteed period. The Joint and Survivor
Life Option may be available with a one to twenty year guaranteed period option.
Not all of the enhancements are available under each option.
PAYOUT INFORMATION
Once your Payout Payments have begun, the option you have chosen may not be
stopped or changed. Any one of the Variable Account Options may result in your
receiving unequal payments during your life expectancy. If payments begin before
age 59 1/2, you may suffer unfavorable tax consequences if you do not meet an
exception to federal tax law. See "Federal Tax Matters" in this prospectus.
Your Payment Option should be selected at least 30 days before your Payout Date.
If such selection is not made:
- Payments will be made under the Life with Guaranteed Period Option, and
- The payments will be guaranteed for a 10 year period, and
- The payments will be based on the allocation used for your Purchase
Payments,
- Fixed Account Option will be used to distribute payments to you on a Fixed
Payout basis,
- Variable Account Options will be used to distribute payments to you on a
Variable Payout basis.
Your first Payout Payment must total at least $25.
Most Payout Payments are made monthly. If the amount of your payment is less
than $25, we reserve the right to reduce the number of payments made each year
so each of your payments are at least $25.
For more information about
PAYOUT OPTIONS OR
ENHANCEMENTS
of those Payout Options
available under the Contract,
see the "Statement of
Additional Information".
26
<PAGE> 92
SURRENDER OF ACCOUNT VALUE
- --------------------------------------------------------------------------------
WHEN SURRENDERS ARE ALLOWED
You may withdraw all or part of your Account Value at any time before the Payout
Period begins if:
- allowed under federal and state law; and
- allowed under your employer's plan.
For an explanation of charges that may apply if you surrender your Account
Value, see "Fees and Charges" in this prospectus.
AMOUNT THAT MAY BE SURRENDERED
The amount that may be surrendered at any time can be determined as follows:
<TABLE>
<S> <C> <C>
Your
Account
Allowed Value(1)
Surrender = (EQUALS) - (MINUS)
Value Any Applicable
Surrender
Charge
</TABLE>
1: Equals the Account Value next computed after your properly completed
request for surrender is received in our Home Office.
There is no guarantee that the Surrender Value in a Variable Account Option will
ever equal or exceed the total amount of your Purchase Payments received by us.
We will mail to you the Surrender Value within 7 calendar days after we receive
your properly completed surrender request at our Home Office. However, we may be
required to suspend or postpone payments if redemption of an underlying Fund's
shares have been suspended or postponed. See "Offering, Purchase and Redemption
of Fund Shares" in the Series Company Statement of Additional Information. See
your current Fund(s)' prospectuses for a discussion of the reasons why the
redemption of shares may be suspended or postponed.
We may receive a surrender for a Purchase Payment which has not cleared the
banking system. We may delay payment of that portion of your Surrender Value
until the check clears. The rest of the Surrender Value will be processed as
usual.
SURRENDER RESTRICTIONS
Generally, Internal Revenue Code Section 403(b)(11) permits total or partial
distributions from a 403(b) contract only on account of hardship (employee
contributions only without accrued interest), attainment of age 59 1/2,
separation from service, death or disability.
Under the TEXAS STATE OPTIONAL RETIREMENT PROGRAM, and in many Section 403(b)
contracts, no surrender or partial surrender will be allowed except for
termination of employment, retirement or death.
Under the FLORIDA STATE OPTIONAL RETIREMENT PROGRAM, no surrender or partial
surrender of Purchase Payments made by the employer will be allowed except for
termination of employment, retirement or death. Benefit payments based on
payments from the employer may not be paid in a lump sum or for a period
certain, but must be paid under a life contingency option, except for:
- death benefits; and
- certain small amounts approved by the State of Florida.
PARTIAL SURRENDERS
You may request a partial surrender of your Account Value at any time. A partial
surrender plus any surrender charge will reduce your Account Value. Partial
surrenders will be paid from the Fixed Account Options first unless otherwise
specified by you.
The reduction in the number of Purchase Units credited to your Variable Account
Option Account Value will equal:
<TABLE>
<S> <C> <C>
The amount Your Purchase
surrendered Units next
from the Variable computed after
Account Option the written
+ (PLUS) / (DIVIDED BY) request for
Any Surrender surrender is
Charge received at our
Home Office.
</TABLE>
The Surrender Value will be reduced by a full quarterly account maintenance fee
charged in the case of a full surrender during a quarter.
SYSTEMATIC WITHDRAWALS
You may elect to withdraw all or part of your Account Value under a systematic
withdrawal method described in your annuity contract offered by Portfolio
Director 2. There will be no surrender charge for withdrawals using this method,
which provides for:
- Payments to be made to you;
- Payment over a stated period of time (but not less than five years);
- Payment of a stated yearly dollar amount or percentage (the amount or
percentage may not exceed 20% of your Account Value at the time election is
made).
We may require a minimum withdrawal amount under this method. The portion of
your account that has not been withdrawn will continue to receive the investment
return of the Variable Account Options which you selected. A systematic
withdrawal election may not be changed but can be revoked at no charge. Once
revoked, a systematic withdrawal may not be elected again. No more than one
systematic
27
<PAGE> 93
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withdrawal election may be in effect at any one time. We reserve the right to
discontinue any or all systematic withdrawals or to change its terms, at any
time.
DISTRIBUTIONS REQUIRED BY FEDERAL TAX LAW. There will be no surrender charge on
a minimum distribution required by federal tax law (known as No Charge Minimum
Distribution), if the withdrawal:
- Is made payable to you; and
- Does not exceed the amount required under federal tax law as determined by
the values in your Portfolio Director 2 Contract and VALIC.
This contract feature will not be available in any year that an amount has been
withdrawn under the no charge systematic withdrawal method. See "Federal Tax
Matters" in this prospectus and in the Statement of Additional Information for
more information about required distributions imposed by tax law.
For an explanation of possible adverse tax consequences of a surrender, see
"Federal Tax Matters" in this prospectus and in the Statement of Additional
Information.
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<PAGE> 94
EXCHANGE PRIVILEGE
- --------------------------------------------------------------------------------
We issue other fixed and/or variable annuity contracts (other contracts) in
addition to Portfolio Director 2. These other contracts are listed below. We
will allow you, under certain conditions, to exchange from one of these other
contracts to Portfolio Director 2. This exchange privilege will be available
only to other contracts purchased through your employer-sponsored retirement
plan and for which we have not yet started making payments under a Payout
Option. If you elect to exercise one of these exchange offers, you should
contact any of our Regional Offices at the addresses shown in the back of this
prospectus.
RESTRICTIONS ON EXCHANGE PRIVILEGE
We will impose certain general restrictions and rules on the exchange
privileges.
- Partial exchanges are not permitted.
- Exchanges from Portfolio Director 2 to other contract forms are not
permitted. (Exchanges between Portfolio Director 2 and other contracts in
the Portfolio Director series of annuities are permitted.)
- This exchange privilege is only available for those other contracts listed
below.
Additionally, if you have your money in a fixed account of one of the below
listed other contracts, you must exchange directly into the Fixed Account
Options of Portfolio Director 2. You will be subject to all of the rules that
apply to the Fixed Account Options in Portfolio Director 2. For example, you
will be subject to the rules concerning transfers among investment options as
stated in the Transfers Between Investment Options section in this prospectus.
We may, at our option, waive any transfer restrictions for a stated period of
time. If we waive these transfer restrictions, you will be allowed to exchange
to any investment option available in Portfolio Director 2.
WE RESERVE THE RIGHT TO TERMINATE, MODIFY OR SUSPEND THESE EXCHANGE PRIVILEGES
AT ANY TIME.
TAXES AND CONVERSION COSTS
We will impose no fee or charge for these exchanges. Please read the "Federal
Tax Matters" section in this prospectus for information about the federal income
tax treatment of Portfolio Director 2.
SURRENDER CHARGES
We will generally not impose nor waive existing surrender charges as a result of
your electing to exchange from one of the other contracts.
For purposes of determining surrender charges, we often consider time in the
contract. For SPQ181 and SPQ181-1 Contracts, the contract date for determining
surrender charges under Portfolio Director 2 will be the SPQ181 and SPQ181-1
contract date plus one year. For example, if you have an SPQ181 contract with a
contract date of January 1, 1993, upon exchange into Portfolio Director 2, the
contract date for surrender charges purposes becomes January 1, 1994.
For any other contract, the contract date for determining surrender charges
under Portfolio Director 2 will be the same date as the other contract, but no
earlier than January 1, 1982. (The effect of this is to potentially shorten the
charge period for Purchase Payments subsequently made to Portfolio Director 2.)
If there is no surrender charge on assets within another contract, we will not
impose charges on those assets as a result of an exchange. If surrender charges
are to be based on Purchase Payments within a contract, we will consider
purchase payments in the other contract to have been transferred to Portfolio
Director 2 for purposes of calculating the surrender charge. The effective dates
of these Purchase Payments will also be retained for surrender charge purposes.
The Portfolio Director 2 surrender charge is calculated assuming the most recent
Purchase Payments are removed first. This policy may cause exchanged funds to be
accessible only after charges are imposed.
EXCHANGE OFFERS FOR CONTRACTS OTHER THAN
PORTFOLIO DIRECTOR AND PORTFOLIO DIRECTOR 2
The following other contracts may be exchanged.
- V-Plan Contracts (IFA-582 and GFA-582 Contracts)
- Compounder Contracts (C-1-75 and IFA-78 Contracts)
- Independence Plus Contracts (UIT-585 and UITG-585 Contracts)
- Impact Contracts (UIT-981 Contracts)
- SA-1 or SA-2 (GUP-64, GUP-74 and GTS-VA Contracts)
- FSPA-75, FSPA-73-3, FSPA-779 Contracts
- SPQ181, SPQ181-1 Contracts
- CTA 978 Contract
- TFA-379 Contract
- SDA-578, SDA-773-T Contract
- IRA-579 Contracts
29
<PAGE> 95
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Portfolio Director 2 will have the same Account Value (called Accumulation Value
in the other contracts) as the other contracts.
EXCHANGE OFFER FOR PORTFOLIO DIRECTOR AND PORTFOLIO DIRECTOR 2
Subject to the restrictions stated below and the general restrictions on
exchange privileges stated above you may exchange from Portfolio Director to
Portfolio Director 2. You may also exchange from Portfolio Director 2 to
Portfolio Director. Additionally, you may also make exchanges among the series
of Portfolio Director 2. Once you have made any of the exchanges described in
this paragraph you must wait 120 days before making another exchange between
Portfolio Director and Portfolio Director 2.
Both Portfolio Director and Portfolio Director 2 are available to qualified
contracts and certain non-qualified contracts. Portfolio Director 2 is not
available to non-qualified contracts issued to individuals. Please read the
"Federal Tax Matters" in this prospectus for information about the federal
income tax treatment of Portfolio Director 2.
COMPARISON OF CONTRACTS
You should carefully compare the features, charges and restrictions of the other
contracts to those of Portfolio Director 2. A more detailed comparison of the
features, charges, and restrictions between each above listed other contract and
Portfolio Director 2 is provided in the Statement of Additional Information.
Portfolio Director and Portfolio Director 2 contain the same provisions except
as to the level of fees and as to available Variable Account Options and certain
Separate Account Expense Reimbursements. See "Fees and Changes" in this
prospectus.
For the V-Plan and Compounder Contract you should refer to the terms of the
contract or certificate. For the other contracts please refer to its most
recently dated prospectus for a complete description of the contract terms and
conditions. Those prospectuses are incorporated herein by reference. If you want
an additional copy of any of these prospectuses or Statements of Additional
Information, please contact us at the address shown in the introduction of the
prospectus.
Please refer to the prospectus and Statement of Additional Information for
Portfolio Director and the different series of Portfolio Director 2 for
information about the specific features and charges of such products.
Features of Portfolio Director 2
In deciding whether you want to exercise these exchange privileges, you should
consider the following factors of Portfolio Director 2.
- Portfolio Director 2 has more investment options to select from.
- Portfolio Director 2 has 12 publicly available mutual funds as investment
options.
- The Portfolio Director 2 surrender charge is calculated assuming the most
recent Purchase Payments are removed first. This policy may cause exchanged
funds to be accessible only after charges are imposed.
- Portfolio Director 2 has an Interest Guaranteed Death Benefit.
- Portfolio Director 2's Fund fees and charges are different than the other
contracts and in some cases may be higher.
- Different series of Portfolio Director 2 may charge fees higher or lower
than other series of Portfolio Director 2.
- Portfolio Director 2's guaranteed annuity rates and guaranteed interest
rates may be less favorable than the other contracts.
AGENTS' AND MANAGERS' RETIREMENT PLAN
EXCHANGE OFFER
General. All eligible agents and managers of the Company are allowed to
participate in the Company's Agents' and Managers' Retirement Plan ("Plan"). We
grant to participants in the Plan the right to effect a voluntary exchange of
their units of interest under the SA-1 Contracts, Independence Plus Contracts
and Portfolio Director for the equivalent units of interest in Portfolio
Director 2.
Agents and managers of VALIC who enter into the voluntary exchange will not
incur under Portfolio Director 2 any surrender charges or account maintenance
fees. Other individuals who may exchange to Portfolio Director 2 from SA-1,
Independence Plus or Portfolio Director Contracts may have surrender charges and
account maintenance fees imposed under Portfolio Director 2. 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
30
<PAGE> 96
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their purchase payment plan, the participant may choose to:
- Remain in the SA-1 Contract, Independence Plus Contract or Portfolio
Director.
- Leave current assets in the SA-1 Contract, Independence Plus or Portfolio
Director and direct future Purchase Payments to Portfolio Director 2; or
- Transfer all current assets and future Purchase Payments to Portfolio
Director 2.
If the participant chooses to remain in either the SA-1 Contract, Independence
Plus Contract or Portfolio Director, future Purchase Payments and current assets
will be controlled by the provisions of the SA-1 Contract, Independence Plus
Contract or Portfolio Director, respectively. If the participant chooses to
leave current assets in the SA-1 Contract, the Independence Plus Contract or
Portfolio Director and direct future Purchase Payments to Portfolio Director 2,
the current assets will be controlled by the provisions of the SA-1 Contract,
the Independence Plus Contract or Portfolio Director, respectively. The future
Purchase Payments will be controlled by the terms of Portfolio Director 2
subject to the exception that surrender charges and account maintenance fees
will not be imposed under Portfolio Director 2. If the participant chooses to
transfer all current assets and future Purchase Payments to Portfolio Director
2, such current assets and future Purchase Payments will be controlled by the
provisions of Portfolio Director 2 subject to the exception that surrender
charges and account maintenance fees will not be imposed under Portfolio
Director 2.
Once a participant transfers assets and future Purchase Payments to Portfolio
Director 2 the participant will not be permitted to exchange back to the SA-1
Contract or Independence Plus Contract. Exchanges to Portfolio Director will be
permitted. See "Exchange Offer for Portfolio Director and Portfolio Director 2"
in this prospectus. If a participant chooses to transfer future Purchase
Payments but not current assets to Portfolio Director 2, the participant will be
allowed at a later date to transfer the current assets to Portfolio Director 2.
For a complete analysis of the differences between the SA-1 contract, the
Independence Plus Contract or Portfolio Director and Portfolio Director 2, you
should refer to the Statement of Additional Information and the form of the
contract or certificate for its terms and conditions.
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<PAGE> 97
DEATH BENEFITS
- --------------------------------------------------------------------------------
Portfolio Director 2 will pay death benefits during either the Purchase Period
or the Payout Period. How these death benefits will be paid are discussed below.
The death benefit provisions in Portfolio Director 2 may vary from state to
state.
BENEFICIARY INFORMATION
The Beneficiary may receive death benefits:
- - In a lump sum; or
- - In the form of an annuity under any of the Payout Options stated in the Payout
Period section of this prospectus subject to the restrictions of that Payout
Option.
Payment of any death benefits must be within the time limits set by federal tax
law.
Beneficiaries Other Than Spouses.
If the Beneficiary is not the spouse of the Annuitant, death benefits must be
paid.
- - In full within 5 years after the Annuitant's death; or
- - By payments beginning within 1 year after the Annuitant's death under:
- A life annuity;
- A life annuity with payments certain; or
- An annuity for a designated period.
If the Annuitant dies before the Annuity Date, the Beneficiary as named by you
may receive the payout.
Payments certain or payments for a designated period cannot be for a greater
period of time than the Beneficiary's life expectancy. After choosing a payment
option, a Beneficiary may exercise many of the investment options and other
rights that the Participant or Contract Owner had under Portfolio Director 2.
SPECIAL INFORMATION FOR INDIVIDUAL
NON-TAX QUALIFIED CONTRACTS
It is possible that the Contract Owner and the Annuitant under a Non-Tax
Qualified Contract are not the same person. If this is the case, and the
Contract Owner dies, there will be no death benefit payable since the death
benefit is only due in the event of the Annuitant's death. However, the Contract
will be transferred to the Contingent Owner,
if any, or to the Contract Owner's estate. Such transfers will be considered a
taxable event by the IRS.
DURING THE PURCHASE PERIOD
Two types of benefits are available if death occurs during the Purchase Period.
Interest Guaranteed Death Benefit and Standard Death Benefit.
INTEREST GUARANTEED DEATH BENEFIT
The interest guaranteed death benefit is payable when death occurs prior to your
reaching the age of 70. This contract provision is not available in some states.
The amount payable under the interest guaranteed death benefit will be at least
equal to the sum of your Account Value in the Fixed Account Option(s) and the
Variable Account Option(s) on the date VALIC receives proof of death.
Here is how to calculate the death benefit:
Step 1: Determine your Fixed Account Option Value by taking the greater of:
<TABLE>
<S> <C> <C>
Value of Fixed Account Option on date
proof of death Is received by VALIC
OR
100% of Purchase Payments placed
in Fixed Account Option
- - (minus)
Amount of all prior withdrawals, charges and
any portion of Account Value applied under
a Payout Option
</TABLE>
Step 2: Determine your Variable Account Option Value by taking the greater of:
<TABLE>
<S> <C> <C>
Value of Variable Account Option on date
proof of death is received by VALIC
OR
100% of Purchase Payments placed in
Variable Account Options
- - (minus)
Prior withdrawals (out of) or transfers
(out of) the Variable Account Option
+ (plus)
Interest at an annual rate of 3%
</TABLE>
- --------------------------------------------------
Step 3: Add step 1 + 2 = Death Benefit
For purposes of this calculation amounts transferred into the Variable Account
Option will be treated as Purchase Payments.
BENEFICIARY -- the person
designated to receive Payout
Payments upon the death of
an Annuitant.
ANNUITANT -- the individual,
(in most cases this person is
you) to whom Payout
Payments will be paid.
CONTRACT OWNER -- either
your employer or organization
in the case of a group
contract or the Annuitant in
the case of an individual
contract. If the contract is an
individual non-qualified type,
this is generally the Annuitant
but a Contingent Contract
Owner may also be provided
for.
FIXED ACCOUNT OPTIONS -- a
particular subaccount into
which your Purchase
Payments and Account Value
may be allocated to fixed
investment options. Currently,
the Fixed Account Options in
Portfolio Director 2 are Fixed
Account Plus and Short-Term
Fixed Account. Each option
of this type is guaranteed to
earn at least a minimum rate
of interest.
VARIABLE ACCOUNT
OPTIONS -- Investment
Options that correspond to
VALIC Separate Account A
Divisions offered by Portfolio
Director 2. Investment returns
on Variable Account Options
will be positive or negative
depending on the investment
performance of the
underlying mutual fund.
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<PAGE> 98
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STANDARD DEATH BENEFIT
The standard death benefit is payable if death occurs on or after age 70.
The Standard Death Benefit will be the greater of:
<TABLE>
<S> <C> <C>
Your Account Value on the Date Proof of Death is
Received by VALIC
OR
100% of Purchase Payments (to Fixed
and/or Variable Account Options)
- -- (MINUS)
Amount of all Prior Withdrawals, Charges
and any portion of Account Value applied
under a Payout Option
</TABLE>
DURING THE PAYOUT PERIOD
If death occurs during the Payout Period, your Beneficiary may receive a death
benefit depending on the Payout Option selected. The amount of death benefits
will also depend on the Payout Option that you selected. The Payout Options
available in Portfolio Director 2 are described in the "Payout Period" section
of this prospectus.
- If the Life Only Option or Joint and Survivor Life Option were chosen, there
will be no death benefit.
- If the Life With Guaranteed Period Option, Joint and Survivor Life with
Guaranteed Periods Option, Life with Cash or Unit Refund Option or Payment
for a Designated Period Option were chosen, and the entire amount guaranteed
has not been paid, the Beneficiary may choose one of the following within 60
days after death benefits are payable:
- Receive the present value of any remaining payments in a lump sum; or
- Receive the remaining payments under the same terms of the guaranteed
period option chosen by the deceased Participant; or
- Receive the present value of any remaining payments applied under the
Payment for a Designated Period Option for a period equal to or shorter
than the period remaining. Spouse beneficiaries may be entitled to more
favorable treatment under federal tax law.
33
<PAGE> 99
HOW TO REVIEW INVESTMENT PERFORMANCE
OF SEPARATE ACCOUNT DIVISIONS
- --------------------------------------------------------------------------------
We will advertise information about the investment performance of VALIC Separate
Account A Divisions. Our advertising of past investment performance results does
not mean that future performance will be the same. The performance information
will not predict what your actual investment experience will be in that Division
or show past performance under an actual contract. We may also show how the
Divisions rank on the basis of data compiled by independent ranking services.
Some of the Divisions (and underlying Funds) offered in this prospectus were
previously available through other annuity contracts or to the general public
before Portfolio Director 2 was first available to you. We may therefore,
advertise investment performance since the inception of the underlying Funds.
However, in doing so, we will use the charges and fees imposed by Portfolio
Director 2 in calculating the Division's investment performance for earlier time
frames.
TYPES OF INVESTMENT PERFORMANCE
INFORMATION ADVERTISED
We may advertise the Division's Total Return Performance information and Yield
Performance information.
TOTAL RETURN PERFORMANCE
INFORMATION
Total Return Performance Information is based on the overall dollar or
percentage change in value of an assumed investment in a Division over a given
period of time.
There are seven ways Total Return Performance Information may be advertised:
- Standard Average Annual Total Return
- Nonstandard Average Annual Total Return
- Cumulative Total Return
- Annual Change in Purchase Unit Value
- Cumulative Change in Purchase Unit Value
- Total Return Based on Different Investment Amounts
- An Assumed Account Value of $10,000
Each of these is described below.
STANDARD AVERAGE ANNUAL TOTAL RETURN
Standard Average Annual Total Return shows the average percentage change in the
value of an investment in the Division from the beginning to the end of a given
historical period. The results shown are after all charges and fees have been
applied against the Division. This will include
account maintenance fees and surrender charges that would have been deducted if
you surrendered Portfolio Director 2 at the end of each period shown. Premium
taxes are not deducted. This information is calculated for each Division based
on how an initial assumed payment of $1,000 performed at the end of 1, 3, 5 and
10 year periods.
The return for periods of more than one year are annualized to obtain the
average annual percentage increase (or decrease) during the period.
Annualization assumes that the application of a single rate of return each year
during the period will produce the ending value, taking into account the effect
of compounding.
NONSTANDARD AVERAGE ANNUAL TOTAL
RETURN
Nonstandard Average Annual Total Return is calculated in the same manner as the
Standard Average Annual Total Return. However, Nonstandard Average Annual Total
Return shows only the historic investment results of the Division. Account
maintenance fees, surrender charges and premium taxes are not deducted.
CUMULATIVE TOTAL RETURN
Cumulative Total Return assumes the investment in Portfolio Director 2 will stay
in the Division beyond the time that a surrender charge would apply. It may be
calculated for 1, 3, 5 and 10 year periods. It is based on an assumed initial
investment of $10,000. The Cumulative Return will be calculated without
deduction of account maintenance fees, surrender charges or premium taxes.
ANNUAL CHANGE IN PURCHASE UNIT VALUE
Annual Change in Purchase Unit Value is a percentage change during a one year
period. This is calculated as follows:
- The Purchase Unit Value at the start of the year is subtracted from the
Purchase Unit Value at the end of the year;
- The difference is divided by the Purchase Unit Value at the start of the
year.
Account maintenance fees, surrender charges and premium taxes are not deducted.
The effect of these charges, if deducted, would reduce the Division's Annual
Change in Purchase Unit Value.
DIVISIONS -- Subaccounts of
VALIC Separate Account A
which represent the Variable
Account Options in Portfolio
Director 2. Each Division
invests in a different mutual
fund, each having its own
investment objective and
strategy.
PURCHASE PAYMENTS -- an
amount of money you pay to
VALIC to receive the benefits
of an annuity Contract offered
by Portfolio Director 2.
For more information on how
TOTAL RETURN PERFORMANCE
INFORMATION is calculated,
see the Statement of
Additional Information.
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<PAGE> 100
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CUMULATIVE CHANGE IN PURCHASE UNIT VALUE
Cumulative Change in Purchase Unit Value is a percentage change from the
beginning to the ending of a period usually greater than one year. Otherwise, it
is calculated in the same way as the Annual Change in Purchase Unit Value.
TOTAL RETURN BASED ON DIFFERENT
INVESTMENT AMOUNTS
We may show total return information based on different investment amounts. For
example, we may show $200 a month for 10 years, or $100 a month to age 65. Fees
may or may not be included. Each performance illustration will explain the
Portfolio Director 2 charges and fees imposed on the Division.
AN ASSUMED ACCOUNT VALUE OF $10,000
We may show annual values based on an initial investment of $10,000. This will
not reflect any deduction for account maintenance fees, surrender charges and
premium taxes.
YIELD PERFORMANCE INFORMATION
We may advertise Yield Performance, at a given point in time. A Division's yield
is one way of showing the rate of income the Division is earning as a percentage
of the Division's Purchase Unit Value.
AGSPC MONEY MARKET DIVISION
We may advertise the AGSPC Money Market Division's Current Yield and Effective
Yield.
The Current Yield refers to the income produced by an investment in the AGSPC
Money Market Division over a given 7-day period. The Current Yield does not take
into account surrender charges, account maintenance fees or premium taxes. The
income produced over a 7 day period is then "annualized." This means we are
assuming the amount of income produced during the 7-day period will continue to
be produced each week for an entire year. The annualized amount is shown as a
percentage of the investment.
The Effective Yield is calculated in a manner similar to the Current Yield. But,
when the yield is annualized the income earned is assumed to be reinvested. The
compounding effect will cause the Effective Yield to be higher than the Current
Yield.
DIVISIONS OTHER THAN THE AGSPC MONEY MARKET DIVISION
We may advertise the standardized yield performance for each Division other than
the AGSPC Money Market Division. The yield for each of these Divisions will be
determined as follows:
- We will subtract the account maintenance fee from the average daily net
investment income per Purchase Unit;
- We will divide the remainder by the Purchase Unit Value on the last day of
the period; and
- We will annualize the result.
PERFORMANCE INFORMATION:
AVERAGE ANNUAL TOTAL RETURN, CUMULATIVE RETURN AND ANNUAL AND CUMULATIVE CHANGE
IN PURCHASE UNIT VALUE TABLES.
In the sections above we have described a number of ways we may advertise
information about the investment performance of VALIC Separate Account A
Divisions. Certain performance information for each VALIC Separate Account A
Division is printed in the four tables below.
The information presented does not reflect the advantage under Portfolio
Director 2 of deferring federal income tax on increases in Account Value due to
earnings attributable to Purchase Payments (see "Federal Tax Matters" in the
prospectus and in the Statement of Additional Information.) The information
presented also does not reflect the advantage under Qualified Contracts of
deferring federal income tax on Purchase Payments.
The performance information presented in the following tables reflects the
performance of the underlying Fund after deduction of a mortality and expense
risk fee and administration and distribution fee at an aggregate annualized rate
of 0.80% to 1.05% during the Purchase Period on the daily net asset value of
VALIC Separate Account A. The exact rate depends upon the Variable Account
Option selected.
The performance results shown in the following tables are not an estimate or
guarantee of future investment performance, and do not represent the actual
experience of amounts invested by a particular Participant.
35
<PAGE> 101
TABLE I
AVERAGE ANNUAL TOTAL RETURN
WITH SURRENDER CHARGE AND ACCOUNT MAINTENANCE FEE IMPOSED
(FROM UNDERLYING FUND INCEPTION TO DECEMBER 31, 1997)
<TABLE>
<CAPTION>
INCEPTION SINCE
FUND AND DIVISION* DATE INCEPTION 10 YEARS 5 YEARS 3 YEARS 1 YEAR
------------------ --------- --------- -------- ------- ------- ------
<S> <C> <C> <C> <C> <C> <C>
AGSPC Growth Fund (Division 15)........................ 04/29/94 21.28% -- -- 26.60% 14.95%
AGSPC International Government Bond Fund (Division
13).................................................. 10/01/91 6.68 -- 5.31% 3.20 (9.91)
AGSPC Money Market Fund (Division 6)................... 01/16/86 -- 4.49% 2.61 2.76 (0.43)
AGSPC Science & Technology Fund (Division 17).......... 04/29/94 24.56 -- -- 21.36 (2.88)
AGSPC Social Awareness Fund (Division 12).............. 10/02/89 14.26 -- 18.06 29.96 27.69
AGSPC Stock Index Fund (Division 10)................... 04/20/87 -- 16.01 18.34 28.74 26.94
American Century-Twentieth Century Ultra (Division
31).................................................. 11/02/81 -- 20.75 16.06 22.12 16.90
Founders Growth (Division 30).......................... 01/05/62 -- 17.15 19.55 26.83 20.41
Neuberger&Berman Guardian Trust (Division 29)(1)....... 06/01/50 -- 16.44 14.52 20.12 11.80
Putnam Global Growth (Division 28)..................... 09/01/67 -- 10.23 13.06 12.58 7.35
Putnam New Opportunities (Division 26)................. 08/31/90 27.50% -- 20.65 23.52 16.46
Putnam OTC & Emerging Growth (Division 27)............. 11/01/82 -- 16.90 17.84 19.35 4.31
Scudder Growth and Income (Division 21)(2)............. 11/13/84 -- 15.70 18.05 25.36 23.96
Templeton Foreign (Division 32)........................ 10/05/82 -- 12.39 12.31 9.46 0.94
Vanguard Fixed Income Securities Fund-
Long-Term Corporate Portfolio (Division 22)**........ 07/09/73 -- 9.57 7.45 10.46 7.52
Vanguard Fixed Income Securities Fund-
Long-Term U.S. Treasury Portfolio (Division 23)**.... 05/19/86 -- 9.25 7.60 10.67 7.59
Vanguard/Wellington (Division 25)...................... 07/01/29 -- 13.39 14.65 21.38 16.81
Vanguard/Windsor II (Division 24)...................... 06/24/85 -- 16.82 18.84 29.15 25.86
</TABLE>
- ---------------
* The Table reflects the historical performance of each Fund based on
investment in a hypothetical Contract from the date of the Fund's inception.
The actual performance of each Fund has been reduced by Separate Account
fees that would have been incurred under the Contract. The Contracts offered
by this prospectus became available for purchase on January 1, 1998.
** The performance figures for the Vanguard Fixed Income Securities
Fund -- Long-Term Corporate Portfolio (Division 22) and the Vanguard Fixed
Income Securities Fund -- Long-Term U.S. Treasury Portfolio (Division 23) in
the Table do not take into account the Separate Account Reimbursement made
by the Company directly to those Divisions. If such reimbursements were
included, the performance figures for the Divisions would be higher.
(1) Neuberger&Berman Guardian Trust ("Trust") started operating on August 3,
1993. It has identical investment objectives and policies and invests in the
same portfolio as Neuberger&Berman Guardian Fund ("Fund"), which is also
managed by Neuberger&Berman Management Incorporated ("N&B Management"). The
performance information for the Trust before August 3, 1993 is for the Fund.
N&B Management voluntarily bears certain operating expenses of the Trust so
that the Trust's expense ratio per annum will not exceed the expense ratio
per annum of the Fund by more than 0.10% of the Trust's average daily net
assets per annum. This arrangement can be terminated on sixty days' prior
written notice. Absent such arrangement, the average annual total returns of
the Trust would have been less. The total returns for periods prior to the
Trust's commencement of operations would have been lower had they reflected
the higher expense ratios of the Trust as compared to those of the Fund.
(2) The Fund adopted its current name and objective on November 13, 1984. Its
predecessor commenced operations on May 31, 1929.
36
<PAGE> 102
TABLE II
AVERAGE ANNUAL TOTAL RETURN
WITH NO SURRENDER CHARGE OR ACCOUNT MAINTENANCE FEE IMPOSED
(FROM UNDERLYING FUND INCEPTION TO DECEMBER 31, 1997)
<TABLE>
<CAPTION>
INCEPTION SINCE
FUND AND DIVISION* DATE INCEPTION 10 YEARS 5 YEARS 3 YEARS 1 YEAR
------------------ --------- --------- -------- ------- ------- ------
<S> <C> <C> <C> <C> <C> <C>
AGSPC Growth Fund (Division 15)............................ 04/29/94 22.21% -- -- 27.75% 20.04%
AGSPC International Government Bond Fund
(Division 13)............................................ 10/01/91 6.80 -- 6.23% 4.84 (5.60)
AGSPC Money Market Fund (Division 6)....................... 01/16/86 -- 4.62% 3.61 4.41 4.34
AGSPC Science & Technology Fund (Division 17).............. 04/29/94 25.44 -- -- 22.60 1.77
AGSPC Social Awareness Fund (Division 12).................. 10/02/89 14.39 -- 18.70 31.06 32.78
AGSPC Stock Index Fund (Division 10)....................... 04/20/87 -- 16.16 18.98 29.86 32.03
American Century -- Twentieth Century Ultra (Division
31)...................................................... 11/02/81 -- 20.85 16.71 23.33 21.98
Founders Growth (Division 30).............................. 01/05/62 -- 17.25 20.14 27.96 25.50
Neuberger&Berman Guardian Trust (Division 29)(1)........... 06/01/50 -- 16.54 15.19 21.36 16.89
Putnam Global Growth (Division 28)......................... 09/01/67 -- 10.32 13.76 13.97 12.43
Putnam New Opportunities (Division 26)..................... 08/31/90 27.60% -- 21.21 24.70 21.54
Putnam OTC & Emerging Growth (Division 27)................. 11/01/82 -- 17.00 18.45 20.60 9.30
Scudder Growth and Income (Division 21)(2)................. 11/13/84 -- 15.79 18.65 26.51 29.05
Templeton Foreign (Division 32)............................ 10/05/82 -- 12.48 13.02 10.92 5.78
Vanguard Fixed Income Securities Fund --
Long-Term Corporate Portfolio (Division 22)**............ 07/09/73 -- 9.66 8.26 11.88 12.54
Vanguard Fixed Income Securities Fund --
Long-Term U.S. Treasury Portfolio (Division 23)**........ 05/19/86 -- 9.34 8.42 12.10 12.67
Vanguard/Wellington (Division 25).......................... 07/01/29 -- 13.49 15.31 22.60 21.89
Vanguard/Windsor II (Division 24).......................... 06/24/85 -- 16.91 19.43 30.25 30.96
</TABLE>
- ---------------
* The Table reflects the historical performance of each Fund based on
investment in a hypothetical Contract from the date of the Fund's inception.
The actual performance of each Fund has been reduced by Separate Account fees
that would have been incurred under the Contract. The Contracts offered by
this prospectus became available for purchase on January 1, 1998.
** The performance figures for the Vanguard Fixed Income Securities
Fund -- Long-Term Corporate Portfolio (Division 22) and the Vanguard Fixed
Income Securities Fund -- Long-Term U.S. Treasury Portfolio (Division 23) in
the Table do not take into account the Separate Account Reimbursement made by
the Company directly to those Divisions. If such reimbursements were
included, the performance figures for the Divisions would be higher.
TABLE III
CUMULATIVE RETURN
WITH NO SURRENDER CHARGE OR ACCOUNT MAINTENANCE FEE IMPOSED
(FROM UNDERLYING FUND INCEPTION TO DECEMBER 31, 1997)
<TABLE>
<CAPTION>
INCEPTION SINCE
FUND AND DIVISION* DATE INCEPTION 10 YEARS 5 YEARS 3 YEARS 1 YEAR
------------------ --------- ---------- -------- ------- ------- ------
<S> <C> <C> <C> <C> <C> <C>
AGSPC Growth Fund (Division 15)............................. 04/29/94 109.16% -- -- 108.49% 20.04%
AGSPC International Government Bond Fund (Division 13)...... 10/01/91 50.93 -- 35.29% 15.23 (5.60)
AGSPC Money Market Fund (Division 6)........................ 01/16/86 -- 57.02% 19.40 13.83 4.34
AGSPC Science & Technology Fund (Division 17)............... 04/29/94 130.23 -- -- 84.28 1.77
AGSPC Social Awareness Fund (Division 12)................... 10/02/89 203.45 -- 135.63 125.12 32.78
AGSPC Stock Index Fund (Division 10)........................ 04/20/87 -- 347.12 138.45 118.99 32.03
American Century -- Twentieth Century Ultra (Division 31)... 11/02/81 -- 564.51 116.50 87.58 21.98
Founders Growth (Division 30)............................... 01/05/62 -- 390.90 150.26 109.52 25.50
Neuberger&Berman Guardian Trust (Division 29)(1)............ 06/01/50 -- 361.98 102.76 78.73 16.89
Putnam Global Growth (Division 28).......................... 09/01/67 -- 167.04 90.49 48.04 12.43
Putnam New Opportunities (Division 26)...................... 08/31/90 498.79% -- 161.66 93.90 21.54
Putnam OTC & Emerging Growth (Division 27).................. 11/07/82 -- 380.55 133.13 75.42 9.30
Scudder Growth and Income (Division 21)(2).................. 11/13/84 -- 333.35 135.19 102.48 29.05
Templeton Foreign (Division 32)............................. 10/05/82 -- 224.22 84.42 36.46 5.78
Vanguard Fixed Income Securities Fund --
Long-Term Corporate Portfolio (Division 22)**............. 07/09/73 -- 151.45 48.73 40.04 12.54
Vanguard Fixed Income Securities Fund --
Long-Term U.S. Treasury Portfolio (Division 23)**......... 05/19/86 -- 144.25 49.81 40.88 12.67
Vanguard/Wellington (Division 25)........................... 07/01/29 -- 254.38 103.88 84.27 21.89
Vanguard/Windsor II (Division 24)........................... 06/24/85 -- 377.09 142.98 120.96 30.96
</TABLE>
- ---------------
* The Table reflects the historical performance of each Fund based on
investment in a hypothetical Contract from the date of the Fund's inception.
The actual performance of each Fund has been reduced by Separate Account fees
that would have been incurred under the Contract. The Contracts offered by
this prospectus became available for purchase on January 1, 1998.
** The performance figures for the Vanguard Fixed Income Securities
Fund -- Long-Term Corporate Portfolio (Division 22) and the Vanguard Fixed
Income Securities Fund -- Long-Term U.S. Treasury Portfolio (Division 23) in
the Table do not take into account the Separate Account Reimbursement made by
the Company directly to those Divisions. If such reimbursements were
included, the performance figures for the Divisions would be higher.
37
<PAGE> 103
OTHER CONTRACT FEATURES
- --------------------------------------------------------------------------------
CHANGES THAT MAY NOT BE MADE
The following terms in Portfolio Director 2 may not be changed once your account
has been established:
- The Contract Owner;
- The Participant; and
- The Annuitant.
CHANGE OF BENEFICIARY
The Beneficiary (if not irrevocable) may usually be changed at any time.
Under some retirement programs, the right to name or change a Beneficiary is
subject to approval by the spouse. Also, the right to name a Beneficiary other
than the spouse may be subject to certain tax laws and regulations.
If the Annuitant dies, and there is no Beneficiary, any death benefit will be
payable to the Annuitant's estate.
If a Beneficiary dies while receiving payments, and there is no co-Beneficiary
to continue to receive payments, any amount still due will be paid to the
Beneficiary's estate.
CONTINGENT OWNER
The Contract Owner may name a Contingent Owner under an individual non-tax
qualified Contract. During the Purchase Period, the Contingent Owner may be
changed. However, if the Contract Owner dies, benefits must be distributed as
required by the federal tax law.
CANCELLATION -- THE 20 DAY "FREE LOOK"
The Contract Owner may cancel an individual contract by returning it to the
Company within 20 days after delivery. (A longer period will be allowed if
required under state law.) A refund will be made to the Contract Owner within 7
days after receipt of the Contract within the required period. The amount of the
refund will be equal to all Purchase Payments received or the amount required
under state law, if larger.
WE RESERVE CERTAIN RIGHTS
We reserve the right to:
- Amend the Contract to conform with substitutions of investments;
- Amend the Contract to comply with tax or other laws;
- Make changes (upon written notice) to group Contracts that would apply only
to new Participants after the effective date of the changes;
- Operate VALIC Separate Account A as a management investment company under
the 1940 Act, in consideration of an investment management fee or in any
other form permitted by law;
- Deregister VALIC Separate Account A under the 1940 Act, if registration is
no longer required;
- Stop accepting new Participants under a group Contract.
RELATIONSHIP TO EMPLOYER'S PLAN
If the Contract is being offered as a retirement plan through your employer, you
should always refer to the terms and conditions in your employer's plan when
reviewing the description of Portfolio Director 2 in this prospectus.
Plan loans from the Fixed Account Options may be allowed by your employer's
plan. Refer to your plan for a description of charges and other information.
38
<PAGE> 104
VOTING RIGHTS
- --------------------------------------------------------------------------------
As discussed in the "About VALIC Separate Account A" section of this prospectus,
VALIC Separate Account A holds on your behalf shares of the Funds which comprise
the Variable Account Options. From time to time the Funds are required to hold a
shareholder meeting to obtain approval from their shareholders for certain
matters. As a Participant, you may be entitled to give voting instructions to us
as to how VALIC Separate Account A should vote its Fund shares on these matters.
Those persons entitled to give voting instructions will be determined before the
shareholders meeting is held. For more information about these shareholder
meetings and when they may be held, see the Funds' prospectuses.
WHO MAY GIVE VOTING INSTRUCTIONS
In most cases during the Purchase Period, you will have the right to give voting
instructions for the shareholder meetings. This will be true even if your
employer is the Contract Owner. Contract Owners will instruct VALIC Separate
Account A in accordance with these instructions. You will receive proxy material
and a form on which voting instructions may be given before the shareholder
meeting is held.
You will not have the right to give voting instructions if Portfolio Director 2
was issued in connection with a nonqualified and unfunded deferred compensation
plan.
DETERMINATION OF FUND SHARES
ATTRIBUTABLE TO YOUR ACCOUNT
DURING PURCHASE PERIOD
The number of Fund shares attributable to your account will be determined on the
basis of the Purchase Units credited to your account on the record date set for
the Fund shareholder meeting.
DURING PAYOUT PERIOD OR AFTER A DEATH
BENEFIT HAS BEEN PAID
The number of Fund shares attributable to your account will be based on the
liability for future variable annuity payments to your payees on the record date
set for the Fund shareholder meeting.
HOW FUND SHARES ARE VOTED
The Funds which comprise the Variable Account Options in Portfolio Director 2
may have a number of shareholders including VALIC Separate Account A, VALIC
other affiliated insurance company separate accounts and retirement plans within
the American General group of companies and public shareholders.
VALIC Separate Account A will vote all of the shares of the Funds it holds based
on, and in the same proportion as, the instructions given by all the
Participants invested in that Fund entitled to give instructions at that
shareholder meeting. VALIC Separate Account A will vote the shares of the Funds
it holds for which it receives no voting instruction in the same proportion as
the shares for which voting instructions have been received.
VALIC will vote the shares of the Funds it holds based on, and in the same
proportion as, the voting instructions received from participants in VALIC
Separate Account A.
In the future, we may decide how to vote the shares of VALIC or VALIC Separate
Account A in a different manner if permitted at that time under federal
securities law.
VALIC SEPARATE
ACCOUNT A -- a segregated
asset account established by
VALIC under the Texas
Insurance Code. The purpose
of VALIC Separate Account A
is to receive and invest your
Purchase Payments and
Account Value in the Variable
Account Options you have
selected.
39
<PAGE> 105
FEDERAL TAX MATTERS
- --------------------------------------------------------------------------------
Portfolio Director 2 provides tax-deferred accumulation over time, but is
subject to federal income and excise taxes, mentioned briefly below. You should
refer to the Statement of Additional Information for further details. Section
references are to the Internal Revenue Code ("Code"). We do not attempt to
describe any potential estate or gift tax, or any applicable state, local or
foreign tax law other than possible premium taxes mentioned under "Premium Tax
Charge." Remember that future legislation could modify the rules discussed
below, and always consult your personal tax adviser regarding how the current
rules apply to your specific situation.
TYPE OF PLANS
Tax rules vary, depending on whether the Contract is offered under your
employer's tax-qualified retirement program or 408(b) IRA, or is instead a
nonqualified Contract. Portfolio Director 2 is used under the following types of
retirement arrangements:
- Section 403(b) annuities for employees
of public schools and
Section 501(c)(3) tax-exempt
organizations;
- Section 401(a) and 403(a) qualified plans of for-profit employers and other
employers (including self-employed individuals);
- Section 408(b) individual retirement annuities;
- Section 457 deferred compensation plans of governmental and tax-exempt
employers;
- Section 408(k) simplified deferred
compensation plans of private
employers.
- Section 408(p) SIMPLE Retirement
Accounts
The foregoing Contracts are "Qualified Contracts." Certain series of Portfolio
Director 2 may also be available through a nondeductible Section 408A "Roth"
individual retirement annuity.
Note that the specific terms of the governing employer plan may limit rights and
options otherwise available under a Contract.
In addition, Portfolio Director 2 is also available through "Non-Qualified
Contracts" to the extent acquired by "Non-Natural Persons." Such Non-Qualified
Contracts generally include unfunded, nonqualified deferred compensation plans
of corporate employers.
TAX CONSEQUENCES IN GENERAL
Purchase Payments, distributions, withdrawals, transfers and surrender of a
Contract can each have a tax effect, which varies with the governing retirement
arrangement. Please refer to the detailed explanation in the Statement of
Additional Information, the documents (if any) controlling the retirement
arrangement through which the contract is offered, and your personal tax
adviser.
Purchase Payments under Portfolio Director 2 can be made as contributions by
employers, or as pre-tax or after-tax contributions by employees, depending on
the type of retirement program. After-tax employee contributions constitute
"investment in the Contract." All Qualified Contracts receive deferral of tax on
the inside build-up of earnings on invested Purchase Payments, until a
distribution occurs. See the Statement of Additional Information for special
rules, including those applicable to taxable, non-natural owners of
Non-Qualified Contracts.
Distributions are taxed differently depending on the program through which
Portfolio Director 2 is offered and the previous tax characterization of the
contributions to which the distribution relates. Generally, the portion of a
distribution which is not considered a return of investment in the Contract is
subject to income tax. For annuity payments, investment in the contract is
recovered ratably over the expected payout period. Special recovery rules might
apply in certain situations.
Amounts subject to income tax may also incur excise tax, under the circumstances
described in the Statement of Additional Information. Generally, they would also
be subject to some form of federal income tax withholding unless rolled into
another tax-deferred vehicle. Required withholding will vary according to type
of program, type of payment and your tax status. In addition, amounts received
under all Contracts may be subject to state income tax withholding requirements.
It is the opinion of VALIC and its tax counsel that a Qualified Contract
described in Section 403(a), 403(b), or 408(b) of the Code does not lose its
deferred tax treatment if purchase payments under the contract are invested in
publicly available mutual funds. In a ruling published in 1981, the Internal
Revenue Service ("IRS") had taken the position that, where purchase payments
under a variable annuity contract are invested in publicly available mutual
funds, the contract owner should be treated as the owner of the mutual fund
shares, and deferred tax treatment under the contract should not be available.
In the opinion of VALIC and its tax counsel, the 1981 ruling has been superseded
by subsequent legislation (Code Section 817(h))
40
<PAGE> 106
- --------------------------------------------------------------------------------
which specifically exempts these Qualified Contracts, and the IRS has no viable
legal basis or reason to apply the theory of the 1981 ruling to these Qualified
Contracts under current law. In any event, were the IRS to challenge the
deferred tax treatment of these Qualified Contracts under the theory of the 1981
ruling, VALIC and its tax counsel believe that Contract owners would prevail.
It is also the opinion of VALIC and its tax counsel that for each other type of
Qualified Contract an independent exemption provides tax deferral regardless of
ownership of the Mutual Fund shares.
Generally, investment earnings on contributions to Non-Qualified Contracts will
be taxed currently to the owner and such contracts will not be treated as
annuities for federal income tax purposes.
EFFECT OF TAX-DEFERRED ACCUMULATIONS
The chart below compares the results from
Premium Payments made to:
- Portfolio Director 2 Contract issued to a tax favored retirement program
purchased with pre-tax premium payments;
- A non-qualified Contract purchased with after-tax Premium Payments and;
- Conventional savings vehicles such as savings accounts.
THE POWER OF TAX-DEFERRED GROWTH
[BAR GRAPH]
This hypothetical chart compares the results of (1) contributing $100 per month
to a conventional, non-tax deferred plan, (2) contributing $100 to a
nonqualified, tax-deferred annuity, and (3) contributing $100 per month ($138.89
since contributions are made before tax) to a qualified tax-deferred plan. The
chart assumes a 28% tax rate and an 8% fixed rate of return. The deduction of
fees and charges for both tax-deferred plans is reflected in the chart. Variable
options incur mortality and expense risk fee and administration and distribution
fee charges (0.80% - 1.05% during the purchase period and 1%-1.25% during the
payout period) and may also incur account maintenance fees ($3.75 per quarter)
and surrender charges (5% of the lesser of all contributions received during the
last 60 months or the amount withdrawn). The dotted lines represent the amounts
remaining after withdrawal and payment of taxes and any surrender charge. An
additional 10% tax penalty may apply to withdrawals before age 59 1/2. This
information is for illustrative purposes only and is not a guarantee of future
return.
Unlike savings accounts, Premium Payments made to tax-favored retirement
programs and Non-Qualified Contracts generally provide tax deferred treatment on
earnings. In addition, Premium Payments made to tax-favored retirement programs
ordinarily are not subject to income tax until withdrawn. As shown above,
investing in a tax-favored program increases the accumulation power of savings
over time. The more taxes saved and reinvested in the program, the more the
accumulation power effectively grows over the years.
To further illustrate the advantages of tax deferred savings using a 28% Federal
tax bracket, an annual fixed yield (BEFORE THE DEDUCTION OF ANY FEES OR CHARGES)
of 8% under a tax-favored retirement program in which tax savings were
reinvested has an equivalent after-tax annual fixed yield of 5.76% under a
conventional savings program. THE 8% YIELD ON THE TAX-FAVORED PROGRAM WILL BE
REDUCED BY THE IMPACT OF INCOME TAXES UPON WITHDRAWAL. The yield will vary
depending upon the timing of withdrawals. The previous chart represents (without
factoring in fees and charges) after-tax amounts that would be received.
By taking into account the current deferral of taxes, contributions to
tax-favored retirement programs increase the amount available for savings by
decreasing the relative current out-of-pocket cost (referring to the effect on
annual net take-home pay) of the investment. The chart below illustrates this
principle by comparing a
41
<PAGE> 107
- --------------------------------------------------------------------------------
pre-tax contribution to a tax-favored retirement plan with an after-tax
contribution to a conventional savings account:
PAYCHECK COMPARISON
<TABLE>
<CAPTION>
TAX-FAVORED CONVENTIONAL
RETIREMENT SAVINGS
PROGRAM ACCOUNT
----------- ------------
<S> <C> <C>
Annual amount available
for savings before
federal taxes......... $2,500 $2,500
Current federal income
tax due on Purchase
Payments.............. 0 (700)
Net retirement plan
Purchase Payments..... $2,500 $1,800
</TABLE>
This chart assumes a 28% federal income tax rate. The $700 which is paid toward
current federal income taxes reduces the actual amount saved in the conventional
savings account to $1,800, while the full $2,500 is contributed to the
tax-qualified program, subject to being taxed upon withdrawal. Stated otherwise,
to reach an annual retirement savings goal of $2,500, the contribution to a tax-
qualified retirement program results in a current out-of-pocket expense of
$1,800 while the contribution to a conventional savings account requires the
full $2,500 out-of-pocket expense. The tax-qualified retirement program
represented in this chart is a plan type, such as one under Section 403(b) of
the Code, which allows participants to exclude contributions within limits, from
gross income.
42
<PAGE> 108
YEAR 2000
- --------------------------------------------------------------------------------
YEAR 2000 RISKS
Like other insurance companies, financial and business organizations around the
world, each of the Variable Account Options and the underlying mutual funds
could be adversely affected if the computer systems used by the Company, other
service providers and entities with computer systems that are linked to the
Company's records do not properly process and calculate date-related information
and data from and after January 1, 2000. This is commonly known as the "Year
2000 Issue." The Company is taking steps that it believes are reasonably
designed to address the Year 2000 Issue with respect to the computer systems
that its uses and to obtain satisfactory assurances that comparable steps are
being taken by each of the Variable Account Options' other major service
providers. The Company expects to be substantially complete with its computer
systems projects to address year 2000 issues by the end of 1998. However, there
can be no assurance that these steps will be sufficient to avoid any adverse
impact on the Variable Account Options.
43
<PAGE> 109
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<PAGE> 110
REVOCATION OF TELEPHONE ASSET TRANSFER AUTHORITY
Participant/Contract Owner Name:
------------------------------------------------------------------------
Social Security Number:
------------------------------------------------------------------------
Birth Date:
I am the Participant under or Contract Owner of one or more variable annuity
contracts issued by The Variable Annuity Life Insurance Company ("VALIC"). I
hereby instruct VALIC not to accept any telephone instructions to transfer
Account Values among investment options or change the allocation of future
Purchase Payments from me, anyone representing me or anyone representing himself
or herself to be me. I understand as a result of executing this form that the
transfer of Account Values or Payout Values among investment options or changes
in the allocation of future Purchase Payments may only be effected upon the
receipt by VALIC of my written instructions.
<TABLE>
<S> <C>
- ------------------------------------------------------------ ---------------------------------------
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>
<PAGE> 111
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<PAGE> 112
Please tear off, complete and return the form below to one of our Regional
Offices at the address shown on the inside back cover of this Prospectus. A
Statement of Additional Information may also be ordered by calling
1-800-44-VALIC.
................................................................................
PORTFOLIO DIRECTOR CONTRACTS
Please send me a free copy of the Statement of Additional Information for The
Variable Annuity Life Insurance Company Separate Account A (Portfolio Director
2).
(Please Print or Type)
- --------------------------------------------------------------------------------
Name: G.A. #
Address: Policy #
Social Security Number:
- --------------------------------------------------------------------------------
<PAGE> 113
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<PAGE> 114
CONTENTS OF STATEMENT OF ADDITIONAL INFORMATION
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
General Information................................. 4
Marketing Information........................... 4
Endorsements and Published Ratings.............. 7
Types of Variable Annuity Contracts................. 8
Federal Tax Matters................................. 8
Tax Consequences of Purchase Payments........... 9
Tax Consequences of Distributions............... 10
Special Tax Consequences -- Early
Distribution.................................. 11
Special Tax Consequences -- Required
Distributions................................. 12
Tax Free Rollovers, Transfers and Exchanges..... 13
Exchange Privilege.................................. 14
Exchanges From Portfolio Director, Exchanges
From Portfolio Director 2..................... 14
Exchanges From Independence Plus Contracts...... 14
Exchanges From V-Plan Contracts................. 16
Exchanges From SA-1 and SA-2 Contracts.......... 17
Exchanges From Impact Contracts................. 18
Exchanges From Compounder Contracts............. 19
Information Which May Be Applicable To Any
Exchange...................................... 20
Calculation of Surrender Charge..................... 21
Illustration of Surrender Charge on Total
Surrender..................................... 21
Illustration of Surrender Charge on a 10%
Partial Surrender Followed by a Full
Surrender..................................... 21
Purchase Unit Value................................. 22
Illustration of Calculation of Purchase Unit
Value......................................... 22
Illustration of Purchase of Purchase Units...... 22
Performance Calculations............................ 22
AGSPC Money Market Division Yields.............. 22
Calculation of Current Yield for AGSPC Money
Market Division Six........................... 22
Illustration of Calculation of Current Yield for
AGSPC Money Market Division Six............... 22
Calculation of Effective Yield for AGSPC Money
Market Division Six........................... 23
Illustration of Calculation of Effective Yield
for AGSPC Money Market Division Six........... 23
Standardized Yield for Bond Fund Divisions.......... 23
Calculation of Standardized Yield for Bond Fund
Divisions..................................... 23
Illustration of Calculation of Standardized
Yield for Bond Fund Divisions................. 23
Calculation of Average Annual Total Return...... 24
Performance Information............................. 25
Hypothetical $10,000 Account Value and
Cumulative Return as Compared to Benchmark
Tables........................................ 25
Performance Compared to Market Indices.......... 25
AGSPC Growth Division Fifteen Performance
Compared to S&P 500 Index..................... 28
AGSPC International Government Bond Division
Thirteen Performance Compared to Salomon
Brothers Non-U.S. Dollar World Government Bond
Index......................................... 28
</TABLE>
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
AGSPC Money Market Division Six Performance
Compared to Certificate of Deposit Primary
Offering by New York City Banks, 30 Day
Index......................................... 29
AGSPC Science & Technology Division Seventeen
Performance Compared to S&P 500 Index......... 29
AGSPC Social Awareness Division Twelve
Performance Compared to S&P 500 Index......... 30
AGSPC Stock Index Division Ten Performance
Compared to S&P 500 Index..................... 30
American Century -- Twentieth Century Ultra
Division Thirty-one Compared to S&P 500 Index
and NASDAQ Composite Index.................... 31
Founders Growth Division Thirty Compared to S&P
500 Index..................................... 31
Neuberger&Berman Guardian Trust Division
Twenty-nine Compared to S&P 500 Index......... 32
Putnam Global Growth Division Twenty-eight
Compared to MCSI World Index and S&P 500
Index......................................... 32
Putnam New Opportunities Division Twenty-six
Compared to S&P 500 Index..................... 33
Putnam OTC & Emerging Growth Division Twenty-
seven Compared to Russell 2000 Index and S&P
500 Index..................................... 34
Scudder Growth and Income Division Twenty-one
Compared to S&P 500 Index..................... 34
Templeton Foreign Division Thirty-two Compared
to EAFE Index................................. 35
Vanguard Fixed Income Securities
Fund -- Long-Term Corporate Portfolio Division
Twenty-two Compared to Merrill Lynch Corporate
Master Index.................................. 35
Vanguard Fixed Income Securities
Fund -- Long-Term U.S. Treasury Portfolio
Division Twenty-three Compared to Lehman
Brothers U.S. Treasury Long-Term Index........ 36
Vanguard/Wellington Division Twenty-five
Compared to S&P 500 Index and Merrill Lynch
Corporate Master Index........................ 36
Vanguard/Windsor II Division Twenty-four
Compared to S&P 500 Index..................... 37
Payout Payments..................................... 38
Assumed Investment Rate......................... 38
Amount of Payout Payments....................... 38
Payout Unit Value............................... 38
Illustration of Calculation of Payout Unit
Value......................................... 39
Illustration of Payout Payments................. 39
Distribution of Variable Annuity Contracts.......... 40
Experts............................................. 40
Comments on Financial Statements.................... 41
</TABLE>
<PAGE> 115
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<PAGE> 116
================================================================================
FOR ADDITIONAL INFORMATION ABOUT THE CONTRACTS
CONTACT YOUR NEAREST REGIONAL OFFICE:
3535 Grandview Parkway
Suite 200
Birmingham, AL 35243
(205) 967-8955
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
(650) 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 1900
Chicago, IL 60606
(312) 368-1001
11711 N. Meridian St.
Suite 300
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
(248) 641-0022
8500 Normandale Lake Blvd.
Suite 750
Bloomington, MN 55437
(612) 893-1099
4266 Interstate 55N
Suite 108
Jackson, MS 39211
(601) 981-5801
410 Amherst Street
Suite 250
Nashua, NH 03063
(603) 883-3840
90 Woodbridge Ctr. Dr.
Suite 300
Woodbridge, NJ 07095
(732) 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
Two International Plaza
Suite 601
Nashville, TN 37217
(615) 254-4822
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-six branch offices located throughout the
country.
THE VARIABLE ANNUITY LIFE INSURANCE COMPANY
2929 ALLEN PARKWAY, HOUSTON, TEXAS 77019
1-800-44-VALIC
FOR UNIT VALUE INFORMATION CALL: 1-800-42-VALIC & TDD 1-800-24-VALIC
FOR ASSET TRANSFERS BY TELEPHONE CALL: 1-800-621-7792
TDD 1-800-35-VALIC
EASYACCESS 1-800-42-VALIC
TDD EASYACCESS 1-800-24-VALIC
================================================================================
<PAGE> 117
THE VARIABLE ANNUITY LIFE INSURANCE COMPANY
UNITS OF INTEREST UNDER GROUP AND INDIVIDUAL
VARIABLE ANNUITY CONTRACTS
PORTFOLIO DIRECTOR 2
SEPARATE ACCOUNT A
FOR SERIES 2.1.40 TO 2.12.40 May 1, 1998
PROSPECTUS
Certain series of Portfolio Director 2 consist of group and individual variable
annuity contracts that are offered by The Variable Annuity Life Insurance
Company ("VALIC") to Participants in certain employer sponsored retirement
plans. Portfolio Director 2 Series 2.1.40 to 2.12.40 consists of group variable
annuity contracts that are offered by Valic to Participants in certain employer
sponsored retirement plans. Portfolio Director 2 may be available to you when
you participate in a retirement program that qualifies for deferral of federal
income taxes. Non-qualified contracts are also available for certain employer
plans only. Portfolio Director 2 is composed of the following contract forms:
UIT-194, UITG-194, UITN-194, UIT-IRA-194 and UIT-SEP-194.
Portfolio Director 2 permits you to invest in and receive retirement benefits
from Fixed Account Options and/or Variable Account Options. Each of these
investment options is explained more fully in this prospectus. Here is a list of
these investment options:
TWO FIXED ACCOUNT OPTIONS: Fixed Account Plus
Short-Term Fixed Account
EIGHTEEN VARIABLE ACCOUNT OPTIONS*
<TABLE>
<S> <C> <C>
American General Series Portfolio Founders Funds, Inc.: Templeton Funds, Inc.:
Company (AGSPC): Founders Growth Fund Templeton Foreign Fund --
Growth Fund Neuberger&Berman Management Inc.: Class 1
International Government Bond Fund Neuberger&Berman Guardian Trust
Money Market Fund The Vanguard Group, Inc.:
Science & Technology Fund Putnam Investments: Vanguard Fixed Income
Social Awareness Fund Putnam Global Growth Fund Securities Fund --
Stock Index Fund Putnam New Opportunities Fund Long-Term Corporate
Putnam OTC & Emerging Growth Portfolio
American Century Investment Fund Vanguard Fixed Income
Management, Inc.: Securities Fund --
American Century -- Twentieth Scudder Kemper Investments, Inc.: Long-Term U.S.
Century Ultra Fund Scudder Growth and Income Fund Treasury Portfolio
Vanguard/Wellington Fund
Vanguard/Windsor II
</TABLE>
* Each of these mutual funds is publicly available except for the six AGSPC
Funds.
- --------------------------------------------------------------------------------
This prospectus provides you with information you should know before investing
in Portfolio Director 2. This prospectus is accompanied by the current
prospectuses for the mutual fund options listed above. Please read and retain
each of these prospectuses for future reference.
A Statement of Additional Information, dated May 1, 1998, has been filed with
the Securities and Exchange Commission. This Statement of Additional Information
contains additional information about Portfolio Director 2 and is part of this
prospectus. For a free copy, complete and return the form contained in the back
of this prospectus or call 1-800-44-VALIC.
NO PERSON HAS BEEN AUTHORIZED TO GIVE ANY INFORMATION OR TO MAKE ANY
REPRESENTATIONS OTHER THAN THOSE CONTAINED IN THIS PROSPECTUS IN CONNECTION WITH
THE OFFER CONTAINED IN THIS PROSPECTUS, AND IF GIVEN OR MADE, SUCH INFORMATION
OR REPRESENTATION MUST NOT BE RELIED UPON AS HAVING BEEN AUTHORIZED. THIS
PROSPECTUS DOES NOT CONSTITUTE AN OFFER IN ANY JURISDICTION TO ANY PERSON TO
WHOM SUCH OFFER WOULD BE UNLAWFUL THEREIN.
THE SECURITIES AND EXCHANGE COMMISSION HAS NOT APPROVED OR DISAPPROVED THESE
SECURITIES. ALSO, IT HAS NOT PASSED ON WHETHER THIS PROSPECTUS IS ADEQUATE OR
ACCURATE. IT IS A CRIMINAL OFFENSE TO STATE OTHERWISE.
<PAGE> 118
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
ABOUT THE PROSPECTUS.......................... 1
PROFILE OF PORTFOLIO DIRECTOR 2............... 2
FEE TABLE..................................... 4
SELECTED PURCHASE UNIT DATA................... 7
ABOUT PORTFOLIO DIRECTOR 2.................... 8
ABOUT VALIC................................... 8
ABOUT VALIC SEPARATE ACCOUNT A................ 8
UNITS OF INTERESTS............................ 8
VARIABLE ACCOUNT OPTIONS...................... 9
Summary of Funds......................... 9
PURCHASE PERIOD............................... 18
Purchase Payments........................ 18
Purchase Units........................... 18
Calculation of Purchase Unit Value....... 18
Choosing Investment Options.............. 19
Fixed Account Options............... 19
Variable Account Options............ 19
Stopping Purchase Payments............... 19
TRANSFERS BETWEEN INVESTMENT OPTIONS.......... 20
During the Purchase Period............... 20
During the Payout Period................. 20
Communicating Transfer or Reallocation
Instructions........................... 20
Effective Date of Transfer............... 20
FEES AND CHARGES.............................. 21
Account Maintenance Fee.................. 21
Surrender Charge......................... 21
Amount of Surrender Charge.......... 21
10% Free Withdrawal................. 21
Exceptions to Surrender
Charge............................ 21
Premium Tax Charge....................... 22
Separate Account Charges................. 22
Fund Annual Expense Charge............... 22
Other Tax Charges........................ 22
Reduction or Waiver of Account
Maintenance Fee, Surrender, Mortality
and Expense Risk Fee or Administration
and Distribution Fee Charges........... 23
Separate Account Expense
Reimbursement.......................... 23
PAYOUT PERIOD................................. 24
Fixed Payout............................. 24
Variable Payout.......................... 24
Combination Fixed and Variable Payout.... 24
Payout Date.............................. 24
Payout Options........................... 24
Enhancements to Payout Options........... 25
Payout Information....................... 25
SURRENDER OF ACCOUNT VALUE.................... 26
When Surrenders are Allowed.............. 26
Amount That May Be Surrendered........... 26
Surrender Restrictions................... 26
Partial Surrenders....................... 26
Systematic Withdrawals................... 26
Distributions Required By Federal Tax
Law.................................... 27
EXCHANGE PRIVILEGE............................ 28
</TABLE>
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Restrictions on Exchange Privilege....... 28
Taxes and Conversion Costs............... 28
Surrender Charge......................... 28
Exchange Offers for Contracts Other Than
Portfolio Director and Portfolio
Director 2............................. 28
Exchange Offer for Portfolio Director and
Portfolio Director 2................... 29
Comparison of Contracts.................. 29
Features of Portfolio Director 2......... 29
Agents' and Managers' Retirement Plan
Exchange Offer......................... 29
DEATH BENEFITS................................ 31
Beneficiary Information.................. 31
Special Information for Individual
Non-Tax Qualified Contracts............ 31
During the Purchase Period............... 31
Interest Guaranteed Death Benefit... 31
Standard Death Benefit.............. 32
During the Payout Period................. 32
HOW TO REVIEW INVESTMENT PERFORMANCE OF
SEPARATE ACCOUNT DIVISIONS.................. 33
Types of Investment Performance
Information Advertised................. 33
Total Return Performance Information... 33
Standard Average Annual Total Return... 33
Nonstandard Average Annual Total
Return................................. 33
Cumulative Total Return................ 33
Annual Change in Purchase Unit Value... 33
Cumulative Change in Purchase Unit
Value............................... 34
Total Return Based on Different
Investment Amounts.................. 34
An Assumed Account Value of $10,000.. 34
Yield Performance Information............ 34
AGSPC Money Market Division............ 34
Divisions Other Than The AGSPC Money
Market Division..................... 34
Performance Information: Average Annual
Total Return, Cumulative Return and
Annual and Cumulative Change in
Purchase Unit Value Tables............. 34
OTHER CONTRACT FEATURES....................... 41
Changes That May Not Be Made............. 41
Change of Beneficiary.................... 41
Contingent Owner......................... 41
Cancellation -- The 20 Day "Free Look"... 41
We Reserve Certain Rights................ 41
Relationship to Employer's Plan.......... 41
VOTING RIGHTS................................. 42
Who May Give Voting Instructions......... 42
Determination of Fund Shares Attributable
to Your Account........................ 42
During Purchase Period................. 42
During Payout Period or after a Death
Benefit Has Been Paid............... 42
How Fund Shares Are Voted................ 42
FEDERAL TAX MATTERS........................... 43
Type of Plans............................ 43
Tax Consequences in General.............. 43
Effect of Tax-Deferred Accumulations..... 44
YEAR 2000..................................... 46
Year 2000 Risks.......................... 46
</TABLE>
(i)
<PAGE> 119
ABOUT THE PROSPECTUS
- --------------------------------------------------------------------------------
Unless otherwise specified in this prospectus, the words we, our, Company, and
VALIC mean The Variable Annuity Life Insurance Company. The words you and your,
unless otherwise specified in this prospectus, mean the participant, contract
owner, annuitant or beneficiary.
We will use a number of other specific terms in this prospectus. We will, when
that term is used in the prospectus, provide you with a definition of that term.
The terms used in this prospectus for which we will provide you a definition
are:
<TABLE>
<CAPTION>
DEFINED TERMS PAGE NO.
- ------------- --------
<S> <C>
Account Value 21
Annuitant 32
Assumed Investment Rate 25
Beneficiary 32
Contract Owner 32
Division 34
Fixed Account Options 32
Home Office 21
Mutual Fund or Fund 08
Participant 01
Participant Year 22
Payout Period 21
Payout Unit 25
Purchase Payments 19, 34
Purchase Period 21
Purchase Unit 20
VALIC Separate Account A 39
Variable Account Options 09, 32
</TABLE>
This prospectus is being given to you to help you make decisions for selecting
various investment options and benefits to plan and save for your retirement. It
is intended to provide you with information about VALIC, Portfolio Director 2,
and saving for your retirement.
The purpose of Variable Account Options and Variable Payout Options is to
provide you investment returns which are greater than the effects of inflation.
We cannot, however, guarantee that this purpose will be achieved.
This prospectus describes a contract in which units of interest in VALIC's
Separate Account A are offered. Portfolio Director 2 will allow you to
accumulate retirement dollars in Fixed Account Options and/or Variable Account
Options. This prospectus describes only the variable aspects of Portfolio
Director 2 except where the Fixed Account Options are specifically mentioned.
For specific information about the Variable Account Options, you should refer to
the mutual fund prospectuses you have been given with this document. You should
keep these prospectuses to help answer any questions you may have in the future.
Following this introduction is a summary of the major features and options of
Portfolio Director 2. This summary is called the "Profile of Portfolio Director
2." It is intended to provide you with a brief overview of those sections
discussed in more detail in this prospectus.
PARTICIPANT -- the individual,
(in most cases you are the
Participant) for whom
Purchase Payments are made.
1
<PAGE> 120
PROFILE OF PORTFOLIO DIRECTOR 2
- --------------------------------------------------------------------------------
Portfolio Director 2 is VALIC's combination fixed and variable annuity that
offers you a wide choice of investment options and flexibility. A summary of
Portfolio Director 2's major features is presented below. For a more detailed
discussion of Portfolio Director 2, please read the entire prospectus carefully.
FIXED AND VARIABLE OPTIONS
Portfolio Director 2 offers you a choice from among 18 Variable Account Options
and two Fixed Account Options. You may invest in up to seven of these investment
options at any one time.
- --------------------------------------------------------------------------------
<TABLE>
<S> <C> <C> <C>
FIXED ACCOUNT
OPTIONS
- -------------------------------------------------------------------------------------------------------------------------------
FIXED Fixed Guaranteed high current --
OPTIONS Account Plus interest income
-----------------------------------------------------------------------------------------------------------
Short-Term Guaranteed current --
Fixed Account interest income
- -------------------------------------------------------------------------------------------------------------------------------
VARIABLE ACCOUNT INVESTMENT
OPTIONS STRATEGY ADVISER
- -------------------------------------------------------------------------------------------------------------------------------
INDEX AGSPC Stock Growth through investments tracking VALIC
EQUITY Index the S&P 500(R) Index
FUND Fund
- -------------------------------------------------------------------------------------------------------------------------------
ACTIVELY AGSPC Growth Growth through investments VALIC
MANAGED Fund in service sector companies
-----------------------------------------------------------------------------------------------------------
EQUITY American Century -- Capital growth through American Century
FUNDS Twentieth Century investments in common
Ultra Fund stock
-----------------------------------------------------------------------------------------------------------
Founders Long-term growth of capital through Founders
Growth investment in common stocks of well
Fund established, high-quality growth companies
-----------------------------------------------------------------------------------------------------------
Neuberger&Berman Capital appreciation, and secondarily Neuberger&Berman
Guardian Trust current income by investing primarily Management Inc.
in common stocks of long established,
high quality companies
-----------------------------------------------------------------------------------------------------------
Putnam Global Capital appreciation through a globally Putnam
Growth Fund diversified portfolio of common stocks
-----------------------------------------------------------------------------------------------------------
Putnam New Long-term capital appreciation Putnam
Opportunities Fund through investment in common stock
-----------------------------------------------------------------------------------------------------------
Putnam OTC & Capital appreciation through Putnam
Emerging Growth investments in common stocks of
Fund small-to-medium companies
-----------------------------------------------------------------------------------------------------------
Scudder Growth Long-term growth of capital, current Scudder
and Income Fund income and growth of income
-----------------------------------------------------------------------------------------------------------
Templeton Long-term capital growth through investments Templeton
Foreign Fund -- Class 1 in equity and debt securities of companies
and governments outside the U.S.
-----------------------------------------------------------------------------------------------------------
Vanguard/ Growth and income through Vanguard
Windsor II investment in common stock
- -------------------------------------------------------------------------------------------------------------------------------
BALANCED Vanguard/ Income and growth through 30 to 40% Vanguard
FUND Wellington investment in high quality corporate bonds
Fund and 60 to 70% investment in common stocks
- -------------------------------------------------------------------------------------------------------------------------------
INCOME AGSPC International Income and possible growth through VALIC
FUNDS Government investments in high quality foreign
Bond Fund government debt securities
-----------------------------------------------------------------------------------------------------------
Vanguard Fixed Income Income through investment Vanguard
Securities in long-term high quality corporate bonds
Fund-Long-Term
Corporate Portfolio
-----------------------------------------------------------------------------------------------------------
Vanguard Fixed Income Income through investment in Vanguard
Securities long-term U.S. Treasury bonds
Fund-Long-Term
U.S. Treasury Portfolio
- -------------------------------------------------------------------------------------------------------------------------------
SPECIALTY AGSPC Science & Growth through investments in stocks VALIC
FUNDS Technology of companies which benefit from
Fund development of science and technology
-----------------------------------------------------------------------------------------------------------
AGSPC Social Growth through investments in VALIC
Awareness stocks of companies meeting social
Fund criteria of the Fund
- -------------------------------------------------------------------------------------------------------------------------------
MONEY AGSPC Money Income through investments in VALIC
MARKET Market short-term money market
FUND Fund securities
- -------------------------------------------------------------------------------------------------------------------------------
<CAPTION>
<S> <C>
- ------------------------------------------------------------
FIXED --
OPTIONS
------------------------------------------------------------
--
- -----------------------------------------------------------------------------------------------------------------------
SUBADVISER
- -------------------------------------------------------------------------------------------------------------------------------
INDEX Bankers Trust
EQUITY
FUND
- -------------------------------------------------------------------------------------------------------------------------------
ACTIVELY T. Rowe Price
MANAGED
-----------------------------------------------------------------------------------------------------------
EQUITY N/A
FUNDS
-----------------------------------------------------------------------------------------------------------
N/A
-----------------------------------------------------------------------------------------------------------
Neuberger&
Berman, LLC
-----------------------------------------------------------------------------------------------------------
N/A
-----------------------------------------------------------------------------------------------------------
N/A
-----------------------------------------------------------------------------------------------------------
N/A
-----------------------------------------------------------------------------------------------------------
N/A
-----------------------------------------------------------------------------------------------------------
N/A
-----------------------------------------------------------------------------------------------------------
N/A
- -------------------------------------------------------------------------------------------------------------------------------
BALANCED N/A
FUND
- -------------------------------------------------------------------------------------------------------------------------------
INCOME N/A
FUNDS
-----------------------------------------------------------------------------------------------------------
N/A
-----------------------------------------------------------------------------------------------------------
N/A
- -------------------------------------------------------------------------------------------------------------------------------
SPECIALTY T. Rowe Price
FUNDS
-----------------------------------------------------------------------------------------------------------
N/A
- -------------------------------------------------------------------------------------------------------------------------------
MONEY N/A
MARKET
FUND
- -------------------------------------------------------------------------------------------------------------------------------
</TABLE>
2
<PAGE> 121
- --------------------------------------------------------------------------------
A detailed description of the investment objective of each Fund can be found in
the section of the prospectus entitled "Variable Account Options," and also in
the current prospectus for each Fund mentioned.
INTEREST GUARANTEED DEATH
BENEFIT
Portfolio Director 2 offers a death benefit with an interest guarantee when
death occurs prior to your reaching age 70.
This contract provision is not available in some states.
LOANS
Portfolio Director 2 offers a tax-free loan provision for tax-qualified
contracts that gives you access to your money in either of the Fixed Account
Options, subject to a minimum loan amount of $1,000. The availability of loans
is subject to government regulations, as well as your employer's plan
provisions.
Keep in mind that tax laws place restrictions on withdrawals (i.e. loans which
are not repaid) if made prior to age 59 1/2.
TRANSFERS
There is no charge to transfer the money in your account among Portfolio
Director 2's investment options. You may transfer your Account Values between
Variable Account Options at any time during the Purchase Period.
Your Account Value in the Short-Term Fixed Account must remain there for at
least 90 days before it can be transferred to other investment options. In Fixed
Account Plus, up to 20% of your Account Value may be transferred during each
contract year to other investment options.
Once you begin receiving payments from your account (called the Payout Period),
you may still transfer funds among Variable Account Options once each contract
year.
Transfers can be made by calling VALIC's toll-free transfer service at
1-800-621-7792. For more information on account transfers, see the "Transfers
Between Investment Options" section in the prospectus.
FEES AND CHARGES
ACCOUNT MAINTENANCE FEE
If any of your account is invested in Variable Account Options, a quarterly
account maintenance fee of $3.75 is charged to your account. If you invest only
in Fixed Account Options during a calendar quarter no account maintenance fee is
assessed. Reductions in the account maintenance fee may be available if certain
conditions are met.
SURRENDER CHARGE
Under some circumstances a surrender charge is made to your account. These
situations are discussed in detail in the section of the prospectus entitled
"Fees and Charges -- Surrender Charge." When this happens the surrender charge
is computed in two ways and you are charged whichever amount is less. The first
amount is simply 5% of whatever amount you have withdrawn. The second amount is
5% of the contributions you made to your account during the last 60 months.
Withdrawals are always subject to your plan generally include a tax penalty on
withdrawals made prior to age 59 1/2.
PREMIUM TAX CHARGE
Premium taxes ranging from zero to 3% are currently imposed by certain states
and municipalities on Purchase Payments made under the contract.
SEPARATE ACCOUNT CHARGES
Depending on the Variable Account Option you choose you may incur a mortality
and expense risk fee and an administration and distribution fee computed at an
aggregate annualized rate of 0.60% to 0.85% during the purchase period and 1.00%
to 1.25% during the payout period on the average daily net asset value of VALIC
Separate Account A. Reductions in the mortality and expense risk fee and
administration and distribution fee may be available for plan types meeting
certain criteria.
FUND ANNUAL EXPENSE CHARGE
A daily charge based on a percentage of each Fund's average daily net asset
value is payable by each Fund to its investment adviser. In addition to the
management fees, each Fund incurs other operating expenses which may vary.
Since some of these fees may not apply to your contract, consult your VALIC
Retirement Plan Specialist to see how these provisions apply to you.
SEPARATE ACCOUNT
EXPENSE REIMBURSEMENT
The Company will reimburse to certain Divisions any fees it receives from the
Fund or its affiliate for providing the Fund administrative and shareholder
services. In addition, the Company currently reimburses certain Divisions a
portion of the Company's administration and distribution fee for providing
Variable Account Options. Such reimbursement arrangements are voluntary. For
more information as to which Variable Account Options have a Separate Account
Expense Reimbursement see the Fee Table.
PAYOUT OPTIONS
When you withdraw your money, you can select from several payout options: a
lifetime annuity (which guarantees payment for as long as you live), periodic
withdrawals and systematic withdrawals. More information on payout options can
be found in the "Payout Period" section of the prospectus.
FEDERAL TAX INFORMATION
Although deferred annuity contracts such as Portfolio Director 2 can be
purchased with after-tax dollars, they are primarily used in connection with
retirement programs which receive favorable tax treatment under federal law.
PURCHASE REQUIREMENTS
Purchase Payments may be made at any time and in any amount, subject to plan
limitations.
To learn more about the
INTEREST GUARANTEED DEATH
BENEFIT, refer to the section
in the prospectus entitled
"Death Benefits."
More information on FEES
may be found in the
prospectus under the
headings "FEES AND
CHARGES" AND "FEE TABLE."
For a more detailed
discussion of these income
tax provisions, see the
"FEDERAL TAX MATTERS"
section of the prospectus and
of the Statement of Additional
Information.
For more information on
PURCHASE PAYMENTS, refer
to the "Purchase Period"
section of the prospectus.
3
<PAGE> 122
FEE TABLE
- --------------------------------------------------------------------------------
CONTRACT OWNER/PARTICIPANT EXPENSES(1)
<TABLE>
<S> <C>
Account Maintenance Fee ($3.75 per quarter, annualized)(2) $ 15
Maximum Surrender Charge(2) 5.00%
</TABLE>
SEPARATE ACCOUNT EXPENSES
(as a percentage of Separate Account net assets):
<TABLE>
<CAPTION>
MORTALITY ADMINISTRATION SEPARATE
AND AND ACCOUNT
EXPENSE RISK DISTRIBUTION EXPENSE TOTAL SEPARATE
FUND FEE(3) FEE(3) REIMBURSEMENT ACCOUNT FEE
---- ------------ -------------- ------------- --------------
<S> <C> <C> <C> <C>
AGSPC Growth 0.25% 0.35% -- 0.60%
AGSPC International Government
Bond 0.25 0.35 -- 0.60
AGSPC Money Market 0.25 0.35 -- 0.60
AGSPC Science & Technology 0.25 0.35 -- 0.60
AGSPC Social Awareness 0.25 0.35 -- 0.60
AGSPC Stock Index 0.25 0.35 -- 0.60
American Century -- Twentieth
Century Ultra(4) 0.25 0.60 (0.21%) 0.64
Founders Growth(4) 0.25 0.60 (0.25) 0.60
Neuberger&Berman Guardian Trust(4) 0.25 0.60 (0.25) 0.60
Putnam Global Growth(4) 0.25 0.60 (0.25) 0.60
Putnam New Opportunities(4) 0.25 0.60 (0.25) 0.60
Putnam OTC & Emerging Growth(4) 0.25 0.60 (0.25) 0.60
Scudder Growth and Income(4) 0.25 0.60 (0.25) 0.60
Templeton Foreign(4) 0.25 0.60 (0.25) 0.60
Vanguard Fixed Income Securities
Fund -- Long-Term Corporate
Portfolio(5) 0.25 0.60 (0.25) 0.60
Vanguard Fixed Income Securities
Fund -- Long-Term U.S. Treasury
Portfolio(5) 0.25 0.60 (0.25) 0.60
Vanguard/Wellington 0.25 0.60 -- 0.85
Vanguard/Windsor II 0.25 0.60 -- 0.85
</TABLE>
FUND ANNUAL EXPENSES
(as a percentage of Fund net assets):
<TABLE>
<CAPTION>
MANAGEMENT 12B-1 OTHER TOTAL FUND
FUND FEES FEES EXPENSES(6) EXPENSES
---- ---------- ----- ----------- ----------
<S> <C> <C> <C> <C>
AGSPC Growth 0.80% -- 0.06% 0.86%
AGSPC International Government Bond 0.50 -- 0.06 0.56
AGSPC Money Market 0.50 -- 0.07 0.57
AGSPC Science & Technology 0.90 -- 0.06 0.96
AGSPC Social Awareness 0.50 -- 0.06 0.56
AGSPC Stock Index 0.27 -- 0.07 0.34
American Century -- Twentieth Century
Ultra 1.00 -- 0.00 1.00
Founders Growth 0.67 0.25%(4) 0.18 1.10
Neuberger&Berman Guardian Trust(7) 0.84 -- 0.04 0.88
Putnam Global Growth 0.64 0.25(4) 0.35 1.24
Putnam New Opportunities 0.50 0.25(4) 0.31 1.06
Putnam OTC & Emerging Growth 0.56 0.25(4) 0.35 1.16
Scudder Growth and Income 0.46 -- 0.30 0.76
Templeton Foreign 0.61 0.25(4) 0.22 1.08
Vanguard Fixed Income Securities Fund --
Long-Term Corporate Portfolio 0.03 -- 0.29 0.32
Vanguard Fixed Income Securities Fund --
Long-Term U.S. Treasury Portfolio 0.01 -- 0.26 0.27
Vanguard/Wellington 0.04 -- 0.25 0.29
Vanguard/Windsor II 0.15 -- 0.22 0.37
</TABLE>
See footnotes on page 6.
4
<PAGE> 123
EXAMPLE #1 -- Assuming No Account Maintenance Fee and
No Surrender at the End of the Period Shown:
- --------------------------------------------------------------------------------
Total Expenses. You would pay the following expenses on a $1,000 investment
under a typical Portfolio Director 2 Contract without a surrender charge or
account maintenance fee imposed, invested in a single Separate Account Division
as listed below, assuming a 5% annual return on assets:
<TABLE>
<CAPTION>
1 YEAR 3 YEARS 5 YEARS 10 YEARS
------ ------- ------- --------
<S> <C> <C> <C> <C>
AGSPC Growth Division 15 $15 $46 $ 80 $175
AGSPC International Government Bond Division 13 12 37 64 141
AGSPC Money Market Division 6 12 37 64 143
AGSPC Science & Technology Division 17 16 49 85 186
AGSPC Social Awareness Division 12 12 37 64 141
AGSPC Stock Index Division 10 10 30 52 116
American Century -- Twentieth Century Ultra
Division 31 17 52 89 195
Founders Growth Division 30 17 54 92 201
Neuberger&Berman Guardian Trust
Division 29 15 47 81 177
Putnam Global Growth Division 28 19 58 100 216
Putnam New Opportunities Division 26 17 52 90 197
Putnam OTC & Emerging Growth Division 27 18 55 96 208
Scudder Growth and Income Division 21 14 43 75 164
Templeton Foreign Division 32 17 53 91 199
Vanguard Fixed Income Securities
Fund -- Long-Term Corporate Portfolio Division
22 9 29 51 114
Vanguard Fixed Income Securities
Fund -- Long-Term U.S. Treasury Portfolio
Division 23 9 28 48 108
Vanguard/Wellington Division 25 12 36 63 139
Vanguard/Windsor II Division 24 12 39 67 148
</TABLE>
EXAMPLE #2 -- Assuming No Surrender at the End of the
Period Shown:
- --------------------------------------------------------------------------------
Total Expenses. You would pay the following expenses on a $1,000 investment
under a typical Portfolio Director 2 Contract without a surrender charge
imposed, invested in a single Separate Account Division as listed below,
assuming a 5% annual return on assets:
<TABLE>
<CAPTION>
1 YEAR 3 YEARS 5 YEARS 10 YEARS
------ ------- ------- --------
<S> <C> <C> <C> <C>
AGSPC Growth Division 15 $15 $48 $ 83 $181
AGSPC International Government Bond Division 13 12 39 67 148
AGSPC Money Market Division 6 12 39 67 149
AGSPC Science & Technology Division 17 16 51 88 192
AGSPC Social Awareness Division 12 12 39 67 148
AGSPC Stock Index Division 10 10 32 55 122
American Century -- Twentieth Century Ultra
Division 31 17 53 92 201
Founders Growth Division 30 18 55 95 207
Neuberger&Berman Guardian Trust
Division 29 16 49 84 183
Putnam Global Growth Division 28 19 60 103 222
Putnam New Opportunities Division 26 17 54 93 203
Putnam OTC & Emerging Growth Division 27 18 57 98 214
Scudder Growth and Income Division 21 14 45 78 170
Templeton Foreign Division 32 18 55 94 205
Vanguard Fixed Income Securities
Fund -- Long-Term Corporate Portfolio Division
22 10 31 54 120
Vanguard Fixed Income Securities
Fund -- Long-Term U.S. Treasury Portfolio
Division 23 9 30 51 114
Vanguard/Wellington Division 25 12 38 66 145
Vanguard/Windsor II Division 24 13 40 70 155
</TABLE>
5
<PAGE> 124
EXAMPLE #3 -- Assuming Surrender at the End of the Period Shown:
- --------------------------------------------------------------------------------
Total Expenses: You would pay the following expenses on a $1,000 investment
under a typical Portfolio Director 2 Contract invested in a single Separate
Account Division as listed below, assuming a 5% annual return on assets:
<TABLE>
<CAPTION>
1 YEAR 3 YEARS 5 YEARS 10 YEARS
------ ------- ------- --------
<S> <C> <C> <C> <C>
AGSPC Growth Division 15 $62 $ 98 $133 $181
AGSPC International Government Bond Division 13 59 89 117 148
AGSPC Money Market Division 6 59 89 117 149
AGSPC Science & Technology Division 17 63 101 138 192
AGSPC Social Awareness Division 12 59 89 117 148
AGSPC Stock Index Division 10 57 82 105 122
American Century -- Twentieth Century Ultra Division
31 64 103 142 201
Founders Growth Division 30 64 105 145 207
Neuberger&Berman Guardian Trust
Division 29 62 98 134 183
Putnam Global Growth Division 28 66 109 153 222
Putnam New Opportunities Division 26 64 104 143 203
Putnam OTC & Emerging Growth Division 27 65 107 148 214
Scudder Growth and Income Division 21 61 95 128 170
Templeton Foreign Division 32 64 104 144 205
Vanguard Fixed Income Securities Fund -- Long-Term
Corporate Portfolio Division 22 57 81 104 120
Vanguard Fixed Income Securities Fund -- Long-Term
U.S. Treasury Portfolio Division 23 56 80 101 114
Vanguard/Wellington Division 25 59 88 116 145
Vanguard/Windsor II Division 24 60 90 120 155
</TABLE>
- ------------
(1) Premium taxes are not shown here, but may be charged by some states. See:
"Premium Tax Charge" in this prospectus.
(2) Reductions in the surrender charge and the account maintenance fee are
available if certain conditions are met. See "Reduction or Waiver of Account
Maintenance Fee, Surrender, Mortality and Expense Risk Fee or Administration
and Distribution Fee Charges" and "Exceptions to Surrender Charge" in this
prospectus.
(3) The mortality and expense risk fee and administration and distribution fee
reflected in the Fee Table is deducted during the Purchase Period. The
mortality and expense risk fee and administration and distribution fee
deducted during the Payout Period is computed at an annualized rate of 1.00%
to 1.25% depending upon the Variable Account Option selected.
(4) For these Funds the Total Separate Account Fee equals the VALIC Separate
Account A mortality and expense risk fee plus the administration and
distribution fee reduced by the Separate Account Expense Reimbursement.
Pursuant to the Separate Account Expense Reimbursement the Company's charges
to these Divisions are reduced by an amount equal to payments from the
underlying Fund and/or its affiliate for administrative and shareholder
services provided by the Company. See "Fees and Charges -- Separate Account
Expense Reimbursement" in this prospectus for more information.
The following Funds and/or their affiliates pay administrative, shareholder
service or distribution fees to the Company: American Century -- Twentieth
Century (0.21%), Founders (0.25%), Neuberger&Berman (0.25%), Putnam (0.25%),
Scudder (0.25%) and Templeton (0.25%). With respect to American
Century -- Twentieth Century Ultra Fund, the Fund pays fees to the Company
of 0.20% on assets in excess of $0 but less than $75 million, and 0.25% on
assets in excess of $75 million.
(5) For these Funds the Total Separate Account Fee equals the VALIC Separate
Account mortality and expense risk fee plus the administration and
distribution for reduced by the Separate Account Expense Reimbursement. The
Separate Account Expense Reimbursement reflects a voluntary expense
reimbursement made by the Company, effective May 1, 1998, directly to the
Division which may be terminated by the Company at any time without notice.
(6) OTHER EXPENSES includes custody, accounting, reports to shareholders, audit,
legal and other miscellaneous expenses. See each Fund's prospectus for a
detailed explanation of these fees.
(7) Neuberger&Berman Management Incorporated voluntarily bears certain expenses
of the Neuberger&Berman Guardian Trust ("Trust") so that the Trust's expense
ratio per annum will not exceed the expense ratio per annum of the Fund by
more than 0.10% of the Trust's average daily net assets. This arrangement
can be terminated on sixty days' notice. For this Fund, MANAGEMENT FEES
include administration expenses.
Note: These examples should not be considered representations of past or future
expenses for VALIC Separate Account A or for any Fund. Actual expenses may be
greater or less than those shown above. Similarly, the 5% annual rate of return
assumed in the examples is not an estimate or guarantee of future investment
performance. The purpose of the Fee Table above is to help Contract Owners and
Participants understand the various expenses of VALIC Separate Account A and the
Funds which are, in effect, passed on to the Contract Owners and Participants.
This Fee Table shows all charges and expenses which may be deducted from the
assets of VALIC Separate Account A and from the Funds in which VALIC Separate
Account A invests. For a further description of these charges and expenses, see
"Fees and Charges" in this prospectus and the descriptions of fees and charges
in each of the Fund's prospectuses. Any and all limitations on total charges and
expenses are reflected in this Fee Table.
6
<PAGE> 125
Selected Purchase Unit Data
- --------------------------------------------------------------------------------
Portfolio Director 2 Series 2.1.40 to 2.12.40 is a new variable annuity product;
therefore, there is no Selected Purchase Unit Data available at this time.
7
<PAGE> 126
- --------------------------------------------------------------------------------
ABOUT PORTFOLIO DIRECTOR 2
Portfolio Director 2 was developed to help you save money for your retirement.
It offers you a combination of fixed and variable investment options that you
can invest in to help you reach your retirement savings goals. Your
contributions to Portfolio Director 2 can come from different sources, like
payroll deductions or money transfers. Your retirement savings process with
Portfolio Director 2 will involve two stages: the Purchase Period; and the
Payout Period. The first is when you make contributions into Portfolio Director
2 called "Purchase Payments." The second, is when you receive your retirement
payouts. For more information, see "Purchase Period" and the "Payout Period" in
this prospectus.
You may choose, depending upon your retirement savings goals, your personal risk
tolerances, and your retirement plan, to invest in the Fixed Account Options
and/or the Variable Account Options described in this prospectus. When you
decide to retire, or otherwise withdraw your money, you can select from a wide
array of payout options including both fixed and variable payments. In addition,
this prospectus will describe for you all fees and charges that may apply to
your participation in Portfolio Director 2.
ABOUT VALIC
We are a life insurance company organized in 1955 and located in the State of
Texas. Our main business is issuing and offering fixed and variable retirement
annuity contracts, like Portfolio Director 2. Our principal offices are located
at 2929 Allen Parkway, Houston, Texas 77019. We have Regional Offices throughout
the United States. The addresses for these offices are given in the back of this
prospectus.
VALIC is a member of the American General Corporation group of companies.
Members of the American General Corporation group of companies operate in each
of the 50 states, the District of Columbia, and Canada and collectively provide
financial services with activities heavily weighted toward insurance.
ABOUT VALIC SEPARATE ACCOUNT A
When you direct money to Portfolio Director 2's Variable Account Options, you
will be sending that money through VALIC's Separate Account A. You do not invest
directly in the Mutual Funds made available in Portfolio Director 2. VALIC's
Separate Account A invests in the Mutual Funds on behalf of your account.
VALIC Separate Account A is made up of what we call "Divisions." Eighteen
Divisions are available and represent the Variable Account Options in Portfolio
Director 2. Each of these Divisions invests in a different Mutual Fund made
available through Portfolio Director 2. For example, Division Ten represents and
invests in the Stock Index Fund. The earnings (or losses) of each Division are
credited to (or charged against) the assets of that Division, and do not affect
the performance of the other Divisions of VALIC Separate Account A.
VALIC established Separate Account A in 1979 under Texas insurance law to allow
you to be able to invest in a number of Variable Account Options available in
Portfolio Director 2. VALIC Separate Account A is registered with the Securities
and Exchange Commission (SEC) as a unit investment trust under the Investment
Company Act of 1940. Units of interest in VALIC Separate Account A are
registered as securities under the Securities Act of 1933.
VALIC Separate Account A is administered and accounted for as part of VALIC's
business operations. However, the income, capital gains or capital losses,
whether or not realized of each Division of VALIC Separate Account A are
credited to or charged against the assets held in that Division without regard
to the income, capital gains or capital losses of any other Division or arising
out of any other business the Company may conduct. In accordance with the terms
of Portfolio Director 2, VALIC Separate Account A may not be charged with the
liabilities of any other VALIC operation. As stated in Portfolio Director 2, the
Texas Insurance Code requires that the assets of VALIC Separate Account A
attributable to Portfolio Director 2 be held exclusively for the benefit of the
contract owner, participants, annuitants, and beneficiaries of Portfolio
Director 2. When we discuss performance information in this prospectus, we mean
the performance of a VALIC Separate Account A Division.
UNITS OF INTERESTS
Your investment in a Division of VALIC Separate Account A is represented by
units of interest issued by VALIC Separate Account A. On a daily basis, the
units of interest issued by VALIC Separate Account A are revalued to reflect
that day's performance of the underlying mutual fund minus any applicable fees
and charges to VALIC Separate Account A.
All inquiries regarding
PORTFOLIO DIRECTOR 2
may be directed to your
VALIC Regional Office at
the addresses shown in the
back of this prospectus.
MUTUAL FUND OR FUND --
the investment portfolio(s)
of a registered open-end
management investment
company, which serves as
the underlying investment
vehicle for each Division
represented in VALIC
Separate Account A.
For more information about
VALIC, see the Statement of
Additional Information
8
<PAGE> 127
VARIABLE ACCOUNT OPTIONS
- --------------------------------------------------------------------------------
Portfolio Director 2 enables you to participate in Divisions that represent
eighteen Variable Account Options. These Divisions comprise all of the Variable
Account Options that are made available to you through VALIC Separate Account A.
See "About VALIC Separate Account A" in this prospectus.
Each individual Division represents and invests, through VALIC's Separate
Account A, in specific mutual funds. Twelve of the Mutual Funds are also
available to the general public. These mutual funds serve as the investment
vehicles for Portfolio Director 2 and include:
- - American General Series Portfolio
Company (AGSPC) -- offers 6 funds, for which VALIC serves as investment
adviser.
- - American Century Investments -- offers 1 fund for which American Century
Investment Management, Inc. serves as investment adviser.
- - Founders Funds, Inc. -- offers 1 fund for which Founders Asset Management LLC
serves as investment adviser.
- - Neuberger&Berman Management Inc. -- offers 1 fund for which Neuberger&Berman
Management Inc. serves as investment manager and Neuberger&Berman LLC, serves
as sub-adviser.
- - Putnam Investments -- offers 3 funds for which Putnam Investment Management
Inc., serves as investment adviser.
- - Scudder Kemper Investments, Inc. -- offers 1 fund for which Scudder Kemper
Investments, Inc. serves as investment adviser.
- - Templeton Funds Inc. -- offers 1 fund for which Templeton Global Advisors
Limited serves as investment adviser.
- - The Vanguard Group Inc. -- offers 4 funds for which Barrow, Hanley, Mewhinney
& Strauss, Inc., Equinox Capital Management, Inc., Tukman Capital Management,
Inc., Vanguard Core Management Group, Wellington Management Company, LLP and
Vanguard Fixed Income Group serve as investment advisers.
Each of these Funds (except for AGSPC's International Government Bond Fund which
is a non-diversified Fund) is registered as a diversified open-end, management
investment company and is regulated under the Investment Company Act of 1940.
For complete information about each of these Funds, including charges and
expenses, you should refer to the prospectus for that Fund. Additional copies
are available from VALIC or you may contact your VALIC Regional Office at the
addresses shown in the back of this prospectus.
SUMMARY OF FUNDS
A brief summary of the investment objectives of each Mutual Fund is shown below.
In addition to the investment objectives, the Account Value of an assumed
$10,000 investment in each of the Divisions is shown in both table and graph
form. This will reflect a deduction for separate account fees (mortality and
expense risk fees plus administration and distribution fees minus any applicable
reimbursements) and underlying fund charges. This will not reflect any deduction
for account maintenance fees, surrender charges and premium taxes. These charges
would further reduce your return. The Account Values shown reflect in the graphs
Separate Account performance based on the performance of the underlying Fund for
the last 10 fiscal years or, since inception of the underlying Fund if for less
than 10 years. The returns shown in the tables reflect the historical
performance of each Fund based on investment in a hypothetical Contract from the
date of the Fund's inception. The actual performance of each Fund has been
reduced by Separate Account fees that would have been incurred under the
Contract. Investment return and principal value will fluctuate with market
conditions, and for foreign investments, currencies and the economic and
political climates of the countries where investments are made. Past performance
cannot predict or guarantee future results.
For more information about how these returns were calculated including a
statement of the charges reflected and tables showing historical performance
information see "How to Review Investment Performance of Separate Account
Divisions" in this prospectus.
VARIABLE ACCOUNT
OPTIONS -- investment
options that correspond
to Separate Account
Divisions offered by
Portfolio Director 2.
Investment returns on
Variable Account
Options may be positive
or negative depending on
the investment
performance of the
underlying Mutual Fund.
9
<PAGE> 128
AGSPC
GROWTH FUND
(Division 15)
- ---------------------------------------------------------------
INVESTMENT OBJECTIVE
Seeks to provide long-term growth of capital through investment primarily in
common stocks of U.S. growth companies engaged in service-related activities.
<TABLE>
<CAPTION>
Annual Value of a $10,000
Stipulated Payment made
April 29,1994 $ Value
- ------------------------- -------
<S> <C>
04/29/94 $10,000
12/31/94 10,045
12/31/95 14,763
12/31/96 17,517
12/31/97 21,068
</TABLE>
VALUE AT MONTHLY INTERVALS OF A $10,000
STIPULATED PAYMENT MADE APRIL 29, 1994
[CHART]
PERIOD ENDED DECEMBER 31
AGSPC
INTERNATIONAL GOVERNMENT
BOND FUND
(Division 13)
- ---------------------------------------------------------------
INVESTMENT OBJECTIVE
Seeks high current income through investments primarily in high quality debt
securities issued or guaranteed by foreign governments.
<TABLE>
<CAPTION>
Annual Value of a $10,000
Stipulated Payment made
October 1, 1991 $ Value
- ------------------------- -------
<S> <C>
10/01/91 $10,000
12/31/91 10,916
12/31/92 11,184
12/31/93 12,696
12/31/94 13,183
12/31/95 15,568
12/31/96 16,156
12/31/97 15,283
</TABLE>
VALUE AT MONTHLY INTERVALS OF A $10,000
STIPULATED PAYMENT MADE OCTOBER 1, 1991
[CHART]
PERIOD ENDED DECEMBER 31
10
<PAGE> 129
AGSPC
MONEY MARKET FUND
(Division 6)
- ---------------------------------------------------------------
INVESTMENT OBJECTIVE
Seeks liquidity, protection of capital and current income through investments in
short-term money market instruments.
<TABLE>
<CAPTION>
Annual Value of a $10,000
Stipulated Payment made
January 1, 1988 $ Value
- ------------------------- -------
<S> <C>
01/01/88 $10,000
12/31/88 10,615
12/31/89 11,501
12/31/90 12,336
12/31/91 12,942
12/31/92 13,283
12/31/93 13,558
12/31/94 13,989
12/31/95 14,678
12/31/96 15,322
12/31/97 16,019
</TABLE>
VALUE AT MONTHLY INTERVALS OF A $10,000
STIPULATED PAYMENT MADE JANUARY 1, 1988
[CHART]
PERIOD ENDED DECEMBER 31
AGSPC
SCIENCE & TECHNOLOGY FUND
(Division 17)
- ---------------------------------------------------------------
INVESTMENT OBJECTIVE
Seeks long-term growth of capital through investment primarily in the common
stocks and equity-related securities of companies that are expected to benefit
from the development, advancement and use of science and technology.
<TABLE>
<CAPTION>
Annual Value of a $10,000
Stipulated Payment made
April 29, 1994 $ Value
- ------------------------- -------
<S> <C>
04/29/94 $10,000
12/31/94 12,510
12/31/95 20,102
12/31/96 22,741
12/31/97 23,191
</TABLE>
VALUE AT MONTHLY INTERVALS OF A $10,000
STIPULATED PAYMENT MADE APRIL 29, 1994
[CHART]
PERIOD ENDED DECEMBER 31
11
<PAGE> 130
AGSPC
SOCIAL AWARENESS FUND
(Division 12)
- ---------------------------------------------------------------
INVESTMENT OBJECTIVE
Seeks to obtain growth of capital through investment, primarily in common
stocks, in companies which meet the social criteria established for the Fund.
<TABLE>
<CAPTION>
Annual Value of a $10,000
Stipulated Payment made
October 2, 1989 $ Value
- ------------------------- -------
<S> <C>
10/02/89 $10,000
12/31/89 10,110
12/31/90 9,926
12/31/91 12,618
12/31/92 12,962
12/31/93 13,903
12/31/94 13,621
12/31/95 18,812
12/31/96 23,184
12/31/97 30,846
</TABLE>
VALUE AT MONTHLY INTERVALS OF A $10,000
STIPULATED PAYMENT MADE OCTOBER 2, 1989
[CHART]
PERIOD ENDED DECEMBER 31
AGSPC
STOCK INDEX FUND
(Division 10)
- ---------------------------------------------------------------
INVESTMENT OBJECTIVE
Seeks long-term capital growth through investment in common stocks that, as a
group, are expected to provide investment results closely corresponding to the
performance of the Standard & Poor's 500 Stock Index(R)*.
<TABLE>
<CAPTION>
Annual Value of a $10,000
Stipulated Payment made
January 1, 1988 $ Value
- ------------------------- -------
<S> <C>
01/01/88 $10,000
12/31/88 11,358
12/31/89 14,582
12/31/90 13,935
12/31/91 17,865
12/31/92 18,938
12/31/93 20,684
12/31/94 20,704
12/31/95 28,257
12/31/96 34,475
12/31/97 45,607
</TABLE>
VALUE AT MONTHLY INTERVALS OF A $10,000
STIPULATED PAYMENT MADE JANUARY 1, 1988
[CHART]
PERIOD ENDED DECEMBER 31
* "Standard & Poor's(R)", "S&P(R)" and "S&P 500(R)" are trademarks of Standard
and Poor's ("S&P"). The Stock Index Fund is not sponsored, endorsed, sold or
promoted by S&P and S&P makes no representation regarding the advisability of
investing in this Fund.
12
<PAGE> 131
AMERICAN CENTURY --
TWENTIETH CENTURY ULTRA
FUND
Investor Class Shares
(Division 31)
- ---------------------------------------------------------------
INVESTMENT OBJECTIVE
Seeks capital growth. The Fund invests primarily in common stocks that are
considered to have better-than-average prospects for appreciation.
<TABLE>
<CAPTION>
Annual Value of a $10,000
Stipulated Payment made
January 1, 1988 $ Value
- ------------------------- -------
<S> <C>
01/01/88 $10,000
12/31/88 11,257
12/31/89 15,312
12/31/90 16,636
12/31/91 30,810
12/31/92 30,996
12/31/93 37,510
12/31/94 35,919
12/31/95 49,126
12/31/96 55,453
12/31/97 67,777
</TABLE>
VALUE AT MONTHLY INTERVALS OF A $10,000
STIPULATED PAYMENT MADE JANUARY 1, 1988
[CHART]
PERIOD ENDED DECEMBER 31
FOUNDERS GROWTH FUND
(Division 30)
- ---------------------------------------------------------------
INVESTMENT OBJECTIVE
Seeks long-term growth of capital. Fund invests primarily in common stocks of
well established, high-quality growth companies.
<TABLE>
<CAPTION>
Annual Value of a $10,000
Stipulated Payment made
January 1, 1988 $ Value
- ------------------------- -------
<S> <C>
01/01/88 $10,000
12/31/88 10,420
12/31/89 14,681
12/31/90 13,048
12/31/91 19,118
12/31/92 19,811
12/31/93 24,724
12/31/94 23,758
12/31/95 34,383
12/31/96 39,820
12/31/97 50,073
</TABLE>
VALUE AT MONTHLY INTERVALS OF A $10,000
STIPULATED PAYMENT MADE JANUARY 1, 1988
[CHART]
PERIOD ENDED DECEMBER 31
13
<PAGE> 132
NEUBERGER&BERMAN
GUARDIAN TRUST*
(Division 29)
- ---------------------------------------------------------------
INVESTMENT OBJECTIVE
Seeks capital appreciation and, secondarily, current income. The Trust invests
primarily in common stocks of long-established, high quality companies.
<TABLE>
<CAPTION>
Annual Value of a $10,000
Stipulated Payment made
January 1, 1988 $ Value
- ------------------------- -------
<S> <C>
01/01/88 $10,000
12/31/88 12,729
12/31/89 15,375
12/31/90 14,565
12/31/91 19,451
12/31/92 23,010
12/31/93 25,968
12/31/94 26,209
12/31/95 34,387
12/31/96 40,234
12/31/97 47,122
</TABLE>
VALUE AT MONTHLY INTERVALS OF A $10,000
STIPULATED PAYMENT MADE JANUARY 1, 1988
[CHART]
PERIOD ENDED DECEMBER 31
PUTNAM GLOBAL GROWTH
FUND
Class A Shares (Division 28)
- ---------------------------------------------------------------
INVESTMENT OBJECTIVE
Seeks capital appreciation. Current income is only an incidental consideration
in selecting investments for the Fund. The Fund is designed for investors
seeking above-average capital growth potential through a globally diversified
portfolio of common stocks. Dividend and interest income is only an incidental
consideration.
<TABLE>
<CAPTION>
Annual Value of a $10,000
Stipulated Payment made
January 1, 1988 $ Value
- ------------------------- -------
<S> <C>
01/01/88 $10,000
12/31/88 10,840
12/31/89 13,421
12/31/90 12,116
12/31/91 14,209
12/31/92 14,159
12/31/93 18,558
12/31/94 18,292
12/31/95 20,878
12/31/96 24,181
12/31/97 27,241
</TABLE>
VALUE AT MONTHLY INTERVALS OF A $10,000
STIPULATED PAYMENT MADE JANUARY 1, 1988
[CHART]
PERIOD ENDED DECEMBER 31
* Neuberger&Berman Guardian Trust ("Trust") started operating on August 3,
1993. It has identical investment objectives and policies and invests in the
same portfolio as Neuberger&Berman Guardian Fund ("Fund"), which is also
managed by Neuberger&Berman Management Incorporated ("N&B Management"). The
performance information for the Trust before August 3, 1993 is for the Fund.
N&B Management voluntarily bears certain operating expenses of the Trust so
that the Trust's expense ratio per annum will not exceed the expense ratio
per annum of the Fund by more than 0.10% of the Trust's average daily net
assets per annum. This arrangement can be terminated on sixty days' prior
written notice. Absent such arrangement, the average annual total returns of
the Trust would have been less. The total returns for periods prior to the
Trust's commencement of operations would have been lower had they reflected
the higher expense ratios of the Trust as compared to those of the Fund.
14
<PAGE> 133
PUTNAM NEW OPPORTUNITIES
FUND
Class A Shares
(Division 26)
- ---------------------------------------------------------------
INVESTMENT OBJECTIVE
Seeks long-term capital appreciation. Current income is only an incidental
consideration. The Fund invests principally in common stocks of companies in
sectors of the economy which the Fund's investment adviser believes possess
above-average long-term growth potential.
<TABLE>
<CAPTION>
Annual Value of a $10,000
Stipulated Payment made
August 31, 1990 $ Value
- ------------------------- -------
<S> <C>
08/31/90 $10,000
12/31/90 11,056
12/31/91 18,411
12/31/92 22,988
12/31/93 30,324
12/31/94 31,145
12/31/95 45,290
12/31/96 49,882
12/31/97 60,749
</TABLE>
VALUE AT MONTHLY INTERVALS OF A $10,000
STIPULATED PAYMENT MADE AUGUST 31, 1990
[CHART]
PERIOD ENDED DECEMBER 31
PUTNAM OTC & EMERGING
GROWTH FUND
Class A Shares
(Division 27)
- ---------------------------------------------------------------
INVESTMENT OBJECTIVE
Seeks capital appreciation. The Fund invests primarily in common stocks traded
in the over-the-counter ("OTC") market and common stocks, of "emerging growth"
companies listed on securities exchanges. The Fund is designed for investors
willing to assume above-average risk in return for above average capital growth
potential. The Fund may trade securities for short-term profits.
<TABLE>
<CAPTION>
Annual Value of a $10,000
Stipulated Payment made
January 1, 1988 $ Value
- ------------------------- -------
<S> <C>
01/01/88 $10,000
12/31/88 11,551
12/31/89 14,809
12/31/90 13,275
12/31/91 18,585
12/31/92 20,819
12/31/93 27,329
12/31/94 27,778
12/31/95 43,061
12/31/96 44,758
12/31/97 49,018
</TABLE>
VALUE AT MONTHLY INTERVALS OF A $10,000
STIPULATED PAYMENT MADE JANUARY 1, 1988
[CHART]
PERIOD ENDED DECEMBER 31
15
<PAGE> 134
SCUDDER GROWTH AND
INCOME FUND
(Division 21)
- ---------------------------------------------------------------
INVESTMENT OBJECTIVE
Seeks long-term growth of capital, current income and growth of income. The Fund
invests primarily in common stocks, preferred stocks, and securities convertible
into common stocks of companies which offer the prospect for growth of earnings
while paying current dividends.
<TABLE>
<CAPTION>
Annual Value of a $10,000
Stipulated Payment made
January 1, 1988 $ Value
- ------------------------- -------
<S> <C>
01/01/88 $10,000
12/31/88 11,107
12/31/89 13,917
12/31/90 13,479
12/31/91 17,130
12/31/92 18,609
12/31/93 21,331
12/31/94 21,702
12/31/95 28,228
12/31/96 34,185
12/31/97 44,202
</TABLE>
VALUE AT MONTHLY INTERVALS OF A $10,000
STIPULATED PAYMENT MADE JANUARY 1, 1988
[CHART]
PERIOD ENDED DECEMBER 31
TEMPLETON FOREIGN FUND
Class I Shares
(Division 32)
- ---------------------------------------------------------------
INVESTMENT OBJECTIVE
Seeks long-term capital growth. Any income realized will be incidental. The Fund
tries to achieve its goal by a flexible policy of investing in stocks and debt
obligations of companies and governments outside the United States.
<TABLE>
<CAPTION>
Annual Value of a $10,000
Stipulated Payment made
January 1, 1988 $ Value
- ------------------------- -------
<S> <C>
01/01/88 $10,000
12/31/88 12,130
12/31/89 15,739
12/31/90 15,178
12/31/91 17,844
12/31/92 17,756
12/31/93 24,148
12/31/94 24,092
12/31/95 26,623
12/31/96 31,204
12/31/97 33,073
</TABLE>
VALUE AT MONTHLY INTERVALS OF A $10,000
STIPULATED PAYMENT MADE JANUARY 1, 1988
[CHART]
PERIOD ENDED DECEMBER 31
16
<PAGE> 135
VANGUARD FIXED
INCOME SECURITIES
FUND -- LONG-TERM
CORPORATE PORTFOLIO
Institutional Class Shares
(Division 22)
- ---------------------------------------------------------------
INVESTMENT OBJECTIVE
Seeks high level of current income consistent with the maintenance of principal
and liquidity. The Portfolio invests in a diversified portfolio of investment
grade bonds.
<TABLE>
<CAPTION>
Annual Value of a $10,000
Stipulated Payment made
January 1, 1988 $ Value
- ------------------------- -------
<S> <C>
01/01/88 $10,000
12/31/88 10,878
12/31/89 12,424
12/31/90 13,085
12/31/91 15,687
12/31/92 17,076
12/31/93 19,387
12/31/94 18,208
12/31/95 22,821
12/31/96 22,747
12/31/97 25,651
</TABLE>
VALUE AT MONTHLY INTERVALS OF A $10,000
STIPULATED PAYMENT MADE JANUARY 1, 1988
[CHART]
PERIOD ENDED DECEMBER 31
VANGUARD FIXED
INCOME SECURITIES
FUND -- LONG-TERM
U.S. TREASURY PORTFOLIO
Institutional Class Shares
(Division 23)
- ---------------------------------------------------------------
INVESTMENT OBJECTIVE
Seeks high level of current income consistent with the maintenance of principal
and liquidity. The Portfolio invests primarily in long-term U.S. Treasury
securities backed by the full faith and credit of the U.S. Government. At least
65% of the Fund assets will be invested in U.S. Treasury bills, notes and bonds.
<TABLE>
<CAPTION>
Annual Value of a $10,000
Stipulated Payment made
January 1, 1988 $ Value
- ------------------------- -------
<S> <C>
01/01/88 $10,000
12/31/88 10,824
12/31/89 12,658
12/31/90 13,278
12/31/91 15,461
12/31/92 16,467
12/31/93 19,070
12/31/94 17,580
12/31/95 22,681
12/31/96 22,071
12/31/97 24,916
</TABLE>
VALUE AT MONTHLY INTERVALS OF A $10,000
STIPULATED PAYMENT MADE JANUARY 1, 1988
[CHART]
PERIOD ENDED DECEMBER 31
17
<PAGE> 136
VANGUARD/WELLINGTON FUND
Institutional Class Shares
(Division 25)
- ---------------------------------------------------------------
INVESTMENT OBJECTIVE
Seeks conservation of principal, a reasonable income return, and profits without
undue risk.
This Fund seeks relative capital stability, a reasonable level of income, and
the potential for capital appreciation. By balancing its investments among
common stocks and bonds, the Fund is expected to provide lower investment risk
and share price volatility (and a lower return in the long run) than a mutual
fund which invests exclusively in common stocks.
<TABLE>
<CAPTION>
Annual Value of a $10,000
Stipulated Payment made
January 1, 1988 $ Value
- ------------------------- -------
<S> <C>
01/01/88 $10,000
12/31/88 11,513
12/31/89 13,882
12/31/90 13,380
12/31/91 16,405
12/31/92 17,556
12/31/93 19,762
12/31/94 19,502
12/31/95 25,705
12/31/96 29,598
12/31/97 36,149
</TABLE>
VALUE AT MONTHLY INTERVALS OF A $10,000
STIPULATED PAYMENT MADE JANUARY 1, 1988
[CHART]
PERIOD ENDED DECEMBER 31
VANGUARD/WINDSOR II
Institutional Class Shares
(Division 24)
- ---------------------------------------------------------------
INVESTMENT OBJECTIVE
Seeks to provide long-term growth of capital and income by investing primarily
in common stocks. The Fund's secondary objective is to provide current income.
<TABLE>
<CAPTION>
Annual Value of a $10,000
Stipulated Payment made
January 1, 1988 $ Value
- ------------------------- -------
<S> <C>
01/01/88 $10,000
12/31/88 12,368
12/31/89 15,676
12/31/90 13,994
12/31/91 17,858
12/31/92 19,830
12/31/93 22,339
12/31/94 21,894
12/31/95 30,140
12/31/96 37,087
12/31/97 48,663
</TABLE>
VALUE AT MONTHLY INTERVALS OF A $10,000
STIPULATED PAYMENT MADE JANUARY 1, 1988
[CHART]
PERIOD ENDED DECEMBER 31
18
<PAGE> 137
PURCHASE PERIOD
- --------------------------------------------------------------------------------
The Purchase Period begins when your first Purchase Payment is made and
continues until you begin your Payout Period. The Purchase Period can also end
when a Portfolio Director 2 account is surrendered before the Payout Period. The
amount, number, and frequency of your Purchase Payments is determined by the
retirement plan for which Portfolio Director 2 was purchased.
PURCHASE PAYMENTS
You may establish an account only through a VALIC representative. Initial
Purchase Payments must be received by VALIC either with, or after, a completed
application. Your employer is usually responsible for remitting Purchase
Payments to us. The employer is responsible for furnishing instructions to us (a
premium flow report) as to the amount being applied to your account.
Minimum initial and subsequent Purchase Payments are as follows:
<TABLE>
<CAPTION>
Initial Subsequent
Contract Type Payment Payment
------------- ------- ----------
<S> <C> <C>
Periodic Payment $ 30 $ 30
Single Payment $1,000 -0-
</TABLE>
Periodic Payment minimums apply to each Fixed Account Option or Variable Account
Option selected. The Single Payment minimum applies to each of your accounts.
Purchase Payments are received in VALIC's Home Office. When an initial Purchase
Payment is accompanied by an application, within 2 business days we will:
- - Accept the Application -- and issue a contract. We will also establish your
account and apply your Purchase Payment by crediting the amount to the Fixed
Account Option or Variable Account Option selected;
- - Reject the Application -- and return the Purchase Payment; or
- - Request Additional Information -- to correct or complete the application.
If we receive Purchase Payments from your employer before we receive your
completed application or enrollment form, we will not be able to establish a
permanent account for you. Under these circumstances, we will take one of the
following actions:
Return Purchase Payments. If we do not have your name, address or social
security number, we will return the Purchase Payment to your employer unless
this information is immediately provided to us.
Employer-Directed Account. If we have your name, address and social security
number and we have an Employer-Directed Account Agreement from your employer,
generally we will deposit your Purchase Payment
in an "Employer-Directed" account invested in our Money Market Division
Option. You may not transfer these amounts until VALIC has received a
completed application or enrollment form.
Starter Account. If we have your name, address and social security number, but
we do not have an Employer-Directed Account Agreement from your employer, we
will deposit your Purchase Payment in a "starter" account invested in the
Money Market Division. We will send you follow-up letters requesting the
information necessary to complete the application, including your allocation
instructions. Unless a completed application or enrollment form is received by
us within 105 days of establishment of your starter account, the account
balance, including earnings, will be returned to your employer. We are not
responsible for any adverse tax consequences to you that may result from the
return of your employer's contributions.
PURCHASE UNITS
A Purchase Unit is a unit of interest owned by you in your Variable Account
Option. Purchase Units apply only to the Variable Account Options selected for
your account. Purchase Unit values are calculated at the close of regular
trading of the New York Stock Exchange (the "Exchange"), currently 4:00 p.m. New
York time (see Calculation of Purchase Unit Value below for more information.)
Purchase Units will be credited the same business day if Purchase Payments are
received by our Home Office before the close of the Exchange. If not, they will
be calculated and credited the next business day. Purchase Unit values will vary
depending on the net investment results of each of the Variable Account Options.
This means the value of your Variable Account Option will fluctuate.
CALCULATION OF PURCHASE UNIT VALUE
The Purchase Unit value for a Division is calculated as shown below:
Step 1: Calculate the gross investment rate:
Gross Investment Rate
= (EQUALS)
The Division's investment income and capital gains and losses (whether
realized or unrealized) on that day from the assets attributable to the
Division.
/ (DIVIDED BY)
The value of the Division for the immediately preceding day on
which the values are calculated.
PURCHASE PAYMENTS -- an
amount of money you pay to
VALIC to receive the benefits
of an annuity Contract offered
by Portfolio Director 2.
For more information as to
how PURCHASE UNIT VALUES
are calculated, see the
Statement of Additional
Information.
19
<PAGE> 138
- --------------------------------------------------------------------------------
We calculate the gross investment rate as of 4:00 p.m. New York time on each
business day when the New York Stock Exchange is open.
Step 2: Calculate net investment rate for any day as follows:
Net Investment Rate
= (EQUALS)
Gross Investment Rate (calculated in Step 1)
- - (MINUS)
Separate Account charges and any income tax charges.
Step 3: Determine Purchase Unit Value for that day.
Purchase Unit Value for that day.
= (EQUALS)
Purchase Unit Value for immediate preceding day.
X (MULTIPLIED BY)
Net Investment Rate (as calculated in Step 2) plus 1.00.
CHOOSING INVESTMENT OPTIONS
There are 20 investment options offered in Portfolio Director 2. This includes 2
Fixed Account Options and 18 Variable Account Options. Unless provided
otherwise, you
may select and combine up to 7 of the 20 options. The Funds that underlie the
Variable Account Options are registered as investment companies under and are
subject to regulation of the Investment Company Act of 1940 (the Act). The Fixed
Account Options are not subject to regulation under the Act and are not required
to be registered under the Securities Act of 1933. As a result, the SEC has not
reviewed data in this prospectus that relates to the Fixed Account Options.
However, federal securities law does require such data to be accurate and
complete.
FIXED ACCOUNT OPTIONS
Each of the Fixed Account Options are part of the Company's general assets. You
may allocate all or a portion of your Purchase Payment to the Fixed Account
Options listed in "Profile of Portfolio Director 2 Contract" appearing in this
prospectus. Purchase Payments you allocate to these Fixed Account Options are
guaranteed to earn at least a minimum rate of interest. Interest is paid on each
of the Fixed Account Options at declared rates, which may be different for each
option. We bear the entire investment risk for the Fixed Account Option. All
Purchase Payments and interest earned on such amounts in your Fixed Account
Option will be paid regardless of the investment results experienced by the
Company's general assets.
Here is how you may calculate the value of your Fixed Account Option during the
Purchase Period:
Value of Your Fixed Account Options
= (EQUALS)
All Purchase Payments made to the Fixed Account Options
+ (PLUS)
Amounts transferred from Variable Account Options to the Fixed Account Options
+ (PLUS)
All interest earned
- - (MINUS)
Amounts transferred or withdrawn from Fixed Account Options (including
applicable fees and charges)
VARIABLE ACCOUNT OPTIONS
You may allocate all or a portion of your Purchase Payments to the Variable
Account Options listed in this prospectus. A complete discussion of each of the
Variable Account Options may be found in the "Variable Account Options" section
in this prospectus. Based upon a Variable Account Option's Purchase Unit Value
your account will be credited with the applicable number of Purchase Units. The
Purchase Unit Value of each Variable Account Option will change daily depending
upon the investment performance of the underlying fund (which may be positive or
negative) and the deduction of VALIC Separate Account A charges. See the "Fees
and Charges" section in this prospectus. Because Purchase Unit Values change
daily, the number of Purchase Units your account will be credited with for
subsequent Purchase Payments will vary. Each Variable Account Option bears its
own investment risk. Therefore, the value of your account may be worth more or
less at retirement or withdrawal.
Here is how to calculate the value of each Variable Account Option in your
account during the Purchase Period:
Value of Your Variable Account Option
= (EQUALS)
Total Number of Purchase Units
X (MULTIPLIED BY)
Current Purchase Unit Value
STOPPING PURCHASE PAYMENTS
Purchase Payments may be stopped at any time. Purchase Payments may be resumed
at any time before your Portfolio Director 2 account has been surrendered. While
no Purchase Payments are being made, the number of Purchase Units outstanding
will remain the same. (This is assuming no transfers or withdrawals are made.)
The value of the Purchase Units will continue to vary. Your Account Value will
continue to be subject to charges.
If your Account Value falls below $300, and you do not make any Purchase
Payments for two years from the date we established your account, we may close
the account and pay the Account Value (less any surrender charge) to you.
PURCHASE UNIT -- a
measuring unit used to
calculate your Account Value
during the Purchase Period.
The value of a Purchase Unit
will vary with the investment
experience of the Separate
Account Division you have
selected.
20
<PAGE> 139
TRANSFERS BETWEEN INVESTMENT OPTIONS
- --------------------------------------------------------------------------------
You may transfer all or part of your Account Value between the various Fixed
Account and Variable Account Options in Portfolio Director 2 without a charge.
Transfer instructions may be made either in writing or by telephone as discussed
below. Transfers may be made during the Purchase Period or during the Payout
Period. We reserve the right to limit transfers as discussed below. Your
employer's plan may also limit your rights to transfer.
DURING THE PURCHASE PERIOD
During the Purchase Period, transfers may be made between Portfolio Director 2's
Fixed Account Options and Variable Account Options.
We currently permit transfers between Variable Account Options or from Variable
Account Options to Fixed Account Options, at any time. We may, however, limit
the number of transfers you can make.
Transfers are also permitted from the Fixed Account Options subject to the
following limitations:
<TABLE>
<CAPTION>
FIXED OTHER
ACCOUNT OPTION VALUE FREQUENCY RESTRICTIONS
- -------------- ------------- ----------- ------------
<S> <C> <C> <C>
Fixed Account
Plus: Up to 20% per At any time None (1)
contract year
100% At any time If Account Value
is
less than or
equal
to $500
Short-Term
Fixed
Account: Up to 100% At any time 90-day Holding
Period If
transfer
was previously
made
into Short-Term
Fixed
Account.(2)
</TABLE>
- ---------------
(1) Your employer may further limit or expand the restrictions. We may charge
for those modified restrictions if specified in your employer's retirement
plan.
(2) VALIC may change this holding period at any time in the future, but it will
never be more than 180 days.
DURING THE PAYOUT PERIOD
During the Payout Period, transfers may be made between Portfolio Director 2's
investment options subject to the following limitations:
<TABLE>
<CAPTION>
% OF ACCOUNT
---------------------------------- OTHER
ACCOUNT OPTION VALUE FREQUENCY RESTRICTIONS
- -------------- ------------- ------------------- ------------
<S> <C> <C> <C>
Variable: Up to 100% Once every 365 days None
Combination
Fixed
and Variable
Payout: Up to 100% Once every 365 days None
of money in
variable
option payout
Fixed: Not permitted -- --
</TABLE>
COMMUNICATING TRANSFER OR
REALLOCATION INSTRUCTIONS
A written instruction to transfer or reallocate all or part of your Account
Value between the various investment options in Portfolio Director, should be
sent to VALIC's Home Office.
Instructions for transfers or reallocations may be made by calling
1-800-621-7792. Telephone transfers will be allowed unless we have been notified
not to accept such telephone instructions. In this event, we must receive
written instructions, in order to permit future telephone transfers to be made.
Before a transfer will be made by telephone, you must give us the requested
identifying information concerning your account(s).
Unless we have been instructed not to accept requests for telephone transfers,
anyone may effect a telephone transfer if they furnish the requested
information. You will bear any loss resulting from such instructions, whether
the caller was specifically authorized by you or not.
No one that we employ or that represents VALIC may give telephone instructions
on your behalf without VALIC's prior written permission. (This does not apply to
a contract with the immediate family of an employee or representative of VALIC).
We will send you a confirmation of the completed transfer within 5 days from the
date of your instruction. When you receive your confirmation, it is your duty to
verify the information shown, and advise us of any errors within one business
day.
You will bear the risk of loss arising from instructions received by telephone.
We are not responsible for the authenticity of such instructions. Any telephone
instructions which we reasonably believe to be genuine will be your
responsibility. This includes losses from errors in communication. Telephone
transfer instruction may not be made during the Payout Period. We reserve the
right to stop telephone transfers at any time.
EFFECTIVE DATE OF TRANSFER
The effective date of a transfer will be:
- - The date of receipt, if received in our Home Office before the close of
regular trading of the New York Stock Exchange on a day values are calculated;
(Normally, this will be 4:00 P.M. New York time); otherwise
- - The next date values are calculated.
ACCOUNT VALUE -- the total
sum of your Fixed Account
and/or Variable Account
Options that have not yet
been applied to your Payout
Payments.
PURCHASE PERIOD -- the time
between your first Purchase
Payment and your Payout
Period (or surrender).
HOME OFFICE -- Our
principal office at 2929 Allen
Parkway, Houston, Texas
77019.
PAYOUT PERIOD -- the time
that starts when you begin to
withdraw your money in a
steady stream of payments.
21
<PAGE> 140
FEES AND CHARGES
- --------------------------------------------------------------------------------
By investing in Portfolio Director 2, you may be subject to six basic types of
fees and charges:
- - Account Maintenance Fee
- - Surrender Charge
- - Premium Tax Charge
- - Separate Account Charges
- - Fund Annual Expense Charge
- - Other Tax Charges
These fees and charges are explained below. For additional information about
these fees and charges, see the Fee Table in this prospectus.
ACCOUNT MAINTENANCE FEE
An account maintenance fee of $3.75 will be deducted on the last day of each
calendar quarter if any of your money is invested in the Variable Account
Options. We will sell Purchase Units from your Account to pay the account
maintenance fee. If you invest only in Fixed Account Options during a calendar
quarter, this fee will not apply. If all your money in a Variable Account Option
is withdrawn, or transferred to a Fixed Account Option, the fee will be deducted
at that time. The fee will be assessed equally among the Variable Account
Options that make up your Account Value.
The account maintenance fee is to reimburse the Company for our administrative
expenses for providing Variable Account Options. This includes the expense for
establishing and maintaining the record keeping for the Variable Account
Options. We do not expect that the amount of fees we receive will be greater
than our expenses.
The amount of the account maintenance fee may be reduced or waived if Portfolio
Director 2 is issued to certain types of plans which are expected to result in
lower costs to VALIC. To learn more about how we determine if account
maintenance fees may be reduced or waived, see the "Reduction or Waiver of
Account Maintenance Fee, Surrender, Mortality and Expense Risk Fee or
Administration and Distribution Fee Charges" section in this prospectus. If you
have two or more accounts established under the same group contract, we may
agree to deduct an account maintenance fee from only one account.
SURRENDER CHARGE
When you withdraw money from your account, you may be subject to a surrender
charge. For information about your right to surrender, see "Surrender of Account
Value" in this prospectus.
It is assumed that the most recent Purchase Payments are withdrawn first. No
surrender charge will be applied unless an amount is
actually withdrawn. We consider all Purchase Payments to be withdrawn before
earnings are withdrawn.
Amounts exchanged from other contracts issued by the Company may or may not be
subject to a surrender charge. After exchange, it is assumed that any new
Purchase Payments are withdrawn before the exchanged amount. For more
information, see "Exchange Privilege" in the Statement of Additional
Information.
AMOUNT OF SURRENDER CHARGE
A surrender charge may not be greater than:
- - Five percent (5%) of the amount of all Purchase Payments received during the
past 60 months; or
- - Five percent (5%) of the amount withdrawn.
10% FREE WITHDRAWAL
In any Participant Year, up to 10% of the Account Value may be withdrawn without
a surrender charge. The surrender charge will apply to any amount withdrawn that
exceeds this 10% limit. The percentage withdrawn will be determined by dividing
the amount withdrawn by the Account Value just prior to the withdrawal. If more
than one withdrawal is made during a Participant Year, each percentage will be
added to determine at what point the 10% limit has been reached.
These 10% withdrawals without charge do not reduce Purchase Payments for the
purpose of computing the surrender charge. If a surrender charge is applied to
all or part of a Purchase Payment, no surrender charge will be applied to such
Purchase Payment (or portion thereof) again.
EXCEPTIONS TO SURRENDER CHARGE
No surrender charge will be applied:
- - To money applied to provide a Payout Option;
- - To death benefits;
- - If no Purchase Payments have been received during the 60 months prior to the
date of surrender;
- - If your account has been in effect for 15 years or longer;
- - If your account has been in effect for 5 years or longer, and you have
attained age 59 1/2;
- - To "No Charge Systematic Withdrawals";
- - Under certain contracts, to withdrawals under the No Charge Minimum
Distribution provisions;
PARTICIPANT YEAR -- the first
twelve month period and
then each yearly anniversary
of that period following the
issue date of the contract or
certificate.
22
<PAGE> 141
- --------------------------------------------------------------------------------
- - If you have become totally and permanently disabled, defined as follows: You
are unable, due to mental or physical impairment, to perform the material and
substantial duties of any occupation for which you are suited by means of
education, training or experience; the impairment must have been in existence
for more than 180 days; the impairment must be expected to result in death or
be long-standing and indefinite and proof of disability must be evidenced by a
certified copy of a Social Security Administration determination or a doctor's
verification; or
- - If you are at least 55 years old, are no longer employed by the employer that
established the plan, and your account under the plan was established at least
5 years prior to the date of surrender.
The surrender charge may be reduced or waived if Portfolio Director 2 is issued
to certain types of plans which are expected to result in lower costs to VALIC.
To learn more about how we determine if a surrender charge may be reduced or
waived, see the "Reduction or Waiver of Account Maintenance Fee, Surrender,
Mortality and Expense Risk Fee or Administration and Distribution Fee Charges"
section in this prospectus.
PREMIUM TAX CHARGE
Taxes on Purchase Payments are imposed by some states, cities, and towns. The
rate will range from zero to 3%.
If the law of a state, city, or town requires premium taxes to be paid when
Purchase Payments are made, we will, of course, comply. Otherwise, such tax will
be deducted from the Payout Value when annuity payments are to begin.
If we deduct an amount for premium taxes, but later find the tax was not due, we
will:
- - Adjust the amount deducted in error to reflect investment experience from the
date of the deduction to the date we determined the tax was not due; and
- - Apply the excess amount, as adjusted, to increase the number of Pay-in or
Payout Units.
SEPARATE ACCOUNT CHARGES
There will be a mortality and expense risk fee and an administration and
distribution fee applied to VALIC Separate Account A. This is a daily charge at
an aggregate annualized rate of 0.60% to 0.85% during the Purchase Period and
1.00% to 1.25% during the Payout Period on the average daily net asset value of
VALIC Separate Account A. The exact rate depends on the Variable Account Option
selected. This charge is guaranteed and cannot be increased by the Company. The
mortality and expense risk fee is to compensate the Company for assuming
mortality and expense risks under Portfolio Director. The mortality risk that
the Company assumes is the obligation to provide payments during the Payout
Period for your life no matter how long that might be. In addition, the Company
assumes the obligation to pay during the Purchase Period an interest guaranteed
death benefit. For more information about the interest guaranteed death benefit
see the "Death Benefit" section of this prospectus. The expense risk is our
obligation to cover the cost of issuing and administering Portfolio Director 2,
no matter how large the cost may be.
The Company may make a profit on the mortality and expense risk fee and on the
administration and distribution fee.
The administration and distribution fee is to reimburse the Company for our
administrative expenses for providing Variable Account Options. This includes
the expense of administration and marketing, (including but not limited to
enrollment, participant communication and education).
For more information about the mortality and expense risk fee and on the
administration and distribution fee, see the Fee Table in this prospectus.
The mortality and expense risk fee or administration and distribution fee may be
reduced or waived if issued to certain types of plans that are expected to
result in lower costs to VALIC. To learn more about how we determine if the
mortality and expense risk fee or administration and distribution fee may be
reduced or waived, see the "Reduction or Waiver of Account Maintenance Fee,
Surrender, Mortality and Expense Risk Fee or Administration and Distribution Fee
Charges" section of this prospectus.
FUND ANNUAL EXPENSE CHARGES
Investment management charges based on a percentage of each Fund's average daily
net assets are payable by each Fund. Depending on the Variable Account Option
selected, the charges will be paid by each Fund to its investment adviser. These
charges and other Fund charges and expenses are fully described in the
prospectuses for the Funds. These charges indirectly cost you because they lower
your return.
OTHER TAX CHARGES
We reserve the right to charge for certain taxes (other than premium taxes) that
we may have to pay. This could include federal income taxes. Currently, no such
charges are being made.
23
<PAGE> 142
- --------------------------------------------------------------------------------
REDUCTION OR WAIVER OF ACCOUNT
MAINTENANCE FEE, SURRENDER,
MORTALITY AND EXPENSE RISK FEE OR ADMINISTRATION AND DISTRIBUTION FEE CHARGES
We may, as described below, determine that the account maintenance fee,
surrender
charges, mortality and expense risk fee or administration fee for Portfolio
Director 2 may be reduced or waived. We may reduce or waive these fees and
charges if we determine that your retirement program will allow us to reduce or
eliminate administrative or sales expenses that we usually incur for retirement
programs. There are a number of factors we will review in determining whether
your retirement program will allow us to reduce or eliminate these
administrative or sales expenses:
- The type of retirement program.
Certain types of retirement programs because of their stability can result
in lower administrative costs.
- The nature of your retirement program.
Certain types of retirement programs, due to the types of employees who
participate, experience fewer account surrenders thus reducing
administrative costs.
- Other factors of which we are not presently aware which could reduce
administrative costs.
We review the following additional factors to determine whether we can reduce
or waive account maintenance fees:
- The frequency of Purchase Payments for your retirement program.
Purchase Payments received no more than once a year can reduce
administrative costs.
- The administrative tasks performed by your employer for your retirement
program.
The employer sponsoring your retirement program can, through their method of
remitting Purchase Payments, reduce administrative costs.
We review to following additional factors to determine whether we can reduce or
waive surrender charges:
- The size of your retirement program.
A retirement program which involves a larger group of employees may allow us
to reduce sales expenses.
- The total amount of Purchase Payments to be received for your retirement
program.
Larger Purchase Payments can reduce sales expenses.
- The use of mass enrollment or related administrative tasks performed by your
employer for your retirement program.
We review the following additional factors to determine whether we can reduce
or waive the mortality and expense fee or administration and distribution fee:
- The frequency of Purchase Payments for your retirement program.
- The size of your retirement program.
- The amount of your retirement program's periodic purchase payment.
We will only do this if permitted by this Contract and by VALIC guidelines in
effect at the time. In no event will the reduction or waiver of fees and
charges be permitted where the reduction or waiver will unfairly discriminate
against any person.
SEPARATE ACCOUNT EXPENSE
REIMBURSEMENT
Some of the Mutual Funds or their affiliates may have an agreement with the
Company to pay the Company for certain administrative and shareholder services
it provides to the underlying Fund. The Company will reduce its charges to the
Division investing in that Fund by the full amount of any of these payments it
receives. In addition, the Company currently reimburses certain Divisions a
portion of the Company's administration and distribution fee. Such
reimbursement arrangements are a voluntary. See the Fee Table in this
prospectus for an identification of those Funds for which a reimbursement
applies.
24
<PAGE> 143
PAYOUT PERIOD
- --------------------------------------------------------------------------------
The Payout Period (Annuity Period) begins when you decide to retire or otherwise
withdraw your money in a steady stream of payments. If your employer's plan
permits, you may apply any portion of your Account Value to one of the types of
Payout Options listed below. You may choose to have your Payout Option on either
a fixed, a variable, or a combination payout basis. When you choose to have your
Payout Option on a variable basis, you may keep the same Variable Account
Options in which your Purchase Payments were made, or transfer to different
ones.
FIXED PAYOUT
Under Fixed Payout, you will receive payments from the Company. These payments
are fixed and guaranteed by the Company. The amount of these payments will
depend on:
- Type and duration of Payout Option chosen;
- Your age or your age and the age of your survivor (1);
- Your sex or your sex and the sex of your survivor (1) (IRA's and certain
nonqualified contracts);
- The portion of your Account Value being applied; and
- The payout rate being applied and the frequency of the payments.
(1) This applies only to joint and survivor payouts.
If the benefit would be greater, the amount of your payments will be based on
the current payout rate the Company uses for immediate annuity contracts.
VARIABLE PAYOUT
With a Variable Payout, you may select up to 7 Variable Account Options. Your
payments will vary accordingly. This is due to the varying investment results
that will be experienced by each of the Variable Account Options you selected.
The Payout Unit Value is calculated just like the Purchase Unit Value for each
Variable Account Option except that the Payout Unit Value includes a factor for
the Assumed Investment Rate you select. For additional information on how Payout
Payments and Payout Unit Values are calculated, see the Statement of Additional
Information.
In determining your first Payout Payment, an Assumed Investment Rate of 3 1/2%
is used (unless you select a higher rate.) If the net investment experience of
the Variable Account Option exceeds your Assumed Investment Rate, your next
payment will be greater than your first payment. If the investment experience of
the
Variable Account Option is lower than your Assumed Investment Rate, your next
payment will be less than your first payment.
COMBINATION FIXED AND VARIABLE
PAYOUT
With a Combination Fixed and Variable Payout, you may choose:
- Up to 6 Variable Account Options (payments will vary); with a
- Fixed Payout (payment is fixed and guaranteed).
PAYOUT DATE
The Payout Date is the date elected by you on which your payout (annuity)
payments will start. The date elected must be the first of any month provided 30
days advance notice has been given to VALIC. Your account will be valued ten
days prior to the end of the month preceding the Payout Date. A request to start
payments must be sent to our Home Office on a form approved by VALIC. Generally,
for qualified contracts, the Payout Date may begin when you attain age 59 1/2 or
separate from service, but must begin no later than April 1 following the
calendar year you reach age 70 1/2 or the calendar year in which you retire. For
nonqualified contracts, the Payout Date may begin at any time prior to your 85th
birthday. For additional information on the minimum distribution rules that
apply to payments under 403(b), 401, 403(a) and 457 plans or simplified employee
plans ("SEPs"), see "Federal Tax Matters" in this prospectus and in the
Statement of Additional Information.
PAYOUT OPTIONS
You may specify the manner in which your Payout Payments are made. You may
select one of the following options:
- LIFE ONLY -- payments are made only to you during your lifetime. Under this
option there is no provision for a death benefit for the beneficiary. For
example, it would be possible under this option for the Annuitant to receive
only one payout payment if he died prior to the date of the second payment,
two if he died before the third payment.
- LIFE WITH GUARANTEED PERIOD -- payments are made to you during your
lifetime; but if you die before the guaranteed period has expired, your
beneficiary will receive payments for the rest of your guaranteed period.
PAYOUT UNIT -- a measuring
unit used to calculate Payout
Payments from your Variable
Account Option. Payout Unit
values will vary with the
investment experience of the
VALIC Separate Account A
Division you have selected.
ASSUMED INVESTMENT
RATE -- the rate used to
determine your first monthly
Payout Payment per
thousand dollars of Account
Value in your Variable
Account Option(s).
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<PAGE> 144
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- LIFE WITH CASH OR UNIT REFUND -- payments are made to you during your
lifetime. Upon your death, your beneficiary will receive a lump sum
payment equal to the remaining Annuity Value.
- JOINT AND SURVIVOR LIFE -- payments are made to you during the joint
lifetime of you and your beneficiary. Upon the death of one, payments
continue during the lifetime of the survivor. This option is designed
primarily for couples who require maximum possible variable payouts during
their joint lives and are not concerned with providing for beneficiaries
at death of the last survivor. For example, it would be possible under
this option for the Joint Annuitants to receive only one payment if both
Annuitants died prior to the date of the second payment, or for the Joint
Annuitants to receive only one payment and the surviving Annuitant to
receive only one payment if one Annuitant died prior to the date of the
second payment and the surviving Annuitant dies prior to the date of the
third payment.
- PAYMENT FOR A DESIGNATED PERIOD -- payments are made to you for a select
number of years between five and thirty. Upon your death, payments will
continue to your beneficiary until the designated period is completed.
ENHANCEMENTS TO PAYOUT OPTIONS
You may be able to select enhancements to the Payout Options described above.
These enhancements include partial annuitization, flexible payments of varying
amounts and inflation protection payments. Additionally, certain options may be
available with a one to twenty year guaranteed period. The Joint and Survivor
Life Option may be available with a one to twenty year guaranteed period option.
Not all of the enhancements are available under each option.
PAYOUT INFORMATION
Once your Payout Payments have begun, the option you have chosen may not be
stopped or changed. Any one of the Variable Account Options may result in your
receiving unequal payments during your life expectancy. If payments begin before
age 59 1/2, you may suffer unfavorable tax consequences if you do not meet an
exception to federal tax law. See "Federal Tax Matters" in this prospectus.
Your Payment Option should be selected at least 30 days before your Payout Date.
If such selection is not made:
- Payments will be made under the Life with Guaranteed Period Option, and
- The payments will be guaranteed for a 10 year period, and
- The payments will be based on the allocation used for your Purchase
Payments,
- Fixed Account Option will be used to distribute payments to you on a Fixed
Payout basis,
- Variable Account Options will be used to distribute payments to you on a
Variable Payout basis.
Your first Payout Payment must total at least $25.
Most Payout Payments are made monthly. If the amount of your payment is less
than $25, we reserve the right to reduce the number of payments made each year
so each of your payments are at least $25.
For more information about
PAYOUT OPTIONS OR
ENHANCEMENTS
of those Payout Options
available under the Contract,
see the "Statement of
Additional Information".
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<PAGE> 145
SURRENDER OF ACCOUNT VALUE
- --------------------------------------------------------------------------------
WHEN SURRENDERS ARE ALLOWED
You may withdraw all or part of your Account Value at any time before the Payout
Period begins if:
- allowed under federal and state law; and
- allowed under your employer's plan.
For an explanation of charges that may apply if you surrender your Account
Value, see "Fees and Charges" in this prospectus.
AMOUNT THAT MAY BE SURRENDERED
The amount that may be surrendered at any time can be determined as follows:
<TABLE>
<S> <C> <C>
Your
Account
Allowed Value(1)
Surrender = (EQUALS) - (MINUS)
Value Any Applicable
Surrender
Charge
</TABLE>
1: Equals the Account Value next computed after your properly completed
request for surrender is received in our Home Office.
There is no guarantee that the Surrender Value in a Variable Account Option will
ever equal or exceed the total amount of your Purchase Payments received by us.
We will mail to you the Surrender Value within 7 calendar days after we receive
your properly completed surrender request at our Home Office. However, we may be
required to suspend or postpone payments if redemption of an underlying Fund's
shares have been suspended or postponed. See "Offering, Purchase and Redemption
of Fund Shares" in the Series Company Statement of Additional Information. See
your current Fund(s)' prospectuses for a discussion of the reasons why the
redemption of shares may be suspended or postponed.
We may receive a surrender for a Purchase Payment which has not cleared the
banking system. We may delay payment of that portion of your Surrender Value
until the check clears. The rest of the Surrender Value will be processed as
usual.
SURRENDER RESTRICTIONS
Generally, Internal Revenue Code Section 403(b)(11) permits total or partial
distributions from a 403(b) contract only on account of hardship (employee
contributions only without accrued interest), attainment of age 59 1/2,
separation from service, death or disability.
Under the TEXAS STATE OPTIONAL RETIREMENT PROGRAM, and in many Section 403(b)
contracts, no surrender or partial surrender will be allowed except for
termination of employment, retirement or death.
Under the FLORIDA STATE OPTIONAL RETIREMENT PROGRAM, no surrender or partial
surrender of Purchase Payments made by the employer will be allowed except for
termination of employment, retirement or death. Benefit payments based on
payments from the employer may not be paid in a lump sum or for a period
certain, but must be paid under a life contingency option, except for:
- death benefits; and
- certain small amounts approved by the State of Florida.
PARTIAL SURRENDERS
You may request a partial surrender of your Account Value at any time. A partial
surrender plus any surrender charge will reduce your Account Value. Partial
surrenders will be paid from the Fixed Account Options first unless otherwise
specified by you.
The reduction in the number of Purchase Units credited to your Variable Account
Option Account Value will equal:
<TABLE>
<S> <C> <C>
The amount Your Purchase
surrendered Units next
from the Variable computed after
Account Option the written
+ (PLUS) / (DIVIDED BY) request for
Any Surrender surrender is
Charge received at our
Home Office.
</TABLE>
The Surrender Value will be reduced by a full quarterly account maintenance fee
charged in the case of a full surrender during a quarter.
SYSTEMATIC WITHDRAWALS
You may elect to withdraw all or part of your Account Value under a systematic
withdrawal method described in your annuity contract offered by Portfolio
Director 2. There will be no surrender charge for withdrawals using this method,
which provides for:
- Payments to be made to you;
- Payment over a stated period of time (but not less than five years);
- Payment of a stated yearly dollar amount or percentage (the amount or
percentage may not exceed 20% of your Account Value at the time election is
made).
We may require a minimum withdrawal amount under this method. The portion of
your account that has not been withdrawn will continue to receive the investment
return of the Variable Account Options which you selected. A systematic
withdrawal election may not be changed but can be revoked at no charge. Once
revoked, a systematic withdrawal may not be elected again. No more than one
systematic
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<PAGE> 146
- --------------------------------------------------------------------------------
withdrawal election may be in effect at any one time. We reserve the right to
discontinue any or all systematic withdrawals or to change its terms, at any
time.
DISTRIBUTIONS REQUIRED BY FEDERAL TAX LAW. There will be no surrender charge on
a minimum distribution required by federal tax law (known as No Charge Minimum
Distribution), if the withdrawal:
- Is made payable to you; and
- Does not exceed the amount required under federal tax law as determined by
the values in your Portfolio Director 2 Contract and VALIC.
This contract feature will not be available in any year that an amount has been
withdrawn under the no charge systematic withdrawal method. See "Federal Tax
Matters" in this prospectus and in the Statement of Additional Information for
more information about required distributions imposed by tax law.
For an explanation of possible adverse tax consequences of a surrender, see
"Federal Tax Matters" in this prospectus and in the Statement of Additional
Information.
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<PAGE> 147
EXCHANGE PRIVILEGE
- --------------------------------------------------------------------------------
We issue other fixed and/or variable annuity contracts (other contracts) in
addition to Portfolio Director 2. These other contracts are listed below. We
will allow you, under certain conditions, to exchange from one of these other
contracts to Portfolio Director 2. This exchange privilege will be available
only to other contracts purchased through your employer-sponsored retirement
plan and for which we have not yet started making payments under a Payout
Option. If you elect to exercise one of these exchange offers, you should
contact any of our Regional Offices at the addresses shown in the back of this
prospectus.
RESTRICTIONS ON EXCHANGE PRIVILEGE
We will impose certain general restrictions and rules on the exchange
privileges.
- Partial exchanges are not permitted.
- Exchanges from Portfolio Director 2 to other contract forms are not
permitted, (Exchanges between Portfolio Director 2 and other contracts in
the Portfolio Director series of annuities are permitted.)
- This exchange privilege is only available for those other contracts listed
below.
Additionally, if you have your money in a fixed account of one of the below
listed other contracts, you must exchange directly into the Fixed Account
Options of Portfolio Director 2. You will be subject to all of the rules that
apply to the Fixed Account Options in Portfolio Director 2. For example, you
will be subject to the rules concerning transfers among investment options as
stated in the Transfers Between Investment Options section in this prospectus.
We may, at our option, waive any transfer restrictions for a stated period of
time. If we waive these transfer restrictions, you will be allowed to exchange
to any investment option available in Portfolio Director 2.
WE RESERVE THE RIGHT TO TERMINATE, MODIFY OR SUSPEND THESE EXCHANGE PRIVILEGES
AT ANY TIME.
TAXES AND CONVERSION COSTS
We will impose no fee or charge for these exchanges. Please read the "Federal
Tax Matters" section in this prospectus for information about the federal income
tax treatment of Portfolio Director 2.
SURRENDER CHARGES
We will generally not impose nor waive existing surrender charges as a result of
your electing to exchange from one of the other contracts.
For purposes of determining surrender charges, we often consider time in the
contract. For SPQ181 and SPQ181-1 Contracts, the contract date for determining
surrender charges under Portfolio Director 2 will be the SPQ181 and SPQ181-1
contract date plus one year. For example, if you have an SPQ181 contract with a
contract date of January 1, 1993, upon exchange into Portfolio Director 2, the
contract date for surrender charges purposes becomes January 1, 1994.
For any other contract, the contract date for determining surrender charges
under Portfolio Director 2 will be the same date as the other contract, but no
earlier than January 1, 1982. (The effect of this is to potentially shorten the
charge period for Purchase Payments subsequently made to Portfolio Director 2.)
If there is no surrender charge on assets within another contract, we will not
impose charges on those assets as a result of an exchange. If surrender charges
are to be based on Purchase Payments within a contract, we will consider
purchase payments in the other contract to have been transferred to Portfolio
Director 2 for purposes of calculating the surrender charge. The effective dates
of these Purchase Payments will also be retained for surrender charge purposes.
The Portfolio Director 2 surrender charge is calculated assuming the most recent
Purchase Payments are removed first. This policy may cause exchanged funds to be
accessible only after charges are imposed.
EXCHANGE OFFERS FOR CONTRACTS OTHER THAN
PORTFOLIO DIRECTOR AND PORTFOLIO DIRECTOR 2
The following other contracts may be exchanged.
- V-Plan Contracts (IFA-582 and GFA-582 Contracts)
- Compounder Contracts (C-1-75 and IFA-78 Contracts)
- Independence Plus Contracts (UIT-585 and UITG-585 Contracts)
- Impact Contracts (UIT-981 Contracts)
- SA-1 or SA-2 (GUP-64, GUP-74 and GTS-VA Contracts)
- FSPA-75, FSPA-73-3, FSPA-779 Contracts
- SPQ181, SPQ181-1 Contracts
- CTA 978 Contract
- TFA-379 Contract
- SDA-578, SDA-773-T Contract
- IRA-579 Contracts
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<PAGE> 148
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Portfolio Director 2 will have the same Account Value (called Accumulation Value
in the other contracts) as the other contracts.
EXCHANGE OFFER FOR PORTFOLIO DIRECTOR AND PORTFOLIO DIRECTOR 2
Subject to the restrictions stated below and the general restrictions on
exchange privileges stated above you may exchange from Portfolio Director to
Portfolio Director 2. You may also exchange from Portfolio Director 2 to
Portfolio Director. Additionally, you may also make exchanges among the series
of Portfolio Director 2. Once you have made any of the exchanges described in
this paragraph you must wait 120 days before making another exchange between
Portfolio Director and Portfolio Director 2.
Both Portfolio Director and Portfolio Director 2 are available to qualified
contracts and certain non-qualified contracts. Portfolio Director 2 is not
available to non-qualified contracts issued to individuals. Please read the
"Federal Tax Matters" in this prospectus for information about the federal
income tax treatment of Portfolio Director 2.
COMPARISON OF CONTRACTS
You should carefully compare the features, charges and restrictions of the other
contracts to those of Portfolio Director 2. A more detailed comparison of the
features, charges, and restrictions between each above listed other contract and
Portfolio Director 2 is provided in the Statement of Additional Information.
Portfolio Director and Portfolio Director 2 contain the same provisions except
as to the level of fees and as to available Variable Account Options and certain
Separate Account Expense Reimbursements. See "Fees and Changes" in this
prospectus.
For the V-Plan and Compounder Contract you should refer to the terms of the
contract or certificate. For the other contracts please refer to its most
recently dated prospectus for a complete description of the contract terms and
conditions. Those prospectuses are incorporated herein by reference. If you want
an additional copy of any of these prospectuses or Statements of Additional
Information, please contact us at the address shown in the introduction of the
prospectus.
Please refer to the prospectus and Statement of Additional Information for
Portfolio Director and the different series of Portfolio Director 2 for
information about the specific features and charges of such products.
FEATURES OF PORTFOLIO DIRECTOR 2
In deciding whether you want to exercise these exchange privileges, you should
consider the following factors of Portfolio Director 2.
- Portfolio Director 2 has more investment options to select from.
- Portfolio Director 2 has 12 publicly available mutual funds as investment
options.
- The Portfolio Director 2 surrender charge is calculated assuming the most
recent Purchase Payments are removed first. This policy may cause exchanged
funds to be accessible only after charges are imposed.
- Portfolio Director 2 has an Interest Guaranteed Death Benefit.
- Portfolio Director 2's Fund fees and charges are different than the other
contracts and in some cases may be higher.
- Different series of Portfolio Director 2 may charge fees higher or lower
than other series of Portfolio Director 2.
- Portfolio Director 2's guaranteed annuity rates and guaranteed interest
rates may be less favorable than the other contracts.
AGENTS' AND MANAGERS' RETIREMENT PLAN
EXCHANGE OFFER
General. All eligible agents and managers of the Company are allowed to
participate in the Company's Agents' and Managers' Retirement Plan ("Plan"). We
grant to participants in the Plan the right to effect a voluntary exchange of
their units of interest under the SA-1 Contracts, Independence Plus Contracts
and Portfolio Director for the equivalent units of interest in Portfolio
Director 2.
Agents and managers of VALIC who enter into the voluntary exchange will not
incur under Portfolio Director 2 any surrender charges or account maintenance
fees. Other individuals who may exchange to Portfolio Director 2 from SA-1,
Independence Plus or Portfolio Director Contracts may have surrender charges and
account maintenance fees imposed under Portfolio Director 2. 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
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<PAGE> 149
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their purchase payment plan, the participant may choose to:
- Remain in the SA-1 Contract, Independence Plus Contract or Portfolio
Director.
- Leave current assets in the SA-1 Contract, Independence Plus or Portfolio
Director and direct future Purchase Payments to Portfolio Director 2; or
- Transfer all current assets and future Purchase Payments to Portfolio
Director 2.
If the participant chooses to remain in either the SA-1 Contract, Independence
Plus Contract or Portfolio Director, future Purchase Payments and current assets
will be controlled by the provisions of the SA-1 Contract, Independence Plus
Contract or Portfolio Director, respectively. If the participant chooses to
leave current assets in the SA-1 Contract, the Independence Plus Contract or
Portfolio Director and direct future Purchase Payments to Portfolio Director 2,
the current assets will be controlled by the provisions of the SA-1 Contract,
the Independence Plus Contract or Portfolio Director, respectively. The future
Purchase Payments will be controlled by the terms of Portfolio Director 2
subject to the exception that surrender charges and account maintenance fees
will not be imposed under Portfolio Director 2. If the participant chooses to
transfer all current assets and future Purchase Payments to Portfolio Director
2, such current assets and future Purchase Payments will be controlled by the
provisions of Portfolio Director 2 subject to the exception that surrender
charges and account maintenance fees will not be imposed under Portfolio
Director 2.
Once a participant transfers assets and future Purchase Payments to Portfolio
Director 2 the participant will not be permitted to exchange back to the SA-1
Contract or Independence Plus Contract. Exchanges to Portfolio Director will be
permitted. See "Exchange Offer for Portfolio Director and Portfolio Director 2"
in this prospectus. If a participant chooses to transfer future Purchase
Payments but not current assets to Portfolio Director 2, the participant will be
allowed at a later date to transfer the current assets to Portfolio Director 2.
For a complete analysis of the differences between the SA-1 contract, the
Independence Plus Contract or Portfolio Director and Portfolio Director 2, you
should refer to the Statement of Additional Information and the form of the
contract or certificate for its terms and conditions.
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<PAGE> 150
DEATH BENEFITS
- --------------------------------------------------------------------------------
Portfolio Director 2 will pay death benefits during either the Purchase Period
or the Payout Period. How these death benefits will be paid are discussed below.
The death benefit provisions in Portfolio Director 2 may vary from state to
state.
BENEFICIARY INFORMATION
The Beneficiary may receive death benefits:
- - In a lump sum; or
- - In the form of an annuity under any of the Payout Options stated in the Payout
Period section of this prospectus subject to the restrictions of that Payout
Option.
Payment of any death benefits must be within the time limits set by federal tax
law.
Beneficiaries Other Than Spouses.
If the Beneficiary is not the spouse of the Annuitant, death benefits must be
paid.
- - In full within 5 years after the Annuitant's death; or
- - By payments beginning within 1 year after the Annuitant's death under:
- A life annuity;
- A life annuity with payments certain; or
- An annuity for a designated period.
If the Annuitant dies before the Annuity Date, the Beneficiary as named by you
may receive the payout.
Payments certain or payments for a designated period cannot be for a greater
period of time than the Beneficiary's life expectancy. After choosing a payment
option, a Beneficiary may exercise many of the investment options and other
rights that the Participant or Contract Owner had under Portfolio Director 2.
SPECIAL INFORMATION FOR INDIVIDUAL
NON-TAX QUALIFIED CONTRACTS
It is possible that the Contract Owner and the Annuitant under a Non-Tax
Qualified Contract are not the same person. If this is the case, and the
Contract Owner dies, there will be no death benefit payable since the death
benefit is only due in the event of the Annuitant's death. However, the Contract
will be transferred to the Contingent Owner,
if any, or to the Contract Owner's estate. Such transfers will be considered a
taxable event by the IRS.
DURING THE PURCHASE PERIOD
Two types of benefits are available if death occurs during the Purchase Period.
Interest Guaranteed Death Benefit and Standard Death Benefit.
INTEREST GUARANTEED DEATH BENEFIT
The interest guaranteed death benefit is payable when death occurs prior to your
reaching the age of 70. This contract provision is not available in some states.
The amount payable under the interest guaranteed death benefit will be at least
equal to the sum of your Account Value in the Fixed Account Option(s) and the
Variable Account Option(s) on the date VALIC receives proof of death.
Here is how to calculate the death benefit:
Step 1: Determine your Fixed Account Option Value by taking the greater of:
<TABLE>
<S> <C> <C>
Value of Fixed Account Option on date
proof of death Is received by VALIC
OR
100% of Purchase Payments placed
in Fixed Account Option
- - (minus)
Amount of all prior withdrawals, charges and
any portion of Account Value applied under
a Payout Option
</TABLE>
Step 2: Determine your Variable Account Option Value by taking the greater of:
<TABLE>
<S> <C> <C>
Value of Variable Account Option on date
proof of death is received by VALIC
OR
100% of Purchase Payments placed in
Variable Account Options
- - (minus)
Prior withdrawals (out of) or transfers
(out of) the Variable Account Option
+ (plus)
Interest at an annual rate of 3%
</TABLE>
- --------------------------------------------------
Step 3: Add step 1 + 2 = Death Benefit
For purposes of this calculation amounts transferred into the Variable Account
Option will be treated as Purchase Payments.
BENEFICIARY -- the person
designated to receive Payout
Payments upon the death of
an Annuitant.
ANNUITANT -- the individual,
(in most cases this person is
you) to whom Payout
Payments will be paid.
CONTRACT OWNER -- either
your employer or organization
in the case of a group
contract or the Annuitant in
the case of an individual
contract. If the contract is an
individual non-qualified type,
this is generally the Annuitant
but a Contingent Contract
Owner may also be provided
for.
FIXED ACCOUNT OPTIONS -- a
particular subaccount into
which your Purchase
Payments and Account Value
may be allocated to fixed
investment options. Currently,
the Fixed Account Options in
Portfolio Director 2 are Fixed
Account Plus and Short-Term
Fixed Account. Each option
of this type is guaranteed to
earn at least a minimum rate
of interest.
VARIABLE ACCOUNT
OPTIONS -- Investment
Options that correspond to
VALIC Separate Account A
Divisions offered by Portfolio
Director 2. Investment returns
on Variable Account Options
will be positive or negative
depending on the investment
performance of the
underlying mutual fund.
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<PAGE> 151
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STANDARD DEATH BENEFIT
The standard death benefit is payable if death occurs on or after age 70.
The Standard Death Benefit will be the greater of:
<TABLE>
<S> <C> <C>
Your Account Value on the Date Proof of Death is
Received by VALIC
OR
100% of Purchase Payments (to Fixed
and/or Variable Account Options)
- -- (MINUS)
Amount of all Prior Withdrawals, Charges
and any portion of Account Value applied
under a Payout Option
</TABLE>
DURING THE PAYOUT PERIOD
If death occurs during the Payout Period, your Beneficiary may receive a death
benefit depending on the Payout Option selected. The amount of death benefits
will also depend on the Payout Option that you selected. The Payout Options
available in Portfolio Director 2 are described in the "Payout Period" section
of this prospectus.
- If the Life Only Option or Joint and Survivor Life Option were chosen, there
will be no death benefit.
- If the Life With Guaranteed Period Option, Joint and Survivor Life with
Guaranteed Periods Option, Life with Cash or Unit Refund Option or Payment
for a Designated Period Option were chosen, and the entire amount guaranteed
has not been paid, the Beneficiary may choose one of the following within 60
days after death benefits are payable:
- Receive the present value of any remaining payments in a lump sum; or
- Receive the remaining payments under the same terms of the guaranteed
period option chosen by the deceased Participant; or
- Receive the present value of any remaining payments applied under the
Payment for a Designated Period Option for a period equal to or shorter
than the period remaining. Spouse beneficiaries may be entitled to more
favorable treatment under federal tax law.
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<PAGE> 152
HOW TO REVIEW INVESTMENT PERFORMANCE
OF SEPARATE ACCOUNT DIVISIONS
- --------------------------------------------------------------------------------
We will advertise information about the investment performance of VALIC Separate
Account A Divisions. Our advertising of past investment performance results does
not mean that future performance will be the same. The performance information
will not predict what your actual investment experience will be in that Division
or show past performance under an actual contract. We may also show how the
Divisions rank on the basis of data compiled by independent ranking services.
Some of the Divisions (and underlying Funds) offered in this prospectus were
previously available through other annuity contracts or to the general public
before Portfolio Director 2 was first available to you. We may therefore,
advertise investment performance since the inception of the underlying Funds.
However, in doing so, we will use the charges and fees imposed by Portfolio
Director 2 in calculating the Division's investment performance for earlier time
frames.
TYPES OF INVESTMENT PERFORMANCE
INFORMATION ADVERTISED
We may advertise the Division's Total Return Performance information and Yield
Performance information.
TOTAL RETURN PERFORMANCE
INFORMATION
Total Return Performance Information is based on the overall dollar or
percentage change in value of an assumed investment in a Division over a given
period of time.
There are seven ways Total Return Performance Information may be advertised:
- Standard Average Annual Total Return
- Nonstandard Average Annual Total Return
- Cumulative Total Return
- Annual Change in Purchase Unit Value
- Cumulative Change in Purchase Unit Value
- Total Return Based on Different Investment Amounts
- An Assumed Account Value of $10,000
Each of these is described below.
STANDARD AVERAGE ANNUAL TOTAL RETURN
Standard Average Annual Total Return shows the average percentage change in the
value of an investment in the Division from the beginning to the end of a given
historical period. The results shown are after all charges and fees have been
applied against the Division. This will include account maintenance fees and
surrender charges that would have been deducted if you surrendered Portfolio
Director 2 at the end of each period shown. Premium taxes are not deducted. This
information is calculated for each Division based on how an initial assumed
payment of $1,000 performed at the end of 1, 3, 5 and 10 year periods.
The return for periods of more than one year are annualized to obtain the
average annual percentage increase (or decrease) during the period.
Annualization assumes that the application of a single rate of return each year
during the period will produce the ending value, taking into account the effect
of compounding.
NONSTANDARD AVERAGE ANNUAL TOTAL
RETURN
Nonstandard Average Annual Total Return is calculated in the same manner as the
Standard Average Annual Total Return. However, Nonstandard Average Annual Total
Return shows only the historic investment results of the Division. Account
maintenance fees, surrender charges and premium taxes are not deducted.
CUMULATIVE TOTAL RETURN
Cumulative Total Return assumes the investment in Portfolio Director 2 will stay
in the Division beyond the time that a surrender charge would apply. It may be
calculated for 1, 3, 5 and 10 year periods. It is based on an assumed initial
investment of $10,000. The Cumulative Return will be calculated without
deduction of account maintenance fees, surrender charges or premium taxes.
ANNUAL CHANGE IN PURCHASE UNIT VALUE
Annual Change in Purchase Unit Value is a percentage change during a one year
period. This is calculated as follows:
- The Purchase Unit Value at the start of the year is subtracted from the
Purchase Unit Value at the end of the year;
- The difference is divided by the Purchase Unit Value at the start of the
year.
Account maintenance fees, surrender charges and premium taxes are not deducted.
The effect of these charges, if deducted, would reduce the Division's Annual
Change in Purchase Unit Value.
DIVISIONS -- Subaccounts of
VALIC Separate Account A
which represent the Variable
Account Options in Portfolio
Director 2. Each Division
invests in a different mutual
fund, each having its own
investment objective and
strategy.
PURCHASE PAYMENTS -- an
amount of money you pay to
VALIC to receive the benefits
of an annuity Contract offered
by Portfolio Director 2.
For more information on how
TOTAL RETURN PERFORMANCE
INFORMATION is calculated,
see the Statement of
Additional Information.
34
<PAGE> 153
- --------------------------------------------------------------------------------
CUMULATIVE CHANGE IN PURCHASE UNIT VALUE
Cumulative Change in Purchase Unit Value is a percentage change from the
beginning to the ending of a period usually greater than one year. Otherwise, it
is calculated in the same way as the Annual Change in Purchase Unit Value.
TOTAL RETURN BASED ON DIFFERENT
INVESTMENT AMOUNTS
We may show total return information based on different investment amounts. For
example, we may show $200 a month for 10 years, or $100 a month to age 65. Fees
may or may not be included. Each performance illustration will explain the
Portfolio Director 2 charges and fees imposed on the Division.
AN ASSUMED ACCOUNT VALUE OF $10,000
We may show annual values based on an initial investment of $10,000. This will
not reflect any deduction for account maintenance fees, surrender charges and
premium taxes.
YIELD PERFORMANCE INFORMATION
We may advertise Yield Performance, at a given point in time. A Division's yield
is one way of showing the rate of income the Division is earning as a percentage
of the Division's Purchase Unit Value.
AGSPC MONEY MARKET DIVISION
We may advertise the AGSPC Money Market Division's Current Yield and Effective
Yield.
The Current Yield refers to the income produced by an investment in the AGSPC
Money Market Division over a given 7-day period. The Current Yield does not take
into account surrender charges, account maintenance fees or premium taxes. The
income produced over a 7 day period is then "annualized." This means we are
assuming the amount of income produced during the 7-day period will continue to
be produced each week for an entire year. The annualized amount is shown as a
percentage of the investment.
The Effective Yield is calculated in a manner similar to the Current Yield. But,
when the yield is annualized the income earned is assumed to be reinvested. The
compounding effect will cause the Effective Yield to be higher than the Current
Yield.
DIVISIONS OTHER THAN THE AGSPC MONEY MARKET DIVISION
We may advertise the standardized yield performance for each Division other than
the AGSPC Money Market Division. The yield for each of these Divisions will be
determined as follows:
- We will subtract the account maintenance fee from the average daily net
investment income per Purchase Unit;
- We will divide the remainder by the Purchase Unit Value on the last day of
the period; and
- We will annualize the result.
PERFORMANCE INFORMATION:
AVERAGE ANNUAL TOTAL RETURN, CUMULATIVE RETURN AND ANNUAL AND CUMULATIVE CHANGE
IN PURCHASE UNIT VALUE TABLES.
In the sections above we have described a number of ways we may advertise
information about the investment performance of VALIC Separate Account A
Divisions. Certain performance information for each VALIC Separate Account A
Division is printed in the four tables below.
The information presented does not reflect the advantage under Portfolio
Director 2 of deferring federal income tax on increases in Account Value due to
earnings attributable to Purchase Payments (see "Federal Tax Matters" in the
prospectus and in the Statement of Additional Information.) The information
presented also does not reflect the advantage under Qualified Contracts of
deferring federal income tax on Purchase Payments.
The performance information presented in the following tables reflects the
performance of the underlying Fund after deduction of a mortality and expense
risk fee and administration and distribution fee at an aggregate annualized rate
of 0.60% to 0.85% during the Purchase Period on the daily average net asset
value of VALIC Separate Account A. The exact rate depends upon the Variable
Account Option selected.
35
<PAGE> 154
TABLE I
AVERAGE ANNUAL TOTAL RETURN
WITH SURRENDER CHARGE AND ACCOUNT MAINTENANCE FEE IMPOSED
(FROM UNDERLYING FUND INCEPTION TO DECEMBER 31, 1997)
<TABLE>
<CAPTION>
INCEPTION SINCE
FUND AND DIVISION* DATE INCEPTION 10 YEARS 5 YEARS 3 YEARS 1 YEAR
------------------ --------- --------- -------- ------- ------- ------
<S> <C> <C> <C> <C> <C> <C>
AGSPC Growth (Division 15)............................. 04/29/94 21.52% -- -- 28.85% 15.19%
AGSPC International Government Bond Fund (Division
13).................................................. 10/01/91 6.89 -- 5.53% 3.41 (9.73)
AGSPC Money Market Fund (Division 6)................... 01/16/86 -- 4.70% 2.82 2.97 (0.23)
AGSPC Science & Technology Fund (Division 17).......... 04/29/94 24.81 -- -- 21.61 (2.68)
AGSPC Social Awareness Fund (Division 12).............. 10/02/89 14.48 -- 18.30 30.22 27.95
AGSPC Stock Index Fund (Division 10)................... 04/20/87 -- 16.25 18.58 29.00 27.20
American Century-Twentieth Century Ultra (Division
31).................................................. 11/02/81 -- 20.99 16.30 22.37 17.14
Founders Growth (Division 30).......................... 01/05/62 -- 17.38 19.80 27.09 20.66
Neuberger&Berman Guardian Trust (Division 29)(1)....... 06/01/50 -- 16.67 14.75 20.36 12.04
Putnam Global Growth (Division 28)..................... 09/01/67 -- 10.45 13.29 12.81 7.57
Putnam New Opportunities (Division 26)................. 08/31/90 27.75% -- 26.68 23.77 16.70
Putnam OTC & Emerging Growth (Division 27)............. 11/01/82 -- 17.13 18.07 19.59 4.52
Scudder Growth and Income (Division 21)(2)............. 11/13/84 -- 15.93 18.29 25.61 24.21
Templeton Foreign (Division 32)........................ 10/05/82 -- 12.61 12.54 9.68 1.15
Vanguard Fixed Income Securities Fund --
Long-Term Corporate Portfolio (Division 22)**........ 07/09/73 -- 9.79 7.66 10.67 7.69
Vanguard Fixed Income Securities Fund --
Long-Term U.S. Treasury Portfolio (Division 23)**.... 05/19/86 -- 9.47 7.82 10.90 7.81
Vanguard/Wellington (Division 25)...................... 07/01/29 -- 13.62 14.88 21.63 17.05
Vanguard/Windsor II (Division 24)...................... 06/24/85 -- 17.05 19.08 29.41 26.12
</TABLE>
- ---------------
* The Table reflects the historical performance of each Fund based on
investment in a hypothetical Contract from the date of the Fund's inception.
The actual performance of each Fund has been reduced by Separate Account
fees that would have been incurred under the Contract. The Contracts offered
by this prospectus became available for purchase on January 1, 1998.
** The performance figures for the Vanguard Fixed Income Securities
Fund -- Long-Term Corporate Portfolio (Division 22) and the Vanguard Fixed
Income Securities Fund -- Long-Term U.S. Treasury Portfolio (Division 23) in
the Table do not take into account the Separate Account Reimbursement made
by the Company directly to those Divisions. If such reimbursements were
included, he performance figures for the Divisions would be higher.
(1) Neuberger&Berman Guardian Trust ("Trust") started operating on August 3,
1993. It has identical investment objectives and policies and invests in the
same portfolio as Neuberger&Berman Guardian Fund ("Fund"), which is also
managed by Neuberger&Berman Management Incorporated ("N&B Management"). The
performance information for the Trust before August 3, 1993 is for the Fund.
N&B Management voluntarily bears certain operating expenses of the Trust so
that the Trust's expense ratio per annum will not exceed the expense ratio
per annum of the Fund by more than 0.10% of the Trust's average daily net
assets per annum. This arrangement can be terminated on sixty days' prior
written notice. Absent such arrangement, the average annual total returns of
the Trust would have been less. The total returns for periods prior to the
Trust's commencement of operations would have been lower had they reflected
the higher expense ratios of the Trust as compared to those of the Fund.
(2) The Fund adopted its current name and objective on November 13, 1984. Its
predecessor commenced operations on May 31, 1929.
36
<PAGE> 155
TABLE II
AVERAGE ANNUAL TOTAL RETURN
WITH NO SURRENDER CHARGE AND ACCOUNT MAINTENANCE FEE IMPOSED
(FROM UNDERLYING FUND INCEPTION TO DECEMBER 31, 1997)
<TABLE>
<CAPTION>
INCEPTION SINCE
FUND AND DIVISION* DATE INCEPTION 10 YEARS 5 YEARS 3 YEARS 1 YEAR
------------------ --------- --------- -------- ------- ------- ------
<S> <C> <C> <C> <C> <C> <C>
AGSPC Growth (Division 15)............................. 04/29/94 22.45% -- -- 28.00% 20.27%
AGSPC International Government Bond Fund
(Division 13)........................................ 10/01/91 7.01 -- 6.44% 5.05 (5.41)
AGSPC Money Market Fund (Division 6)................... 01/16/86 4.82% 3.82 4.62 4.55
AGSPC Science & Technology Fund (Division 17).......... 04/29/94 25.69 -- -- 22.84 1.98
AGSPC Social Awareness Fund (Division 12).............. 10/02/89 14.62 -- 18.93 31.32 33.04
AGSPC Stock Index Fund (Division 10)................... 04/20/87 16.39 19.22 30.11 32.29
American Century -- Twentieth Century Ultra (Division
31).................................................. 11/02/81 -- 21.09 16.94 23.57 22.23
Founders Growth (Division 30).......................... 01/05/62 -- 17.48 20.38 28.21 25.75
Neuberger&Berman Guardian Trust (Division 29)(1)....... 06/01/50 -- 16.77 15.41 21.60 17.12
Putnam Global Growth (Division 28)..................... 09/01/67 -- 10.54 13.98 14.20 12.65
Putnam New Opportunities (Division 26)................. 08/31/90 27.85% -- 21.45 24.94 21.79
Putnam OTC & Emerging Growth (Division 27)............. 11/01/82 -- 17.23 18.68 20.84 9.52
Scudder Growth and Income (Division 21)(2)............. 11/13/84 -- 16.02 18.89 26.76 29.31
Templeton Foreign (Division 32)........................ 10/05/82 -- 12.71 13.25 11.14 5.99
Vanguard Fixed Income Securities Fund --
Long-Term Corporate Portfolio (Division 22).......... 07/09/73 -- 9.88 8.48 12.10 12.76
Vanguard Fixed Income Securities Fund --
Long-Term U.S. Treasury Portfolio (Division 23)...... 05/19/86 -- 9.56 8.64 12.33 12.89
Vanguard/Wellington (Division 25)...................... 07/01/29 -- 13.71 15.54 22.84 22.14
Vanguard/Windsor II (Division 24)...................... 06/24/85 -- 17.14 19.67 30.50 31.21
</TABLE>
- ---------------
* The Table reflects the historical performance of each Fund based on
investment in a hypothetical Contract from the date of the Fund's inception.
The actual performance of each Fund has been reduced by Separate Account fees
that would have been incurred under the Contract. The Contracts offered by
this prospectus became available for purchase on January 1, 1998.
** The performance figures for the Vanguard Fixed Income Securities
Fund -- Long-Term Corporate Portfolio (Division 22)
and the Vanguard Fixed Income Securities Fund -- Long-Term U.S. Treasury
Portfolio (Division 23) in the Table do not
take into account the Separate Account Reimbursement made by the Company
directly to those Divisions. If such
reimbursements were included, the performance figures for the Divisions would
be higher.
TABLE III
CUMULATIVE RETURN
WITH NO SURRENDER CHARGE OR ACCOUNT MAINTENANCE FEE IMPOSED
(FROM UNDERLYING FUND INCEPTION TO DECEMBER 31, 1997)
<TABLE>
<CAPTION>
INCEPTION SINCE
FUND AND DIVISION* DATE INCEPTION 10 YEARS 5 YEARS 3 YEARS 1 YEAR
------------------ --------- --------- -------- ------- ------- ------
<S> <C> <C> <C> <C> <C> <C>
AGSPC Growth Fund (Division 15)....................... 04/29/94 110.68% -- -- 109.73% 20.27%
AGSPC International Government Bond Fund (Division
13)................................................. 10/01/91 52.82 -- 36.65% 15.93 (5.41)
AGSPC Money Market Fund (Division 6).................. 01/16/86 -- 60.19% 20.60 14.51 4.55
AGSPC Science & Technology Fund (Division 17)......... 04/29/94 131.91 -- -- 85.37 1.98
AGSPC Social Awareness Fund (Division 12)............. 10/02/89 208.46 -- 137.98 126.46 33.04
AGSPC Stock Index Fund (Division 10).................. 04/20/87 -- 356.07 140.82 120.28 32.29
American Century -- Twentieth Century Ultra (Division
31)................................................. 11/02/81 -- 577.77 118.65 88.69 22.23
Founders Growth (Division 30)......................... 01/05/62 -- 400.73 152.75 110.77 25.75
Neuberger&Berman Guardian Trust (Division 29)(1)...... 06/01/50 -- 371.22 104.78 79.79 17.12
Putnam Global Growth (Division 28).................... 09/01/67 -- 172.41 92.38 48.92 12.65
Putnam New Opportunities (Division 26)................ 08/31/90 507.50 -- 164.27 95.05 21.79
Putnam OTC & Emerging Growth (Division 27)............ 11/07/82 -- 390.19 135.45 76.47 9.52
Scudder Growth and Income (Division 21)(2)............ 11/13/84 -- 342.03 137.52 103.68 29.31
Templeton Foreign (Division 32)....................... 10/05/82 -- 230.73 86.27 37.28 5.99
Vanguard Fixed Income Securities Fund --
Long-Term Corporate Portfolio (Division 22)......... 07/09/73 -- 156.51 50.22 40.88 12.76
Vanguard Fixed Income Securities Fund --
Long-Term U.S. Treasury Portfolio (Division 23)..... 05/19/86 -- 149.16 51.31 41.73 12.89
Vanguard/Wellington (Division 25)..................... 07/01/29 -- 261.50 105.90 85.37 22.14
Vanguard/Windsor II (Division 24)..................... 06/24/85 -- 386.63 145.39 122.27 31.21
</TABLE>
- ---------------
* The Table reflects the historical performance of each Fund based on
investment in a hypothetical Contract from the date of the Fund's inception.
The actual performance of each Fund has been reduced by Separate Account fees
that would have been incurred under the Contract. The Contracts offered by
this prospectus became available for purchase on January 1, 1998.
** The performance figures for the Vanguard Fixed Income Securities
Fund -- Long-Term Corporate Portfolio (Division 22) and the Vanguard Fixed
Income Securities Fund -- Long-Term U.S. Treasury Portfolio (Division 23) in
the Table do not take into account the Separate Account Reimbursement made by
the Company directly to those Divisions. If such reimbursements were
included, the performance figures for the Divisions would be higher.
37
<PAGE> 156
OTHER CONTRACT FEATURES
- --------------------------------------------------------------------------------
CHANGES THAT MAY NOT BE MADE
The following terms in Portfolio Director 2 may not be changed once your account
has been established:
- The Contract Owner;
- The Participant; and
- The Annuitant.
CHANGE OF BENEFICIARY
The Beneficiary (if not irrevocable) may usually be changed at any time.
Under some retirement programs, the right to name or change a Beneficiary is
subject to approval by the spouse. Also, the right to name a Beneficiary other
than the spouse may be subject to certain tax laws and regulations.
If the Annuitant dies, and there is no Beneficiary, any death benefit will be
payable to the Annuitant's estate.
If a Beneficiary dies while receiving payments, and there is no co-Beneficiary
to continue to receive payments, any amount still due will be paid to the
Beneficiary's estate.
CONTINGENT OWNER
The Contract Owner may name a Contingent Owner under an individual non-tax
qualified Contract. During the Purchase Period, the Contingent Owner may be
changed. However, if the Contract Owner dies, benefits must be distributed as
required by the federal tax law.
CANCELLATION -- THE 20 DAY "FREE LOOK"
The Contract Owner may cancel an individual contract by returning it to the
Company within 20 days after delivery. (A longer period will be allowed if
required under state law.) A refund will be made to the Contract Owner within 7
days after receipt of the Contract within the required period. The amount of the
refund will be equal to all Purchase Payments received or the amount required
under state law, if larger.
WE RESERVE CERTAIN RIGHTS
We reserve the right to:
- Amend the Contract to conform with substitutions of investments;
- Amend the Contract to comply with tax or other laws;
- Make changes (upon written notice) to group Contracts that would apply only
to new Participants after the effective date of the changes;
- Operate VALIC Separate Account A as a management investment company under
the 1940 Act, in consideration of an investment management fee or in any
other form permitted by law;
- Deregister VALIC Separate Account A under the 1940 Act, if registration is
no longer required;
- Stop accepting new Participants under a group Contract.
RELATIONSHIP TO EMPLOYER'S PLAN
If the Contract is being offered as a retirement plan through your employer, you
should always refer to the terms and conditions in your employer's plan when
reviewing the description of Portfolio Director 2 in this prospectus.
Plan loans from the Fixed Account Options may be allowed by your employer's
plan. Refer to your plan for a description of charges and other information.
38
<PAGE> 157
VOTING RIGHTS
- --------------------------------------------------------------------------------
As discussed in the "About VALIC Separate Account A" section of this prospectus,
VALIC Separate Account A holds on your behalf shares of the Funds which comprise
the Variable Account Options. From time to time the Funds are required to hold a
shareholder meeting to obtain approval from their shareholders for certain
matters. As a Participant, you may be entitled to give voting instructions to us
as to how VALIC Separate Account A should vote its Fund shares on these matters.
Those persons entitled to give voting instructions will be determined before the
shareholders meeting is held. For more information about these shareholder
meetings and when they may be held, see the Funds' prospectuses.
WHO MAY GIVE VOTING INSTRUCTIONS
In most cases during the Purchase Period, you will have the right to give voting
instructions for the shareholder meetings. This will be true even if your
employer is the Contract Owner. Contract Owners will instruct VALIC Separate
Account A in accordance with these instructions. You will receive proxy material
and a form on which voting instructions may be given before the shareholder
meeting is held.
You will not have the right to give voting instructions if Portfolio Director 2
was issued in connection with a nonqualified and unfunded deferred compensation
plan.
DETERMINATION OF FUND SHARES
ATTRIBUTABLE TO YOUR ACCOUNT
DURING PURCHASE PERIOD
The number of Fund shares attributable to your account will be determined on the
basis of the Purchase Units credited to your account on the record date set for
the Fund shareholder meeting.
DURING PAYOUT PERIOD OR AFTER A DEATH
BENEFIT HAS BEEN PAID
The number of Fund shares attributable to your account will be based on the
liability for future variable annuity payments to your payees on the record date
set for the Fund shareholder meeting.
HOW FUND SHARES ARE VOTED
The Funds which comprise the Variable Account Options in Portfolio Director 2
may have a number of shareholders including VALIC Separate Account A, VALIC
other affiliated insurance company separate accounts and retirement plans within
the American General group of companies and public shareholders.
VALIC Separate Account A will vote all of the shares of the Funds it holds based
on, and in the same proportion as, the instructions given by all the
Participants invested in that Fund entitled to give instructions at that
shareholder meeting. VALIC Separate Account A will vote the shares of the Funds
it holds for which it receives no voting instruction in the same proportion as
the shares for which voting instructions have been received.
VALIC will vote the shares of the Funds it holds based on, and in the same
proportion as, the voting instructions received from participants in VALIC
Separate Account A.
In the future, we may decide how to vote the shares of VALIC or VALIC Separate
Account A in a different manner if permitted at that time under federal
securities law.
VALIC SEPARATE
ACCOUNT A -- a segregated
asset account established by
VALIC under the Texas
Insurance Code. The purpose
of VALIC Separate Account A
is to receive and invest your
Purchase Payments and
Account Value in the Variable
Account Options you have
selected.
39
<PAGE> 158
FEDERAL TAX MATTERS
- --------------------------------------------------------------------------------
Portfolio Director 2 provides tax-deferred accumulation over time, but is
subject to federal income and excise taxes, mentioned briefly below. You should
refer to the Statement of Additional Information for further details. Section
references are to the Internal Revenue Code ("Code"). We do not attempt to
describe any potential estate or gift tax, or any applicable state, local or
foreign tax law other than possible premium taxes mentioned under "Premium Tax
Charge." Remember that future legislation could modify the rules discussed
below, and always consult your personal tax adviser regarding how the current
rules apply to your specific situation.
TYPE OF PLANS
Tax rules vary, depending on whether the Contract is offered under your
employer's tax-qualified retirement program or 408(b) IRA, or is instead a
nonqualified Contract. Portfolio Director 2 is used under the following types of
retirement arrangements:
- Section 403(b) annuities for employees
of public schools and
Section 501(c)(3) tax-exempt
organizations;
- Section 401(a) and 403(a) qualified plans of for-profit employers and other
employers (including self-employed individuals);
- Section 408(b) individual retirement annuities;
- Section 457 deferred compensation plans of governmental and tax-exempt
employers;
- Section 408(k) simplified deferred
compensation plans of private
employers.
- Section 408(p) SIMPLE retirement
accounts.
The foregoing Contracts are "Qualified Contracts." Certain series of Portfolio
Director 2 may also be available through a nondeductible Section 408A "Roth"
individual retirement annuity.
Note that the specific terms of the governing employer plan may limit rights and
options otherwise available under a Contract.
In addition, Portfolio Director 2 is also available through "Non-Qualified
Contracts" to the extent acquired by "Non-Natural Persons." Such Non-Qualified
Contracts generally include unfunded, nonqualified deferred compensation plans
of corporate employers.
TAX CONSEQUENCES IN GENERAL
Purchase Payments, distributions, withdrawals, transfers and surrender of a
Contract can each have a tax effect, which varies with the governing retirement
arrangement. Please refer to the detailed explanation in the Statement of
Additional Information, the documents (if any) controlling the retirement
arrangement through which the contract is offered, and your personal tax
adviser.
Purchase Payments under Portfolio Director 2 can be made as contributions by
employers, or as pre-tax or after-tax contributions by employees, depending on
the type of retirement program. After-tax employee contributions constitute
"investment in the Contract." All Qualified Contracts receive deferral of tax on
the inside build-up of earnings on invested Purchase Payments, until a
distribution occurs. See the Statement of Additional Information for special
rules, including those applicable to taxable, non-natural owners of
Non-Qualified Contracts.
Distributions are taxed differently depending on the program through which
Portfolio Director 2 is offered and the previous tax characterization of the
contributions to which the distribution relates. Generally, the portion of a
distribution which is not considered a return of investment in the Contract is
subject to income tax. For annuity payments, investment in the contract is
recovered ratably over the expected payout period. Special recovery rules might
apply in certain situations.
Amounts subject to income tax may also incur excise tax, under the circumstances
described in the Statement of Additional Information. Generally, they would also
be subject to some form of federal income tax withholding unless rolled into
another tax-deferred vehicle. Required withholding will vary according to type
of program, type of payment and your tax status. In addition, amounts received
under all Contracts may be subject to state income tax withholding requirements.
It is the opinion of VALIC and its tax counsel that a Qualified Contract
described in Section 403(a), 403(b), or 408(b) of the Code does not lose its
deferred tax treatment if purchase payments under the contract are invested in
publicly available mutual funds. In a ruling published in 1981, the Internal
Revenue Service ("IRS") had taken the position that, where purchase payments
under a variable annuity contract are invested in publicly available mutual
funds, the contract owner should be treated as the owner of the mutual fund
shares, and deferred tax treatment under the contract should not be available.
In the opinion of VALIC and its tax counsel, the 1981 ruling has been superseded
by subsequent legislation (Code Section 817(h)) which specifically exempts these
Qualified
40
<PAGE> 159
- --------------------------------------------------------------------------------
Contracts, and the IRS has no viable legal basis or reason to apply the theory
of the 1981 ruling to these Qualified Contracts under current law. In any event,
were the IRS to challenge the deferred tax treatment of these Qualified
Contracts under the theory of the 1981 ruling, VALIC and its tax counsel believe
that Contract owners would prevail.
It is also the opinion of VALIC and its tax counsel that for each other type of
Qualified Contract an independent exemption provides tax deferral regardless of
ownership of the Mutual Fund shares.
Generally, investment earnings on contributions to Non-Qualified Contracts will
be taxed currently to the owner and such contracts will not be treated as
annuities for federal income tax purposes.
EFFECT OF TAX-DEFERRED ACCUMULATIONS
The chart below compares the results from
Premium Payments made to:
- Portfolio Director 2 Contract issued to a tax favored retirement program
purchased with pre-tax premium payments;
- A non-qualified Contract purchased with after-tax Premium Payments and;
- Conventional savings vehicles such as savings accounts.
THE POWER OF TAX-DEFERRED GROWTH
[BAR GRAPH]
This hypothetical chart compares the results of (1) contributing $100 per month
to a conventional, non-tax deferred plan, (2) contributing $100 to a
nonqualified, tax-deferred annuity, and (3) contributing $100 per month ($138.89
since contributions are made before tax) to a qualified tax-deferred plan. The
chart assumes a 28% tax rate and an 8% fixed rate of return. The deduction of
fees and charges for both tax-deferred plans is reflected in the chart. Variable
options incur mortality and expense risk fee and administration and distribution
fee charges (0.60% - 0.85% during the purchase period and 1% - 1.25% during the
payout period) and may also incur account maintenance fees ($3.75 per quarter)
and surrender charges (5% of the lesser of all contributions received during the
last 60 months or the amount withdrawn). The dotted lines represent the amounts
remaining after withdrawal and payment of taxes and any surrender charge. An
additional 10% tax penalty may apply to withdrawals before age 59 1/2. This
information is for illustrative purposes only and is not a guarantee of future
return.
Unlike savings accounts, Premium Payments made to tax-favored retirement
programs and Non-Qualified Contracts generally provide tax deferred treatment on
earnings. In addition, Premium Payments made to tax-favored retirement programs
ordinarily are not subject to income tax until withdrawn. As shown above,
investing in a tax-favored program increases the accumulation power of savings
over time. The more taxes saved and reinvested in the program, the more the
accumulation power effectively grows over the years.
To further illustrate the advantages of tax deferred savings using a 28% Federal
tax bracket, an annual fixed yield (BEFORE THE DEDUCTION OF ANY FEES OR CHARGES)
of 8% under a tax-favored retirement program in which tax savings were
reinvested has an equivalent after-tax annual fixed yield of 5.76% under a
conventional savings program. THE 8% YIELD ON THE TAX-FAVORED PROGRAM WILL BE
REDUCED BY THE IMPACT OF INCOME TAXES UPON WITHDRAWAL. The yield will vary
depending upon the timing of withdrawals. The previous chart represents (without
factoring in fees and charges) after-tax amounts that would be received.
By taking into account the current deferral of taxes, contributions to
tax-favored retirement programs increase the amount available for savings by
decreasing the relative current out-of-pocket cost (referring to the effect on
annual net take-home pay) of the investment. The chart below illustrates this
principle by comparing a
41
<PAGE> 160
- --------------------------------------------------------------------------------
pre-tax contribution to a tax-favored retirement plan with an after-tax
contribution to a conventional savings account:
PAYCHECK COMPARISON
<TABLE>
<CAPTION>
TAX-FAVORED CONVENTIONAL
RETIREMENT SAVINGS
PROGRAM ACCOUNT
----------- ------------
<S> <C> <C>
Annual amount available
for savings before
federal taxes......... $2,500 $2,500
Current federal income
tax due on Purchase
Payments.............. 0 (700)
Net retirement plan
Purchase Payments..... $2,500 $1,800
</TABLE>
This chart assumes a 28% federal income tax rate. The $700 which is paid toward
current federal income taxes reduces the actual amount saved in the conventional
savings account to $1,800, while the full $2,500 is contributed to the
tax-qualified program, subject to being taxed upon withdrawal. Stated otherwise,
to reach an annual retirement savings goal of $2,500, the contribution to a tax-
qualified retirement program results in a current out-of-pocket expense of
$1,800 while the contribution to a conventional savings account requires the
full $2,500 out-of-pocket expense. The tax-qualified retirement program
represented in this chart is a plan type, such as one under Section 403(b) of
the Code, which allows participants to exclude contributions within limits, from
gross income.
42
<PAGE> 161
YEAR 2000
- --------------------------------------------------------------------------------
Year 2000 Risks
Like other insurance companies, financial and business organizations around the
world, each of the Variable Account Options and the underlying mutual funds
could be adversely affected if the computer systems used by the Company, other
service providers and entities with computer systems that are linked to the
Company's records do not properly process and calculate date-related information
and data from and after January 1, 2000. This is commonly known as the "Year
2000 Issue." The Company is taking steps that it believes are reasonably
designed to address the Year 2000 Issue with respect to the computer systems
that it uses and to obtain satisfactory assurances that comparable steps are
being taken by each of the Variable Account Options' other major service
providers. The Company expects to be substantially complete with its computer
systems projects to address year 2000 issues by the end of 1998. However, there
can be no assurance that these steps will be sufficient to avoid any adverse
impact on the Variable Account Options.
43
<PAGE> 162
(This page intentionally left blank)
<PAGE> 163
REVOCATION OF TELEPHONE ASSET TRANSFER AUTHORITY
Participant/Contract Owner Name:
------------------------------------------------------------------------
Social Security Number:
------------------------------------------------------------------------
Birth Date:
I am the Participant under or Contract Owner of one or more variable annuity
contracts issued by The Variable Annuity Life Insurance Company ("VALIC"). I
hereby instruct VALIC not to accept any telephone instructions to transfer
Account Values among investment options or change the allocation of future
Purchase Payments from me, anyone representing me or anyone representing himself
or herself to be me. I understand as a result of executing this form that the
transfer of Account Values or Payout Values among investment options or changes
in the allocation of future Purchase Payments may only be effected upon the
receipt by VALIC of my written instructions.
<TABLE>
<S> <C>
- ------------------------------------------------------------ ---------------------------------------
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>
<PAGE> 164
(This page intentionally left blank)
<PAGE> 165
Please tear off, complete and return the form below to one of our Regional
Offices at the address shown on the inside back cover of this Prospectus. A
Statement of Additional Information may also be ordered by calling
1-800-44-VALIC.
................................................................................
PORTFOLIO DIRECTOR CONTRACTS
Please send me a free copy of the Statement of Additional Information for The
Variable Annuity Life Insurance Company Separate Account A (Portfolio Director
2).
(Please Print or Type)
- --------------------------------------------------------------------------------
Name: G.A. #
Address: Policy #
Social Security Number:
- --------------------------------------------------------------------------------
<PAGE> 166
(This page intentionally left blank)
<PAGE> 167
CONTENTS OF STATEMENT OF ADDITIONAL INFORMATION
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
General Information................................. 4
Marketing Information........................... 4
Endorsements and Published Ratings.............. 7
Types of Variable Annuity Contracts................. 8
Federal Tax Matters................................. 8
Tax Consequences of Purchase Payments........... 9
Tax Consequences of Distributions............... 10
Special Tax Consequences -- Early
Distribution.................................. 11
Special Tax Consequences -- Required
Distributions................................. 12
Tax Free Rollovers, Transfers and Exchanges..... 13
Exchange Privilege.................................. 14
Exchanges From Portfolio Director, Exchanges
From Portfolio Director 2..................... 14
Exchanges From Independence Plus Contracts...... 14
Exchanges From V-Plan Contracts................. 16
Exchanges From SA-1 and SA-2 Contracts.......... 17
Exchanges From Impact Contracts................. 18
Exchanges From Compounder Contracts............. 19
Information Which May Be Applicable To Any
Exchange...................................... 20
Calculation of Surrender Charge..................... 21
Illustration of Surrender Charge on Total Surrender 21
Illustration of Surrender Charge on a 10%
Partial Surrender Followed by a Full
Surrender..................................... 21
Purchase Unit Value................................. 22
Illustration of Calculation of Purchase Unit
Value......................................... 22
Illustration of Purchase of Purchase Units...... 22
Performance Calculations............................ 22
AGSPC Money Market Division Yields.............. 22
Calculation of Current Yield for AGSPC Money
Market Division Six........................... 22
Illustration of Calculation of Current Yield for
AGSPC Money Market Division Six............... 22
Calculation of Effective Yield for AGSPC Money
Market Division Six........................... 23
Illustration of Calculation of Effective Yield
for AGSPC Money Market Division Six........... 23
Standardized Yield for Bond Fund Divisions.......... 23
Calculation of Standardized Yield for Bond Fund
Divisions..................................... 23
Illustration of Calculation of Standardized
Yield for Bond Fund Divisions................. 23
Calculation of Average Annual Total Return...... 24
Performance Information............................. 25
Hypothetical $10,000 Account Value and
Cumulative Return as Compared to Benchmark
Tables........................................ 25
Performance Compared to Market Indices.......... 25
AGSPC Growth Division Fifteen Performance
Compared to S&P 500 Index..................... 28
AGSPC International Government Bond Division
Thirteen Performance Compared to Salomon
Brothers Non-U.S. Dollar World Government Bond
Index......................................... 28
</TABLE>
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
AGSPC Money Market Division Six Performance
Compared to Certificate of Deposit Primary
Offering by New York City Banks, 30 Day
Index......................................... 29
AGSPC Science & Technology Division Seventeen
Performance Compared to S&P 500 Index......... 29
AGSPC Social Awareness Division Twelve
Performance Compared to S&P 500 Index......... 30
AGSPC Stock Index Division Ten Performance
Compared to S&P 500 Index..................... 30
American Century -- Twentieth Century Ultra
Division Thirty-one Compared to S&P 500 Index
and NASDAQ Composite Index.................... 31
Founders Growth Division Thirty Compared to S&P
500 Index..................................... 31
Neuberger&Berman Guardian Trust Division
Twenty-nine Compared to S&P 500 Index......... 32
Putnam Global Growth Division Twenty-eight
Compared to MCSI World Index and S&P 500
Index......................................... 32
Putnam New Opportunities Division Twenty-six
Compared to S&P 500 Index..................... 33
Putnam OTC & Emerging Growth Division Twenty-
seven Compared to Russell 2000 Index and S&P
500 Index..................................... 34
Scudder Growth and Income Division Twenty-one
Compared to S&P 500 Index..................... 34
Templeton Foreign Division Thirty-two Compared
to EAFE Index................................. 35
Vanguard Fixed Income Securities
Fund -- Long-Term Corporate Portfolio Division
Twenty-two Compared to Merrill Lynch Corporate
Master Index.................................. 35
Vanguard Fixed Income Securities
Fund -- Long-Term U.S. Treasury Portfolio
Division Twenty-three Compared to Lehman
Brothers U.S. Treasury Long-Term Index........ 36
Vanguard/Wellington Division Twenty-five
Compared to S&P 500 Index and Merrill Lynch
Corporate Master Index........................ 36
Vanguard/Windsor II Division Twenty-four
Compared to S&P 500 Index..................... 37
Payout Payments..................................... 38
Assumed Investment Rate......................... 38
Amount of Payout Payments....................... 38
Payout Unit Value............................... 38
Illustration of Calculation of Payout Unit
Value......................................... 39
Illustration of Payout Payments................. 39
Distribution of Variable Annuity Contracts.......... 40
Experts............................................. 40
Comments on Financial Statements.................... 41
</TABLE>
<PAGE> 168
================================================================================
FOR ADDITIONAL INFORMATION ABOUT THE CONTRACTS
CONTACT YOUR NEAREST REGIONAL OFFICE:
3535 Grandview Parkway
Suite 200
Birmingham, AL 35243
(205) 967-8955
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
(650) 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 1900
Chicago, IL 60606
(312) 368-1001
11711 N. Meridian St.
Suite 300
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
(248) 641-0022
8500 Normandale Lake Blvd.
Suite 750
Bloomington, MN 55437
(612) 893-1099
4266 Interstate 55N
Suite 108
Jackson, MS 39211
(601) 981-5801
410 Amherst Street
Suite 250
Nashua, NH 03063
(603) 883-3840
90 Woodbridge Ctr. Dr.
Suite 300
Woodbridge, NJ 07095
(732) 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
Two International Plaza
Suite 601
Nashville, TN 37217
(615) 254-4822
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-six branch offices located throughout the
country.
THE VARIABLE ANNUITY LIFE INSURANCE COMPANY
2929 ALLEN PARKWAY, HOUSTON, TEXAS 77019
1-800-44-VALIC
FOR UNIT VALUE INFORMATION CALL: 1-800-42-VALIC & TDD 1-800-24-VALIC
FOR ASSET TRANSFERS BY TELEPHONE CALL: 1-800-621-7792
TDD 1-800-35-VALIC
EASYACCESS 1-800-42-VALIC
TDD EASYACCESS 1-800-24-VALIC
================================================================================
<PAGE> 169
THE VARIABLE ANNUITY LIFE INSURANCE COMPANY
UNITS OF INTEREST UNDER GROUP AND INDIVIDUAL
VARIABLE ANNUITY CONTRACTS
PORTFOLIO DIRECTOR T
SEPARATE ACCOUNT A
May 1, 1998
PROSPECTUS
Certain series of Portfolio Director T consist of group and individual variable
annuity contracts that are offered by The Variable Annuity Life Insurance
Company ("VALIC") to Participants in certain employer sponsored retirement
plans. Portfolio Director T consists of group variable annuity contracts that
are offered by VALIC to Participants in certain employer sponsored retirement
plans. Portfolio Director T may be available to you when you participate in a
retirement program that qualifies for deferral of federal income taxes.
Non-qualified contracts are also available for certain employer plans only.
Portfolio Director T is composed of the following contract forms: UIT-194,
UITG-194, UITN-194, UIT-IRA-194 and UIT-SEP-194.
Portfolio Director T permits you to invest in and receive retirement benefits
from Fixed Account Options and/or Variable Account Options. Each of these
investment options is explained more fully in this prospectus. Here is a list of
these investment options:
TWO FIXED ACCOUNT OPTIONS: Fixed Account Plus
Short-Term Fixed Account
TEN VARIABLE ACCOUNT OPTIONS*
<TABLE>
<S> <C> <C>
American General Series Portfolio Scudder Kemper Investments, Inc.: The Vanguard Group, Inc.:
Company (AGSPC): Scudder Growth and Income Fund Vanguard Fixed Income
Asset Allocation Fund Securities Fund --
Growth Fund Long-Term Corporate
Money Market Fund Portfolio
Science & Technology Fund Vanguard Fixed Income
Small Cap Index Fund Securities Fund --
Social Awareness Fund Long-Term U.S.
Stock Index Fund Treasury Portfolio
</TABLE>
* Each of these mutual funds is publicly available except for the seven AGSPC
Funds.
- --------------------------------------------------------------------------------
This prospectus provides you with information you should know before investing
in Portfolio Director T. This prospectus is accompanied by the current
prospectuses for the mutual fund options listed above. Please read and retain
each of these prospectuses for future reference.
A Statement of Additional Information, dated May 1, 1998, has been filed with
the Securities and Exchange Commission. This Statement of Additional Information
contains additional information about Portfolio Director T and is part of this
prospectus. For a free copy, complete and return the form contained in the back
of this prospectus or call 1-800-44-VALIC.
NO PERSON HAS BEEN AUTHORIZED TO GIVE ANY INFORMATION OR TO MAKE ANY
REPRESENTATIONS OTHER THAN THOSE CONTAINED IN THIS PROSPECTUS IN CONNECTION WITH
THE OFFER CONTAINED IN THIS PROSPECTUS, AND IF GIVEN OR MADE, SUCH INFORMATION
OR REPRESENTATION MUST NOT BE RELIED UPON AS HAVING BEEN AUTHORIZED. THIS
PROSPECTUS DOES NOT CONSTITUTE AN OFFER IN ANY JURISDICTION TO ANY PERSON TO
WHOM SUCH OFFER WOULD BE UNLAWFUL THEREIN.
THE SECURITIES AND EXCHANGE COMMISSION HAS NOT APPROVED OR DISAPPROVED THESE
SECURITIES. ALSO, IT HAS NOT PASSED ON WHETHER THIS PROSPECTUS IS ADEQUATE OR
ACCURATE. IT IS A CRIMINAL OFFENSE TO STATE OTHERWISE.
<PAGE> 170
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
ABOUT THE PROSPECTUS........................... 1
PROFILE OF PORTFOLIO DIRECTOR T................ 2
FEE TABLE...................................... 4
SELECTED PURCHASE UNIT DATA.................... 7
ABOUT PORTFOLIO DIRECTOR T..................... 8
ABOUT VALIC.................................... 8
ABOUT VALIC SEPARATE ACCOUNT A................. 8
UNITS OF INTERESTS............................. 8
VARIABLE ACCOUNT OPTIONS....................... 9
Summary of Funds.......................... 9
PURCHASE PERIOD................................ 15
Purchase Payments......................... 15
Purchase Units............................ 15
Calculation of Purchase Unit Value........ 15
Choosing Investment Options............... 16
Fixed Account Options................ 16
Variable Account Options............. 16
Stopping Purchase Payments................ 16
TRANSFERS BETWEEN INVESTMENT OPTIONS........... 17
During the Purchase Period................ 17
During the Payout Period.................. 17
Communicating Transfer or Reallocation
Instructions............................ 17
Effective Date of Transfer................ 17
FEES AND CHARGES............................... 18
Account Maintenance Fee................... 18
Surrender Charge.......................... 18
Amount of Surrender Charge........... 18
10% Free Withdrawal.................. 18
Exceptions to Surrender Charge....... 18
Premium Tax Charge........................ 19
Separate Account Charges.................. 19
Fund Annual Expense Charge................ 19
Other Tax Charges......................... 19
Reduction or Waiver of Account Maintenance
Fee, Surrender, Mortality and Expense
Risk Fee or Administration and
Distribution Fee Charges................ 20
Separate Account Expense Reimbursement.... 20
PAYOUT PERIOD.................................. 21
Fixed Payout.............................. 21
Variable Payout........................... 21
Combination Fixed and Variable Payout..... 21
Payout Date............................... 21
Payout Options............................ 21
Enhancements to Payout Options............ 22
Payout Information........................ 22
SURRENDER OF ACCOUNT VALUE..................... 23
When Surrenders are Allowed............... 23
Amount That May Be Surrendered............ 23
Surrender Restrictions.................... 23
Partial Surrenders........................ 23
Systematic Withdrawals.................... 23
Distributions Required By Federal Tax
Law..................................... 24
EXCHANGE PRIVILEGE............................. 25
Restrictions on Exchange Privilege........ 25
Taxes and Conversion Costs................ 25
</TABLE>
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Surrender Charge.......................... 25
Exchange Offers for Contracts Other Than
Portfolio Director, Portfolio Director 2
and Portfolio Director T................ 25
Exchange Offer for Portfolio Director,
Portfolio Director 2 and Portfolio
Director T.............................. 26
Comparison of Contracts................... 26
Features of Portfolio Director T.......... 26
DEATH BENEFITS................................. 27
Beneficiary Information................... 27
Special Information for Individual Non-Tax
Qualified Contracts..................... 27
During the Purchase Period................ 27
Interest Guaranteed Death Benefit.... 27
Standard Death Benefit............... 28
During the Payout Period.................. 28
HOW TO REVIEW INVESTMENT PERFORMANCE OF
SEPARATE ACCOUNT DIVISIONS................... 29
Types of Investment Performance
Information Advertised.................. 29
Total Return Performance Information.... 29
Standard Average Annual Total Return.... 29
Nonstandard Average Annual Total
Return.................................. 29
Cumulative Total Return................. 29
Annual Change in Purchase Unit Value.... 29
Cumulative Change in Purchase Unit
Value................................ 30
Total Return Based on Different
Investment Amounts................... 30
An Assumed Account Value of $10,000..... 30
Yield Performance Information............. 30
AGSPC Money Market Division............. 30
Divisions Other Than The AGSPC Money
Market Division...................... 30
Performance Information: Average Annual
Total Return, Cumulative Return and
Annual and Cumulative Change in Purchase
Unit Value Tables....................... 30
OTHER CONTRACT FEATURES........................ 33
Changes That May Not Be Made.............. 33
Change of Beneficiary..................... 33
Contingent Owner.......................... 33
Cancellation -- The 20 Day "Free Look".... 33
We Reserve Certain Rights................. 33
Relationship to Employer's Plan........... 33
VOTING RIGHTS.................................. 34
Who May Give Voting Instructions.......... 34
Determination of Fund Shares Attributable
to Your Account......................... 34
During Purchase Period.................. 34
During Payout Period or after a Death
Benefit Has Been Paid................ 34
How Fund Shares Are Voted................. 34
FEDERAL TAX MATTERS............................ 35
Type of Plans............................. 35
Tax Consequences in General............... 35
Effect of Tax-Deferred Accumulations...... 36
YEAR 2000...................................... 38
Year 2000 Risks........................... 38
</TABLE>
(i)
<PAGE> 171
ABOUT THE PROSPECTUS
- --------------------------------------------------------------------------------
Unless otherwise specified in this prospectus, the words we, our, Company, and
VALIC mean The Variable Annuity Life Insurance Company. The words you and your,
unless otherwise specified in this prospectus, mean the participant, contract
owner, annuitant or beneficiary.
We will use a number of other specific terms in this prospectus. We will, when
that term is used in the prospectus, provide you with a definition of that term.
The terms used in this prospectus for which we will provide you a definition
are:
<TABLE>
<CAPTION>
DEFINED TERMS PAGE NO.
- ------------- --------
<S> <C>
Account Value 17
Annuitant 27
Assumed Investment Rate 21
Beneficiary 27
Contract Owner 27
Division 29
Fixed Account Options 27
Home Office 17
Mutual Fund or Fund 08
Participant 01
Participant Year 18
Payout Period 17
Payout Unit 21
Purchase Payments 15,29
Purchase Period 17
Purchase Unit 16
VALIC Separate Account A 34
Variable Account Options 09,27
</TABLE>
This prospectus is being given to you to help you make decisions for selecting
various investment options and benefits to plan and save for your retirement. It
is intended to provide you with information about VALIC, Portfolio Director T,
and saving for your retirement.
The purpose of Variable Account Options and Variable Payout Options is to
provide you investment returns which are greater than the effects of inflation.
We cannot, however, guarantee that this purpose will be achieved.
This prospectus describes a contract in which units of interest in VALIC's
Separate Account A are offered. Portfolio Director T will allow you to
accumulate retirement dollars in Fixed Account Options and/or Variable Account
Options. This prospectus describes only the variable aspects of Portfolio
Director T except where the Fixed Account Options are specifically mentioned.
For specific information about the Variable Account Options, you should refer to
the mutual fund prospectuses you have been given with this document. You should
keep these prospectuses to help answer any questions you may have in the future.
Following this introduction is a summary of the major features and options of
Portfolio Director T. This summary is called the "Profile of Portfolio Director
T." It is intended to provide you with a brief overview of those sections
discussed in more detail in this prospectus.
PARTICIPANT -- the individual,
(in most cases you are the
Participant) for whom
Purchase Payments are made.
1
<PAGE> 172
PROFILE OF PORTFOLIO DIRECTOR T
- --------------------------------------------------------------------------------
Portfolio Director T is VALIC's combination fixed and variable annuity that
offers you a wide choice of investment options and flexibility. A summary of
Portfolio Director T's major features is presented below. For a more detailed
discussion of Portfolio Director T, please read the entire prospectus carefully.
FIXED AND VARIABLE OPTIONS
Portfolio Director T offers you a choice from among 10 Variable Account Options
and two Fixed Account Options. You may invest in up to seven of these investment
options at any one time.
- --------------------------------------------------------------------------------
<TABLE>
<S> <C> <C> <C>
FIXED ACCOUNT
OPTIONS
- -------------------------------------------------------------------------------------------------------------------------------
FIXED Fixed Guaranteed high current --
OPTIONS Account Plus interest income
-----------------------------------------------------------------------------------------------------------
Short-Term Guaranteed current --
Fixed Account interest income
- -------------------------------------------------------------------------------------------------------------------------------
VARIABLE ACCOUNT INVESTMENT
OPTIONS STRATEGY ADVISER
- -------------------------------------------------------------------------------------------------------------------------------
INDEX AGSPC Small Cap Index Growth through investments tracking the Russell 2000(R) VALIC
EQUITY Fund Index
FUNDS
-----------------------------------------------------------------------------------------------------------
AGSPC Stock Growth through investments tracking VALIC
Index the S&P 500(R) Index
Fund
- -------------------------------------------------------------------------------------------------------------------------------
ACTIVELY AGSPC Growth Growth through investments VALIC
MANAGED Fund in service sector companies
-----------------------------------------------------------------------------------------------------------
EQUITY Scudder Growth Long-term growth of capital, current Scudder
FUNDS and Income Fund income and growth of income
- -------------------------------------------------------------------------------------------------------------------------------
INCOME Vanguard Fixed Income Income through investment Vanguard
FUNDS Securities in long-term high quality corporate bonds
Fund-Long-Term
Corporate Portfolio
-----------------------------------------------------------------------------------------------------------
Vanguard Fixed Income Income through investment in Vanguard
Securities long-term U.S. Treasury bonds
Fund-Long-Term
U.S. Treasury Portfolio
- -------------------------------------------------------------------------------------------------------------------------------
SPECIALTY AGSPC Science & Growth through investments in stocks VALIC
FUNDS Technology of companies which benefit from
Fund development of science and technology
-----------------------------------------------------------------------------------------------------------
AGSPC Social Growth through investments in VALIC
Awareness stocks of companies meeting social
Fund criteria of the Fund
- -------------------------------------------------------------------------------------------------------------------------------
MONEY AGSPC Money Income through investments in VALIC
MARKET Market short-term money market
FUND Fund securities
- -------------------------------------------------------------------------------------------------------------------------------
ASSET AGSPC Asset Maximum return through investments in VALIC
ALLOCATION Allocation a mix of stocks, bonds and money market
FUND Fund securities
- -------------------------------------------------------------------------------------------------------------------------------
<CAPTION>
<S> <C>
- ------------------------------------------------------------
FIXED --
OPTIONS
------------------------------------------------------------
--
- -----------------------------------------------------------------------------------------------------------------------
SUBADVISER
- -------------------------------------------------------------------------------------------------------------------------------
INDEX Bankers Trust
EQUITY
FUNDS
-----------------------------------------------------------------------------------------------------------
Bankers Trust
- -------------------------------------------------------------------------------------------------------------------------------
ACTIVELY T. Rowe Price
MANAGED
-----------------------------------------------------------------------------------------------------------
EQUITY N/A
FUNDS
- -------------------------------------------------------------------------------------------------------------------------------
INCOME N/A
FUNDS
-----------------------------------------------------------------------------------------------------------
N/A
- -------------------------------------------------------------------------------------------------------------------------------
SPECIALTY T. Rowe Price
FUNDS
-----------------------------------------------------------------------------------------------------------
N/A
- -------------------------------------------------------------------------------------------------------------------------------
MONEY N/A
MARKET
FUND
- -------------------------------------------------------------------------------------------------------------------------------
ASSET N/A
ALLOCATION
FUND
- -------------------------------------------------------------------------------------------------------------------------------
</TABLE>
2
<PAGE> 173
- --------------------------------------------------------------------------------
A detailed description of the investment objective of each Fund can be found in
the section of the prospectus entitled "Variable Account Options," and also in
the current prospectus for each Fund mentioned.
INTEREST GUARANTEED DEATH
BENEFIT
Portfolio Director T offers a death benefit with an interest guarantee when
death occurs prior to your reaching age 70.
This contract provision is not available in some states.
LOANS
Portfolio Director T offers a tax-free loan provision for tax-qualified
contracts that gives you access to your money in either of the Fixed Account
Options, subject to a minimum loan amount of $1,000. The availability of loans
is subject to government regulations, as well as your employer's plan
provisions.
Keep in mind that tax laws place restrictions on withdrawals (i.e. loans which
are not repaid) if made prior to age 59 1/2.
TRANSFERS
There is no charge to transfer the money in your account among Portfolio
Director T's investment options. You may transfer your Account Values between
Variable Account Options at any time during the Purchase Period.
Your Account Value in the Short-Term Fixed Account must remain there for at
least 90 days before it can be transferred to other investment options. In Fixed
Account Plus, up to 20% of your Account Value may be transferred during each
contract year to other investment options.
Once you begin receiving payments from your account (called the Payout Period),
you may still transfer funds among Variable Account Options once each contract
year.
Transfers can be made by calling VALIC's toll-free transfer service at
1-800-621-7792. For more information on account transfers, see the "Transfers
Between Investment Options" section in the prospectus.
FEES AND CHARGES
ACCOUNT MAINTENANCE FEE
If any of your account is invested in Variable Account Options, a quarterly
account maintenance fee of $3.75 is charged to your account. If you invest only
in Fixed Account Options during a calendar quarter no account maintenance fee is
assessed. Reductions in the account maintenance fee may be available if certain
conditions are met.
SURRENDER CHARGE
Under some circumstances a surrender charge is made to your account. These
situations are discussed in detail in the section of the prospectus entitled
"Fees and Charges -- Surrender Charge." When this happens the surrender charge
is
computed in two ways and you are charged whichever amount is less. The first
amount is simply 5% of whatever amount you have withdrawn. The second amount is
5% of the contributions you made to your account during the last 60 months.
Withdrawals are always subject to your plan provisions and federal tax
restrictions, which generally include a tax penalty on withdrawals made prior to
age 59 1/2.
PREMIUM TAX CHARGE
Premium taxes ranging from zero to 3% are currently imposed by certain states
and municipalities on Purchase Payments made under the contract.
SEPARATE ACCOUNT CHARGES
Depending on the Variable Account Option you choose you may incur a mortality
and expense risk fee and an administration and distribution fee computed at an
aggregate annualized rate of 0.80% during the purchase period and 1.00% during
the payout period on the average daily net asset value of VALIC Separate Account
A. Reductions in the mortality and expense risk fee and administration and
distribution fee may be available for plan types meeting certain criteria.
FUND ANNUAL EXPENSE CHARGE
A daily charge based on a percentage of each Fund's average daily net asset
value is payable by each Fund to its investment adviser. In addition to the
management fees, each Fund incurs other operating expenses which may vary.
Since some of these fees may not apply to your contract, consult your VALIC
Retirement Plan Specialist to see how these provisions apply to you.
SEPARATE ACCOUNT
EXPENSE REIMBURSEMENT
The Company will reimburse to certain Divisions any fees it receives from the
Fund or its affiliate for providing the Fund administrative and shareholder
services. In addition, the Company currently reimburses certain Divisions a
portion of the Company's administration and distribution fee for providing
Variable Account Options. Such reimbursement arrangements are voluntary. For
more information as to which Variable Account Options have a Separate Account
Expense Reimbursement see the Fee Table.
PAYOUT OPTIONS
When you withdraw your money, you can select from several payout options: a
lifetime annuity (which guarantees payment for as long as you live), periodic
withdrawals and systematic withdrawals. More information on payout options can
be found in the "Payout Period" section of the prospectus.
FEDERAL TAX INFORMATION
Although deferred annuity contracts such as Portfolio Director T can be
purchased with after-tax dollars, they are primarily used in connection with
retirement programs which receive favorable tax treatment under federal law.
PURCHASE REQUIREMENTS
Purchase Payments may be made at any time and in any amount, subject to plan
limitations.
To learn more about the
INTEREST GUARANTEED DEATH
BENEFIT, refer to the section
in the prospectus entitled
"Death Benefits."
More information on FEES
may be found in the
prospectus under the
headings "FEES AND
CHARGES" AND "FEE TABLE."
For a more detailed
discussion of these income
tax provisions, see the
"FEDERAL TAX MATTERS"
section of the prospectus and
of the Statement of Additional
Information.
For more information on
PURCHASE PAYMENTS, refer
to the "Purchase Period"
section of the prospectus.
3
<PAGE> 174
FEE TABLE
- --------------------------------------------------------------------------------
CONTRACT OWNER/PARTICIPANT EXPENSES(1)
<TABLE>
<S> <C>
Account Maintenance Fee ($3.75 per quarter, annualized)(2) $ 15
Maximum Surrender Charge(2) 5.00%
</TABLE>
SEPARATE ACCOUNT EXPENSES
(as a percentage of Separate Account net assets):
<TABLE>
<CAPTION>
MORTALITY ADMINISTRATION SEPARATE
AND AND ACCOUNT TOTAL
EXPENSE RISK DISTRIBUTION EXPENSE SEPARATE
FUND FEE(3) FEE(3) REIMBURSEMENT ACCOUNT FEE
---- ------------ -------------- ------------- -----------
<S> <C> <C> <C> <C>
AGSPC Asset Allocation 0.25% 0.55% -- 0.80%
AGSPC Growth 0.25 0.55 -- 0.80
AGSPC Money Market 0.25 0.55 -- 0.80
AGSPC Science & Technology 0.25 0.55 -- 0.80
AGSPC Small Cap Index 0.25 0.55 -- 0.80
AGSPC Social Awareness 0.25 0.55 -- 0.80
AGSPC Stock Index 0.25 0.55 -- 0.80
Scudder Growth and Income(4) 0.25 0.80 (0.25) 0.80
Vanguard Fixed Income Securities
Fund --
Long-Term Corporate Portfolio(5) 0.25 0.80 (0.25) 0.80
Vanguard Fixed Income Securities
Fund --
Long-Term U.S. Treasury
Portfolio(5) 0.25 0.80 (0.25) 0.80
</TABLE>
FUND ANNUAL EXPENSES
(as a percentage of Fund net assets):
<TABLE>
<CAPTION>
MANAGEMENT OTHER TOTAL FUND
FUND FEES EXPENSES(6) EXPENSES
---- ---------- ----------- ----------
<S> <C> <C> <C>
AGSPC Asset Allocation(7) 0.50% 0.07% 0.57%
AGSPC Growth 0.80 0.06 0.86
AGSPC Money Market 0.50 0.07 0.57
AGSPC Science & Technology 0.90 0.06 0.96
AGSPC Small Cap Index 0.35 0.06 0.41
AGSPC Social Awareness 0.50 0.06 0.56
AGSPC Stock Index 0.27 0.07 0.34
Scudder Growth and Income 0.46 0.30 0.76
Vanguard Fixed Income Securities Fund -- Long-Term
Corporate Portfolio 0.03 0.29 0.32
Vanguard Fixed Income Securities Fund -- Long-Term
U.S. Treasury Portfolio 0.01 0.26 0.27
</TABLE>
See footnotes on page 6.
4
<PAGE> 175
EXAMPLE #1 -- Assuming No Account Maintenance Fee and
No Surrender at the End of the Period Shown:
- --------------------------------------------------------------------------------
Total Expenses. You would pay the following expenses on a $1,000 investment
under a typical Portfolio Director T Contract without a surrender charge or
account maintenance fee imposed, invested in a single Separate Account Division
as listed below, assuming a 5% annual return on assets:
<TABLE>
<CAPTION>
1 YEAR 3 YEARS 5 YEARS 10 YEARS
------ ------- ------- --------
<S> <C> <C> <C> <C>
AGSPC Asset Allocation Division 5 $14 $ 43 $ 75 $165
AGSPC Growth Division 15 17 52 90 197
AGSPC Money Market Division 6 14 43 75 165
AGSPC Science & Technology Division 17 18 55 96 208
AGSPC Small Cap Index Division 14 12 38 67 147
AGSPC Social Awareness Division 12 14 43 75 164
AGSPC Stock Index Division 10 12 36 63 139
Scudder Growth and Income Division 21 16 49 85 186
Vanguard Fixed Income Securities
Fund -- Long-Term Corporate Portfolio Division
22 11 36 62 137
Vanguard Fixed Income Securities
Fund -- Long-Term U.S. Treasury Portfolio
Division 23 11 34 59 131
</TABLE>
EXAMPLE #2 -- Assuming No Surrender at the End of the
Period Shown:
- --------------------------------------------------------------------------------
Total Expenses. You would pay the following expenses on a $1,000 investment
under a typical Portfolio Director T Contract without a surrender charge
imposed, invested in a single Separate Account Division as listed below,
assuming a 5% annual return on assets:
<TABLE>
<CAPTION>
1 YEAR 3 YEARS 5 YEARS 10 YEARS
------ ------- ------- --------
<S> <C> <C> <C> <C>
AGSPC Asset Allocation Division 5 $15 $ 45 $ 78 $171
AGSPC Growth Division 15 17 54 93 203
AGSPC Money Market Division 6 15 45 78 171
AGSPC Science & Technology Division 17 18 57 98 214
AGSPC Small Cap Index Division 14 13 40 70 153
AGSPC Social Awareness Division 12 14 45 78 170
AGSPC Stock Index Division 10 12 38 66 145
Scudder Growth and Income Division 21 16 51 88 192
Vanguard Fixed Income Securities
Fund -- Long-Term Corporate Portfolio Division
22 12 37 65 143
Vanguard Fixed Income Securities
Fund -- Long-Term U.S. Treasury Portfolio
Division 23 11 36 62 137
</TABLE>
5
<PAGE> 176
EXAMPLE #3 -- Assuming Surrender at the End of the Period Shown:
- --------------------------------------------------------------------------------
Total Expenses: You would pay the following expenses on a $1,000 investment
under a typical Portfolio Director T Contract invested in a single Separate
Account Division as listed below, assuming a 5% annual return on assets:
<TABLE>
<CAPTION>
1 YEAR 3 YEARS 5 YEARS 10 YEARS
------ ------- ------- --------
<S> <C> <C> <C> <C>
AGSPC Asset Allocation Division 5 $61 $ 95 $128 $171
AGSPC Growth Division 15 64 104 143 203
AGSPC Money Market Division 6 61 95 128 171
AGSPC Science & Technology Division 17 65 107 148 214
AGSPC Small Cap Index Division 14 60 90 120 153
AGSPC Social Awareness Division 12 61 95 128 170
AGSPC Stock Index Division 10 59 88 116 145
Scudder Growth and Income Division 21 63 101 138 192
Vanguard Fixed Income Securities Fund --
Long-Term Corporate Portfolio Division 22 59 87 115 143
Vanguard Fixed Income Securities Fund -- Long-Term
U.S. Treasury Portfolio Division 23 58 86 112 137
</TABLE>
- ------------
(1) Premium taxes are not shown here, but may be charged by some states. See:
"Premium Tax Charge" in this prospectus.
(2) Reductions in the surrender charge and the account maintenance fee are
available if certain conditions are met. See "Reduction or Waiver of Account
Maintenance Fee, Surrender, Mortality and Expense Risk Fee or Administration
and Distribution Fee Charges" and "Exceptions to Surrender Charge" in this
prospectus.
(3) The mortality and expense risk fee and administration and distribution fee
reflected in the Fee Table is deducted during the Purchase Period. The
mortality and expense risk fee and administration and distribution fee
deducted during the Payout Period is computed at an annualized rate of
1.00%, depending upon the Variable Account Option selected.
(4) For Scudder Growth and Income Fund the Total Separate Account Fee equals the
VALIC Separate Account A mortality and expense risk fee plus the
administration and distribution fee reduced by the Separate Account Expense
Reimbursement. Pursuant to the Separate Account Expense Reimbursement the
Company's charges to this Division is reduced by an amount equal to payments
(0.25%) from the underlying Fund and/or its affiliate for administrative and
shareholder services provided by the Company. See "Fees and
Charges -- Separate Account Expense Reimbursement" in this prospectus for
more information.
(5) For these Funds the Total Separate Account Fee equals the VALIC Separate
Account mortality and expense risk fee plus the administration and
distribution fee reduced by the Separate Account Expense Reimbursement. The
Separate Account Expense Reimbursement reflects a voluntary expense
reimbursement made by the Company, effective May 1, 1998, directly to the
Division which may be terminated by the Company at any time without notice.
(6) OTHER EXPENSES includes custody, accounting, reports to shareholders, audit,
legal and other miscellaneous expenses. See each Fund's prospectus for a
detailed explanation of these fees.
(7) The AGSPC Asset Allocation Fund was formerly known as the Timed Opportunity
Fund.
Note: These examples should not be considered representations of past or future
expenses for VALIC Separate Account A or for any Fund. Actual expenses may be
greater or less than those shown above. Similarly, the 5% annual rate of return
assumed in the examples is not an estimate or guarantee of future investment
performance. The purpose of the Fee Table above is to help Contract Owners and
Participants understand the various expenses of VALIC Separate Account A and the
Funds which are, in effect, passed on to the Contract Owners and Participants.
This Fee Table shows all charges and expenses which may be deducted from the
assets of VALIC Separate Account A and from the Funds in which VALIC Separate
Account A invests. For a further description of these charges and expenses, see
"Fees and Charges" in this prospectus and the descriptions of fees and charges
in each of the Fund's prospectuses. Any and all limitations on total charges and
expenses are reflected in this Fee Table.
6
<PAGE> 177
Selected Purchase Unit Data
- --------------------------------------------------------------------------------
Portfolio Director T is a new variable annuity product; therefore, there is no
Selected Purchase Unit Data available at this time.
7
<PAGE> 178
- --------------------------------------------------------------------------------
ABOUT PORTFOLIO DIRECTOR T
Portfolio Director T was developed to help you save money for your retirement.
It offers you a combination of fixed and variable investment options that you
can invest in to help you reach your retirement savings goals. Your
contributions to Portfolio Director T can come from different sources, like
payroll deductions or money transfers. Your retirement savings process with
Portfolio Director T will involve two stages: the Purchase Period; and the
Payout Period. The first is when you make contributions into Portfolio Director
T called "Purchase Payments." The second, is when you receive your retirement
payouts. For more information, see "Purchase Period" and the "Payout Period" in
this prospectus.
You may choose, depending upon your retirement savings goals, your personal risk
tolerances, and your retirement plan, to invest in the Fixed Account Options
and/or the Variable Account Options described in this prospectus. When you
decide to retire, or otherwise withdraw your money, you can select from a wide
array of payout options including both fixed and variable payments. In addition,
this prospectus will describe for you all fees and charges that may apply to
your participation in Portfolio Director T.
ABOUT VALIC
We are a life insurance company organized in 1955 and located in the State of
Texas. Our main business is issuing and offering fixed and variable retirement
annuity contracts, like Portfolio Director T. Our principal offices are located
at 2929 Allen Parkway, Houston, Texas 77019. We have Regional Offices throughout
the United States. The addresses for these offices are given in the back of this
prospectus.
VALIC is a member of the American General Corporation group of companies.
Members of the American General Corporation group of companies operate in each
of the 50 states, the District of Columbia, and Canada and collectively provide
financial services with activities heavily weighted toward insurance.
ABOUT VALIC SEPARATE ACCOUNT A
When you direct money to Portfolio Director T's Variable Account Options, you
will be sending that money through VALIC's Separate Account A. You do not invest
directly in the Mutual Funds made available in Portfolio Director T. VALIC's
Separate Account A invests in the Mutual Funds on behalf of your account.
VALIC Separate Account A is made up of what we call "Divisions." Ten Divisions
are available and represent the Variable Account Options in Portfolio Director
T. Each of these Divisions invests in a different Mutual Fund made available
through Portfolio Director T. For example, Division Ten represents and invests
in the Stock Index Fund. The earnings (or losses) of each Division are credited
to (or charged against) the assets of that Division, and do not affect the
performance of the other Divisions of VALIC Separate Account A.
VALIC established Separate Account A in 1979 under Texas insurance law to allow
you to be able to invest in a number of Variable Account Options available in
Portfolio Director T. VALIC Separate Account A is registered with the Securities
and Exchange Commission (SEC) as a unit investment trust under the Investment
Company Act of 1940. Units of interest in VALIC Separate Account A are
registered as securities under the Securities Act of 1933.
VALIC Separate Account A is administered and accounted for as part of VALIC's
business operations. However, the income, capital gains or capital losses,
whether or not realized of each Division of VALIC Separate Account A are
credited to or charged against the assets held in that Division without regard
to the income, capital gains or capital losses of any other Division or arising
out of any other business the Company may conduct. In accordance with the terms
of Portfolio Director T, VALIC Separate Account A may not be charged with the
liabilities of any other VALIC operation. As stated in Portfolio Director T, the
Texas Insurance Code requires that the assets of VALIC Separate Account A
attributable to Portfolio Director T be held exclusively for the benefit of the
contract owner, participants, annuitants, and beneficiaries of Portfolio
Director T. When we discuss performance information in this prospectus, we mean
the performance of a VALIC Separate Account A Division.
UNITS OF INTERESTS
Your investment in a Division of VALIC Separate Account A is represented by
units of interest issued by VALIC Separate Account A. On a daily basis, the
units of interest issued by VALIC Separate Account A are revalued to reflect
that day's performance of the underlying mutual fund minus any applicable fees
and charges to VALIC Separate Account A.
All inquiries regarding
PORTFOLIO DIRECTOR T
may be directed to your
VALIC Regional Office at
the addresses shown in the
back of this prospectus.
MUTUAL FUND OR FUND --
the investment portfolio(s)
of a registered open-end
management investment
company, which serves as
the underlying investment
vehicle for each Division
represented in VALIC
Separate Account A.
For more information about
VALIC, see the Statement of
Additional Information
8
<PAGE> 179
VARIABLE ACCOUNT OPTIONS
- --------------------------------------------------------------------------------
Portfolio Director T enables you to participate in Divisions that represent ten
Variable Account Options. These Divisions comprise all of the Variable Account
Options that are made available to you through VALIC Separate Account A. See
"About VALIC Separate Account A" in this prospectus.
Each individual Division represents and invests, through VALIC's Separate
Account A, in specific mutual funds. Three of the Mutual Funds are also
available to the general public. These mutual funds serve as the investment
vehicles for Portfolio Director T and include:
- - American General Series Portfolio
Company (AGSPC) -- offers 7 funds, for which VALIC serves as investment
adviser.
- - Scudder Kemper Investments, Inc. -- offers 1 fund for which Scudder Kemper
Investments, Inc. serves as investment adviser.
- - The Vanguard Group Inc. -- offers 2 funds for which Vanguard Fixed Income
Group serves as investment adviser.
Each of these Funds is registered as a diversified open-end, management
investment company and is regulated under the Investment Company Act of 1940.
For complete information about each of these Funds, including charges and
expenses, you should refer to the prospectus for that Fund. Additional copies
are available from VALIC or you may contact your VALIC Regional Office at the
addresses shown in the back of this prospectus.
SUMMARY OF FUNDS
A brief summary of the investment objectives of each Mutual Fund is shown below.
In addition to the investment objectives, the Account Value of an assumed
$10,000 investment in each of the Divisions is shown in both table and graph
form. This will reflect a deduction for separate account fees (mortality and
expense risk fees plus administration and distribution fees minus any applicable
reimbursements) and underlying fund charges. This will not reflect any deduction
for account maintenance fees, surrender charges and premium taxes. These charges
would further reduce your return. The Account Values in the graphs shown reflect
Separate Account performance based on the performance of the underlying Fund for
the last 10 fiscal years or, since inception of the underlying Fund if for less
than 10 years. The returns shown in the tables reflect the historical
performance of each Fund based on investment in a hypothetical Contract from the
date of the Fund's inception. The actual performance of each Fund has been
reduced by Separate Account fees that would have been incurred under the
Contract. Investment return and principal value will fluctuate with market
conditions, and for foreign investments, currencies and the economic and
political climates of the countries where investments are made. Past performance
cannot predict or guarantee future results.
For more information about how these returns were calculated including a
statement of the charges reflected and tables showing historical performance
information see "How to Review Investment Performance of Separate Account
Divisions" in this prospectus.
VARIABLE ACCOUNT
OPTIONS -- investment
options that correspond
to Separate Account
Divisions offered by
Portfolio Director T.
Investment returns on
Variable Account
Options may be positive
or negative depending on
the investment
performance of the
underlying Mutual Fund.
9
<PAGE> 180
AGSPC
ASSET ALLOCATION FUND*
(Division 5)
- ---------------------------------------------------------------
INVESTMENT OBJECTIVE
Seeks maximum aggregate rate of return over the long-term through controlled
investment risk by adjusting its investment mix among stocks, long-term debt
securities and short-term money market securities.
<TABLE>
<CAPTION>
Annual Value of a $10,000
Stipulated Payment made
January 1, 1988 $ Value
- ------------------------- --------
<S> <C>
01/01/88 $10,000
12/31/88 10,885
12/31/89 12,631
12/31/90 12,228
12/31/91 14,719
12/31/92 14,496
12/31/93 15,714
12/31/94 15,385
12/31/95 19,045
12/31/96 20,990
12/31/97 25,531
</TABLE>
VALUE AT MONTHLY INTERVALS OF A $10,000
STIPULATED PAYMENT MADE JANUARY 1, 1988
[CHART]
PERIOD ENDED DECEMBER 31
* The AGSPC Asset Allocation Fund was formerly known as the Timed Opportunity
Fund.
AGSPC
GROWTH FUND
(Division 15)
- ---------------------------------------------------------------
INVESTMENT OBJECTIVE
Seeks to provide long-term growth of capital through investment primarily in
common stocks of U.S. growth companies engaged in service-related activities.
<TABLE>
<CAPTION>
Annual Value of a $10,000
Stipulated Payment made
April 29,1994 $ Value
- ------------------------- -------
<S> <C>
04/29/94 $10,000
12/31/94 10,032
12/31/95 14,715
12/31/96 17,425
12/31/97 20,916
</TABLE>
VALUE AT MONTHLY INTERVALS OF A $10,000
STIPULATED PAYMENT MADE APRIL 29, 1994
[CHART]
PERIOD ENDED DECEMBER 31
10
<PAGE> 181
AGSPC
MONEY MARKET FUND
(Division 6)
- ---------------------------------------------------------------
INVESTMENT OBJECTIVE
Seeks liquidity, protection of capital and current income through investments in
short-term money market instruments.
<TABLE>
<CAPTION>
Annual Value of a $10,000
Stipulated Payment made
January 1, 1988 $ Value
- ------------------------- -------
<S> <C>
01/01/88 $10,000
12/31/88 10,593
12/31/89 11,455
12/31/90 12,263
12/31/91 12,839
12/31/92 13,151
12/31/93 13,397
12/31/94 13,795
12/31/95 14,445
12/31/96 15,049
12/31/97 15,702
</TABLE>
VALUE AT MONTHLY INTERVALS OF A $10,000
STIPULATED PAYMENT MADE JANUARY 1, 1988
[CHART]
PERIOD ENDED DECEMBER 31
AGSPC
SCIENCE & TECHNOLOGY FUND
(Division 17)
- ---------------------------------------------------------------
INVESTMENT OBJECTIVE
Seeks long-term growth of capital through investment primarily in the common
stocks and equity-related securities of companies that are expected to benefit
from the development, advancement and use of science and technology.
<TABLE>
<CAPTION>
Annual Value of a $10,000
Stipulated Payment made
April 29, 1994 $ Value
- ------------------------- -------
<S> <C>
04/29/94 $10,000
12/31/94 12,494
12/31/95 20,036
12/31/96 22,623
12/31/97 23,023
</TABLE>
VALUE AT MONTHLY INTERVALS OF A $10,000
STIPULATED PAYMENT MADE APRIL 29, 1994
[CHART]
PERIOD ENDED DECEMBER 31
11
<PAGE> 182
AGSPC
SMALL CAP INDEX FUND
(Division 14)
- ---------------------------------------------------------------
INVESTMENT OBJECTIVE
Seeks to provide growth of capital through investment primarily in a diversified
portfolio of common stocks that, as a group, are expected to provide investment
results closely corresponding to the performance of the Russell 2000(R) Index.*
<TABLE>
<CAPTION>
Annual Value of a $10,000
Stipulated Payment made
May 1, 1992 $ Value
- ------------------------- -------
<S> <C>
05/01/92 $10,000
12/31/92 11,143
12/31/93 12,814
12/31/94 12,288
12/31/95 15,562
12/31/96 18,020
12/31/97 21,532
</TABLE>
VALUE AT MONTHLY INTERVALS OF A $10,000
STIPULATED PAYMENT MADE MAY 1, 1992
[CHART]
PERIOD ENDED DECEMBER 31
* The Russell 2000(R) Index is a trademark/service mark of the Frank Russell
Trust Company. Russell(TM) is a trademark of the Frank Russell Company.
AGSPC
SOCIAL AWARENESS FUND
(Division 12)
- ---------------------------------------------------------------
INVESTMENT OBJECTIVE
Seeks to obtain growth of capital through investment, primarily in common
stocks, in companies which meet the social criteria established for the Fund.
<TABLE>
<CAPTION>
Annual Value of a $10,000
Stipulated Payment made
October 2, 1989 $ Value
- ------------------------- -------
<S> <C>
10/02/89 $10,000
12/31/89 10,105
12/31/90 9,901
12/31/91 12,562
12/31/92 12,878
12/31/93 13,786
12/31/94 13,479
12/31/95 18,580
12/31/96 22,853
12/31/97 30,345
</TABLE>
VALUE AT MONTHLY INTERVALS OF A $10,000
STIPULATED PAYMENT MADE OCTOBER 2, 1989
[CHART]
PERIOD ENDED DECEMBER 31
12
<PAGE> 183
AGSPC
STOCK INDEX FUND
(Division 10)
- ---------------------------------------------------------------
INVESTMENT OBJECTIVE
Seeks long-term capital growth through investment in common stocks that, as a
group, are expected to provide investment results closely corresponding to the
performance of the Standard & Poor's 500 Stock Index(R)*.
<TABLE>
<CAPTION>
Annual Value of a $10,000
Stipulated Payment made
January 1, 1988 $ Value
- ------------------------- -------
<S> <C>
01/01/88 $10,000
12/31/88 11,336
12/31/89 14,525
12/31/90 13,852
12/31/91 17,724
12/31/92 18,751
12/31/93 20,439
12/31/94 20,418
12/31/95 27,812
12/31/96 33,865
12/31/97 44,712
</TABLE>
VALUE AT MONTHLY INTERVALS OF A $10,000
STIPULATED PAYMENT MADE JANUARY 1, 1988
[CHART]
PERIOD ENDED DECEMBER 31
SCUDDER GROWTH AND
INCOME FUND
(Division 21)
- ---------------------------------------------------------------
INVESTMENT OBJECTIVE
Seeks long-term growth of capital, current income and growth of income. The Fund
invests primarily in common stocks, preferred stocks, and securities convertible
into common stocks of companies which offer the prospect for growth of earnings
while paying current dividends.
<TABLE>
<CAPTION>
Annual Value of a $10,000
Stipulated Payment made
January 1, 1988 $ Value
- ------------------------- -------
<S> <C>
01/01/88 $10,000
12/31/88 11,085
12/31/89 13,862
12/31/90 13,399
12/31/91 16,995
12/31/92 18,425
12/31/93 21,078
12/31/94 21,402
12/31/95 27,783
12/31/96 33,580
12/31/97 43,335
</TABLE>
VALUE AT MONTHLY INTERVALS OF A $10,000
STIPULATED PAYMENT MADE JANUARY 1, 1988
[CHART]
PERIOD ENDED DECEMBER 31
* "Standard & Poor's(R)", "S&P(R)" and "S&P 500(R)" are trademarks of Standard
and Poor's ("S&P"). The Stock Index Fund is not sponsored, endorsed, sold or
promoted by S&P and S&P makes no representation regarding the advisability of
investing in this Fund.
13
<PAGE> 184
VANGUARD FIXED
INCOME SECURITIES
FUND -- LONG-TERM
CORPORATE PORTFOLIO
Institutional Class Shares
(Division 22)
- ---------------------------------------------------------------
INVESTMENT OBJECTIVE
Seeks high level of current income consistent with the maintenance of principal
and liquidity. The Portfolio invests in a diversified portfolio of investment
grade bonds.
<TABLE>
<CAPTION>
Annual Value of a $10,000
Stipulated Payment made
January 1, 1988 $ Value
- ------------------------- -------
<S> <C>
01/01/88 $10,000
12/31/88 10,856
12/31/89 12,374
12/31/90 13,007
12/31/91 15,563
12/31/92 16,907
12/31/93 19,157
12/31/94 17,956
12/31/95 22,460
12/31/96 22,343
12/31/97 25,145
</TABLE>
VALUE AT MONTHLY INTERVALS OF A $10,000
STIPULATED PAYMENT MADE JANUARY 1, 1988
[CHART]
PERIOD ENDED DECEMBER 31
VANGUARD FIXED
INCOME SECURITIES
FUND -- LONG-TERM
U.S. TREASURY PORTFOLIO
Institutional Class Shares
(Division 23)
- ---------------------------------------------------------------
INVESTMENT OBJECTIVE
Seeks high level of current income consistent with the maintenance of principal
and liquidity. The Portfolio invests primarily in long-term U.S. Treasury
securities backed by the full faith and credit of the U.S. Government. At least
65% of the Fund assets will be invested in U.S. Treasury bills, notes and bonds.
<TABLE>
<CAPTION>
Annual Value of a $10,000
Stipulated Payment made
January 1, 1988 $ Value
- ------------------------- -------
<S> <C>
01/01/88 $10,000
12/31/88 10,802
12/31/89 12,608
12/31/90 13,199
12/31/91 15,339
12/31/92 16,304
12/31/93 18,844
12/31/94 17,337
12/31/95 22,323
12/31/96 21,679
12/31/97 24,425
</TABLE>
VALUE AT MONTHLY INTERVALS OF A $10,000
STIPULATED PAYMENT MADE JANUARY 1, 1988
[CHART]
PERIOD ENDED DECEMBER 31
14
<PAGE> 185
PURCHASE PERIOD
- --------------------------------------------------------------------------------
The Purchase Period begins when your first Purchase Payment is made and
continues until you begin your Payout Period. The Purchase Period can also end
when a Portfolio Director T account is surrendered before the Payout Period. The
amount, number, and frequency of your Purchase Payments is determined by the
retirement plan for which Portfolio Director T was purchased.
PURCHASE PAYMENTS
You may establish an account only through a VALIC representative. Initial
Purchase Payments must be received by VALIC either with, or after, a completed
application. Your employer is usually responsible for remitting Purchase
Payments to us. The employer is responsible for furnishing instructions to us (a
premium flow report) as to the amount being applied to your account.
Minimum initial and subsequent Purchase Payments are as follows:
<TABLE>
<CAPTION>
Initial Subsequent
Contract Type Payment Payment
<S> <C> <C>
Periodic Payment $ 30 $ 30
Single Payment $1,000 -0-
</TABLE>
Periodic Payment minimums apply to each Fixed Account Option or Variable Account
Option selected. The Single Payment minimum applies to each of your accounts.
Purchase Payments are received in VALIC's Home Office. When an initial Purchase
Payment is accompanied by an application, within 2 business days we will:
- - Accept the Application -- and issue a contract. We will also establish your
account and apply your Purchase Payment by crediting the amount to the Fixed
Account Option or Variable Account Option selected;
- - Reject the Application -- and return the Purchase Payment; or
- - Request Additional Information -- to correct or complete the application.
If we receive Purchase Payments from your employer before we receive your
completed application or enrollment form, we will not be able to establish a
permanent account for you. Under these circumstances, we will take one of the
following actions:
Return Purchase Payments. If we do not have your name, address or social
security number, we will return the Purchase Payment to your employer unless
this information is immediately provided to us.
Employer-Directed Account. If we have your name, address and social security
number and we have an Employer-Directed Account Agreement from your employer,
generally we will deposit your Purchase Payment
in an "Employer-Directed" account invested in our Money Market Division
Option. You may not transfer these amounts until VALIC has received a
completed application or enrollment form.
Starter Account. If we have your name, address and social security number, but
we do not have an Employer-Directed Account Agreement from your employer, we
will deposit your Purchase Payment in a "starter" account invested in the
Money Market Division. We will send you follow-up letters requesting the
information necessary to complete the application, including your allocation
instructions. Unless a completed application or enrollment form is received by
us within 105 days of establishment of your starter account, the account
balance, including earnings, will be returned to your employer. We are not
responsible for any adverse tax consequences to you that may result from the
return of your employer's contributions.
PURCHASE UNITS
A Purchase Unit is a unit of interest owned by you in your Variable Account
Option. Purchase Units apply only to the Variable Account Options selected for
your account. Purchase Unit values are calculated at the close of regular
trading of the New York Stock Exchange (the "Exchange"), currently 4:00 p.m. New
York time (see Calculation of Purchase Unit Value below for more information.)
Purchase Units will be credited the same business day if Purchase Payments are
received by our Home Office before the close of the Exchange. If not, they will
be calculated and credited the next business day. Purchase Unit values will vary
depending on the net investment results of each of the Variable Account Options.
This means the value of your Variable Account Option will fluctuate.
CALCULATION OF PURCHASE UNIT VALUE
The Purchase Unit value for a Division is calculated as shown below:
Step 1: Calculate the gross investment rate:
Gross Investment Rate
= (EQUALS)
The Division's investment income and capital gains and losses (whether
realized or unrealized) on that day from the assets attributable to the
Division.
/ (DIVIDED BY)
The value of the Division for the immediately preceding day on which the
values are calculated.
PURCHASE PAYMENTS -- an
amount of money you pay to
VALIC to receive the benefits
of an annuity Contract offered
by Portfolio Director T.
For more information as to
how PURCHASE UNIT VALUES
are calculated, see the
Statement of Additional
Information.
15
<PAGE> 186
- --------------------------------------------------------------------------------
We calculate the gross investment rate as of 4:00 p.m. New York time on each
business day when the New York Stock Exchange is open.
Step 2: Calculate net investment rate for any day as follows:
Net Investment Rate
= (EQUALS)
Gross Investment Rate (calculated in Step 1)
- - (MINUS)
Separate Account charges and any income tax charges.
Step 3: Determine Purchase Unit Value for that day.
Purchase Unit Value for that day.
= (EQUALS)
Purchase Unit Value for immediate preceding day.
X (MULTIPLIED BY)
Net Investment Rate (as calculated in Step 2) plus 1.00.
Choosing Investment Options
There are 12 investment options offered in Portfolio Director T. This includes 2
Fixed Account Options and 10 Variable Account Options. Unless provided
otherwise, you
may select and combine up to 7 of the 10 options. The Funds that underlie the
Variable Account Options are registered as investment companies under and are
subject to regulation of the Investment Company Act of 1940 (the Act). The Fixed
Account Options are not subject to regulation under the Act and are not required
to be registered under the Securities Act of 1933. As a result, the SEC has not
reviewed data in this prospectus that relates to the Fixed Account Options.
However, federal securities law does require such data to be accurate and
complete.
FIXED ACCOUNT OPTIONS
Each of the Fixed Account Options are part of the Company's general assets. You
may allocate all or a portion of your Purchase Payment to the Fixed Account
Options listed in "Profile of Portfolio Director T Contract" appearing in this
prospectus. Purchase Payments you allocate to these Fixed Account Options are
guaranteed to earn at least a minimum rate of interest. Interest is paid on each
of the Fixed Account Options at declared rates, which may be different for each
option. We bear the entire investment risk for the Fixed Account Option. All
Purchase Payments and interest earned on such amounts in your Fixed Account
Option will be paid regardless of the investment results experienced by the
Company's general assets.
Here is how you may calculate the value of your Fixed Account Option during the
Purchase Period:
Value of Your Fixed Account Options
= (EQUALS)
All Purchase Payments made to the Fixed Account Options
+ (PLUS)
Amounts transferred from Variable Account Options to the Fixed Account Options
+ (PLUS)
All interest earned
- - (MINUS)
Amounts transferred or withdrawn from Fixed Account Options (including
applicable fees and charges)
VARIABLE ACCOUNT OPTIONS
You may allocate all or a portion of your Purchase Payments to the Variable
Account Options listed in this prospectus. A complete discussion of each of the
Variable Account Options may be found in the "Variable Account Options" section
in this prospectus. Based upon a Variable Account Option's Purchase Unit Value
your account will be credited with the applicable number of Purchase Units. The
Purchase Unit Value of each Variable Account Option will change daily depending
upon the investment performance of the underlying fund (which may be positive or
negative) and the deduction of VALIC Separate Account A charges. See the "Fees
and Charges" section in this prospectus. Because Purchase Unit Values change
daily, the number of Purchase Units your account will be credited with for
subsequent Purchase Payments will vary. Each Variable Account Option bears its
own investment risk. Therefore, the value of your account may be worth more or
less at retirement or withdrawal.
Here is how to calculate the value of each Variable Account Option in your
account during the Purchase Period:
Value of Your Variable Account Option
= (EQUALS)
Total Number of Purchase Units
X (MULTIPLIED BY)
Current Purchase Unit Value
STOPPING PURCHASE PAYMENTS
Purchase Payments may be stopped at any time. Purchase Payments may be resumed
at any time before your Portfolio Director T account has been surrendered. While
no Purchase Payments are being made, the number of Purchase Units outstanding
will remain the same. (This is assuming no transfers or withdrawals are made.)
The value of the Purchase Units will continue to vary. Your Account Value will
continue to be subject to charges.
If your Account Value falls below $300, and you do not make any Purchase
Payments for two years from the date we established your account, we may close
the account and pay the Account Value (less any surrender charge) to you.
PURCHASE UNIT -- a
measuring unit used to
calculate your Account Value
during the Purchase Period.
The value of a Purchase Unit
will vary with the investment
experience of the Separate
Account Division you have
selected.
16
<PAGE> 187
TRANSFERS BETWEEN INVESTMENT OPTIONS
- --------------------------------------------------------------------------------
You may transfer all or part of your Account Value between the various Fixed
Account and Variable Account Options in Portfolio Director T without a charge.
Transfer instructions may be made either in writing or by telephone as discussed
below. Transfers may be made during the Purchase Period or during the Payout
Period. We reserve the right to limit transfers as discussed below. Your
employer's plan may also limit your rights to transfer.
DURING THE PURCHASE PERIOD
During the Purchase Period, transfers may be made between Portfolio Director T's
Fixed Account Options and Variable Account Options.
We currently permit transfers between Variable Account Options or from Variable
Account Options to Fixed Account Options, at any time. We may, however, limit
the number of transfers you can make.
Transfers are also permitted from the Fixed Account Options subject to the
following limitations:
<TABLE>
<CAPTION>
FIXED OTHER
ACCOUNT OPTION VALUE FREQUENCY RESTRICTIONS
- -------------- ------------- ----------- ------------
<S> <C> <C> <C>
Fixed Account
Plus: Up to 20% per At any time None (1)
contract year
100% At any time If Account Value
is
less than or
equal
to $500
Short-Term
Fixed
Account: Up to 100% At any time 90-day Holding
Period If
transfer
was previously
made
into Short-Term
Fixed
Account.(2)
</TABLE>
- ---------------
(1) Your employer may further limit or expand the restrictions. We may charge
for those modified restrictions if specified in your employer's retirement
plan.
(2) VALIC may change this holding period at any time in the future, but it will
never be more than 180 days.
DURING THE PAYOUT PERIOD
During the Payout Period, transfers may be made between Portfolio Director T's
investment options subject to the following limitations:
<TABLE>
<CAPTION>
% OF ACCOUNT
---------------------------------- OTHER
ACCOUNT OPTION VALUE FREQUENCY RESTRICTIONS
-------------- ------------- ------------------- ------------
<S> <C> <C> <C>
Variable: Up to 100% Once every 365 days None
Combination
Fixed
and Variable Up to 100% Once every 365 days None
Payout: of money in
variable
option payout
Fixed: Not permitted -- --
</TABLE>
COMMUNICATING TRANSFER OR
REALLOCATION INSTRUCTIONS
A written instruction to transfer or reallocate all or part of your Account
Value between the various investment options in Portfolio Director, should be
sent to VALIC's Home Office.
Instructions for transfers or reallocations may be made by calling
1-800-621-7792. Telephone transfers will be allowed unless we have been notified
not to accept such telephone instructions. In this event, we must receive
written instructions, in order to permit future telephone transfers to be made.
Before a transfer will be made by telephone, you must give us the requested
identifying information concerning your account(s).
Unless we have been instructed not to accept requests for telephone transfers,
anyone may effect a telephone transfer if they furnish the requested
information. You will bear any loss resulting from such instructions, whether
the caller was specifically authorized by you or not.
No one that we employ or that represents VALIC may give telephone instructions
on your behalf without VALIC's prior written permission. (This does not apply to
a contract with the immediate family of an employee or representative of VALIC).
We will send you a confirmation of the completed transfer within 5 days from the
date of your instruction. When you receive your confirmation, it is your duty to
verify the information shown, and advise us of any errors within one business
day.
You will bear the risk of loss arising from instructions received by telephone.
We are not responsible for the authenticity of such instructions. Any telephone
instructions which we reasonably believe to be genuine will be your
responsibility. This includes losses from errors in communication. Telephone
transfer instruction may not be made during the Payout Period. We reserve the
right to stop telephone transfers at any time.
EFFECTIVE DATE OF TRANSFER
The effective date of a transfer will be:
- - The date of receipt, if received in our Home Office before the close of
regular trading of the New York Stock Exchange on a day values are calculated;
(Normally, this will be 4:00 P.M. New York time); otherwise
- - The next date values are calculated.
ACCOUNT VALUE -- the total
sum of your Fixed Account
and/or Variable Account
Options that have not yet
been applied to your Payout
Payments.
PURCHASE PERIOD -- the time
between your first Purchase
Payment and your Payout
Period (or surrender).
HOME OFFICE -- Our
principal office at 2929 Allen
Parkway, Houston, Texas
77019.
PAYOUT PERIOD -- the time
that starts when you begin to
withdraw your money in a
steady stream of payments.
17
<PAGE> 188
FEES AND CHARGES
- --------------------------------------------------------------------------------
By investing in Portfolio Director T, you may be subject to six basic types of
fees and charges:
- - Account Maintenance Fee
- - Surrender Charge
- - Premium Tax Charge
- - Separate Account Charges
- - Fund Annual Expense Charge
- - Other Tax Charges
These fees and charges are explained below. For additional information about
these fees and charges, see the Fee Table in this prospectus.
ACCOUNT MAINTENANCE FEE
An account maintenance fee of $3.75 will be deducted on the last day of each
calendar quarter if any of your money is invested in the Variable Account
Options. We will sell Purchase Units from your Account to pay the account
maintenance fee. If you invest only in Fixed Account Options during a calendar
quarter, this fee will not apply. If all your money in a Variable Account Option
is withdrawn, or transferred to a Fixed Account Option, the fee will be deducted
at that time. The fee will be assessed equally among the Variable Account
Options that make up your Account Value.
The account maintenance fee is to reimburse the Company for our administrative
expenses for providing Variable Account Options. This includes the expense for
establishing and maintaining the record keeping for the Variable Account
Options. We do not expect that the amount of fees we receive will be greater
than our expenses.
The amount of the account maintenance fee may be reduced or waived if Portfolio
Director T is issued to certain types of plans which are expected to result in
lower costs to VALIC. To learn more about how we determine if account
maintenance fees may be reduced or waived, see the "Reduction or Waiver of
Account Maintenance Fee, Surrender, Mortality and Expense Risk Fee or
Administration and Distribution Fee Charges" section in this prospectus. If you
have two or more accounts established under the same group contract, we may
agree to deduct an account maintenance fee from only one account.
SURRENDER CHARGE
When you withdraw money from your account, you may be subject to a surrender
charge. For information about your right to surrender, see "Surrender of Account
Value" in this prospectus.
It is assumed that the most recent Purchase Payments are withdrawn first. No
surrender charge will be applied unless an amount is
actually withdrawn. We consider all Purchase Payments to be withdrawn before
earnings are withdrawn.
Amounts exchanged from other contracts issued by the Company may or may not be
subject to a surrender charge. After exchange, it is assumed that any new
Purchase Payments are withdrawn before the exchanged amount. For more
information, see "Exchange Privilege" in the Statement of Additional
Information.
AMOUNT OF SURRENDER CHARGE
A surrender charge may not be greater than:
- - Five percent (5%) of the amount of all Purchase Payments received during the
past 60 months; or
- - Five percent (5%) of the amount withdrawn.
10% FREE WITHDRAWAL
In any Participant Year, up to 10% of the Account Value may be withdrawn without
a surrender charge. The surrender charge will apply to any amount withdrawn that
exceeds this 10% limit. The percentage withdrawn will be determined by dividing
the amount withdrawn by the Account Value just prior to the withdrawal. If more
than one withdrawal is made during a Participant Year, each percentage will be
added to determine at what point the 10% limit has been reached.
These 10% withdrawals without charge do not reduce Purchase Payments for the
purpose of computing the surrender charge. If a surrender charge is applied to
all or part of a Purchase Payment, no surrender charge will be applied to such
Purchase Payment (or portion thereof) again.
EXCEPTIONS TO SURRENDER CHARGE
No surrender charge will be applied:
- - To money applied to provide a Payout Option;
- - To death benefits;
- - If no Purchase Payments have been received during the 60 months prior to the
date of surrender;
- - If your account has been in effect for 15 years or longer;
- - If your account has been in effect for 5 years or longer, and you have
attained age 59 1/2;
- - To "No Charge Systematic Withdrawals";
- - Under certain contracts, to withdrawals under the No Charge Minimum
Distribution provisions;
PARTICIPANT YEAR -- the first
twelve month period and
then each yearly anniversary
of that period following the
issue date of the contract or
certificate.
18
<PAGE> 189
- --------------------------------------------------------------------------------
- - If you have become totally and permanently disabled, defined as follows: You
are unable, due to mental or physical impairment, to perform the material and
substantial duties of any occupation for which you are suited by means of
education, training or experience; the impairment must have been in existence
for more than 180 days; the impairment must be expected to result in death or
be long-standing and indefinite and proof of disability must be evidenced by a
certified copy of a Social Security Administration determination or a doctor's
verification; or
- - If you are at least 55 years old, are no longer employed by the employer that
established the plan, and your account under the plan was established at least
5 years prior to the date of surrender.
The surrender charge may be reduced or waived if Portfolio Director T is issued
to certain types of plans which are expected to result in lower costs to VALIC.
To learn more about how we determine if a surrender charge may be reduced or
waived, see the "Reduction or Waiver of Account Maintenance Fee, Surrender,
Mortality and Expense Risk Fee or Administration and Distribution Fee Charges"
section in this prospectus.
PREMIUM TAX CHARGE
Taxes on Purchase Payments are imposed by some states, cities, and towns. The
rate will range from zero to 3%.
If the law of a state, city, or town requires premium taxes to be paid when
Purchase Payments are made, we will, of course, comply. Otherwise, such tax will
be deducted from the Payout Value when annuity payments are to begin.
If we deduct an amount for premium taxes, but later find the tax was not due, we
will:
- - Adjust the amount deducted in error to reflect investment experience from the
date of the deduction to the date we determined the tax was not due; and
- - Apply the excess amount, as adjusted, to increase the number of Pay-in or
Payout Units.
SEPARATE ACCOUNT CHARGES
There will be a mortality and expense risk fee and an administration and
distribution fee applied to VALIC Separate Account A. This is a daily charge at
an aggregate annualized rate of 0.80% during the Purchase Period and 1.00%
during the Payout Period on the average daily net asset value of VALIC Separate
Account A. The exact rate depends on the Variable Account Option selected. This
charge is guaranteed and cannot be increased by the Company. The mortality and
expense risk fee is to compensate the Company for assuming mortality and expense
risks under Portfolio Director. The mortality risk that the Company assumes is
the obligation to provide payments during the Payout Period for your life no
matter how long that might be. In addition, the Company assumes the obligation
to pay during the Purchase Period an interest guaranteed death benefit. For more
information about the interest guaranteed death benefit see the "Death Benefit"
section of this prospectus. The expense risk is our obligation to cover the cost
of issuing and administering Portfolio Director T, no matter how large the cost
may be.
The Company may make a profit on the mortality and expense risk fee and on the
administration and distribution fee.
The administration and distribution fee is to reimburse the Company for our
administrative expenses for providing Variable Account Options. This includes
the expense of administration and marketing (including but not limited to
enrollment, participant communication and education).
For more information about the mortality and expense risk fee, and
administration and distribution fee see the Fee Table in this prospectus.
The mortality and expense risk fee or administration and distribution fee may be
reduced or waived if issued to certain types of plans that are expected to
result in lower costs to VALIC. To learn more about how we determine if the
mortality and expense risk fee or administration and distribution fee may be
reduced or waived, see the "Reduction or Waiver of Account Maintenance Fee,
Surrender, Mortality and Expense Risk Fee or Administration and Distribution Fee
Charges" section of this prospectus.
FUND ANNUAL EXPENSE CHARGES
Investment management charges based on a percentage of each Fund's average daily
net assets are payable by each Fund. Depending on the Variable Account Option
selected, the charges will be paid by each Fund to its investment adviser. These
charges and other Fund charges and expenses are fully described in the
prospectuses for the Funds. These charges indirectly cost you because they lower
your return.
OTHER TAX CHARGES
We reserve the right to charge for certain taxes (other than premium taxes) that
we may have to pay. This could include federal income taxes. Currently, no such
charges are being made.
19
<PAGE> 190
- --------------------------------------------------------------------------------
REDUCTION OR WAIVER OF ACCOUNT
MAINTENANCE FEE, SURRENDER,
MORTALITY AND EXPENSE RISK FEE OR ADMINISTRATION AND DISTRIBUTION FEE CHARGES
We may, as described below, determine that the account maintenance fee,
surrender charges, mortality and expense risk fee or administration and
distribution fee for Portfolio Director T may be reduced or waived. We may
reduce or waive these fees and charges if we determine that your retirement
program will allow us to reduce or eliminate administrative or sales expenses
that we usually incur for retirement programs. There are a number of factors we
will review in determining whether your retirement program will allow us to
reduce or eliminate these administrative or sales expenses:
- The type of retirement program.
Certain types of retirement programs because of their stability can result
in lower administrative costs.
- The nature of your retirement program.
Certain types of retirement programs, due to the types of employees who
participate, experience fewer account surrenders thus reducing
administrative costs.
- Other factors of which we are not presently aware which could reduce
administrative costs.
We review the following additional factors to determine whether we can reduce
or waive account maintenance fees:
- The frequency of Purchase Payments for your retirement program.
Purchase Payments received no more than once a year can reduce
administrative costs.
- The administrative tasks performed by your employer for your retirement
program.
The employer sponsoring your retirement program can, through their method of
remitting Purchase Payments, reduce administrative costs.
We review to following additional factors to determine whether we can reduce or
waive surrender charges:
- The size of your retirement program.
A retirement program which involves a larger group of employees may allow us
to reduce sales expenses.
- The total amount of Purchase Payments to be received for your retirement
program.
Larger Purchase Payments can reduce sales expenses.
- The use of mass enrollment or related administrative tasks performed by your
employer for your retirement program.
We review the following additional factors to determine whether we can reduce
or waive the mortality and expense fee or administration and distribution fee:
- The frequency of Purchase Payments for your retirement program.
- The size of your retirement program.
- The amount of your retirement program's periodic purchase payment.
We will only do this if permitted by this Contract and by VALIC guidelines in
effect at the time. In no event will the reduction or waiver of fees and
charges be permitted where the reduction or waiver will unfairly discriminate
against any person.
SEPARATE ACCOUNT EXPENSE
REIMBURSEMENT
Some of the Mutual Funds or their affiliates may have an agreement with the
Company to pay the Company for certain administrative and shareholder services
it provides to the underlying Fund. The Company will reduce its charges to the
Division investing in that Fund by the full amount of any of these payments it
receives. In addition, the Company currently reimburses certain Divisions a
portion of the Company's administration and distribution fee. Such
reimbursement arrangements are involuntary. See the Fee Table in this
prospectus for an identification of those Funds for which a reimbursement
applies.
20
<PAGE> 191
PAYOUT PERIOD
- --------------------------------------------------------------------------------
The Payout Period (Annuity Period) begins when you decide to retire or otherwise
withdraw your money in a steady stream of payments. If your employer's plan
permits, you may apply any portion of your Account Value to one of the types of
Payout Options listed below. You may choose to have your Payout Option on either
a fixed, a variable, or a combination payout basis. When you choose to have your
Payout Option on a variable basis, you may keep the same Variable Account
Options in which your Purchase Payments were made, or transfer to different
ones.
FIXED PAYOUT
Under Fixed Payout, you will receive payments from the Company. These payments
are fixed and guaranteed by the Company. The amount of these payments will
depend on:
- Type and duration of Payout Option chosen;
- Your age or your age and the age of your survivor (1);
- Your sex or your sex and the sex of your survivor (1) (IRA's and certain
nonqualified contracts);
- The portion of your Account Value being applied; and
- The payout rate being applied and the frequency of the payments.
(1) This applies only to joint and survivor payouts.
If the benefit would be greater, the amount of your payments will be based on
the current payout rate the Company uses for immediate annuity contracts.
VARIABLE PAYOUT
With a Variable Payout, you may select up to 7 Variable Account Options. Your
payments will vary accordingly. This is due to the varying investment results
that will be experienced by each of the Variable Account Options you selected.
The Payout Unit Value is calculated just like the Purchase Unit Value for each
Variable Account Option except that the Payout Unit Value includes a factor for
the Assumed Investment Rate you select. For additional information on how Payout
Payments and Payout Unit Values are calculated, see the Statement of Additional
Information.
In determining your first Payout Payment, an Assumed Investment Rate of 3 1/2%
is used (unless you select a higher rate.) If the net investment experience of
the Variable Account Option exceeds your Assumed Investment Rate, your next
payment will be greater than your first payment. If the investment experience of
the Variable Account Option is lower than your Assumed Investment Rate, your
next payment will be less than your first payment.
COMBINATION FIXED AND VARIABLE
PAYOUT
With a Combination Fixed and Variable Payout, you may choose:
- Up to 6 Variable Account Options (payments will vary); with a
- Fixed Payout (payment is fixed and guaranteed).
PAYOUT DATE
The Payout Date is the date elected by you on which your payout (annuity)
payments will start. The date elected must be the first of any month provided 30
days advance notice has been given to VALIC. Your account will be valued ten
days prior to the end of the month preceding the Payout Date. A request to start
payments must be sent to our Home Office on a form approved by VALIC. Generally,
for qualified contracts, the Payout Date may begin when you attain age 59 1/2 or
separate from service, but must begin no later than April 1 following the
calendar year you reach age 70 1/2 or the calendar year in which you retire. For
nonqualified contracts, the Payout Date may begin at any time prior to your 85th
birthday. For additional information on the minimum distribution rules that
apply to payments under 403(b), 401, 403(a) and 457 plans or simplified employee
plans ("SEPs"), see "Federal Tax Matters" in this prospectus and in the
Statement of Additional Information.
PAYOUT OPTIONS
You may specify the manner in which your Payout Payments are made. You may
select one of the following options:
- LIFE ONLY -- payments are made only to you during your lifetime. Under this
option there is no provision for a death benefit for the beneficiary. For
example, it would be possible under this option for the Annuitant to receive
only one payout payment if he died prior to the date of the second payment,
two if he died before the third payment.
- LIFE WITH GUARANTEED PERIOD -- payments are made to you during your
lifetime; but if you die before the guaranteed period has expired, your
beneficiary will receive payments for the rest of your guaranteed period.
PAYOUT UNIT -- a measuring
unit used to calculate Payout
Payments from your Variable
Account Option. Payout Unit
values will vary with the
investment experience of the
VALIC Separate Account A
Division you have selected.
ASSUMED INVESTMENT
RATE -- the rate used to
determine your first monthly
Payout Payment per
thousand dollars of Account
Value in your Variable
Account Option(s).
21
<PAGE> 192
- --------------------------------------------------------------------------------
- LIFE WITH CASH OR UNIT REFUND -- payments are made to you during your
lifetime. Upon your death, your beneficiary will receive a lump sum
payment equal to the remaining Annuity Value.
- JOINT AND SURVIVOR LIFE -- payments are made to you during the joint
lifetime of you and your beneficiary. Upon the death of one, payments
continue during the lifetime of the survivor. This option is designed
primarily for couples who require maximum possible variable payouts during
their joint lives and are not concerned with providing for beneficiaries
at death of the last survivor. For example, it would be possible under
this option for the Joint Annuitants to receive only one payment if both
Annuitants died prior to the date of the second payment, or for the Joint
Annuitants to receive only one payment and the surviving Annuitant to
receive only one payment if one Annuitant died prior to the date of the
second payment and the surviving Annuitant dies prior to the date of the
third payment.
- PAYMENT FOR A DESIGNATED PERIOD -- payments are made to you for a select
number of years between five and thirty. Upon your death, payments will
continue to your beneficiary until the designated period is completed.
ENHANCEMENTS TO PAYOUT OPTIONS
You may be able to select enhancements to the Payout Options described above.
These enhancements include partial annuitization, flexible payments of varying
amounts and inflation protection payments. Additionally, certain options may be
available with a one to twenty year guaranteed period. The Joint and Survivor
Life Option may be available with a one to twenty year guaranteed period option.
Not all of the enhancements are available under each option.
PAYOUT INFORMATION
Once your Payout Payments have begun, the option you have chosen may not be
stopped or changed. Any one of the Variable Account Options may result in your
receiving unequal payments during your life expectancy. If payments begin before
age 59 1/2, you may suffer unfavorable tax consequences if you do not meet an
exception to federal tax law. See "Federal Tax Matters" in this prospectus.
Your Payment Option should be selected at least 30 days before your Payout Date.
If such selection is not made:
- Payments will be made under the Life with Guaranteed Period Option, and
- The payments will be guaranteed for a 10 year period, and
- The payments will be based on the allocation used for your Purchase
Payments,
- Fixed Account Option will be used to distribute payments to you on a Fixed
Payout basis,
- Variable Account Options will be used to distribute payments to you on a
Variable Payout basis.
Your first Payout Payment must total at least $25.
Most Payout Payments are made monthly. If the amount of your payment is less
than $25, we reserve the right to reduce the number of payments made each year
so each of your payments are at least $25.
For more information about
PAYOUT OPTIONS OR
ENHANCEMENTS
of those Payout Options
available under the Contract,
see the "Statement of
Additional Information".
22
<PAGE> 193
SURRENDER OF ACCOUNT VALUE
- --------------------------------------------------------------------------------
WHEN SURRENDERS ARE ALLOWED
You may withdraw all or part of your Account Value at any time before the Payout
Period begins if:
- allowed under federal and state law; and
- allowed under your employer's plan.
For an explanation of charges that may apply if you surrender your Account
Value, see "Fees and Charges" in this prospectus.
AMOUNT THAT MAY BE SURRENDERED
The amount that may be surrendered at any time can be determined as follows:
<TABLE>
<S> <C> <C>
Your
Account
Allowed Value(1)
Surrender = (EQUALS) - (MINUS)
Value Any Applicable
Surrender
Charge
</TABLE>
1: Equals the Account Value next computed after your properly completed
request for surrender is received in our Home Office.
There is no guarantee that the Surrender Value in a Variable Account Option will
ever equal or exceed the total amount of your Purchase Payments received by us.
We will mail to you the Surrender Value within 7 calendar days after we receive
your properly completed surrender request at our Home Office. However, we may be
required to suspend or postpone payments if redemption of an underlying Fund's
shares have been suspended or postponed. See "Offering, Purchase and Redemption
of Fund Shares" in the Series Company Statement of Additional Information. See
your current Fund(s)' prospectuses for a discussion of the reasons why the
redemption of shares may be suspended or postponed.
We may receive a surrender for a Purchase Payment which has not cleared the
banking system. We may delay payment of that portion of your Surrender Value
until the check clears. The rest of the Surrender Value will be processed as
usual.
SURRENDER RESTRICTIONS
Generally, Internal Revenue Code Section 403(b)(11) permits total or partial
distributions from a 403(b) contract only on account of hardship (employee
contributions only without accrued interest), attainment of age 59 1/2,
separation from service, death or disability.
Under the TEXAS STATE OPTIONAL RETIREMENT PROGRAM, and in many Section 403(b)
contracts, no surrender or partial surrender will be allowed except for
termination of employment, retirement or death.
Under the FLORIDA STATE OPTIONAL RETIREMENT PROGRAM, no surrender or partial
surrender of Purchase Payments made by the employer will be allowed except for
termination of employment, retirement or death. Benefit payments based on
payments from the employer may not be paid in a lump sum or for a period
certain, but must be paid under a life contingency option, except for:
- death benefits; and
- certain small amounts approved by the State of Florida.
PARTIAL SURRENDERS
You may request a partial surrender of your Account Value at any time. A partial
surrender plus any surrender charge will reduce your Account Value. Partial
surrenders will be paid from the Fixed Account Options first unless otherwise
specified by you.
The reduction in the number of Purchase Units credited to your Variable Account
Option Account Value will equal:
<TABLE>
<S> <C> <C>
The amount Your Purchase
surrendered Units next
from the Variable computed after
Account Option the written
+ (PLUS) / (DIVIDED BY) request for
Any Surrender surrender is
Charge received at our
Home Office.
</TABLE>
The Surrender Value will be reduced by a full quarterly account maintenance fee
charged in the case of a full surrender during a quarter.
SYSTEMATIC WITHDRAWALS
You may elect to withdraw all or part of your Account Value under a systematic
withdrawal method described in your annuity contract offered by Portfolio
Director T. There will be no surrender charge for withdrawals using this method,
which provides for:
- Payments to be made to you;
- Payment over a stated period of time (but not less than five years);
- Payment of a stated yearly dollar amount or percentage (the amount or
percentage may not exceed 20% of your Account Value at the time election is
made).
We may require a minimum withdrawal amount under this method. The portion of
your account that has not been withdrawn will continue to receive the investment
return of the Variable Account Options which you selected. A systematic
withdrawal election may not be changed but can be revoked at no charge. Once
revoked, a systematic withdrawal may not be elected again. No more than one
systematic
23
<PAGE> 194
- --------------------------------------------------------------------------------
withdrawal election may be in effect at any one time. We reserve the right to
discontinue any or all systematic withdrawals or to change its terms, at any
time.
DISTRIBUTIONS REQUIRED BY FEDERAL TAX LAW. There will be no surrender charge on
a minimum distribution required by federal tax law (known as No Charge Minimum
Distribution), if the withdrawal:
- Is made payable to you; and
- Does not exceed the amount required under federal tax law as determined by
the values in your Portfolio Director T Contract and VALIC.
This contract feature will not be available in any year that an amount has been
withdrawn under the no charge systematic withdrawal method. See "Federal Tax
Matters" in this prospectus and in the Statement of Additional Information for
more information about required distributions imposed by tax law.
For an explanation of possible adverse tax consequences of a surrender, see
"Federal Tax Matters" in this prospectus and in the Statement of Additional
Information.
24
<PAGE> 195
EXCHANGE PRIVILEGE
- --------------------------------------------------------------------------------
We issue other fixed and/or variable annuity contracts (other contracts) in
addition to Portfolio Director T. These other contracts are listed below. We
will allow you, under certain conditions, to exchange from one of these other
contracts to Portfolio Director T. This exchange privilege will be available
only to other contracts purchased through your employer-sponsored retirement
plan and for which we have not yet started making payments under a Payout
Option. If you elect to exercise one of these exchange offers, you should
contact any of our Regional Offices at the addresses shown in the back of this
prospectus.
RESTRICTIONS ON EXCHANGE PRIVILEGE
We will impose certain general restrictions and rules on the exchange
privileges.
- Partial exchanges are not permitted.
- Exchanges from Portfolio Director T to other contract forms are not
permitted. (Exchanges between Portfolio Director T and other contracts in
the Portfolio Director series of annuities are permitted.)
- This exchange privilege is only available for those other contracts listed
below.
Additionally, if you have your money in a fixed account of one of the below
listed other contracts, you must exchange directly into the Fixed Account
Options of Portfolio Director T. You will be subject to all of the rules that
apply to the Fixed Account Options in Portfolio Director T. For example, you
will be subject to the rules concerning transfers among investment options as
stated in the Transfers Between Investment Options section in this prospectus.
We may, at our option, waive any transfer restrictions for a stated period of
time. If we waive these transfer restrictions, you will be allowed to exchange
to any investment option available in Portfolio Director T.
WE RESERVE THE RIGHT TO TERMINATE, MODIFY OR SUSPEND THESE EXCHANGE PRIVILEGES
AT ANY TIME.
TAXES AND CONVERSION COSTS
We will impose no fee or charge for these exchanges. Please read the "Federal
Tax Matters" section in this prospectus for information about the federal income
tax treatment of Portfolio Director T.
SURRENDER CHARGES
We will generally not impose nor waive existing surrender charges as a result of
your electing to exchange from one of the other contracts.
For purposes of determining surrender charges, we often consider time in the
contract. For SPQ181 and SPQ181-1 Contracts, the contract date for determining
surrender charges under Portfolio Director T will be the SPQ181 and SPQ181-1
contract date plus one year. For example, if you have an SPQ181 contract with a
contract date of January 1, 1993, upon exchange into Portfolio Director T, the
contract date for surrender charges purposes becomes January 1, 1994.
For any other contract, the contract date for determining surrender charges
under Portfolio Director T will be the same date as the other contract, but no
earlier than January 1, 1982. (The effect of this is to potentially shorten the
charge period for Purchase Payments subsequently made to Portfolio Director T.)
If there is no surrender charge on assets within another contract, we will not
impose charges on those assets as a result of an exchange. If surrender charges
are to be based on Purchase Payments within a contract, we will consider
purchase payments in the other contract to have been transferred to Portfolio
Director T for purposes of calculating the surrender charge. The effective dates
of these Purchase Payments will also be retained for surrender charge purposes.
The Portfolio Director T surrender charge is calculated assuming the most recent
Purchase Payments are removed first. This policy may cause exchanged funds to be
accessible only after charges are imposed.
EXCHANGE OFFERS FOR CONTRACTS OTHER THAN
PORTFOLIO DIRECTOR, PORTFOLIO DIRECTOR 2 AND PORTFOLIO DIRECTOR T
The following other contracts may be exchanged.
- V-Plan Contracts (IFA-582 and GFA-582 Contracts)
- Compounder Contracts (C-1-75 and IFA-78 Contracts)
- Independence Plus Contracts (UIT-585 and UITG-585 Contracts)
- Impact Contracts (UIT-981 Contracts)
- SA-1 or SA-2 (GUP-64, GUP-74 and GTS-VA Contracts)
- FSPA-75, FSPA-73-3, FSPA-779 Contracts
- SPQ181, SPQ181-1 Contracts
- CTA 978 Contract
- TFA-379 Contract
- SDA-578, SDA-773-T Contract
- IRA-579 Contracts
25
<PAGE> 196
- --------------------------------------------------------------------------------
Portfolio Director T will have the same Account Value (called Accumulation Value
in the other contracts) as the other contracts.
EXCHANGE OFFER FOR PORTFOLIO DIRECTOR, PORTFOLIO DIRECTOR 2 AND PORTFOLIO
DIRECTOR T
Subject to the restrictions stated below and the general restrictions on
exchange privileges stated above you may exchange from Portfolio Director and
Portfolio Director 2 to Portfolio Director T. You may also exchange from
Portfolio Director T to Portfolio Director 2 and Portfolio Director. Once you
have made any of the exchanges described in this paragraph you must wait 120
days before making another exchange between Portfolio Director T, Portfolio
Director and Portfolio Director 2.
Portfolio Director, Portfolio Director 2 and Portfolio Director T are available
to qualified contracts and certain non-qualified contracts. Portfolio Director T
is not available to non-qualified contracts issued to individuals. Please read
the "Federal Tax Matters" in this prospectus for information about the federal
income tax treatment of Portfolio Director T.
COMPARISON OF CONTRACTS
You should carefully compare the features, charges and restrictions of the other
contracts to those of Portfolio Director T. A more detailed comparison of the
features, charges, and restrictions between each above listed other contract and
Portfolio Director T is provided in the Statement of Additional Information.
Portfolio Director, Portfolio Director 2 and Portfolio Director T contain the
same provisions except as to the level of fees and as to available Variable
Account Options and certain Separate Account Expense Reimbursements. See "Fees
and Changes" in this prospectus.
For the V-Plan and Compounder Contract you should refer to the terms of the
contract or certificate. For the other contracts please refer to its most
recently dated prospectus for a complete description of the contract terms and
conditions. Those prospectuses are incorporated herein by reference. If you want
an additional copy of any of these prospectuses or Statements of Additional
Information, please contact us at the address shown in the introduction of the
prospectus.
Please refer to the prospectus and Statement of Additional Information for
Portfolio Director and the different series of Portfolio Director 2 for
information about the specific features and charges of such products.
Features of Portfolio Director T
In deciding whether you want to exercise these exchange privileges, you should
consider the following factors of Portfolio Director T.
- Portfolio Director T has 3 publicly available mutual funds as investment
options.
- The Portfolio Director T surrender charge is calculated assuming the most
recent Purchase Payments are removed first. This policy may cause exchanged
funds to be accessible only after charges are imposed.
- Portfolio Director T has an Interest Guaranteed Death Benefit.
- Portfolio Director T's Fund fees and charges are different than the other
contracts and in some cases may be higher.
- Portfolio Director T's guaranteed annuity rates and guaranteed interest
rates may be less favorable than the other contracts.
26
<PAGE> 197
DEATH BENEFITS
- --------------------------------------------------------------------------------
Portfolio Director T will pay death benefits during either the Purchase Period
or the Payout Period. How these death benefits will be paid are discussed below.
The death benefit provisions in Portfolio Director T may vary from state to
state.
BENEFICIARY INFORMATION
The Beneficiary may receive death benefits:
- - In a lump sum; or
- - In the form of an annuity under any of the Payout Options stated in the Payout
Period section of this prospectus subject to the restrictions of that Payout
Option.
Payment of any death benefits must be within the time limits set by federal tax
law.
Beneficiaries Other Than Spouses.
If the Beneficiary is not the spouse of the Annuitant, death benefits must be
paid.
- - In full within 5 years after the Annuitant's death; or
- - By payments beginning within 1 year after the Annuitant's death under:
- A life annuity;
- A life annuity with payments certain; or
- An annuity for a designated period.
If the Annuitant dies before the Annuity Date, the Beneficiary as named by you
may receive the payout.
Payments certain or payments for a designated period cannot be for a greater
period of time than the Beneficiary's life expectancy. After choosing a payment
option, a Beneficiary may exercise many of the investment options and other
rights that the Participant or Contract Owner had under Portfolio Director T.
SPECIAL INFORMATION FOR INDIVIDUAL
NON-TAX QUALIFIED CONTRACTS
It is possible that the Contract Owner and the Annuitant under a Non-Tax
Qualified Contract are not the same person. If this is the case, and the
Contract Owner dies, there will be no death benefit payable since the death
benefit is only due in the event of the Annuitant's death. However, the Contract
will be transferred to the Contingent Owner,
if any, or to the Contract Owner's estate. Such transfers will be considered a
taxable event by the IRS.
DURING THE PURCHASE PERIOD
Two types of benefits are available if death occurs during the Purchase Period.
Interest Guaranteed Death Benefit and Standard Death Benefit.
INTEREST GUARANTEED DEATH BENEFIT
The interest guaranteed death benefit is payable when death occurs prior to your
reaching the age of 70. This contract provision is not available in some states.
The amount payable under the interest guaranteed death benefit will be at least
equal to the sum of your Account Value in the Fixed Account Option(s) and the
Variable Account Option(s) on the date VALIC receives proof of death.
Here is how to calculate the death benefit:
Step 1: Determine your Fixed Account Option Value by taking the greater of:
<TABLE>
<S> <C> <C>
Value of Fixed Account Option on date
proof of death Is received by VALIC
OR
100% of Purchase Payments placed
in Fixed Account Option
- - (minus)
Amount of all prior withdrawals, charges and
any portion of Account Value applied under
a Payout Option
</TABLE>
Step 2: Determine your Variable Account Option Value by taking the greater of:
<TABLE>
<S> <C> <C>
Value of Variable Account Option on date
proof of death is received by VALIC
OR
100% of Purchase Payments placed in
Variable Account Options
- - (minus)
Prior withdrawals (out of) or transfers
(out of) the Variable Account Option
+ (plus)
Interest at an annual rate of 3%
</TABLE>
- --------------------------------------------------
Step 3: Add step 1 + 2 = Death Benefit
For purposes of this calculation amounts transferred into the Variable Account
Option will be treated as Purchase Payments.
BENEFICIARY -- the person
designated to receive Payout
Payments upon the death of
an Annuitant.
ANNUITANT -- the individual,
(in most cases this person is
you) to whom Payout
Payments will be paid.
CONTRACT OWNER -- either
your employer or organization
in the case of a group
contract or the Annuitant in
the case of an individual
contract. If the contract is an
individual non-qualified type,
this is generally the Annuitant
but a Contingent Contract
Owner may also be provided
for.
FIXED ACCOUNT OPTIONS -- a
particular subaccount into
which your Purchase
Payments and Account Value
may be allocated to fixed
investment options. Currently,
the Fixed Account Options in
Portfolio Director T are Fixed
Account Plus and Short-Term
Fixed Account. Each option
of this type is guaranteed to
earn at least a minimum rate
of interest.
VARIABLE ACCOUNT
OPTIONS -- Investment
Options that correspond to
VALIC Separate Account A
Divisions offered by Portfolio
Director T. Investment returns
on Variable Account Options
will be positive or negative
depending on the investment
performance of the
underlying mutual fund.
27
<PAGE> 198
- --------------------------------------------------------------------------------
STANDARD DEATH BENEFIT
The standard death benefit is payable if death occurs on or after age 70.
The Standard Death Benefit will be the greater of:
<TABLE>
<S> <C> <C>
Your Account Value on the Date Proof of Death is
Received by VALIC
OR
100% of Purchase Payments (to Fixed
and/or Variable Account Options)
- -- (MINUS)
Amount of all Prior Withdrawals, Charges
and any portion of Account Value applied
under a Payout Option
</TABLE>
DURING THE PAYOUT PERIOD
If death occurs during the Payout Period, your Beneficiary may receive a death
benefit depending on the Payout Option selected. The amount of death benefits
will also depend on the Payout Option that you selected. The Payout Options
available in Portfolio Director T are described in the "Payout Period" section
of this prospectus.
- If the Life Only Option or Joint and Survivor Life Option were chosen, there
will be no death benefit.
- If the Life With Guaranteed Period Option, Joint and Survivor Life with
Guaranteed Periods Option, Life with Cash or Unit Refund Option or Payment
for a Designated Period Option were chosen, and the entire amount guaranteed
has not been paid, the Beneficiary may choose one of the following within 60
days after death benefits are payable:
- Receive the present value of any remaining payments in a lump sum; or
- Receive the remaining payments under the same terms of the guaranteed
period option chosen by the deceased Participant; or
- Receive the present value of any remaining payments applied under the
Payment for a Designated Period Option for a period equal to or shorter
than the period remaining. Spouse beneficiaries may be entitled to more
favorable treatment under federal tax law.
28
<PAGE> 199
HOW TO REVIEW INVESTMENT PERFORMANCE
OF SEPARATE ACCOUNT DIVISIONS
- --------------------------------------------------------------------------------
We will advertise information about the investment performance of VALIC Separate
Account A Divisions. Our advertising of past investment performance results does
not mean that future performance will be the same. The performance information
will not predict what your actual investment experience will be in that Division
or show past performance under an actual contract. We may also show how the
Divisions rank on the basis of data compiled by independent ranking services.
Some of the Divisions (and underlying Funds) offered in this prospectus were
previously available through other annuity contracts or to the general public
before Portfolio Director T was first available to you. We may therefore,
advertise investment performance since the inception of the underlying Funds.
However, in doing so, we will use the charges and fees imposed by Portfolio
Director T in calculating the Division's investment performance for earlier time
frames.
TYPES OF INVESTMENT PERFORMANCE
INFORMATION ADVERTISED
We may advertise the Division's Total Return Performance information and Yield
Performance information.
TOTAL RETURN PERFORMANCE
INFORMATION
Total Return Performance Information is based on the overall dollar or
percentage change in value of an assumed investment in a Division over a given
period of time.
There are seven ways Total Return Performance Information may be advertised:
- Standard Average Annual Total Return
- Nonstandard Average Annual Total Return
- Cumulative Total Return
- Annual Change in Purchase Unit Value
- Cumulative Change in Purchase Unit Value
- Total Return Based on Different Investment Amounts
- An Assumed Account Value of $10,000
Each of these is described below.
STANDARD AVERAGE ANNUAL TOTAL RETURN
Standard Average Annual Total Return shows the average percentage change in the
value of an investment in the Division from the beginning to the end of a given
historical period. The results shown are after all charges and fees have been
applied against the Division. This will include
account maintenance fees and surrender charges that would have been deducted if
you surrendered Portfolio Director T at the end of each period shown. Premium
taxes are not deducted. This information is calculated for each Division based
on how an initial assumed payment of $1,000 performed at the end of 1, 3, 5 and
10 year periods.
The return for periods of more than one year are annualized to obtain the
average annual percentage increase (or decrease) during the period.
Annualization assumes that the application of a single rate of return each year
during the period will produce the ending value, taking into account the effect
of compounding.
NONSTANDARD AVERAGE ANNUAL TOTAL
RETURN
Nonstandard Average Annual Total Return is calculated in the same manner as the
Standard Average Annual Total Return. However, Nonstandard Average Annual Total
Return shows only the historic investment results of the Division. Account
maintenance fees, surrender charges and premium taxes are not deducted.
CUMULATIVE TOTAL RETURN
Cumulative Total Return assumes the investment in Portfolio Director T will stay
in the Division beyond the time that a surrender charge would apply. It may be
calculated for 1, 3, 5 and 10 year periods. It is based on an assumed initial
investment of $10,000. The Cumulative Return will be calculated without
deduction of account maintenance fees, surrender charges or premium taxes.
ANNUAL CHANGE IN PURCHASE UNIT VALUE
Annual Change in Purchase Unit Value is a percentage change during a one year
period. This is calculated as follows:
- The Purchase Unit Value at the start of the year is subtracted from the
Purchase Unit Value at the end of the year;
- The difference is divided by the Purchase Unit Value at the start of the
year.
Account maintenance fees, surrender charges and premium taxes are not deducted.
The effect of these charges, if deducted, would reduce the Division's Annual
Change in Purchase Unit Value.
DIVISIONS -- Subaccounts of
VALIC Separate Account A
which represent the Variable
Account Options in Portfolio
Director T. Each Division
invests in a different mutual
fund, each having its own
investment objective and
strategy.
PURCHASE PAYMENTS -- an
amount of money you pay to
VALIC to receive the benefits
of an annuity Contract offered
by Portfolio Director T.
For more information on how
TOTAL RETURN PERFORMANCE
INFORMATION is calculated,
see the Statement of
Additional Information.
29
<PAGE> 200
- --------------------------------------------------------------------------------
CUMULATIVE CHANGE IN PURCHASE UNIT VALUE
Cumulative Change in Purchase Unit Value is a percentage change from the
beginning to the ending of a period usually greater than one year. Otherwise, it
is calculated in the same way as the Annual Change in Purchase Unit Value.
TOTAL RETURN BASED ON DIFFERENT
INVESTMENT AMOUNTS
We may show total return information based on different investment amounts. For
example, we may show $200 a month for 10 years, or $100 a month to age 65. Fees
may or may not be included. Each performance illustration will explain the
Portfolio Director T charges and fees imposed on the Division.
AN ASSUMED ACCOUNT VALUE OF $10,000
We may show annual values based on an initial investment of $10,000. This will
not reflect any deduction for account maintenance fees, surrender charges and
premium taxes.
YIELD PERFORMANCE INFORMATION
We may advertise Yield Performance, at a given point in time. A Division's yield
is one way of showing the rate of income the Division is earning as a percentage
of the Division's Purchase Unit Value.
AGSPC MONEY MARKET DIVISION
We may advertise the AGSPC Money Market Division's Current Yield and Effective
Yield.
The Current Yield refers to the income produced by an investment in the AGSPC
Money Market Division over a given 7-day period. The Current Yield does not take
into account surrender charges, account maintenance fees or premium taxes. The
income produced over a 7 day period is then "annualized." This means we are
assuming the amount of income produced during the 7-day period will continue to
be produced each week for an entire year. The annualized amount is shown as a
percentage of the investment.
The Effective Yield is calculated in a manner similar to the Current Yield. But,
when the yield is annualized the income earned is assumed to be reinvested. The
compounding effect will cause the Effective Yield to be higher than the Current
Yield.
DIVISIONS OTHER THAN THE AGSPC MONEY MARKET DIVISION
We may advertise the standardized yield performance for each Division other than
the AGSPC Money Market Division. The yield for each of these Divisions will be
determined as follows:
- We will subtract the account maintenance fee from the average daily net
investment income per Purchase Unit;
- We will divide the remainder by the Purchase Unit Value on the last day of
the period; and
- We will annualize the result.
PERFORMANCE INFORMATION:
AVERAGE ANNUAL TOTAL RETURN, CUMULATIVE RETURN AND ANNUAL AND CUMULATIVE CHANGE
IN PURCHASE UNIT VALUE TABLES.
In the sections above we have described a number of ways we may advertise
information about the investment performance of VALIC Separate Account A
Divisions. Certain performance information for each VALIC Separate Account A
Division is printed in the four tables below.
The information presented does not reflect the advantage under Portfolio
Director T of deferring federal income tax on increases in Account Value due to
earnings attributable to Purchase Payments (see "Federal Tax Matters" in the
prospectus and in the Statement of Additional Information.) The information
presented also does not reflect the advantage under Qualified Contracts of
deferring federal income tax on Purchase Payments.
The performance information presented in the following tables reflects the
performance of the underlying Fund after deduction of a mortality and expense
risk fee and administration and distribution fee at an aggregate annualized rate
of 0.80% during the Purchase Period on the daily net asset value of VALIC
Separate Account A. The exact rate depends upon the Variable Account Option
selected.
The performance results shown in the following tables are not an estimate or
guarantee of future investment performance, and do not represent the actual
experience of amounts invested by a particular Participant.
30
<PAGE> 201
TABLE I
AVERAGE ANNUAL TOTAL RETURN
WITH SURRENDER CHARGE AND ACCOUNT MAINTENANCE FEE IMPOSED
(FROM UNDERLYING FUND INCEPTION TO DECEMBER 31, 1997)
<TABLE>
<CAPTION>
INCEPTION SINCE
FUND AND DIVISION* DATE INCEPTION 10 YEARS 5 YEARS 3 YEARS 1 YEAR
------------------ --------- --------- -------- ------- ------- ------
<S> <C> <C> <C> <C> <C> <C>
AGSPC Asset Allocation Fund (Division 5)(1)............ 09/06/83 9.69 11.22 17.07 16.55
AGSPC Growth Fund (Division 15)........................ 04/29/94 21.28 -- -- 26.60 14.95
AGSPC Money Market Fund (Division 6)................... 01/16/86 -- 4.49 2.61 2.76 (0.43)
AGSPC Science & Technology Fund (Division 17).......... 04/29/94 24.56 -- -- 21.36 (2.88)
AGSPC Small Cap Index Fund (Division 14)............... 05/01/92 14.66 -- 13.73 19.94 16.33
AGSPC Social Awareness Fund (Division 12).............. 10/02/89 14.26 -- 18.06 29.96 27.69
AGSPC Stock Index Fund (Division 10)................... 04/20/87 -- 16.01 18.34 28.74 26.94
Scudder Growth and Income (Division 21)(2)............. 11/13/84 -- 15.70 18.05 25.36 23.96
Vanguard Fixed Income Securities Fund-
Long-Term Corporate Portfolio (Division 22)**........ 07/09/73 -- 9.57 7.45 10.46 7.52
Vanguard Fixed Income Securities Fund-
Long-Term U.S. Treasury Portfolio (Division 23)**.... 05/19/86 -- 9.25 7.60 10.67 7.59
</TABLE>
- ---------------
* The Table reflects the historical performance of each Fund based on
investment in a hypothetical Contract from the date of the Fund's inception.
The actual performance of each Fund has been reduced by Separate Account
fees that would have been incurred under the Contract. The Contracts offered
by this prospectus became available for purchase on May 1, 1998.
** The performance figures for the Vanguard Fixed Income Securities
Fund -- Long-Term Corporate Portfolio (Division 22) and the Vanguard Fixed
Income Securities Fund -- Long-Term U.S. Treasury Portfolio (Division 23) in
the Table do not take into account the Separate Account Reimbursement made
by the Company directly to those Divisions. If such reimbursements were
included, the performance figures for the Divisions would be higher.
(1) The AGSPC Asset Allocation Fund was formerly known as the Timed Opportunity
Fund.
(2) The Fund adopted its current name and objective on November 13, 1984. Its
predecessor commenced operations on
May 31, 1929.
TABLE II
AVERAGE ANNUAL TOTAL RETURN
WITH NO SURRENDER CHARGE OR ACCOUNT MAINTENANCE FEE IMPOSED
(FROM UNDERLYING FUND INCEPTION TO DECEMBER 31, 1997)
<TABLE>
<CAPTION>
INCEPTION SINCE
FUND AND DIVISION* DATE INCEPTION 10 YEARS 5 YEARS 3 YEARS 1 YEAR
------------------ --------- --------- -------- ------- ------- ------
<S> <C> <C> <C> <C> <C> <C>
AGSPC Asset Allocation Fund (Division 5)............... 09/06/83 -- 9.83% 11.99% 18.39% 21.64%
AGSPC Growth Fund (Division 15)........................ 04/29/94 22.21 -- -- 27.75 20.04
AGSPC Money Market Fund (Division 6)................... 01/16/86 -- 4.62% 3.61 4.41 4.34
AGSPC Science & Technology Fund (Division 17).......... 04/29/94 25.44 -- -- 22.60 1.77
AGSPC Small Cap Index Fund (Division 14)............... 05/01/92 14.47 -- 14.08 20.56 19.49
AGSPC Social Awareness Fund (Division 12).............. 10/02/89 14.39 -- 18.70 31.06 32.78
AGSPC Stock Index Fund (Division 10)................... 04/20/87 16.16 18.98 29.86 32.03
Scudder Growth and Income (Division 21)(2)............. 11/13/84 -- 15.79 18.65 26.51 29.05
Vanguard Fixed Income Securities Fund --
Long-Term Corporate Portfolio (Division 22)**........ 07/09/73 -- 9.66 8.26 11.88 12.54
Vanguard Fixed Income Securities Fund --
Long-Term U.S. Treasury Portfolio (Division 23)**.... 05/19/86 -- 9.34 8.42 12.10 12.67
</TABLE>
- ---------------
* The Table reflects the historical performance of each Fund based on
investment in a hypothetical Contract from the date of
the Fund's inception. The actual performance of each Fund has been reduced by
Separate Account fees that would have
been incurred under the Contract. The Contracts offered by this prospectus
became available for purchase on May 1, 1998.
** The performance figures for the Vanguard Fixed Income Securities
Fund -- Long-Term Corporate Portfolio (Division 22)
and the Vanguard Fixed Income Securities Fund -- Long-Term U.S. Treasury
Portfolio (Division 23) in the Table do not
take into account the Separate Account Reimbursement made by the Company
directly to those Divisions. If such
reimbursements were included, the performance figures for the Divisions would
be higher.
31
<PAGE> 202
TABLE III
CUMULATIVE RETURN
WITH NO SURRENDER CHARGE OR ACCOUNT MAINTENANCE FEE IMPOSED
(FROM UNDERLYING FUND INCEPTION TO DECEMBER 31, 1997)
<TABLE>
<CAPTION>
INCEPTION SINCE
FUND AND DIVISION* DATE INCEPTION 10 YEARS 5 YEARS 3 YEARS 1 YEAR
------------------ --------- --------- -------- ------- ------- ------
<S> <C> <C> <C> <C> <C> <C>
AGSPC Asset Allocation Fund (Division 5).............. 09/06/83 -- 155.31% 76.13% 65.94% 21.64%
AGSPC Growth Fund (Division 15)....................... 04/29/94 109.16 -- -- 108.49 20.04
AGSPC Money Market Fund (Division 6).................. 01/16/86 -- 57.02 19.40 13.83 4.34
AGSPC Science & Technology Fund (Division 17)......... 04/29/94 130.23 -- -- 84.28 1.77
AGSPC Small Cap Index Fund (Division 14).............. 05/01/92 115.32 -- 93.24 75.22 19.49
AGSPC Social Awareness Fund (Division 12)............. 10/02/89 203.45 -- 135.63 125.12 32.78
AGSPC Stock Index Fund (Division 10).................. 04/20/87 347.12 138.45 118.99 32.03
Scudder Growth and Income (Division 21)(2)............ 11/13/84 -- 333.35 135.19 102.48 29.05
Vanguard Fixed Income Securities Fund --
Long-Term Corporate Portfolio (Division 22)**....... 07/09/73 -- 151.45 48.73 40.04 12.54
Vanguard Fixed Income Securities Fund --
Long-Term U.S. Treasury Portfolio (Division 23)**... 05/19/86 -- 144.25 49.81 40.88 12.67
</TABLE>
- ---------------
* The Table reflects the historical performance of each Fund based on
investment in a hypothetical Contract from the date of
the Fund's inception. The actual performance of each Fund has been reduced by
Separate Account fees that would have
been incurred under the Contract. The Contracts offered by this prospectus
became available for purchase on May 1, 1998.
** The performance figures for the Vanguard Fixed Income Securities
Fund -- Long-Term Corporate Portfolio (Division 22)
and the Vanguard Fixed Income Securities Fund -- Long-Term U.S. Treasury
Portfolio (Division 23) in the Table do not
take into account the Separate Account Reimbursement made by the Company
directly to those Divisions. If such
reimbursements were included, the performance figures for the Divisions would
be higher.
32
<PAGE> 203
OTHER CONTRACT FEATURES
- --------------------------------------------------------------------------------
CHANGES THAT MAY NOT BE MADE
The following terms in Portfolio Director T may not be changed once your account
has been established:
- The Contract Owner;
- The Participant; and
- The Annuitant.
CHANGE OF BENEFICIARY
The Beneficiary (if not irrevocable) may usually be changed at any time.
Under some retirement programs, the right to name or change a Beneficiary is
subject to approval by the spouse. Also, the right to name a Beneficiary other
than the spouse may be subject to certain tax laws and regulations.
If the Annuitant dies, and there is no Beneficiary, any death benefit will be
payable to the Annuitant's estate.
If a Beneficiary dies while receiving payments, and there is no co-Beneficiary
to continue to receive payments, any amount still due will be paid to the
Beneficiary's estate.
CONTINGENT OWNER
The Contract Owner may name a Contingent Owner under an individual non-tax
qualified Contract. During the Purchase Period, the Contingent Owner may be
changed. However, if the Contract Owner dies, benefits must be distributed as
required by the federal tax law.
CANCELLATION -- THE 20 DAY "FREE LOOK"
The Contract Owner may cancel an individual contract by returning it to the
Company within 20 days after delivery. (A longer period will be allowed if
required under state law.) A refund will be made to the Contract Owner within 7
days after receipt of the Contract within the required period. The amount of the
refund will be equal to all Purchase Payments received or the amount required
under state law, if larger.
WE RESERVE CERTAIN RIGHTS
We reserve the right to:
- Amend the Contract to conform with substitutions of investments;
- Amend the Contract to comply with tax or other laws;
- Make changes (upon written notice) to group Contracts that would apply only
to new Participants after the effective date of the changes;
- Operate VALIC Separate Account A as a management investment company under
the 1940 Act, in consideration of an investment management fee or in any
other form permitted by law;
- Deregister VALIC Separate Account A under the 1940 Act, if registration is
no longer required;
- Stop accepting new Participants under a group Contract.
RELATIONSHIP TO EMPLOYER'S PLAN
If the Contract is being offered as a retirement plan through your employer, you
should always refer to the terms and conditions in your employer's plan when
reviewing the description of Portfolio Director T in this prospectus.
Plan loans from the Fixed Account Options may be allowed by your employer's
plan. Refer to your plan for a description of charges and other information.
33
<PAGE> 204
VOTING RIGHTS
- --------------------------------------------------------------------------------
As discussed in the "About VALIC Separate Account A" section of this prospectus,
VALIC Separate Account A holds on your behalf shares of the Funds which comprise
the Variable Account Options. From time to time the Funds are required to hold a
shareholder meeting to obtain approval from their shareholders for certain
matters. As a Participant, you may be entitled to give voting instructions to us
as to how VALIC Separate Account A should vote its Fund shares on these matters.
Those persons entitled to give voting instructions will be determined before the
shareholders meeting is held. For more information about these shareholder
meetings and when they may be held, see the Funds' prospectuses.
WHO MAY GIVE VOTING INSTRUCTIONS
In most cases during the Purchase Period, you will have the right to give voting
instructions for the shareholder meetings. This will be true even if your
employer is the Contract Owner. Contract Owners will instruct VALIC Separate
Account A in accordance with these instructions. You will receive proxy material
and a form on which voting instructions may be given before the shareholder
meeting is held.
You will not have the right to give voting instructions if Portfolio Director T
was issued in connection with a nonqualified and unfunded deferred compensation
plan.
DETERMINATION OF FUND SHARES
ATTRIBUTABLE TO YOUR ACCOUNT
DURING PURCHASE PERIOD
The number of Fund shares attributable to your account will be determined on the
basis of the Purchase Units credited to your account on the record date set for
the Fund shareholder meeting.
DURING PAYOUT PERIOD OR AFTER A DEATH
BENEFIT HAS BEEN PAID
The number of Fund shares attributable to your account will be based on the
liability for future variable annuity payments to your payees on the record date
set for the Fund shareholder meeting.
HOW FUND SHARES ARE VOTED
The Funds which comprise the Variable Account Options in Portfolio Director T
may have a number of shareholders including VALIC Separate Account A, VALIC
other affiliated insurance company separate accounts and retirement plans within
the American General group of companies and public shareholders.
VALIC Separate Account A will vote all of the shares of the Funds it holds based
on, and in the same proportion as, the instructions given by all the
Participants invested in that Fund entitled to give instructions at that
shareholder meeting. VALIC Separate Account A will vote the shares of the Funds
it holds for which it receives no voting instruction in the same proportion as
the shares for which voting instructions have been received.
VALIC will vote the shares of the Funds it holds based on, and in the same
proportion as, the voting instructions received from participants in VALIC
Separate Account A.
In the future, we may decide how to vote the shares of VALIC or VALIC Separate
Account A in a different manner if permitted at that time under federal
securities law.
VALIC SEPARATE
ACCOUNT A -- a segregated
asset account established by
VALIC under the Texas
Insurance Code. The purpose
of VALIC Separate Account A
is to receive and invest your
Purchase Payments and
Account Value in the Variable
Account Options you have
selected.
34
<PAGE> 205
FEDERAL TAX MATTERS
- --------------------------------------------------------------------------------
Portfolio Director T provides tax-deferred accumulation over time, but is
subject to federal income and excise taxes, mentioned briefly below. You should
refer to the Statement of Additional Information for further details. Section
references are to the Internal Revenue Code ("Code"). We do not attempt to
describe any potential estate or gift tax, or any applicable state, local or
foreign tax law other than possible premium taxes mentioned under "Premium Tax
Charge." Remember that future legislation could modify the rules discussed
below, and always consult your personal tax adviser regarding how the current
rules apply to your specific situation.
TYPE OF PLANS
Tax rules vary, depending on whether the Contract is offered under your
employer's tax-qualified retirement program or 408(b) IRA, or is instead a
nonqualified Contract. Portfolio Director T is used under the following types of
retirement arrangements:
- Section 403(b) annuities for employees
of public schools and
Section 501(c)(3) tax-exempt
organizations;
- Section 401(a) and 403(a) qualified plans of for-profit employers and other
employers (including self-employed individuals);
- Section 408(b) individual retirement annuities;
- Section 457 deferred compensation plans of governmental and tax-exempt
employers;
- Section 408(k) simplified deferred
compensation plans of private
employers.
- Section 408(p) SIMPLE retirement
accounts.
The foregoing Contracts are "Qualified Contracts." Portfolio Director T may also
be available through a nondeductible Section 408A "Roth" individual retirement
annuity.
Note that the specific terms of the governing employer plan may limit rights and
options otherwise available under a Contract.
In addition, Portfolio Director T is also available through "Non-Qualified
Contracts" to the extent acquired by "Non-Natural Persons." Such Non-Qualified
Contracts generally include unfunded, nonqualified deferred compensation plans
of corporate employers.
TAX CONSEQUENCES IN GENERAL
Purchase Payments, distributions, withdrawals, transfers and surrender of a
Contract can each have a tax effect, which varies with the governing retirement
arrangement. Please refer to the detailed explanation in the Statement of
Additional Information, the documents (if any) controlling the retirement
arrangement through which the contract is offered, and your personal tax
adviser.
Purchase Payments under Portfolio Director T can be made as contributions by
employers, or as pre-tax or after-tax contributions by employees, depending on
the type of retirement program. After-tax employee contributions constitute
"investment in the Contract." All Qualified Contracts receive deferral of tax on
the inside build-up of earnings on invested Purchase Payments, until a
distribution occurs. See the Statement of Additional Information for special
rules, including those applicable to taxable, non-natural owners of
Non-Qualified Contracts.
Distributions are taxed differently depending on the program through which
Portfolio Director T is offered and the previous tax characterization of the
contributions to which the distribution relates. Generally, the portion of a
distribution which is not considered a return of investment in the Contract is
subject to income tax. For annuity payments, investment in the contract is
recovered ratably over the expected payout period. Special recovery rules might
apply in certain situations.
Amounts subject to income tax may also incur excise tax, under the circumstances
described in the Statement of Additional Information. Generally, they would also
be subject to some form of federal income tax withholding unless rolled into
another tax-deferred vehicle. Required withholding will vary according to type
of program, type of payment and your tax status. In addition, amounts received
under all Contracts may be subject to state income tax withholding requirements.
It is the opinion of VALIC and its tax counsel that a Qualified Contract
described in Section 403(a), 403(b), or 408(b) of the Code does not lose its
deferred tax treatment if purchase payments under the contract are invested in
publicly available mutual funds. In a ruling published in 1981, the Internal
Revenue Service ("IRS") had taken the position that, where purchase payments
under a variable annuity contract are invested in publicly available mutual
funds, the contract owner should be treated as the owner of the mutual fund
shares, and deferred tax treatment under the contract should not be available.
In the opinion of VALIC and its tax counsel, the 1981 ruling has been superseded
by subsequent legislation (Code Section 817(h))
35
<PAGE> 206
- --------------------------------------------------------------------------------
which specifically exempts these Qualified Contracts, and the IRS has no viable
legal basis or reason to apply the theory of the 1981 ruling to these Qualified
Contracts under current law. In any event, were the IRS to challenge the
deferred tax treatment of these Qualified Contracts under the theory of the 1981
ruling, VALIC and its tax counsel believe that Contract owners would prevail.
It is also the opinion of VALIC and its tax counsel that for each other type of
Qualified Contract an independent exemption provides tax deferral regardless of
ownership of the Mutual Fund shares.
Generally, investment earnings on contributions to Non-Qualified Contracts will
be taxed currently to the owner and such contracts will not be treated as
annuities for federal income tax purposes.
EFFECT OF TAX-DEFERRED ACCUMULATIONS
The chart below compares the results from
Premium Payments made to:
- Portfolio Director T Contract issued to a tax favored retirement program
purchased with pre-tax premium payments;
- A non-qualified Contract purchased with after-tax Premium Payments and;
- Conventional savings vehicles such as savings accounts.
THE POWER OF TAX-DEFERRED GROWTH
[BAR GRAPH]
This hypothetical chart compares the results of (1) contributing $100 per month
to a conventional, non-tax deferred plan, (2) contributing $100 to a
nonqualified, tax-deferred annuity, and (3) contributing $100 per month ($138.89
since contributions are made before tax) to a qualified tax-deferred plan. The
chart assumes a 28% tax rate and an 8% fixed rate of return. The deduction of
fees and charges for both tax-deferred plans is reflected in the chart. Variable
options incur mortality and expense risk fee and administration and distribution
fee charges (0.80% during the purchase period and 1% during the payout period)
and may also incur account maintenance fees ($3.75 per quarter) and surrender
charges (5% of the lesser of all contributions received during the last 60
months or the amount withdrawn). The dotted lines represent the amounts
remaining after withdrawal and payment of taxes and any surrender charge. An
additional 10% tax penalty may apply to withdrawals before age 59 1/2. This
information is for illustrative purposes only and is not a guarantee of future
return.
Unlike savings accounts, Premium Payments made to tax-favored retirement
programs and Non-Qualified Contracts generally provide tax deferred treatment on
earnings. In addition, Premium Payments made to tax-favored retirement programs
ordinarily are not subject to income tax until withdrawn. As shown above,
investing in a tax-favored program increases the accumulation power of savings
over time. The more taxes saved and reinvested in the program, the more the
accumulation power effectively grows over the years.
To further illustrate the advantages of tax deferred savings using a 28% Federal
tax bracket, an annual fixed yield (BEFORE THE DEDUCTION OF ANY FEES OR CHARGES)
of 8% under a tax-favored retirement program in which tax savings were
reinvested has an equivalent after-tax annual fixed yield of 5.76% under a
conventional savings program. THE 8% YIELD ON THE TAX-FAVORED PROGRAM WILL BE
REDUCED BY THE IMPACT OF INCOME TAXES UPON WITHDRAWAL. The yield will vary
depending upon the timing of withdrawals. The previous chart represents (without
factoring in fees and charges) after-tax amounts that would be received.
By taking into account the current deferral of taxes, contributions to
tax-favored retirement programs increase the amount available for savings by
decreasing the relative current out-of-pocket cost (referring to the effect on
annual net take-home pay) of the investment. The chart below illustrates this
principle by comparing a
36
<PAGE> 207
- --------------------------------------------------------------------------------
pre-tax contribution to a tax-favored retirement plan with an after-tax
contribution to a conventional savings account:
PAYCHECK COMPARISON
<TABLE>
<CAPTION>
TAX-FAVORED CONVENTIONAL
RETIREMENT SAVINGS
PROGRAM ACCOUNT
----------- ------------
<S> <C> <C>
Annual amount available
for savings before
federal taxes......... $2,500 $2,500
Current federal income
tax due on Purchase
Payments.............. 0 (700)
Net retirement plan
Purchase Payments..... $2,500 $1,800
</TABLE>
This chart assumes a 28% federal income tax rate. The $700 which is paid toward
current federal income taxes reduces the actual amount saved in the conventional
savings account to $1,800, while the full $2,500 is contributed to the
tax-qualified program, subject to being taxed upon withdrawal. Stated otherwise,
to reach an annual retirement savings goal of $2,500, the contribution to a tax-
qualified retirement program results in a current out-of-pocket expense of
$1,800 while the contribution to a conventional savings account requires the
full $2,500 out-of-pocket expense. The tax-qualified retirement program
represented in this chart is a plan type, such as one under Section 403(b) of
the Code, which allows participants to exclude contributions within limits, from
gross income.
37
<PAGE> 208
YEAR 2000
- --------------------------------------------------------------------------------
YEAR 2000 RISKS
Like other insurance companies, financial and business organizations around the
world, each of the Variable Account Options and the underlying mutual funds
could be adversely affected if the computer systems used by the Company, other
service providers and entities with computer systems that are linked to the
Company's records do not properly process and calculate date-related information
and data from and after January 1, 2000. This is commonly known as the "Year
2000 Issue." The Company is taking steps that it believes are reasonably
designed to address the Year 2000 Issue with respect to the computer systems
that its uses and to obtain satisfactory assurances that comparable steps are
being taken by each of the Variable Account Options' other major service
providers. The Company expects to be substantially complete with its computer
systems projects to address year 2000 issues by the end of 1998. However, there
can be no assurance that these steps will be sufficient to avoid any adverse
impact on the Variable Account Options.
38
<PAGE> 209
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<PAGE> 210
REVOCATION OF TELEPHONE ASSET TRANSFER AUTHORITY
Participant/Contract Owner Name:
------------------------------------------------------------------------
Social Security Number:
------------------------------------------------------------------------
Birth Date:
I am the Participant under or Contract Owner of one or more variable annuity
contracts issued by The Variable Annuity Life Insurance Company ("VALIC"). I
hereby instruct VALIC not to accept any telephone instructions to transfer
Account Values among investment options or change the allocation of future
Purchase Payments from me, anyone representing me or anyone representing himself
or herself to be me. I understand as a result of executing this form that the
transfer of Account Values or Payout Values among investment options or changes
in the allocation of future Purchase Payments may only be effected upon the
receipt by VALIC of my written instructions.
<TABLE>
<S> <C>
- ------------------------------------------------------------ ---------------------------------------
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>
<PAGE> 211
Please tear off, complete and return the form below to one of our Regional
Offices at the address shown on the inside back cover of this Prospectus. A
Statement of Additional Information may also be ordered by calling
1-800-44-VALIC.
................................................................................
PORTFOLIO DIRECTOR CONTRACTS
Please send me a free copy of the Statement of Additional Information for The
Variable Annuity Life Insurance Company Separate Account A (Portfolio Director
2).
(Please Print or Type)
- --------------------------------------------------------------------------------
Name: G.A. #
Address: Policy #
Social Security Number:
- --------------------------------------------------------------------------------
<PAGE> 212
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<PAGE> 213
CONTENTS OF STATEMENT OF ADDITIONAL INFORMATION
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
General Information................................. 4
Marketing Information........................... 4
Endorsements and Published Ratings.............. 7
Types of Variable Annuity Contracts................. 8
Federal Tax Matters................................. 8
Tax Consequences of Purchase Payments........... 9
Tax Consequences of Distributions............... 10
Special Tax Consequences -- Early
Distribution.................................. 11
Special Tax Consequences -- Required
Distributions................................. 12
Tax Free Rollovers, Transfers and Exchanges..... 13
Exchange Privilege.................................. 14
Exchanges From Portfolio Director, Exchanges
From Portfolio Director 2..................... 14
Exchanges From Independence Plus Contracts...... 14
Exchanges From V-Plan Contracts................. 16
Exchanges From SA-1 and SA-2 Contracts.......... 17
Exchanges From Impact Contracts................. 18
Exchanges From Compounder Contracts............. 19
Information Which May Be Applicable To Any
Exchange...................................... 20
Calculation of Surrender Charge..................... 21
Illustration of Surrender Charge on Total Surrender 21
Illustration of Surrender Charge on a 10%
Partial Surrender Followed by a Full
Surrender..................................... 21
Purchase Unit Value................................. 22
Illustration of Calculation of Purchase Unit
Value......................................... 22
Illustration of Purchase of Purchase Units...... 22
Performance Calculations............................ 22
AGSPC Money Market Division Yields.............. 22
Calculation of Yield for AGSPC Money Market
Division Six.................................. 22
Illustration of Calculation of Yield for AGSPC
Money Market Division Six..................... 22
Calculation of Effective Yield for AGSPC Money
Market Division Six........................... 23
Illustration of Calculation of Effective Yield
for AGSPC Money Market Division Six........... 23
Standardized Yield for Bond Fund Divisions.......... 23
Calculation of Standardized Yield for Bond Fund
Divisions..................................... 23
Illustration of Calculation of Standardized
Yield for Bond Fund Divisions................. 23
Calculation of Average Annual Total Return...... 24
Performance Information............................. 25
Hypothetical $10,000 Account Value and
Cumulative Return as Compared to Benchmark
Tables........................................ 25
Performance Compared to Market Indices.......... 25
AGSPC Growth Division Fifteen Performance
Compared to S&P 500 Index..................... 28
AGSPC International Government Bond Division
Thirteen Performance Compared to Salomon
Brothers Non-U.S. Dollar World Government Bond
Index......................................... 28
</TABLE>
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
AGSPC Money Market Division Six Performance
Compared to Certificate of Deposit Primary
Offering by New York City Banks, 30 Day
Index......................................... 29
AGSPC Science & Technology Division Seventeen
Performance Compared to S&P 500 Index......... 29
AGSPC Social Awareness Division Twelve
Performance Compared to S&P 500 Index......... 30
AGSPC Stock Index Division Ten Performance
Compared to S&P 500 Index..................... 30
American Century -- Twentieth Century Ultra
Division Thirty-one Compared to S&P 500 Index
and NASDAQ Composite Index.................... 31
Founders Growth Division Thirty Compared to S&P
500 Index..................................... 31
Neuberger&Berman Guardian Trust Division
Twenty-nine Compared to S&P 500 Index......... 32
Putnam Global Growth Division Twenty-eight
Compared to MCSI World Index and S&P 500
Index......................................... 32
Putnam New Opportunities Division Twenty-six
Compared to S&P 500 Index..................... 33
Putnam OTC & Emerging Growth Division Twenty-
seven Compared to Russell 2000 Index and S&P
500 Index..................................... 34
Scudder Growth and Income Division Twenty-one
Compared to S&P 500 Index..................... 34
Templeton Foreign Division Thirty-two Compared
to EAFE Index................................. 35
Vanguard Fixed Income Securities
Fund -- Long-Term Corporate Portfolio Division
Twenty-two Compared to Merrill Lynch Corporate
Master Index.................................. 35
Vanguard Fixed Income Securities
Fund -- Long-Term U.S. Treasury Portfolio
Division Twenty-three Compared to Lehman
Brothers U.S. Treasury Long-Term Index........ 36
Vanguard/Wellington Division Twenty-five
Compared to S&P 500 Index and Merrill Lynch
Corporate Master Index........................ 36
Vanguard/Windsor II Division Twenty-four
Compared to S&P 500 Index..................... 37
Payout Payments..................................... 38
Assumed Investment Rate......................... 38
Amount of Payout Payments....................... 38
Payout Unit Value............................... 38
Illustration of Calculation of Payout Unit
Value......................................... 39
Illustration of Payout Payments................. 39
Distribution of Variable Annuity Contracts.......... 40
Experts............................................. 40
Comments on Financial Statements.................... 41
</TABLE>
<PAGE> 214
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<PAGE> 215
================================================================================
FOR ADDITIONAL INFORMATION ABOUT THE CONTRACTS
CONTACT YOUR NEAREST REGIONAL OFFICE:
3535 Grandview Parkway
Suite 200
Birmingham, AL 35243
(205) 967-8955
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
(650) 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 1900
Chicago, IL 60606
(312) 368-1001
11711 N. Meridian St.
Suite 300
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
(248) 641-0022
8500 Normandale Lake Blvd.
Suite 750
Bloomington, MN 55437
(612) 893-1099
4266 Interstate 55N
Suite 108
Jackson, MS 39211
(601) 981-5801
410 Amherst Street
Suite 250
Nashua, NH 03063
(603) 883-3840
90 Woodbridge Ctr. Dr.
Suite 300
Woodbridge, NJ 07095
(732) 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
Two International Plaza
Suite 601
Nashville, TN 37217
(615) 254-4822
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-six branch offices located throughout the
country.
THE VARIABLE ANNUITY LIFE INSURANCE COMPANY
2929 ALLEN PARKWAY, HOUSTON, TEXAS 77019
1-800-44-VALIC
FOR UNIT VALUE INFORMATION CALL: 1-800-42-VALIC & TDD 1-800-24-VALIC
FOR ASSET TRANSFERS BY TELEPHONE CALL: 1-800-621-7792
TDD 1-800-35-VALIC
EASYACCESS 1-800-42-VALIC
TDD EASYACCESS 1-800-24-VALIC
================================================================================
<PAGE> 216
SUPPLEMENT DATED MAY 1, 1998 TO STATEMENT OF ADDITIONAL
INFORMATION DATED MAY 1, 1998
THE VARIABLE ANNUITY LIFE INSURANCE COMPANY
SEPARATE ACCOUNT A
UNITS OF INTEREST UNDER GROUP AND
INDIVIDUAL VARIABLE ANNUITY CONTRACTS
PORTFOLIO DIRECTOR 2
FOR SERIES 2.1 TO 2.12,
SERIES 2.1.20 TO 2.12.20,
SERIES 2.1.40 TO 2.12.40
The Statement of Additional Information ("SAI") has been amended as described
below to reflect the availability of the AGSPC Asset Allocation Division Five
and the AGSPC Small Cap Index Division Fourteen as investment options under
Certain Contracts.
The following paragraph has been added as the first paragraph to the section of
the SAI entitled "Performance Compared to Market Indices."
The performance of AGSPC Asset Allocation Division Five may be compared to a
benchmark comprised of a weighted average of three market sectors in which
the Division, through the AGSPC Asset Allocation Fund, will invest. The base
allocation is: 55% in equity securities, 35% in intermediate or long-term
debt securities and 10% in money market or short-term debt securities. The
Division's actual asset allocation is determined daily by the Bankers Trust
Asset Allocation Model. The performance of the equity securities sector of
the Division may be compared to the S&P 500(R)** 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
5,000 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.
- ---------------
** "Standard & Poor's(R)," "S&P(R)," "S&P 500(R)," and "S&P MidCap 400(R)" are
trademarks of Standard & Poor's ("S&P"). The AGSPC Asset Allocation Fund, the
AGSPC MidCap Index Fund and the AGSPC Stock Index Fund are not sponsored,
endorsed, sold or promoted by S&P and S&P makes no representation regarding
the advisability of investing in these Funds.
<PAGE> 217
The following paragraph replaces the sixth paragraph in the section of the SAI
entitled "Performance Compared to Market Indices."
The performance of the AGSPC Small Cap Index Division Fourteen and the
Putnam OTC & Emerging Growth Division Twenty-seven may be compared with the
Russell 2000(R) Index ("Russell 2000").** The Russell 2000 was developed in
1984 by the Frank Russell Company to track the stock market performance of
small capitalization domestic stocks. The Russell 2000 is market weighted
and consists of approximately 2000 stocks. Stocks included in the Russell
2000 are chosen by the Frank Russell Company on the basis of their market
size.
- ---------------
** The Russell 2000(R) Index is a trademark/service mark of the Frank Russell
Trust Company. Russell(TM) is a trademark of the Frank Russell Company.
The following tables showing the Hypothetical $10,000 Account Value and
Cumulative Return of the AGSPC Asset Allocation Division Five and the AGSPC
Small Cap Index Division Fourteen have been added to the section of the SAI
entitled "Performance Information."
AGSPC Asset Allocation* 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>
ASSET ALLOCATION S&P 500 BLENDED
DIVISION FIVE INDEX INDEX**
- ---------------------------------------------------------------------- ------- -------
<S> <C> <C> <C>
01/1/88..................................................... $10,000 $10,000 $10,000
12/31/88.................................................... 10,885 11,661 11,257
12/31/89.................................................... 12,631 15,356 13,858
12/31/90.................................................... 12,228 14,879 14,164
12/31/91.................................................... 14,719 19,412 17,401
12/31/92.................................................... 14,496 20,891 18,663
12/31/93.................................................... 15,714 22,997 20,473
12/31/94.................................................... 15,385 23,300 20,472
12/31/95.................................................... 19,045 32,056 26,080
12/31/96.................................................... 20,990 39,419 29,688
12/31/97.................................................... 25,531 52,569 36,201
</TABLE>
CUMULATIVE RETURN COMPARED TO MARKET INDEX
(PERIOD ENDED DECEMBER 31, 1997)
<TABLE>
<CAPTION>
10 YEARS 5 YEARS 3 YEARS 1 YEAR
-------- ------- ------- ------
<S> <C> <C> <C> <C>
Investment Division
AGSPC Asset Allocation Division Five................... 155.31% 76.13% 65.94% 21.64%
Benchmark Comparison
S&P 500 Index.......................................... 425.69% 151.63% 125.62% 33.36%
Blended Index*......................................... 262.01% 93.97% 76.83% 21.94%
</TABLE>
- ---------------
* The AGSPC Asset Allocation Fund was formerly known as the Timed Opportunity
Fund.
** 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.
<PAGE> 218
AGSPC Small Cap Index Division Fourteen Performance Compared to Russell 2000
Index(R)
HYPOTHETICAL $10,000 ACCOUNT VALUE
ANNUAL VALUE OF A $10,000 STIPULATED PAYMENT MADE MAY 1, 1992
<TABLE>
<CAPTION>
RUSSELL
SMALL CAP INDEX 2000
DIVISION FOURTEEN INDEX
- --------------------------------------------------------------------------- -------------
<S> <C> <C>
05/01/92.................................................... $ 10,000 $ 10,000
12/31/92.................................................... 11,143 11,416
12/31/93.................................................... 12,814 13,571
12/31/94.................................................... 12,288 13,324
12/31/95.................................................... 15,562 17,114
12/31/96.................................................... 18,020 19,937
12/31/97.................................................... 21,532 24,396
</TABLE>
CUMULATIVE RETURN COMPARED TO MARKET INDEX
(PERIOD ENDED DECEMBER 31, 1997)
<TABLE>
<CAPTION>
SINCE
INCEPTION* 5 YEARS 3 YEARS 1 YEAR
---------- ------- ------- ------
<S> <C> <C> <C> <C>
Investment Division
AGSPC Small Cap Index Division Fourteen................ 115.32% 93.24% 75.22% 19.49%
Benchmark Comparison
Russell 2000........................................... 143.96% 113.70% 83.10% 22.36%
</TABLE>
- ---------------
* This Division was initiated May 1, 1992.
<PAGE> 219
THE VARIABLE ANNUITY LIFE INSURANCE COMPANY
SEPARATE ACCOUNT A
UNITS OF INTEREST UNDER GROUP AND
INDIVIDUAL VARIABLE ANNUITY CONTRACTS
PORTFOLIO DIRECTOR 2
FOR SERIES 2.1 TO 2.12,
SERIES 2.1.20 TO 2.12.20
AND SERIES 2.1.40 TO 2.12.40
--------------------------------------------------------------------
STATEMENT OF ADDITIONAL INFORMATION
--------------------------------------------------------------------
FORM N-4 PART B
MAY 1, 1998
This Statement of Additional Information is not a prospectus but contains
information in addition to that set forth in the prospectus for Portfolio
Director 2 dated May 1, 1998 ("Contracts") and should be read in conjunction
with the prospectus. The terms used in this Statement of Additional Information
have the same meaning as those set forth in the prospectus. A prospectus may be
obtained by calling or writing the Company, or The Variable Annuity Marketing
Company (the "Underwriter") at 2929 Allen Parkway, Houston, Texas 77019;
1-800-44-VALIC. Prospectuses are also available from regional sales offices of
the Underwriter or from its registered sales representatives.
(*Portfolio Director 2 is composed of Contract Forms UIT-194, UITG-194,
UITN-194, UIT-IRA-194, and UIT-SEP-194.)
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TABLE OF CONTENTS
<TABLE>
<S> <C>
General Information......................................... 4
Marketing Information..................................... 4
Endorsements and Published Ratings........................ 7
Types of Variable Annuity Contracts......................... 8
Federal Tax Matters......................................... 8
Tax Consequences of Purchase Payments..................... 9
Tax Consequences of Distributions......................... 10
Special Tax Consequences -- Early Distribution............ 11
Special Tax Consequences -- Required Distributions........ 12
Tax Free Rollovers, Transfers and Exchanges............... 13
Exchange Privilege.......................................... 14
Exchanges from Portfolio Director, Exchanges from
Portfolio Director 2................................... 14
Exchanges From Independence Plus Contracts................ 14
Exchanges From V-Plan Contracts........................... 16
Exchanges From SA-1 and SA-2 Contracts.................... 17
Exchanges From Impact Contracts........................... 18
Exchanges From Compounder Contracts....................... 19
Information Which May Be Applicable To Any Exchange....... 20
Calculation of Surrender Charge............................. 21
Illustration of Surrender Charge on Total Surrender....... 21
Illustration of Surrender Charge on a 10% Partial
Surrender Followed by a Full Surrender................. 21
Purchase Unit Value......................................... 22
Illustration of Calculation of Purchase Unit Value........ 22
Illustration of Purchase of Purchase Units................ 22
Performance Calculations.................................... 22
AGSPC Money Market Division Yields........................ 22
Calculation of Current Yield for AGSPC Money Market
Division Six........................................... 22
Illustration of Calculation of Current Yield for AGSPC
Money Market Division Six.............................. 22
Calculation of Effective Yield for AGSPC Money Market
Division Six........................................... 23
Illustration of Calculation of Effective Yield for AGSPC
Money Market Division Six.............................. 23
Standardized Yield for Bond Fund Divisions.................. 23
Calculation of Standardized Yield for Bond Fund
Divisions.............................................. 23
Illustration of Calculation of Standardized Yield for Bond
Fund Divisions......................................... 23
Calculation of Average Annual Total Return................ 24
Performance Information..................................... 25
Hypothetical $10,000 Account Value and Cumulative Return
as Compared to
Benchmark Tables....................................... 25
Performance Compared to Market Indices.................... 25
AGSPC Growth Division Fifteen Performance Compared to S&P
500 Index.............................................. 28
AGSPC International Government Bond Division Thirteen
Performance Compared to Salomon Brothers Non-U.S.
Dollar World Government Bond Index..................... 28
AGSPC Money Market Division Six Performance Compared to
Certificate of Deposit Primary Offering by New York
City Banks, 30 Day Index (Primary CD Index)............ 29
AGSPC Science & Technology Division Seventeen Performance
Compared to S&P 500 Index.............................. 29
AGSPC Social Awareness Division Twelve Performance
Compared to S&P 500 Index.............................. 30
AGSPC Stock Index Division Ten Performance Compared to S&P
500 Index.............................................. 30
American Century -- Twentieth Century Ultra Division
Thirty-One Performance Compared to S&P 500 Index and
NASDAQ Composite Index................................. 31
Founders Growth Division Thirty Performance Compared to
S&P 500 Index.......................................... 31
Neuberger&Berman Guardian Trust Division Twenty-Nine
Performance Compared to S&P 500 Index.................. 32
</TABLE>
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<TABLE>
<S> <C>
Putnam Global Growth Division Twenty-Eight Performance
Compared to MSCI World Index and S&P 500 Index......... 32
Putnam New Opportunities Division Twenty-Six Performance
Compared to S&P 500 Index.............................. 33
Putnam OTC & Emerging Growth Division Twenty-Seven
Performance Compared to Russell 2000 Index and S&P 500
Index.................................................. 34
Scudder Growth and Income Division Twenty-One Performance
Compared to S&P 500 Index.............................. 34
Templeton Foreign Division Thirty-Two Performance Compared
to EAFE Index.......................................... 35
Vanguard Fixed Income Securities Fund -- Long-Term
Corporate Portfolio Division Twenty-Two Performance
Compared to Merrill Lynch Corporate Master Index....... 35
Vanguard Fixed Income Securities Fund -- Long-Term U.S.
Treasury Portfolio Division Twenty-Three Performance
Compared to Lehman Brothers U.S. Treasury Long-Term
Index.................................................. 36
Vanguard/Wellington Division Twenty-Five Performance
Compared to S&P 500 Index and Merrill Lynch Corporate
Master Index........................................... 36
Vanguard/Windsor II Division Twenty-Four Performance
Compared to S&P 500 Index.............................. 37
Payout Payments............................................. 38
Assumed Investment Rate................................... 38
Amount of Payout Payments................................. 38
Payout Unit Value......................................... 38
Illustration of Calculation of Payout Unit Value.......... 39
Illustration of Payout Payments........................... 39
Distribution of Variable Annuity Contracts.................. 40
Experts..................................................... 40
Comments on Financial Statements............................ 41
</TABLE>
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<PAGE> 222
GENERAL INFORMATION
MARKETING INFORMATION
The Company has targeted not-for-profit organizations as the central focus
of its marketing efforts for its Contracts. The Company has utilized as its
general marketing theme the concept that the Company is "America's Retirement
Plan Specialists." Specifically, the Company's marketing thrust is aimed at
individuals and groups associated with public and private schools, colleges and
universities, not-for-profit health care organizations, state and local
governments and other not-for-profit organizations.
This marketing concept has proven to be successful. In the aggregate,
premium deposits to the Company have grown from $37,000 in 1956 to more than
$3.4 billion as of December 31, 1997. The number of aggregate participant
accounts has increased from 155,000 accounts in 1980 to more than 1,739,191
accounts as of December 31, 1997. The number of employer groups which have
purchased Contracts has increased by 178 percent in the past ten years to more
than 26,392 as of December 31, 1997. As of December 31, 1997, 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, 1997 the Company's assets totaled more than $33
billion.
The Company's growth can also be reviewed by examining each market segment
the Company targets.
As of December 31, 1997, the Company was marketing Contracts in more than
9,795 public and private, primary and secondary schools with more than 464,729
participant accounts for employees in public and private schools nationwide.
From December 31, 1986 to December 31, 1997, the cash value of investments in
these Contracts has increased by 291 percent while the number of public and
private school groups in these Contracts increased 104 percent and the number of
participant accounts in these Contracts increased by 115 percent.
The Company has also increased its marketing efforts to colleges and
universities. From December 31, 1987 to December 31, 1997, the number of
colleges and universities which allow the Company to market Contracts to its
faculty and staff members has increased 176 percent and for the same period the
number of participant accounts has increased 141 percent. For the same time
period cash values for participants have increased 315 percent. As of December
31, 1997, more than 33 percent of United States colleges and universities allow
the Company to market Contracts to their faculty and staff members.
The Company has utilized as the central focus in its marketing to college
and university faculty and staff members the theme that the Company is the
"Alternative of Choice."
The Company has also had growth in the health care segment of the
not-for-profit organization market. From December 31, 1987 to December 31, 1997
Contract cash values have increased 795 percent. During the same period the
number of health care groups that have purchased these Contracts increased 290
percent and the number of participant accounts increased 290 percent.
The Company has also experienced growth in contracts sold to state and
local governmental groups. From December 31, 1986 to December 31, 1997, Contract
cash values for participants in these groups have increased 371 percent. For the
same period the number of participant accounts for individuals in these groups
in these Contracts increased 233 percent and the number of employer groups has
increased 371 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 29 states to sponsor ORPs with multiple
carriers, as of December 31, 1997. From December 31, 1992 to December 31, 1997,
in these ORPs the number of participant accounts increased 105 percent and cash
values increased 153 percent to more than $2.3 billion dollars.
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
4
<PAGE> 223
Stanley Capital International Europe, Australia, and Far East (EAFE) Index, or
any other appropriate market index. The indexes are not managed funds and have
no identifiable investment objectives.
The Company may, from time to time, refer, individually or collectively, to
its package of retirement plan services. Collectively, this package of services
may be referred to as easy Retirement Plan. Easy Retirement Planning includes:
(1) personal, face-to-face service from highly trained VALIC Retirement Plan
Specialists; (2) informative retirement-investment education programs, seminars
and materials; (3) specialized computer-aided services for retirement planning
and developing asset allocation strategies; (4) a wide selection of innovative,
market-responsive investment options; (5) advanced and efficient administration
of retirement accounts; and (6) a financially strong and stable Company with
which to do business.
From time to time the Company may refer to the diversifying process of
asset allocation based on the Modern Portfolio Theory developed by Nobel
Prize-winning economist Harry Markowitz. The basic assumptions of Modern
Portfolio Theory are that the selection of individual investments has little
impact on portfolio performance, market timing strategies seldom work, markets
are efficient and selecting the suitable mix of asset classes is more important
when creating a long-term investment portfolio. Modern Portfolio Theory allows
an investor to determine an "efficient" or "optimized" portfolio that has
historically provided a higher return with the same risk or the same return with
lower risk.
When presenting the asset allocation process the Company may outline the
process of personal and investment risk analysis including determining
individual risk tolerances and a discussion of the different types of investment
risk. The Company may classify investors into five categories based on their
personal risk tolerance and will quote various industry experts on which types
of investments are best suited to each of the five risk categories. The industry
experts quoted may include Ibbotson Associates, CDA Investment Technologies,
Lipper Analytical Services, Laffer-Cantos, Inc., VARDS Report, Wilson
Associates, Morningstar, Inc. and any other expert which has been deemed by the
Company to be appropriate. The Company may also provide a historical overview of
the performance of a variety of investment market indexes and different asset
categories, such as stocks, bonds, cash equivalents, etc. The Company may also
discuss investment volatility (standard deviation) including the range of
returns for different asset categories and classes over different time horizons,
and the correlation between the returns of different asset categories and
classes. The Company may also discuss the basis of portfolio optimization
including the required inputs and the construction of efficient portfolios using
sophisticated computer-based techniques. Finally, the Company may describe
various investment strategies and methods of implementation such as the use of
index funds vs. actively managed funds, the use of dollar cost averaging
techniques, the tax status of contributions, and the periodic rebalancing of
diversified portfolios.
The Company, in its marketing efforts to each of the market segments, may
from time to time design sales literature and material specifically for that
market segment, e.g., the health care segment of the not-for-profit organization
market. This sales literature and material may also be specific to a certain
group. For example, sales literature and material may be designed for a specific
hospital. The sales literature and material would address specifically the
group's contract and retirement plan.
The Company, in its marketing efforts, may also refer to the following
investment advisers referenced in the Prospectus.
The Company may, from time-to-time, refer to American Century Investment
Management, Inc. (ACIM) as investment adviser to the American
Century -- Twentieth Century Ultra Fund (underlying Division Thirty-one). The
nation's fourth-largest family of direct-marketed, no-load mutual funds,
American Century also represents the 15th-largest family of funds overall.
American Century offers nearly 70 no-load funds and manages assets for more than
2 million investors. ACIM, or its predecessor, has been providing investment
advisory services to American Century since its founding in 1958. ACIM was
formerly known as Investors Research Corporation. American Century, as of
December 31, 1997, had more than $61 billion of assets under management.
The Company may, from time-to-time refer to Founders Asset Management, LLC
(FAM) as investment adviser to Founders Growth Fund (under-
5
<PAGE> 224
lying Division Thirty). FAM and its predecessor companies have been offering
tools to help investors pursue their financial goals since 1938. FAM offers a
range of no-load mutual funds, sub-advisory services and separately managed
accounts matched to specific client needs. FAM has established a growth-style
management investment process which is consistent throughout all portfolios. The
FAM story includes themes of teamwork, experience and strong historical results.
These themes weave together into a number of unique products and services which
may be suitable for institutions and individuals. FAM, as of December 31, 1997,
had over $6 billion of assets under management.
The Company may, from time to time, refer to Neuberger&Berman Management
Inc. (N&B Management) as investment manager to the Portfolio in which
Neuberger&Berman Guardian Trust (underlying Division Twenty-nine) invests. In
1939, Roy Neuberger established Neuberger&Berman, LLC, which was then a
partnership to manage equity portfolios for individual investors. In 1950, he
introduced one of the first no-load mutual funds, Guardian Mutual Fund. N&B
Management, an affiliate of Neuberger&Berman, LLC, was later established and now
manages a family of mutual funds. N&B Management follows a value approach for
Neuberger&Berman Guardian Trust which is intended to provide solid performance
in good markets and minimize losses when conditions are less favorable. N&B
Management, as of December 31, 1997, had approximately $21.2 billion of assets
under management.
The Company may, from time to time, refer to Putnam Investment Management
Inc. (PIM) as investment adviser to the Putnam New Opportunities Fund
(underlying Division Twenty-six), Putnam OTC Emerging Growth Fund (underlying
Division Twenty-seven) and Putnam Global Growth Fund (underlying Division
Twenty-eight). PIM is one of the nation's oldest and largest investment
complexes, managing more than 90 different funds and serving more than 9 million
shareholder accounts. For the past seven years, PIM and its affiliates have been
rated among the top service providers in the nation, according to DALBAR
Financial Services, which monitors and evaluates the quality of service provided
by virtually every mutual fund family. PIM credits its strength in the financial
industry to its highly diversified product line, professional portfolio
management and award-winning service. Including institutional accounts, PIM and
its affiliates, as of December 31, 1997, had approximately $240 billion of
assets under management.
The Company may, from time to time refer to Scudder Kemper Investments,
Inc. ("Scudder Kemper") as investment adviser to the Scudder Growth and Income
Fund. Scudder Kemper, is one of the largest and most experienced investment
management organizations worldwide, managing assets globally for mutual fund
investors, retirement and pension plans, institutional and corporate clients,
insurance companies and private family and individual accounts. It is a member
of the Zurich Group, an internationally recognized leader in financial services,
which includes property/casualty and life insurance, reinsurance and asset
management. Scudder Kemper, as of January 1, 1998, had more than $200 billion in
assets under management.
The Company may, from time to time, refer to Templeton Global Advisors
(TGA) Limited as investment adviser to the Templeton Foreign Fund (underlying
Division Thirty-two). For more than 40 years, the Templeton organization has
been a leading global investment management company with offices in the U.S.,
Australia, Bahamas, Canada, Hong Kong, Luxembourg, Singapore, Russia, Scotland
and Germany. Templeton is a member of the $221 billion Franklin Templeton Group
with over 6 million individual and institutional accounts. The Franklin
Templeton Group provides investment management and advisory services to a
world-wide client base and maintains a disciplined, long-term approach to
value-oriented global and international investing. Templeton, as of December 31,
1997, had more than $94 billion in assets under management.
Since its founding in 1974, Vanguard has emerged as one of America's
largest mutual fund organizations. Today Vanguard provides competitive
investment performance, a diversity of fund alternatives and the lowest possible
fund operating expenses to nearly 9 million shareholders. Vanguard, as of
December 31, 1997, had more than $330 billion of assets under management.
The Company may, from time to time, refer to the Wellington Management
Company, LLP (WMC) as investment adviser to the Vanguard/Wellington Fund
(underlying Division Twenty-five) and the Vanguard Fixed Income Securities
Fund -- Long-Term Corporate Portfolio (underlying Division Twenty-two). WMC is a
professional investment counseling firm which globally
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<PAGE> 225
provides investment services to investment companies, institutions and
individuals.
The Company may, from time to time, refer to Vanguard Fixed Income Group
(VFIG) as investment adviser to the Vanguard Fixed Income Securities
Fund -- Long-Term U.S. Treasury Portfolio (underlying Division Twenty-three).
VFIG provides investment advisory services to more than 39 Vanguard money market
and bond portfolios.
The Company may, from time to time, refer to Barrow, Hanley, Mewhinney &
Strauss, Inc., Equinox Capital Management, Inc., Tukman Capital Management, Inc.
and Vanguard Core Management Group. Each is an investment adviser to
Vanguard/Windsor II (underlying Division Twenty-four). Barrow, Hanley, Mewhinney
& Strauss, Inc. is a Texas corporation which manages a portion of the equity
allocation of the Vanguard/Windsor II. Equinox Capital Management, Inc., a
Delaware corporation, Tukman Capital Management, Inc., a Maryland corporation,
and Vanguard Core Management Group manage the investment and reinvestment of a
portion of the equity allocation of Vanguard/ Windsor II.
The Company may, from time to time, refer in advertisements or sales
materials to certain milestones which are intended to emphasize the Company's
growth and development in assets, groups and various market segments. The
Company may also refer to other versions of Portfolio Director 2 in
advertisements or sales material. The Company may refer to certain innovative
aspects of its products such as having a variety of publicly available mutual
funds as Variable Account Options. Additionally the Company may refer from time
to time in advertisements or sales materials to marketing strategies it utilizes
to promote the Company's business objectives. Further, the Company may refer
from time to time in advertisements or sales materials to certain value-added
services it provides to its groups, Contract Owners and Participants.
The Company may, from time to time, refer in its advertisements to Schwab
Personal Choice Retirement Accounts ("PCRA"). The PCRA is a self-directed
brokerage account that may be used by VALIC Participants to directly invest in
publicly available mutual funds. PCRA is marketed through the VALIC Investment
Services Company.
The Company may from time to time compare the performance of the mutual
funds that serve as the investment vehicles for Portfolio Director 2 to the
performance of certain market indices. These market indices are described in the
"Performance Information" Section of this Statement of Additional Information.
ENDORSEMENTS AND
PUBLISHED RATINGS
From time to time, in advertisements or in reports to Contract Owners, the
Company may refer to its endorsements. Endorsements are often in the form of a
list of organizations, individuals or other parties which recommend the Company
or the Contracts. The endorser's name will be used only with the endorser's
consent. It should be noted that the list of endorsements may change from time
to time.
Also from time to time, the rating of the Company as an insurance company
by A. M. Best may be referred to in advertisements or in reports to Contract
Owners. Each year the A. M. Best Company reviews the financial status of
thousands of insurers, culminating in the assignment of Best's Ratings. These
ratings reflect their current opinion of the relative financial strength and
operating performance of an insurance company in comparison to the norms of the
life/health insurance industry. Best's Ratings range from A++ to F. 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.
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The Company may additionally refer to its Duff & Phelp's rating. A Duff &
Phelp's rating is an assessment of a company's insurance claims paying ability.
Duff & Phelp's ratings range from AAA to CCC. An AAA rating reflects that a
company has the highest claims paying ability.
Ratings relate to the claims paying ability of the Company's General
Account and not the investment characteristics of the Separate Account.
The Company may from time to time, refer to Lipper Analytical Services
Incorporated ("Lipper"), Morningstar, Inc. ("Morningstar") and CDA/Wiesenberger
Investment Companies (CDA/Wiesenberger) when discussing the performance of its
Divisions. Lipper, Morningstar and CDA/Wiesenberger are leading publishers of
statistical data about the investment company industry in the United States.
Additionally, the Company may compare the performance of the Divisions to
categories published by Lipper and Morningstar. Morningstar has not, however,
ranked the Neuberger&Berman Guardian Trust. 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.
Finally the Company will utilize as a comparative measure for the
performance of its Funds the Consumer Price Index ("CPI"). The CPI is a measure
of change in consumer prices, as determined in a monthly survey of the U.S.
Bureau of Labor Statistics. Housing costs, transportation, food, electricity,
changes in taxes and labor costs are among the CPI components. The CPI provides
a tool for determining the impact of inflation on an individual's purchasing
power.
TYPES OF VARIABLE ANNUITY
CONTRACTS
Three types of Contracts are offered in connection with the prospectus to
which this Statement of Additional Information relates:
(1) single payment immediate annuity Contracts;
(2) single payment deferred annuity Contracts; and
(3) flexible payment deferred annuity Contracts.
Under single payment Contracts, only one Purchase Payment is made by the
Contract Owner. Under flexible payment Contracts, Purchase Payments generally
are made until retirement age is reached. However, no Purchase Payments are
required to be made after the first payment. Purchase Payments are subject to
any minimum payment requirements under the Contract.
Under deferred annuity contracts, Purchase Payments are invested and
accumulate on a fixed or variable basis until the date the Contract Owner
selects to commence annuity payments.
Under immediate annuity Contracts, the first annuity payment is made on the
first day of the second month after the Purchase Payment is received. During the
period before the Annuity Date, the Purchase Payments are invested in the same
manner, and the other terms and conditions (including the options and rights of
Contract Owners, Annuitants and Beneficiaries) are the same under immediate
annuity Contracts as under deferred annuity Contracts.
The Contracts are non-participating and will not share in any of the
profits of the Company.
FEDERAL TAX MATTERS
This Section summarizes the major tax consequences of contributions,
payments, and withdrawals under Portfolio Director 2, during life and at death.
It is the opinion of VALIC and its tax counsel that a Qualified Contract
described in Section 403(a), 403(b), or 408(b) of the Code does not lose its
deferred tax treatment if Purchase Payments under the contract are invested in
publicly available mutual funds. If investment in publicly available mutual
funds were to cause the tax
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deferral provisions described below for these specific types of contracts not to
apply, you would be currently taxed on transfers, redemptions, purchase payments
and dividend and capital gains distributions.
In addition, it is also the opinion of VALIC and its tax counsel that, for
each other type of Qualified Contract, an independent exemption provides tax
deferral regardless of ownership of the Mutual Fund shares.
Investment earnings on contributions to Non-Qualified Contracts generally
will be taxed currently to the owner, and the contracts will not be treated as
annuities for federal income tax purposes. For this reason, Non-Qualified
Contracts will be offered and sold only to non-natural persons pursuant to the
meaning of Section 72 of the Code.
TAX CONSEQUENCES OF PURCHASE PAYMENTS
403(b) Annuities. Purchase Payments made by Section 501(c)(3) tax-exempt
organizations and public educational institutions toward Contracts for their
employees are excludable from the gross income of employees, to the extent
aggregate Purchase Payments do not exceed several competing tax limitations.
This gross income exclusion applies both to employer contributions and to your
voluntary and nonelective salary reduction contributions.
Your voluntary salary reduction contributions are generally limited to
$10,000 ($9,500 before 1998), although additional, "catch-up" contributions are
permitted under certain circumstances. Combined employer and salary reduction
contributions are generally limited to the smallest of $30,000; approximately
25% of salary; or an exclusion allowance which takes into account a number of
factors. In addition, after 1988 employer contributions for highly compensated
employees may be further limited by applicable nondiscrimination rules.
401(a) and 403(a) Qualified Plans. Purchase Payments made by an employer
(or a self-employed individual) under a qualified pension, profit-sharing or
annuity plan are excluded from the gross income of the employee. Purchase
Payments made by an employee generally are made on an after-tax basis, unless
eligible for pre-tax treatment by reason of Sections 401(k) or 414(h).
408(b) Individual Retirement Annuities ("408(b) IRAs"). Annual
tax-deductible contributions for 408(b) IRA Contracts are limited to the lesser
of $2,000 or 100% of compensation, and generally may be made only by individuals
who:
(i) are not active participants in another retirement plan, and are not
married;
(ii) are not active participants in another retirement plan, are married, but
either (a) the spouse is not an active participant in another retirement
plan, or (b) the spouse is an active participant, but the couple's
adjusted gross income does not exceed $150,000.
(iii) are active participants in another retirement plan, are unmarried, and
have adjusted gross income of $30,000 or less ($25,000 or less prior to
1998; adjusted upward for inflation after 1998); or
(iv) are active participants in another retirement plan, are married, and have
adjusted gross income of $50,000 or less ($40,000 or less prior to in 1998;
adjusted upward for inflation after 1998).
Active participants in other retirement plans whose adjusted gross income
exceeds the limits in (ii), (iii) or (iv) by less than $10,000 are entitled to
make deductible 408(b) IRA contributions in proportionately reduced amounts. If
a 408(b) IRA is established for a nonworking spouse who has no compensation, the
annual tax-deductible Purchase Payments for both spouses' Contracts cannot
exceed the lesser of $4,000 or 100% of the working spouse's earned income, and
no more than $2,000 may be contributed to either spouse's IRA for any year.
You may be eligible to make nondeductible IRA contributions of an amount
equal to the excess of:
(i) the lesser of $2,000 ($4,000 for you and your spouse's IRA) or 100% of
compensation, over
(ii) your applicable IRA deduction limit.
You may also make contributions of eligible rollover amounts from other
qualified plans and contracts. See Tax-Free Rollovers, Transfers and Exchanges.
408A "Roth" Individual Retirement Annuities ("408A "Roth" IRAs"). After
1997, annual nondeductible contributions for 408A "Roth" IRA Con-
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tracts are limited to the lesser of $2,000 or 100% of compensation, and may be
made only by individuals who:
(i) are unmarried and have adjusted gross income of $95,000 or less; or
(ii) are married and filing jointly, and have adjusted gross income of $150,000
or less.
The available nondeductible 408A "Roth" IRA contribution is reduced
proportionately to zero where adjusted gross income exceeds the limit in (i) by
$15,000 or less, or the limit in (ii) by $10,000 or less. Similarly, individuals
who are married and filing separately and whose adjusted gross income is less
than $15,000 may make a contribution to a Roth IRA of a portion of the otherwise
applicable $2,000 or 100% of compensation limit.
All contributions to 408(b) IRAs, traditional nondeductible IRAs and 408A
"Roth" IRAs must be aggregated for purposes of the $2,000 annual contribution
limit.
457 Plans. A unit of a state or local government may establish a deferred
compensation program for individuals who perform services for the government
unit. In addition, a non-governmental tax-exempt employer may establish an
eligible deferred compensation program for individuals who: (i) perform services
for the employer, and (ii) belong to a select group of management or highly
compensated employees and/or independent contractors.
This type of program allows eligible individuals to defer the receipt of
compensation (and taxes thereon) otherwise presently payable to them. If the
program is an eligible deferred compensation plan (an "EDCP"), in 1998 you may
contribute (and defer tax on) the lesser of $8,000 (indexed for inflation) or
33 1/3% of your "includible" compensation (compensation from the employer
currently includible in taxable income). Additional, catch-up deferrals are
permitted in the final three years before the year you reach normal retirement
age.
The employer uses deferred amounts to purchase the Contracts offered by
this prospectus. For plans maintained by a unit of a state or local government,
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
general creditors until 1999. The employee has no present rights to any vested
interest in the Contract and is entitled to payment only in accordance with the
EDCP provisions.
SEP. Employer contributions under a SEP are made to a separate individual
retirement account or annuity established for each participating employee, and
generally must be made at a rate representing a uniform percent of participating
employees' compensation. Employer contributions are excludable from employees'
taxable income, and after 1993 cannot exceed the lesser of $30,000 or 15% of
your compensation.
Through 1996, employees of certain small employers (other than tax-exempt
organizations) were permitted to establish plans allowing employees to
contribute pretax, on a salary reduction basis, to the SEP. These salary
reduction contributions may not exceed $7,000, indexed for inflation in later
years. Such plans if established by December 31, 1996, may still allow employees
to make these contributions.
SIMPLE IRA. Employer and employees contributions under a SIMPLE Retirement
Account Plan are made to a separate individual retirement account or annuity for
each employee. Employee salary reduction contributions cannot exceed $6,000 in
any year. Employer contributions can be a matching or a nonelective contribution
of a percentage as specified in the Code. Only employers with 100 or fewer
employees can maintain a SIMPLE IRA plan, which must also be the only plan the
employer maintains.
Non-Qualified Contracts. Non-natural persons may purchase a Non-Qualified
Contract. However, any increase in the Purchase Unit Value of a Non-Qualified
Contract resulting from the investment performance of VALIC Separate Account A
is taxable to the Contract Owner when credited to it.
TAX CONSEQUENCES OF DISTRIBUTIONS
403(b) Annuities. Voluntary salary reduction amounts accumulated after
December 31, 1988, and earnings on voluntary contributions before and after that
date, may not be distributed before one of the following:
(1) attainment of age 59 1/2;
(2) separation from service;
(3) death;
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(4) disability, or
(5) hardship (hardship distributions are limited to salary reduction
contributions only, exclusive of earnings thereon).
Similar restrictions will apply to all amounts transferred from a section
403(b)(7) custodial account other than rollover contributions.
Distributions are taxed as ordinary income to the recipient in accordance
with Section 72.
401(a) and 403(a) Qualified Plans. Distributions from Contracts purchased
under qualified plans are taxable as ordinary income, except to the extent
allocable to an employee's after-tax contributions (investment in the Contract).
If you or your Beneficiary receive a "lump sum distribution" (legally defined
term), the taxable portion may be subject to special 5-year or 10-year income
averaging treatment. Five-year forward averaging is unavailable for
distributions occurring after December 31, 1999. Ten-year income averaging uses
tax rates in effect for 1986, allows 20% capital gains treatment for the taxable
portion of a lump sum distribution attributable to years of service before 1974,
and is available if you were 50 or older on January 1, 1986.
408(b) IRA, SEPs and SIMPLE IRAs. Distributions are generally taxed as
ordinary income to the recipient. Rollovers from an IRA to a Roth IRA, and
conversions of an IRA to a Roth IRA, where permitted, are generally taxable in
the year of the rollover or conversion. Such rollovers of conversions completed
in 1998 are generally eligible for pro-rata federal income taxation over four
years. Individuals with adjusted gross income over $100,000 are generally
ineligible for such conversions, regardless of marital status, as are married
individuals who file separately.
408A "Roth" IRAs. "Qualified" distributions upon attainment of age 59 1/2,
upon death, disability or for first-time homebuyer expenses are tax-free as long
as five or more years have passed since the first contribution to taxpayer's
first 408A "Roth" IRA. A later date may apply to distributions from a Roth IRA
which contains one or more rollover contributions from a traditional IRA, to
determine if the distribution is qualified distribution. Qualified distributions
may be subject to state income tax in some states. Other distributions are
generally taxable to the extent that the distribution exceeds purchase payments.
457 Plans. Amounts received from an EDCP are includible in gross income for
the taxable year in which are paid or otherwise made available to the recipient.
Non-Qualified Contracts. The investment performance of the VALIC Separate
Account A is taxable when credited to the contract owner whether or not
distributed.
SPECIAL TAX CONSEQUENCES -- EARLY
DISTRIBUTION
403(b) Annuities, 401(a) and 403(a) Qualified Plans, 408(b) IRAs, SEPs and
SIMPLE IRAs. Taxable distributions received before the recipient attains age
59 1/2 generally are subject to a 10% penalty tax in addition to regular income
tax. Distributions on account of the following generally are excepted from this
penalty tax:
(1) death;
(2) disability;
(3) separation from service after a participant reaches age 55 (only applies to
403(b), 401(a), 403(a));
(4) separation from service at any age if the distribution is in the form of
substantially equal periodic payments over the life (or life expectancy) of
the Participant (or the Participant and Beneficiary), and
(5) distributions which do not exceed the employee's tax deductible medical
expenses for the taxable year of receipt.
Separation from service is not required for distributions from an IRA, SEP or
SIMPLE IRA under #4 above. Certain distributions from a SIMPLE IRA within two
years after first participating in the plan may be subject to a 20% penalty,
rather than a 10% penalty.
After 1997, distributions from 408(b) IRAs on account of the following
additional reasons are also excepted from this penalty tax:
(6) distributions up to $10,000 (in the aggregate) to cover costs of acquiring,
constructing or reconstructing the residence of a first-time homebuyer, and
(7) distributions to cover certain costs of higher education tuition, fees,
books, supplies and
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equipment for the IRA owner, a spouse, child or grandchild, and
(8) distributions to cover certain medical care or long term care insurance
premiums, for individuals who have received federal or state unemployment
compensation for 12 consecutive months.
408A "Roth" IRAs. Distributions, other than "qualified" distributions where
the five-year holding rule is met, are generally subject to the same 10% penalty
tax as other IRAs. Distributions of rollover or conversion contributions from an
IRA which are not qualified distributions, may be subject to additional penalty
taxes.
457 Plans. Distributions generally may be made under an EDCP prior to
separation from service only for unforeseeable emergencies, or for amounts under
$5,000 for inactive Participants, and are includible in the recipient's gross
income in the year paid.
Non-Qualified Contracts. No penalties apply for early distributions under
Non-Qualified Contracts sold to non-natural persons.
SPECIAL TAX CONSEQUENCES -- REQUIRED
DISTRIBUTIONS
403(b) Annuities. Generally, minimum required distributions must commence
no later than April 1 of the calendar year following the later of the calendar
year in which the Participant attains age 70 1/2 or the calendar year in which
the Participant retires. Required distributions must be made over a period that
does not exceed the life or life expectancies of the Participant (or lives or
joint life expectancies of the Participant and Beneficiary). The minimum amount
payable can be determined several different ways. A penalty tax of 50% is
imposed on the amount by which the minimum required distribution in any year
exceeds the amount actually distributed in that year.
Amounts accumulated under a Contract on December 31, 1986 may be paid in a
manner that meets the above rule or, alternatively:
(i) must begin to be paid when Participant attains age 75; and
(ii) the present value of payments expected to be made over the life of the
Participant, (under the option chosen) must exceed 50% of the present value
of all payments expected to be made (the "50% rule").
The 50% rule will not apply if a Participant's spouse is the joint annuitant.
Notwithstanding these pre-January 1, 1987 rules the entire contract balance must
meet the minimum distribution incidental benefit requirement of Section
403(b)(10).
At the Participant's death before payout has begun, Contract amounts
generally either must be paid to the Beneficiary within 5 years, or must begin
within 1 year of death and be paid over the life or life expectancy of the
Beneficiary. If death occurs after commencement of (but before full) payout,
distributions generally must continue at least as rapidly as under the method
elected by the Participant and in effect at the time of death.
A participant generally may aggregate his or her 403(b) contracts and
accounts for purposes of satisfying these requirements, and withdraw the
required distribution in any combination from such contracts or accounts, unless
the plan, contract, or account otherwise provides.
401(a) and 403(a) Qualified Plans. Minimum distribution requirements for
Qualified Plans, are generally the same as described for 403(b) Annuities,
except that there is no exception for pre-1987 amounts, and multiple plans may
not be aggregated to satisfy the requirement.
408(b) IRAs, SEPs and SIMPLE IRAs. Minimum distribution requirements are
generally the same as described above for 403(b) Annuities, except that:
(1) there is no exception for pre-1987 amounts; and
(2) there is no available postponement, past April 1 of the calendar year
following the calendar year in which age 70 1/2 is attained.
A participant generally may aggregate his or her IRAs for purposes of
satisfying these requirements, and withdraw the required distribution in any
combination from such contracts or accounts, unless the contract or account
otherwise provides.
408A "Roth" IRAs. Minimum distribution requirements generally applicable to
403(b) Annuities, 401(a) and 403(a) Qualified Plans, 408(b) IRAs, SEPs and 457
Plans do not apply to 408A
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"Roth" IRAs during the owner's lifetime, but generally do apply at the owner's
death.
A participant generally may aggregate his or her Roth IRAs for purposes of
satisfying these requirements, and withdraw the required distribution in any
combination from such contracts or accounts, unless the contract or account
otherwise provides.
457 Plans. Beginning January 1, 1989, the minimum distribution requirements
for EDCP's are generally the same as described above for 403(b) Annuities except
that there is no exception for pre-1987 amounts, and multiple plans may not be
aggregated to satisfy the requirement.
Non-Qualified Contracts. Non-Qualified Contracts do not require
commencement of distributions at any particular time and generally do not limit
the duration of annuity payments.
TAX-FREE ROLLOVERS, TRANSFERS AND EXCHANGES
403(b) Annuities. Tax free transfers between 403(b) annuity contracts
and/or 403(b)(7) custodial accounts, and tax-free rollovers from 403(b) programs
to 408(b) IRAs or other 403(b) programs, are permitted under certain
circumstances.
401(a) and 403(a) Qualified Plans. The taxable portion of certain
distributions may be transferred in a tax-free rollover to a 408(b) individual
retirement account or annuity, or to another such plan.
408(b) IRAs. Funds may be transferred tax-free to a 408(b) IRA Contract,
from a 403(b) Annuity, or 401(a) or 403(a) Qualified Plan, under certain
conditions. These amounts may subsequently be rolled over on a tax-free basis to
another such plan or 403(b) Annuity Contract from this "conduit" IRA. In
addition, tax-free rollovers may be made from one 408(b) IRA (other than a Roth
IRA) to another provided that no more than one such rollover is made during any
twelve-month period.
408A "Roth" IRAs. Funds may be transferred tax-free from one 408A "Roth"
IRA to another. Funds in a 408(b) IRA may be rolled in a taxable transaction to
a 408A "Roth" IRA by individuals who:
(i) have adjusted gross income of $100,000 or less, whether single or married
filing jointly;
(ii) are not married filing separately.
Special, complicated rules governing holding periods, escape from the 10%
penalty tax and ratable recognition of 1998 income also apply to rollovers from
408(b) IRAs to 408A "Roth" IRAs, and may be subject to further modification by
Congress. You should consult your tax advisor regarding the application of these
rules.
SEPs. Funds may be rolled over tax free from one SEP only to another SEP or
a 408(b) IRA.
457 Plans. Tax-free transfer of EDCP amounts are permitted only to another
EDCP.
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EXCHANGE PRIVILEGE
In the prospectus we described generally how under certain conditions we
will allow you to exchange from other fixed and/or variable contracts we issue
(other contracts) to Portfolio Director 2. These other contracts are listed in
the prospectus. A more detailed comparison of the features, charges and
restrictions between each of these listed other contracts and Portfolio Director
2 provided below.
In the prospectus we also describe exchanges between Portfolio Director and
Portfolio Director 2, as well as among series of Portfolio Director 2, and the
restrictions imposed on those exchanges. Specifically once you have exchanged
between Portfolio Director and Portfolio 2 or among series of Portfolio Director
2 you must wait 120 days before making another exchange between Portfolio
Director and Portfolio Director 2.
EXCHANGES FROM PORTFOLIO DIRECTOR,
EXCHANGES FROM PORTFOLIO DIRECTOR 2
Sales/Surrender Charges.
Portfolio Director and Portfolio Director 2 have the same provisions for
imposing surrender charges upon total or partial surrenders. Both Portfolio
Director and Portfolio Director 2 have the same provisions where surrender
charges are not imposed. For purposes of satisfying the fifteen-year and
five-year holding requirements described in "Surrender Charge" in the
prospectus, Portfolio Director 2 will be deemed to have been issued on the same
date as Portfolio Director. Purchase Payments exchanged into Portfolio Director
2 will be treated as Purchase Payments under Portfolio Director 2 for purposes
of calculating the surrender charge. Exchanged payments will be deemed to have
been made under Portfolio Director 2 on the date they were made to Portfolio
Director for purposes of calculating the surrender charge under Portfolio
Director 2.
Other Charges
Portfolio Director and Portfolio Director 2 have the same provisions for
imposing the quarterly account maintenance fee.
Both Portfolio Director and Portfolio Director 2 impose an additional daily
charge with an annualized rate of 1.00% to 1.25% (or lower amounts during the
Purchase Period for different series of Portfolio Director 2), depending upon
the Variable Account Option selected, if any, on the daily net asset value of
VALIC Separate Account A. This charge is to cover expenses not covered by the
account maintenance fee and to compensate the Company for assuming mortality and
expense risks and administration expenses. Under Portfolio Director 2 the
Company will reimburse to certain Divisions any fees it receives from a Mutual
Fund for providing the Mutual Fund administrative and shareholder services.
Investment Options
Under Portfolio Director, sixteen divisions of VALIC Separate Account A are
available, thirteen of which invest in different investment portfolios of AGSPC
and three divisions of which invest in other mutual fund portfolios. These
mutual fund portfolios are managed either by the Company, the Dreyfus
Corporation or Templeton Investment Counsel Inc. for advisory fees at annual
rates ranging from .28% to .90% of each portfolio's or mutual fund's average
daily net assets. Two fixed investment options are also available.
Under Portfolio Director 2, eighteen divisions of VALIC Separate Account A
are available, 6 of which invest in a different portfolio of AGSPC and 12
divisions of which invest in other publicly available mutual fund portfolios.
These mutual fund portfolios are managed either by the Company or other
investment managers for advisory fees ranging from 0.01% to 1.00% of each
portfolio's or mutual fund's average daily net assets. Two fixed investment
options are also available.
Annuity Options
Both Portfolio Director and Portfolio Director 2 provide the same annuity
options.
EXCHANGES FROM INDEPENDENCE PLUS CONTRACTS
Sales/Surrender Charges. Under an Independence Plus Contract, no sales
charge is deducted at the time a Purchase Payment is made, but a surrender
charge may be imposed on partial or total surrenders. The surrender charge may
not exceed 5% of any Purchase Payments withdrawn within five years of the date
such Purchase Payments were made. The most recent Purchase Payments are deemed
to be withdrawn first. Up to 10% of the Account Value may be surrendered in a
Participant Year without any surrender charge being imposed. Portfolio Director
2 imposes a similar surrender charge upon total or partial surrenders. Both the
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Portfolio Director 2 and Independence Plus Contracts have other similar
provisions where surrender charges are not imposed. However, Portfolio Director
2 provides at least one additional provision, not included in Independence Plus
Contracts, under which no surrender charge will be imposed. An additional
provision allows election of a systematic withdrawal method without surrender
charges. (See "Surrender Charge" in the prospectus.) For purposes of satisfying
the fifteen-year and five-year holding requirements described under "Surrender
Charge" in the prospectus, Portfolio Director 2 will be deemed to have been
issued on the same date as the Independence Plus Contract or certificate
thereunder, but no earlier than January 1, 1982. Purchase Payments exchanged
into Portfolio Director 2 and which were made within five years before the date
of exchange will be treated as Purchase Payments under Portfolio Director 2 for
purposes of calculating the surrender charge. Exchanged payments will be deemed
to have been made under Portfolio Director 2 on the date they were made to
Independence Plus Contracts for purposes of calculating the surrender charge
under Portfolio Director 2.
Other Charges. Under the Independence Plus Contracts, a maintenance charge
of $20 is assessed for the first year and an annual charge of $15 is assessed
for the second and later years during the accumulation period. The charge is due
in quarterly installments. A daily fee is charged at the annual rate of 1% of
the daily net asset value allocable to the Variable Subaccounts to cover
administrative expenses (other than those covered by the annual charge) and
mortality risks assumed by the Company. For Portfolio Director 2, a quarterly
account maintenance fee of $3.75 is assessed for each calendar quarter during
the Purchase Period during which any Variable Account Option Account Value is
credited to a Participant's Account. The fee is to reimburse the Company for
some of the administrative expenses associated with the Variable Account
Options. No fee is assessed for any calendar quarter if the Account Value is
credited only to the Fixed Account Options throughout the quarter. Such fee
begins immediately if an exchange is made into any Variable Account Option
offered under Portfolio Director 2. The fee may also be reduced or waived by the
Company for Portfolio Director 2 if the administrative expenses are expected to
be lower for that Contract. (See "Reduction or Waiver of Account Maintenance
Fee, Surrender, Mortality and Expense Risk Fee or Administration and
Distribution Fee Charges" in the prospectus). To cover expenses not covered by
the account maintenance fee and to compensate the Company for assuming mortality
risks and administration and distribution expenses under Portfolio Director 2,
an additional daily charge with an annualized rate of 1.00% to 1.25% (or lower
amounts during the Purchase Period for different series of Portfolio Director
2), depending upon the Variable Account Options selected, if any, on the daily
net asset value of VALIC Separate Account A is attributable to Portfolio
Director 2. (See "Separate Account Charges" and "Separate Account Expense
Reimbursement" in the prospectus.)
Investment Options. Under Independence Plus Contracts ten divisions of
VALIC Separate Account A are available variable investment alternatives, each
investing in shares of a different underlying fund of AGSPC portfolio. The ten
mutual funds are managed by the Company for advisory fees at annual rates
ranging from .28% to .50% of each respective portfolio's average daily net
assets. In addition, two fixed investment options are available. Under Portfolio
Director 2, eighteen divisions of VALIC Separate Account A are available, six of
which invest in a different investment portfolio of AGSPC and twelve divisions
of which invest in other publicly available mutual fund portfolios. These mutual
fund portfolios are managed either by the Company, or other investment advisers
for advisory fees at annual rates ranging from .01% to 1.00% of each portfolio's
or mutual fund's average daily net assets. Two fixed investment options are also
available.
Annuity Options. Annuity options under Independence Plus Contracts provide
for payments on a fixed or variable basis, or a combination of both. The
Independence Plus Contract permits annuity payments for a designated period
between 3 and 30 years on a fixed basis only. Portfolio Director 2 permits
annuity payments for a designated period between of 5 and 30 years on a fixed
basis only. Independence Plus Contracts and Portfolio Director 2 both provide
for "betterment of rates." Under this provision, annuity payments for fixed
annuities will be based on mortality tables then being used by the Company, if
more favorable to the Annuitant than those included in the Contract.
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EXCHANGES FROM V-PLAN CONTRACTS
Sales/Surrender Charges. Under a V-Plan Contract, no sales charge is
deducted at the time a Purchase Payment is made, but a surrender charge may be
imposed on partial or total surrenders. The surrender charge is equal to 7% of
the Purchase Payments withdrawn within five years of the date such Purchase
Payments were made. The most recent Purchase Payments are deemed to be withdrawn
first. Up to 10% of the account value may be surrendered in a Participant Year
without any surrender charge being imposed. Portfolio Director 2 also imposes a
surrender charge upon total or partial surrenders. However, the surrender charge
under Portfolio Director 2 may not exceed 5% of any Purchase Payments withdrawn
within the most recent five years prior to the receipt of the surrender request
by the Company at its Home Office. V-Plan Contracts have other provisions where
surrender charges are not imposed. However, Portfolio Director 2 provides at
least two additional provisions, not included in V-Plan Contracts, under which
no surrender charge will be imposed. Those Portfolio Director 2 provisions
include no surrender charge on an election of the no charge systematic
withdrawal method, and where an employee-participant has maintained the account
for a period of five years and has attained the age 59 1/2. (See "Surrender
Charge" in the prospectus.) For purposes of satisfying the fifteen-year and
five-year holding requirements, Portfolio Director 2 will be deemed to have been
issued on the same date as the V-Plan Contract or certificate thereunder, but no
earlier than January 1, 1982.
If there is a total or partial surrender, Purchase Payments exchanged into
Portfolio Directors 2 and which were made within five years before the date of
exchange will be treated as Purchase Payments under Portfolio Director 2 for
purposes of calculating the surrender charge. Exchanged payments will be deemed
to have been made under Portfolio Director 2 on the date they were made to the
V-Plan Contract for purposes of calculating the surrender charge under Portfolio
Director 2.
Other Charges. There are no administrative and risk charges under V-Plan
Contracts. For Portfolio Director 2, a quarterly account maintenance fee of
$3.75 is assessed for each calendar quarter during the Purchase Period during
which any Variable Account Option Account Value is credited to a Participant's
Account. The fee is to reimburse the Company for some of the administrative
expenses associated with the Variable Account Options. No fee is assessed for
any calendar quarter if the Account Value is credited only to the Fixed Account
Options throughout the quarter. Such fees begin immediately if an exchange is
made into any Variable Account Option offered under Portfolio Director 2. The
fee may also be reduced or waived by the Company on Portfolio Director 2 if the
administrative expenses are expected to be lower for that Contract. (See
"Reduction or Waiver of Account Maintenance Fee, Surrender, Mortality and
Expense Risk Fee or Administration and Distribution Fee Charges" in the
prospectus.) To cover expenses not covered by the account maintenance fee and to
compensate the Company for assuming mortality risks and administration and
distribution expenses under Portfolio Director 2, an additional daily charge
with an annualized rate of 1.00% to 1.25% (or lower amounts during the Purchase
Period for different series of Portfolio Director 2), depending upon the
Variable Account Options selected, if any, on the daily net asset value of the
VALIC Separate Account A is attributable to Portfolio Director 2. (See "Separate
Account Charges" and "Separate Account Expense Reimbursement" in the
prospectus.)
Investment Options. There are no variable investment alternatives provided
under V-Plan Contracts.
Annuity Options. Annuity options under V-Plan Contracts provide for
payments on a fixed basis only. The V-Plan Contract permits annuity payments for
a designated period of 1 to 15 years. Under a V-Plan Contract, the designated
period option may, subject to adverse tax consequences, be commuted at any time
for its remaining value. Portfolio Director 2 permits Payout Payments for a
designated period of between 5 and 30 years on a fixed basis only. Under
Portfolio Director 2, Payout Payments may be made on a fixed or variable basis,
or a combination of both. Portfolio Director 2 does not provide for commutation.
V-Plan Contracts and Portfolio Directors 2 both provide for "betterment of
rates." Under this provision, Payout Payments for fixed annuities will be based
on mortality tables then being used by the Company, if more favorable to the
Annuitant than those included in the Contract.
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EXCHANGES FROM SA-1 AND SA-2 CONTRACTS (GUP-64, GUP-74, GTS VA CONTRACTS)
Sales/Surrender Charges. Under the SA-1 and SA-2 Contracts a sales and
administrative charge is deducted from each Purchase Payment. This charge ranges
from 5% of the first $5,000 of Purchase Payments to 3% of Purchase Payments in
excess of $15,000. If a SA-1 or SA-2 Contract is exchanged for Portfolio
Director 2 the surrender charge under Portfolio Director 2 will not apply to the
amount of Account Value applied to Portfolio Director 2 ("Exchanged Amount").
Purchase Payments made to Portfolio Director 2, however, would be subject to a
surrender charge. In the case of a partial surrender, all Purchase Payments to
Portfolio Director 2 will be deemed to be withdrawn before any Exchanged Amount
is deemed to be withdrawn. No exchange pursuant to this offer will be allowed
within 120 days of a transfer of fixed accumulations under a SA-1 or SA-2
Contract to the variable portion of such Contract. Under Portfolio Director 2,
no sales charge is deducted at the time a Purchase Payment is made, but a
surrender charge may be imposed on partial or total surrenders. The surrender
charge may not exceed 5% of any Purchase Payments withdrawn within the most
recent five years prior to the receipt of the surrender request by the Company
at its Home Office. For purposes of this surrender charge, the most recent
Purchase Payments are deemed to be withdrawn first. (See "Surrender Charge" in
the prospectus.)
Other Charges. A charge of a percentage of each Purchase Payment is made
for administrative expenses for SA-1 and SA-2 Contracts. The charge is generally
1.25% and is included in the above sales and administrative charge. An
additional daily charge (at an annual rate of 1% of total net assets
attributable to SA-1 Contracts and ranging from .21% to .85% of total net assets
attributable to SA-2 Contracts) is made for mortality and expense risks assumed
by the Company under the variable portion of the Contract. The total of these
expenses and other charges is limited to a maximum of the rate imposed on SA-1
and SA-2 Contracts on April 1, 1987. (See prospectus for SA-1 and SA-2 contracts
dated April 20, 1987.) For Portfolio Director 2, a quarterly account maintenance
fee of $3.75 is assessed for each calendar quarter during the Purchase Period
during which any Variable Account Option Account Value is credited to a
Participant's Account. The fee is to reimburse the Company for some of the
administrative expenses associated with the Variable Account Options. No fee is
assessed for any calendar quarter if the Account Value is credited only to the
Fixed Account Options throughout the quarter. Such fee begins immediately if an
exchange is made into any Variable Account Option offered under Portfolio
Director 2. The fee may also be reduced or waived by the Company on Portfolio
Director 2 if the administrative expenses are expected to be lower for that
Contract. (See "Reduction or Waiver of Account Maintenance Fee, Surrender,
Mortality and Expense Risk Fee or Administration and Distribution Fee Charges"
in the prospectus.) To cover expenses not covered by the account maintenance fee
and to compensate the Company for assuming mortality risks and administration
and distribution expenses under Portfolio Director 2, an additional daily charge
with an annualized rate of 1.00% to 1.25% (or lower amounts during the Purchase
Period for different series of Portfolio Director 2), depending upon the
Variable Account Options selected, if any, on the average daily net asset value
of the Separate Account is attributable to Portfolio Director 2. (See "Separate
Account Charges" and "Separate Account Expense Reimbursement" in the
prospectus.)
Investment Options. Under SA-1 and SA-2 Contracts only one division of
VALIC Separate Account A is available as a variable investment alternative. This
division invests in a portfolio of AGSPC. This portfolio is managed by the
Company for advisory fees at an annual rate of .28% of the portfolio's average
daily net assets. (Under a "grandfathering" arrangement, the total advisory fees
and certain other charges imposed against these Contracts are limited to a
maximum of the rate charged on April 1, 1987. See the prospectus for these
Contracts dated April 20, 1987.) Under Portfolio Director 2, eighteen divisions
of VALIC Separate Account A are available, six of which invest in a different
investment portfolio of AGSPC and twelve divisions of which invest in other
publicly available mutual fund portfolios. These mutual fund portfolios are
managed by either the Company or other investment managers, for advisory fees at
annual rates ranging from .01% to 1.00% of each portfolio's or mutual fund's
average daily net assets. Additionally, two fixed investment options are
available under Portfolio Director 2.
Annuity Options. Annuity options under the SA-1 and SA-2 Contracts provide
for payments on a fixed or variable basis, or a combination of both. The SA-1
Contract annuity payments under a des-
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<PAGE> 236
ignated period option are limited to 15 years on a fixed basis only. Under this
Contract, the designated period option may, subject to adverse tax consequences,
be commuted at any time for its remaining value. SA-2 Contracts do not provide a
designated period option nor do they provide for commutation. Portfolio Director
2 permits Payout Payments for a designated period of between 5 and 30 years on a
fixed basis only. Portfolio Director 2 does not provide for commutation. The
SA-1 and SA-2 Contracts make no provision for transfers from a separate account
to a fixed annuity during the annuity period. This option, subject to certain
conditions, is available under Portfolio Director 2. The SA-1 Contracts provide
an option for monthly variable annuity payments to be made at a level payment
basis during each year of the annuity period. Portfolio Director 2 does not
provide this option. SA-1 and Portfolio Director 2, but not SA-2 Contracts, both
provide for "betterment of rates." Under this provision, Payout Payments for
fixed annuities will be based on mortality tables then being used by the
Company, if more favorable to the Annuitant than those included in the Contract.
EXCHANGES FROM IMPACT CONTRACTS
Sales/Surrender Charges. Under an Impact Contract, no sales charge is
deducted at the time a Purchase Payment is made, but a surrender charge may be
imposed on partial or total surrenders. The surrender charge is equal to 5% of
the Purchase Payments withdrawn within three years of the date such Purchase
Payments were made. The most recent Purchase Payments are deemed to be withdrawn
first. Portfolio Director 2 also imposes a surrender charge upon total or
partial surrenders which may not exceed 5% of any Purchase Payments withdrawn
within the most recent five years prior to the receipt of the surrender request
by the Company at its Home Office. Portfolio Director 2 also has other
provisions where surrender charges are not imposed. (See "Exceptions to
Surrender Charge" in the prospectus.) For purposes of satisfying the
fifteen-year and five-year holding requirements, Portfolio Director 2 will be
deemed to have been issued on the same date as the Impact Contract, or
certificate thereunder, but no earlier than January 1, 1982. Only Purchase
Payments exchanged into a Portfolio Director 2 which were made within three
years before the date of exchange will be treated as Purchase Payments under
Portfolio Director 2 for purposes of calculating the surrender charge. Exchanged
payments will be deemed to have been made under Portfolio Director 2 on the date
they were made to Impact Contracts for purposes of calculating the surrender
charge under Portfolio Director 2.
Other Charges. Under Impact 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 Impact
Contracts to cover administrative expenses (other than those covered by the
annual charge) and mortality risks assumed by the Company. For Portfolio
Director 2, a quarterly account maintenance fee of $3.75 is assessed for each
calendar quarter during the Purchase Period during which any Variable Account
Option Account Value is credited to a Participant's Account. The fee is to
reimburse the Company for some of the administrative expenses associated with
the Variable Account Options. No fee is assessed for any calendar quarter if the
Account Value is credited only to the Fixed Account Options throughout the
quarter. Such fee begins immediately if an exchange is made into any Variable
Account Option offered under Portfolio Director 2. The fee may also be reduced
or waived by the Company on Portfolio Director 2 if the administrative expenses
are expected to be lower for that Contract. (See "Reduction or Waiver of Account
Maintenance Fee, Surrender, Mortality and Expense Risk Fee or Administration and
Distribution Fee Charges" in the prospectus.) To cover expenses not covered by
the account maintenance fee and to compensate the Company for assuming mortality
risks and administration and distribution expenses under Portfolio Director 2,
an additional daily charge with an annualized rate of 1.00% to 1.25% (or lower
amounts during the Purchase Period for different series of Portfolio Director
2), depending upon the Variable Account Options selected, if any, on the daily
net asset value of the Separate Account is attributable to Portfolio Director 2.
(See "Separate Account Charges" and "Separate Account Expense Reimbursement" in
the prospectus.)
Investment Options. Under the Impact Contract five divisions of Separate
Account A are available as variable investment alternatives, each investing in
shares of a different underlying fund of AGSPC. The five mutual funds are
managed by the Company for advisory fees at annual rates ranging
18
<PAGE> 237
from .28% to .50% of each respective portfolio's average daily net assets. Under
Portfolio Director 2, eighteen divisions of VALIC Separate Account A are
available, six of which invest in a different investment portfolio of AGSPC and
twelve divisions of which invest in other publicly available mutual fund
portfolios. These mutual fund portfolios are managed by either the Company, or
other investment managers, for advisory fees at annual rates ranging from .01%
to 1.00% of each portfolio's or mutual fund's average daily net assets. In
addition, two fixed investment options are available under Portfolio Director 2.
Annuity Options. Annuity options under Impact Contracts provide for
payments on a fixed or variable basis, or a combination of both. The Impact
Contract permits annuity payments for a designated period of 1 to 15 years on a
fixed basis only. Under an Impact Contract, the designated period option may,
subject to adverse tax consequences, be commuted at any time for its remaining
value. Portfolio Director 2 permits Payout Payments for a designated period of
between 5 and 30 years on a fixed basis only. Portfolio Director 2 does not
provide for commutation. Impact Contracts and the Portfolio Director 2 both
provide for "betterment of rates." Under this provision, Payout Payments for
fixed annuities will be based on mortality tables then being used by the
Company, if more favorable to the Annuitant than those included in the Contract.
EXCHANGES FROM COMPOUNDER CONTRACTS
Sales/Surrender Charges. Under a Compounder Contract a sales and
administrative charge is deducted from each Purchase Payment. This charge ranges
from 5% of the first $5,000 of Purchase Payments to 3% of Purchase Payments in
excess of $15,000. If a Compounder Contract is exchanged for Portfolio Director
2 the surrender charge under Portfolio Director 2 will not apply to the amount
of Account Value applied to Portfolio Director 2. Purchase Payments made to
Portfolio Director 2, however, would be subject to the surrender charge under
Portfolio Director 2. In the case of a partial surrender, all Purchase Payments
to Portfolio Director 2 will be deemed to be withdrawn before any Exchanged
Amount is deemed to be withdrawn. Under Portfolio Director 2, no sales charge is
deducted at the time a Purchase Payment is made, but a surrender charge may be
imposed on partial or total surrenders. The surrender charge may not exceed 5%
of any Purchase Payments withdrawn within the most recent five years prior to
the receipt of the surrender request by the Company at its Home Office. For
purposes of this surrender charge, the most recent Purchase Payments are deemed
to be withdrawn first. (See "Surrender Charge" in the prospectus.)
Other Charges. A charge of a percentage of each Purchase Payment is made
for administrative expenses under a Compounder Contract. The charge is 1.25% and
is included in the above sales charge. For Portfolio Director 2, a quarterly
account maintenance fee of $3.75 is assessed for each calendar quarter during
the Purchase Period during which any Variable Account Option Account Value is
credited to a Participant's Account. The fee is to reimburse the Company for
some of the administrative expenses associated with the Variable Account
Options. No fee is assessed for any calendar quarter if the Account Value is
credited only to the Fixed Account Options throughout the quarter. Such fee
begins immediately if an exchange is made into any Variable Account Option
offered under Portfolio Director 2. The fee may also be reduced or waived by the
Company for Portfolio Director 2 if the administrative expenses are expected to
be lower for that Contract. (See "Reduction or Waiver of Account Maintenance
Fee, Surrender, Mortality and Expense Risk Fee or Administration and
Distribution Fee Charges" in this prospectus.) To cover expenses not covered by
the account maintenance fee and to compensate the Company for assuming mortality
risks and administration and distribution expenses under Portfolio Director 2,
an additional daily charge with an annualized rate of 1.00% to 1.25% (or lower
amounts during the Purchase Period for different series of Portfolio Director
2), depending upon the Variable Account Options selected, if any, on the daily
net asset value of the Separate Account is attributable to Portfolio Director 2.
(See "Separate Account Charges" and "Separate Account Expense Reimbursement" in
the prospectus.)
Investment Options. There are no variable investment alternatives provided
under Compounder Contracts.
Annuity Options. Payout Payments under a Compounder Contract are on a fixed
basis only and the designated period option is limited to a period of 15 years.
However, under a Compounder Contract, the designated period option may, subject
to adverse tax consequences, be commuted at any time for its
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<PAGE> 238
remaining value. Portfolio Director 2 allows Payout Payments be made on a fixed
or variable basis, or both. One option under the Portfolio Director 2 provides
for a designated period of 5 and 30 years on a fixed basis only. Portfolio
Director 2 does not provide for commutation. Unlike Portfolio Director 2, the
Compounder Contracts contain no "betterment of rates" provision.
INFORMATION WHICH MAY BE APPLICABLE TO
ANY EXCHANGE
Guaranteed Annuity Rates. Mortality rates have improved since annuity rates
were developed for the other contracts. Therefore, the annuity rates guaranteed
in Portfolio Director 2 are less favorable to Contract Owners and Annuitants
than those guaranteed in the other contracts. However, the current annuity rates
being charged for fixed annuities under the "betterment of rates" provisions
discussed above are more favorable than those guaranteed under Portfolio
Director 2 or the other contracts. Of course, no assurance can be given that
this will continue to be true at the time of annuitization for a given contract.
Guaranteed annuity rate tables are set forth in your Contract or in current
endorsements thereto. Those guaranteed for Portfolio Director 2 are set forth
therein, and copies may be obtained from one of the Company's Regional Offices
listed on the inside back cover of this prospectus.
To satisfy a federal tax law requirement, non-spouse beneficiaries under
Portfolio Director 2 generally must receive the entire benefit payable upon the
death of the Annuitant over their life expectancy or within five years of the
Annuitant's death. This requirement may be inapplicable to certain other
contracts or certificates issued before January 19, 1985 if not exchanged.
20
<PAGE> 239
CALCULATION OF SURRENDER CHARGE
The surrender charge is discussed in the Prospectus under "Fees and Charges
- -- Surrender Charge." Examples of calculation of the Surrender Charge upon total
and partial surrender are set forth below:
ILLUSTRATION OF SURRENDER CHARGE ON TOTAL SURRENDER
Example 1.
TRANSACTION HISTORY
<TABLE>
<CAPTION>
DATE TRANSACTION AMOUNT
---- ----------- ------
<S> <C> <C>
2/1/92.......................... Purchase Payment $10,000
2/1/93.......................... Purchase Payment 5,000
2/1/94.......................... Purchase Payment 15,000
2/1/95.......................... Purchase Payment 2,000
2/1/96.......................... Purchase Payment 3,000
2/1/97.......................... Purchase Payment 4,000
7/1/97.......................... Total Purchase Payments (Assumes
Account Value is $50,000) 39,000
</TABLE>
Surrender Charge is lesser of (a) or (b):
<TABLE>
<S> <C> <C> <C>
a. Surrender Charge calculated on 60 months of Purchase Payments
1. Surrender Charge against Purchase Payment of 2/1/92......... $ 0
2. Surrender Charge against Purchase Payment of 2/1/93......... $ 250
3. Surrender Charge against Purchase Payment of 2/1/94......... $ 750
4. Surrender Charge against Purchase Payment of 2/1/95......... $ 100
5. Surrender Charge against Purchase Payment of 2/1/96......... $ 150
6. Surrender Charge against Purchase Payment of 2/1/97......... $ 200
Surrender Charge based on Purchase Payments (1 + 2 + 3 + 4 +
5 + 6)...................................................... $1,450
b. Surrender Charge calculated on the excess over 10% of the Account
Value at the time of surrender:
Account Value at time of surrender $ 50,000
Less 10% not subject to Surrender Charge -5,000
-----------
Subject to Surrender Charge 45,000
X .05
-----------
Surrender Charge based on Account
Value $ 2,250 ....................................... $2,250
c. Surrender Charge is the lesser of a or b......................... $1,450
</TABLE>
ILLUSTRATION OF SURRENDER CHARGE ON A 10% PARTIAL SURRENDER FOLLOWED BY A FULL
SURRENDER
Example 2.
TRANSACTION HISTORY (ASSUMES NO INTEREST EARNED)
<TABLE>
<CAPTION>
DATE TRANSACTION AMOUNT
---- ----------- ------
<S> <C> <C>
2/1/92.......................... Purchase Payment $10,000
2/1/93.......................... Purchase Payment 5,000
2/1/94.......................... Purchase Payment 15,000
2/1/95.......................... Purchase Payment 2,000
2/1/96.......................... Purchase Payment 3,000
2/1/97.......................... Purchase Payment 4,000
7/1/97.......................... 10% Partial Surrender (Assumes 3,900
Account Value is $39,000)
8/1/97.......................... Full Surrender 35,100
</TABLE>
a. Since this is the first partial surrender in this participant year,
calculate the excess over 10% of the value of the Purchase Units
10% of $39,000 = $3,900 [no charge on this 10% withdrawal]
b. The Account Value upon which Surrender Charge on the Full Surrender may
be calculated (levied) is $39,000 - $3,900 = $35,100
c. The Surrender Charge calculated on the Account Value withdrawn $35,100 X
.05 = $1,755
d. Since only $29,000 has been paid in Purchase Payments in the 60 months
prior to the Full Surrender, the charge can only be calculated on
$29,000. The $3,900 partial withdrawal does not reduce this amount.
Thus, the charge is $29,000 X (0.05) = $1,450.
21
<PAGE> 240
PURCHASE UNIT VALUE
The calculation of Purchase Unit value is discussed in the Prospectus under
"Purchase Period." The following illustrations show a calculation of a new Unit
value and the purchase of Purchase Units (using hypothetical examples):
ILLUSTRATION OF CALCULATION OF PURCHASE UNIT VALUE
Example 3.
<TABLE>
<S> <C>
1. Purchase Unit value, beginning of
period................................ $ 1.800000
2. Value of Fund share, beginning of
period................................ $ 21.200000
3. Change in value of Fund share........ $ .500000
4. Gross investment return (3)/(2)...... .023585
5. Daily separate account fee*.......... .000027
*Mortality and expense risk fee and
administration and distribution
fee of 1% per annum used for
illustrative purposes.
6. Net investment return (4)-(5)........ .023558
7. Net investment factor 1.000000+(6)... 1.023558
8. Purchase Unit value, end of period
(1)X(7)............................... $ 1.842404
</TABLE>
ILLUSTRATION OF PURCHASE OF PURCHASE UNITS (ASSUMING NO STATE PREMIUM TAX)
Example 4.
<TABLE>
<S> <C>
1. First Periodic Purchase Payment.......................... $ 100.00
2. Purchase Unit value on effective date of purchase (see
Example 3)............................................... $ 1.800000
3. Number of Purchase Units purchased (1)/(2)............... 55.556
4. Purchase Unit value for valuation date following purchase
(see Example 3).......................................... $ 1.842404
5. Value of Purchase Units in account for valuation date
following purchase (3)X(4)............................... $ 102.36
</TABLE>
PERFORMANCE CALCULATIONS*
AGSPC MONEY MARKET DIVISION YIELDS
CALCULATION OF CURRENT YIELD FOR AGSPC MONEY MARKET DIVISION SIX
7-Day Current Yield: 4.22%
ILLUSTRATION OF CALCULATION OF CURRENT YIELD FOR AGSPC MONEY MARKET DIVISION SIX
Example 5.
The current yield quotation above is based on the seven days ended December
31, 1997, the date of the most recent balance sheet included in the registration
statement ("base period"). It is computed by determining the net change,
exclusive of capital changes, in the value of a hypothetical pre-existing
account having a balance of one Purchase Unit at the beginning of the period,
subtracting a hypothetical charge reflecting deductions from Contract Owner
accounts, and dividing the difference by the value of the account at the
beginning of the base period to obtain the base period return and then
multiplying the base period return by 365/7.
- ---------------
* For different series of Portfolio Director 2 which may have lower charges in
the Purchase Period the amount of the current yield, the effective yield or
the standardized yield, for the respective Division will be higher.
22
<PAGE> 241
CALCULATION OF EFFECTIVE YIELD FOR AGSPC MONEY MARKET DIVISION SIX
7-Day Effective Yield: 4.31%
ILLUSTRATION OF CALCULATION OF EFFECTIVE YIELD FOR AGSPC MONEY MARKET DIVISION
SIX
Example 6.
The effective yield quotation above is based on the seven days ended
December 31, 1997, the date of the most recent balance sheet included in the
registration statement ("base period"). It is computed by determining the net
change, exclusive of capital changes, in the value of a hypothetical pre-
existing account having a balance of one Purchase Unit at the beginning of the
period, subtracting a hypothetical charge reflecting deductions from Contract
Owner accounts, and dividing the difference by the value of the account at the
beginning of the base period to obtain the base period return and then
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 BOND FUND DIVISIONS
CALCULATION OF STANDARDIZED YIELD FOR BOND FUND DIVISIONS
<TABLE>
<CAPTION>
DIV. 13 DIV. 22 DIV. 23
-------- -------- --------
<S> <C> <C> <C>
Standardized Yield.......................................... 3.60% 5.33% 4.65%
</TABLE>
ILLUSTRATION OF CALCULATION OF STANDARDIZED YIELD FOR BOND FUND DIVISIONS
Example 7.
The standardized yield quotation based on a 30-day period ended December
31, 1997, the date of the most recent balance sheet of the Registrant included
in the registration statement is computed by dividing the net investment income
per Purchase Unit earned during the period by the maximum offering price per
Unit on the last day of the period, according to the following formula:
YIELD = 2 [( a - b + 1)6 - 1]
cd
Where:
<TABLE>
<S> <C>
a = net investment income earned during the period by the Fund
attributable to shares owned by the Division
b = expenses accrued for the period (net of reimbursements)
c = the average daily number of Purchase Units outstanding
during the period
d = the maximum offering price per Purchase Unit on the last day
of the period
</TABLE>
Yield on each Division is earned from dividends declared and paid by the
Fund, which are
automatically reinvested in Fund shares.
23
<PAGE> 242
CALCULATION OF AVERAGE ANNUAL TOTAL RETURN
Average Annual Total Return quotations for the 1, 3, 5, and 10 year periods
ended December 31, 1997, the date of the most recent balance sheet included in
this registration statement, are computed by finding the average annual
compounded rates of over the 1, 3, 5, and 10 year periods that would equate the
initial amount invested to the ending redeemable value, according to the
following formula:
P (1+T)n = ERV
Where:
<TABLE>
<S> <C>
P = a hypothetical initial Purchase Payment of $1,000
T = average annual total return
n = number of years
ERV = redeemable value at the end of the 1, 3, 5 or 10 year
periods of a hypothetical $1,000 Purchase Payment made at
the beginning of the 1, 3, 5, or 10 year periods (or
fractional portion thereof)
</TABLE>
The Company may advertise standardized average annual total return which,
includes the surrender charge of up to 5% of Gross Purchase Payments received
during the most recent 60 months as well as non-standardized average annual
total returns which does not include a surrender charge or maintenance fee.
There is no sales charge for reinvested dividends. All recurring fees have
been deducted. For fees which vary with the account size, an account size equal
to that of the median account size has been assumed. Ending redeemable value has
been determined assuming a complete redemption at the end of the 1, 3, 5 or 10
year period and deduction of all nonrecurring charges at the end of each such
period.
24
<PAGE> 243
PERFORMANCE INFORMATION
HYPOTHETICAL $10,000 ACCOUNT VALUE AND
CUMULATIVE RETURN AS COMPARED TO BENCHMARKS TABLES.
The following tables show the Hypothetical $10,000 Account Value and
Cumulative Return of each Division as compared to the benchmarks shown. For
different series of Portfolio Director 2 which may have lower charges during the
purchase period those amounts shown in the following tables will be higher.
These performance calculations for the Divisions, and the methods used for
calculating them, are explained in the prospectus. (See "How To Review
Investment Performance of Separate Account Divisions" and "Variable Account
Options" in the prospectus.)
These tables compare hypothetical investment performance and percentage
changes in Purchase Unit values with the results of several benchmarks,
representing unmanaged market indices. The performance information has been
adjusted to reflect mortality and expense risk fees and administration and
distribution fees, net of any expense reimbursements from the Underlying Fund.
Surrender charges, maintenance fees and premium taxes are not deducted. The
effect of these charges is to reduce total return to a Contract Owner. The
comparisons should be considered in light of the investment policies and
objectives of the Funds. Rates of return for the Divisions include reinvestment
of investment income, including capital gains, interest and dividends. The rates
of return on the market indices also have been adjusted to reflect reinvestment
of interest and dividends.
Price returns for the market indices are calculated by subtracting the
price level at the beginning of the year from the price level at the end of the
year and dividing the difference by the price level at the beginning of the
year. To calculate dollar values for the indices' Hypothetical $10,000 Account
Value presentation, price index values were substituted for Unit values in the
calculation described in the prospectus, and where applicable, dividend yields
were then added to determine the total returns applied in the dollar value
calculations. Similarly, to calculate Cumulative Return for the indices, the
Cumulative Return calculation described in the prospectus for Unit values of the
Divisions is used, substituting the Hypothetical $10,000 Account Value at the
end of each year for the Purchase Unit Value. No sales load, administrative
charges, or any other expenses have been deducted from the index calculations.
Additionally, the performance of a Division may from time to time be
compared with other Indexes which have been deemed by the Company relevant to
the Division.
These benchmarks do not reflect any charges for investment advisory fees,
brokerage commissions or other fees and expenses of the type charged at either
the Separate Account or Fund level. Therefore, the comparisons with these
benchmarks are of limited use.
THE PERFORMANCE RESULTS SHOWN IN THIS SECTION ARE NOT AN ESTIMATE OR
GUARANTEE OF FUTURE INVESTMENT PERFORMANCE, AND DO NOT REPRESENT THE ACTUAL
EXPERIENCE OF AMOUNTS INVESTED BY A PARTICULAR PARTICIPANT.
PERFORMANCE COMPARED TO MARKET INDICES
The performance of AGSPC Growth Division Fifteen, AGSPC Science &
Technology Division Seventeen, AGSPC Social Awareness Division Twelve, AGSPC
Stock Index Division Ten, Founders Growth Division Thirty, Neuberger & Berman
Guardian Trust Division Twenty-nine, Putnam New Opportunities Division
Twenty-six, Scudder Growth and Income Division Twenty-one, and Vanguard/ Windsor
II Division Twenty-four may be compared to the record of the Standard &
Poor's(R) Corporation ("S&P(R)")* Composite Stock Price Index ("S&P 500(R)
Index"). The S&P 500(R) Index is an unmanaged capitalization-weighted index of
500 stocks designed to measure performance of the broad domestic economy through
changes in the aggregate market value of 500 stocks representing all major
industries. The Index represents approximately 73% of the aggregate United
States equity markets capitalization.
The performance of the AGSPC International Government Bond Division
Thirteen may be compared to the Salomon Brothers Non-US Dollar World Government
Bond Index ("Salomon Index"). Total returns with income reinvested for the
Salomon Index are published using two methods. The first method includes gross
income (income earned without subtracting foreign income taxes which may be
withheld from foreign investors). The
- ---------------
* "Standard & Poor's(R)", "S&P(R)" and "S&P 500(R)" are trademarks of Standard
and Poor's ("S&P"). The Stock Index Fund is not sponsored, endorsed, sold or
promoted by S&P and S&P makes no representation regarding the advisability of
investing in this Fund.
25
<PAGE> 244
second method includes net income (income earned after subtracting estimated
foreign taxes). The Division currently compares its performance with the index
using the second method. The Salomon Index is an unmanaged aggregate index
composed of 667 issues from sixteen foreign countries. These countries include
Austria, Australia, Belgium, Canada, Denmark, Finland, France, Germany, Ireland,
Italy, Japan, the Netherlands, Spain, Sweden, Switzerland and the United
Kingdom.
The performance of AGSPC 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 the American Century-Twentieth Century Ultra Division
Thirty-one may be compared to both the S&P 500(R) Index and the National
Association of Securities Dealers Automated Quotations (NASDAQ) Composite Price
Index. The S&P 500 Index is an unmanaged capitalization-weighted index of 500
stocks designed to measure performance of the broad domestic economy through
changes in the aggregate market value of 500 stocks representing all major
industries. The S&P 500 Index represents approximately 70% of the aggregate
market capitalization of the United States equity market. The NASDAQ Composite
Price Index was developed by the National Association of Securities Dealers
(NASD) on May 17, 1971 with figures available from February 5, 1971, at which
time the index value was 100. Through NASDAQ, the NASD provides daily, weekly,
and monthly sets of stock price indicators for Over-the-Counter (OTC) securities
in different industry categories. As of the end of 1996, over 5,800 issues were
contained in the NASDAQ Composite Price Index.
The Putnam Global Growth Division Twenty-eight may be compared to the
Morgan Stanley Capital International World Index ("MSCI World Index"). Total
returns (with income reinvested) for the MSCI World Index is published using two
methods. The first method includes gross income (income earned without
subtracting foreign income taxes which may be withheld from foreign investors).
The second method includes net income (income earned after subtracting estimated
foreign taxes. The Division currently compares its performance with the index
using the second method. The MSCI World Index is an unmanaged capitalization
weighed index consisting of more than 1,500 issues from 22 countries as well as
certain South African gold mining issues. The countries include Australia,
Austria, Belgium, Canada, Denmark, Finland, France, Germany, Hong Kong, Ireland,
Italy, Japan, Malaysia, the Netherlands, New Zealand, Norway, Singapore, Spain,
Sweden, Switzerland, the United Kingdom, and the United States.
The performance of the Putnam OTC & Emerging Growth Division Twenty-seven
may be compared to the Russell 2000(R) Index ("Russell 2000").** The Russell
2000 was developed in 1984 by the Frank Russell Trust 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 Trust Company on the basis of
their market size.
The Templeton Foreign Division Thirty-two may be compared to the Morgan
Stanley Capital International Europe, Australia, and Far East Index ("EAFE
Index"). The EAFE Index, which commenced in 1969, is an unmanaged stock index
consisting of more than 1,000 companies from Europe, Australia and the Far East.
The index is capitalization weighted. It is a well known measure for
international stock performance. Total returns (with income reinvested) for the
EAFE Index are published using two methods. The first method includes gross
income (income earned without subtracting foreign income taxes which may be
withheld from foreign investors). The second method includes net income (income
earned after subtracting estimated foreign taxes). The Division currently
compares it performance with the index using the second method.
The Vanguard Fixed Income Securities Fund -- Long-Term Corporate Division
Twenty-two 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
- ---------------
** The Russell 2000(R) Index is a trademark/service mark of the Frank Russell
Trust Company. RussellTM is a trademark of the Frank Russell Trust Company.
26
<PAGE> 245
of these corporate bond holdings are approximately 12 years.
The performance of the Vanguard Fixed Income Securities Fund -- Long-Term
U.S. Treasury Portfolio Division Twenty-three may be compared to the Lehman
Brothers U.S. Treasury Long-Term Index. This index measures a Fund's sensitivity
to interest rate changes. This index was initiated in 1976 and is composed of
all bonds covered by the Lehman Brothers Treasury Bond Index with maturities of
ten years or greater.
The performance of the Vanguard/Welling-
ton Division Twenty-five may be compared to a Blended Index, a measure of the
investment performance of a balanced portfolio of stocks and bonds, comprised of
the S&P 500 Index (65%) and the Merrill Lynch Corporate Master Index (35%). The
S&P 500 Index is an unmanaged capitalization-weighted index of 500 stocks
designed to measure performance of the broad domestic economy through changes in
the aggregate market value of 500 stocks representing all major industries. The
S&P 500 Index represents approximately 70% of the aggregate market
capitalization of the United States equity markets. 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 the
corporate bond holdings are approximately 12 years.
27
<PAGE> 246
See "How to Review Investment Performance of Separate Account Divisions" in the
prospectus for information about how these returns were calculated.
AGSPC Growth Division Fifteen Performance Compared to S&P 500 Index
HYPOTHETICAL $10,000 ACCOUNT VALUE
ANNUAL VALUE OF A $10,000 STIPULATED PAYMENT MADE APRIL 29, 1994
<TABLE>
<CAPTION>
GROWTH S&P 500
DIVISION FIFTEEN INDEX
- --------------------------------------------------------------------- --------
<S> <C> <C>
04/29/94................................................... $10,000 $10,000
12/31/94................................................... 10,018 10,532
12/31/95................................................... 14,667 14,489
12/31/96................................................... 17,333 17,817
12/31/97................................................... 20,765 23,761
</TABLE>
CUMULATIVE RETURN COMPARED TO MARKET INDEX
(PERIOD ENDED DECEMBER 31, 1997)
<TABLE>
<CAPTION>
SINCE
INCEPTION* 5 YEARS 3 YEARS 1 YEAR
---------- ------- ------- ------
<S> <C> <C> <C> <C>
Investment Division
AGSPC Growth Division Fifteen............. 107.65% -- 107.27% 19.80%
Benchmark Comparison
S&P 500 Index............................. 137.61% -- 125.62% 33.36%
</TABLE>
- ---------------
* The Fund underlying this Division was initiated on April 29, 1994.
AGSPC 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
12/31/97................................................... 14,906 16,568
</TABLE>
CUMULATIVE RETURN COMPARED TO MARKET INDEX
(PERIOD ENDED DECEMBER 31, 1997)
<TABLE>
<CAPTION>
SINCE
INCEPTION* 5 YEARS 3 YEARS 1 YEAR
---------- ------- ------- ------
<S> <C> <C> <C> <C>
Investment Division
AGSPC International Government Bond
Division Thirteen........................ 49.06% 33.95% 14.55% (5.79)%
Benchmark Comparison
Salomon Bros. Non-U.S. Dollar World Govern-
ment Bond Index.......................... 65.68% 43.57% 18.35% (4.41)%
</TABLE>
- ---------------
* This Division was initiated on October 1, 1991.
28
<PAGE> 247
AGSPC 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 1, 1988
<TABLE>
<CAPTION>
MONEY MARKET PRIMARY
DIVISION SIX CD INDEX
- -------------------------------------------------- --------
<S> <C> <C>
01/01/88................................ $10,000 $10,000
12/31/88................................ 10,572 10,737
12/31/89................................ 11,410 11,668
12/31/90................................ 12,190 12,602
12/31/91................................ 12,737 13,289
12/31/92................................ 13,020 13,709
12/31/93................................ 13,238 14,063
12/31/94................................ 13,604 14,565
12/31/95................................ 14,217 15,285
12/31/96................................ 14,782 15,978
12/31/97................................ 15,392 16,742
</TABLE>
CUMULATIVE RETURN COMPARED TO MARKET INDEX
(PERIOD ENDED DECEMBER 31, 1997)
<TABLE>
<CAPTION>
10 YEARS 5 YEARS 3 YEARS 1 YEAR
-------- ------- ------- ------
<S> <C> <C> <C> <C>
Investment Division
AGSPC Money Market Division Six................ 53.92% 18.22% 13.15% 4.13%
Benchmark Comparison
Primary CD Index............................... 67.42% 22.13% 14.95% 4.78%
</TABLE>
AGSPC Science & Technology Division Seventeen Performance Compared to S&P 500
Index
HYPOTHETICAL $10,000 ACCOUNT VALUE
ANNUAL VALUE OF A $10,000 STIPULATED PAYMENT MADE APRIL 29, 1994
<TABLE>
<CAPTION>
AGSPC SCIENCE & TECHNOLOGY S&P 500
DIVISION SEVENTEEN INDEX
- --------------------------------------------------------------------- -------
<S> <C> <C>
04/29/94................................................... $10,000 $10,000
12/31/94................................................... 12,477 10,532
12/31/95................................................... 19,972 14,489
12/31/96................................................... 22,505 17,817
12/31/97................................................... 22,857 23,761
</TABLE>
CUMULATIVE RETURN COMPARED TO MARKET INDEX
(PERIOD ENDED DECEMBER 31, 1997)
<TABLE>
<CAPTION>
SINCE
INCEPTION* 5 YEARS 3 YEARS 1 YEAR
---------- ------- ------- ------
<S> <C> <C> <C> <C>
Investment Division
AGSPC Science & Technology Division
Seventeen............................... 128.57% -- 83.19% 1.57%
Benchmark Comparison
S&P 500 Index............................. 137.61% -- 125.62% 33.36%
</TABLE>
- ---------------
* The Fund underlying this Division was initiated on April 29, 1994.
29
<PAGE> 248
AGSPC 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
12/31/97................................................... 29,853 34,967
</TABLE>
CUMULATIVE RETURN COMPARED TO MARKET INDEX
(PERIOD ENDED DECEMBER 31, 1997)
<TABLE>
<CAPTION>
SINCE
INCEPTION* 5 YEARS 3 YEARS 1 YEAR
---------- ------- ------- ------
<S> <C> <C> <C> <C>
Investment Division
AGSPC Social Awareness Division Twelve..... 198.53% 133.32% 123.81% 32.52%
Benchmark Comparison
S&P 500 Index.............................. 249.67% 151.63% 125.62% 33.36%
</TABLE>
- ---------------
* This Division was initiated on October 2, 1989.
AGSPC 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 JANUARY 1, 1988
<TABLE>
<CAPTION>
STOCK INDEX S&P 500
DIVISION TEN INDEX
- ------------------------------------------------------------------------ -------------
<S> <C> <C>
01/01/88................................................. $ 10,000 $ 10,000
12/31/88................................................. 11,313 11,661
12/31/89................................................. 14,468 15,356
12/31/90................................................. 13,770 14,879
12/31/91................................................. 17,584 19,412
12/31/92................................................. 18,566 20,891
12/31/93................................................. 20,197 22,997
12/31/94................................................. 20,136 23,300
12/31/95................................................. 27,374 32,056
12/31/96................................................. 33,267 39,419
12/31/97................................................. 43,836 52,569
</TABLE>
CUMULATIVE RETURN COMPARED TO MARKET INDEX
(PERIOD ENDED DECEMBER 31, 1997)
<TABLE>
<CAPTION>
10 YEARS 5 YEARS 3 YEARS 1 YEAR
-------- -------- -------- --------
<S> <C> <C> <C> <C>
Investment Division
AGSPC Stock Index Division Ten............. 338.36% 136.11% 117.70% 31.77%
Benchmark Comparison
S&P 500 Index.............................. 425.69% 151.63% 125.62% 33.36%
</TABLE>
30
<PAGE> 249
American Century -- Twentieth Century Ultra Division Thirty-One Performance
Compared to S&P 500 Index and NASDAQ Composite Index
HYPOTHETICAL $10,000 ACCOUNT VALUE
ANNUAL VALUE OF A $10,000 STIPULATED PAYMENT MADE JANUARY 1, 1988
<TABLE>
<CAPTION>
NASDAQ
ULTRA S&P 500 COMPOSITE
DIVISION THIRTY-ONE INDEX INDEX*
- --------------------------------------------------------- ------------- ---------
<S> <C> <C> <C>
01/01/88.................................. $ 10,000 $ 10,000 $10,000
12/31/88.................................. 11,212 11,661 11,541
12/31/89.................................. 15,192 15,356 13,763
12/31/90.................................. 16,440 14,879 11,312
12/31/91.................................. 30,331 19,412 17,743
12/31/92.................................. 30,392 20,891 20,484
12/31/93.................................. 36,634 22,997 23,506
12/31/94.................................. 34,939 23,300 22,754
12/31/95.................................. 47,599 32,056 31,837
12/31/96.................................. 53,516 39,419 39,066
12/31/97.................................. 65,152 52,569 47,519
</TABLE>
CUMULATIVE RETURN COMPARED TO MARKET INDEX
(PERIOD ENDED DECEMBER 31, 1997)
<TABLE>
<CAPTION>
10 YEARS 5 YEARS 3 YEARS 1 YEAR
-------- ------- ------- ------
<S> <C> <C> <C> <C>
Investment Division
American Century -- Twentieth Century
Ultra Division Thirty-One.............. 551.52% 114.37% 86.47% 21.74%
Benchmark Comparison
S&P 500 Index............................ 425.69% 151.63% 125.62% 33.36%
NASDAQ Composite Index*.................. 375.19% 131.97% 108.83% 21.64%
</TABLE>
- ---------------
* Does not include dividends reinvested.
Founders Growth Division Thirty Performance Compared to S&P 500 Index
HYPOTHETICAL $10,000 ACCOUNT VALUE
ANNUAL VALUE OF A $10,000 STIPULATED PAYMENT MADE JANUARY 1, 1988
<TABLE>
<CAPTION>
FOUNDERS GROWTH S&P 500
DIVISION THIRTY INDEX
- ------------------------------------------------------------------- --------
<S> <C> <C>
01/01/88................................................. $10,000 $10,000
12/31/88................................................. 10,378 11,661
12/31/89................................................. 14,565 15,356
12/31/90................................................. 12,893 14,879
12/31/91................................................. 18,817 19,412
12/31/92................................................. 19,422 20,891
12/31/93................................................. 24,143 22,997
12/31/94................................................. 23,107 23,300
12/31/95................................................. 33,312 32,056
12/31/96................................................. 38,426 39,419
12/31/97................................................. 48,130 52,569
</TABLE>
CUMULATIVE RETURN COMPARED TO MARKET INDEX
(PERIOD ENDED DECEMBER 31, 1997)
<TABLE>
<CAPTION>
10 YEARS 5 YEARS 3 YEARS 1 YEAR
-------- ------- ------- ------
<S> <C> <C> <C> <C>
Investment Division
Founders Growth Division Thirty.......... 381.30% 147.81% 108.29% 25.25%
Benchmark Comparison
S&P 500 Index............................ 425.69% 151.63% 125.62% 33.36%
</TABLE>
31
<PAGE> 250
Neuberger&Berman Guardian Trust Division Twenty-Nine Performance Compared to S&P
500 Index
HYPOTHETICAL $10,000 ACCOUNT VALUE
ANNUAL VALUE OF A $10,000 STIPULATED PAYMENT MADE JANUARY 1, 1988
<TABLE>
<CAPTION>
GUARDIAN TRUST S&P 500
DIVISION TWENTY-NINE* INDEX
- --------------------------------------------------------------------- --------
<S> <C> <C>
01/01/88................................................... $10,000 $10,000
12/31/88................................................... 12,679 11,661
12/31/89................................................... 15,254 15,356
12/31/90................................................... 14,393 14,879
12/31/91................................................... 19,146 19,412
12/31/92................................................... 22,560 20,891
12/31/93................................................... 25,359 22,997
12/31/94................................................... 25,492 23,300
12/31/95................................................... 33,316 32,056
12/31/96................................................... 38,826 39,419
12/31/97................................................... 45,293 52,569
</TABLE>
CUMULATIVE RETURN COMPARED TO MARKET INDEX
(PERIOD ENDED DECEMBER 31, 1997)
<TABLE>
<CAPTION>
10 YEARS 5 YEARS 3 YEARS 1 YEAR
-------- ------- ------- ------
<S> <C> <C> <C> <C>
Investment Division
Neuberger&Berman Guardian Trust Division
Twenty-Nine............................ 352.93% 100.77% 77.68% 16.66%
Benchmark Comparison
S&P 500 Index............................ 425.69% 151.63% 125.62% 33.36%
</TABLE>
- ---------------
* Neuberger&Berman Guardian Trust ("Trust") started operating on August 3, 1993.
It has identical investment objectives and policies and invests in, the same
portfolio as Neuberger&Berman Guardian Fund ("Fund"), which is also managed by
Neuberger&Berman Management Incorporated ("N&B"). The performance information
for the Trust before August 3, 1993 is for the Fund. N&B voluntarily bears
certain expenses of the Trust so that the Trust's expense ratio per annum will
not exceed the expense ratio per annum of the Fund by more than 0.10% of the
Trust's average daily net assets. This arrangement can be terminated on sixty
days' notice. Absent such arrangement, the average annual total returns of the
Trust would have been less. The total returns for the periods prior to the
Trust's commencement of operations would have been lower had they reflected
the higher expense ratios of the Trust as compared to those of the Fund.
Putnam Global Growth Division Twenty-Eight Performance Compared to MSCI World
Index and S&P 500 Index.
HYPOTHETICAL $10,000 ACCOUNT VALUE
ANNUAL VALUE OF A $10,000 STIPULATED PAYMENT MADE JANUARY 1, 1988
<TABLE>
<CAPTION>
MSCI
GLOBAL GROWTH WORLD S&P 500
DIVISION TWENTY-EIGHT INDEX INDEX
- ---------------------------------------------------- -------- --------
<S> <C> <C> <C>
01/01/88.................................. $10,000 $10,000 $10,000
12/31/88.................................. 10,797 12,329 11,661
12/31/89.................................. 13,315 14,376 15,356
12/31/90.................................. 11,972 11,930 14,879
12/31/91.................................. 13,985 14,111 19,412
12/31/92.................................. 13,880 13,374 20,891
12/31/93.................................. 18,120 16,383 22,997
12/31/94.................................. 17,789 17,215 23,300
12/31/95.................................. 20,224 20,781 32,056
12/31/96.................................. 23,331 23,583 39,419
12/31/97.................................. 26,179 27,300 52,569
</TABLE>
32
<PAGE> 251
CUMULATIVE RETURN COMPARED TO MARKET INDEX
(PERIOD ENDED DECEMBER 31, 1997)
<TABLE>
<CAPTION>
10 YEARS 5 YEARS 3 YEARS 1 YEAR
-------- ------- ------- ------
<S> <C> <C> <C> <C>
Investment Division
Putnam Global Growth
Division Twenty-Eight........................ 161.79% 88.61% 47.16% 12.20%
Benchmark Comparison
MSCI World Index............................... 173.00% 104.13 58.59% 15.76%
S&P 500 Index.................................. 425.69% 151.63% 125.62% 33.36%
</TABLE>
Putnam New Opportunities Division Twenty-Six Performance Compared to S&P 500
Index
HYPOTHETICAL $10,000 ACCOUNT VALUE
ANNUAL VALUE OF A $10,000 STIPULATED PAYMENT MADE AUGUST 31, 1990
<TABLE>
<CAPTION>
NEW OPPORTUNITIES S&P 500
DIVISION TWENTY-SIX INDEX
- --------------------------------------------------------------------- --------
<S> <C> <C>
08/31/90................................................... $10,000 $10,000
12/31/90................................................... 11,041 10,366
12/31/91................................................... 18,317 13,524
12/31/92................................................... 20,780 14,555
12/31/93................................................... 29,932 16,022
12/31/94................................................... 30,620 16,233
12/31/95................................................... 44,354 22,333
12/31/96................................................... 48,656 27,463
12/31/97................................................... 59,023 36,625
</TABLE>
CUMULATIVE RETURN COMPARED TO MARKET INDEX
(PERIOD ENDED DECEMBER 31, 1997)
<TABLE>
<CAPTION>
SINCE
INCEPTION* 5 YEARS 3 YEARS 1 YEAR
---------- ------- ------- ------
<S> <C> <C> <C> <C>
Investment Division
Putnam New Opportunities
Division Twenty-Six.......................... 490.23% 159.10% 92.76% 21.31%
Benchmark Comparison
S&P 500 Index.................................. 266.25% 151.63% 125.62% 33.36%
</TABLE>
- ---------------
* The Fund underlying this Division was initiated on August 31, 1990.
33
<PAGE> 252
Putnam OTC & Emerging Growth Division Twenty-Seven Performance Compared to
Russell 2000 Index and S&P 500 Index
HYPOTHETICAL $10,000 ACCOUNT VALUE
ANNUAL VALUE OF A $10,000 STIPULATED PAYMENT MADE JANUARY 1, 1988
<TABLE>
<CAPTION>
OTC & EMERGING GROWTH RUSSELL S&P 500
DIVISION TWENTY-SEVEN 2000 INDEX
- ---------------------------------------------------- -------- --------
<S> <C> <C> <C>
01/01/88.................................. $10,000 $10,000 $10,000
12/31/88.................................. 11,505 12,502 11,661
12/31/89.................................. 14,692 14,558 15,356
12/31/90.................................. 13,117 11,697 14,879
12/31/91.................................. 18,292 17,093 19,412
12/31/92.................................. 20,410 20,240 20,891
12/31/93.................................. 26,687 24,061 22,997
12/31/94.................................. 27,018 23,622 23,300
12/31/95.................................. 41,720 30,343 32,056
12/31/96.................................. 43,191 35,347 39,419
12/31/97.................................. 47,114 43,252 52,569
</TABLE>
CUMULATIVE RETURN COMPARED TO MARKET INDEX
(PERIOD ENDED DECEMBER 31, 1997)
<TABLE>
<CAPTION>
10 YEARS 5 YEARS 3 YEARS 1 YEAR
-------- ------- ------- ------
<S> <C> <C> <C> <C>
Investment Division
Putnam OTC & Emerging Growth
Division Twenty-Seven.................. 371.14% 130.84% 74.38% 9.08%
Benchmark Comparison
Russell 2000 Index....................... 332.52% 113.70% 83.10% 22.36%
S&P 500 Index............................ 425.69% 151.63% 125.62% 33.36%
</TABLE>
Scudder Growth and Income Division Twenty-One Performance Compared to S&P 500
Index
HYPOTHETICAL $10,000 ACCOUNT VALUE
ANNUAL VALUE OF A $10,000 STIPULATED PAYMENT MADE JANUARY 1, 1988
<TABLE>
<CAPTION>
SCUDDER GROWTH AND INCOME S&P 500
DIVISION TWENTY-ONE INDEX
- --------------------------------------------------------------------- --------
<S> <C> <C>
01/01/88................................................... $10,000 $10,000
12/31/88................................................... 11,063 11,661
12/31/89................................................... 13,807 15,356
12/31/90................................................... 13,319 14,879
12/31/91................................................... 16,861 19,412
12/31/92................................................... 18,244 20,891
12/31/93................................................... 20,829 22,997
12/31/94................................................... 21,107 23,300
12/31/95................................................... 27,346 32,056
12/31/96................................................... 32,987 39,419
12/31/97................................................... 42,486 52,569
</TABLE>
CUMULATIVE RETURN COMPARED TO MARKET INDEX
(PERIOD ENDED DECEMBER 31, 1997)
<TABLE>
<CAPTION>
10 YEARS 5 YEARS 3 YEARS 1 YEAR
-------- ------- ------- ------
<S> <C> <C> <C> <C>
Investment Division
Scudder Growth and Income
Division Twenty-One.................... 324.86% 132.88% 101.29% 28.80%
Benchmark Comparison
S&P 500 Index............................ 425.69% 151.63% 125.62% 33.36%
</TABLE>
34
<PAGE> 253
Templeton Foreign Division Thirty-Two Performance Compared to EAFE Index
HYPOTHETICAL $10,000 ACCOUNT VALUE
ANNUAL VALUE OF A $10,000 STIPULATED PAYMENT MADE JANUARY 1, 1988
<TABLE>
<CAPTION>
FOREIGN EAFE
DIVISION THIRTY-TWO INDEX
- ------------------------------------------------------------------------ -------------
<S> <C> <C>
01/01/88................................................. $ 10,000 $ 10,000
12/31/88................................................. 12,083 12,827
12/31/89................................................. 15,616 14,178
12/31/90................................................. 14,998 10,854
12/31/91................................................. 17,564 12,170
12/31/92................................................. 17,407 10,689
12/31/93................................................. 23,581 14,169
12/31/94................................................. 23,432 15,271
12/31/95................................................. 25,792 16,983
12/31/96................................................. 30,110 18,010
12/31/97................................................. 31,786 18,330
</TABLE>
CUMULATIVE RETURN COMPARED TO MARKET INDEX
(PERIOD ENDED DECEMBER 31, 1997)
<TABLE>
<CAPTION>
10 YEARS 5 YEARS 3 YEARS 1 YEAR
-------- ------- ------- ------
<S> <C> <C> <C> <C>
Investment Division
Templeton Foreign Division Thirty-Two....... 217.86% 82.60% 35.65% 5.57%
Benchmark Comparison
EAFE Index.................................. 83.30% 71.49% 20.03% 1.78%
</TABLE>
Vanguard Fixed Income Securities Fund -- Long-Term Corporate Portfolio Division
Twenty-Two Performance Compared to Merrill Lynch Corporate Master Index
HYPOTHETICAL $10,000 ACCOUNT VALUE
ANNUAL VALUE OF A $10,000 STIPULATED PAYMENT MADE JANUARY 1, 1988
<TABLE>
<CAPTION>
MERRILL LYNCH
LONG-TERM CORPORATE CORPORATE MASTER
DIVISION TWENTY-TWO INDEX
- ----------------------------------------------------------------- ----------------
<S> <C> <C>
01/01/88............................................... $10,000 $10,000
12/31/88............................................... 10,835 10,976
12/31/89............................................... 12,325 12,525
12/31/90............................................... 12,929 13,448
12/31/91............................................... 15,440 15,901
12/31/92............................................... 16,740 17,351
12/31/93............................................... 18,931 19,508
12/31/94............................................... 17,708 18,851
12/31/95............................................... 22,107 22,919
12/31/96............................................... 21,947 23,696
12/31/97............................................... 24,651 26,157
</TABLE>
CUMULATIVE RETURN COMPARED TO MARKET INDEX
(PERIOD ENDED DECEMBER 31, 1997)
<TABLE>
<CAPTION>
10 YEARS 5 YEARS 3 YEARS 1 YEAR
-------- ------- ------- ------
<S> <C> <C> <C> <C>
Investment Division
Vanguard Fixed Income Securities Fund --
Long-Term Corporate Portfolio............ 146.51% 47.25% 39.21% 12.32%
Benchmark Comparison
Merrill Lynch Corporate Master Index....... 161.57% 50.75% 38.76% 10.39%
</TABLE>
35
<PAGE> 254
Vanguard Fixed Income Securities Fund -- Long-Term U.S. Treasury Portfolio
Division Twenty-Three Performance Compared to Lehman Brothers U.S. Treasury
Long-Term Index
HYPOTHETICAL $10,000 ACCOUNT VALUE
ANNUAL VALUE OF A $10,000 STIPULATED PAYMENT MADE JANUARY 1, 1988
<TABLE>
<CAPTION>
LEHMAN BROS.
U.S. TREASURY
LONG-TERM U.S. TREASURY LONG-TERM
DIVISION TWENTY-THREE INDEX
- ----------------------------------------------------------------- -------------
<S> <C> <C>
01/01/88............................................... $10,000 $10,000
12/31/88............................................... 10,781 10,920
12/31/89............................................... 12,558 12,986
12/31/90............................................... 13,120 13,806
12/31/91............................................... 15,218 16,361
12/31/92............................................... 16,143 17,664
12/31/93............................................... 18,621 20,711
12/31/94............................................... 17,097 19,128
12/31/95............................................... 21,972 24,998
12/31/96............................................... 21,295 24,781
12/31/97............................................... 23,945 28,516
</TABLE>
CUMULATIVE RETURN COMPARED TO MARKET INDEX
(PERIOD ENDED DECEMBER 31, 1997)
<TABLE>
<CAPTION>
10 YEARS 5 YEARS 3 YEARS 1 YEAR
-------- ------- ------- ------
<S> <C> <C> <C> <C>
Investment Division
Vanguard Fixed Income Securities
Fund -- Long-Term U.S. Treasury
Portfolio................................ 139.45% 48.33% 40.05% 12.44%
Benchmark Comparison
Lehman Brothers U.S. Treasury
Long-Term Index.......................... 185.16% 61.44% 49.08% 15.07%
</TABLE>
Vanguard/Wellington Division Twenty-Five Performance Compared to S&P 500 Index
and Merrill Lynch Corporate Master Index
HYPOTHETICAL $10,000 ACCOUNT VALUE
ANNUAL VALUE OF A $10,000 STIPULATED PAYMENT MADE JANUARY 1, 1988
<TABLE>
<CAPTION>
VANGUARD/WELLINGTON BLENDED
DIVISION TWENTY-FIVE INDEX*
- --------------------------------------------------------------------- --------
<S> <C> <C>
01/01/88................................................... $10,000 $10,000
12/31/88................................................... 11,467 11,422
12/31/89................................................... 13,773 14,330
12/31/90................................................... 13,221 14,426
12/31/91................................................... 16,147 18,221
12/31/92................................................... 17,211 19,715
12/31/93................................................... 19,297 21,871
12/31/94................................................... 18,966 21,810
12/31/95................................................... 24,901 28,750
12/31/96................................................... 26,559 33,310
12/31/97................................................... 34,743 41,664
</TABLE>
CUMULATIVE RETURN COMPARED TO MARKET INDEX
(PERIOD ENDED DECEMBER 31, 1997)
<TABLE>
<CAPTION>
10 YEARS 5 YEARS 3 YEARS 1 YEAR
-------- ------- ------- ------
<S> <C> <C> <C> <C>
Investment Division
Vanguard/Wellington Division
Twenty-Five............................. 247.43% 101.87% 83.18% 21.65%
Benchmark Comparison
Blended Index*............................ 316.64% 111.33% 91.03% 25.08%
</TABLE>
36
<PAGE> 255
- ---------------
* The Blended Index reflects an allocation of investments in the following
indexes: 65% of investments included in the S&P 500 Index and 35% of
investments included in the Merrill Lynch Corporate Master Index.
Vanguard/Windsor II Division Twenty-Four Performance Compared to S&P 500 Index
HYPOTHETICAL $10,000 ACCOUNT VALUE
ANNUAL VALUE OF A $10,000 STIPULATED PAYMENT MADE JANUARY 1, 1988
<TABLE>
<CAPTION>
VANGUARD/WINDSOR II S&P 500
DIVISION TWENTY-FOUR INDEX
- --------------------------------------------------------------------- --------
<S> <C> <C>
01/01/88................................................... $10,000 $10,000
12/31/88................................................... 12,319 11,661
12/31/89................................................... 15,553 15,356
12/31/90................................................... 13,828 14,879
12/31/91................................................... 17,577 19,412
12/31/92................................................... 19,441 20,891
12/31/93................................................... 21,814 22,997
12/31/94................................................... 21,294 23,300
12/31/95................................................... 29,200 32,056
12/31/96................................................... 35,788 39,419
12/31/97................................................... 46,775 52,569
</TABLE>
CUMULATIVE RETURN COMPARED TO MARKET INDEX
(PERIOD ENDED DECEMBER 31, 1997)
<TABLE>
<CAPTION>
10 YEARS 5 YEARS 3 YEARS 1 YEAR
-------- ------- ------- ------
<S> <C> <C> <C> <C>
Investment Division
Vanguard/Windsor II Division
Twenty-Four............................ 367.75% 140.60% 119.67% 30.70%
Benchmark Comparison
S&P 500 Index............................ 425.69% 151.63% 125.62% 33.36%
</TABLE>
37
<PAGE> 256
PAYOUT PAYMENTS
ASSUMED INVESTMENT RATE
The discussion concerning the amount of payout payments which follows this
section is based on an Assumed Investment Rate of 3 1/2% per annum. However, the
Company will permit each Annuitant choosing a variable payout option to select
an Assumed Investment Rate permitted by state law or regulations other than the
3 1/2% rate described in this prospectus as follows: 3%, 4 1/2%, 5% or 6% per
annum. (Note: an Assumed Investment Rate higher than 5% may not be selected
under individual Contracts.) The foregoing Assumed Investment Rates are used
merely in order to determine the first monthly payment per thousand dollars of
value. It should not be inferred that such rates will bear any relationship to
the actual net investment experience of VALIC Separate Account A.
AMOUNT OF PAYOUT PAYMENTS
The amount of the first variable annuity payment to the Annuitant will
depend on the amount of the Account Value applied to effect the variable annuity
as of the tenth day immediately preceding the date payout payments commence, the
amount of any premium tax owed, the annuity option selected, and the age of the
Annuitant.
The Contracts contain tables indicating the dollar amount of the first
payout payment under each payout option for each $1,000 of Account Value (after
the deduction for any premium tax) at various ages. These tables are based upon
the 1983 Table A (promulgated by the Society of Actuaries) and an Assumed
Investment Rate of 3%, 3 1/2%, 4% and 5% per annum (3 1/2% in the group
Contract).
The portion of the first monthly variable payout payment derived from a
Division of VALIC Separate Account A is divided by the Payout Unit value for
that Division (calculated ten days prior to the date of the first monthly
payment) to determine the number of Payout Units in each Division represented by
the payment. The number of such units will remain fixed during the Payout
Period, assuming the Annuitant makes no transfers of Payout Units to provide
Payout Units under another Division or to provide a fixed annuity.
In any subsequent month, the dollar amount of the variable payout payment
derived from each Division is determined by multiplying the number of Payout
Units in that Division by the value of such Payout Unit on the tenth day
preceding the due date of such payment. The Payout Unit value will increase or
decrease in proportion to the net investment return of the Division or Divisions
underlying the variable payout since the date of the previous payout payment,
less an adjustment to neutralize the 3 1/2% or other Assumed Investment Rate
referred to above.
Therefore, the dollar amount of variable payout payments after the first
will vary with the amount by which the net investment return is greater or less
than 3 1/2% per annum. For example, if a Division has a cumulative net
investment return of 5% over a one year period, the first payout payment in the
next year will be approximately 1 1/2 percentage points greater than the payment
on the same date in the preceding year, and subsequent payments will continue to
vary with the investment experience of the Division. If such net investment
return is 1% over a one year period, the first payout payment in the next year
will be approximately 2 1/2 percentage points less than the payment on the same
date in the preceding year, and subsequent payments will continue to vary with
the investment experience of the applicable Division.
Each deferred Contract provides that, when fixed payout payments are to be
made under one of the first four payout options, the monthly payment to the
Annuitant will not be less than the monthly payment produced by the then current
settlement option rates, which will not be less than the rates used for a
currently issued single payment immediate annuity contract. The purpose of this
provision is to assure the Annuitant that, at retirement, if the fixed payout
purchase rates then required by the Company for new single payment immediate
annuity contracts are significantly more favorable than the annuity rates
guaranteed by a Contract, the Annuitant will be given the benefit of the new
annuity rates.
PAYOUT UNIT VALUE
The value of a Payout Unit is calculated at the same time that the value of
an Purchase Unit is calculated and is based on the same values for Fund shares
and other assets and liabilities. (See "Purchase Period" in the prospectus.) The
calcula-
38
<PAGE> 257
tion of Payout Unit value is discussed in the prospectus under "Payout Period."
The following illustrations show, by use of hypothetical examples, the
method of determining the Payout Unit value and the amount of variable annuity
payments.
ILLUSTRATION OF CALCULATION OF PAYOUT UNIT VALUE
Example 8.
<TABLE>
<S> <C>
1. Payout Unit value, beginning of period.................. $ .980000
2. Net investment factor for Period (see Example 3)........ 1.023558
3. Daily adjustment for 3 1/2% Assumed Investment Rate..... .999906
4. (2)X(3)................................................. 1.023462
5. Payout Unit value, end of period (1)X(4)................ $1.002993
</TABLE>
ILLUSTRATION OF PAYOUT PAYMENTS
Example 9. Annuitant age 65, Life Annuity with 120 Payments Certain
<TABLE>
<S> <C>
1. Number of Purchase Units at Payout Date................. 10,000.00
2. Purchase Unit value (see Example 3)..................... $ 1.800000
3. Account Value of Contract (1)X(2)....................... $18,000.00
4. First monthly Payout Payment per $1,000 of Account
Value..................................................... $ 5.63
5. First monthly Payout Payment (3)X(4)/1,000.............. $ 101.34
6. Payout Unit value (see Example 10)...................... $ .980000
7. Number of Payout Units (5)/(6).......................... 103.408
8. Assume Payout Unit value for second month equal to...... $ .997000
9. Second monthly Payout Payment (7)X(8)................... $ 103.10
10. Assume Payout Unit value for third month equal to....... $ .953000
11. Third monthly Payout Payment (7)X(10)................... $ 98.55
</TABLE>
39
<PAGE> 258
DISTRIBUTION OF VARIABLE ANNUITY CONTRACTS
The Company has qualified or intends to qualify the Contracts for sale in
all fifty states and the District of Columbia and will commence offering the
Contracts promptly upon qualification in each such jurisdiction.
The Contracts are sold in a continuous offering by licensed insurance
agents who are registered representatives of broker-dealers which are members of
the National Association of Securities Dealers, Inc. (the "NASD"). The principal
underwriter for VALIC Separate Account A is the Underwriter as defined above, a
wholly-owned subsidiary of the Company. The Underwriter's address is 2929 Allen
Parkway, Houston, Texas 77019. The Underwriter is a Texas corporation organized
in 1970 and is a member of the NASD.
The licensed agents who sell the Contracts will be compensated for such
sales by commissions ranging up to 5% of each Purchase Payment. Managers who
supervise the agents will receive overriding commissions ranging up to 1% of
Purchase Payments. (These various commissions are paid by the Company and do not
result in any charge to Contract Owners or to VALIC Separate Account A in
addition to the charges described under "Fees and Charges" in the prospectus.)
Pursuant to its underwriting agreement with the Underwriter and VALIC
Separate Account A, the Company reimburses the Underwriter for reasonable sales
expenses, including overhead expenses. Sales commissions paid for the years 1996
and 1997 were $11,530,000 and $46,521,000, respectively.
EXPERTS
The consolidated financial statements of the Company at December 31, 1997
and 1996, and for each of the three years in the period ended December 31, 1997,
and the financial statements of the Company's Separate Account A at December 31,
1997 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.
40
<PAGE> 259
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 Six, Ten, Twelve, Thirteen, Fifteen, Seventeen, Twenty-one,
Twenty-two, Twenty-three, Twenty-four, Twenty-five, Twenty-six, Twenty-seven,
Twenty-eight, Twenty-nine, Thirty, Thirty-one and Thirty-two 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, 1997, and for the fiscal year then
ended.
41
<PAGE> 260
[THIS PAGE INTENTIONALLY LEFT BLANK]
42
<PAGE> 261
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, 1997
and 1996, 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, 1997. 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, 1997
and 1996, and the consolidated results of their operations and their cash flows
for each of the three years in the period ended December 31, 1997, in conformity
with generally accepted accounting principles.
/s/ ERNST & YOUNG LLP
Houston, Texas
February 18, 1998
- --------------------------------------------------------------------------------
1
<PAGE> 262
THE VARIABLE ANNUITY LIFE INSURANCE COMPANY
CONSOLIDATED BALANCE SHEET
AT DECEMBER 31
IN THOUSANDS
<TABLE>
<CAPTION>
1997 1996
----------- -----------
<S> <C> <C>
ASSETS Investments - Notes 2, 6, 7, 8:
Fixed maturity securities
(amortized cost: $20,651,381 in 1997 and $19,667,491 in 1996) $21,641,084 $20,189,473
Equity securities (cost: $5,581 in 1997 and $8,624 in 1996) 5,456 8,589
Mortgage loans on real estate 1,259,029 1,349,855
Real estate, net of accumulated depreciation
of $69 in 1997 and $69 in 1996 28,569 37,130
Policy loans 719,127 639,200
Other long-term invested assets 45,474 35,945
Short-term investments 60,904 53,000
----------- -----------
Total investments 23,759,643 22,313,192
----------- -----------
Investment income receivable 347,358 315,118
Cash 32,181 24,360
Receivable for securities sold 32,825 18,654
Deferred policy acquisition costs - Note 3 392,346 557,748
Due from reinsurer, net 14,545 15,700
Other assets 52,104 45,798
Assets held in Separate Accounts 10,564,220 7,134,412
----------- -----------
Total assets $35,195,222 $30,424,982
----------- -----------
LIABILITIES Policy reserves for fixed annuity investment contracts $21,994,804 $21,067,429
Payable for securities purchased 19,027 575
Remittances not allocated 79,392 66,473
Commissions, general expenses, and taxes (other than income taxes) 39,546 41,642
Other liabilities 61,756 75,636
Income tax liabilities - Note 4 377,072 265,160
Liabilities related to Separate Accounts 10,564,220 7,134,412
----------- -----------
Total liabilities 33,135,817 28,651,327
----------- -----------
STOCKHOLDER'S Common stock (voting) par value $1 per share, 5,000 shares authorized
EQUITY and 3,575 issued and outstanding in 1997 and 1996 - Note 5 3,575 3,575
Additional paid-in capital 710,624 459,281
Retained earnings 1,038,731 1,143,947
Net unrealized gains - Note 2 306,475 166,852
----------- -----------
Total stockholder's equity 2,059,405 1,773,655
----------- -----------
Total liabilities and stockholder's equity $35,195,222 $30,424,982
----------- -----------
</TABLE>
See notes to consolidated financial statements.
- --------------------------------------------------------------------------------
2
<PAGE> 263
THE VARIABLE ANNUITY LIFE INSURANCE COMPANY
CONSOLIDATED STATEMENT OF INCOME
FOR THE YEARS ENDED DECEMBER 31,
IN THOUSANDS
<TABLE>
<CAPTION>
1997 1996 1995
----------- ----------- -----------
<S> <C> <C> <C>
REVENUES Surrender charges $ 12,405 $ 12,348 $ 9,967
Mortality charges 94,162 59,955 34,965
Expense charges 6,102 5,654 5,122
Net investment income - Note 2 1,729,541 1,654,496 1,597,681
Net reinsurance income 1,303 1,528 1,573
Realized investment gains (losses) - Note 2 20,235 21,551 (7,149)
Other income 15,320 10,920 6,878
----------- ----------- -----------
Total revenues 1,879,068 1,766,452 1,649,037
----------- ----------- -----------
COSTS AND Policy costs:
EXPENSES Increase in policy reserves for fixed annuity contracts 1,286,010 1,243,993 1,203,986
----------- ----------- -----------
Total costs 1,286,010 1,243,993 1,203,986
----------- ----------- -----------
Expenses:
Commissions 110,960 97,630
84,670
Salaries 58,873 54,016 48,227
Data processing 14,876 12,088 13,200
Postage and telephone 12,253 11,308 10,710
Sales promotion 10,161 10,394 9,361
Depreciation expense on furniture and equipment 8,964 8,920 8,924
Rent 7,931 7,524 7,477
Taxes, licenses, and fees 6,874 6,208 4,989
Printing and supplies 4,496 5,290 4,721
Guaranty association assessments - Note 9 30 2,678 18,961
Other expenses 35,172 27,223 22,665
Amortization of deferred policy acquisition costs - Note 3 42,101 31,201 16,841
Policy acquisition costs deferred - Note 3 (137,655) (116,818) (104,702)
----------- ----------- -----------
Total expenses 175,036 157,662 146,044
----------- ----------- -----------
Total costs and expenses 1,461,046 1,401,655 1,350,030
----------- ----------- -----------
EARNINGS Income before income tax expense 418,022 364,797 299,007
Income tax expense - Note 4 144,238 124,370 99,720
----------- ----------- -----------
Net income $ 273,784 $ 240,427 $ 199,287
----------- ----------- -----------
</TABLE>
See notes to consolidated financial statements.
- --------------------------------------------------------------------------------
3
<PAGE> 264
THE VARIABLE ANNUITY LIFE INSURANCE COMPANY
CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDER'S EQUITY
FOR THE YEARS ENDED DECEMBER 31,
IN THOUSANDS
<TABLE>
<CAPTION>
1997 1996 1995
----------- ----------- -----------
<S> <C> <C> <C>
COMMON STOCK Balance at beginning and end of year $ 3,575 $ 3,575 $ 3,575
----------- ----------- -----------
ADDITIONAL Balance at beginning of year 459,281 384,126 382,733
PAID-IN-CAPITAL Capital contribution from stockholder 251,343 75,155 1,393
----------- ----------- -----------
Balance at end of year 710,624 459,281 384,126
----------- ----------- -----------
RETAINED Balance at beginning of year 1,143,947 1,014,520 910,233
EARNINGS Net income 273,784 240,427 199,287
Dividends paid to stockholder (379,000) (111,000) (95,000)
----------- ----------- -----------
Balance at end of year 1,038,731 1,143,947 1,014,520
----------- ----------- -----------
NET UNREALIZED Balance at beginning of year 166,852 396,620 (563,481)
INVESTMENT Change during year 139,623 (229,768) 960,101
GAINS(LOSSES) ----------- ----------- -----------
Balance at end of year 306,475 166,852 396,620
----------- ----------- -----------
STOCKHOLDER'S
EQUITY Balance at end of year $ 2,059,405 $ 1,773,655 $ 1,798,841
----------- ----------- -----------
</TABLE>
See notes to consolidated financial statements.
- --------------------------------------------------------------------------------
4
<PAGE> 265
THE VARIABLE ANNUITY LIFE INSURANCE COMPANY
CONSOLIDATED STATEMENT OF CASH FLOWS
FOR THE YEARS ENDED DECEMBER 31,
IN THOUSANDS
<TABLE>
<CAPTION>
1997 1996 1995
------------ ------------ ------------
<S> <C> <C> <C>
OPERATING Net income $ 273,784 $ 240,427 $ 199,287
ACTIVITIES Reconciling adjustments to net cash provided by operating
activities:
Insurance and annuity liabilities 1,286,010 1,243,993 1,203,986
Deferred policy acquisition costs (95,554) (85,617) (87,861)
Other, net (51,241) (50,233) 28,179
------------ ------------ ------------
Net cash provided by operating activities 1,412,999 1,348,570 1,343,591
------------ ------------ ------------
INVESTING Investment purchases (18,403,013) (14,883,271) (9,671,304)
ACTIVITIES Investment calls, maturities, and sales 17,500,312 13,897,479 8,025,420
Net (increase) decrease in short-term investments (7,904) (13,722) 120,745
------------ ------------ ------------
Net cash used for investing activities (910,605) (999,514) (1,525,139)
------------ ------------ ------------
FINANCING Policyholder account deposits 3,385,303 2,896,090 2,553,928
ACTIVITIES Policyholder account withdrawals (1,427,005) (1,276,008) (996,324)
Transfers to Separate Accounts (2,325,214) (1,936,727) (1,273,778)
Capital contribution from stockholder 251,343 75,155 1,607
Dividends paid (379,000) (111,000) (95,000)
------------ ------------ ------------
Net cash used for or provided by financing activities (494,573) (352,490) 190,433
------------ ------------ ------------
NET CHANGE Net increase (decrease) in cash 7,821 (3,434) 8,885
IN CASH Cash at beginning of year 24,360 27,794 18,909
------------ ------------ ------------
Cash at end of year $ 32,181 $ 24,360 $ 27,794
------------ ------------ ------------
</TABLE>
See notes to consolidated financial statements.
- --------------------------------------------------------------------------------
5
<PAGE> 266
THE VARIABLE ANNUITY LIFE INSURANCE COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1997
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 1997
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 ACCOUNTING CHANGES
NEW ACCOUNTING STANDARDS NOT YET ADOPTED. In June 1997, the Financial
Accounting Standards Board (FASB) issued SFAS 130, "Reporting Comprehensive
Income," which establishes standards for reporting and displaying comprehensive
income and its components in the financial statements. Beginning first quarter
1998, VALIC must adopt this statement for all periods presented. Application of
this statement will not change recognition or measurement of net income and,
therefore, will not impact VALIC's consolidated results of operations or
financial position.
1.4 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.
Loans for which VALIC determines that collection of all amounts due under
the contractual terms is not probable are considered to be impaired.
VALIC generally looks to the underlying collateral for repayment of impaired
loans. Therefore, impaired loans are considered to be collateral dependent and
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.
1.5 DERIVATIVES RELATED TO INVESTMENTS
VALIC's use of derivative financial instruments is generally limited to
interest rate and currency swap agreements, and options to enter into interest
rate swap agreements (call swaptions). VALIC accounts for its derivative
financial instruments as hedges.
INTEREST RATE AND CURRENCY SWAP AGREEMENTS. Interest rate swap agreements
convert specific investment securities from a floating to a fixed-rate basis, or
vice versa. Currency swap agreements are used to convert cash flows from
specific investment securities denominated in foreign currencies into U.S.
dollars at specified exchange rates, and to hedge against currency rate
fluctuations on anticipated security purchases.
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.
- --------------------------------------------------------------------------------
6
<PAGE> 267
THE VARIABLE ANNUITY LIFE INSURANCE COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
December 31, 1997
1.5 DERIVATIVES RELATED TO INVESTMENTS-(CONTINUED)
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.
CALL SWAPTIONS. Options to enter into interest rate swap agreements are
used to limit VALIC's exposure to reduced spreads between investment yields and
interest crediting rates should interest rates decline significantly over
prolonged periods. During such periods, the spread between investment yields and
interest crediting rates may be reduced as a result of certain limitations on
VALIC's ability to manage interest crediting rates. Call swaptions allow VALIC
to enter into interest rate swap agreements to receive fixed rates and pay lower
floating rates, effectively increasing the spread between investment yields and
interest crediting rates.
Premiums paid to purchase call swaptions are included in investments and
are amortized to net investment income over the exercise period of the
swaptions. If a call swaption is terminated, any gain is deferred and amortized
to insurance and annuity benefits over the expected life of the insurance and
annuity contracts and any unamortized premium is charged to income. If a call
swaption ceases to be an effective hedge, any gain or loss is recognized in
income.
1.6 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) in 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.
1.7 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.
1.8 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%.
1.9 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.
1.10 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.
- --------------------------------------------------------------------------------
7
<PAGE> 268
THE VARIABLE ANNUITY LIFE INSURANCE COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
December 31, 1997
1.11 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>
1997 1996 1995
---------- ---------- ----------
<S> <C> <C> <C>
Net income $ 237,719 $ 213,686 $ 157,622
---------- ---------- ----------
Stockholder's equity $1,189,278 $1,077,366 $ 926,654
---------- ---------- ----------
</TABLE>
2
- --------------------------------------------------------------------------------
INVESTMENTS
- --------------------------------------------------------------------------------
2.1 INVESTMENT INCOME
Income by type of investment was as follows:
<TABLE>
<CAPTION>
1997 1996 1995
---------- ---------- ----------
<S> <C> <C> <C>
Non-affiliated fixed
maturity securities $1,562,802 $1,471,879 $1,414,644
Affiliated fixed
maturity securities 2,588 2,851 3,181
Equity securities 483 782 4,281
Mortgage loans on
real estate 123,591 140,492 149,974
Other 53,543 51,040 36,473
---------- ---------- ----------
Gross investment income 1,743,007 1,667,044 1,608,553
Investment expenses 13,466 12,548 10,872
---------- ---------- ----------
Net investment income $1,729,541 $1,654,496 $1,597,681
---------- ---------- ----------
</TABLE>
The carrying value of investments that produced no investment income during
1997 totaled $12,516 or 0.05% 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, 1997.
2.2 REALIZED INVESTMENT GAINS (LOSSES)
Realized investment gains (losses) were as follows:
<TABLE>
<CAPTION>
1997 1996 1995
-------- -------- --------
<S> <C> <C> <C>
Fixed maturity securities $ 6,075 $ 1,417 $ 832
Equity securities 21 15,795 7,706
Mortgage loans on
real estate 21,647 4,635 (24,465)
Real estate 3,802 389 3,767
Other (11,310) (685) 5,011
-------- -------- --------
Realized investment gains
(losses) before taxes 20,235 21,551 (7,149)
Income tax expense (benefit) 7,082 7,543 (1,414)
-------- -------- --------
Net realized investment
gains (losses) $ 13,153 $ 14,008 $ (5,735)
-------- -------- --------
</TABLE>
Proceeds from sales of fixed maturity securities were $3,269,801,
$3,052,550, and $1,432,183 during 1997, 1996, and 1995, respectively. Gross
gains of $23,967, $28,173, and $15,722 and gross losses of $22,489, $36,802, and
$30,518, were realized on those sales during 1997, 1996, and 1995, respectively.
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
------------------------- ---------------------
1997 1996 1997 1996
----------- ----------- ---------- --------
<S> <C> <C> <C> <C>
U.S. Treasury securities and
obligations of U.S. government
corporations and agencies $ 175,771 $ 219,426 $ 25,101 $ 20,025
Obligations of states and
political subdivisions 32,264 32,308 1,193 840
Debt securities issued by
foreign governments 248,838 241,908 14,018 10,958
Corporate securities 15,207,118 13,211,735 755,877 457,461
Mortgage-backed securities 4,959,198 5,932,878 214,418 150,021
Affiliated fixed maturity securities 28,192 29,236 67 --
----------- ----------- ---------- --------
Total fixed maturity securities $20,651,381 $19,667,491 $1,010,674 $639,305
----------- ----------- ---------- --------
Equity securities $ 5,581 $ 8,624 $ 114 $ 61
----------- ----------- ---------- --------
<CAPTION>
Gross Unrealized Losses Fair Value
----------------------- -------------------------
1997 1996 1997 1996
--------- ---------- ----------- -----------
<S> <C> <C> <C> <C>
U.S. Treasury securities and
obligations of U.S. government
corporations and agencies $ (3) $ (465) $ 200,869 $ 238,986
Obligations of states and
political subdivisions _ (197) 33,457 32,951
Debt securities issued by
foreign governments (1,988) (122) 260,868 252,744
Corporate securities (16,179) (76,389) 15,946,816 13,592,807
Mortgage-backed securities (2,801) (40,150) 5,170,815 6,042,749
Affiliated fixed maturity securities -- -- 28,259 29,236
-------- --------- ----------- -----------
Total fixed maturity securities $(20,971) $(117,323) $21,641,084 $20,189,473
-------- --------- ----------- -----------
Equity securities $ (239) $ (96) $ 5,456 $ 8,589
-------- --------- ----------- -----------
</TABLE>
- --------------------------------------------------------------------------------
8
<PAGE> 269
THE VARIABLE ANNUITY LIFE INSURANCE COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
DECEMBER 31, 1997
2.3 FIXED MATURITY AND EQUITY SECURITIES (CONTINUED)
MATURITIES. The contractual maturities of fixed maturity securities at
December 31, 1997 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 $ 103,239 $ 104,677
In years two through five 4,106,448 4,284,682
In years six through ten 7,443,520 7,812,438
After ten years 3,842,984 4,067,083
Mortgage-backed securities 5,155,190 5,372,204
----------- -----------
Total fixed maturity securities $20,651,381 $21,641,084
----------- -----------
</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>
1997 1996
----------- -----------
<S> <C> <C>
Gross unrealized gains $ 1,010,788 $ 639,366
Gross unrealized losses (21,210) (117,419)
DPAC adjustments (511,037) (261,363)
Deferred federal income taxes (172,066) (93,732)
----------- -----------
Net unrealized gains
on securities $ 306,475 $ 166,852
----------- -----------
</TABLE>
2.5 MORTGAGE LOANS ON REAL ESTATE
Diversification. Diversification of the geographic location and type of
property collateralizing mortgage loans reduces the concentration of credit
risk. For new loans, VALIC requires loan-to-value ratios of 75% or less, based
on management's credit assessment of the borrower.
2.5 MORTGAGE LOANS ON REAL ESTATE (CONTINUED)
At December 31 the mortgage loan portfolio was distributed as follows:
<TABLE>
<CAPTION>
1997 1996
----------- -----------
<S> <C> <C>
Geographic distribution:
Atlantic $ 614,627 $ 656,073
Pacific and Mountain 355,006 406,948
Central 310,535 331,411
Allowance for losses (21,139) (44,577)
----------- -----------
Total mortgage loans $ 1,259,029 $ 1,349,855
----------- -----------
Property type:
Office $ 467,326 $ 456,818
Retail 396,934 451,668
Industrial 246,241 221,532
Apartments 145,272 190,583
Residential and other 24,395 73,831
Allowance for losses (21,139) (44,577)
----------- -----------
Total mortgage loans $ 1,259,029 $ 1,349,855
----------- -----------
</TABLE>
ALLOWANCE. Activity in the allowance for mortgage loan losses was as
follows:
<TABLE>
<CAPTION>
1997 1996 1995
----------- ----------- -----------
<S> <C> <C> <C>
Balance at January 1 $ 44,577 $ 54,213 $ 55,665
Provision for mortgage
loan losses (18,178) (2,967) 25,418
Deductions (5,260) (6,669) (26,870)
----------- ----------- -----------
Balance at December 31 $ 21,139 $ 44,577 $ 54,213
----------- ----------- -----------
</TABLE>
IMPAIRED LOANS. Impaired mortgage loans on real estate and related interest
income were as follows:
<TABLE>
<CAPTION>
1997 1996
---------- ----------
<S> <C> <C>
Impaired loans:
With allowance* $ 28,317 $ 46,346
Without allowance -- 236
---------- ----------
Total impaired loans $ 28,317 $ 46,582
---------- ----------
Average investment $ 37,449 $ 56,163
Interest income earned 2,887 4,816
Interest income - cash basis -- 4,617
---------- ----------
</TABLE>
* Represents gross amounts before allowance for mortgage loan losses of $9,317
and $6,848, respectively.
- --------------------------------------------------------------------------------
9
<PAGE> 270
THE VARIABLE ANNUITY LIFE INSURANCE COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
DECEMBER 31, 1997
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>
1997 1996 1995
--------- --------- ---------
<S> <C> <C> <C>
Balance at January 1 $ 557,748 $ 182,546 $ 910,479
Deferrals:
Commissions 76,327 62,760 52,959
Other acquisition costs 61,328 54,058 51,743
Amortization:
Accretion of interest 65,388 59,810 54,086
Operating earnings (107,489) (91,011) (70,927)
Offset to realized
(gains) losses (11,282) (676) 4,991
Effect of net unrealized
(gains) losses on securities (249,674) 290,261 (820,785)
--------- --------- ---------
Balance at December 31 $ 392,346 $ 557,748 $ 182,546
--------- --------- ---------
</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>
1997 1996
--------- ---------
<S> <C> <C>
Current tax liabilities (assets) $ 2,027 $ (4,551)
--------- ---------
Deferred tax liabilities, applicable to:
Basis differential of investments 368,591 201,122
DPAC 134,541 192,815
Other 18,576 8,025
--------- ---------
Total deferred tax liabilities 521,708 401,962
--------- ---------
Deferred tax assets, applicable to:
Policy reserves (138,555) (118,595)
Basis differential of investments (1,545) (6,219)
Other (6,563) (7,437)
--------- ---------
Total deferred tax assets (146,663) (132,251)
--------- ---------
Net deferred tax liabilities 375,045 269,711
--------- ---------
Total income tax liabilities $ 377,072 $ 265,160
--------- ---------
</TABLE>
4.3 TAX EXPENSE
Components of income tax expense were as follows:
<TABLE>
<CAPTION>
1997 1996 1995
---------- ---------- ----------
<S> <C> <C> <C>
Current:
Federal $ 114,138 $ 99,560 $ 99,273
State 3,099 2,842 3,224
---------- ---------- ----------
Total current income
tax expense 117,237 102,402 102,497
---------- ---------- ----------
Deferred, applicable to:
DPAC 29,113 29,308 32,174
Policy reserves (14,920) (18,581) (28,780)
Basis differential of
investments 3,569 2,754 (786)
Other, net 9,239 8,487 (5,385)
---------- ---------- ----------
Total deferred income
tax expense (benefit) 27,001 21,968 (2,777)
---------- ---------- ----------
Income tax expense $ 144,238 $ 124,370 $ 99,720
---------- ---------- ----------
</TABLE>
A reconciliation between the federal income tax rate and the effective tax
rate follows:
<TABLE>
<CAPTION>
1997 1996 1995
--------- --------- ---------
<S> <C> <C> <C>
Federal income tax rate 35% 35% 35%
Income tax expense at
applicable rate $ 146,308 $ 127,679 $ 104,652
Dividends received
deduction (5,212) (4,935) (3,883)
Tax-exempt interest (ESOP) (3,326) (3,865) (4,426)
State income taxes 3,695 3,311 2,918
Other items 2,773 2,180 459
--------- --------- ---------
Income tax expense $ 144,238 $ 124,370 $ 99,720
--------- --------- ---------
</TABLE>
Federal income taxes paid in 1997, 1996, and 1995 were $106,338, $114,478,
and $52,790, respectively. State income taxes paid in 1997, 1996, and 1995 were
$2,978, $3,060, and $2,653, respectively.
- --------------------------------------------------------------------------------
10
<PAGE> 271
THE VARIABLE ANNUITY LIFE INSURANCE COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
DECEMBER 31, 1997
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 1998 is
$233,582.
6
- --------------------------------------------------------------------------------
DERIVATIVE FINANCIAL INSTRUMENTS
- --------------------------------------------------------------------------------
Interest rate and currency swap agreements related to investment securities
at December 31, 1997 were as follows:
<TABLE>
<S> <C>
Interest rate swap agreements to pay fixed rate
Notional amount $ 107,000
Average receive rate 6.92%
Average pay rate 6.25
-----------
Currency swap agreements (receive U.S.$/pay Canadian$)
Notional amount (in U.S.$) $ 123,326
Average exchange rate 1.49
-----------
</TABLE>
During 1997, VALIC purchased call swaptions that expire in 1998. These call
swaptions had a notional amount of $1.15 billion and strike rates ranging from
4.5% to 5.5% at December 31, 1997. Should the strike rates remain below market
rates, the call swaptions will expire and VALIC's exposure would be limited to
the premiums paid.
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>
1997 1996
-------------------------- --------------------------
Fair Carrying Fair Carrying
Value Amount Value Amount
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
Assets
Fixed maturity and equity securities $21,646,540* $ 21,646,540* $20,198,062* $20,198,062
Mortgage loans on real estate 1,288,702 1,259,029 1,352,994 1,349,855
Policy loans 721,089 719,127 637,870 639,200
Liabilities
Insurance investment contracts 21,536,809 21,994,804 19,753,088 21,067,429
----------- ----------- ----------- -----------
</TABLE>
* Includes derivative financial instruments with negative fair value of $2,967
in 1997 and negative fair value of $7,872 in 1996.
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> 272
THE VARIABLE ANNUITY LIFE INSURANCE COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
DECEMBER 31, 1997
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, 1997 were as follows:
Operating expenses include $22,061 in 1997, $17,533 in 1996, and $21,173 in
1995 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 $501 in 1997, $455 in 1996, and $1,662 in 1995.
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, 1997, 1996, and 1995. VALIC recognized $1,292 in interest income
during 1997, $1,372 for 1996, and $1,452 for 1995.
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, 1997, 1996, and 1995.
VALIC recognized $1,296, $1,479, and $1,729 of interest income on the note
during 1997, 1996, and 1995, respectively.
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.
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.
VALIC paid common stock dividends of $379,000, $106.01 per share; $111,000,
$31.05 per share; and $95,000, $26.57 per share, in 1997, 1996, and 1995,
respectively.
VALIC received capital contributions of $250,000 and $75,000 from AGL on
March 31, 1997 and December 30, 1996, respectively.
VALIC acquired from American General Life and Accident Insurance Company
bonds of various issuers at a cost of $22,154 and $25,892 on January 30, 1997
and April 8, 1997, respectively.
On December 5, 1997, VALIC acquired from Western National Life Insurance
Company bonds of various issuers at a cost of $129,715.
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 $30, $2,678, and $18,961, for the
years ended December 31, 1997, 1996, and 1995, respectively. The accrued
liability for anticipated assessments was $7,402, $13,661, and $20,249, at
December 31, 1997, 1996, and 1995, respectively. The 1997 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 continue annually no more than the maximum amount that can be
deducted for federal income tax purposes.
- --------------------------------------------------------------------------------
12
<PAGE> 273
THE VARIABLE ANNUITY LIFE INSURANCE COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
DECEMBER 31, 1997
10.1 PENSION PLANS - (CONTINUED)
The components of pension expense and underlying assumptions for the
defined benefit plan were as follows:
<TABLE>
<CAPTION>
1997 1996 1995
---------- ---------- ----------
<S> <C> <C> <C>
Service cost (benefits earned)
during period $ 1,045 $ 917 $ 601
Interest cost on projected
benefit obligation 1,034 843 635
Actual return on plan assets (2,734) (2,785) (1,249)
Amortization of unrecognized
net asset existing at date of
initial application -- (23) (72)
Amortization of unrecognized
prior service cost 45 44 44
Deferral of net asset gain 1,933 2,210 749
---------- ---------- ----------
Total pension expense $ 1,323 $ 1,206 $ 708
---------- ---------- ----------
Weighted-average discount rate
on benefit obligation 7.25% 7.50 % 7.25%
Rate of increase in
compensation levels 4.00% 4.00 % 4.00%
Expected long-term rate of
return on plan assets 10.00% 10.00 % 10.00%
---------- ---------- ----------
</TABLE>
The following table sets forth the funded status and amounts recognized in
the Consolidated Balance Sheet at December 31, 1997 and 1996 for VALIC's defined
benefit pension plan:
<TABLE>
<CAPTION>
1997 1996
----------- -----------
<S> <C> <C>
Actuarial present value of benefit obligation:
Vested $ 10,919 $ 8,265
Nonvested 1,485 1,251
----------- -----------
Accumulated benefit obligation 12,404 9,516
Effect of increase in compensation levels 3,340 2,474
----------- -----------
Projected benefit obligation 15,744 11,990
Plan assets at fair value 11,759 9,120
----------- -----------
Projected benefit obligation in excess of
plan assets (3,985) (2,870)
Unrecognized net gain 1,367 1,266
Unrecognized prior service cost 18 62
----------- -----------
Net pension liability $ (2,600) $ (1,542)
----------- -----------
</TABLE>
Equity and fixed maturity securities were 63% and 28%, 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 1997, 1996, and
1995 was $295, $282, and $228, respectively.
The plans' combined funded status and the accrued postretirement benefit
cost included in other liabilities at December 31 were as follows:
<TABLE>
<CAPTION>
1997 1996
--------- ---------
<S> <C> <C>
Actuarial present value of benefit obligations
Retirees $ 8 $ 21
Fully eligible active plan participants 151 103
Other active plan participants 2,082 1,479
--------- ---------
Accumulated postretirement
benefit obligations 2,241 1,603
Unrecognized net gain (452) (66)
Net funding (5) (17)
--------- ---------
Accrued benefit cost $ 1,784 $ 1,520
--------- ---------
Discount rate on postretirement
benefit obligations 7.25% 7.50%
--------- ---------
</TABLE>
11
- --------------------------------------------------------------------------------
IMPACT OF YEAR 2000 (UNAUDITED)
- --------------------------------------------------------------------------------
VALIC is in the process of modifying its computer systems to be Year 2000
compliant and expects to substantially complete this project during 1998. During
1997, VALIC incurred and expensed $6.0 million (pretax) related to this project.
VALIC estimates that it will incur future costs in excess of $9.3 million
(pretax) for additional internal staff, third-party vendors, and other expenses
to render its systems Year 2000 compliant.
The costs of the project and the date on which VALIC believes it will
complete the Year 2000 modifications are based on management's best estimates,
which were derived utilizing numerous assumptions of future events, including
the continued availability of certain resources and other factors. However,
there can be no guarantee that these estimates will be achieved and actual
results could differ materially from those anticipated. Specific factors that
might cause such material differences include, but are not limited to, the
availability and cost of personnel trained in this area, the ability to locate
and correct all relevant computer codes, and similar uncertainties.
- --------------------------------------------------------------------------------
<PAGE> 274
================================================================================
PRESIDENT'S LETTER 1
================================================================================
TO OUR PARTICIPANTS:
We are pleased to present the December 31, 1997, 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.
During 1997 equity markets produced returns well above those of 1996. The stock
market, as measured by the Standard & Poor's 500 Index (S&P 500(R)) had a total
return of 33.36%. The mid-sized companies followed closely, with the Standard &
Poor's MidCap 400 (MidCap 400) earning 32.24% and the Russell 2000(R) producing
22.36%.
The average mutual fund returns showed greater variability than that evidenced
by the broader averages. In the large capitalization area, growth and value were
rather close with one year returns of 26.45% and 26.60% respectively. However,
the mid-cap sector experienced wide variability with growth returning 15.53% and
value returning 26.80%. A somewhat similar experience occurred in the small-cap
arena where growth funds provided average returns of 14.42% while the value
sector returned 27.75%. The orientation of any specific fund was a major factor
in the performance differences.
The yield on the 30-year treasury bond opened the year at 6.64% and rose during
the spring on fears the strengthening economy would force the Federal Reserve
(Fed) to push up short-term rates. On March 25, the Fed raised the Fed Funds
rate 0.25%; subsequently on April 14, the 30-year T-bond yield hit 7.17%. Later
in April, as fears of further rate hikes subsided and inflation fell, yields
began to fall and bond prices rose.
The second half of the year, marked by low inflation and little fear of Fed
action, was a good period for the fixed-income investor. A strong dollar, aided
by the turmoil and uncertainty in Asia, encouraged investors to flee to the
safety of U.S. bonds.
The European markets were positive throughout the year as home market and cross
border mergers boosted returns and dollar-sensitive exporters had strong sales
and profits. Asian markets were decimated in the fourth quarter as a fearsome
currency, banking and debtor crisis started in Thailand and spread to most
Pacific Rim economies.
Throughout the developed world international bond prices rallied and yields
declined to thirty year lows. Inflation was minimal and most nations pursued
sound fiscal policy. The Asian crisis helped as investors bought high quality
government bonds as a safe haven asset allocation.
If you have any questions about your contract or this report, we would be happy
to hear from you.
Respectfully,
/s/ THOMAS L. WEST, JR.
Thomas L. West, Jr., President and CEO
The Variable Annuity Life Insurance Company
February 6, 1998
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.
<PAGE> 275
================================================================================
2 PRESIDENT'S LETTER
================================================================================
<TABLE>
<CAPTION>
ONE YEAR
TOTAL RETURNS
GROUP PORTFOLIO PORTFOLIO FOR YEAR ENDING
UNIT INDEPENDENCE DIRECTOR DIRECTOR DECEMBER 31,
PURCHASE IMPACT PLUS 1 2 ------------------
DIVISION DIVISION DIVISION DIVISION DIVISION 1997 1996
- -------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
INTERNATIONAL GROWTH
AGSPC International Equities Fund........... -- -- 11 11 -- 1.18% 5.75%
Putnam Global Growth Fund................... -- -- -- -- 28 12.20 15.37
Templeton Foreign Fund...................... -- -- -- -- 32 5.57 16.74
Templeton International Fund................ -- -- -- 20 -- 12.54 22.50
AGGRESSIVE GROWTH
AGSPC Science & Technology Fund............. -- -- -- 17 17 1.57 12.68
AGSPC Small Cap Index Fund.................. -- -- 14 14 -- 21.18 15.57
Dreyfus Small Cap Portfolio................. -- -- -- 18 -- 15.37 15.14
Putnam New Opportunities Fund............... -- -- -- -- 26 21.31 9.70
Putnam OTC & Emerging Growth Fund........... -- -- -- -- 27 9.08 3.53
GROWTH
AGSPC Growth Fund........................... -- -- -- 15 15 19.80 18.18
AGSPC MidCap Index Fund..................... -- 4 4 4 -- 30.45 17.61
American Century -
Twentieth Century Ultra Fund............. -- -- -- -- 31 21.74 12.43
Founders Growth Fund........................ -- -- -- -- 30 25.25 15.35
GROWTH & INCOME
AGSPC Growth & Income Fund.................. -- -- -- 16 -- 22.60 22.10
AGSPC Social Awareness Fund................. -- -- 12 12 12 32.52 22.75
AGSPC Stock Index Fund ..................... 10A, 10B 10D 10C 10C 10C 31.77 21.53
Neuberger&Berman Guardian Trust............. -- -- -- -- 29 16.66 16.54
Scudder Growth and Income Fund.............. -- -- -- -- 21 28.80 20.63
Vanguard/Windsor II......................... -- -- -- -- 24 30.70 22.56
BALANCED GROWTH - INTERNATIONAL
Templeton Asset Allocation Fund............. -- -- -- 19 -- 14.07 17.40
BALANCED GROWTH - DOMESTIC
AGSPC Asset Allocation Fund................. -- 5 5 5 -- 21.40 9.99
Vanguard/Wellington Fund.................... -- -- -- -- 25 21.65 14.69
CURRENT INCOME
AGSPC Intl Government Bond Fund............. -- -- 13 13 13 (5.79) 3.36
CURRENT INCOME & CAPITAL PRESERVATION
AGSPC Capital Conservation Fund............. -- 1 7 7 -- 7.49 0.75
AGSPC Government Securities Fund............ -- -- 8 8 -- 7.83 0.90
Vanguard Fixed Income Securities Fund -
Long-Term Corporate Portfolio............ -- -- -- -- 22 12.32 (0.72)
Vanguard Fixed Income Securities Fund -
Long-Term U. S. Treasury Portfolio....... -- -- -- -- 23 12.44 (3.08)
LIQUIDITY & CAPITAL PRESERVATION
AGSPC Money Market Fund..................... -- 2 6 6 6 4.13 3.97
</TABLE>
The total returns 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.
<PAGE> 276
================================================================================
FINANCIAL STATEMENTS 3
================================================================================
<TABLE>
<CAPTION>
STATEMENT OF NET ASSETS
December 31, 1997
ASSETS: ALL DIVISIONS
---------------
<S> <C>
Total investment in shares of mutual funds, at market
(cost $8,087,103,381) ........................................ $10,324,166,205
Balance due from VALIC general account .......................... 3,148,203
---------------
NET ASSETS ...................................................... $10,327,314,408
===============
CONTRACT OWNER RESERVES:
Reserves for redeemable annuity contracts
(Net of applicable contract loans-- partial
withdrawals with right of reinvestment) ............... $10,307,955,440
Reserves for annuity contracts on benefit ....................... 19,358,968
---------------
TOTAL CONTRACT OWNER RESERVES ................................... $10,327,314,408
===============
</TABLE>
<TABLE>
<CAPTION>
STATEMENT OF OPERATIONS
For the year ended December 31, 1997
INVESTMENT INCOME: ALL DIVISIONS
---------------
<S> <C>
Dividends from mutual funds ..................................... $ 121,206,942
---------------
EXPENSES:
Mortality and expense charges ................................... 92,522,835
Reimbursement of expenses (Note C) .............................. (2,073,989)
===============
Total expenses ......................................... 90,448,846
===============
NET INVESTMENT INCOME ........................................... 30,758,096
---------------
REALIZED AND UNREALIZED GAIN ON INVESTMENTS:
Net realized gain on investments ................................ 161,505,567
Capital gains distributions from mutual funds ................... 289,703,358
Net unrealized appreciation of investments during the year ...... 1,001,756,337
===============
Net realized and unrealized gain on investments ........ 1,452,965,262
===============
INCREASE IN NET ASSETS RESULTING FROM OPERATIONS ................ $ 1,483,723,358
===============
</TABLE>
<TABLE>
<CAPTION>
STATEMENTS OF CHANGES IN NET ASSETS ALL DIVISIONS
-------------------------------------
1997 1996
---------------- ----------------
<S> <C> <C>
OPERATIONS:
Net investment income .................................................................... $ 30,758,096 $ 31,159,663
Net realized gain on investments ......................................................... 161,505,567 96,618,063
Capital gains distributions from mutual funds ............................................ 289,703,358 175,625,286
Net unrealized appreciation of investments during the year ............................... 1,001,756,337 539,282,575
---------------- ----------------
Increase in net assets resulting from operations ................................ 1,483,723,358 842,685,587
================ ================
PRINCIPAL TRANSACTIONS:
Purchase payments ........................................................................ 1,798,552,034 1,307,543,093
Surrenders of accumulation units by terminations, withdrawals, and maintenance fees ...... (328,105,329) (210,060,345)
Annuity benefit payments ................................................................. (2,273,125) (1,897,648)
Amounts transferred from VALIC general account ........................................... 518,857,110 647,659,402
---------------- ----------------
Increase in net assets resulting from principal transactions .................... 1,987,030,690 1,743,244,502
---------------- ----------------
TOTAL INCREASE IN NET ASSETS ............................................................. 3,470,754,048 2,585,930,089
================ ================
NET ASSETS:
Beginning of year ........................................................................ 6,856,560,360 4,270,630,271
---------------- ----------------
End of year .............................................................................. $ 10,327,314,408 $ 6,856,560,360
================ ================
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS.
<PAGE> 277
================================================================================
4 FINANCIAL STATEMENTS
================================================================================
<TABLE>
<CAPTION>
AGSPC PUTNAM
INTERNATIONAL GLOBAL TEMPLETON TEMPLETON
STATEMENTS OF NET ASSETS EQUITIES GROWTH FOREIGN INTERNATIONAL
December 31, 1997 FUND FUND FUND FUND
DIVISION 11 DIVISION 28 DIVISION 32 DIVISION 20
------------- ------------- ------------- -------------
<S> <C> <C> <C> <C>
ASSETS:
Investment in shares of mutual funds, at market ............ $ 152,510,209 $ 58,836,553 $ 180,677,558 $ 731,342,182
Balance due (to) from VALIC general account ................ (509,427) (2,145) 174,443 (1,602,995)
------------- ------------- ------------- -------------
NET ASSETS ................................................. $ 152,000,782 $ 58,834,408 $ 180,852,001 $ 729,739,187
============= ============= ============= =============
CONTRACT OWNER RESERVES:
Reserves for redeemable annuity contracts (Net of applicable
contract loans -- partial withdrawals with
right of reinvestment) .................................. $ 151,837,305 $ 58,803,197 $ 180,817,115 $ 729,577,415
Reserves for annuity contracts on benefit .................. 163,477 31,211 34,886 161,772
------------- ------------- ------------- -------------
TOTAL CONTRACT OWNER RESERVES .............................. $ 152,000,782 $ 58,834,408 $ 180,852,001 $ 729,739,187
============= ============= ============= =============
</TABLE>
<TABLE>
<CAPTION>
AMERICAN CENTURY - AGSPC AGSPC
TWENTIETH FOUNDERS GROWTH & SOCIAL
STATEMENTS OF NET ASSETS CENTURY ULTRA GROWTH INCOME AWARENESS
December 31, 1997 FUND FUND FUND FUND
DIVISION 31 DIVISION 30 DIVISION 16 DIVISION 12
------------- ------------- ------------- -------------
<S> <C> <C> <C> <C>
ASSETS:
Investment in shares of mutual funds, at market ............ $ 123,498,148 $ 170,135,993 $ 256,933,935 $ 243,460,767
Balance due (to) from VALIC general account ................ 270,241 332,238 162,040 119,205
------------- ------------- ------------- -------------
NET ASSETS ................................................. $ 123,768,389 $ 170,468,231 $ 257,095,975 $ 243,579,972
============= ============= ============= =============
CONTRACT OWNER RESERVES:
Reserves for redeemable annuity contracts (Net of
applicable contract loans -- partial withdrawals
with right of reinvestment) ............................. $ 123,739,369 $ 170,431,273 $ 257,042,890 $ 243,534,821
Reserves for annuity contracts on benefit .................. 29,020 36,958 53,085 45,151
------------- ------------- ------------- -------------
TOTAL CONTRACT OWNER RESERVES .............................. $ 123,768,389 $ 170,468,231 $ 257,095,975 $ 243,579,972
============= ============= ============= =============
</TABLE>
<TABLE>
<CAPTION>
AGSPC AGSPC
STATEMENTS OF NET ASSETS TEMPLETON ASSET VANGUARD/ INTERNATIONAL
December 31, 1997 ASSET ALLOCATION ALLOCATION WELLINGTON GOVERNMENT
FUND FUND FUND BOND FUND
DIVISION 19 DIVISION 5 DIVISION 25 DIVISION 13
------------- ------------- ------------- -------------
<S> <C> <C> <C> <C>
ASSETS:
Investment in shares of mutual funds, at market ............ $ 316,804,111 $ 184,445,969 $ 155,754,286 $ 166,189,923
Balance due (to) from VALIC general account ................ 70,174 132,023 290,261 9,834
------------- ------------- ------------- -------------
NET ASSETS ................................................. $ 316,874,285 $ 184,577,992 $ 156,044,547 $ 166,199,757
============= ============= ============= =============
CONTRACT OWNER RESERVES:
Reserves for redeemable annuity contracts (Net of applicable
contract loans -- partial withdrawals with right of
reinvestment) ........................................... $ 316,576,446 $ 184,488,524 $ 156,028,597 $ 166,177,986
Reserves for annuity contracts on benefit .................. 297,839 89,468 15,950 21,771
------------- ------------- ------------- -------------
TOTAL CONTRACT OWNER RESERVES .............................. $ 316,874,285 $ 184,577,992 $ 156,044,547 $ 166,199,757
============= ============= ============= =============
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS.
<PAGE> 278
================================================================================
SEPARATE ACCOUNT A 5
================================================================================
<TABLE>
<CAPTION>
AGSPC AGSPC PUTNAM PUTNAM OTC & AGSPC
SCIENCE & SMALL CAP DREYFUS NEW EMERGING AGSPC MIDCAP
TECHNOLOGY INDEX SMALL CAP OPPORTUNITIES GROWTH GROWTH INDEX
FUND FUND PORTFOLIO FUND FUND FUND FUND
DIVISION 17 DIVISION 14 DIVISION 18 DIVISION 26 DIVISION 27 DIVISION 15 DIVISION 4
- -------------- -------------- -------------- -------------- -------------- -------------- --------------
<S> <C> <C> <C> <C> <C> <C>
$ 911,151,116 $ 230,728,350 $ 850,402,328 $ 164,603,317 $ 97,480,884 $ 941,261,746 $ 730,544,269
(1,489,662) (659,600) (578,020) 233,261 (24,754) 161,723 69,416
- -------------- -------------- -------------- -------------- -------------- -------------- --------------
$ 909,661,454 $ 230,068,750 $ 849,824,308 $ 164,836,578 $ 97,456,130 $ 941,423,469 $ 730,613,685
============== ============== ============== ============== ============== ============== ==============
$ 909,365,168 $ 229,944,880 $ 849,635,667 $ 164,825,889 $ 97,416,344 $ 941,014,035 $ 730,300,161
296,286 123,870 188,641 10,689 39,786 409,434 313,524
- -------------- -------------- -------------- -------------- -------------- -------------- --------------
$ 909,661,454 $ 230,068,750 $ 849,824,308 $ 164,836,578 $ 97,456,130 $ 941,423,469 $ 730,613,685
============== ============== ============== ============== ============== ============== ==============
</TABLE>
<TABLE>
<CAPTION>
NEUBERGER& SCUDDER
BERMAN GROWTH AND
AGSPC STOCK INDEX FUND GUARDIAN INCOME VANGUARD/
- ------------------------------------------------------------------------- TRUST FUND WINDSOR II
DIVISION 10A DIVISION 10B DIVISION 10C DIVISION 10D DIVISION 29 DIVISION 21 DIVISION 24
- -------------- -------------- -------------- -------------- -------------- -------------- --------------
<S> <C> <C> <C> <C> <C> <C>
$ 470,449,397 $ 36,956,225 $2,310,257,611 $ 49,705,360 $ 46,258,362 $ 135,121,244 $ 275,114,738
(666,014) (10,194) 69,889 (32,333) 48,461 263,157 282,461
- -------------- -------------- -------------- -------------- -------------- -------------- --------------
$ 469,783,383 $ 36,946,031 $2,310,327,500 $ 49,673,027 $ 46,306,823 $ 135,384,401 $ 275,397,199
============== ============== ============== ============== ============== ============== ==============
$ 456,754,846 $ 35,140,766 $2,308,562,536 $ 49,487,144 $ 46,292,017 $ 135,309,549 $ 275,307,672
13,028,537 1,805,265 1,764,964 185,883 14,806 74,852 89,527
- -------------- -------------- -------------- -------------- -------------- -------------- --------------
$ 469,783,383 $ 36,946,031 $2,310,327,500 $ 49,673,027 $ 46,306,823 $ 135,384,401 $ 275,397,199
============== ============== ============== ============== ============== ============== ==============
</TABLE>
<TABLE>
<CAPTION>
VANGUARD VANGUARD
AGSPC FIXED INCOME FIXED INCOME
GOVERNMENT SECURITIES FUND - SECURITIES FUND -
AGSPC CAPITAL CONSERVATION FUND SECURITIES L/T CORPORATE L/T U.S. TREASURY AGSPC MONEY MARKET FUND
- --------------------------------- FUND PORTFOLIO PORTFOLIO ---------------------------------
DIVISION 1 DIVISION 7 DIVISION 8 DIVISION 22 DIVISION 23 DIVISION 2 DIVISION 6
- -------------- -------------- -------------- -------------- -------------- -------------- --------------
<S> <C> <C> <C> <C> <C> <C>
$ 6,412,016 $ 55,381,861 $ 88,209,203 $ 20,418,430 $ 23,933,498 $ 4,526,778 $ 134,659,838
15,510 36,867 (41,915) 21,619 (295,284) 52,979 6,244,744
- -------------- -------------- -------------- -------------- -------------- -------------- --------------
$ 6,427,526 $ 55,418,728 $ 88,167,288 $ 20,440,049 $ 23,638,214 $ 4,579,757 $ 140,904,582
============== ============== ============== ============== ============== ============== ==============
$ 6,422,800 $ 55,418,728 $ 88,167,288 $ 20,440,049 $ 23,628,181 $ 4,579,757 $ 140,887,025
4,726 -- -- -- 10,033 -- 17,557
- -------------- -------------- -------------- -------------- -------------- -------------- --------------
$ 6,427,526 $ 55,418,728 $ 88,167,288 $ 20,440,049 $ 23,638,214 $ 4,579,757 $ 140,904,582
============== ============== ============== ============== ============== ============== ==============
</TABLE>
<PAGE> 279
================================================================================
6 FINANCIAL STATEMENTS
================================================================================
<TABLE>
<CAPTION>
AGSPC PUTNAM
STATEMENTS OF OPERATIONS INTERNATIONAL GLOBAL TEMPLETON TEMPLETON
For the year ended December 31, 1997 EQUITIES GROWTH FOREIGN INTERNATIONAL
FUND FUND FUND FUND
DIVISION 11 DIVISION 28 DIVISION 32 DIVISION 20
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
INVESTMENT INCOME:
Dividends from mutual funds ............................. $ 3,295,464 $ 1,207,561 $ 4,714,678 $ 15,319,152
------------ ------------ ------------ ------------
EXPENSES:
Mortality and expense risk charge ....................... 1,749,279 476,142 1,434,900 8,274,446
Reimbursement of expenses (Note C) ...................... -- (94,544) (286,433) --
------------ ------------ ------------ ------------
Total expenses ....................................... 1,749,279 381,598 1,148,467 8,274,446
------------ ------------ ------------ ------------
NET INVESTMENT INCOME (LOSS) ............................ 1,546,185 825,963 3,566,211 7,044,706
------------ ------------ ------------ ------------
REALIZED AND UNREALIZED GAIN
(LOSS) ON INVESTMENTS:
Net realized gain (loss) on investments ................. 8,844,811 172,968 180,290 24,143,886
Capital gains distributions from mutual funds ........... 4,593,062 9,300,593 12,359,374 6,157,699
Net unrealized appreciation (depreciation)
of investments during the year ....................... (11,693,489) (7,591,166) (16,286,999) 33,826,345
------------ ------------ ------------ ------------
Net realized and unrealized gain (loss) on investments .. 1,744,384 1,882,395 (3,747,335) 64,127,930
------------ ------------ ------------ ------------
INCREASE (DECREASE) IN NET ASSETS
RESULTING FROM OPERATIONS ............................ $ 3,290,569 $ 2,708,358 $ (181,124) $ 71,172,636
============ ============ ============ ============
</TABLE>
<TABLE>
<CAPTION>
AMERICAN CENTURY - AGSPC AGSPC
STATEMENTS OF OPERATIONS TWENTIETH FOUNDERS GROWTH & SOCIAL
For the year ended December 31, 1997 CENTURY ULTRA GROWTH INCOME AWARENESS
FUND FUND FUND FUND
DIVISION 31 DIVISION 30 DIVISION 16 DIVISION 12
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
INVESTMENT INCOME:
Dividends from mutual funds ............................. $ 46,196 $ 679,687 $ 1,001,521 $ 1,994,870
------------ ------------ ------------ ------------
EXPENSES:
Mortality and expense risk charge ....................... 807,995 1,135,755 2,207,637 1,713,350
Reimbursement of expenses (Note C) ...................... (128,556) (226,231) -- --
------------ ------------ ------------ ------------
Total expenses ....................................... 679,439 909,524 2,207,637 1,713,350
------------ ------------ ------------ ------------
NET INVESTMENT INCOME (LOSS) ............................ (633,243) (229,837) (1,206,116) 281,520
------------ ------------ ------------ ------------
REALIZED AND UNREALIZED GAIN
ON INVESTMENTS:
Net realized gain on investments ........................ 316,651 270,661 3,270,580 1,158,707
Capital gains distributions from mutual funds ........... 24,559,704 21,678,474 2,863,622 9,560,562
Net unrealized appreciation (depreciation)
of investments during the year ....................... (16,326,801) (6,466,051) 38,217,716 33,369,211
------------ ------------ ------------ ------------
Net realized and unrealized gain on investments ......... 8,549,554 15,483,084 44,351,918 44,088,480
------------ ------------ ------------ ------------
INCREASE IN NET ASSETS
RESULTING FROM OPERATIONS ............................ $ 7,916,311 $ 15,253,247 $ 43,145,802 $ 44,370,000
============ ============ ============ ============
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS.
<PAGE> 280
================================================================================
SEPARATE ACCOUNT A 7
================================================================================
<TABLE>
<CAPTION>
AGSPC AGSPC PUTNAM PUTNAM OTC & AGSPC
SCIENCE & SMALL CAP DREYFUS NEW EMERGING AGSPC MIDCAP
TECHNOLOGY INDEX SMALL CAP OPPORTUNITIES GROWTH GROWTH INDEX
FUND FUND PORTFOLIO FUND FUND FUND FUND
DIVISION 17 DIVISION 14 DIVISION 18 DIVISION 26 DIVISION 27 DIVISION 15 DIVISION 4
- ------------- ------------- ------------- ------------- ------------- ------------- -------------
<S> <C> <C> <C> <C> <C> <C>
$ -- $ 2,345,234 $ 905,477 $ -- $ -- $ 301,605 $ 6,916,070
- ------------- ------------- ------------- ------------- ------------- ------------- -------------
8,359,405 2,023,765 9,406,874 1,313,649 899,240 7,852,023 6,380,871
-- -- (624,143) (261,355) (179,227) -- --
- ------------- ------------- ------------- ------------- ------------- ------------- -------------
8,359,405 2,023,765 8,782,731 1,052,294 720,013 7,852,023 6,380,871
- ------------- ------------- ------------- ------------- ------------- ------------- -------------
(8,359,405) 321,469 (7,877,254) (1,052,294) (720,013) (7,550,418) 535,199
- ------------- ------------- ------------- ------------- ------------- ------------- -------------
27,202,326 7,403,801 10,514,976 242,887 (47,363) 6,207,654 19,471,600
-- 17,477,318 47,781,324 3,494,327 -- 15,041,175 39,891,431
(11,571,856) 13,195,192 56,534,602 18,445,868 8,912,297 132,575,644 109,426,279
- ------------- ------------- ------------- ------------- ------------- ------------- -------------
15,630,470 38,076,311 114,830,902 22,183,082 8,864,934 153,824,473 168,789,310
- ------------- ------------- ------------- ------------- ------------- ------------- -------------
$ 7,271,065 $ 38,397,780 $ 106,953,648 $ 21,130,788 $ 8,144,921 $ 146,274,055 $ 169,324,509
============= ============= ============= ============= ============= ============= =============
</TABLE>
<TABLE>
<CAPTION>
NEUBERGER & SCUDDER
BERMAN GROWTH AND
AGSPC STOCK INDEX FUND GUARDIAN INCOME VANGUARD/
- ----------------------------------------------------------------------- TRUST FUND WINDSOR II
DIVISION 10A DIVISION 10B DIVISION 10C DIVISION 10D DIVISION 29 DIVISION 21 DIVISION 24
- ------------- ------------- ------------- ------------- ------------- ------------- -------------
<S> <C> <C> <C> <C> <C> <C>
$ 6,376,307 $ 509,353 $ 28,785,179 $ 696,438 $ 163,304 $ 1,817,754 $ 4,925,455
- ------------- ------------- ------------- ------------- ------------- ------------- -------------
4,346,291 195,472 19,442,387 474,226 328,578 854,677 1,887,542
-- (85,996) -- -- (65,533) (121,971) --
- ------------- ------------- ------------- ------------- ------------- ------------- -------------
4,346,291 109,476 19,442,387 474,226 263,045 732,706 1,887,542
- ------------- ------------- ------------- ------------- ------------- ------------- -------------
2,030,016 399,877 9,342,792 222,212 (99,741) 1,085,048 3,037,913
- ------------- ------------- ------------- ------------- ------------- ------------- -------------
23,392,823 2,137,197 19,691,626 3,421,747 406,993 269,953 741,743
2,365,369 185,844 11,611,427 249,976 3,161,542 8,952,194 18,541,072
89,338,679 6,910,324 475,943,738 9,003,055 (1,574,737) 4,003,711 16,110,878
- ------------- ------------- ------------- ------------- ------------- ------------- -------------
115,096,871 9,233,365 507,246,791 12,674,778 1,993,798 13,225,858 35,393,693
- ------------- ------------- ------------- ------------- ------------- ------------- -------------
$ 117,126,887 $ 9,633,242 $ 516,589,583 $ 12,896,990 $ 1,894,057 $ 14,310,906 $ 38,431,606
============= ============= ============= ============= ============= ============= =============
</TABLE>
<PAGE> 281
================================================================================
8 FINANCIAL STATEMENTS
================================================================================
<TABLE>
<CAPTION>
AGSPC AGSPC
STATEMENTS OF OPERATIONS TEMPLETON ASSET VANGUARD/ INTERNATIONAL
For the year ended December 31, 1997 ASSET ALLOCATION ALLOCATION WELLINGTON GOVERNMENT
FUND FUND FUND BOND FUND
DIVISION 19 DIVISION 5 DIVISION 25 DIVISION 13
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
INVESTMENT INCOME:
Dividends from mutual funds ............................... $ 6,145,468 $ 5,564,660 $ 4,059,866 $ 6,334,867
------------ ------------ ------------ ------------
EXPENSES:
Mortality and expense risk charge ......................... 3,318,569 1,796,304 1,047,948 1,739,103
Reimbursement of expenses (Note C) ........................ -- -- -- --
------------ ------------ ------------ ------------
Total expenses ......................................... 3,318,569 1,796,304 1,047,948 1,739,103
------------ ------------ ------------ ------------
NET INVESTMENT INCOME ..................................... 2,826,899 3,768,356 3,011,918 4,595,764
------------ ------------ ------------ ------------
REALIZED AND UNREALIZED GAIN
(LOSS) ON INVESTMENTS:
Net realized gain (loss) on investments ................... 982,063 5,941,975 713,048 (3,911,328)
Capital gains distributions from mutual funds ............. 11,661,872 10,546,782 7,375,024 136,607
Net unrealized appreciation (depreciation)
of investments during the year ......................... 13,366,704 14,486,554 3,998,391 (11,068,351)
------------ ------------ ------------ ------------
Net realized and unrealized gain (loss) on investments .... 26,010,639 30,975,311 12,086,463 (14,843,072)
------------ ------------ ------------ ------------
INCREASE (DECREASE) IN NET ASSETS
RESULTING FROM OPERATIONS .............................. $ 28,837,538 $ 34,743,667 $ 15,098,381 $(10,247,308)
============ ============ ============ ============
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS.
<PAGE> 282
================================================================================
SEPARATE ACCOUNT A 9
================================================================================
<TABLE>
<CAPTION>
VANGUARD VANGUARD
AGSPC FIXED INCOME FIXED INCOME
GOVERNMENT SECURITIES FUND - SECURITIES FUND -
AGSPC CAPITAL CONSERVATION FUND SECURITIES L/T CORPORATE L/T U.S. TREASURY AGSPC MONEY MARKET FUND
- -------------------------------- FUND PORTFOLIO PORTFOLIO --------------------------------
DIVISION 1 DIVISION 7 DIVISION 8 DIVISION 22 DIVISION 23 DIVISION 2 DIVISION 6
- ------------- ------------- ------------- ------------- ------------- ------------- -------------
<S> <C> <C> <C> <C> <C> <C>
$ 408,376 $ 3,451,243 $ 5,076,640 $ 621,319 $ 708,134 $ 235,282 $ 6,599,782
- ------------- ------------- ------------- ------------- ------------- ------------- -------------
63,768 537,683 846,335 114,664 140,570 46,769 1,306,618
-- -- -- -- -- -- --
- ------------- ------------- ------------- ------------- ------------- ------------- -------------
63,768 537,683 846,335 114,664 140,570 46,769 1,306,618
- ------------- ------------- ------------- ------------- ------------- ------------- -------------
344,608 2,913,560 4,230,305 506,655 567,564 188,513 5,293,164
- ------------- ------------- ------------- ------------- ------------- ------------- -------------
23,005 (805,486) (985,278) 36,716 94,335 -- --
-- -- -- 156,984 -- -- --
90,579 1,739,391 3,130,717 643,127 1,066,785 -- --
- ------------- ------------- ------------- ------------- ------------- ------------- -------------
113,584 933,905 2,145,439 836,827 1,161,120 -- --
- ------------- ------------- ------------- ------------- ------------- ------------- -------------
$ 458,192 $ 3,847,465 $ 6,375,744 $ 1,343,482 $ 1,728,684 $ 188,513 $ 5,293,164
============= ============= ============= ============= ============= ============= =============
</TABLE>
<PAGE> 283
================================================================================
10 FINANCIAL STATEMENTS
================================================================================
STATEMENTS OF CHANGES IN NET ASSETS
<TABLE>
<CAPTION>
AGSPC
INTERNATIONAL EQUITIES
FUND PUTNAM GLOBAL GROWTH FUND
--------------------------------- ----------------------------------
DIVISION 11 DIVISION 28
--------------------------------- ----------------------------------
1997 1996 1997 1996*
------------- ------------- ------------- -------------
OPERATIONS:
<S> <C> <C> <C> <C>
Net investment income (loss) ...................... $ 1,546,185 $ 1,591,421 $ 825,963 $ 354,551
Net realized gain on investments .................. 8,844,811 10,405,298 172,968 1,237
Capital gains distributions from mutual funds ..... 4,593,062 6,021,502 9,300,593 765,977
Net unrealized appreciation (depreciation)
of investments during the year ................. (11,693,489) (6,663,813) (7,591,166) (504,554)
------------- ------------- ------------- -------------
Increase (decrease) in net assets resulting
from operations ............................ 3,290,569 11,354,408 2,708,358 617,211
------------- ------------- ------------- -------------
PRINCIPAL TRANSACTIONS:
Purchase payments ................................. 21,604,936 34,022,917 18,196,466 3,174,282
Surrenders of accumulation units by terminations,
withdrawals, and maintenance fees .............. (8,085,959) (8,616,063) (812,004) (15,952)
Annuity benefit payments .......................... (10,712) (13,432) (1,799) --
Amounts transferred interdivision, and (to) from
VALIC general account .......................... (56,024,580) (45,208,742) 21,134,329 13,833,517
------------- ------------- ------------- -------------
Increase (decrease) in net assets
resulting from principal transactions ...... (42,516,315) (19,815,320) 38,516,992 16,991,847
------------- ------------- ------------- -------------
TOTAL INCREASE (DECREASE) IN NET ASSETS ........... (39,225,746) (8,460,912) 41,225,350 17,609,058
NET ASSETS:
Beginning of year ................................. 191,226,528 199,687,440 17,609,058 --
------------- ------------- ------------- -------------
End of year ....................................... $ 152,000,782 $ 191,226,528 $ 58,834,408 $ 17,609,058
============= ============= ============= =============
CHANGE IN UNITS OUTSTANDING:
Accumulation units beginning of year .............. 156,226,314 172,564,018 16,648,600 --
Purchase payments ................................. 17,325,859 28,526,458 15,748,353 3,377,941
Surrenders ........................................ (6,456,410) (7,207,422) (675,628) (16,466)
Transfers -- interdivision and (to) from VALIC
general account ................................ (44,379,019) (37,656,740) 17,827,407 13,287,125
------------- ------------- ------------- -------------
Accumulation units end of year .................... 122,716,744 156,226,314 49,548,732 16,648,600
============= ============= ============= =============
<CAPTION>
DECEMBER 31: DECEMBER 31:
--------------------------------- ----------------------------------
1997 1996 1997 1996
------------- ------------- ------------- -------------
<S> <C> <C> <C> <C>
Accumulation unit value .......................... $ 1.237299 $ 1.222906 $ 1.186775 $ 1.057690
============= ============= ============= =============
Annuity unit value assuming a 3.5%
discount factor .................................. $ 0.931882 $ 0.953246 $ 1.127017 $ 1.039552
============= ============= ============= =============
</TABLE>
* For the period from July 1, 1996 to December 31, 1996.
SEE NOTES TO FINANCIAL STATEMENTS.
<PAGE> 284
================================================================================
SEPARATE ACCOUNT A 11
================================================================================
<TABLE>
<CAPTION>
AGSPC
AGSPC SMALL CAP
TEMPLETON FOREIGN FUND TEMPLETON INTERNATIONAL FUND SCIENCE & TECHNOLOGY FUND INDEX FUND
- ----------------------------- ------------------------------ ------------------------------ -----------------------------
DIVISION 32 DIVISION 20 DIVISION 17 DIVISION 14
- ----------------------------- ------------------------------ ------------------------------ -----------------------------
1997 1996* 1997 1996 1997 1996 1997 1996
- ------------- ------------- ------------- ------------- ------------- ------------- ------------- -------------
<S> <C> <C> <C> <C> <C> <C> <C>
$ 3,566,211 $ 482,633 $ 7,044,706 $ (394,601) $ (8,359,405) $ (5,521,307) $ 321,469 $ 637,395
180,290 125 24,143,886 3,551,468 27,202,326 20,659,560 7,403,801 4,544,601
12,359,374 285,587 6,157,699 1,324,253 -- 32,117,202 17,477,318 11,216,991
(16,286,999) 1,121,790 33,826,345 78,888,709 (11,571,856) 15,569,750 13,195,192 7,711,563
- ------------- ------------- ------------- ------------- ------------- ------------- ------------- -------------
(181,124) 1,890,135 71,172,636 83,369,829 7,271,065 62,825,205 38,397,780 24,110,550
- ------------- ------------- ------------- ------------- ------------- ------------- ------------- -------------
63,929,059 9,386,263 127,443,761 121,376,573 203,196,325 181,422,903 26,031,893 31,004,229
(2,231,179) (122,577) (21,498,080) (9,699,818) (27,661,660) (14,164,178) (8,101,115) (7,478,000)
(1,149) -- (6,675) (3,367) (17,353) (40,073) (6,381) (563)
79,881,321 28,301,252 22,603,734 84,599,243 15,908,913 105,706,951 (10,731,749) (15,148,966)
- ------------- ------------- ------------- ------------- ------------- ------------- ------------- -------------
141,578,052 37,564,938 128,542,740 196,272,631 191,426,225 272,925,603 7,192,648 8,376,700
- ------------- ------------- ------------- ------------- ------------- ------------- ------------- -------------
141,396,928 39,455,073 199,715,376 279,642,460 198,697,290 335,750,808 45,590,428 32,487,250
39,455,073 -- 530,023,811 250,381,351 710,964,164 375,213,356 184,478,322 151,991,072
- ------------- ------------- ------------- ------------- ------------- ------------- ------------- -------------
$ 180,852,001 $ 39,455,073 $ 729,739,187 $ 530,023,811 $ 909,661,454 $ 710,964,164 $ 230,068,750 $ 184,478,322
============= ============= ============= ============= ============= ============= ============= =============
36,671,828 -- 378,581,949 219,124,926 315,809,646 187,862,232 103,320,842 98,335,995
55,441,897 10,156,940 81,609,273 97,229,761 88,179,109 84,389,312 13,258,805 18,844,484
(1,875,284) (116,295) (13,712,830) (7,187,616) (11,448,429) (6,049,987) (4,191,154) (4,305,572)
68,962,666 26,631,183 16,695,958 69,414,878 5,302,633 49,608,089 (6,109,416) (9,554,065)
- ------------- ------------- ------------- ------------- ------------- ------------- ------------- -------------
159,201,107 36,671,828 463,174,350 378,581,949 397,842,959 315,809,646 106,279,077 103,320,842
============= ============= ============= ============= ============= ============= ============= =============
<CAPTION>
DECEMBER 31: DECEMBER 31: DECEMBER 31: DECEMBER 31:
- ----------------------------- ------------------------------ ------------------------------ -----------------------------
1997 1996 1997 1996 1997 1996 1997 1996
- ------------- ------------- ------------- ------------- ------------- ------------- ------------- -------------
<S> <C> <C> <C> <C> <C> <C> <C>
$ 1.135778 $ 1.075896 $ 1.575168 $ 1.399702 $ 2.285739 $ 2.250471 $ 2.163595 $ 1.785442
============= ============= ============= ============= ============= ============= ============= =============
$ 1.078588 $ 1.057446 $ 1.397849 $ 1.285567 $ 2.014348 $ 2.052612 $ 1.780625 $ 1.520786
============= ============= ============= ============= ============= ============= ============= =============
</TABLE>
<PAGE> 285
================================================================================
12 FINANCIAL STATEMENTS
================================================================================
STATEMENTS OF CHANGES IN NET ASSETS
<TABLE>
<CAPTION>
DREYFUS SMALL CAP PORTFOLIO PUTNAM NEW OPPORTUNITIES FUND
----------------------------- ------------------------------
DIVISION 18 DIVISION 26
----------------------------- ------------------------------
1997 1996 1997 1996*
------------- ------------- ------------- -------------
<S> <C> <C> <C> <C>
OPERATIONS:
Net investment income (loss) ...................................... $ (7,877,254) $ (5,324,689) $ (1,052,294) $ (91,811)
Net realized gain (loss) on investments ........................... 10,514,976 1,994,033 242,887 9,737
Capital gains distributions from mutual funds ..................... 47,781,324 19,221,026 3,494,327 333,297
Net unrealized appreciation (depreciation)
of investments during the year ................................. 56,534,602 56,124,110 18,445,868 (1,619,779)
------------- ------------- ------------- -------------
Increase (decrease) in net assets resulting from operations .. 106,953,648 72,014,480 21,130,788 (1,368,556)
------------- ------------- ------------- -------------
PRINCIPAL TRANSACTIONS:
Purchase payments ................................................. 152,268,343 168,538,535 51,769,269 11,510,093
Surrenders of accumulation units by terminations,
withdrawals, and maintenance fees .............................. (25,995,894) (13,795,343) (2,540,805) (87,148)
Annuity benefit payments .......................................... (13,079) (8,413) (61) --
Amounts transferred interdivision, and (to) from VALIC general
account ........................................................ (41,774,769) 74,732,906 44,254,408 40,168,590
------------- ------------- ------------- -------------
Increase (decrease) in net assets
resulting from principal transactions ...................... 84,484,601 229,467,685 93,482,811 51,591,535
------------- ------------- ------------- -------------
TOTAL INCREASE IN NET ASSETS ...................................... 191,438,249 301,482,165 114,613,599 50,222,979
NET ASSETS:
Beginning of year ................................................. 658,386,059 356,903,894 50,222,979 --
------------- ------------- ------------- -------------
End of year ....................................................... $ 849,824,308 $ 658,386,059 $ 164,836,578 $ 50,222,979
============= ============= ============= =============
CHANGE IN UNITS OUTSTANDING:
Accumulation units beginning of year .............................. 428,883,250 267,735,219 53,001,699 --
Purchase payments ................................................. 92,300,416 117,376,109 49,995,408 13,342,250
Surrenders ........................................................ (15,764,818) (8,756,141) (2,517,125) (87,502)
Transfers -- interdivision and (to) from VALIC general account .... (25,567,323) 52,528,063 42,915,084 39,746,951
------------- ------------- ------------- -------------
Accumulation units end of year .................................... 479,851,525 428,883,250 143,395,066 53,001,699
============= ============= ============= =============
<CAPTION>
DECEMBER 31: DECEMBER 31:
---------------------------- ------------------------------
1997 1996 1997 1996*
------------- ------------- ------------- -------------
<S> <C> <C> <C> <C>
Accumulation unit value .......................................... $ 1.770622 $ 1.534694 $ 1.149453 $ 0.947573
============= ============= ============= =============
Annuity unit value assuming a 3.5% discount factor ............... $ 1.571300 $ 1.409551 $ 1.091574 $ 0.931324
============= ============= ============= =============
</TABLE>
* For the period from July 1, 1996 to December 31, 1996.
SEE NOTES TO FINANCIAL STATEMENTS.
<PAGE> 286
================================================================================
SEPARATE ACCOUNT A 13
================================================================================
<TABLE>
<CAPTION>
PUTNAM OTC & EMERGING AGSPC AGSPC AMERICAN CENTURY -
GROWTH FUND GROWTH FUND MIDCAP INDEX FUND TWENTIETH CENTURY ULTRA FUND
- ------------------------------ ------------------------------ ------------------------------ ------------------------------
DIVISION 27 DIVISION 15 DIVISION 4 DIVISION 31
- ------------------------------ ------------------------------ ------------------------------ ------------------------------
1997 1996* 1997 1996 1997 1996 1997 1996*
- ------------------------------ ------------------------------ ------------------------------ ------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
$ (720,013) $ (87,360) $ (7,550,418) $ (2,278,501) $ 535,199 $ 1,513,296 $ (633,243) $ (37,059)
(47,363) 9,014 6,207,654 130,878 19,471,600 17,436,698 316,651 18,993
-- 2,846,114 15,041,175 11,891,551 39,891,431 33,690,174 24,559,704 884,238
8,912,297 (4,620,592) 132,575,644 58,161,783 109,426,279 33,029,566 (16,326,801) (659,907)
- ------------------------------ ------------------------------ ------------------------------ ------------------------------
8,144,921 (1,852,824) 146,274,055 67,905,711 169,324,509 85,669,734 7,916,311 206,265
- ------------------------------ ------------------------------ ------------------------------ ------------------------------
32,976,492 11,571,920 185,814,571 164,255,730 66,141,090 76,583,041 43,175,072 4,513,492
(1,887,137) (77,988) (24,997,689) (10,378,550) (24,993,718) (21,727,656) (1,444,132) (29,941)
(1,777) -- (18,116) (38,688) (20,499) (19,036) (950) --
14,456,676 34,125,847 (764,959) 172,227,639 (45,549,090) (55,201,966) 56,804,430 12,627,842
- ------------------------------ ------------------------------ ------------------------------ ------------------------------
45,544,254 45,619,779 160,033,807 326,066,131 (4,422,217) (365,617) 98,534,420 17,111,393
- ------------------------------ ------------------------------ ------------------------------ ------------------------------
53,689,175 43,766,955 306,307,862 393,971,842 164,902,292 85,304,117 106,450,731 17,317,658
43,766,955 -- 635,115,607 241,143,765 565,711,393 480,407,276 17,317,658 --
- ------------------------------ ------------------------------ ------------------------------ ------------------------------
$ 97,456,130 $ 43,766,955 $941,423,469 $635,115,607 $730,613,685 $565,711,393 $123,768,389 $ 17,317,658
============================== ============================== ============================== ==============================
48,902,828 -- 366,272,509 164,417,848 172,816,978 172,613,690 16,654,076 --
36,775,163 13,681,504 99,349,760 101,043,809 17,600,471 25,301,831 36,243,458 4,747,541
(2,370,530) (82,877) (12,033,793) (5,693,969) (6,688,206) (7,030,990) (1,152,164) (27,374)
16,477,580 35,304,201 (415,986) 106,504,821 (12,663,586) (18,067,553) 45,999,912 11,933,909
- ------------------------------ ------------------------------ ------------------------------ ------------------------------
99,785,041 48,902,828 453,172,490 366,272,509 171,065,657 172,816,978 97,745,282 16,654,076
============================== ============================== ============================== ==============================
<CAPTION>
DECEMBER 31: DECEMBER 31: DECEMBER 31: DECEMBER 31:
- ------------------------------ ------------------------------ ------------------------------ ------------------------------
1997 1996 1997 1996 1997 1996 1997 1996
- ------------------------------ ------------------------------ ------------------------------ ------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
$ 0.976262 $ 0.894978 $ 2.076503 $ 1.733324 $ 4.269122 $ 3.272588 $ 1.265937 $ 1.039845
- ------------------------------ ------------------------------ ------------------------------ ------------------------------
$ 0.927104 $ 0.879630 $ 1.829953 $ 1.580931 $ 2.577196 $ 2.044683 $ 1.202193 $ 1.022013
============================== ============================== ============================== ==============================
</TABLE>
<PAGE> 287
================================================================================
14 FINANCIAL STATEMENTS
================================================================================
STATEMENTS OF CHANGES IN NET ASSETS
<TABLE>
<CAPTION>
AGSPC
FOUNDERS GROWTH FUND GROWTH & INCOME FUND
------------------------------ ------------------------------
DIVISION 30 DIVISION 16
------------------------------ ------------------------------
1997 1996* 1997 1996
------------------------------ ------------------------------
<S> <C> <C> <C> <C>
OPERATIONS:
Net investment income (loss)................................... $ (229,837) $ (28,065) $ (1,206,116) $ (402,222)
Net realized gain on investments............................... 270,661 -- 3,270,580 483,596
Capital gains distributions from mutual funds.................. 21,678,474 2,106,129 2,863,622 3,131,642
Net unrealized appreciation (depreciation)
of investments during the year.............................. (6,466,051) (1,697,540) 38,217,716 19,205,904
------------------------------ ------------------------------
Increase in net assets resulting from operations.......... 15,253,247 380,524 43,145,802 22,418,920
------------------------------ ------------------------------
PRINCIPAL TRANSACTIONS:
Purchase payments.............................................. 54,770,398 8,595,522 44,825,180 41,180,652
Surrenders of accumulation units by terminations,
withdrawals, and maintenance fees........................... (1,863,811) (36,494) (8,344,519) (2,962,157)
Annuity benefit payments....................................... (66) -- (2,954) (1,598)
Amounts transferred (to) from VALIC general account............ 70,189,987 23,178,924 5,944,261 43,756,812
------------------------------ ------------------------------
Increase (decrease) in net assets
resulting from principal transactions................... 123,096,508 31,737,952 42,421,968 81,973,709
------------------------------ ------------------------------
TOTAL INCREASE IN NET ASSETS................................... 138,349,755 32,118,476 85,567,770 104,392,629
NET ASSETS:
Beginning of year.............................................. 32,118,476 -- 171,528,205 67,135,576
------------------------------ ------------------------------
End of year.................................................... $170,468,231 $ 32,118,476 $257,095,975 $171,528,205
============================== ==============================
CHANGE IN UNITS OUTSTANDING:
Accumulation units beginning of year........................... 31,197,464 -- 108,341,635 51,779,089
Purchase payments.............................................. 45,575,203 9,274,157 24,988,066 28,095,895
Surrenders..................................................... (1,491,261) (32,596) (4,697,640) (1,842,881)
Transfers - interdivision and (to) from VALIC general account.. 56,885,756 21,955,903 3,802,494 30,309,532
------------------------------ ------------------------------
Accumulation units end of year................................. 132,167,162 31,197,464 132,434,555 108,341,635
============================== ==============================
<CAPTION>
DECEMBER 31: DECEMBER 31:
------------------------------ ------------------------------
1997 1996 1997 1996
------------------------------ ------------------------------
<S> <C> <C> <C> <C>
Accumulation unit value........................................ $ 1.289513 $ 1.029522 $ 1.940905 $ 1.583056
------------------------------ ------------------------------
Annuity unit value assuming a 3.5% discount factor............. $ 1.224581 $ 1.011867 $ 1.710454 $ 1.443874
============================== ==============================
</TABLE>
* For the period from July 1, 1996 to December 31, 1996.
SEE NOTES TO FINANCIAL STATEMENTS.
<PAGE> 288
================================================================================
SEPARATE ACCOUNT A 15
================================================================================
<TABLE>
<CAPTION>
AGSPC
SOCIAL AWARENESS FUND AGSPC STOCK INDEX FUND
- ------------------------------ ---------------------------------------------------------------
DIVISION 12 DIVISION 10A DIVISION 10B
- ------------------------------ ------------------------------ ------------------------------
1997 1996 1997 1996 1997 1996
- ------------------------------ ------------------------------ ------------------------------
<S> <C> <C> <C> <C> <C>
$ 281,520 $ 546,469 $ 2,030,016 $ 3,186,584 $ 399,877 $ 462,074
1,158,707 778,115 23,392,823 12,767,086 2,137,197 2,085,848
9,560,562 10,715,745 2,365,369 2,739,498 185,844 222,372
33,369,211 4,483,540 89,338,679 51,675,655 6,910,324 3,182,195
- ------------------------------ ------------------------------ ------------------------------
44,370,000 16,523,869 117,126,887 70,368,823 9,633,242 5,952,489
- ------------------------------ ------------------------------ ------------------------------
44,746,508 18,543,307 3,670,819 4,265,439 231,218 501,306
(5,475,293) (3,798,307) (24,373,318) (22,309,652) (2,331,031) (2,364,484)
- - (1,717,390) (1,401,028) (285,785) (250,350)
55,022,728 13,547,350 (3,572,644) (13,443,730) (1,027,537) (1,406,730)
- ------------------------------ ------------------------------ ------------------------------
94,293,943 28,292,350 (25,992,533) (32,888,971) (3,413,135) (3,520,258)
- ------------------------------ ------------------------------ ------------------------------
138,663,943 44,816,219 91,134,354 37,479,852 6,220,107 2,432,231
104,916,029 60,099,810 378,649,029 341,169,177 30,725,924 28,293,693
- ------------------------------ ------------------------------ ------------------------------
$243,579,972 $104,916,029 $469,783,383 $378,649,029 $ 36,946,031 $ 30,725,924
============================== ============================== ==============================
46,574,016 32,750,120 27,379,389 29,995,363 1,380,401 1,560,525
16,505,152 9,143,695 226,321 323,038 9,647 26,729
(1,970,414) (1,827,332) (1,529,579) (1,822,126) (92,576) (123,291)
20,468,350 6,507,533 (240,198) (1,116,886) (40,498) (83,562)
- ------------------------------ ------------------------------ ------------------------------
81,577,104 46,574,016 25,835,933 27,379,389 1,256,974 1,380,401
============================== ============================== ==============================
<CAPTION>
DECEMBER 31: DECEMBER 31: DECEMBER 31:
- ------------------------------ ------------------------------ ------------------------------
1997 1996 1997 1996 1997 1996
- ------------------------------ ------------------------------ ------------------------------
<S> <C> <C> <C> <C> <C>
$ 2.985333 $ 2.252673 $ 17.679054 $ 13.413891 $ 27.956641 $ 21.070956
- ------------------------------ ------------------------------ ------------------------------
$ 2.248428 $ 1.755941 $ 4.932202 $ 3.873132 $ 6.632506 $ 5.173716
============================== ============================== ==============================
</TABLE>
<PAGE> 289
================================================================================
16 FINANCIAL STATEMENTS
================================================================================
STATEMENTS OF CHANGES IN NET ASSETS
<TABLE>
<CAPTION>
AGSPC Stock Index Fund
------------------------------------------------------------------
DIVISION 10C DIVISION 10D
--------------------------------- ------------------------------
1997 1996 1997 1996
--------------------------------- ------------------------------
<S> <C> <C> <C> <C>
OPERATIONS:
Net investment income (loss)................................... $ 9,342,792 $ 11,741,408 $ 222,212 $ 363,909
Net realized gain on investments............................... 19,691,626 10,129,542 3,421,747 2,391,364
Capital gains distributions from mutual funds.................. 11,611,427 11,061,404 249,976 307,213
Net unrealized appreciation (depreciation)
of investments during the year.............................. 475,943,738 222,475,966 9,003,055 4,964,983
--------------------------------- ------------------------------
Increase in net assets resulting from operations.......... 516,589,583 255,408,320 12,896,990 8,027,469
--------------------------------- ------------------------------
PRINCIPAL TRANSACTIONS:
Purchase payments.............................................. 264,734,800 210,185,191 789,193 1,004,698
Surrenders of accumulation units by terminations,
withdrawals, and maintenance fees........................... (73,944,144) (49,624,470) (2,598,402) (2,219,367)
Annuity benefit payments....................................... (120,896) (61,625) (13,201) (10,433)
Amounts transferred (to) from VALIC general account............ 72,721,787 47,055,243 (3,872,680) (5,536,446)
--------------------------------- ------------------------------
Increase (decrease) in net assets
resulting from principal transactions................... 263,391,547 207,554,339 (5,695,090) (6,761,548)
--------------------------------- ------------------------------
TOTAL INCREASE IN NET ASSETS................................... 779,981,130 462,962,659 7,201,900 1,265,921
NET ASSETS:
Beginning of year.............................................. 1,530,346,370 1,067,383,711 42,471,127 41,205,206
--------------------------------- ------------------------------
End of year.................................................... $2,310,327,500 $1,530,346,370 $ 49,673,027 $ 42,471,127
================================= ==============================
CHANGE IN UNITS OUTSTANDING:
Accumulation units beginning of year........................... 536,806,965 455,255,243 8,381,704 9,885,873
Purchase payments.............................................. 77,757,636 80,768,570 132,628 231,458
Surrenders..................................................... (20,920,257) (18,096,464) (430,026) (486,940)
Transfers - interdivision and (to) from VALIC general account.. 21,408,780 18,879,616 (645,769) (1,248,687)
--------------------------------- ------------------------------
Accumulation units end of year................................. 615,053,124 536,806,965 7,438,537 8,381,704
================================= ==============================
<CAPTION>
DECEMBER 31: DECEMBER 31:
--------------------------------- ------------------------------
1997 1996 1997 1996
--------------------------------- ------------------------------
<S> <C> <C> <C> <C>
Accumulation unit value........................................ $ 3.753436 $ 2.848437 $ 6.652806 $ 5.049088
--------------------------------- ------------------------------
Annuity unit value assuming a 3.5% discount factor............. $ 2.655080 $ 2.085358 $ 3.860513 $ 3.032347
================================= ==============================
</TABLE>
*For the period from July 1, 1996 to December 31, 1996.
SEE NOTES TO FINANCIAL STATEMENTS.
<PAGE> 290
================================================================================
SEPARATE ACCOUNT A 17
================================================================================
<TABLE>
<CAPTION>
NEUBERGER&BERMAN SCUDDER GROWTH AND
GUARDIAN TRUST INCOME FUND VANGUARD/WINDSOR II
- ------------------------------ -------------------------------- --------------------------------
DIVISION 29 DIVISION 21 DIVISION 24
- ------------------------------ -------------------------------- --------------------------------
1997 1996* 1997 1996* 1997 1996*
- ------------------------------ -------------------------------- --------------------------------
<S> <C> <C> <C> <C> <C>
$ (99,741) $ 15,594 $ 1,085,048 $ 120,254 $ 3,037,913 $ 488,057
406,993 10,864 269,953 22,419 741,743 11,774
3,161,542 128,127 8,952,194 607,596 18,541,072 1,554,790
(1,574,737) 348,451 4,003,711 84,718 16,110,878 (217,368)
- ------------------------------ -------------------------------- --------------------------------
1,894,057 503,036 14,310,906 834,987 38,431,606 1,837,253
- ------------------------------ -------------------------------- --------------------------------
14,861,097 2,108,685 37,754,331 4,643,308 82,698,118 10,178,409
(661,852) (21,439) (1,502,937) (23,004) (3,075,223) (103,527)
-- -- (2,106) -- (1,497) --
21,010,215 6,613,024 66,400,722 12,968,194 115,544,417 29,887,643
- ------------------------------ -------------------------------- --------------------------------
35,209,460 8,700,270 102,650,010 17,588,498 195,165,815 39,962,525
- ------------------------------ -------------------------------- --------------------------------
37,103,517 9,203,306 116,960,916 18,423,485 233,597,421 41,799,778
9,203,306 -- 18,423,485 -- 41,799,778 --
- ------------------------------ -------------------------------- --------------------------------
$ 46,306,823 $ 9,203,306 $ 135,384,401 $ 18,423,485 $ 275,397,199 $ 41,799,778
============================== ================================ ================================
8,211,592 -- 16,524,046 -- 37,292,761 --
11,711,541 2,109,025 28,874,922 4,726,075 63,199,633 10,359,662
(501,980) (19,267) (1,088,301) (21,254) (2,242,658) (91,924)
15,985,510 6,121,834 49,915,317 11,819,225 89,680,132 27,025,023
- ------------------------------ -------------------------------- --------------------------------
35,406,663 8,211,592 94,225,984 16,524,046 187,929,868 37,292,761
============================== ================================ ================================
<CAPTION>
DECEMBER 31: DECEMBER 31: DECEMBER 31:
- ------------------------------ -------------------------------- --------------------------------
1997 1996 1997 1996 1997 1996
- ------------------------------ -------------------------------- --------------------------------
<S> <C> <C> <C> <C> <C>
$ 1.307438 $ 1.120770 $ 1.436011 $ 1.114950 $ 1.464949 $ 1.120855
- ------------------------------ -------------------------------- --------------------------------
$ 1.241604 $ 1.101550 $ 1.363703 $ 1.095830 $ 1.391183 $ 1.101634
============================== ================================ ================================
<CAPTION>
TEMPLETON ASSET
ALLOCATION FUND
- --------------------------------
DIVISION 19
- --------------------------------
1997 1996
- --------------------------------
<S> <C>
$ 2,826,899 $ 1,458,222
982,063 430,651
11,661,872 2,566,073
13,366,704 19,843,521
- --------------------------------
28,837,538 24,298,467
- --------------------------------
61,278,823 46,026,342
(9,457,167) (3,839,217)
(19,742) (39,584)
41,633,946 33,529,527
- --------------------------------
93,435,860 75,677,068
- --------------------------------
122,273,398 99,975,535
194,600,887 94,625,352
- --------------------------------
$ 316,874,285 $ 194,600,887
================================
137,384,670 78,494,505
38,574,901 35,369,271
(5,822,716) (2,676,756)
26,014,091 26,197,650
- --------------------------------
196,150,946 137,384,670
================================
<CAPTION>
DECEMBER 31:
- --------------------------------
1997 1996
- --------------------------------
<C> <C>
$ 1.613943 $ 1.414844
- --------------------------------
$ 1.432259 $ 1.299474
================================
</TABLE>
<PAGE> 291
================================================================================
18 FINANCIAL STATEMENTS
================================================================================
STATEMENTS OF CHANGES IN NET ASSETS
<TABLE>
<CAPTION>
AGSPC
ASSET ALLOCATION
FUND VANGUARD/WELLINGTON FUND
-------------------------------- --------------------------------
DIVISION 5 DIVISION 25
-------------------------------- --------------------------------
1997 1996 1997 1996*
-------------------------------- --------------------------------
<S> <C> <C> <C> <C>
OPERATIONS:
Net investment income.................................... $ 3,768,356 $ 4,134,407 $ 3,011,918 $ 326,600
Net realized gain (loss) on investments.................. 5,941,975 7,668,485 713,048 --
Capital gains distributions from mutual funds............ 10,546,782 18,741,770 7,375,024 818,129
Net unrealized appreciation (depreciation)
of investments during the year........................ 14,486,554 (13,565,417) 3,998,391 (444,072)
-------------------------------- --------------------------------
Increase (decrease) in net assets resulting
from operations.................................. 34,743,667 16,979,245 15,098,381 700,657
-------------------------------- --------------------------------
PRINCIPAL TRANSACTIONS:
Purchase payments........................................ 11,497,764 15,126,160 51,882,204 7,042,246
Surrenders of accumulation units by terminations,
withdrawals, and maintenance fees..................... (10,611,952) (11,037,733) (2,456,686) (12,075)
Annuity benefit payments................................. (8,301) (7,329) (68) --
Amounts transferred (to) from VALIC general account...... (24,272,661) (30,784,573) 66,331,198 17,458,690
-------------------------------- --------------------------------
Increase (decrease) in net assets
resulting from principal transactions............. (23,395,150) (26,703,475) 115,756,648 24,488,861
-------------------------------- --------------------------------
TOTAL INCREASE (DECREASE) IN NET ASSETS.................. 11,348,517 (9,724,230) 130,855,029 25,189,518
NET ASSETS:
Beginning of year........................................ 173,229,475 182,953,705 25,189,518 --
-------------------------------- --------------------------------
End of year.............................................. $ 184,577,992 $ 173,229,475 $ 156,044,547 $ 25,189,518
================================ ================================
CHANGE IN UNITS OUTSTANDING:
Accumulation units beginning of year..................... 65,292,617 75,851,431 22,866,634 --
Purchase payments........................................ 3,898,053 6,003,535 42,072,769 7,335,077
Surrenders............................................... (3,591,047) (4,376,494) (1,913,812) (12,748)
Transfers - interdivision and (to) from VALIC
general account....................................... (8,292,272) (12,185,855) 53,404,190 15,544,305
-------------------------------- --------------------------------
Accumulation units end of year........................... 57,307,351 65,292,617 116,429,781 22,866,634
================================ ================================
<CAPTION>
DECEMBER 31: DECEMBER 31:
-------------------------------- --------------------------------
1997 1996 1997 1996
-------------------------------- --------------------------------
<S> <C> <C> <C> <C>
Accumulation unit value.................................. $ 3.219282 $ 2.651899 $ 1.340109 $ 1.101584
-------------------------------- --------------------------------
Annuity unit value assuming a 3.5% discount factor....... $ 1.971210 $ 1.680570 $ 1.272630 $ 1.082693
================================ ================================
</TABLE>
* For the period from July 1, 1996 to December 31, 1996.
SEE NOTES TO FINANCIAL STATEMENTS.
<PAGE> 292
================================================================================
SEPARATE ACCOUNT A 19
================================================================================
<TABLE>
<CAPTION>
AGSPC AGSPC
INTERNATIONAL GOVERNMENT AGSPC GOVERNMENT SECURITIES
BOND FUND CAPITAL CONSERVATION FUND FUND
- -------------------------------- ------------------------------------------------------------- ------------------------------
DIVISION 13 DIVISION 1 DIVISION 7 DIVISION 8
- -------------------------------- ---------------------------- ------------------------------ ------------------------------
1997 1996 1997 1996 1997 1996 1997 1996
- -------------------------------- ---------------------------- ------------------------------ ------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
$ 4,595,764 $ 6,561,676 $ 344,608 $ 385,044 $ 2,913,560 $ 3,053,956 $ 4,230,305 $ 4,076,937
(3,911,328) 1,815,703 23,005 60,355 (805,486) (425,696) (985,278) (378,294)
136,607 295,588 -- -- -- -- -- --
(11,068,351) (2,362,017) 90,579 (428,426) 1,739,391 (2,170,354) 3,130,717 (2,658,037)
- -------------------------------- ---------------------------- ------------------------------ ------------------------------
(10,247,308) 6,310,950 458,192 16,973 3,847,465 457,906 6,375,744 1,040,606
- -------------------------------- ---------------------------- ------------------------------ ------------------------------
40,582,861 48,300,297 366,816 280,092 7,324,860 10,990,401 12,424,460 18,451,360
(6,757,210) (4,925,561) (389,473) (624,478) (3,026,469) (2,515,394) (3,958,609) (3,354,710)
(274) (33) (526) (512) -- -- -- --
(35,550,483) 16,174,338 (509,353) (953,654) (8,016,607) (7,231,500) (12,246,246) (2,269,092)
- -------------------------------- ---------------------------- ------------------------------ ------------------------------
(1,725,106) 59,549,041 (532,536) (1,298,552) (3,718,216) 1,243,507 (3,780,395) 12,827,558
- -------------------------------- ---------------------------- ------------------------------ ------------------------------
(11,972,414) 65,859,991 (74,344) (1,281,579) 129,249 1,701,413 2,595,349 13,868,164
178,172,171 112,312,180 6,501,870 7,783,449 55,289,479 53,588,066 85,571,939 71,703,775
- -------------------------------- ---------------------------- ------------------------------ ------------------------------
$ 166,199,757 $ 178,172,171 $ 6,427,526 $ 6,501,870 $ 55,418,728 $ 55,289,479 $ 88,167,288 $ 85,571,939
================================ ============================ ============================== ==============================
112,601,593 73,369,250 1,991,536 2,402,085 30,286,494 29,573,808 47,130,169 39,847,053
27,009,353 31,815,367 109,285 87,169 3,840,755 6,098,740 6,646,726 10,391,393
(4,696,042) (3,112,236) (116,952) (196,821) (1,555,673) (1,343,357) (2,143,349) (1,871,516)
(23,434,313) 10,529,212 (151,908) (300,897) (4,328,978) (4,042,697) (6,598,652) (1,236,761)
- -------------------------------- ---------------------------- ------------------------------ ------------------------------
111,480,591 112,601,593 1,831,961 1,991,536 28,242,598 30,286,494 45,034,894 47,130,169
================================ ============================ ============================== ==============================
</TABLE>
<TABLE>
<CAPTION>
DECEMBER 31: DECEMBER 31: DECEMBER 31: DECEMBER 31:
- -------------------------------- ---------------------------- ------------------------------ ------------------------------
1997 1996 1997 1996 1997 1996 1997 1996
- -------------------------------- ---------------------------- ------------------------------ ------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
$ 1.490645 $ 1.582230 $ 3.505970 $ 3.262402 $ 1.962239 $ 1.825549 $ 1.957755 $ 1.815651
- -------------------------------- ---------------------------- ------------------------------ ------------------------------
$ 1.203136 $ 1.321708 $ 1.863379 $ 1.794552 $ 1.303657 $ 1.255251 $ 1.300676 $ 1.248443
================================ ============================ ============================== ==============================
</TABLE>
<PAGE> 293
================================================================================
20 FINANCIAL STATEMENTS
================================================================================
STATEMENTS OF CHANGES IN NET ASSETS
<TABLE>
<CAPTION>
VANGUARD FIXED INCOME VANGUARD FIXED INCOME
SECURITIES FUND - L/T SECURITIES FUND - L/T
CORPORATE PORTFOLIO U.S. TREASURY PORTFOLIO
------------------------------ ----------------------------
DIVISION 22 DIVISION 23
------------------------------ ----------------------------
1997 1996* 1997 1996*
------------------------------ ----------------------------
<S> <C> <C> <C> <C>
OPERATIONS:
Net investment income.......................................... $ 506,655 $ 36,167 $ 567,564 $ 46,282
Net realized gain on investments............................... 36,716 2,260 94,335 2,349
Capital gains distributions from mutual funds.................. 156,984 31,298 -- --
Net unrealized appreciation (depreciation)
of investments during the year.............................. 643,127 (11,407) 1,066,785 33,654
------------------------------ ----------------------------
Increase in net assets resulting from operations.......... 1,343,482 58,318 1,728,684 82,285
------------------------------ ----------------------------
PRINCIPAL TRANSACTIONS:
Purchase payments.............................................. 6,013,744 1,030,635 6,985,216 1,117,289
Surrenders of accumulation units by terminations,
withdrawals, and maintenance fees........................... (167,812) (3,212) (265,787) (9,447)
Annuity benefit payments....................................... -- -- (176) --
Amounts transferred (to) from VALIC general account............ 9,719,778 2,445,116 10,813,576 3,186,574
------------------------------ ----------------------------
Increase (decrease) in net assets
resulting from principal transactions................... 15,565,710 3,472,539 17,532,829 4,294,416
------------------------------ ----------------------------
TOTAL INCREASE (DECREASE) IN NET ASSETS........................ 16,909,192 3,530,857 19,261,513 4,376,701
NET ASSETS:
Beginning of year.............................................. 3,530,857 -- 4,376,701 --
------------------------------ ----------------------------
End of year.................................................... $ 20,440,049 $ 3,530,857 $ 23,638,214 $ 4,376,701
============================== ============================
CHANGE IN UNITS OUTSTANDING:
Accumulation units beginning of year........................... 3,370,441 -- 4,174,369 --
Purchase payments.............................................. 5,633,849 1,099,573 6,619,458 1,138,211
Surrenders..................................................... (151,626) (3,347) (227,789) (9,203)
Transfers - interdivision and (to) from VALIC general account.. 8,518,743 2,274,215 9,475,882 3,045,361
------------------------------ ----------------------------
Accumulation units end of year................................. 17,371,407 3,370,441 20,041,920 4,174,369
============================== ============================
<CAPTION>
DECEMBER 31: DECEMBER 31:
------------------------------ ----------------------------
1997 1996 1997 1996
------------------------------ ----------------------------
<S> <C> <C> <C> <C>
Accumulation unit value........................................ $ 1.176649 $ 1.047595 $ 1.178938 $ 1.048470
------------------------------ ----------------------------
Annuity unit value assuming a 3.5% discount factor............. $ 1.117400 $ 1.029630 $ 1.119575 $ 1.030490
============================== ============================
</TABLE>
* For the period from July 1, 1996 to December 31, 1996.
SEE NOTES TO FINANCIAL STATEMENTS.
<PAGE> 294
================================================================================
SEPARATE ACCOUNT A 21
================================================================================
<TABLE>
<CAPTION>
AGSPC
MONEY MARKET FUND
- ------------------------------------------------------------
DIVISION 2 DIVISION 6
- ---------------------------- ----------------------------
1997 1996 1997 1996
- ---------------------------- ----------------------------
<S> <C> <C> <C>
$ 188,513 $ 216,537 $ 5,293,164 $ 3,525,805
-- -- -- --
-- -- -- --
-- -- -- --
- ---------------------------- ----------------------------
188,513 216,537 5,293,164 3,525,805
- ---------------------------- ----------------------------
123,738 163,293 58,442,609 40,448,483
(277,223) (465,203) (16,317,039) (13,617,200)
-- -- (1,592) (1,584)
(334,772) (1,426,148) (27,271,186) 10,145,727
- ---------------------------- ----------------------------
(488,257) (1,728,058) 14,852,792 36,975,426
- ---------------------------- ----------------------------
(299,744) (1,511,521) 20,145,956 40,501,231
4,879,501 6,391,022 120,758,626 80,257,395
- ---------------------------- ----------------------------
$ 4,579,757 $ 4,879,501 $ 140,904,582 $120,758,626
============================ ============================
2,142,534 2,917,361 75,124,095 51,907,757
53,405 73,255 35,256,772 25,572,924
(119,264) (208,252) (10,205,685) (8,565,366)
(145,236) (639,830) (15,992,661) 6,208,780
- ---------------------------- ----------------------------
1,931,439 2,142,534 84,182,521 75,124,095
============================ ============================
<CAPTION>
DECEMBER 31: DECEMBER 31:
- ---------------------------- ----------------------------
1997 1996 1997 1996
- ---------------------------- ----------------------------
<S> <C> <C> <C>
$ 2.371163 $ 2.277444 $ 1.673590 $ 1.607212
- ---------------------------- ----------------------------
$ 1.407542 $ 1.399179 $ 1.099730 $ 1.093041
============================ ============================
</TABLE>
<PAGE> 295
================================================================================
22 NOTES TO FINANCIAL STATEMENTS
================================================================================
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 Asset Allocation Fund (formerly 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)
American Century - 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 assumed investment rates between 3.0% and 6.0%,
as regulated by the applicable state laws.
<PAGE> 296
================================================================================
SEPARATE ACCOUNT A 23
================================================================================
NOTE C -- TRANSACTIONS WITH AFFILIATES
VALIC serves as investment adviser, transfer agent, and accounting services
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 21, 26 through 30 and
Division 32, 0.25%; for Division 31, 0.20% (effective December 8, 1997 the
expense reduction for Division 31 became 0.20% on the first $75,000,000, and
0.25% on the excess over $75,000,000); for Division 18, 0.15% (commencing
July 1, 1997).
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, 1997 and December 31, 1996, VALIC reduced expenses of
Division 10B by $85,996 and $73,695, 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 $4,510,903 and $3,625,368 for the years ended December
31, 1997, and December 31, 1996, respectively.
VALIC received surrender charges of $2,769,370 and $1,998,356 for the years
ended December 31, 1997 and December 31, 1996, respectively. In addition, VALIC
received $63,727 and $7,426 for the year ended December 31, 1997, in sales load
on variable annuity purchase payments for Divisions 10A and 10B, respectively.
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.
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, 1997:
<TABLE>
<CAPTION>
UNREALIZED
MARKET APPRECIATION
UNDERLYING FUND DIVISION SHARES PRICE MARKET COST (DEPRECIATION)
- ----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
AGSPC International Equities Fund........ 11 14,442,247 $ 10.56 $ 152,510,209 $ 159,616,851 (7,106,642)
Putnam Global Growth Fund................ 28 5,907,316 9.96 58,836,553 66,932,273 (8,095,720)
Templeton Foreign Fund................... 32 18,158,539 9.95 180,677,558 195,842,767 (15,165,209)
Templeton International Fund............. 20 36,240,937 20.18 731,342,182 597,457,072 133,885,110
AGSPC Science & Technology Fund.......... 17 45,443,952 20.05 911,151,116 863,149,718 48,001,398
AGSPC Small Cap Index Fund............... 14 13,430,059 17.18 230,728,350 186,936,772 43,791,578
Dreyfus Small Cap Portfolio.............. 18 14,882,781 57.14 850,402,328 690,666,534 159,735,794
Putnam New Opportunities Fund............ 26 3,383,421 48.65 164,603,317 147,777,228 16,826,089
Putnam OTC & Emerging Growth Fund........ 27 6,050,956 16.11 97,480,884 93,189,180 4,291,704
AGSPC Growth Fund........................ 15 46,551,005 20.22 941,261,746 711,090,283 230,171,463
AGSPC MidCap Index Fund.................. 4 31,073,774 23.51 730,544,269 505,009,548 225,534,721
American Century - Twentieth Century
Ultra Fund............................ 31 4,523,746 27.30 123,498,148 140,484,856 (16,986,708)
Founders Growth Fund..................... 30 9,845,834 17.28 170,135,993 178,299,584 (8,163,591)
AGSPC Growth & Income Fund............... 16 13,572,839 18.93 256,933,935 190,630,650 66,303,285
AGSPC Social Awareness Fund.............. 12 12,327,131 19.75 243,460,767 197,838,989 45,621,778
AGSPC Stock Index Fund................... 10A,B,C,D 96,544,410 29.70 2,867,368,593 1,632,114,793 1,235,253,800
Neuberger&Berman Guardian Trust.......... 29 2,673,859 17.30 46,258,362 47,484,648 (1,226,286)
Scudder Growth and Income Fund........... 21 4,944,060 27.33 135,121,244 131,032,815 4,088,429
Vanguard/Windsor II...................... 24 9,612,687 28.62 275,114,738 259,221,228 15,893,510
Templeton Asset Allocation Fund.......... 19 14,174,679 22.35 316,804,111 272,387,404 44,416,707
AGSPC Asset Allocation Fund.............. 5 14,166,349 13.02 184,445,969 161,483,128 22,962,841
Vanguard/Wellington Fund................. 25 5,288,776 29.45 155,754,286 152,199,967 3,554,319
AGSPC Intl Government Bond Fund.......... 13 14,931,704 11.13 166,189,923 177,006,856 (10,816,933)
AGSPC Capital Conservation Fund.......... 1 & 7 6,430,166 9.61 61,793,877 60,854,930 938,947
AGSPC Government Securities Fund......... 8 8,785,778 10.04 88,209,203 86,589,002 1,620,201
Vanguard Fixed Income Securities Fund:
Long-Term Corporate Portfolio......... 22 2,205,013 9.26 20,418,430 19,786,709 631,721
Long-Term U.S. Treasury Portfolio .... 23 2,249,389 10.64 23,933,498 22,833,059 1,100,439
AGSPC Money Market Fund.................. 2 & 6 139,186,616 1.00 139,186,616 139,186,616 -
10,324,166,205 8,087,103,460 2,237,062,745
</TABLE>
<PAGE> 297
================================================================================
24 NOTES TO FINANCIAL STATEMENTS - continued
================================================================================
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, 1997, the aggregate cost of purchases and
proceeds from sales of investments were:
<TABLE>
<CAPTION>
PURCHASES SALES
---------------------------------
<S> <C> <C>
AGSPC International Equities Fund Division 11 ................ $ 86,790,464 $ 122,541,754
Putnam Global Growth Fund Division 28 ........................ 50,459,460 1,699,287
Templeton Foreign Fund Division 32 ........................... 160,310,836 2,593,318
Templeton International Fund Division 20 ..................... 218,671,212 74,944,745
AGSPC Science & Technology Fund Division 17 .................. 258,533,591 72,590,864
AGSPC Small Cap Index Fund Division 14 ....................... 52,449,672 26,841,519
Dreyfus Small Cap Portfolio Division 18 ...................... 157,428,080 31,479,333
Putnam New Opportunities Fund Division 26 .................... 98,274,415 2,172,704
Putnam OTC & Emerging Growth Fund Division 27 ................ 49,539,022 4,465,936
AGSPC Growth Fund Division 15 ................................ 181,937,002 13,277,956
AGSPC MidCap Index Fund Division 4 ........................... 85,646,062 49,680,500
American Century - Twentieth Century Ultra Fund Division 31 .. 123,895,156 1,646,296
Founders Growth Fund Division 30 ............................. 146,266,635 1,807,870
AGSPC Growth & Income Fund Division 16 ....................... 51,440,343 7,278,659
AGSPC Social Awareness Fund Division 12 ...................... 107,158,295 2,998,054
AGSPC Stock Index Fund:
Division 10A .............................................. 21,747,453 42,886,487
Division 10B .............................................. 1,302,470 4,114,905
Division 10C .............................................. 322,262,616 37,384,769
Division 10D .............................................. 2,169,786 7,370,870
Neuberger&Berman Guardian Trust Division 29 .................. 40,109,321 1,827,836
Scudder Growth and Income Fund Division 21 ................... 113,908,912 1,386,588
Vanguard/Windsor II Division 24 .............................. 219,813,022 2,987,200
Templeton Asset Allocation Fund Division 19 .................. 112,031,546 3,848,099
AGSPC Asset Allocation Fund Division 5 ....................... 19,398,830 28,526,541
Vanguard/Wellington Fund Division 25 ......................... 132,887,405 6,870,260
AGSPC International Government Bond Fund Division 13 ......... 54,824,769 51,676,974
AGSPC Capital Conservation Fund:
Division 1 ................................................ 696,514 886,751
Division 7 ................................................ 10,599,204 11,407,082
AGSPC Government Securities Fund Division 8 .................. 14,228,467 13,735,066
Vanguard Fixed Income Securities Fund:
Long-Term Corporate Portfolio Division 22 ................. 17,995,829 1,785,593
Long-Term U.S. Treasury Portfolio Division 23 ............. 20,859,345 2,676,268
AGSPC Money Market Fund:
Division 2 ................................................ 2,451,062 2,794,492
Division 6 ................................................ 315,474,364 301,193,083
---------------------------------
Total .................................................. $3,251,561,160 $ 939,377,659
=================================
</TABLE>
NOTE G -- YEAR 2000 (UNAUDITED)
VALIC is in the process of modifying its information technology to be ready
for the year 2000. VALIC expects the project to be substantially complete by
late 1998. All costs associated with required modifications will be paid for by
VALIC.
<PAGE> 298
================================================================================
REPORT OF INDEPENDENT AUDITORS 25
================================================================================
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, 1997. 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 have audited the statements of changes in
net assets for the year ended December 31, 1997 and 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, 1997, 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, 1997, 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
February 6, 1998
<PAGE> 299
THE VARIABLE ANNUITY LIFE INSURANCE COMPANY
UNITS OF INTEREST UNDER GROUP AND INDIVIDUAL
VARIABLE ANNUITY CONTRACTS
PORTFOLIO DIRECTOR
SEPARATE ACCOUNT A May 1, 1998
PROSPECTUS
The Portfolio Director Contract consists of group and individual variable
annuity contracts ("Portfolio Director") that are offered by The Variable
Annuity Life Insurance Company to Participants in certain employer sponsored
retirement plans. Portfolio Director may be available to you when you
participate in a retirement program that qualifies for deferral of federal
income taxes. Non-qualified contracts are also available. Portfolio Director is
composed of the following contract forms: UIT-194, UITG-194, UITN-194, UIT-
IRA-194 and UIT-SEP-194.
Portfolio Director permits you to invest in and receive retirement benefits from
Fixed Account Options and/or Variable Account Options. Each of these investment
options is explained more fully in this prospectus. Here is a list of these
investment options:
TWO FIXED ACCOUNT OPTIONS:
Fixed Account Plus
Short-Term Fixed Account
SIXTEEN VARIABLE ACCOUNT OPTIONS
(through a variety of mutual funds):
American General Series Portfolio Company (AGSPC):
<TABLE>
<S> <C> <C>
Asset Allocation Fund MidCap Index Fund Dreyfus Variable Investment Fund:
Capital Conservation Fund Money Market Fund Dreyfus Small Cap Portfolio
Government Securities Fund Science & Technology Fund
Growth Fund Small Cap Index Fund Templeton Variable Products
Growth & Income Fund Social Awareness Fund Series Fund:
International Equities Fund Stock Index Fund Templeton Asset Allocation Fund: Class 1
International Government Bond Fund Templeton International Fund: Class 1
</TABLE>
This prospectus provides you with information you should know before investing
in Portfolio Director. This prospectus is accompanied by the current
prospectuses for the mutual fund options listed above. Please read and retain
each of these prospectuses for future reference.
A Statement of Additional Information, dated May 1, 1998, has been filed with
the Securities and Exchange Commission. This Statement of Additional Information
contains additional information about Portfolio Director and is part of this
prospectus. For a free copy, complete and return the form contained in the back
of this prospectus or call 1-800-44-VALIC.
NO PERSON HAS BEEN AUTHORIZED TO GIVE ANY INFORMATION OR TO MAKE ANY
REPRESENTATIONS OTHER THAN THOSE CONTAINED IN THIS PROSPECTUS IN CONNECTION WITH
THE OFFER CONTAINED IN THIS PROSPECTUS, AND IF GIVEN OR MADE, SUCH INFORMATION
OR REPRESENTATION MUST NOT BE RELIED UPON AS HAVING BEEN AUTHORIZED. THIS
PROSPECTUS DOES NOT CONSTITUTE AN OFFER IN ANY JURISDICTION TO ANY PERSON TO
WHOM SUCH OFFER WOULD BE UNLAWFUL THEREIN.
THE SECURITIES AND EXCHANGE COMMISSION HAS NOT APPROVED OR DISAPPROVED THESE
SECURITIES. ALSO, IT HAS NOT PASSED ON WHETHER THIS PROSPECTUS IS ADEQUATE OR
ACCURATE. IT IS A CRIMINAL OFFENSE TO STATE OTHERWISE.
<PAGE> 300
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
ABOUT THE PROSPECTUS.......................... 1
PROFILE OF PORTFOLIO DIRECTOR CONTRACT........ 3
FEE TABLE..................................... 5
SELECTED PURCHASE UNIT DATA................... 8
ABOUT PORTFOLIO DIRECTOR...................... 10
ABOUT VALIC................................... 10
ABOUT VALIC SEPARATE ACCOUNT A................ 10
UNITS OF INTERESTS............................ 10
VARIABLE ACCOUNT OPTIONS...................... 11
Summary of Funds......................... 11
PURCHASE PERIOD............................... 21
Purchase Payments........................ 21
Purchase Units........................... 21
Calculation of Purchase Unit Value....... 21
Choosing Investment Options.............. 22
Fixed Account Options............... 22
Variable Account Options............ 22
Stopping Purchase Payments............... 22
TRANSFERS BETWEEN INVESTMENT OPTIONS.......... 23
During the Purchase Period............... 23
During the Payout Period................. 23
Communicating Transfer or Reallocation
Instructions........................... 23
Effective Date of Transfer............... 23
FEES AND CHARGES.............................. 24
Account Maintenance Fee.................. 24
Surrender Charge......................... 24
Amount of Surrender Charge.......... 24
10% Free Withdrawal................. 24
Exceptions to Surrender Charge...... 24
Premium Tax Charge....................... 25
Separate Account Charges................. 25
Fund Annual Expense Charges.............. 25
Other Tax Charges........................ 25
Reduction or Waiver of Account
Maintenance Fee, Surrender, Mortality
and Expense Risk Fee or Administration
and Distribution Fee Charges........... 26
Separate Account Expense Reimbursement... 26
PAYOUT PERIOD................................. 27
Fixed Payout............................. 27
Variable Payout.......................... 27
Combination Fixed and Variable Payout.... 27
Payout Date.............................. 27
Payout Options........................... 27
Enhancements to Payout Options........... 28
Payout Information....................... 28
SURRENDER OF ACCOUNT VALUE.................... 29
When Surrenders are Allowed.............. 29
Amount That May Be Surrendered........... 29
Surrender Restrictions................... 29
Partial Surrenders....................... 29
Systematic Withdrawals................... 29
Distributions Required By Federal Tax
Law.................................... 30
EXCHANGE PRIVILEGE............................ 31
Restrictions on Exchange Privilege....... 31
</TABLE>
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Taxes and Conversion Costs............... 31
Surrender Charges........................ 31
Exchange Offers.......................... 31
Comparison of Contracts.................. 31
Features of Portfolio Director........... 32
Agents' and Managers' Retirement Plan
Exchange Offer......................... 32
DEATH BENEFITS................................ 33
Beneficiary Information.................. 33
Special Information for Individual
Non-Tax Qualified Contracts............ 33
During the Purchase Period............... 33
Interest Guaranteed Death Benefit... 33
Standard Death Benefit.............. 34
During the Payout Period................. 34
HOW TO REVIEW INVESTMENT PERFORMANCE OF
SEPARATE ACCOUNT DIVISIONS.................. 35
Types of Investment Performance
Information Advertised................. 35
Total Return Performance Information... 35
Standard Average Annual Total Return... 35
Nonstandard Average Annual Total
Return.............................. 35
Cumulative Total Return................ 35
Annual Change in Purchase Unit Value... 35
Cumulative Change in Purchase Unit
Value............................... 36
Total Return Based on Different
Investment Amounts.................. 36
An Assumed Account Value of $10,000.... 36
Yield Performance Information............ 36
AGSPC Money Market Division............ 36
Divisions Other Than The AGSPC Money
Market Division..................... 36
Performance Information: Average Annual
Total Return, Cumulative Return and
Annual and Cumulative Change in
Purchase Unit Value Tables............. 36
OTHER CONTRACT FEATURES....................... 42
Changes That May Not Be Made............. 42
Change of Beneficiary.................... 42
Contingent Owner......................... 42
Cancellation -- The 20 Day "Free Look"... 42
We Reserve Certain Rights................ 42
Relationship to Employer's Plan.......... 42
VOTING RIGHTS................................. 43
Who May Give Voting Instructions......... 43
Determination of Fund Shares Attributable
to Your Account........................ 43
During Purchase Period................... 43
During Payout Period or after a Death
Benefit Has Been Paid.................. 43
How Fund Shares Are Voted................ 43
FEDERAL TAX MATTERS........................... 44
Type of Plans............................ 44
Tax Consequences in General.............. 44
Effect of Tax-Deferred Accumulations..... 45
YEAR 2000..................................... 46
Year 2000 Risks.......................... 46
</TABLE>
(i)
<PAGE> 301
ABOUT THE PROSPECTUS
- --------------------------------------------------------------------------------
Unless otherwise specified in this prospectus, the words we, our, Company, and
VALIC mean The Variable Annuity Life Insurance Company. The words you and your,
unless otherwise specified in this prospectus, mean the participant, contract
owner, annuitant or beneficiary.
We will use a number of other specific terms in this prospectus. We will, when
that term is used in the prospectus, provide you with a definition of that term.
The terms used in this prospectus for which we will provide you a definition
are:
<TABLE>
<CAPTION>
Defined Terms Page No.
<S> <C>
Account Value 23
Annuitant 33
Assumed Investment Rate 27
Beneficiary 33
Contract Owner 33
Division 35
Fixed Account Options 33
Home Office 23
Mutual Fund or Fund 10
Participant 01
Participant Year 24
Payout Period 23
Payout Unit 27
Purchase Payments 21, 35
Purchase Period 23
Purchase Unit 22
VALIC Separate Account A 43
Variable Account Options 11, 33
</TABLE>
This prospectus is being given to you to help you make decisions for selecting
various investment options and benefits to plan and save for your retirement. It
is intended to provide you with information about VALIC, Portfolio Director, and
saving for your retirement.
The purpose of Variable Account Options and Variable Payout Options is to
provide you investment returns which are greater than the effects of inflation.
We cannot, however, guarantee that this purpose will be achieved.
This prospectus describes a contract in which units of interest in VALIC's
Separate Account A are offered. Portfolio Director will allow you to accumulate
retirement dollars in Fixed Account Options and/or Variable Account Options.
This prospectus describes only the variable aspects of Portfolio Director except
where the Fixed Account Options are specifically mentioned.
For specific information about the Variable Account Options, you should refer to
the mutual fund prospectuses you have been given with this document. You should
keep these prospectuses to help answer any questions you may have in the future.
Following this introduction is a summary of the major features and options of
Portfolio Director. This summary is called the "Profile of Portfolio Director
Contract." It is intended to provide you with a brief overview of those sections
discussed in more detail in this prospectus.
PARTICIPANT -- the individual,
(in most cases you are the
Participant) for whom
Purchase Payments are made.
1
<PAGE> 302
(This page intentionally left blank)
2
<PAGE> 303
PROFILE OF PORTFOLIO DIRECTOR CONTRACT
- --------------------------------------------------------------------------------
Portfolio Director is VALIC's combination fixed and variable annuity that offers
you a wide choice of investment options and flexibility. A summary of Portfolio
Director's major features is presented below. For a more detailed discussion of
the Portfolio Director Contract, please read the entire prospectus carefully.
FIXED AND VARIABLE OPTIONS
Portfolio Director offers you a choice from among 16 Variable Account Options
and two Fixed Account Options. You may invest in up to seven of these investment
options at any one time.
- --------------------------------------------------------------------------------
<TABLE>
<S> <C> <C>
FIXED ACCOUNT
OPTIONS
- ---------------------------------------------------------------------------------------------------------------
FIXED Fixed Guaranteed high current
OPTIONS Account Plus interest income
-----------------------------------------------------------------------------------------
Short-Term Guaranteed current
Fixed Account interest income
- ---------------------------------------------------------------------------------------------------------------
VARIABLE ACCOUNT INVESTMENT
OPTIONS STRATEGY
- ---------------------------------------------------------------------------------------------------------------
INDEX AGSPC International Growth through investments tracking
EQUITY Equities Fund the EAFE Index
FUNDS
-----------------------------------------------------------------------------------------
AGSPC MidCap Growth through investments tracking
Index Fund the S&P MidCap 400(R) Index
-----------------------------------------------------------------------------------------
AGSPC Small Cap Growth through investments tracking
Index Fund the Russell 2000(R) Index
-----------------------------------------------------------------------------------------
AGSPC Stock Growth through investments tracking
Index Fund the S&P 500(R) Index
- ---------------------------------------------------------------------------------------------------------------
ACTIVELY AGSPC Growth Growth through investments
MANAGED Fund in service sector companies
EQUITY -----------------------------------------------------------------------------------------
FUNDS AGSPC Growth Growth and income
& Income through investments in stocks or securities
Fund convertible into stocks
-----------------------------------------------------------------------------------------
Dreyfus Small Growth through investments
Cap Portfolio in smaller companies
-----------------------------------------------------------------------------------------
Templeton Long-term capital growth through a flexible policy of
investing in
International stocks and debt obligations of companies and governments
Fund outside the U.S.
- ---------------------------------------------------------------------------------------------------------------
INCOME AGSPC Capital Income and possible growth
FUNDS Conservation through investments in high quality debt
Fund securities
-----------------------------------------------------------------------------------------
AGSPC Government Income and possible growth
Securities through investments in intermediate &
Fund long-term government debt securities
-----------------------------------------------------------------------------------------
AGSPC International Income and possible growth through
Government investments in high quality foreign
Bond Fund government debt securities
- ---------------------------------------------------------------------------------------------------------------
SPECIALTY AGSPC Science Growth through investments in stocks
FUNDS & Technology of companies which benefit from
Fund development of science and technology
-----------------------------------------------------------------------------------------
AGSPC Social Growth through investments in
Awareness stocks of companies meeting social
Fund criteria of the Fund
- ---------------------------------------------------------------------------------------------------------------
MONEY AGSPC Money Income through investments in
MARKET Market short-term money market
FUND Fund securities
- ---------------------------------------------------------------------------------------------------------------
ASSET AGSPC Asset Maximum return through investments in
ALLOCATION Allocation a mix of stocks, bonds and money market
FUNDS Fund securities
-----------------------------------------------------------------------------------------
Templeton Flexible policy of investing in
Asset stocks and debt obligations of
Allocation companies and governments
Fund of any nation and money market investments
<CAPTION>
<S> <C> <C>
- ----------------------------------------------------------------------------------------
FIXED -- --
OPTIONS
-----------------------------------------------------------------------------------------
-- --
- ---------------------------------------------------------------------------------------------------------------
ADVISER SUBADVISER
- ---------------------------------------------------------------------------------------------------------------
INDEX VALIC N/A
EQUITY
FUNDS
-----------------------------------------------------------------------------------------
VALIC Bankers Trust
-----------------------------------------------------------------------------------------
VALIC Bankers Trust
-----------------------------------------------------------------------------------------
VALIC Bankers Trust
- ---------------------------------------------------------------------------------------------------------------
ACTIVELY VALIC T. Rowe Price
MANAGED
EQUITY -----------------------------------------------------------------------------------------
FUNDS VALIC Value Line
-----------------------------------------------------------------------------------------
Dreyfus N/A
-----------------------------------------------------------------------------------------
Templeton N/A
Investment Counsel
Inc.
- ---------------------------------------------------------------------------------------------------------------
INCOME VALIC N/A
FUNDS
-----------------------------------------------------------------------------------------
VALIC N/A
-----------------------------------------------------------------------------------------
VALIC N/A
- ---------------------------------------------------------------------------------------------------------------
SPECIALTY VALIC T. Rowe Price
FUNDS
-----------------------------------------------------------------------------------------
VALIC N/A
- ---------------------------------------------------------------------------------------------------------------
MONEY VALIC N/A
MARKET
FUND
- ---------------------------------------------------------------------------------------------------------------
ASSET VALIC N/A
ALLOCATION
FUNDS
-----------------------------------------------------------------------------------------
Templeton N/A
Investment Counsel
Inc.
</TABLE>
3
<PAGE> 304
- --------------------------------------------------------------------------------
A detailed description of the investment objective of each Fund can be found in
the section of the prospectus entitled "Variable Account Options," and also in
the current prospectus for each Fund mentioned.
INTEREST GUARANTEED DEATH BENEFIT
Portfolio Director offers a death benefit with an interest guarantee when death
occurs prior to your reaching age 70.
This contract provision is not available in some states.
LOANS
Portfolio Director offers a tax-free loan provision for tax-qualified contracts
that gives you access to your money in either of the Fixed Account Options,
subject to a minimum loan amount of $1,000. The availability of loans is subject
to government regulations, as well as your employer's plan provisions.
Keep in mind that tax laws place restrictions on withdrawals (i.e. loans which
are not repaid) if made prior to age 59 1/2.
TRANSFERS
There is no charge to transfer the money in your account among Portfolio
Director's investment options. You may transfer your Account Values between
Variable Account Options at any time during the Purchase Period.
Your Account Value in the Short-Term Fixed Account must remain there for at
least 90 days before it can be transferred to other investment options. In Fixed
Account Plus, up to 20% of your Account Value may be transferred during each
contract year to other investment options.
Once you begin receiving payments from your account (called the Payout Period),
you may still transfer funds among Variable Account Options once each contract
year.
Transfers can be made by calling VALIC's toll-free transfer service at
1-800-621-7792. For more information on account transfers, see the "Transfers
Between Investment Options" section in the prospectus.
FEES AND CHARGES
ACCOUNT MAINTENANCE FEE
If any of your account is invested in Variable Account Options, a quarterly
account maintenance fee of $3.75 is charged to your account. If you invest only
in Fixed Account Options during a calendar quarter no account maintenance fee is
assessed. Reductions in the account maintenance fee may be available if certain
conditions are met.
SURRENDER CHARGE
Under some circumstances a surrender charge is made to your account. These
situations are discussed in detail in the section of the prospectus entitled
"Fees and Charges -- Surrender Charge." When this happens the surrender charge
is computed in two ways and you are charged whichever amount is less. The first
amount is simply 5% of whatever amount you have withdrawn. The second amount is
5% of the contributions you made to your account during the last 60 months.
Withdrawals are always subject to your plan provisions and federal tax
restrictions, which generally include a tax penalty on withdrawals made prior to
age 59 1/2.
PREMIUM TAX CHARGE
Premium taxes ranging from zero to 3% are currently imposed by certain states
and municipalities on Purchase Payments made under the contract.
SEPARATE ACCOUNT CHARGES
Depending on the Variable Account Option you choose, you may incur a mortality
and expense risk fee and an administration and distribution fee computed at an
annualized rate of 1.00% to 1.25% on the average daily net asset value of VALIC
Separate Account A. Reductions in the mortality and expense risk fee and
administration and distribution fee may be available for plan types meeting
certain criteria.
FUND ANNUAL EXPENSE CHARGE
A daily charge based on a percentage of each Fund's average daily net asset
value is payable by each Fund to its investment adviser. In addition to the
management fees, each Fund incurs other operating expenses which may vary.
Since some of these fees may not apply to your contract, consult your VALIC
Retirement Plan Specialist to see how these provisions apply to you.
SEPARATE ACCOUNT
EXPENSE REIMBURSEMENT
The Company will reimburse to certain Divisions any fees it receives from the
Fund or its affiliate for providing the Fund administrative and shareholder
services. For more information as to which Variable Account Options have a
Separate Account Expense Reimbursement see the Fee Table.
PAYOUT OPTIONS
When you withdraw your money, you can select from several payout options: a
lifetime annuity (which guarantees payment for as long as you live), periodic
withdrawals and systematic withdrawals. More information on payout options can
be found in the "Payout Period" section of the prospectus.
FEDERAL TAX INFORMATION
Although deferred annuity contracts such as Portfolio Director can be purchased
with after-tax dollars, they are primarily used in connection with retirement
programs which receive favorable tax treatment under federal law.
PURCHASE REQUIREMENTS
Purchase Payments may be made at any time and in any amount, subject to plan
limitations.
To learn more about the
INTEREST GUARANTEED DEATH
BENEFIT, refer to the section
in the prospectus entitled
"Death Benefits."
More information on FEES
may be found in the
prospectus under the
headings "FEES AND CHARGES"
AND "FEE TABLE."
For a more detailed
discussion of these income
tax provisions, see the
"FEDERAL TAX MATTERS"
section of the prospectus and
of the Statement of Additional
Information.
For more information on
PURCHASE PAYMENTS, refer
to the "Purchase Period"
section of the prospectus.
4
<PAGE> 305
FEE TABLE
- --------------------------------------------------------------------------------
CONTRACT OWNER/PARTICIPANT EXPENSES(1)
<TABLE>
<S> <C>
Account Maintenance Fee ($3.75 per quarter, annualized)(2) $ 15
Maximum Surrender Charge(2) 5.00%
</TABLE>
SEPARATE ACCOUNT EXPENSES
(as a percentage of Separate Account net assets):
<TABLE>
<CAPTION>
MORTALITY ADMINISTRATION SEPARATE TOTAL
AND AND ACCOUNT SEPARATE
EXPENSE DISTRIBUTION EXPENSE ACCOUNT
RISK FEE(3) FEE(3) REIMBURSEMENT FEE
FUND ----------- -------------- ------------- --------
<S> <C> <C> <C> <C>
AGSPC Asset Allocation 0.25% 0.75% -- 1.00%
AGSPC Capital Conservation 0.25 0.75 -- 1.00
AGSPC Government Securities 0.25 0.75 -- 1.00
AGSPC Growth 0.25 0.75 -- 1.00
AGSPC Growth & Income 0.25 0.75 -- 1.00
AGSPC International Equities 0.25 0.75 -- 1.00
AGSPC International
Government Bond 0.25 0.75 -- 1.00
AGSPC MidCap Index 0.25 0.75 -- 1.00
AGSPC Money Market 0.25 0.75 -- 1.00
AGSPC Science & Technology 0.25 0.75 -- 1.00
AGSPC Small Cap Index 0.25 0.75 -- 1.00
AGSPC Stock Index 0.25 0.75 -- 1.00
Dreyfus Small Cap(4) 0.25 1.00 (0.15%) 1.10
Templeton Asset Allocation:
Class 1 0.25 1.00 -- 1.25
Templeton International:
Class 1 0.25 1.00 -- 1.25
</TABLE>
FUND ANNUAL EXPENSES
(as a percentage of Fund net assets):
<TABLE>
<CAPTION>
MANAGEMENT 12B-1 OTHER TOTAL FUND
FUND FEES(5) FEES EXPENSES(6) EXPENSES
---- ---------- ---------- ----------- ----------
<S> <C> <C> <C> <C>
AGSPC Asset Allocation(7) 0.50% -- 0.07% 0.57%
AGSPC Capital Conservation 0.50% -- 0.07% 0.57%
AGSPC Government Securities 0.50% -- 0.06% 0.56%
AGSPC Growth 0.80% -- 0.06% 0.86%
AGSPC Growth & Income 0.75% -- 0.06% 0.81%
AGSPC International Equities 0.35% -- 0.07% 0.42%
AGSPC International
Government Bond 0.50% -- 0.06% 0.56%
AGSPC MidCap Index 0.34% -- 0.06% 0.40%
AGSPC Money Market 0.50% -- 0.07% 0.57%
AGSPC Science & Technology 0.90% -- 0.06% 0.96%
AGSPC Small Cap Index 0.35% -- 0.06% 0.41%
AGSPC Social Awareness 0.50% -- 0.06% 0.56%
AGSPC Stock Index 0.27% -- 0.07% 0.34%
Dreyfus Small Cap 0.75% 0.15%(4) 0.03% 0.78%
Templeton Asset Allocation:
Class 1(8) 0.60% -- 0.18% 0.78%
Templeton International:
Class 1(8) 0.69% -- 0.19% 0.88%
</TABLE>
See footnotes on page 7.
5
<PAGE> 306
EXAMPLE #1 -- Assuming No Account Maintenance Fee and
No Surrender at the End of the Period Shown:
- --------------------------------------------------------------------------------
Total Expenses. You would pay the following expenses on a $1,000 investment
under a typical Portfolio Director Contract without a surrender charge or
account maintenance fee imposed, invested in a single Separate Account Division
as listed below, assuming a 5% annual return on assets:
<TABLE>
<CAPTION>
1 YEAR 3 YEARS 5 YEARS 10 YEARS
------ ------- ------- --------
<S> <C> <C> <C> <C>
AGSPC Asset Allocation Division 5 $16 $ 50 $ 86 $187
AGSPC Capital Conservation Division 7 $16 $ 50 $ 86 $187
AGSPC Government Securities Division 8 $16 $ 49 $ 85 $186
AGSPC Growth Division 15 $19 $ 59 $101 $218
AGSPC Growth & Income Division 16 $18 $ 57 $ 98 $213
AGSPC International Equities Division 11 $14 $ 45 $ 78 $171
AGSPC International Government Bond Division 13 $16 $ 49 $ 85 $186
AGSPC MidCap Index Division 4 $14 $ 44 $ 77 $168
AGSPC Money Market Division 6 $16 $ 50 $ 86 $187
AGSPC Science & Technology Division 17 $20 $ 62 $106 $229
AGSPC Small Cap Index Division 14 $14 $ 45 $ 77 $170
AGSPC Social Awareness Division 12 $16 $ 49 $ 85 $186
AGSPC Stock Index Division 10 $14 $ 42 $ 74 $162
Dreyfus Small Cap Division 18 $19 $ 59 $102 $221
Templeton Asset Allocation Division 19 $21 $ 64 $109 $236
Templeton International Division 20 $22 $ 67 $115 $247
</TABLE>
EXAMPLE #2 -- Assuming No Surrender at the End of the
Period Shown:
- --------------------------------------------------------------------------------
Total Expenses. You would pay the following expenses on a $1,000 investment
under a typical Portfolio Director Contract without a surrender charge imposed,
invested in a single Separate Account Division as listed below, assuming a 5%
annual return on assets:
<TABLE>
<CAPTION>
1 YEAR 3 YEARS 5 YEARS 10 YEARS
------ ------- ------- --------
<S> <C> <C> <C> <C>
AGSPC Asset Allocation Division 5 $17 $ 51 $ 89 $193
AGSPC Capital Conservation Division 7 $17 $ 51 $ 89 $193
AGSPC Government Securities Division 8 $16 $ 51 $ 88 $192
AGSPC Growth Division 15 $19 $ 60 $104 $224
AGSPC Growth & Income Division 16 $19 $ 59 $101 $219
AGSPC International Equities Division 11 $15 $ 47 $ 81 $177
AGSPC International Government Bond Division 13 $16 $ 51 $ 88 $192
AGSPC MidCap Index Division 4 $15 $ 46 $ 80 $175
AGSPC Money Market Division 6 $17 $ 51 $ 89 $193
AGSPC Science & Technology Division 17 $20 $ 63 $109 $235
AGSPC Small Cap Index Division 14 $15 $ 46 $ 80 $176
AGSPC Social Awareness Division 12 $16 $ 51 $ 88 $192
AGSPC Stock Index Division 10 $14 $ 44 $ 76 $168
Dreyfus Small Cap Division 18 $20 $ 61 $105 $226
Templeton Asset Allocation Division 19 $21 $ 65 $112 $242
Templeton International Division 20 $22 $ 68 $117 $252
</TABLE>
6
<PAGE> 307
EXAMPLE #3 -- Assuming Surrender at the End of the Period Shown:
- --------------------------------------------------------------------------------
Total Expenses: You would pay the following expenses on a $1,000 investment
under a typical Portfolio Director Contract invested in a single Separate
Account Division as listed below, assuming a 5% annual return on assets:
<TABLE>
<CAPTION>
1 YEAR 3 YEARS 5 YEARS 10 YEARS
------ ------- ------- --------
<S> <C> <C> <C> <C>
AGSPC Asset Allocation Division 5 $63 $101 $139 $193
AGSPC Capital Conservation
Division 7 $63 $101 $139 $193
AGSPC Government Securities Division 8 $63 $101 $138 $192
AGSPC Growth Division 15 $66 $110 $154 $224
AGSPC Growth & Income Division 16 $65 $108 $151 $219
AGSPC International Equities
Division 11 $62 $ 97 $131 $177
AGSPC International Government Bond Division 13 $63 $101 $138 $192
AGSPC MidCap Index Division 4 $61 $ 96 $130 $175
AGSPC Money Market Division 6 $63 $101 $139 $193
AGSPC Science & Technology Division 17 $67 $112 $159 $235
AGSPC Small Cap Index Division 14 $62 $ 96 $130 $176
AGSPC Social Awareness Division 12 $63 $101 $138 $192
AGSPC Stock Index Division 10 $61 $ 94 $126 $168
Dreyfus Small Cap Division 18 $66 $110 $155 $226
Templeton Asset Allocation
Division 19 $67 $114 $162 $242
Templeton International Division 20 $68 $117 $167 $252
</TABLE>
- ------------
(1) Premium taxes are not shown here, but may be charged by some states. See:
"Premium Tax Charge" in this prospectus.
(2) Reductions in the surrender charge and the account maintenance fee are
available if certain conditions are met. See "Reduction or Waiver of Account
Maintenance Fee, Surrender, Mortality and Expense Risk Fee or Administration
and Distribution Fee Charges" and "Exceptions to Surrender Charge" in this
prospectus.
(3) Reductions in the mortality and expense risk fee or administration and
distribution fee may be available for plan types meeting certain criteria.
See "Reduction or Waiver of Account Maintenance Fee, Surrender, Mortality
and Expense Risk Fee or Administration and Distribution Fee Charges" in this
prospectus.
(4) For this Fund the Total Separate Account Fee equals the VALIC Separate
Account A mortality and expense risk fee plus the administration and
distribution fee reduced by the Separate Account Expense Reimbursement.
Pursuant to the Separate Account Expense Reimbursement the Company's charges
to this Division are reduced by an amount equal to payments from the
underlying Fund or its affiliate for administrative and shareholder services
provided by the Company. The Fund and/or its affiliate pays a monthly
administrative or shareholder service fee to the Company of 0.15%. See "Fees
and Charges -- Separate Account Expense Reimbursement" in this prospectus
for more information.
(5) MANAGEMENT FEES: The annual management fees for the AGSPC International
Equities Fund, AGSPC MidCap Index Fund, AGSPC Small Cap Index Fund and AGSPC
Stock Index 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 AGSPC Asset Allocation
Fund, AGSPC Capital Conservation Fund, AGSPC Government Securities Fund,
AGSPC Growth Fund, AGSPC Growth & Income Fund, AGSPC International
Government Bond Fund, AGSPC Money Market Fund, AGSPC Science & Technology
Fund, AGSPC Social Awareness Fund, and Dreyfus Small Cap Portfolio are flat
rates as shown regardless of the amount of Fund assets. The annual
management fees for Templeton Asset Allocation Fund are based on the Fund's
average daily net asset value at the following rates: .65% of the first $200
million, .585% from $200 million up to $1.3 billion, and .52% on the excess
over $1.3 billion. The annual management fees for Templeton International
Fund are based on the Funds' average daily net asset value at the following
rates: .75% of the first $200 million, .675% from $200 million up to $1.3
billion, and .60% on the excess over $1.3 billion.
(6) OTHER EXPENSES includes custody, accounting, reports to shareholders, audit,
legal and other miscellaneous expenses.
(7) The AGSPC Asset Allocation Fund was formerly known as the Timed Opportunity
Fund.
(8) For these Funds Management fees and Total Fund Expenses have been restated
to reflect the management fee schedule approved by shareholders and
effective May 1, 1997. See Fund prospectus for details. Actual Management
Fees and Total Fund Expenses during 1997 were lower.
Note: These examples should not be considered representations of past or future
expenses for VALIC Separate Account A or for any Fund. Actual expenses may be
greater or less than those shown above. Similarly, the 5% annual rate of return
assumed in the examples is not an estimate or guarantee of future investment
performance. The purpose of the Fee Table above is to help Contract Owners and
Participants understand the various expenses of VALIC Separate Account A and the
Funds which are, in effect, passed on to the Contract Owners and Participants.
This Fee Table, shows all charges and expenses which may be deducted from the
assets of VALIC Separate Account A and from the Funds in which VALIC Separate
Account A invests. For a further description of these charges and expenses, see
"Fees and Charges" in this prospectus and "Investment Adviser" in the Series
Company Prospectus and "Management of the Fund" in the Dreyfus Small Cap
Portfolio Prospectus and "Management of the Trust" in the Templeton Variable
Products Series Fund Prospectus. Any and all limitations on total charges and
expenses are reflected in this Fee Table.
7
<PAGE> 308
Selected Purchase Unit Data
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
AGSPC AGSPC AGSPC AGSPC AGSPC
ASSET CAPITAL GOVERNMENT AGSPC GROWTH & INTERNATIONAL
ALLOCATION CONSERVATION SECURITIES GROWTH INCOME EQUITIES
DIVISION 5 DIVISION 7 DIVISION 8 DIVISION 15 DIVISION 16 DIVISION 11
---------- ------------ ---------- ----------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C>
December 31, 1997
Accumulation Units in Force 53,307,351 28,242,598 45,034,894 453,172,490 132,434,555 122,716,744
Accumulation Unit Value $3.219282 $1.962239 $1.957755 $2.076503 $1.940905 $1.237299
December 31, 1996
Purchase Units in Force 65,292,617 30,286,494 47,130,169 366,272,509 108,341,635 156,226,314
Purchase Unit Value $2.651899 $1.825549 $1.815651 $1.733324 $1.583056 $1.222906
December 31, 1995
Purchase Units in Force 75,851,431 29,573,808 39,847,053 164,417,848 51,779,089 172,564,018
Purchase Unit Value $2.411022 $1.812011 $1.799475 $1.466652 $1.296577 $1.156454
December 31, 1994
Purchase Units in Force 89,377,860 26,859,219 26,667,073 32,633,370 12,386,602 187,749,916
Purchase Unit Value $1.951533 $1.515278 $1.547150 $1.001834 $0.993168 $1.054460
July 11, 1994
Purchase Unit Value(3) -- -- -- -- -- --
April 29, 1994
Purchase Unit Value(3) -- -- -- $1.000000 $1.000000 --
December 31, 1993
Purchase Units in Force 93,899,802 24,628,606 26,563,166 -- -- 117,215,227
Purchase Unit Value $1.997266 $1.630069 $1.636228 -- -- $0.986387
December 31, 1992
Purchase Units in Force 80,637,090 14,922,749 16,609,444 -- 52,524,165
Purchase Unit Value $1.846025 $1.470167 $1.491537 -- -- $0.767135
May 1, 1992
Purchase Unit Value(3) -- -- -- -- -- --
December 31, 1991
Purchase Units in Force 76,624,765 11,069,044 11,694,890 -- -- 27,011,169
Purchase Unit Value $1.878219 $1.366905 $1.405236 -- -- $0.895250
October 1, 1991
Purchase Unit Value(3) -- -- -- -- -- --
December 31, 1990
Purchase Units in Force 72,284,139 9,321,049 8,460,327 -- -- 13,776,769
Purchase Unit Value $1.563444 $1.178361 $1.237104 -- -- $0.813423
December 31, 1989
Purchase Units in Force 68,361,149 7,502,717 5,556,464 -- 2,247,450
Purchase Unit Value $1.618165 $1.193583 $1.179231 -- -- $1.028405
October 2, 1989
Purchase Unit Value(3) -- -- -- -- -- $1.000000
December 31, 1988
Purchase Units in Force 65,817,325 3,996,455 3,408,919 -- -- --
Purchase Unit Value $1.397280 $1.078919 $1.062082 -- -- --
<CAPTION>
AGSPC
INTERNATIONAL
GOVERNMENT
BOND
DIVISION 13
-----------
<S> <C>
December 31, 1997
Accumulation Units in Force 111,480,591
Accumulation Unit Value $1.490645
December 31, 1996
Purchase Units in Force 112,601,593
Purchase Unit Value $1.582230
December 31, 1995
Purchase Units in Force 73,369,250
Purchase Unit Value $1.530780
December 31, 1994
Purchase Units in Force 25,691,713
Purchase Unit Value $1.301357
July 11, 1994
Purchase Unit Value(3) --
April 29, 1994
Purchase Unit Value(3) --
December 31, 1993
Purchase Units in Force 18,155,381
Purchase Unit Value $1.258340
December 31, 1992
Purchase Units in Force 6,245,713
Purchase Unit Value $1.112826
May 1, 1992
Purchase Unit Value(3) --
December 31, 1991
Purchase Units in Force 953,038
Purchase Unit Value $1.090499
October 1, 1991
Purchase Unit Value(3) $1.000000
December 31, 1990
Purchase Units in Force --
Purchase Unit Value --
December 31, 1989
Purchase Units in Force --
Purchase Unit Value --
October 2, 1989
Purchase Unit Value(3) --
December 31, 1988
Purchase Units in Force --
Purchase Unit Value --
</TABLE>
- ------------
(1) Effective October 1, 1991, the Fund underlying this Division changed its
name from the Capital Accumulation Fund to the MidCap Index Fund and amended
its investment objective, investment program and investment restrictions
accordingly. Historical purchase unit values prior to October 1, 1991
reflect investment experience before these changes.
(2) Effective with the merger of Quality Growth Fund into Stock Index Fund on
May 1, 1992, Quality Growth Division 9 was merged into Stock Index Division
10. The merger of Divisions was accomplished by an exchange of units of
Quality Growth Division 9 for units of Stock Index Division 10 of equivalent
value as calculated at the close of business on April 30, 1992.
(3) Purchase Unit Value At Date Of Inception.
8
<PAGE> 309
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
AGSPC AGSPC AGSPC AGSPC AGSPC TEMPLETON
MIDCAP MONEY SCIENCE & SMALL CAP SOCIAL AGSPC DREYFUS ASSET TEMPLETON
INDEX MARKET TECHNOLOGY INDEX AWARENESS STOCK INDEX SMALL CAP ALLOCATION INTERNATIONAL
DIVISION 4(1) DIVISION 6 DIVISION 17 DIVISION 14 DIVISION 12 DIVISION 10(2) DIVISION 18 DIVISION 19 DIVISION 20
- ------------- ---------- ----------- ----------- ----------- -------------- ----------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
171,065,657 84,182,521 397,842,959 106,279,077 81,577,104 615,053,124 479,851,525 196,150,946 463,174,350
$4.269122 $1.673590 $2.285739 $2.163595 $2.985333 $3.753436 $1.770622 $1.613943 $1.575168
172,816,978 75,124,095 315,809,646 103,320,842 46,574,016 536,806,965 428,883,250 137,384,670 378,581,949
$3.272588 $1.607212 $2.250471 $1.785442 $2.252673 $2.848437 $1.534694 $1.414844 $1.399702
172,613,690 51,907,757 187,862,232 98,335,995 32,750,120 455,255,243 267,735,219 78,494,505 219,124,926
$2.782677 $1.545802 $1.997175 $1.544896 $1.835102 $2.343900 $1.332904 $1.205181 $1.142586
171,442,018 75,765,781 42,726,137 100,383,839 29,015,764 416,234,288 85,169,871 32,807,602 71,716,511
$2.153183 $1.479129 $1.247713 $1.222329 $1.333899 $1.724134 $1.043156 $0.995860 $0.999282
-- -- -- -- -- -- $1.000000 $1.000000 $1.000000
-- -- $1.000000 -- -- -- -- -- --
134,621,879 24,799,810 -- 56,159,647 26,230,566 369,550,060 -- -- --
$2.259378 $1.439327 -- $1.277199 $1.366979 $1.729327 -- -- --
81,007,871 23,414,474 -- 9,723,477 16,956,437 283,808,045 -- -- --
$2.021271 $1.415690 -- $1.112790 $1.279516 $1.589718 -- -- --
-- -- -- $1.000000 -- -- -- -- --
49,106,844 25,545,494 -- -- 8,447,711 90,526,907 -- -- --
$1.858030 $1.384882 -- -- $1.250634 $1.505641 -- -- --
-- -- -- -- -- -- -- -- --
42,958,640 25,246,481 -- -- 2,947,418 46,016,297 -- -- --
$1.538017 $1.325393 -- -- $0.987666 $1.179000 -- -- --
40,618,028 15,949,534 -- -- 212,636 22,325,990 --
$1.712671 $1.240599 -- -- $1.010003 $1.238782 -- -- --
-- -- -- -- $1.000000 -- -- -- --
38,747,706 9,429,191 -- -- -- 9,213,178 -- -- --
$1.450217 $1.149516 -- -- -- $0.968670 -- -- --
</TABLE>
- ------------
Financial statements of VALIC Separate Account A are included in the Statement
of Additional Information, which is available upon request. Purchase units shown
are for a Purchase Unit outstanding throughout the year under a representative
Contract of the type invested in each column shown. The unit value of each
Division of VALIC Separate Account A will not be the same on any given day as
the net asset value per share of the underlying Fund of the Series Company and
the other mutual fund portfolios described in this prospectus in which that
Division invests. This is because each unit value consists of the underlying
share's net asset value minus the charges to VALIC Separate Account A. In
addition, dividends declared by the underlying Fund are reinvested by the
Division in additional shares. These distributions have the effect of reducing
the value of each share of the Fund and increasing the number of Fund shares
outstanding. However, the total cash value in VALIC Separate Account A does not
change as a result of such distributions.
9
<PAGE> 310
- --------------------------------------------------------------------------------
ABOUT PORTFOLIO DIRECTOR
Portfolio Director was developed to help you save money for your retirement. It
offers you a combination of fixed and variable investment options that you can
invest in to help you reach your retirement savings goals. Your contributions to
Portfolio Director can come from different sources, like payroll deductions or
money transfers. Your retirement savings process with Portfolio Director will
involve two stages: the Purchase Period; and the Payout Period. The first is
when you make contributions into Portfolio Director called "Purchase Payments."
The second, is when you receive your retirement payouts. For more information,
see "Purchase Period" and the "Payout Period" in this prospectus.
You may choose, depending upon your retirement savings goals, your personal risk
tolerances, and your retirement plan, to invest in the Fixed Account Options
and/or the Variable Account Options described in this prospectus. When you
decide to retire, or otherwise withdraw your money, you can select from a wide
array of payout options including both fixed and variable payments. In addition,
this prospectus will describe for you all fees and charges that may apply to
your participation in Portfolio Director.
ABOUT VALIC
We are a life insurance company organized in 1955 and located in the State of
Texas. Our main business is issuing and offering fixed and variable retirement
annuity contracts, like Portfolio Director. Our principal offices are located at
2929 Allen Parkway, Houston, Texas 77019. We have Regional Offices throughout
the United States. The addresses for these offices are given in the back of this
prospectus.
VALIC is a member of the American General Corporation group of companies.
Members of the American General Corporation group of companies operate in each
of the 50 states, the District of Columbia, and Canada and collectively provide
financial services with activities heavily weighted toward insurance.
ABOUT VALIC SEPARATE ACCOUNT A
When you direct money to Portfolio Director's Variable Account Options, you will
be sending that money through VALIC's Separate Account A. You do not invest
directly in the Mutual Funds made available in Portfolio Director. VALIC's
Separate Account A invests in the Mutual Funds on behalf of your account.
VALIC Separate Account A is made up of what we call "Divisions." Sixteen
Divisions are available and represent the Variable Account Options in Portfolio
Director. Each of these Divisions invests in a different Mutual Fund made
available through Portfolio Director. For example, Division Ten represents and
invests in the AGSPC Stock Index Fund. The earnings (or losses) of each Division
are credited to (or charged against) the assets of that Division, and do not
affect the performance of the other Divisions of VALIC Separate Account A.
VALIC established Separate Account A in 1979 under Texas insurance law to allow
you to be able to invest in a number of Variable Account Options available in
Portfolio Director. VALIC Separate Account A is registered with the Securities
and Exchange Commission (SEC) as a unit investment trust under the Investment
Company Act of 1940. Units of interest in VALIC Separate Account A are
registered as securities under the Securities Act of 1933.
VALIC Separate Account A is administered and accounted for as part of VALIC's
business operations. However, the income, capital gains or
capital losses, whether or not realized of each Division of VALIC Separate
Account A are credited to or charged against the assets held in that Division
without regard to the income, capital gains or capital losses of any other
Division or arising out of any other business the Company may conduct. In
accordance with the terms of Portfolio Director, VALIC Separate Account A may
not be charged with the liabilities of any other VALIC operation. As stated in
Portfolio Director, the Texas Insurance Code requires that the assets of VALIC
Separate Account A attributable to Portfolio Director be held exclusively for
the benefit of the contract owner, participants, annuitants, and beneficiaries
of Portfolio Director. When we discuss performance information in this
prospectus, we mean the performance of a VALIC Separate Account A Division.
UNITS OF INTERESTS
Your investment in a Division of VALIC Separate Account A is represented by
units of interest issued by VALIC Separate Account A. On a daily basis, the
units of interest issued by VALIC Separate Account A are revalued to reflect
that day's performance of the underlying mutual fund minus any applicable fees
and charges to VALIC Separate Account A.
ALL INQUIRIES REGARDING
PORTFOLIO DIRECTOR
may be directed to your
VALIC Regional Office at
the addresses shown in the
back of this prospectus.
MUTUAL FUND OR FUND --
the investment portfolio(s)
of a registered open-end
management investment
company, which serves as
the underlying investment
vehicle for each Division
represented in VALIC
Separate Account A.
FOR MORE INFORMATION ABOUT
VALIC, see the Statement of
Additional Information
10
<PAGE> 311
VARIABLE ACCOUNT OPTIONS
- --------------------------------------------------------------------------------
Portfolio Director enables you to participate in Divisions that represent
sixteen Variable Account Options. These Divisions comprise all of the Variable
Account Options that are made available to you through VALIC Separate Account A.
See "About VALIC Separate Account A" in this prospectus.
Each individual Division represents and invests, through VALIC's Separate
Account A, in specific mutual funds. These mutual funds serve as the investment
vehicles for Portfolio Director and include:
- - American General Series Portfolio
Company (AGSPC) -- offers 13 funds, for which VALIC serves as investment
adviser.
- - Dreyfus Variable Investment Fund -- offers 1 fund, for which The Dreyfus
Corporation serves as investment adviser.
- - Templeton Variable Products Series -- offers 2 funds, for which Templeton
Investment Counsel, Inc. serves as investment adviser.
Each of these Funds (except for AGSPC's International Government Bond Fund which
is a non-diversified fund) is registered as a diversified open-end, management
investment company and is regulated under the Investment Company Act of 1940.
For complete information about each of these Funds, including charges and
expenses, you should refer to the prospectus for that Fund. Additional copies
are available from VALIC or you may contact your VALIC Regional Office at the
addresses shown in the back of this prospectus.
Shares of the Dreyfus Small Cap Portfolio, the Templeton Asset Allocation Fund,
and the Templeton International Fund are also sold to separate accounts of other
insurance companies that may or may not be affiliated with us. This is known as
"shared funding." These funds may also be sold to separate accounts that act as
the underlying investments for both variable annuity contracts and variable life
insurance policies. This is known as "mixed funding." There are certain risks
associated with mixed and shared funding. These risks are discussed in each
Fund's prospectus.
SUMMARY OF FUNDS
A brief summary of the investment objectives of each mutual fund is shown below.
In addition to the investment objectives, the Account Value of an assumed
$10,000 investment in each of the Divisions is shown in both table and graph
form. This will reflect a deduction for separate account fees (mortality and
expense risk fees plus administration and distribution fees minus any applicable
reimbursements) and underlying fund charges. This will not reflect any deduction
for account maintenance fees, surrender charges and premium taxes. These charges
would further reduce your return. The Account Values shown in the graphs reflect
Separate Account performance based on the performance of the underlying Fund for
the last 10 fiscal years or, since inception of the underlying Fund if for less
than 10 years. The returns shown in the tables reflect for the AGSPC Funds
actual historical performance of the related Separate Account Divisions. The
returns shown in the tables for the other Funds (Divisions 18-20) reflect actual
historical performance of the related Separate Account Divisions since inception
of each Division (July 11, 1994) and hypothetical performance is based on the
actual performance for periods prior to July 11, 1994. Hypothetical performance
is based on the actual performance of the underlying Fund reduced by Separate
Account fees that would have been incurred during the hypothetical period.
Investment return and principal value will fluctuate with market conditions, and
for foreign investments, currencies and the economic and political climates of
the countries where investments are made. Past performance cannot predict or
guarantee future results.
For more information about how these returns were calculated including a
statement of the charges reflected, see "How to Review Investment Performance of
Separate Account Divisions" in this prospectus.
VARIABLE ACCOUNT
OPTIONS -- investment
options that correspond
to Separate Account
Divisions offered by
Portfolio Director.
Investment returns on
Variable Account
Options may be positive
or negative depending on
the investment
performance of the
underlying Mutual Fund.
11
<PAGE> 312
AGSPC
ASSET ALLOCATION FUND
(Division 5)
- ---------------------------------------------------------------
INVESTMENT OBJECTIVE
Seeks maximum aggregate rate of return over the long-term through controlled
investment risk by adjusting its investment mix among stocks, long-term debt
securities and short-term money market securities.
<TABLE>
<CAPTION>
Annual Value of a $10,000
Stipulated Payment made
January 1, 1988 $ Value
- ------------------------- --------
<S> <C>
01/01/88 $10,000
12/31/88 10,863
12/31/89 12,581
12/31/90 12,155
12/31/91 14,603
12/31/92 14,352
12/31/93 15,528
12/31/94 15,173
12/31/95 18,745
12/31/96 20,618
12/31/97 25,029
</TABLE>
VALUE AT MONTHLY INTERVALS OF A $10,000
STIPULATED PAYMENT MADE JANUARY 1, 1988
[CHART]
PERIOD ENDED DECEMBER 31
AGSPC
CAPITAL CONSERVATION FUND
(Division 7)
- ---------------------------------------------------------------
INVESTMENT OBJECTIVE
Seeks the highest possible total return consistent with preservation of capital
through current income and capital gains on investments in intermediate and
long-term debt instruments and other income producing securities.
<TABLE>
<CAPTION>
Annual Value of a $10,000
Stipulated Payment made
January 1, 1988 $ Value
- ------------------------- --------
<S> <C>
01/01/88 $10,000
12/31/88 10,592
12/31/89 11,718
12/31/90 11,568
12/31/91 13,419
12/31/92 14,433
12/31/93 16,003
12/31/94 14,876
12/31/95 17,789
12/31/96 17,922
12/31/97 19,264
</TABLE>
VALUE AT MONTHLY INTERVALS OF A $10,000
STIPULATED PAYMENT MADE JANUARY 1, 1988
[CHART]
PERIOD ENDED DECEMBER 31
* The AGSPC Asset Allocation Fund was formerly known as the Timed Opportunity
Fund.
12
<PAGE> 313
AGSPC
GOVERNMENT SECURITIES
FUND
(Division 8)
- ---------------------------------------------------------------
INVESTMENT OBJECTIVE
Seeks high current income and protection of capital through investments in
intermediate and long-term U.S. Government debt securities.
<TABLE>
<CAPTION>
Annual Value of a $10,000
Stipulated Payment made
January 1, 1988 $ Value
- ------------------------- -------
<S> <C>
01/01/88 $10,000
12/31/88 10,495
12/31/89 11,653
12/31/90 12,225
12/31/91 13,886
12/31/92 14,739
12/31/93 16,169
12/31/94 15,288
12/31/95 17,782
12/31/96 17,942
12/31/97 19,346
</TABLE>
VALUE AT MONTHLY INTERVALS OF A $10,000
STIPULATED PAYMENT MADE JANUARY 1, 1988
[CHART]
PERIOD ENDED DECEMBER 31
AGSPC
GROWTH FUND
(Division 15)
- ---------------------------------------------------------------
INVESTMENT OBJECTIVE
Seeks to provide long-term growth of capital through investment primarily in
common stocks of U.S. growth companies engaged in service-related activities.
<TABLE>
<CAPTION>
Annual Value of a $10,000
Stipulated Payment made
April 29,1994 $ Value
- ---------------------------- -------
<S> <C>
04/29/94 $10,000
12/31/94 10,018
12/31/95 14,667
12/31/96 17,333
12/31/97 20,765
</TABLE>
VALUE AT MONTHLY INTERVALS OF A $10,000
STIPULATED PAYMENT MADE APRIL 29, 1994
[CHART]
PERIOD ENDED DECEMBER 31
13
<PAGE> 314
AGSPC
GROWTH & INCOME FUND
(Division 16)
- ---------------------------------------------------------------
INVESTMENT OBJECTIVE
Seeks to provide long-term growth of capital and, secondarily, current income
through investment in common stocks and equity-related securities.
<TABLE>
<CAPTION>
Annual Value of a $10,000
Stipulated Payment made
April 29, 1994 $ Value
- ---------------------------- -------
<S> <C>
04/29/94 $10,000
12/31/94 9,932
12/31/95 12,966
12/31/96 15,831
12/31/97 19,409
</TABLE>
VALUE AT MONTHLY INTERVALS OF A $10,000
STIPULATED PAYMENT MADE APRIL 29, 1994
[CHART]
PERIOD ENDED DECEMBER 31
AGSPC
INTERNATIONAL EQUITIES FUND
(Division 11)
- ---------------------------------------------------------------
INVESTMENT OBJECTIVE
Seeks to provide long-term growth of capital through investments primarily in a
diversified portfolio of equity and equity related securities of foreign issuers
that, as a group, are expected to provide investment results closely
corresponding to the performance of the EAFE Index.
<TABLE>
<CAPTION>
Annual Value of a $10,000
Stipulated Payment made
October 2, 1989 $ Value
- ------------------------- -------
<S> <C>
10/02/89 $10,000
12/31/89 10,284
12/31/90 8,134
12/31/91 8,952
12/31/92 7,671
12/31/93 9,864
12/31/94 10,545
12/31/95 11,565
12/31/96 12,229
12/31/97 12,373
</TABLE>
VALUE AT MONTHLY INTERVALS OF A $10,000
STIPULATED PAYMENT MADE OCTOBER 2, 1989
[CHART]
PERIOD ENDED DECEMBER 31
14
<PAGE> 315
INTERNATIONAL GOVERNMENT
BOND FUND
(Division 13)
- ---------------------------------------------------------------
INVESTMENT OBJECTIVE
Seeks high current income through investments primarily in high quality debt
securities issued or guaranteed by foreign governments.
<TABLE>
<CAPTION>
Annual Value of a $10,000
Stipulated Payment made
October 1, 1991 $ Value
- ------------------------- -------
<S> <C>
10/01/91 $10,000
12/31/91 10,905
12/31/92 11,128
12/31/93 12,583
12/31/94 13,014
12/31/95 15,308
12/31/96 15,822
12/31/97 14,906
</TABLE>
VALUE AT MONTHLY INTERVALS OF A $10,000
STIPULATED PAYMENT MADE OCTOBER 1, 1991
[CHART]
PERIOD ENDED DECEMBER 31
15
<PAGE> 316
AGSPC
MIDCAP INDEX FUND
(Division 4)
- ---------------------------------------------------------------
INVESTMENT OBJECTIVE
Seeks to provide growth of capital through investments primarily in a
diversified portfolio of common stocks that, as a group, are expected to provide
investment results closely corresponding to the performance of the Standard &
Poor's MidCap 400(R) Index*.
The performance information for the MidCap Index Division is shown in two
separate sets of tables and graphs for the ten year period beginning January 1,
1988 and for the period beginning October 1, 1991. The latter period shows the
performance of the MidCap Index Division since the change in investment
objectives, investment program and investment restrictions of the underlying
Fund. Selected Purchase Unit data for the last ten years for the MidCap Index
Division appears on page 6 of this prospectus.
<TABLE>
<CAPTION>
Annual Value of a $10,000
Stipulated Payment made
October 1, 1991 $ Value
- ------------------------- -------
<S> <C>
10/01/91 $10,000
12/31/91 11,163
12/31/92 12,143
12/31/93 13,574
12/31/94 12,936
12/31/95 16,718
12/31/96 19,661
12/31/97 25,648
</TABLE>
VALUE AT MONTHLY INTERVALS OF A $10,000
STIPULATED PAYMENT MADE OCTOBER 1, 1991
[CHART]
PERIOD ENDED DECEMBER 31
- ---------------------------------------------------------------
<TABLE>
<CAPTION>
Annual Value of a $10,000
Stipulated Payment made
January 1, 1988 $ Value
- ------------------------- -------
<S> <C>
01/01/88 $10,000
12/31/88 11,306
12/31/89 13,352
12/31/90 11,991
12/31/91 14,486
12/31/92 15,758
12/31/93 17,615
12/31/94 16,787
12/31/95 21,695
12/31/96 25,514
12/31/97 33,283
</TABLE>
VALUE AT MONTHLY INTERVALS OF A $10,000
STIPULATED PAYMENT MADE JANUARY 1, 1988
[CHART]
PERIOD ENDED DECEMBER 31
* "Standard & Poor's(R)", "S&P(R)", "S&P 500(R)" and "S&P MidCap 400(R)" are
trademarks of Standard and Poor's ("S&P"). Neither the AGSPC MidCap Index
Fund nor the AGSPC 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.
16
<PAGE> 317
AGSPC
MONEY MARKET FUND
(Division 6)
- ---------------------------------------------------------------
INVESTMENT OBJECTIVE
Seeks liquidity, protection of capital and current income through investments in
short-term money market instruments.
<TABLE>
<CAPTION>
Annual Value of a $10,000
Stipulated Payment made
January 1, 1988 $ Value
- ------------------------- -------
<S> <C>
01/01/88 $10,000
12/31/88 10,572
12/31/89 11,410
12/31/90 12,190
12/31/91 12,737
12/31/92 13,020
12/31/93 13,238
12/31/94 13,604
12/31/95 14,217
12/31/96 14,782
12/31/97 15,392
</TABLE>
VALUE AT MONTHLY INTERVALS OF A $10,000
STIPULATED PAYMENT MADE JANUARY 1, 1988
[CHART]
PERIOD ENDED DECEMBER 31
AGSPC
SCIENCE & TECHNOLOGY FUND
(Division 17)
- ---------------------------------------------------------------
INVESTMENT OBJECTIVE
Seeks long-term growth of capital through investment primarily in the common
stocks and equity-related securities of companies that are expected to benefit
from the development, advancement and use of science and technology.
<TABLE>
<CAPTION>
Annual Value of a $10,000
Stipulated Payment made
April 29, 1994 $ Value
- ------------------------- -------
<S> <C>
04/29/94 $10,000
12/31/94 12,477
12/31/95 19,972
12/31/96 22,505
12/31/97 22,857
</TABLE>
VALUE AT MONTHLY INTERVALS OF A $10,000
STIPULATED PAYMENT MADE APRIL 29, 1994
[CHART]
PERIOD ENDED DECEMBER 31
17
<PAGE> 318
AGSPC
SMALL CAP INDEX FUND
(Division 14)
- ---------------------------------------------------------------
INVESTMENT OBJECTIVE
Seeks to provide growth of capital through investment primarily in a diversified
portfolio of common stocks that, as a group, are expected to provide investment
results closely corresponding to the performance of the Russell 2000(R) Index.*
<TABLE>
<CAPTION>
Annual Value of a $10,000
Stipulated Payment made
May 1, 1992 $ Value
- ------------------------- -------
<S> <C>
05/01/92 $10,000
12/31/92 11,128
12/31/93 12,772
12/31/94 12,223
12/31/95 15,449
12/31/96 17,854
12/31/97 21,636
</TABLE>
VALUE AT MONTHLY INTERVALS OF A $10,000
STIPULATED PAYMENT MADE MAY 1, 1992
[CHART]
PERIOD ENDED DECEMBER 31
AGSPC
SOCIAL AWARENESS FUND
(Division 12)
- ---------------------------------------------------------------
INVESTMENT OBJECTIVE
Seeks to obtain growth of capital through investment, primarily in common
stocks, in companies which meet the social criteria established for the Fund.
<TABLE>
<CAPTION>
Annual Value of a $10,000
Stipulated Payment made
October 2, 1989 $ Value
- ------------------------- -------
<S> <C>
10/02/89 $10,000
12/31/89 10,100
12/31/90 9,877
12/31/91 12,506
12/31/92 12,795
12/31/93 13,670
12/31/94 13,339
12/31/95 18,351
12/31/96 22,527
12/31/97 29,853
</TABLE>
VALUE AT MONTHLY INTERVALS OF A $10,000
STIPULATED PAYMENT MADE OCTOBER 2, 1989
[CHART]
PERIOD ENDED DECEMBER 31
* The Russell 2000(R) Index is a trademark/service mark of the Frank Russell
Trust Company. Russell(TM) is a trademark of the Frank Russell Company.
18
<PAGE> 319
AGSPC
STOCK INDEX FUND
(Division 10)
- ---------------------------------------------------------------
INVESTMENT OBJECTIVE
Seeks long-term capital growth through investment in common stocks that, as a
group, are expected to provide investment results closely corresponding to the
performance of the Standard & Poor's 500 Stock Index(R)*.
<TABLE>
<CAPTION>
Annual Value of a $10,000
Stipulated Payment made
January 1, 1988 $ Value
- ------------------------- -------
<S> <C>
01/01/88 $10,000
12/31/88 11,313
12/31/89 14,468
12/31/90 13,770
12/31/91 17,584
12/31/92 18,566
12/31/93 20,197
12/31/94 20,136
12/31/95 27,374
12/31/96 33,267
12/31/97 43,836
</TABLE>
VALUE AT MONTHLY INTERVALS OF A $10,000
STIPULATED PAYMENT MADE JANUARY 1, 1988
[CHART]
PERIOD ENDED DECEMBER 31
DREYFUS SMALL CAP PORTFOLIO
(Division 18)
- ---------------------------------------------------------------
INVESTMENT OBJECTIVE
Seeks to maximize capital appreciation and invests principally in common stocks.
This Fund will be particularly alert to companies which The Dreyfus Corporation
considers to be emerging smaller-size companies which are believed to be
characterized by new or innovative products, services, or processes which should
enhance prospects for growth in future earnings.
<TABLE>
<CAPTION>
Annual Value of a $10,000
Stipulated Payment made
August 31, 1990 $ Value
- ------------------------- --------
<S> <C>
08/31/90 $ 10,000
12/31/90 10,168
12/31/91 26,105
12/31/92 44,181
12/31/93 73,477
12/31/94 78,125
12/31/95 99,825
12/31/96 114,938
12/31/97 132,607
</TABLE>
VALUE AT MONTHLY INTERVALS OF A $10,000
STIPULATED PAYMENT MADE AUGUST 31, 1990
[CHART]
PERIOD ENDED DECEMBER 31
* "Standard & Poor's(R)", "S&P(R)", "S&P 500(R)" and "S&P MidCap 400(R)" are
trademarks of Standard and Poor's ("S&P"). Neither the AGSPC MidCap Index
Fund nor the AGSPC 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.
19
<PAGE> 320
TEMPLETON ASSET ALLOCATION
FUND: CLASS 1
(Division 19)
- ---------------------------------------------------------------
INVESTMENT OBJECTIVE
Seeks a high level of total return through a flexible policy of investing in the
following market segments: stocks of companies in any nation, debt securities of
companies and governments of any nation, and money market instruments.
<TABLE>
<CAPTION>
Annual Value of a $10,000
Stipulated Payment made
August 24, 1988 $ Value
- ------------------------- -------
<S> <C>
08/24/88 $10,000
12/31/88 10,237
12/31/89 11,450
12/31/90 10,405
12/31/91 13,124
12/31/92 14,009
12/31/93 17,453
12/31/94 16,714
12/31/95 20,227
12/31/96 23,746
12/31/97 27,087
</TABLE>
VALUE AT MONTHLY INTERVALS OF A $10,000
STIPULATED PAYMENT MADE AUGUST 24, 1988
[CHART]
PERIOD ENDED DECEMBER 31
TEMPLETON INTERNATIONAL
FUND: CLASS 1
(Division 20)
- ---------------------------------------------------------------
INVESTMENT OBJECTIVE
Seeks to achieve long-term capital growth through a flexible policy of investing
in stocks and debt obligations of companies and governments, outside the United
States. Any income realized will be incidental.
<TABLE>
<CAPTION>
Annual Value of a $10,000
Stipulated Payment made
May 1, 1992 $ Value
- ------------------------- -------
<S> <C>
05/01/92 $10,000
12/31/92 9,311
12/31/93 13,549
12/31/94 13,077
12/31/95 14,952
12/31/96 18,317
12/31/97 20,613
</TABLE>
VALUE AT MONTHLY INTERVALS OF A $10,000
STIPULATED PAYMENT MADE MAY 1, 1992
[CHART]
PERIOD ENDED DECEMBER 31
20
<PAGE> 321
PURCHASE PERIOD
- --------------------------------------------------------------------------------
The Purchase Period begins when your first Purchase Payment is made and
continues until you begin your Payout Period. The Purchase Period can also end
when a Portfolio Director account is surrendered before the Payout Period. The
amount, number, and frequency of your Purchase Payments is determined by the
retirement plan for which Portfolio Director was purchased.
PURCHASE PAYMENTS
You may establish an account only through a VALIC representative. Initial
Purchase Payments must be received by VALIC either with, or after, a completed
application. Your employer is usually responsible for remitting Purchase
Payments to us. The employer is responsible for furnishing instructions to us (a
premium flow report) as to the amount being applied to your account. Purchase
Payments can also be made by you for IRAs and certain non-qualified contracts
("individual contracts.")
Minimum initial and subsequent Purchase Payments are as follows:
<TABLE>
<CAPTION>
Initial Subsequent
Contract Type Payment Payment
------------- ------- ----------
<S> <C> <C>
Periodic Payment $ 30 $ 30
Single Payment $1,000 -0-
</TABLE>
Periodic Payment minimums apply to each Fixed Account Option or Variable Account
Option selected. The Single Payment minimum applies to each of your accounts.
Purchase Payments are received in VALIC's Home Office. When an initial Purchase
Payment is accompanied by an application, within 2 business days we will:
- - Accept the Application -- and issue a contract. We will also establish your
account and apply your Purchase Payment by crediting the amount to the Fixed
Account Option or Variable Account Option selected;
- - Reject the Application -- and return the Purchase Payment; or
- - Request Additional Information -- to correct or complete the application.
If we receive Purchase Payments from your employer before we receive your
completed application or enrollment form, we will not be able to establish a
permanent account for you. Under these circumstances, we will take one of the
following actions:
Return Purchase Payments. If we do not have your name, address or social
security number, we will return the Purchase Payment to your employer unless
this information is immediately provided to us.
Employer-Directed Account. If we have your name, address and social security
number and we have an Employer-Directed Account Agreement from your employer,
generally we will deposit your Purchase Payment in an "Employer-Directed"
account invested in the AGSPC Money Market Division Option. You may not
transfer these amounts until VALIC has received a completed application or
enrollment form.
Starter Account. If we have your name, address and social security number, but
we do not have an Employer-Directed Account Agreement from your employer, we
will deposit your Purchase Payment in a "starter" account invested in the
AGSPC Money Market Division. We will send you follow-up letters requesting the
information necessary to complete the application, including your allocation
instructions. Unless a completed application or enrollment form is received by
us within 105 days of establishment of your starter account, the account
balance, including earnings, will be returned to your employer. We are not
responsible for any adverse tax consequences to you that may result from the
return of your employer's contributions.
PURCHASE UNITS
A Purchase Unit is a unit of interest owned by you in your Variable Account
Option. Purchase Units apply only to the Variable Account Options selected for
your account. Purchase Unit values are calculated at the close of regular
trading of the New York Stock Exchange (the "Exchange"), currently 4:00 p.m. New
York time (see Calculation of Purchase Unit Value below for more information.)
Purchase Units will be credited the same business day if Purchase Payments are
received by our Home Office before the close of the Exchange. If not, they will
be calculated and credited the next business day. Purchase Unit values will vary
depending on the net investment results of each of the Variable Account Options.
This means the value of your Variable Account Option will fluctuate.
Calculation of Purchase Unit Value
The Purchase Unit value for a Division is calculated as shown below:
Step 1: Calculate the gross investment rate:
Gross Investment Rate
= (EQUALS)
The Division's investment income
and capital gains and losses
(whether realized or unrealized) on
that day from the assets
attributable to the Division.
/ (DIVIDED BY)
The value of the Division for
the immediately preceding day on
which the values are calculated.
PURCHASE PAYMENTS - an amount
of money you pay to VALIC to
receive the benefits or an
annuity Contract offered by
Portfolio Director.
For more information as to how
PURCHASE UNIT VALUES are
calculated, see the Statement of
Additional Information.
21
<PAGE> 322
- --------------------------------------------------------------------------------
We calculate the gross investment rate as of 4:00 p.m. New York time on each
business day when the New York Stock Exchange is open.
Step 2: Calculate net investment rate for any day as follows:
Net Investment Rate
= (EQUALS)
Gross Investment Rate
(calculated in Step 1)
- - (MINUS)
Separate Account charges and any
income tax charges.
Step 3: Determine Purchase Unit Value for that day.
Purchase Unit Value for that day.
= (EQUALS)
Purchase Unit Value for immediate
preceding day.
X (MULTIPLIED BY)
Net Investment Rate (as calculated
in Step 2) plus 1.00.
CHOOSING INVESTMENT OPTIONS
There are 18 investment options offered in Portfolio Director. This includes 2
Fixed Account Options and 16 Variable Account Options. Unless provided
otherwise, you
may select and combine up to 7 of the 18 options. The Funds that underlie the
Variable Account Options are registered as investment companies under and are
subject to regulation of the Investment Company Act of 1940 (the Act). The Fixed
Account Options are not subject to regulation under the Act and are not required
to be registered under the Securities Act of 1933. As a result, the SEC has not
reviewed data in this prospectus that relates to the Fixed Account Options.
However, federal securities law does require such data to be accurate and
complete.
FIXED ACCOUNT OPTIONS
Each of the Fixed Account Options are part of the Company's general assets. You
may allocate all or a portion of your Purchase Payment to the Fixed Account
Options listed in "Profile of Portfolio Director Contract" appearing in this
prospectus. Purchase Payments you allocate to these Fixed Account Options are
guaranteed to earn at least a minimum rate of interest. Interest is paid on each
of the Fixed Account Options at declared rates, which may be different for each
option. We bear the entire investment risk for the Fixed Account Option. All
Purchase Payments and interest earned on such amounts in your Fixed Account
Option will be paid regardless of the investment results experienced by the
Company's general assets.
Here is how you may calculate the value of your Fixed Account Option during the
Purchase Period:
Value of Your Fixed
Account Options
= (EQUALS)
All Purchase Payments made to the
Fixed Account Options
+ (PLUS)
Amounts transferred from Variable
Account Options to the Fixed
Account Options
+ (PLUS)
All interest earned
- - (MINUS)
Amounts transferred or withdrawn
from Fixed Account Options
(including applicable fees and
charges)
VARIABLE ACCOUNT OPTIONS
You may allocate all or a portion of your Purchase Payments to the Variable
Account Options listed in this prospectus. A complete discussion of each of the
Variable Account Options may be found in the "Variable Account Options" section
in this prospectus. Based upon a Variable Account Option's Purchase Unit Value
your account will be credited with the applicable number of Purchase Units. The
Purchase Unit Value of each Variable Account Option will change daily depending
upon the investment performance of the underlying fund (which may be positive or
negative) and the deduction of VALIC Separate Account A charges. See the "Fees
and Charges" section in this prospectus. Because Purchase Unit Values change
daily, the number of Purchase Units your account will be credited with for
subsequent Purchase Payments will vary. Each Variable Account Option bears its
own investment risk. Therefore, the value of your account may be worth more or
less at retirement or withdrawal.
Here is how to calculate the value of each Variable Account Option in your
account during the Purchase Period:
Value of Your Variable Account Option
= (EQUALS)
Total Number of Purchase Units
X (MULTIPLIED BY)
Current Purchase Unit Value
STOPPING PURCHASE PAYMENTS
Purchase Payments may be stopped at any time. Purchase Payments may be resumed
at any time before your Portfolio Director account has been surrendered. While
no Purchase Payments are being made, the number of Purchase Units outstanding
will remain the same. (This is assuming no transfers or withdrawals are made.)
The value of the Purchase Units will continue to vary. Your Account Value will
continue to be subject to charges.
If your Account Value falls below $300, and you do not make any Purchase
Payments for two years from the date we established your account, we may close
the account and pay the Account Value (less any surrender charge) to you.
PURCHASE UNIT -- a
measuring unit used to
calculate your Account Value
during the Purchase Period.
The value of a Purchase Unit
will vary with the investment
experience of the Separate
Account Division you have
selected.
22
<PAGE> 323
TRANSFERS BETWEEN INVESTMENT OPTIONS
- --------------------------------------------------------------------------------
You may transfer all or part of your Account Value between the various Fixed
Account and Variable Account Options in Portfolio Director without a charge.
Transfer instructions may be made either in writing or by telephone as discussed
below. Transfers may be made during the Purchase Period or during the Payout
Period. We reserve the right to limit transfers as discussed below. Your
employer's plan may also limit your rights to transfer.
DURING THE PURCHASE PERIOD
During the Purchase Period, transfers may be made between Portfolio Director's
Fixed Account Options and Variable Account Options.
We currently permit transfers between Variable Account Options or from Variable
Account Options to Fixed Account Options, at any time. We may, however, limit
the number of transfers you can make.
Transfers are also permitted from the Fixed Account Options subject to the
following limitations:
<TABLE>
<CAPTION>
FIXED OTHER
ACCOUNT OPTION VALUE FREQUENCY RESTRICTIONS
- -------------- ------------- ----------- ------------
<S> <C> <C> <C>
Fixed Account
Plus: Up to 20% per At any time None (1)
contract year
100% At any time If Account Value
is
less than or
equal
to $500
Short-Term
Fixed
Account: Up to 100% At any time 90-day Holding
Period If
transfer was
previously made
into
Short-Term Fixed
Account.(2)
</TABLE>
- ---------------
(1) Your employer may further limit or expand the restrictions. We may charge
for those modified restrictions if specified in your employer's retirement
plan.
(2) VALIC may change this holding period at any time in the future, but it will
never be more than 180 days.
DURING THE PAYOUT PERIOD
During the Payout Period, transfers may be made between Portfolio Director's
investment options subject to the following limitations:
<TABLE>
<CAPTION>
% OF ACCOUNT
---------------------------------- OTHER
ACCOUNT OPTION VALUE FREQUENCY RESTRICTIONS
- -------------- ------------- ------------------- ------------
<S> <C> <C> <C>
Variable: Up to 100% Once every 365 days None
Combination
Fixed
and Variable
Payout: Up to 100% Once every 365 days None
of money in
variable
option payout
Fixed: Not permitted -- --
</TABLE>
COMMUNICATING TRANSFER OR
REALLOCATION INSTRUCTIONS
A written instruction to transfer or reallocate all or part of your Account
Value between the various investment options in Portfolio Director, should be
sent to VALIC's Home Office.
Instructions for transfers or reallocations may be made by calling
1-800-621-7792. Telephone transfers will be allowed unless we have been notified
not to accept such telephone instructions. In this event, we must receive
written instructions, in order to permit future telephone transfers to be made.
Before a transfer will be made by telephone, you must give us the requested
identifying information concerning your account(s).
Unless we have been instructed not to accept requests for telephone transfers,
anyone may effect a telephone transfer if they furnish the requested
information. You will bear any loss resulting from such instructions, whether
the caller was specifically authorized by you or not.
No one that we employ or that represents VALIC may give telephone instructions
on your behalf without VALIC's prior written permission. (This does not apply to
a contract with the immediate family of an employee or representative of VALIC).
We will send you a confirmation of the completed transfer within 5 days from the
date of your instruction. When you receive your confirmation, it is your duty to
verify the information shown, and advise us of any errors within one business
day.
You will bear the risk of loss arising from instructions received by telephone.
We are not responsible for the authenticity of such instructions. Any telephone
instructions which we reasonably believe to be genuine will be your
responsibility. This includes losses from errors in communication. Telephone
transfer instruction may not be made during the Payout Period. We reserve the
right to stop telephone transfers at any time.
EFFECTIVE DATE OF TRANSFER
The effective date of a transfer will be:
- - The date of receipt, if received in our Home Office before the close of
regular trading of the New York Stock Exchange on a day values are calculated;
(Normally, this will be 4:00 P.M. New York time); otherwise
- - The next date values are calculated.
ACCOUNT VALUE - the total
sum of your Fixed Account
and/or Variable Account
Options that have not yet
been applied to your Payout
Payments.
PURCHASE PERIOD - the time
between your first Purchase
Payment and your Payout
Period (or surrender).
HOME OFFICE - Our
principal office at 2929 Allen
Parkway, Houston, Texas
77019.
PAYOUT PERIOD - the time
that starts when you begin to
withdraw your money in a
steady stream of payments.
23
<PAGE> 324
FEES AND CHARGES
- --------------------------------------------------------------------------------
By investing in Portfolio Director, you may be subject to six basic types of
fees and charges:
- - Account Maintenance Fee
- - Surrender Charge
- - Premium Tax Charge
- - Separate Account Charges
- - Fund Annual Expense Charge
- - Other Tax Charges
These fees and charges are explained below. For additional information about
these fees and charges, see the Fee Table in this prospectus.
ACCOUNT MAINTENANCE FEE
An account maintenance fee of $3.75 will be deducted on the last day of each
calendar quarter if any of your money is invested in the Variable Account
Options. We will sell Purchase Units from your Account to pay the account
maintenance fee. If you invest only in Fixed Account Options during a calendar
quarter, this fee will not apply. If all your money in a Variable Account Option
is withdrawn, or transferred to a Fixed Account Option, the fee will be deducted
at that time. The fee will be assessed equally among the Variable Account
Options that make up your Account Value.
The account maintenance fee is to reimburse the Company for our administrative
expenses for providing Variable Account Options. This includes the expense for
establishing and maintaining the record keeping for the Variable Account
Options. We do not expect that the amount of fees we receive will be greater
than our expenses.
The amount of the account maintenance fee may be reduced or waived if Portfolio
Director is issued to certain types of plans which are expected to result in
lower costs to VALIC. To learn more about how we determine if account
maintenance fees may be reduced or waived, see the "Reduction or Waiver of
Account Maintenance Fee, Surrender, Mortality and Expense Risk Fee or
Administration and Distribution Fee Charges" section in this prospectus. If you
have two or more accounts established under the same group contract, we may
agree to deduct an account maintenance fee from only one account.
SURRENDER CHARGE
When you withdraw money from your account, you may be subject to a surrender
charge. For information about your right to surrender, see "Surrender of Account
Value" in this prospectus.
It is assumed that the most recent Purchase Payments are withdrawn first. No
surrender charge will be applied unless an amount is
actually withdrawn. We consider all Purchase Payments to be withdrawn before
earnings are withdrawn.
Amounts exchanged from other contracts issued by the Company may or may not be
subject to a surrender charge. After exchange, it is assumed that any new
Purchase Payments are withdrawn before the exchanged amount. For more
information, see "Exchange Privilege" in the Statement of Additional
Information.
AMOUNT OF SURRENDER CHARGE
A surrender charge may not be greater than:
- - Five percent (5%) of the amount of all Purchase Payments received during the
past 60 months; or
- - Five percent (5%) of the amount withdrawn.
10% FREE WITHDRAWAL
In any Participant Year, up to 10% of the Account Value may be withdrawn without
a surrender charge. The surrender charge will apply to any amount withdrawn that
exceeds this 10% limit. The percentage withdrawn will be determined by dividing
the amount withdrawn by the Account Value just prior to the withdrawal. If more
than one withdrawal is made during a Participant Year, each percentage will be
added to determine at what point the 10% limit has been reached.
These 10% withdrawals without charge do not reduce Purchase Payments for the
purpose of computing the surrender charge. If a surrender charge is applied to
all or part of a Purchase Payment, no surrender charge will be applied to such
Purchase Payment (or portion thereof) again.
EXCEPTIONS TO SURRENDER CHARGE
No surrender charge will be applied:
- - To money applied to provide a Payout Option;
- - To death benefits;
- - If no Purchase Payments have been received during the 60 months prior to the
date of surrender;
- - If your account has been in effect for 15 years or longer;
- - If your account has been in effect for 5 years or longer, and you have
attained age 59 1/2;
- - To "No Charge Systematic Withdrawals";
- - Under certain contracts, to withdrawals under the No Charge Minimum
Distribution provisions;
PARTICIPANT YEAR -- the first
twelve month period and
then each yearly anniversary
of that period following the
issue date of the contract or
certificate.
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<PAGE> 325
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- - If you have become totally and permanently disabled, defined as follows: You
are unable, due to mental or physical impairment, to perform the material and
substantial duties of any occupation for which you are suited by means of
education, training or experience; the impairment must have been in existence
for more than 180 days; the impairment must be expected to result in death or
be long-standing and indefinite and proof of disability must be evidenced by a
certified copy of a Social Security Administration determination or a doctor's
verification; or
- - If you are at least 55 years old, are no longer employed by the employer that
established the plan, and your account under the plan was established at least
5 years prior to the date of surrender.
The surrender charge may be reduced or waived if Portfolio Director is issued to
certain types of plans which are expected to result in lower costs to VALIC. To
learn more about how we determine if a surrender charge may be reduced or
waived, see the "Reduction or Waiver of Account Maintenance Fee, Surrender,
Mortality and Expense Risk Fee or Administration and Distribution Fee Charges"
section in this prospectus.
PREMIUM TAX CHARGE
Taxes on Purchase Payments are imposed by some states, cities, and towns. The
rate will range from zero to 3%.
If the law of a state, city, or town requires premium taxes to be paid when
Purchase Payments are made, we will, of course, comply. Otherwise, such tax will
be deducted from the Payout Value when annuity payments are to begin.
If we deduct an amount for premium taxes, but later find the tax was not due, we
will:
- - Adjust the amount deducted in error to reflect investment experience from the
date of the deduction to the date we determined the tax was not due; and
- - Apply the excess amount, as adjusted, to increase the number of Pay-in or
Payout Units.
SEPARATE ACCOUNT CHARGES
There will be a mortality and expense risk fee and an administration and
distribution fee applied to VALIC Separate Account A. This is a daily charge at
an annualized rate of 1.00% to 1.25% on the average daily net asset value of
VALIC Separate Account A. The exact rate depends on the Variable Account Option
selected. This charge is guaranteed and cannot be increased by the Company. The
mortality and expense risk fee is to compensate the Company for assuming
mortality and expense risks under Portfolio Director. The mortality risk that
the Company assumes is the obligation to provide payments during the Payout
Period for your life no matter how long that might be. In addition, the Company
assumes the obligation to pay during the Purchase Period an interest guaranteed
death benefit. For more information about the interest guaranteed death benefit
see the "Death Benefit" section of this prospectus. The expense risk is our
obligation to cover the cost of issuing and administering Portfolio Director, no
matter how large the cost may be.
The Company may make a profit on the mortality and expense risk fee and on the
administration and distribution fee.
The administration and distribution fee is to reimburse the Company for our
administrative expenses for providing Variable Account Options. This includes
the expense of administration and marketing (including but not limited to
enrollment, participant communication and education).
For more information about the mortality and expense risk fee and administration
and distribution fee, see the Fee Table in this prospectus.
The mortality and expense risk fee or administration and distribution fee may be
reduced or waived if issued to certain types of plans that are expected to
result in lower costs to VALIC. To learn more about how we determine if the
mortality and expense risk fee or administration and distribution fee may be
reduced or waived, see the "Reduction or Waiver of Account Maintenance Fee,
Surrender, Mortality and Expense Risk Fee or Administration and Distribution Fee
Charges" section of this prospectus.
FUND ANNUAL EXPENSE CHARGE
Investment management charges based on a percentage of each Fund's average daily
net assets are payable by each Fund. Depending on the Variable Account Option
selected, the charges will be paid by each Fund to the Company, or to Dreyfus or
to Templeton. These charges and other Fund charges and expenses are fully
described in the prospectuses for the Funds. These charges indirectly cost you
because they lower your return.
OTHER TAX CHARGES
We reserve the right to charge for certain taxes (other than premium taxes) that
we may have to pay. This could include federal income taxes. Currently, no such
charges are being made.
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<PAGE> 326
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REDUCTION OR WAIVER OF ACCOUNT
MAINTENANCE FEE, SURRENDER,
MORTALITY AND EXPENSE RISK OR ADMINISTRATION AND DISTRIBUTION FEE CHARGES
We may, as described below, determine that the account maintenance fee,
surrender charges, mortality and expense risk fee or administration and
distribution fee for Portfolio Director may be reduced or waived. We may reduce
or waive these fees and charges if we determine that your retirement program
will allow us to reduce or eliminate administrative or sales expenses that we
usually incur for retirement programs. There are a number of factors we will
review in determining whether your retirement program will allow us to reduce or
eliminate these administrative or sales expenses.
- The type of retirement program.
Certain types of retirement programs because of their stability can result
in lower administrative costs.
- The nature of your retirement program.
Certain types of retirement programs, due to the types of employees who
participate, experience fewer account surrenders thus reducing
administrative costs.
- Other factors of which we are not presently aware which could reduce
administrative costs.
We review the following additional factors to determine whether we can reduce
or waive account maintenance fees:
- The frequency of Purchase Payments for your retirement program.
Purchase Payments received no more than once a year can reduce
administrative costs.
- The administrative tasks performed by your employer for your retirement
program.
The employer sponsoring your retirement program can, through their method of
remitting Purchase Payments, reduce administrative costs.
We review the following additional factors to determine whether we can reduce or
waive surrender charges:
- The size of your retirement program.
A retirement program which involves a larger group of employees may allow us
to reduce sales expenses.
- The total amount of Purchase Payments to be received for your retirement
program.
Larger Purchase Payments can reduce sales expenses.
- The use of mass enrollment or related administrative tasks performed by your
employer for your retirement program.
We review the following additional factors to determine whether we can reduce
or waive the mortality and expense risk fee or administration and distribution
fee:
- The frequency of Purchase Payments for your retirement program.
- The size of your retirement program.
- The amount of your retirement program's periodic purchase payment.
We will only do this if permitted by this Contract and by VALIC guidelines in
effect at the time. In no event will the reduction or waiver of fees be
permitted where the reduction or waiver will unfairly discriminate against any
person.
SEPARATE ACCOUNT EXPENSE
REIMBURSEMENT
Dreyfus Small Cap or its affiliate has an agreement with the Company to pay
the Company for certain administrative and shareholder services it provides to
the Fund. The Company will reduce its charges to the Division investing in the
Fund by the full amount of any of these payments it receives.
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<PAGE> 327
PAYOUT PERIOD
- --------------------------------------------------------------------------------
The Payout Period (Annuity Period) begins when you decide to retire or otherwise
withdraw your money in a steady stream of payments. If your employer's plan
permits, you may apply any portion of your Account Value to one of the types of
Payout Options listed below. You may choose to have your Payout Option on either
a fixed, a variable, or a combination payout basis. When you choose to have your
Payout Option on a variable basis, you may keep the same Variable Account
Options in which your Purchase Payments were made, or transfer to different
ones.
FIXED PAYOUT
Under Fixed Payout, you will receive payments from the Company. These payments
are fixed and guaranteed by the Company. The amount of these payments will
depend on:
- Type and duration of Payout Option chosen;
- Your age or your age and the age of your survivor (1);
- Your sex or your sex and the sex of your survivor (1) (IRA's and certain
nonqualified contracts);
- The portion of your Account Value being applied; and
- The payout rate being applied and the frequency of the payments.
(1) This applies only to joint and survivor payouts.
If the benefit would be greater, the amount of your payments will be based on
the current payout rate the Company uses for immediate annuity contracts.
VARIABLE PAYOUT
With a Variable Payout, you may select up to 7 Variable Account Options. Your
payments will vary accordingly. This is due to the varying investment results
that will be experienced by each of the Variable Account Options you selected.
The Payout Unit Value is calculated just like the Purchase Unit Value for each
Variable Account Option except that the Payout Unit Value includes a factor for
the Assumed Investment Rate you select. For additional information on how Payout
Payments and Payout Unit Values are calculated, see the Statement of Additional
Information.
In determining your first Payout Payment, an Assumed Investment Rate of 3 1/2%
is used (unless you select a higher rate.) If the net investment experience of
the Variable Account Option exceeds your Assumed Investment Rate, your next
payment will be greater than your first payment. If the investment experience of
the
Variable Account Option is lower than your Assumed Investment Rate, your next
payment will be less than your first payment.
COMBINATION FIXED AND VARIABLE PAYOUT
With a Combination Fixed and Variable Payout, you may choose:
- Up to 6 Variable Account Options (payments will vary); with a
- Fixed Payout (payment is fixed and guaranteed).
PAYOUT DATE
The Payout Date is the date elected by you on which your payout (annuity)
payments will start. The date elected must be the first of any month provided 30
days advance notice has been given to VALIC. Your account will be valued ten
days prior to the end of the month preceding the Payout Date. A request to start
payments must be sent to our Home Office on a form approved by VALIC. Generally,
for qualified contracts, the Payout Date may begin when you attain age 59 1/2 or
separate from service, but must begin no later than April 1 following the
calendar year you reach age 70 1/2 or the calendar year in which you retire. For
nonqualified contracts, the Payout Date may begin at any time prior to your 85th
birthday. For additional information on the minimum distribution rules that
apply to payments under 403(b), 401, 403(a) and 457 plans or simplified employee
plans ("SEPs"), see "Federal Tax Matters" in this prospectus and in the
Statement of Additional Information.
PAYOUT OPTIONS
You may specify the manner in which your Payout Payments are made. You may
select one of the following options:
- LIFE ONLY -- payments are made only to you during your lifetime. Under this
option there is no provision for a death benefit for the beneficiary. For
example, it would be possible under this option for the Annuitant to receive
only one payout payment if he died prior to the date of the second payment,
two if he died before the third payment.
- LIFE WITH GUARANTEED PERIOD -- payments are made to you during your
lifetime; but if you die before the guaranteed period has expired, your
beneficiary will receive payments for the rest of your guaranteed period.
PAYOUT UNIT--a measuring
unit used to calculate Payout
Payments from your Variable
Account Option. Payout Unit
values will vary with the
investment experience of the
VALIC Separate Account A
Division you have selected.
ASSUMED INVESTMENT
RATE--the rate used to
determine your first monthly
Payout Payment per
thousand dollars of Account
Value in your Variable
Account Option(s).
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<PAGE> 328
- --------------------------------------------------------------------------------
- LIFE WITH CASH OR UNIT REFUND -- payments are made to you during your
lifetime. Upon your death, your beneficiary will receive a lump sum payment
equal to the remaining Annuity Value.
- JOINT AND SURVIVOR LIFE -- payments are made to you during the joint
lifetime of you and your beneficiary. Upon the death of one, payments
continue during the lifetime of the survivor. This option is designed
primarily for couples who require maximum possible variable payouts during
their joint lives and are not concerned with providing for beneficiaries at
death of the last survivor. For example, it would be possible under this
option for the Joint Annuitants to receive only one payment if both
Annuitants died prior to the date of the second payment, or for the Joint
Annuitants to receive only one payment and the surviving Annuitant to
receive only one payment if one Annuitant died prior to the date of the
second payment and the surviving Annuitant dies prior to the date of the
third payment.
- PAYMENT FOR A DESIGNATED PERIOD -- payments are made to you for a select
number of years between five and thirty. Upon your death, payments will
continue to your beneficiary until the designated period is completed.
ENHANCEMENTS TO PAYOUT OPTIONS
You may be able to select enhancements to the Payout Options described above.
These enhancements include partial annuitization, flexible payments of varying
amounts and inflation protection payments. Additionally, certain options may be
available with a one to twenty year guaranteed period. Additionally, certain
options may be available with a one to twenty year guaranteed period. The Joint
and Survivor Life Option may be available with a one to twenty year guaranteed
period option. Not all of the enhancements are available under each option.
PAYOUT INFORMATION
Once your Payout Payments have begun, the option you have chosen may not be
stopped or changed. Any one of the Variable Account Options may result in your
receiving unequal payments during your life expectancy. If payments begin before
age 59 1/2, you may suffer unfavorable tax consequences if you do not meet an
exception to federal tax law. See "Federal Tax Matters" in this prospectus.
Your Payment Option should be selected at least 30 days before your Payout Date.
If such selection is not made:
- Payments will be made under the Life with Guaranteed Period Option, and
- The payments will be guaranteed for a 10 year period, and
- The payments will be based on the allocation used for your Purchase
Payments,
- Fixed Account Option will be used to distribute payments to you on a Fixed
Payout basis,
- Variable Account Options will be used to distribute payments to you on a
Variable Payout basis.
Your first Payout Payment must total at least $25.
Most Payout Payments are made monthly. If the amount of your payment is less
than $25, we reserve the right to reduce the number of payments made each year
so each of your payments are at least $25.
For more information about
PAYOUT OPTIONS OR
ENHANCEMENTS
of those Payout Options
available under the Contract,
see the "Statement of
Additional Information".
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<PAGE> 329
SURRENDER OF ACCOUNT VALUE
- --------------------------------------------------------------------------------
WHEN SURRENDERS ARE ALLOWED
You may withdraw all or part of your Account Value at any time before the Payout
Period begins if:
- allowed under federal and state law; and
- allowed under your employer's plan.
For an explanation of charges that may apply if you surrender your Account
Value, see "Fees and Charges" in this prospectus.
AMOUNT THAT MAY BE SURRENDERED
The amount that may be surrendered at any time can be determined as follows:
<TABLE>
<S> <C> <C>
Your
Account
Allowed Value(1)
Surrender = (EQUALS) - (MINUS)
Value Any Applicable
Surrender
Charge
</TABLE>
1: Equals the Account Value next computed after your properly completed
request for surrender is received in our Home Office.
There is no guarantee that the Surrender Value in a Variable Account Option will
ever equal or exceed the total amount of your Purchase Payments received by us.
We will mail to you the Surrender Value within 7 calendar days after we receive
your properly completed surrender request at our Home Office. However, we may be
required to suspend or postpone payments if redemption of an underlying Fund's
shares have been suspended or postponed. See "Offering, Purchase and Redemption
of Fund Shares" in the Series Company Statement of Additional Information. See
your current Fund(s)' prospectuses for a discussion of the reasons why the
redemption of shares may be suspended or postponed.
We may receive a surrender for a Purchase Payment which has not cleared the
banking system. We may delay payment of that portion of your Surrender Value
until the check clears. The rest of the Surrender Value will be processed as
usual.
SURRENDER RESTRICTIONS
Generally, Internal Revenue Code Section 403(b)(11) permits total or partial
distributions from a 403(b) contract only on account of hardship (employee
contributions only without accrued interest), attainment of age 59 1/2,
separation from service, death or disability.
Under the TEXAS STATE OPTIONAL RETIREMENT PROGRAM, and in many Section 403(b)
contracts, no surrender or partial surrender will be allowed except for
termination of employment, retirement or death.
Under the FLORIDA STATE OPTIONAL RETIREMENT PROGRAM, no surrender or partial
surrender of Purchase Payments made by the employer will be allowed except for
termination of employment, retirement or death. Benefit payments based on
payments from the employer may not be paid in a lump sum or for a period
certain, but must be paid under a life contingency option, except for:
- death benefits; and
- certain small amounts approved by the State of Florida.
PARTIAL SURRENDERS
You may request a partial surrender of your Account Value at any time. A partial
surrender plus any surrender charge will reduce your Account Value. Partial
surrenders will be paid from the Fixed Account Option first unless otherwise
specified by you.
The reduction in the number of Purchase Units credited to your Variable Account
Option Account Value will equal:
<TABLE>
<S> <C> <C>
The amount Your Purchase
surrendered Units next
from the Variable computed after
Account Option the written
+ (PLUS) / (DIVIDED BY) request for
Any Surrender surrender is
Charge received at our
Home Office.
</TABLE>
The Surrender Value will be reduced by a full quarterly account maintenance fee
charged in the case of a full surrender during a quarter.
SYSTEMATIC WITHDRAWALS
You may elect to withdraw all or part of your Account Value under a systematic
withdrawal method described in your annuity contract offered by Portfolio
Director. There will be no surrender charge for withdrawals using this method,
which provides for:
- Payments to be made to you;
- Payment over a stated period of time (but not less than five years);
- Payment of a stated yearly dollar amount or percentage (the amount or
percentage may not exceed 20% of your Account Value at the time election is
made).
We may require a minimum withdrawal amount under this method. The portion of
your account that has not been withdrawn will continue to receive the investment
return of the Variable Account Options which you selected. A systematic
withdrawal election may not be changed but can be revoked at no charge. Once
revoked, a systematic withdrawal may not be elected again. No more than one
systematic withdrawal election may be in effect at any one time. We reserve the
right to discontinue any or all systematic withdrawals or to change its terms,
at any time.
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<PAGE> 330
- --------------------------------------------------------------------------------
DISTRIBUTIONS REQUIRED BY FEDERAL TAX LAW. There will be no surrender charge on
a minimum distribution required by federal tax law (known as No Charge Minimum
Distribution), if the withdrawal:
- Is made payable to you; and
- Does not exceed the amount required under federal tax law as determined by
the values in your Portfolio Director Contract and VALIC.
This contract feature will not be available in any year that an amount has been
withdrawn under the no charge systematic withdrawal method. See "Federal Tax
Matters" in this prospectus and in the Statement of Additional Information for
more information about required distributions imposed by tax law.
For an explanation of possible adverse tax consequences of a surrender, see
"Federal Tax Matters" in this prospectus and in the Statement of Additional
Information.
30
<PAGE> 331
EXCHANGE PRIVILEGE
- --------------------------------------------------------------------------------
We issue other fixed and/or variable annuity contracts (other contracts) in
addition to Portfolio Director. These other contracts are listed below. We will
allow you, under certain conditions, to exchange from one of these other
contracts to Portfolio Director. This exchange privilege will be available only
to other contracts purchased through your employer-sponsored retirement plan and
for which we have not yet started making payments under a Payout Option. If you
elect to exercise one of these exchange offers, you should contact any of our
Regional Offices at the addresses shown in the back of this prospectus.
RESTRICTIONS ON EXCHANGE PRIVILEGE
We will impose certain general restrictions and rules on the exchange
privileges.
- Partial exchanges are not permitted.
- Exchanges from Portfolio Director to other contract forms are not permitted.
(Exchanges between Portfolio Director and other contracts in the Portfolio
Director series of annuities are permitted.)
- This exchange privilege is only available for those other contracts listed
below.
Additionally, if you have your money in a fixed account of one of the below
listed other contracts, you must exchange directly into the Fixed Account
Options of Portfolio Director. You will be subject to all of the rules that
apply to the Fixed Account Options in Portfolio Director. For example, you will
be subject to the rules concerning transfers among investment options as stated
in the Transfers Between Investment Options section in this prospectus. We may,
at our option, waive any transfer restrictions for a stated period of time. If
we waive these transfer restrictions, you will be allowed to exchange to any
investment option available in Portfolio Director.
WE RESERVE THE RIGHT TO TERMINATE, MODIFY OR SUSPEND THESE EXCHANGE PRIVILEGES
AT ANY TIME.
TAXES AND CONVERSION COSTS
We will impose no fee or charge for these exchanges. Please read the "Federal
Tax Matters" section in this prospectus for information about the federal income
tax treatment of Portfolio Director.
SURRENDER CHARGE
We will generally not impose nor waive existing surrender charges as a result of
your electing to exchange from one of the other contracts.
For purposes of determining surrender charges, we often consider time in the
contract. For SPQ181 and SPQ181-1 Contracts, the contract date for determining
surrender charges under Portfolio Director will be the SPQ181 and SPQ181-1
contract date plus one year. For example, if you have an SPQ181 contract with a
contract date of January 1, 1993, upon exchange into Portfolio Director, the
contract date for surrender charges purposes becomes January 1, 1994.
For any other contract, the contract date for determining surrender charges
under Portfolio Director will be the same date as the other contract, but no
earlier than January 1, 1982. (The effect of this is to potentially shorten the
charge period for Purchase Payments subsequently made to Portfolio Director.)
If there is no surrender charge on assets within another contract, we will not
impose charges on those assets as a result of an exchange. If surrender charges
are to be based on Purchase Payments within a contract, we will consider
purchase payments in the other contract to have been transferred to Portfolio
Director for purposes of calculating the surrender charge. The effective dates
of these Purchase Payments will also be retained for surrender charge purposes.
The Portfolio Director surrender charge is calculated assuming the most recent
Purchase Payments are removed first. This policy may cause exchanged funds to be
accessible only after charges are imposed.
EXCHANGE OFFERS FOR CONTRACTS OTHER THAN PORTFOLIO DIRECTOR AND PORTFOLIO
DIRECTOR 2
The following other contracts may be exchanged.
- V-Plan Contracts (IFA-582 and GFA-582 Contracts)
- Compounder Contracts (C-1-75 and IFA-78 Contracts)
- Independence Plus Contracts (UIT-585 and UITG-585 Contracts)
- Impact Contracts (UIT-981 Contracts)
- SA-1 or SA-2 (GUP-64, GUP-74 and GTS-VA Contracts)
- FSPA-75, FSPA-73-3, FSPA-779 Contracts
- SPQ181, SPQ181-1 Contracts
- CTA 978 Contract
- TFA-379 Contract
- SDA-578, SDA-773-T Contract
- IRA-579 Contracts
Portfolio Director will have the same Account Value (called Accumulation Value
in the other contracts) as the other contracts.
COMPARISON OF CONTRACTS
You should carefully compare the features, charges and restrictions of the other
contracts to those of Portfolio Director. A more detailed comparison of the
features, charges, and restriction between each above listed other
31
<PAGE> 332
- --------------------------------------------------------------------------------
contract and Portfolio Director is provided in the Statement of Additional
Information.
For the V-Plan and Compounder Contract you should refer to the terms of the
contract or certificate. For the other contracts please refer to its most
recently dated prospectus for a complete description of the contract terms and
conditions. Those prospectuses are incorporated herein by reference. If you want
an additional copy of any of these prospectuses or Statements of Additional
Information, please contact us at the address shown in the introduction of the
prospectus.
FEATURES OF PORTFOLIO DIRECTOR
In deciding whether you want to exercise this exchange privilege, you should
consider the following features of Portfolio Director.
- Portfolio Director has more investment options to select from.
- The Portfolio Director surrender charge is calculated assuming the most
recent Purchase Payments are removed first. This policy may cause exchanged
funds to be accessible only after charges are imposed.
- Portfolio Director has an Interest Guaranteed Death Benefit.
- Portfolio Director's Fund fees and charges are different than the other
contracts and in some cases may be higher.
- Portfolio Director's guaranteed annuity rates and guaranteed interest rates
may be less favorable than the other contracts.
AGENTS' AND MANAGERS' RETIREMENT PLAN
EXCHANGE OFFER
General. All eligible agents and managers of the Company are allowed to
participate in the Company's Agents' and Managers' Retirement Plan ("Plan"). We
grant to participants in the Plan the right to effect a voluntary exchange of
their units of interest under the SA-1 Contracts or Independence Plus Contracts
for the equivalent units of interest in Portfolio Director.
Agents and managers of VALIC who enter into the voluntary exchange will not
incur under Portfolio Director any surrender charges or account maintenance
fees. Other individuals who may exchange to Portfolio Director from SA-1 or
Independence Plus Contracts may have surrender charges and account maintenance
fees imposed under Portfolio Director. All other provisions with regard to
exchange offers referenced in the section entitled "Exchange Offers" will apply
to the Agents' and Managers' Retirement Plan Exchange Offer.
Pursuant to this voluntary exchange offer, participants in the Plan will have
three options to choose from. As to the funding vehicle for their purchase
payment plan, the participant may choose to:
- Remain in the SA-1 Contract or Independence Plus Contract.
- Leave current assets in the SA-1 Contract or Independence Plus Contract and
direct future Purchase Payments to the Portfolio Director; or
- Transfer all current assets and future Purchase Payments to the Portfolio
Director.
If the participant chooses to remain in either the SA-1 Contract or Independence
Plus Contract, future Purchase Payments and current assets will be controlled by
the provisions of the SA-1 Contract or Independence Plus Contract, respectively.
If the participant chooses to leave current assets in the SA-1 Contract or the
Independence Plus Contract and direct future Purchase Payments to Portfolio
Director, the current assets will be controlled by the provisions of the SA-1
Contract or the Independence Plus Contract, respectively. The future Purchase
Payments will be controlled by the terms of Portfolio Director subject to the
exception that surrender charges and account maintenance fees will not be
imposed under Portfolio Director. If the participant chooses to transfer all
current assets and future Purchase Payments to Portfolio Director, such current
assets and future Purchase Payments will be controlled by the provisions of
Portfolio Director subject to the exception that surrender charges and account
maintenance fees will not be imposed under Portfolio Director.
Once a participant transfers assets and future Purchase Payments to Portfolio
Director the participant will not be permitted to exchange back to the SA-1
Contract or Independence Plus Contract. If a participant chooses to transfer
future Purchase Payments but not current assets to Portfolio Director, the
participant will be allowed at a later date to transfer the current assets to
Portfolio Director. For a complete analysis of the differences between the SA-1
contract or the Independence Plus Contract and Portfolio Director, you should
refer to the Statement of Additional Information and the form of the contract or
certificate for its terms and conditions.
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<PAGE> 333
DEATH BENEFITS
- --------------------------------------------------------------------------------
Portfolio Director will pay death benefits during either the Purchase Period or
the Payout Period. How these death benefits will be paid are discussed below.
The death benefit provisions in Portfolio Director may vary from state to state.
BENEFICIARY INFORMATION
The Beneficiary may receive death benefits:
- - In a lump sum; or
- - In the form of an annuity under any of the Payout Options stated in the Payout
Period section of this prospectus subject to the restrictions of that Payout
Option.
Payment of any death benefits must be within the time limits set by federal tax
law.
Beneficiaries Other Than Spouses.
If the Beneficiary is not the spouse of the Annuitant, death benefits must be
paid.
- - In full within 5 years after the Annuitant's death; or
- - By payments beginning within 1 year after the Annuitant's death under:
- A life annuity;
- A life annuity with payments certain; or
- An annuity for a designated period.
If the Annuitant dies before the Annuity Date, the Beneficiary as named by you
may receive the payout.
Payments certain or payments for a designated period cannot be for a greater
period of time than the Beneficiary's life expectancy. After choosing a payment
option, a Beneficiary may exercise many of the investment options and other
rights that the Participant or Contract Owner had under Portfolio Director.
SPECIAL INFORMATION FOR INDIVIDUAL
NON-TAX QUALIFIED CONTRACTS
It is possible that the Contract Owner and the Annuitant under a Non-Tax
Qualified Contract are not the same person. If this is the case, and the
Contract Owner dies, there will be no death benefit payable since the death
benefit is only due in the event of the Annuitant's death. However, the Contract
will be transferred to the Contingent Owner, if any, or to the Contract Owner's
estate. Such transfers will be considered a taxable event by the IRS.
DURING THE PURCHASE PERIOD
Two types of benefits are available if death occurs during the Purchase Period.
Interest Guaranteed Death Benefit and Standard Death Benefit.
INTEREST GUARANTEED DEATH BENEFIT
The interest guaranteed death benefit is payable when death occurs prior to your
reaching the age of 70. This contract provision is not available in some states.
The amount payable under the interest guaranteed death benefit will be at least
equal to the sum of your Account Value in the Fixed Account Option(s) and the
Variable Account Option(s) on the date VALIC receives proof of death.
Here is how to calculate the death benefit:
Step 1: Determine your Fixed Account Option Value by taking the greater of:
<TABLE>
<S> <C> <C>
Value of Fixed Account Option on date
proof of death Is received by VALIC
OR
100% of Purchase Payments placed
in Fixed Account Option
- - (minus)
Amount of all prior withdrawals, charges and
any portion of Account Value applied under
a Payout Option
</TABLE>
Step 2: Determine your Variable Account Option Value by taking the greater of:
<TABLE>
<S> <C> <C>
Value of Variable Account Option on date
proof of death is received by VALIC
OR
100% of Purchase Payments placed in
Variable Account Options
- - (minus)
Prior withdrawals (out of) or transfers
(out of) the Variable Account Option
+ (plus)
Interest at an annual rate of 3%
</TABLE>
Step 3: Add step 1 + 2 = Death Benefit
For purposes of this calculation amounts transferred into the Variable Account
Option will be treated as Purchase Payments.
BENEFICIARY -- the person
designated to receive Payout
Payments upon the death of
an Annuitant.
ANNUITANT -- the individual,
(in most cases this person is
you) to whom Payout
Payments will be paid.
CONTRACT OWNER -- either
your employer or organization
in the case of a group
contract or the Annuitant in
the case of an individual
contract. If the contract is an
individual non-qualified type,
this is generally the Annuitant
but a Contingent Contract
Owner may also be provided
for.
FIXED ACCOUNT OPTIONS -- a
particular subaccount into
which your Purchase
Payments and Account Value
may be allocated to fixed
investment options. Currently,
the Fixed Account Options in
Portfolio Director are Fixed
Account Plus and Short-Term
Fixed Account. Each option
of this type is guaranteed to
earn at least a minimum rate
of interest.
VARIABLE ACCOUNT
OPTIONS -- Investment
Options that correspond to
VALIC Separate Account A
Divisions offered by Portfolio
Director. Investment returns
on Variable Account Options
will be positive or negative
depending on the investment
performance of the
underlying mutual fund.
33
<PAGE> 334
- --------------------------------------------------------------------------------
STANDARD DEATH BENEFIT
The standard death benefit is payable if death occurs on or after age 70.
The Standard Death Benefit will be the greater of:
<TABLE>
<S> <C> <C>
Your Account Value on the Date Proof of Death is
Received by VALIC
OR
100% of Purchase Payments (to Fixed
and/or Variable Account Options)
- -- (MINUS)
Amount of all Prior Withdrawals, Charges
and any portion of Account Value applied
under a Payout Option
</TABLE>
DURING THE PAYOUT PERIOD
If death occurs during the Payout Period, your Beneficiary may receive a death
benefit depending on the Payout Option selected. The amount of death benefits
will also depend on the Payout Option that you selected. The Payout Options
available in Portfolio Director are described in the "Payout Period" section of
this prospectus.
- If the Life Only Option or Joint and Survivor Life Option were chosen, there
will be no death benefit.
- If the Life With Guaranteed Period Option, Joint and Survivor Life with
Guaranteed Periods Option, Life with Cash or Unit Refund Option or Payment
for a Designated Period Option were chosen, and the entire amount guaranteed
has not been paid, the Beneficiary may choose one of the following within 60
days after death benefits are payable:
- Receive the present value of any remaining payments in a lump sum; or
- Receive the remaining payments under the same terms of the guaranteed
period option chosen by the deceased Participant; or
- Receive the present value of any remaining payments applied under the
Payment for a Designated Period Option for a period equal to or shorter
than the period remaining. Spouse beneficiaries may be entitled to more
favorable treatment under federal tax law.
34
<PAGE> 335
HOW TO REVIEW INVESTMENT PERFORMANCE
OF SEPARATE ACCOUNT DIVISIONS
- --------------------------------------------------------------------------------
We will advertise information about the investment performance of VALIC Separate
Account A Divisions. Our advertising of past investment performance results does
not mean that future performance will be the same. The performance information
will not predict what your actual investment experience will be in that Division
or show past performance under an actual contract. We may also show how the
Divisions rank on the basis of data compiled by independent ranking services.
Some of the Divisions (and underlying Funds) offered in this prospectus were
previously available through other annuity contracts before Portfolio Director
was first available to you. We may therefore, advertise investment performance
since the inception of the underlying Funds. However, in doing so, we will use
the charges and fees imposed by Portfolio Director in calculating the Division's
investment performance for earlier time frames.
TYPES OF INVESTMENT
PERFORMANCE INFORMATION
ADVERTISED
We may advertise the Division's Total Return Performance information and Yield
Performance information.
TOTAL RETURN PERFORMANCE
INFORMATION
Total Return Performance Information is based on the overall dollar or
percentage change in value of an assumed investment in a Division over a given
period of time.
There are seven ways Total Return Performance Information may be advertised:
- Standard Average Annual Total Return
- Nonstandard Average Annual Total Return
- Cumulative Total Return
- Annual Change in Purchase Unit Value
- Cumulative Change in Purchase Unit Value
- Total Return Based on Different Investment Amounts
- An Assumed Account Value of $10,000
Each of these is described below.
STANDARD AVERAGE ANNUAL TOTAL RETURN
Standard Average Annual Total Return shows the average percentage change in the
value of an investment in the Division from the beginning to the end of a given
historical period. The results shown are after all charges and fees have been
applied against the
Division. This will include account maintenance fees and surrender charges that
would have been deducted if you surrendered Portfolio Director at the end of
each period shown. Premium taxes are not deducted. This information is
calculated for each Division based on how an initial assumed payment of $1,000
performed at the end of 1, 3, 5 and 10 year periods.
The return for periods of more than one year are annualized to obtain the
average annual percentage increase (or decrease) during the period.
Annualization assumes that the application of a single rate of return each year
during the period will produce the ending value, taking into account the effect
of compounding.
NONSTANDARD AVERAGE ANNUAL TOTAL RETURN
Nonstandard Average Annual Total Return is calculated in the same manner as the
Standard Average Annual Total Return. However, Nonstandard Average Annual Total
Return shows only the historic investment results of the Division. Account
maintenance fees, surrender charges and premium taxes are not deducted.
CUMULATIVE TOTAL RETURN
Cumulative Total Return assumes the investment in Portfolio Director will stay
in the Division beyond the time that a surrender charge would apply. It may be
calculated for 1, 3, 5 and 10 year periods. It is based on an assumed initial
investment of $10,000. The Cumulative Return will be calculated without
deduction of account maintenance fees, surrender charges or premium taxes.
ANNUAL CHANGE IN PURCHASE UNIT VALUE
Annual Change in Purchase Unit Value is a percentage change during a one year
period. This is calculated as follows:
- The Purchase Unit Value at the start of the year is subtracted from the
Purchase Unit Value at the end of the year;
- The difference is divided by the Purchase Unit Value at the start of the
year.
Account maintenance fees, surrender charges and premium taxes are not deducted.
The effect of these charges, if deducted, would reduce the Division's Annual
Change in Purchase Unit Value.
DIVISIONS -- Subaccounts of
VALIC Separate Account A
which represent the Variable
Account Options in Portfolio
Director. Each Division
invests in a different mutual
fund, each having its own
investment objective and
strategy.
PURCHASE PAYMENTS -- an
amount of money you pay to
VALIC to receive the benefits
of an annuity Contract offered
by Portfolio Director.
For more information on how
TOTAL RETURN PERFORMANCE
INFORMATION is calculated
and tables showing historical
performance information, see
the Statement of Additional
Information.
35
<PAGE> 336
- --------------------------------------------------------------------------------
CUMULATIVE CHANGE IN PURCHASE UNIT VALUE
Cumulative Change in Purchase Unit Value is a percentage change from the
beginning to the ending of a period usually greater than one year. Otherwise, it
is calculated in the same way as the Annual Change in Purchase Unit Value.
TOTAL RETURN BASED ON DIFFERENT
INVESTMENT AMOUNTS
We may show total return information based on different investment amounts. For
example, we may show $200 a month for 10 years, or $100 a month to age 65. Fees
may or may not be included. Each performance illustration will explain the
Portfolio Director charges and fees imposed on the Division.
AN ASSUMED ACCOUNT VALUE OF $10,000
We may show annual values based on an initial investment of $10,000. This will
not reflect any deduction for account maintenance fees, surrender charges and
premium taxes.
YIELD PERFORMANCE INFORMATION
We may advertise Yield Performance, at a given point in time. A Division's yield
is one way of showing the rate of income the Division is earning as a percentage
of the Division's Purchase Unit Value.
AGSPC MONEY MARKET DIVISION
We may advertise the AGSPC Money Market Division's Current Yield and Effective
Yield.
The Current Yield refers to the income produced by an investment in the AGSPC
Money Market Division over a given 7-day period. The Current Yield does not take
into account surrender charges, account maintenance fees or premium taxes. The
income produced over a 7 day period is then "annualized." This means we are
assuming the amount of income produced during the 7-day period will continue to
be produced each week for an entire year. The annualized amount is shown as a
percentage of the investment. The 7-day Current Yield for the last 7 days ended
December 31, 1997 was 4.22%.
The Effective Yield is calculated in a manner similar to the Current Yield. But,
when the yield is annualized the income earned is assumed to be reinvested. The
compounding effect will cause the Effective Yield to be higher than the Current
Yield. The 7-day Effective Yield for the last 7 days ended December 31, 1997 was
4.31%.
DIVISIONS OTHER THAN THE AGSPC MONEY MARKET DIVISION
We may advertise the standardized yield performance for each Division other than
the AGSPC Money Market Division. The yield for each of these Divisions will be
determined as follows:
- We will subtract the account maintenance fee from the average daily net
investment income per Purchase Unit;
- We will divide the remainder by the Purchase Unit Value on the last day of
the period; and
- We will annualize the result.
PERFORMANCE INFORMATION
AVERAGE ANNUAL TOTAL RETURN, CUMULATIVE RETURN AND ANNUAL AND CUMULATIVE CHANGE
IN PURCHASE UNIT VALUE TABLES.
In the sections above we have described a number of ways we may advertise
information about the investment performance of VALIC Separate Account A
Divisions. Certain performance information for each VALIC Separate A Account
Division is printed in the four tables below.
The information presented does not reflect the advantage under Portfolio
Director of deferring federal income tax on increases in Account Value due to
earnings attributable to Purchase Payments (see "Federal Tax Matters" in the
prospectus and in the Statement of Additional Information.) The information
presented also does not reflect the advantage under Qualified Contracts of
deferring federal income tax on Purchase Payments.
The performance results shown in the following tables are not an estimate or
guarantee of future investment performance, and do not represent the actual
experience of amounts invested by a particular Participant.
36
<PAGE> 337
TABLE I
AVERAGE ANNUAL TOTAL RETURN
WITH SURRENDER CHARGE AND ACCOUNT MAINTENANCE FEE IMPOSED
(FROM SEPARATE ACCOUNT DIVISION INCEPTION TO DECEMBER 31, 1997)
<TABLE>
<CAPTION>
SINCE
FUND AND DIVISION INCEPTION DATE INCEPTION 10 YEARS 5 YEARS 3 YEARS 1 YEAR
----------------- -------------- --------- -------- ------- ------- ------
<S> <C> <C> <C> <C> <C> <C>
AGSPC Asset Allocation Fund (Division 5)(1).......... 09/06/83 8.41% 9.48% 10.99% 16.84% 16.31%
AGSPC Capital Conservation Fund (Division 7)......... 01/16/86 5.69 6.65 5.02 7.47 2.58
AGSPC Government Securities Fund (Division 8)........ 01/16/86 5.67 6.69 4.65 6.61 2.90
AGSPC Growth Fund (Division 15)...................... 04/29/94 21.11 -- -- 26.34 14.71
AGSPC Growth & Income Fund (Division 16)............. 04/29/94 18.85 -- -- 23.83 17.52
AGSPC International Equities Fund (Division 11)...... 10/02/89 2.52 -- 9.22 3.85 (3.44)
AGSPC International Government Bond Fund (Division
13)................................................ 10/01/91 6.47 -- 5.10 2.98 (10.09)
AGSPC MidCap Index Fund (Division 4)(2)
Period from 07/01/87 to 06/30/97................... 10/13/82 9.90 12.64 15.44 24.44 25.36
Period from 10/01/91 to 06/30/97................... 16.13 -- 15.44 24.44 25.36
AGSPC Money Market Fund (Division 6)................. 01/16/86 4.29 4.28 2.40 2.54 (0.63)
AGSPC Science & Technology Fund (Division 17)........ 04/29/94 24.40 -- -- 21.12 (3.07)
AGSPC Small Cap Index Fund (Division 14)............. 05/01/92 14.46 -- 13.50 19.70 16.09
AGSPC Social Awareness Fund (Division 12)............ 10/02/89 14.19 -- 17.82 29.70 27.43
AGSPC Stock Index Fund (Division 10)................. 04/20/87 13.06 15.79 18.11 28.48 26.68
Dreyfus Small Cap Portfolio (Division 18)............ 07/11/94 16.67 -- -- 17.99 10.29
Templeton Asset Allocation Fund
(Division 19)...................................... 07/11/94 13.60 -- -- 16.13 8.99
Templeton International Fund (Division 20)........... 07/11/94 12.78 -- -- 15.02 7.46
</TABLE>
- ---------------
(1) The AGSPC Asset Allocation Fund was formerly known as the Timed Opportunity
Fund.
(2) The AGSPC MidCap Index Division was formerly the Capital Accumulation
Division. Effective October 1, 1991, the Fund underlying this Division
changed its name from the Capital Accumulation Fund to the MidCap Index Fund
and amended its investment objective, investment program and investment
restrictions accordingly. Historical data prior to October 1, 1991 reflect
investment experience prior to these changes.
TABLE II
AVERAGE ANNUAL TOTAL RETURN
WITH SURRENDER CHARGE AND ACCOUNT MAINTENANCE FEE IMPOSED
(FROM UNDERLYING FUND INCEPTION TO DECEMBER 31, 1997)
<TABLE>
<CAPTION>
SINCE
FUND AND DIVISION* INCEPTION DATE INCEPTION 10 YEARS 5 YEARS 3 YEARS 1 YEAR
------------------ -------------- --------- -------- ------- ------- ------
<S> <C> <C> <C> <C> <C> <C>
Dreyfus Small Cap Portfolio (Division 18)(1)........... 08/31/90 42.09% -- 24.03% 17.99% 10.29%
Templeton Asset Allocation Fund
(Division 19)(1)..................................... 08/24/88 11.13 -- 13.37 16.13 8.99
Templeton International Fund (Division 20)(1).......... 05/01/92 13.48 -- 16.56 15.02 7.46
</TABLE>
* The Table reflects actual historical performance of the related Separate
Account Divisions since inception of each Division (July 11, 1994) and
historical performance for periods prior to July 11, 1994. Hypothetical
performance is based on the actual performance of the underlying Fund reduced
by Separate Account fees that would have been incurred during the hypothetical
period.
37
<PAGE> 338
TABLE III
AVERAGE ANNUAL TOTAL RETURN
WITH NO SURRENDER CHARGE OR ACCOUNT MAINTENANCE FEE IMPOSED
(FROM SEPARATE ACCOUNT DIVISION INCEPTION TO DECEMBER 31, 1997)
<TABLE>
<CAPTION>
FUND
INCEPTION SINCE
FUND AND DIVISION DATE INCEPTION 10 YEARS 5 YEARS 3 YEARS 1 YEAR
----------------- --------- --------- -------- ------- ------- ------
<S> <C> <C> <C> <C> <C> <C>
AGSPC Asset Allocation Fund (Division 5)................ 09/06/83 8.55% 9.61% 11.76% 18.16% 21.40%
AGSPC Capital Conservation Fund
(Division 7).......................................... 01/16/86 5.82 6.78 5.94 9.00 7.49
AGSPC Government Securities Fund
(Division 8).......................................... 01/16/86 5.80 6.82 5.59 8.16 7.83
AGSPC Growth Fund (Division 15)......................... 04/29/94 22.05 -- -- 27.50 19.80
AGSPC Growth & Income Fund (Division 16)................ 04/29/94 19.82 -- -- 25.02 22.60
AGSPC International Equities Fund
(Division 11)......................................... 10/02/89 2.64 -- 10.03 5.47 1.18
AGSPC International Government Bond Fund (Division
13)................................................... 10/01/91 6.60 -- 6.02 4.63 (5.79)
AGSPC MidCap Index Fund (Division 4)
Period from 07/01/87 to 06/30/97...................... 10/13/82 10.04 12.78 16.13 25.63 30.45
Period from 10/01/91 to 06/30/97...................... 16.26 -- 16.13 25.63 30.45
AGSPC Money Market Fund (Division 6).................... 01/16/86 4.42 4.41 3.40 4.20 4.13
AGSPC Science & Technology Fund
(Division 17)......................................... 04/29/94 25.29 -- -- 22.36 1.57
AGSPC Small Cap Index Fund (Division 14)................ 05/01/92 14.59 -- 14.22 20.97 21.18
AGSPC Social Awareness Fund (Division 12)............... 10/02/89 14.33 -- 18.46 30.80 32.52
AGSPC Stock Index Fund (Division 10).................... 04/20/87 13.20 15.93 18.75 29.60 31.77
Dreyfus Small Cap Portfolio (Division 18)............... 07/11/94 17.85 -- -- 19.29 15.37
Templeton Asset Allocation Fund
(Division 19)......................................... 07/11/94 14.75 -- -- 17.46 14.07
Templeton International Fund (Division 20).............. 07/11/94 13.95 -- -- 16.38 12.54
</TABLE>
TABLE IV
AVERAGE ANNUAL TOTAL RETURN
WITH NO SURRENDER CHARGE OR ACCOUNT MAINTENANCE FEE IMPOSED
(FROM UNDERLYING FUND INCEPTION TO DECEMBER 31, 1997)
<TABLE>
<CAPTION>
FUND
INCEPTION SINCE
FUND AND DIVISION* DATE INCEPTION 10 YEARS 5 YEARS 3 YEARS 1 YEAR
------------------ --------- --------- -------- ------- ------- ------
<S> <C> <C> <C> <C> <C> <C>
Dreyfus Small Cap Portfolio (Division 18)............... 08/31/90 42.26% -- 24.58% 19.29% 15.37%
Templeton Asset Allocation Fund (Division 19)........... 08/24/88 11.27 -- 14.10 17.46 14.07
Templeton International Fund (Division 20).............. 05/01/92 13.62 -- 17.23 16.38 12.54
</TABLE>
- ---------------
* The Table reflects actual historical performance of the related Separate
Account Divisions since inception of each Division (July 11, 1994) and
historical performance for periods prior to July 11, 1994. Hypothetical
performance is based on the actual performance of the underlying Fund reduced
by Separate Account fees that would have been incurred during the
hypothetical period.
38
<PAGE> 339
TABLE V
CUMULATIVE RETURN
WITH NO SURRENDER CHARGE OR ACCOUNT MAINTENANCE FEE IMPOSED
(FROM SEPARATE ACCOUNT DIVISION INCEPTION TO DECEMBER 31, 1997)
<TABLE>
<CAPTION>
FUND SINCE
FUND AND DIVISION INCEPTION DATE INCEPTION 10 YEARS 5 YEARS 3 YEARS 1 YEAR
----------------- -------------- --------- -------- ------- ------- ------
<S> <C> <C> <C> <C> <C> <C>
AGSPC Asset Allocation Fund (Division 5)....... 09/06/83 221.93% 150.29% 74.39% 64.96% 21.40%
AGSPC Capital Conservation Fund
(Division 7)................................. 01/16/86 96.22 92.64 33.47 29.50 7.49
AGSPC Government Securities Fund
(Division 8)................................. 01/16/86 95.78 93.46 31.26 26.54 7.83
AGSPC Growth Fund (Division 15)................ 04/29/94 107.65 -- -- 107.27 19.80
AGSPC Growth & Income Fund
(Division 16)................................ 04/29/94 94.09 -- -- 95.43 22.60
AGSPC International Equities Fund
(Division 11)................................ 10/02/89 23.73 -- 61.29 17.34 1.18
AGSPC International Government Bond Fund
(Division 13)................................ 10/01/91 49.06 -- 33.95 14.55 (5.79)
AGSPC MidCap Index Fund (Division 4)
Period from 07/01/87 to 06/30/97............. 10/13/82 326.91 232.83 111.21 98.27 30.45
Period from 10/01/91 to 06/30/97............. 156.48 111.21 98.27 30.45
AGSPC Money Market Fund (Division 6)........... 01/16/86 67.36 53.92 18.22 13.15 4.13
AGSPC Science & Technology Fund
(Division 17)................................ 04/29/94 128.57 -- -- 83.19 1.57
AGSPC Small Cap Index Fund
(Division 14)................................ 05/01/92 116.36 -- 94.43 77.01 21.18
AGSPC Social Awareness Fund
(Division 12)................................ 10/02/89 198.53 -- 133.32 123.81 32.52
AGSPC Stock Index Fund (Division 10)........... 04/20/87 275.34 338.36 136.11 117.70 31.77
Dreyfus Small Cap Portfolio
(Division 18)................................ 07/11/94 77.06 -- -- 69.74 15.37
Templeton Asset Allocation Fund
(Division 19)................................ 07/11/94 61.39 -- -- 62.07 14.07
Templeton International Fund
(Division 20)................................ 07/11/94 57.52 -- -- 57.63 12.54
</TABLE>
TABLE VI
CUMULATIVE RETURN
WITH NO SURRENDER CHARGE OR ACCOUNT MAINTENANCE FEE IMPOSED
(FROM UNDERLYING FUND INCEPTION TO DECEMBER 31, 1997)
<TABLE>
<CAPTION>
FUND SINCE
FUND AND DIVISION* INCEPTION DATE INCEPTION 10 YEARS 5 YEARS 3 YEARS 1 YEAR
------------------ -------------- --------- -------- ------- ------- ------
<S> <C> <C> <C> <C> <C> <C>
Dreyfus Small Cap Portfolio (Division 18)....... 08/31/90 1,226.07% --% 200.14% 69.74% 15.37%
Templeton Asset Allocation Fund (Division 19)... 08/24/88 170.87 -- 93.36 62.07 14.07
Templeton International Fund (Division 20)...... 05/01/92 106.13 -- 121.37 57.63 12.54
</TABLE>
- ---------------
* The Table reflects actual historical performance of the related Separate
Account Divisions since inception of each Division (July 11, 1994) and
historical performance for periods prior to July 11, 1994. Hypothetical
performance is based on the actual performance of the underlying Fund reduced
by Separate Account fees that would have been incurred during the
hypothetical period.
39
<PAGE> 340
TABLE VII
ANNUAL AND CUMULATIVE CHANGE IN PURCHASE UNIT VALUE
WITH NO SURRENDER CHARGE OR ACCOUNT MAINTENANCE FEE IMPOSED
(PERIOD FROM SEPARATE ACCOUNT DIVISION INCEPTION)
<TABLE>
<CAPTION>
ANNUAL CHANGE IN PURCHASE UNIT VALUE FOR THE 12 MONTHS ENDED DECEMBER 31*
--------------------------------------------
FUND AND DIVISION 1997 1996 1995 1994
----------------- -------- -------- -------- --------
<S> <C> <C> <C> <C>
AGSPC Asset Allocation Fund
(Division 5)...................... 21.40% 9.99% 23.55% (2.29)%
AGSPC Capital Conservation Fund
(Division 7)...................... 7.49 0.75 19.58 (7.04)
AGSPC Government Securities Fund
(Division 8)...................... 7.83 0.90 16.31 (5.44)
AGSPC Growth Fund (Division 15).... 19.80 18.18 46.40 0.18
AGSPC Growth & Income Fund
(Division 16)..................... 22.60 22.10 30.55 (0.68)
AGSPC International Equities Fund
(Division 11)..................... 1.18 5.75 9.67 6.90
AGSPC International Government Bond
Fund (Division 13)................ (5.79) 3.36 17.63 3.42
AGSPC MidCap Index Fund (Division
4)(1)............................. 30.45 17.61 29.24 (4.70)
AGSPC Money Market Fund (Division
6)................................ 4.13 3.97 4.51 2.77
AGSPC Science & Technology Fund
(Division 17)..................... 1.57 12.68 60.07 24.77
AGSPC Small Cap Index Fund
(Division 14)..................... 21.18 15.57 26.39 (4.30)
AGSPC Social Awareness Fund
(Division 12)..................... 32.52 22.75 37.57 (2.42)
AGSPC Stock Index Fund (Division
10)............................... 31.77 21.53 35.95 (0.30)
Dreyfus Small Cap Portfolio
(Division 18)..................... 15.37 15.14 27.78 4.32
Templeton Asset Allocation Fund
(Division 19)..................... 14.07 17.40 21.02 (0.41)
Templeton International Fund
(Division 20)..................... 12.54 22.50 14.34 (0.07)
<CAPTION>
ANNUAL CHANGE IN PURCHASE UNIT VALUE FOR THE 12 MONTHS ENDED DECEMBER 31*
------------------------------------------------------------------
FUND AND DIVISION 1993 1992 1991 1990 1989 1988
----------------- ------ -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C>
AGSPC Asset Allocation Fund
(Division 5)...................... 8.19% (1.71)% 20.13% (3.38)% 15.81% 8.63%
AGSPC Capital Conservation Fund
(Division 7)...................... 10.88 7.55 16.00 (1.28) 10.63 5.92
AGSPC Government Securities Fund
(Division 8)...................... 9.70 6.14 13.59 4.91 11.03 4.95
AGSPC Growth Fund (Division 15).... -- -- -- -- -- --
AGSPC Growth & Income Fund
(Division 16)..................... -- -- -- -- -- --
AGSPC International Equities Fund
(Division 11)..................... 28.58 (14.31) 10.06 (20.90) 2.84 --
AGSPC International Government Bond
Fund (Division 13)................ 13.08 2.05 9.05 -- -- --
AGSPC MidCap Index Fund (Division
4)(1)............................. 11.78 8.79 20.81 (10.20) 18.10 13.06
AGSPC Money Market Fund (Division
6)................................ 1.67 2.22 4.49 6.83 7.92 5.72
AGSPC Science & Technology Fund
(Division 17)..................... -- -- -- -- -- --
AGSPC Small Cap Index Fund
(Division 14)..................... 14.77 11.28 -- -- -- --
AGSPC Social Awareness Fund
(Division 12)..................... 6.84 2.31 26.63 (2.21) 1.00 --
AGSPC Stock Index Fund (Division
10)............................... 8.78 5.58 27.70 (4.83) 27.88 13.13
Dreyfus Small Cap Portfolio
(Division 18)..................... -- -- -- -- -- --
Templeton Asset Allocation Fund
(Division 19)..................... -- -- -- -- -- --
Templeton International Fund
(Division 20)..................... -- -- -- -- -- --
</TABLE>
<TABLE>
<CAPTION>
CUMULATIVE CHANGE IN PURCHASE UNIT VALUE FOR EACH PERIOD END SINCE 12/31/87*
--------------------------------------------------------
FUND AND DIVISION 1997 1996 1995 1994 1993
----------------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C>
AGSPC Asset Allocation Fund
(Division 5)...................... 150.29% 106.18% 87.45% 51.73% 55.28%
AGSPC Capital Conservation Fund
(Division 7)...................... 92.64 79.22 77.89 48.76 60.03
AGSPC Government Securities Fund
(Division 8)...................... 93.46 79.42 77.82 52.88 61.69
AGSPC Growth Fund (Division 15).... 107.65 73.33 46.67 0.18 --
AGSPC Growth & Income Fund
(Division 16)..................... 94.09 58.31 29.66 (0.68) --
AGSPC International Equities Fund
(Division 11)..................... 23.73 22.29 15.65 5.45 (1.36)
AGSPC International Government Bond
Fund (Division 13)................ 49.06 58.22 53.08 30.14 25.83
AGSPC MidCap Index Fund (Division
4)(1)............................. 232.83 155.14 116.95 67.87 76.15
AGSPC Money Market Fund (Division
6)................................ 53.92 47.82 42.17 36.04 32.38
AGSPC Science & Technology Fund
(Division 17)..................... 128.57 125.05 99.72 24.77 --
AGSPC Small Cap Index Fund
(Division 14)..................... 116.36 78.54 54.49 22.23 27.72
AGSPC Social Awareness Fund
(Division 12)..................... 198.53 125.27 83.51 33.39 36.70
AGSPC Stock Index Fund (Division
10)............................... 338.36 232.67 173.74 101.36 101.97
Dreyfus Small Cap Portfolio
(Division 18)..................... 77.06 53.47 33.29 4.32 --
Templeton Asset Allocation Fund
(Division 19)..................... 61.39 41.48 20.52 (0.41) --
Templeton International Fund
(Division 20)..................... 57.52 39.97 14.26 (0.07) --
<CAPTION>
CUMULATIVE CHANGE IN PURCHASE UNIT VALUE FOR EACH PERIOD END SINCE 12/31/87*
------------------------------------------------------
FUND AND DIVISION 1992 1991 1990 1989 1988
----------------- ------ -------- -------- -------- --------
<S> <C> <C> <C> <C> <C>
AGSPC Asset Allocation Fund
(Division 5)...................... 43.52% 43.03% 21.55% 25.81% 8.63%
AGSPC Capital Conservation Fund
(Division 7)...................... 44.33 34.19 15.68 17.18 5.92
AGSPC Government Securities Fund
(Division 8)...................... 47.39 38.86 22.25 16.53 4.95
AGSPC Growth Fund (Division 15).... -- -- -- -- --
AGSPC Growth & Income Fund
(Division 16)..................... -- -- -- -- --
AGSPC International Equities Fund
(Division 11)..................... (23.29) (10.48) (18.66) 2.84 --
AGSPC International Government Bond
Fund (Division 13)................ 11.28 9.05 -- -- --
AGSPC MidCap Index Fund (Division
4)(1)............................. 57.58 44.86 19.91 33.52 13.06
AGSPC Money Market Fund (Division
6)................................ 30.20 27.37 21.90 14.10 5.72
AGSPC Science & Technology Fund
(Division 17)..................... -- -- -- -- --
AGSPC Small Cap Index Fund
(Division 14)..................... 11.28 -- -- -- --
AGSPC Social Awareness Fund
(Division 12)..................... 27.95 25.06 (1.23) 1.00 --
AGSPC Stock Index Fund (Division
10)............................... 85.66 75.84 37.70 44.68 13.13
Dreyfus Small Cap Portfolio
(Division 18)..................... -- -- -- -- --
Templeton Asset Allocation Fund
(Division 19)..................... -- -- -- -- --
Templeton International Fund
(Division 20)..................... -- -- -- -- --
</TABLE>
- ------------
* For the year in which the underlying Fund commenced operations, less than a
full year's performance has been reflected, which is not annualized.
(1) Effective October 1, 1991, the Fund underlying the AGSPC MidCap Index
Division changed its name from the Capital Accumulation Fund to the MidCap
Index Fund and amended its investment objective, investment program and
investment restrictions accordingly. Historical data prior to October 1,
1991 reflect investment experience prior to these changes. Investment
experience for this Division subsequent to October 1, 1991 has been as
follows: for the period from October 1, 1991 through December 31, 1991, the
change in purchase unit value was 11.63%; for the period from October 1,
1991 through December 31, 1992, the cumulative change in purchase unit value
was 21.43%; for the period from October 1, 1991 through December 31, 1993,
the cumulative change in purchase unit value was 35.74%; for the period from
October 1, 1991 through December 31, 1994, the cumulative change in purchase
unit value was 29.36%; for the period from October 1, 1991 through December
31, 1995 the cumulative change in purchase unit value was 67.18%; for the
period from October 1, 1991 through December 31, 1996 the cumulative change
in purchase unit value was 96.61%; and for the period from October 1, 1991
through December 31, 1997 the cumulative change in purchase unit value was
156.48%.
40
<PAGE> 341
TABLE VIII
ANNUAL AND CUMULATIVE CHANGE IN PURCHASE UNIT VALUE
WITH NO SURRENDER CHARGE OR ACCOUNT MAINTENANCE FEE IMPOSED
(PERIOD FROM UNDERLYING FUND INCEPTION)
<TABLE>
<CAPTION>
ANNUAL CHANGE IN PURCHASE UNIT VALUE FOR THE 12 MONTHS ENDED DECEMBER 31*
--------------------------------------------
FUND AND DIVISION** 1997 1996 1995 1994
------------------- -------- -------- -------- --------
<S> <C> <C> <C> <C>
Dreyfus Small Cap Portfolio
(Division 18)..................... 15.37 15.14 27.78 6.33
Templeton Asset Allocation Fund
(Division 19)..................... 14.07 17.40 21.02 (4.24)
Templeton International Fund
(Division 20)..................... 12.54 22.50 14.34 (3.49)
<CAPTION>
ANNUAL CHANGE IN PURCHASE UNIT VALUE FOR THE 12 MONTHS ENDED DECEMBER 31*
------------------------------------------------------------------
FUND AND DIVISION** 1993 1992 1991 1990 1989 1988
------------------- ------ -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C>
Dreyfus Small Cap Portfolio
(Division 18)..................... 66.31 69.24 156.75 1.68 -- --
Templeton Asset Allocation Fund
(Division 19)..................... 24.59 6.74 26.13 (9.13) 11.86 2.37
Templeton International Fund
(Division 20)..................... 45.51 (6.89) -- -- -- --
</TABLE>
<TABLE>
<CAPTION>
CUMULATIVE CHANGE IN PURCHASE UNIT VALUE FOR EACH PERIOD END SINCE 12/31/87*
--------------------------------------------------------------------------------
FUND AND DIVISION** 1997 1996 1995 1994 1993 1992 1991
------------------- -------- -------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C> <C>
Dreyfus Small Cap Portfolio
(Division 18)..................... 1,226.07 1,049.38 898.25 681.25 634.77 341.81 161.05
Templeton Asset Allocation Fund
(Division 19)..................... 170.87 137.46 102.27 67.14 74.53 40.09 31.24
Templeton International Fund
(Division 20)..................... 106.13 83.17 49.52 30.77 35.49 (6.89) --
<CAPTION>
CUMULATIVE CHANGE IN PURCHASE UNIT VALUE FOR EACH PERIOD END SINCE 12/31/87*
--------------------------------
FUND AND DIVISION** 1990 1989 1988
------------------- -------- -------- --------
<S> <C> <C> <C>
Dreyfus Small Cap Portfolio
(Division 18)..................... 1.68 -- --
Templeton Asset Allocation Fund
(Division 19)..................... 4.05 14.50 2.37
Templeton International Fund
(Division 20)..................... -- -- --
</TABLE>
- ------------
* For the year in which the underlying Fund commenced operations, less than a
full year's performance has been reflected, which is not annualized.
** The Table reflects actual historical performance of the related Separate
Account Divisions since inception of each Division (July 11, 1994) and
historical performance for periods prior to July 11, 1994. Hypothetical
performance is based on the actual performance of the underlying Fund reduced
by Separate Account fees that would have been incurred during the
hypothetical period.
41
<PAGE> 342
OTHER CONTRACT FEATURES
- --------------------------------------------------------------------------------
CHANGES THAT MAY NOT BE MADE
The following terms in Portfolio Director may not be changed once your account
has been established:
- The Contract Owner;
- The Participant; and
- The Annuitant.
CHANGE OF BENEFICIARY
The Beneficiary (if not irrevocable) may usually be changed at any time.
Under some retirement programs, the right to name or change a Beneficiary is
subject to approval by the spouse. Also, the right to name a Beneficiary other
than the spouse may be subject to certain tax laws and regulations.
If the Annuitant dies, and there is no Beneficiary, any death benefit will be
payable to the Annuitant's estate.
If a Beneficiary dies while receiving payments, and there is no co-Beneficiary
to continue to receive payments, any amount still due will be paid to the
Beneficiary's estate.
CONTINGENT OWNER
The Contract Owner may name a Contingent Owner under an individual non-tax
qualified Contract. During the Purchase Period, the Contingent Owner may be
changed. However, if the Contract Owner dies, benefits must be distributed as
required by the federal tax law.
CANCELLATION -- THE 20 DAY "FREE LOOK"
The Contract Owner may cancel an individual contract by returning it to the
Company within 20 days after delivery. (A longer period will be allowed if
required under state law.) A refund will be made to the Contract Owner within 7
days after receipt of the Contract within the required period. The amount of the
refund will be equal to all Purchase Payments received or the amount required
under state law, if larger.
WE RESERVE CERTAIN RIGHTS
We reserve the right to:
- Amend the Contract to conform with substitutions of investments;
- Amend the Contract to comply with tax or other laws;
- Make changes (upon written notice) to group Contracts that would apply only
to new Participants after the effective date of the changes;
- Operate VALIC Separate Account A as a management investment company under
the 1940 Act, in consideration of an investment management fee or in any
other form permitted by law;
- Deregister VALIC Separate Account A under the 1940 Act, if registration is
no longer required;
- Stop accepting new Participants under a group Contract.
RELATIONSHIP TO EMPLOYER'S PLAN
If the Contract is being offered as a retirement plan through your employer, you
should always refer to the terms and conditions in your employer's plan when
reviewing the description of Portfolio Director in this prospectus.
Plan loans from the Fixed Account Options may be allowed by your employer's
plan. Refer to your plan for a description of charges and other information.
42
<PAGE> 343
VOTING RIGHTS
- --------------------------------------------------------------------------------
As discussed in the "About VALIC Separate Account A" section of this prospectus,
VALIC Separate Account A holds on your behalf shares of the Funds which comprise
the Variable Account Options. From time to time the Funds are required to hold a
shareholder meeting to obtain approval from their shareholders for certain
matters. As a Participant, you may be entitled to give voting instructions to us
as to how VALIC Separate Account A should vote its Fund shares on these matters.
Those persons entitled to give voting instructions will be determined before the
shareholders meeting is held. For more information about these shareholder
meetings and when they may be held, see the Funds' prospectuses.
WHO MAY GIVE VOTING INSTRUCTIONS
In most cases during the Purchase Period, you will have the right to give voting
instructions for the shareholder meetings. This will be true even if your
employer is the Contract Owner. Contract Owners will instruct VALIC Separate
Account A in accordance with these instructions. You will receive proxy material
and a form on which voting instructions may be given before the shareholder
meeting is held.
You will not have the right to give voting instructions if Portfolio Director
was issued in connection with a nonqualified and unfunded deferred compensation
plan.
DETERMINATION OF FUND SHARES
ATTRIBUTABLE TO YOUR ACCOUNT
DURING PURCHASE PERIOD
The number of Fund shares attributable to your account will be determined on the
basis of the Purchase Units credited to your account on the record date set for
the Fund shareholder meeting.
DURING PAYOUT PERIOD OR AFTER A DEATH
BENEFIT HAS BEEN PAID
The number of Fund shares attributable to your account will be based on the
liability for future variable annuity payments to your payees on the record date
set for the Fund shareholder meeting.
HOW FUND SHARES ARE VOTED
The Funds which comprise the Variable Account Options in Portfolio Director may
have a number of shareholders including VALIC Separate Account A, VALIC and
other affiliated insurance company separate accounts and retirement plans within
the American General group of companies.
VALIC Separate Account A will vote all of the shares of the Funds it holds based
on, and in the same proportion as, the instructions given by all the
Participants invested in that Fund entitled to give instructions at that
shareholder meeting. VALIC Separate Account A will vote the shares of the Funds
it holds for which it receives no voting instruction in the same proportion as
the shares for which voting instructions have been received.
VALIC will vote the shares of the Funds it holds based on, and in the same
proportion as, the voting instructions received from participants in VALIC
Separate Account A.
In the future, we may decide how to vote the shares of VALIC or VALIC Separate
Account A in a different manner if permitted at that time under federal
securities law.
VALIC SEPARATE
ACCOUNT A -- a segregated
asset account established by
VALIC under the Texas
Insurance Code. The purpose
of VALIC Separate Account A
is to receive and invest your
Purchase Payments and
Account Value in the Variable
Account Options you have
selected.
43
<PAGE> 344
FEDERAL TAX MATTERS
- --------------------------------------------------------------------------------
Portfolio Director Contracts provide tax-deferred accumulation over time, but
are subject to federal income and excise taxes, mentioned briefly below. You
should refer to the Statement of Additional Information for further details.
Section references are to the Internal Revenue Code ("Code"). We do not attempt
to describe any potential estate or gift tax, or any applicable state, local or
foreign tax law other than possible premium taxes mentioned under "Premium Tax
Charge." Remember that future legislation could modify the rules discussed
below, and always consult your personal tax adviser regarding how the current
rules apply to your specific situation.
TYPE OF PLANS
Tax rules vary, depending on whether the Contract is offered under your
employer's tax-qualified retirement program or 408(b) IRA, or is instead a
nonqualified Contract. Portfolio Director is used under the following types of
retirement arrangements:
- Section 403(b) annuities for employees of public schools and Section
501(c)(3) tax-exempt organizations;
- Section 401(a) and 403(a) qualified plans of employers (including
self-employed individuals);
- Section 408(b) individual retirement annuities;
- Section 457 deferred compensation plans of governmental and tax-exempt
employers;
- Section 408(k) simplified deferred compensation plans of private employers.
- Unfunded, non-qualified deferred compensation plans of private employers.
- Section 408(p) SIMPLE Retirement Accounts
Portfolio Director may also be available through a nondeductible Section 408A
"Roth" individual retirement annuity.
Note that the specific terms of the governing employer plan may limit rights and
options otherwise available under a Contract.
In addition, Portfolio Director is also available through "Non-Qualified
Contracts." Separate Account investment must be "adequately diversified" in
order for the increase in the value of Non-Qualified Contracts to receive
tax-deferred treatment. Each Fund must, as of the end of each calendar quarter
or within 30 days thereafter, have no more than 55% of its assets invested in
any one investment, 70% in any two investments, 80% in any three investments and
90% in any four investments. A Fund's failure to meet these diversification
requirements could result in tax liability to Non-Qualified Contract Owners.
Since each Fund expects to satisfy diversification, and assure tax deferred
treatment to Non-Qualified Contract holders, investment opportunities of a Fund
may consequently be limited. This would affect all Contract Owners, including
owners of Contracts other than Non-Qualified Contracts for whom diversification
is not a requirement for tax-deferred treatment.
TAX CONSEQUENCES IN GENERAL
Purchase Payments, distributions, withdrawals, transfers and surrender of a
Contract can each have a tax effect, which varies with the governing retirement
arrangement. Please refer to the detailed explanation in the Statement of
Additional Information, the documents (if any) controlling the retirement
arrangement through which the contract is offered, and your personal tax
adviser.
Purchase Payments under Portfolio Director can be made as contributions by
employers, or as pre-tax or after-tax contributions by employees, depending on
the type of retirement program. After-tax employee contributions constitute
"investment in the Contract." All Contracts receive deferral of tax on the
inside build-up of earnings on invested Purchase Payments, until a distribution
occurs. See the Statement of Additional Information for special rules, including
those applicable to taxable, non-natural owners of Non-Qualified Contracts.
Distributions are taxed differently depending on the program through which
Portfolio Director is offered and the previous tax characterization of the
contributions to which the distribution relates. Generally, the portion of a
distribution which is not considered a return of investment in the Contract is
subject to income tax. For annuity payments, investment in the contract is
recovered ratably over the expected payout period. Special recovery rules might
apply in certain situations.
Amounts subject to income tax may also incur excise tax, under the circumstances
described in the Statement of Additional Information. Generally, they would also
be subject to some form of federal income tax withholding unless rolled into
another tax-deferred vehicle. Required withholding will vary according to type
of program, type of payment and your tax status. In addition, amounts received
under all Contracts may be subject to state income tax withholding requirements.
44
<PAGE> 345
- --------------------------------------------------------------------------------
EFFECT OF TAX-DEFERRED ACCUMULATIONS
The chart below compares the results from
Premium Payments made to:
- Portfolio Director Contract issued to a tax favored retirement program
purchased with pre-tax premium payments;
- A non-qualified Contract purchased with after-tax Premium Payments and;
- Conventional savings vehicles such as savings accounts.
THE POWER OF TAX-DEFERRED GROWTH
[CHART]
This hypothetical chart compares the results of (1) contributing $100 per month
to a conventional, non-tax deferred plan, (2) contributing $100 to a
nonqualified, tax-deferred annuity, and (3) contributing $100 per month ($138.89
since contributions are made before tax) to a qualified tax-deferred plan. The
chart assumes a 28% tax rate and an 8% fixed rate of return. Variable annuity
options incur mortality and expense risk fee and administration and distribution
fee charges (1% - 1.25%) and may also incur administrative fees ($3.75 per
quarter) and surrender charges (5% of the lesser of all contributions received
during the last 60 months or the amount withdrawn). These fees and charges are
not reflected in the above illustration and would reduce the results shown.
Income taxes are payable upon withdrawal, and an additional 10% tax penalty may
apply to withdrawals before age 59 1/2. This information is for illustrative
purposes only and is not a guarantee of future return.
Unlike savings accounts, Premium Payments made to tax-favored retirement
programs and Non-Qualified Contracts generally provide tax deferred treatment on
earnings. In addition, Premium Payments made to tax-favored retirement programs
ordinarily are not subject to income tax until withdrawn. As shown above,
investing in a tax-favored program increases the accumulation power of savings
over time. The more taxes saved and reinvested in the program, the more the
accumulation power effectively grows over the years.
To further illustrate the advantages of tax deferred savings using a 28% Federal
tax bracket, an annual fixed yield (BEFORE THE DEDUCTION OF ANY FEES OR CHARGES)
of 8% under a tax-favored retirement program in which tax savings were
reinvested has an equivalent after-tax annual fixed yield of 5.76% under a
conventional savings program. THE 8% YIELD ON THE TAX-FAVORED PROGRAM WILL BE
REDUCED BY THE IMPACT OF INCOME TAXES UPON WITHDRAWAL. The yield will vary
depending upon the timing of withdrawals. The previous chart represents (without
factoring in fees and charges) after-tax amounts that would be received.
By taking into account the current deferral of taxes, contributions to
tax-favored retirement programs increase the amount available for savings by
decreasing the relative current out-of-pocket cost (referring to the effect on
annual net take-home pay) of the investment. The chart below illustrates this
principle by comparing a pre-tax contribution to a tax-favored retirement plan
with an after-tax contribution to a conventional savings account:
PAYCHECK COMPARISON
<TABLE>
<CAPTION>
TAX-FAVORED CONVENTIONAL
RETIREMENT SAVINGS
PROGRAM ACCOUNT
----------- ------------
<S> <C> <C>
Annual amount available
for savings before
federal taxes......... $2,500 $2,500
Current federal income
tax due on Purchase
Payments.............. 0 (700)
Net retirement plan
Purchase Payments..... $2,500 $1,800
</TABLE>
This chart assumes a 28% Federal income tax rate. The $700 which is paid toward
current Federal income taxes reduces the actual amount saved in the conventional
savings account to $1,800, while the full $2,500 is contributed to the
tax-favored program, subject to being taxed upon withdrawal. Stated otherwise,
to reach an annual retirement savings goal of $2,500, the contribution to a
tax-favored retirement program results in a current out-of-pocket expense of
$1,800 while the contribution to a conventional savings account requires the
full $2,500 out-of-pocket expense. The tax-favored retirement program
represented in this chart is a plan type, such as one under Section 403(b) of
the Code, which allows participants to exclude contributions within limits, from
gross income.
45
<PAGE> 346
YEAR 2000
- --------------------------------------------------------------------------------
YEAR 2000 RISKS
Like other insurance companies, financial and business organizations around the
world, each of the Variable Account Options and the underlying mutual funds
could be adversely affected if the computer systems used by the Company, other
service providers and entities with computer systems that are linked to the
Company's records do not properly process and calculate date-related information
and data from and after January 1, 2000. This is commonly known as the "Year
2000 Issue." The Company is taking steps that it believes are reasonably
designed to address the Year 2000 Issue with respect to the computer systems
that its uses and to obtain satisfactory assurances that comparable steps are
being taken by each of the Variable Account Options' other major service
providers. The Company expects to be substantially complete with its computer
systems projects to address year 2000 issues by the end of 1998. However, there
can be no assurance that these steps will be sufficient to avoid any adverse
impact on the Variable Account Options.
46
<PAGE> 347
CONTENTS OF STATEMENT OF ADDITIONAL INFORMATION
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
General Information................................. 4
Marketing Information........................... 4
Endorsements and Published Ratings.............. 6
Types of Variable Annuity Contracts................. 7
Federal Tax Matters................................. 8
Tax Consequences of Purchase Payments........... 8
Tax Consequences of Distributions............... 10
Special Tax Consequences -- Early
Distribution.................................. 11
Special Tax Consequences -- Required
Distributions................................. 11
Tax Free Rollovers, Transfers and Exchanges..... 12
Exchange Privilege.................................. 13
Exchanges From Independence Plus Contracts...... 13
Exchanges From V-Plan Contracts................. 14
Exchanges From SA-1 and SA-2 Contracts.......... 15
Exchanges From Impact Contracts................. 16
Exchanges From Compounder Contracts............. 17
Information Which May Be Applicable To Any
Exchange...................................... 18
Calculation of Surrender Charge..................... 19
Illustration of Surrender Charge on Total
Surrender..................................... 19
Illustration of Surrender Charge on a 10%
Partial Surrender Followed by a Full
Surrender..................................... 19
Purchase Unit Value................................. 20
Illustration of Calculation of Purchase Unit
Value......................................... 20
Illustration of Purchase of Purchase Units...... 20
Performance Calculations............................ 20
AGSPC Money Market Division Yields.............. 20
Calculation of Current Yield for AGSPC Money
Market Division Six........................... 20
Illustration of Calculation of Current Yield for
AGSPC Money Market Division Six............... 20
Calculation of Effective Yield for AGSPC Money
Market Division Six........................... 20
Illustration of Calculation of Effective Yield
for AGSPC Money Market Division Six........... 20
Standardized Yield for Divisions Seven, Eight and
Thirteen.......................................... 21
Calculation of Standardized Yield for Divisions
Seven, Eight and Thirteen..................... 21
Illustration of Calculation of Standardized
Yield for Divisions Seven, Eight and
Thirteen...................................... 21
Calculation of Average Annual Total Return...... 22
Performance Information............................. 22
Hypothetical $10,000 Account Value and
Cumulative Return as Compared to Benchmark
Tables........................................ 22
Performance Compared to Market Indices.......... 23
AGSPC Asset Allocation 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................. 26
</TABLE>
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
AGSPC Capital Conservation Division Seven
Performance Compared to Merrill Lynch
Corporate Master Index........................ 27
AGSPC Government Securities Division Eight
Performance Compared to Lehman Brothers U.S.
Treasury Composite Index...................... 28
AGSPC Growth Division Fifteen Performance
Compared to S&P 500 Index..................... 28
AGSPC Growth & Income Division Sixteen
Performance Compared to S&P 500 Index......... 29
AGSPC International Equities Division Eleven
Performance Compared to EAFE Index............ 29
AGSPC International Government Bond Division
Thirteen Performance Compared to Salomon
Brothers Non-U.S. Dollar World Government Bond
Index......................................... 30
AGSPC MidCap Index Division Four Performance
Compared to S&P 500 Index and S&P MidCap 400
Index......................................... 31
AGSPC Money Market Division Six Performance
Compared to Certificate of Deposit Primary
Offering by New York City Banks, 30 Day
Index......................................... 32
AGSPC Science & Technology Division Seventeen
Performance Compared to S&P 500 Index......... 32
AGSPC Small Cap Index Division Fourteen
Performance Compared to Russell 2000 Index.... 33
AGSPC Social Awareness Division Twelve
Performance Compared to S&P 500 Index......... 33
AGSPC Stock Index Division Ten Performance
Compared to S&P 500 Index..................... 34
Dreyfus Small Cap Division Eighteen Performance
Compared to Russell 2000...................... 34
Templeton Asset Allocation Division Nineteen
Performance Compared to MSCI World Index,
Salomon Brothers Non-US Dollar World
Government Bond Index, and Certificate of
Deposit Primary Offering by New York City
Banks, 30 Day Index........................... 35
Templeton International Division Twenty
Performance Compared to MSCI World Index...... 36
Payout Payments..................................... 36
Assumed Investment Rate......................... 36
Amount of Payout Payments....................... 36
Payout Unit Value............................... 37
Illustration of Calculation of Payout Unit
Value......................................... 37
Illustration of Payout Payments................. 38
Distribution of Variable Annuity Contracts.......... 38
Experts............................................. 38
Comments on Financial Statements.................... 39
</TABLE>
47
<PAGE> 348
REVOCATION OF TELEPHONE ASSET TRANSFER AUTHORITY
Participant/Contract Owner Name:
------------------------------------------------------------------------
Social Security Number:
------------------------------------------------------------------------
Birth Date:
I am the Participant under or Contract Owner of one or more variable annuity
contracts issued by The Variable Annuity Life Insurance Company ("VALIC"). I
hereby instruct VALIC not to accept any telephone instructions to transfer
Account Values among investment options or change the allocation of future
Purchase Payments from me, anyone representing me or anyone representing himself
or herself to be me. I understand as a result of executing this form that the
transfer of Account Values or Payout Values among investment options or changes
in the allocation of future Purchase Payments may only be effected upon the
receipt by VALIC of my written instructions.
<TABLE>
<S> <C>
- ------------------------------------------------------------ ---------------------------------------
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>
48
<PAGE> 349
Please tear off, complete and return the form below to one of our Regional
Offices at the address shown on the inside back cover of this Prospectus. A
Statement of Additional Information may also be ordered by calling
1-800-44-VALIC.
................................................................................
PORTFOLIO DIRECTOR CONTRACTS
Please send me a free copy of the Statement of Additional Information for The
Variable Annuity Life Insurance Company Separate Account A (Portfolio Director).
(Please Print or Type)
- --------------------------------------------------------------------------------
Name: G.A. #
Address: Policy #
Social Security Number:
- --------------------------------------------------------------------------------
49
<PAGE> 350
================================================================================
FOR ADDITIONAL INFORMATION ABOUT THE CONTRACTS
CONTACT YOUR NEAREST REGIONAL OFFICE:
3535 Grandview Parkway
Suite 200
Birmingham, AL 35243
(205) 967-8955
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 1900
Chicago, IL 60606
(312) 368-1001
11711 N. Meridian St.
Suite 300
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
(248) 641-0022
8500 Normandale Lake Blvd.
Suite 750
Bloomington, MN 55437
(612) 893-1099
4266 Interstate 55N
Suite 108
Jackson, MS 39211
(601) 981-5801
410 Amherst Street
Suite 250
Nashua, NH 03063
(603) 883-3840
90 Woodbridge Ctr. Dr.
Suite 300
Woodbridge, NJ 07095
(732) 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
Two International Plaza
Suite 601
Nashville, TN 37217
(615) 254-4822
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-six branch offices located throughout the
country.
THE VARIABLE ANNUITY LIFE INSURANCE COMPANY
2929 ALLEN PARKWAY, HOUSTON, TEXAS 77019 1-800-44-VALIC
TDD NUMBER 1-800-35-VALIC
FOR UNIT VALUE INFORMATION CALL: 1-800-42-VALIC & TDD 1-800-24-VALIC
FOR ASSET TRANSFERS BY TELEPHONE CALL: 1-800-621-7792
TDD 1-800-35-VALIC
EASYACCESS 1-800-42-VALIC
TDD EASYACCESS 1-800-24-VALIC
================================================================================
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THE VARIABLE ANNUITY LIFE INSURANCE COMPANY
SEPARATE ACCOUNT A
UNITS OF INTEREST UNDER GROUP AND
INDIVIDUAL VARIABLE ANNUITY CONTRACTS
PORTFOLIO DIRECTOR
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STATEMENT OF ADDITIONAL INFORMATION
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FORM N-4 PART B
MAY 1, 1998
This Statement of Additional Information is not a prospectus but contains
information in addition to that set forth in the prospectus for Portfolio
Director* dated May 1, 1998 ("Contracts") and should be read in conjunction with
the prospectus. The terms used in this Statement of Additional Information have
the same meaning as those set forth in the prospectus. A prospectus may be
obtained by calling or writing the Company, or The Variable Annuity Marketing
Company (the "Underwriter") at 2929 Allen Parkway, Houston, Texas 77019;
1-800-44-VALIC. Prospectuses are also available from regional sales offices of
the Underwriter or from its registered sales representatives.
(*Portfolio Director is composed of Contract Forms UIT-194, UITG-194, UITN-194,
UIT-IRA-194, and UIT-SEP-194.)
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TABLE OF CONTENTS
<TABLE>
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General Information......................................... 4
Marketing Information..................................... 4
Endorsements and Published Ratings........................ 6
Types of Variable Annuity Contracts......................... 7
Federal Tax Matters......................................... 8
Tax Consequences of Purchase Payments..................... 8
Tax Consequences of Distributions......................... 10
Special Tax Consequences -- Early Distribution............ 11
Special Tax Consequences -- Required Distributions........ 11
Tax Free Rollovers, Transfers and Exchanges............... 12
Exchange Privilege.......................................... 13
Exchanges From Independence Plus Contracts................ 13
Exchanges From V-Plan Contracts........................... 14
Exchanges From SA-1 and SA-2 Contracts.................... 15
Exchanges From Impact Contracts........................... 16
Exchanges From Compounder Contracts....................... 17
Information Which May Be Applicable To Any Exchange....... 18
Calculation of Surrender Charge............................. 19
Illustration of Surrender Charge on Total Surrender....... 19
Illustration of Surrender Charge on a 10% Partial
Surrender Followed by a Full Surrender................. 19
Purchase Unit Value......................................... 20
Illustration of Calculation of Purchase Unit Value........ 20
Illustration of Purchase of Purchase Units................ 20
Performance Calculations.................................... 20
AGSPC Money Market Division Yields........................ 20
Calculation of Current Yield for AGSPC Money Market
Division Six........................................... 20
Illustration of Calculation of Current Yield for AGSPC
Money Market Division Six.............................. 20
Calculation of Effective Yield for AGSPC Money Market
Division Six........................................... 20
Illustration of Calculation of Effective Yield for AGPSC
Money Market Division Six.............................. 20
Standardized Yield for Divisions Seven, Eight and
Thirteen.................................................. 21
Calculation of Standardized Yield for Divisions Seven,
Eight and Thirteen..................................... 21
Illustration of Calculation of Standardized Yield for
Divisions Seven, Eight and Thirteen.................... 21
Calculation of Average Annual Total Return................ 22
Performance Information..................................... 22
Hypothetical $10,000 Account Value and Cumulative Return
as Compared to
Benchmark Tables....................................... 22
Performance Compared to Market Indices.................... 23
AGSPC Asset Allocation 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.................................................. 26
AGSPC Capital Conservation Division Seven Performance
Compared to Merrill Lynch Corporate Master Index....... 27
AGSPC Government Securities Division Eight Performance
Compared to Lehman Brothers U.S. Treasury Composite
Index.................................................. 28
AGSPC Growth Division Fifteen Performance Compared to S&P
500 Index.............................................. 28
AGSPC Growth & Income Division Sixteen Performance
Compared to S&P 500 Index.............................. 29
AGSPC International Equities Division Eleven Performance
Compared to EAFE Index................................. 29
AGSPC International Government Bond Division Thirteen
Performance Compared to Salomon Brothers Non-U.S.
Dollar World Government Bond Index..................... 30
AGSPC MidCap Index Division Four Performance Compared to
S&P 500 Index and S&P MidCap 400 Index................. 31
</TABLE>
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<TABLE>
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AGSPC Money Market Division Six Performance Compared to
Certificate of Deposit Primary Offering by New York
City Banks, 30 Day Index............................... 32
AGSPC Science & Technology Division Seventeen Performance
Compared to S&P 500 Index.............................. 32
AGSPC Small Cap Index Division Fourteen Performance
Compared to Russell 2000 Index......................... 33
AGSPC Social Awareness Division Twelve Performance
Compared to S&P 500 Index.............................. 33
AGSPC Stock Index Division Ten Performance Compared to S&P
500 Index.............................................. 34
Dreyfus Small Cap Division Eighteen Performance Compared
to Russell 2000........................................ 34
Templeton Asset Allocation Division Nineteen Performance
Compared to MSCI World Index, Salomon Brothers Non-US
Dollar World Government Bond Index, and Certificate of
Deposit Primary Offering by New York City Banks, 30 Day
Index.................................................. 35
Templeton International Division Twenty Performance
Compared to MSCI World Index........................... 36
Payout Payments............................................. 36
Assumed Investment Rate................................... 36
Amount of Payout Payments................................. 36
Payout Unit Value......................................... 37
Illustration of Calculation of Payout Unit Value.......... 37
Illustration of Payout Payments........................... 38
Distribution of Variable Annuity Contracts.................. 38
Experts..................................................... 38
Comments on Financial Statements............................ 39
</TABLE>
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GENERAL INFORMATION
MARKETING INFORMATION
The Company has targeted not-for-profit organizations as the central focus
of its marketing efforts for its Contracts. The Company has utilized as its
general marketing theme the concept that the Company is "America's Retirement
Plan Specialists." Specifically, the Company's marketing thrust is aimed at
individuals and groups associated with public and private schools, colleges and
universities, not-for-profit health care organizations, state and local
governments and other not-for-profit organizations.
This marketing concept has proven to be successful. In the aggregate,
premium deposits to the Company have grown from $37,000 in 1956 to more than
$3.9 billion as of December 31, 1997. The number of aggregate participant
accounts has increased from 155,000 accounts in 1980 to more than 1,739,191
accounts as of December 31, 1997. The number of employer groups which have
purchased Contracts has increased by 178 percent in the past ten years to more
than 26,392 as of December 31, 1997. As of December 31, 1997, 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, 1997 the Company's assets totaled more than $33
billion.
The Company's growth can also be reviewed by examining each market segment
the Company targets.
As of December 31, 1997, the Company was marketing Contracts in more than
9,795 public and private, primary and secondary schools with more than 464,729
participant accounts for employees in public and private schools nationwide.
From December 31, 1987 to December 31, 1997, the cash value of investments in
these Contracts has increased by 291 percent while the number of public and
private school groups in these Contracts increased 104 percent and the number of
participant accounts in these Contracts increased by 115 percent.
The Company has also increased its marketing efforts to colleges and
universities. From December 31, 1987 to December 31, 1997, the number of
colleges and universities which allow the Company to market Contracts to its
faculty and staff members has increased 176 percent and for the same period the
number of participant accounts has increased 141 percent. For the same time
period cash values for participants have increased 315 percent. As of December
31, 1997, more than 33 percent of United States colleges and universities allow
the Company to market Contracts to their faculty and staff members.
The Company has utilized as the central focus in its marketing to college
and university faculty and staff members the theme that the Company is the
"Alternative of Choice."
The Company has also had growth in the healthcare segment of the
not-for-profit organization market. From December 31, 1987 to December 31, 1997
Contract cash values have increased 795 percent. During the same period the
number of healthcare groups that have purchased these Contracts increased 290
percent and the number of participant accounts increased 290 percent.
The Company has also experienced growth in contracts sold to state and
local governmental groups. From December 31, 1987 to December 31, 1997, Contract
cash values for participants in these groups have increased 371 percent. For the
same period the number of participant accounts for individuals in these groups
in these Contracts increased 233 percent and the number of employer groups has
increased 371 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 29 states to sponsor ORPs with multiple
carriers, as of December 31, 1997. From December 31, 1992 to December 31, 1997,
in these ORPs the number of participant accounts increased 105 percent and cash
values increased 153 percent to more than $2.3 billion dollars.
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
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Stanley Capital International Europe, Australia, and Far East (EAFE) Index, or
any other appropriate market index. The indexes are not managed funds and have
no identifiable investment objectives.
The Company may, from time to time, refer, individually or collectively, to
its package of retirement plan services. Collectively, this package of services
may be referred to as easy Retirement Plan, easy Retirement Plan includes: (1)
personal, face-to-face service from highly trained VALIC Retirement Planning
Specialists; (2) informative retirement-investment education programs, seminars
and materials; (3) specialized computer-aided services for retirement planning
and developing asset allocation strategies; (4) a wide selection of innovative,
market-responsive investment options; (5) advanced and efficient administration
of retirement accounts; and (6) a financially strong and stable Company with
which to do business.
From time to time the Company may refer to the diversifying process of
asset allocation based on the Modern Portfolio Theory developed by Nobel
Prize-winning economist Harry Markowitz. The basic assumptions of Modern
Portfolio Theory are that the selection of individual investments has little
impact on portfolio performance, market timing strategies seldom work, markets
are efficient and selecting the suitable mix of asset classes is more important
when creating a long-term investment portfolio. Modern Portfolio Theory allows
an investor to determine an "efficient" or "optimized" portfolio that has
historically provided a higher return with the same risk or the same return with
lower risk.
When presenting the asset allocation process the Company may outline the
process of personal and investment risk analysis including determining
individual risk tolerances and a discussion of the different types of investment
risk. The Company may classify investors into five categories based on their
personal risk tolerance and will quote various industry experts on which types
of investments are best suited to each of the five risk categories. The industry
experts quoted may include Ibbotson Associates, CDA Investment Technologies,
Lipper Analytical Services, Laffer-Cantos, Inc., VARDS Report, Wilson
Associates, Morningstar, Inc. and any other expert which has been deemed by the
Company to be appropriate. The Company may also provide a historical overview of
the performance of a variety of investment market indexes and different asset
categories, such as stocks, bonds, cash equivalents, etc. The Company may also
discuss investment volatility (standard deviation) including the range of
returns for different asset categories and classes over different time horizons,
and the correlation between the returns of different asset categories and
classes. The Company may also discuss the basis of portfolio optimization
including the required inputs and the construction of efficient portfolios using
sophisticated computer-based techniques. Finally, the Company may describe
various investment strategies and methods of implementation such as the use of
index funds vs. actively managed funds, the use of dollar cost averaging
techniques, the tax status of contributions, and the periodic rebalancing of
diversified portfolios.
The Company, in its marketing efforts to each of the market segments, may
from time to time design sales literature and material specifically for that
market segment, e.g., the health care segment of the not-for-profit organization
market. This sales literature and material may also be specific to a certain
group. For example, sales literature and material may be designed for a specific
hospital. The sales literature and material would address specifically the
group's contract and retirement plan.
The Company, in its marketing efforts, may also refer to the following
investment advisers referenced in the Prospectus.
The Company may, from time to time, refer to The Dreyfus Corporation as
adviser for the Dreyfus Small Cap Portfolio (underlying Division Eighteen). The
Dreyfus Corporation has been helping Americans invest for their future with
quality mutual funds for more than four decades. The Dreyfus Corporation joined
forces with Mellon Bank and The Boston Company to form an investment management
organization with over $300 billion in assets under management. Through 10
investment subsidiaries and affiliates, Dreyfus/Mellon Global Asset Management
offers a broad array of products and services and a spectrum of investment
opportunities designed to provide competitive returns at varying risk levels.
Dreyfus, as of March 31, 1998, had approximately $100 billion of assets under
management.
For more than 40 years, the Templeton organization has been a leading
investment management company with offices in the U.S., Australia, Baha-
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mas, Canada, Hong Kong, Luxembourg, Singapore,
Russia, Scotland and Germany. Templeton is a member of the $221 billion Franklin
Templeton Group with over 6 million individual and institutional accounts. The
Franklin Templeton Group provides investment management and advisory services to
a world-wide client base and maintains a disciplined, long-term approach to
value-oriented global and internal investing. Templeton, as of December 31,
1997, had more than $94 billion in assets under management.
The Company may, from time to time, refer to T. Rowe Price Associates, Inc.
(T. Rowe Price), as subadviser to the Science & Technology Fund (underlying
Division Seventeen) and the Growth Fund (underlying Division Fifteen). T. Rowe
Price, one of the nation's leading no-load mutual fund managers, manages money
for more than 6 million individual and institutional accounts on the basis of
proprietary research and a strict investment discipline developed over 60 years.
T. Rowe Price has delivered strong performance for its clients by investing in
both large- and small-growth companies which operate in the service sector of
the economy, and also by investing in common stocks of companies expected to
benefit from the development, advancement and use of science and technology.
This includes industries such as telecommunications, computers, software,
medical devices and biotechnology. T. Rowe Price, together with its affiliates,
as of December 31, 1997, had more than $125 billion of assets under management.
The Company may, from time to time, refer to Value Line Inc., ("Value
Line"), investment subadviser to the Growth & Income Fund (underlying Division
16). Value Line provides investment counseling services to mutual funds and
private and institutional client accounts. Investment selection is based on the
Value Line Ranking System for Timeliness(TM). The system uses a variety of
quantitative factors to determine the relative attractiveness of particular
equity securities. Value Line also publishes The Value Line Investment Survey,
one of the best-known U.S. investment advisory services, which features regular
coverage of about 1,700 stocks. Value Line, as of December 31, 1997, had more
than $5 billion of assets under management.
The Company may, from time to time, refer in advertisements or sales
materials to certain milestones which are intended to emphasize the Company's
growth and development in assets, groups and various market segments. The
Company may also refer to other versions of Portfolio Director in advertisements
or sales material. The Company may refer to certain aspects of its products such
as having a variety of shared mutual funds available as Variable Account
Options. Additionally the Company may refer from time to time in advertisements
or sales materials to marketing strategies it utilizes to promote the Company's
business objectives. Further, the Company may refer from time to time in
advertisements or sales materials to certain value-added services it provides to
its groups, Contract Owners and Participants.
The Company may, from time to time, refer in its advertisements to Schwab
Personal Choice Retirement Accounts ("PCRA"). The PCRA is a self-directed
brokerage account that may be used by VALIC Participants to directly invest in
publicly available mutual funds. PCRA is marketed through the VALIC Investment
Services Company.
The Company may from time to time compare the performance of the mutual
funds that serve as the investment vehicles for Portfolio Director to the
performance of certain market indices. These market indices are described in the
"Performance Information" Section of this Statement of Additional Information.
ENDORSEMENTS AND
PUBLISHED RATINGS
From time to time, in advertisements or in reports to Contract Owners, the
Company may refer to its endorsements. Endorsements are often in the form of a
list of organizations, individuals or other parties which recommend the Company
or the Contracts. The endorser's name will be used only with the endorser's
consent. It should be noted that the list of endorsements may change from time
to time.
Also from time to time, the rating of the Company as an insurance company
by A. M. Best may be referred to in advertisements or in reports to Contract
Owners. Each year the A. M. Best Company reviews the financial status of
thousands of insurers, culminating in the assignment of Best's Ratings. These
ratings reflect their current opinion of the relative financial strength and
operating performance of an insurance company in comparison to the norms of the
life/health insurance industry. Best's Ratings range from A++ to F. An A++
rating means, in the opinion of A. M. Best, that the insurer has demonstrated
the strongest ability to
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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 may additionally refer to its Duff & Phelp's rating. A Duff &
Phelp's rating is an assessment of a company's insurance claims paying ability.
Duff & Phelp's ratings range from AAA to CCC. An AAA rating reflects that a
company has the highest claims paying ability.
Ratings relate to the claims paying ability of the Company's General
Account and not the investment characteristics of the Separate Account.
The Company may from time to time, refer to Lipper Analytical Services
Incorporated ("Lipper"), Morningstar, Inc. ("Morningstar") and CDA/Wiesenberger
Investment Companies (CDA/Wiesenberger) when discussing the performance of its
Divisions. Lipper, Morningstar and CDA/Wiesenberger are leading publishers of
statistical data about the investment company industry in the United States.
Additionally, the Company may compare the performance of the Divisions to
categories published by Lipper and Morningstar. The published categories which
may be utilized in comparison with the performance of the Divisions include the
Morningstar Growth and Income Mutual Fund Category, Morningstar Aggressive
Growth Mutual Fund Category, Morningstar Growth Mutual Fund Category,
Morningstar International Stock Mutual Fund Category, Lipper Growth and Income
Mutual Fund Category, Lipper Small Company Growth Mutual Fund Category, Lipper
Growth Mutual Fund Category and Lipper International Mutual Fund Category.
Additional Lipper or Morningstar categories may be utilized if they are deemed
by the Company relevant to the performance of the Company's Divisions.
The Company may, from time to time, refer to The Variable Annuity Research
& Data Services (VARDS) Report. The VARDS Report offers monthly analysis of the
variable annuity industry, including marketing and performance information.
The Company may, from time to time, refer to Bankers Trust Company's
Tactical Asset Allocation Model's historical performance and compare such
performance to that of the S&P 500 Index. Neither the Model nor the S&P 500
Index is a managed fund and neither have identifiable investment objectives.
Finally the Company will utilize as a comparative measure for the
performance of its Funds the Consumer Price Index ("CPI"). The CPI is a measure
of change in consumer prices, as determined in a monthly survey of the U.S.
Bureau of Labor Statistics. Housing costs, transportation, food, electricity,
changes in taxes and labor costs are among the CPI components. The CPI provides
a tool for determining the impact of inflation on an individual's purchasing
power.
TYPES OF VARIABLE ANNUITY
CONTRACTS
Three types of Contracts are offered in connection with the prospectus to
which this Statement of Additional Information relates:
(1) single payment immediate annuity Contracts;
(2) single payment deferred annuity Contracts; and
(3) flexible payment deferred annuity Contracts.
Under single payment Contracts, only one Purchase Payment is made by the
Contract 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.
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Under immediate annuity Contracts, the first annuity payment is made on the
first day of the second month after the Purchase Payment is received. During the
period before the Annuity Date, the Purchase Payments are invested in the same
manner, and the other terms and conditions (including the options and rights of
Contract Owners, Annuitants and Beneficiaries) are the same under immediate
annuity Contracts as under deferred annuity Contracts.
The Contracts are non-participating and will not share in any of the
profits of the Company.
FEDERAL TAX MATTERS
This Section summarizes the major tax consequences of contributions,
payments, and withdrawals under Portfolio Director, during life and at death.
TAX CONSEQUENCES OF PURCHASE PAYMENTS
403(b) Annuities. Purchase Payments made by Section 501(c)(3) tax-exempt
organizations and public educational institutions toward Contracts for their
employees are excludable from the gross income of employees, to the extent
aggregate Purchase Payments do not exceed several competing tax limitations.
This gross income exclusion applies both to employer contributions and to your
voluntary and nonelective salary reduction contributions.
Your voluntary salary reduction contributions are generally limited to the
lesser $10,000 ($9,500 before 1998), although additional, "catch-up"
contributions are permitted under certain circumstances. Combined employer and
salary reduction contributions are generally limited to the smallest of:
$30,000; approximately 25% of salary; or an exclusion allowance which takes into
account a number of factors. In addition, after 1988 employer contributions for
highly compensated employees may be further limited by applicable
nondiscrimination rules.
401(a) and 403(a) Qualified Plans. Purchase Payments made by an employer
(or a self-employed individual) under a qualified pension, profit-sharing or
annuity plan are excluded from the gross income of the employee. Purchase
Payments made by an employee generally are made on an after-tax basis, unless
eligible for pre-tax treatment by reason of Sections 401(k) or 414(h).
408(b) Individual Retirement Annuities ("408(b) IRAs"). Annual
tax-deductible contributions for 408(b) IRA Contracts are limited to the lesser
of $2,000 or 100% of compensation, and generally may be made only by individuals
who:
(i) are not active participants in another retirement plan, and are not
married;
(ii) are not active participants in another retirement plan, are married, but
either (a) the spouse is not an active participant in another retirement
plan; or (b) the spouse is an active participant, but the couple's
adjusted gross income does not exceed $150,000.
(iii) are active participants in another retirement plan, are unmarried, and
have adjusted gross income of $30,000 or less ($25,000 or less prior to
1998; adjusted upward for inflation after 1998); or
(iv) are active participants in another retirement plan, are married, and have
adjusted gross income of $50,000 or less ($40,000 or less prior to 1998;
adjusted upward for inflation after 1998).
Active participants in other retirement plans whose adjusted gross income
exceeds the limits in (ii), (iii) or (iv) by less than $10,000 are entitled to
make deductible 408(b) IRA contributions in proportionately reduced amounts. If
a 408(b) IRA is established for a nonworking spouse who has no compensation, the
annual tax-deductible Purchase Payments for both spouses' Contracts cannot
exceed the lesser of $4,000 or 100% of the working spouse's earned income, and
no more than $2,000 may be contributed to either spouse's IRA for any year.
You may be eligible to make nondeductible IRA contributions of an amount
equal to the excess of:
(i) the lesser of $2,000 ($4,000 for you and your spouse's IRA) or 100% of
compensation, over
(ii) your applicable IRA deduction limit.
You may also make contributions of eligible rollover amounts from other
qualified plans and contracts. See Tax-Free Rollovers, Transfers and Exchanges.
408A "Roth" Individual Retirement Annuities ("408A "Roth" IRAs"). After
1997, annual nondeductible contributions for 408A "Roth" IRA Contracts are
limited to the lesser of $2,000 or 100% of
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compensation, and may be made only by individuals who:
(i) are unmarried and have adjusted gross income of $95,000 or less; or
(ii) are married and filing jointly, and have adjusted gross income of $150,000
or less.
The available nondeductible 408A "Roth" IRA contribution is reduced
proportionately to zero where adjusted gross income exceeds the limit in (i) by
$15,000 or less, or the limit in (ii) by $10,000 or less. Similarly, individuals
who are married and filing separately and whose adjusted gross income is less
than $15,000 may make a contribution to a Roth IRA of a portion of the otherwise
applicable $2,000 or 100% of compensation limit.
All contributions to 408(b) IRAs, traditional nondeductible IRAs and 408A
"Roth" IRAs must be aggregated for purposes of the $2,000 annual contribution
limit.
457 Plans. A unit of a state or local government may establish a deferred
compensation program for individuals who: (i) perform services for the
government unit, and (ii) belong to a select group of management or highly
compensated employees and/or independent contractors.
This type of program allows eligible individuals to defer the receipt of
compensation (and taxes thereon) otherwise presently payable to them. If the
program is an eligible deferred compensation plan (an "EDCP"), in 1998 you may
contribute (and defer tax on) the lesser of $8,000 (indexed for inflation) or
33 1/3% of your "includible" compensation (compensation from the employer
currently includible in taxable income). Additional, catch-up deferrals are
permitted in the final three years before the year you reach normal retirement
age.
The employer uses deferred amounts to purchase the Contracts offered by
this prospectus. For plans maintained by a unit of a state or local government,
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
general creditors until 1999. The employee has no present rights to any vested
interest in the Contract and is entitled to payment only in accordance with the
EDCP provisions.
SEP. Employer contributions under a SEP are made to a separate individual
retirement account or annuity established for each participating employee, and
generally must be made at a rate representing a uniform percent of participating
employees' compensation. Employer contributions are excludable from employees'
taxable income, and after 1993 cannot exceed the lesser of $30,000 or 15% of
your compensation.
Through 1996, employees of certain small employers (other than tax-exempt
organizations) were permitted to establish plans allowing employees to
contribute pretax, on a salary reduction basis, to the SEP. These salary
reduction contributions may not exceed $7,000, indexed for inflation in later
years. Such plans if established by December 31, 1996, may still allow employees
to make these contributions.
SIMPLE IRA. Employer and employees contributions under a SIMPLE Retirement
Account Plan are made to a separate individual retirement account or annuity for
each employee. Employee salary reduction contributions cannot exceed $6,000 in
any year. Employer contributions can be a matching or a nonelective contribution
of a percentage as specified in the Code. Only employers with 100 or fewer
employees can maintain a SIMPLE IRA plan, which must also be the only plan the
employer maintains.
Unfunded Deferred Compensation Plans. Private taxable employers may
establish unfunded, non-qualified deferred compensation plans for a select group
of management or highly compensated employees and/or for independent
contractors. Certain arrangements of nonprofit employers entered into prior to
August 16, 1986, and not subsequently modified, are also subject to the rules
discussed below.
An unfunded, deferred compensation plan is a bare contractual promise on
the part of the employer to defer current wages to some future time. The
Contract is owned by the employer and remains subject to the claims of the
employer's general creditors. Private taxable employers that are not natural
persons, however, are currently taxable on any increase in the Purchase Unit
Value attributable to Purchase Payments made after February 28, 1986 to such
Contracts. Participants have no present right or vested interest in the Contract
and are only entitled to payment in accordance with plan provisions.
Non-Qualified Contracts. Purchase Payments made under Non-Qualified
Contracts are neither
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excludible from the gross income of the Contract Owner nor deductible for tax
purposes. However, any increase in the Purchase Unit Value of a Non-Qualified
Contract resulting from the investment performance of VALIC Separate Account A
is not taxable to the Contract Owner until received by him. Contract Owners that
are not natural persons, however, are currently taxable on any increase in the
Purchase Unit Value attributable to Purchase Payments made after February 28,
1986 to such Contracts.
TAX CONSEQUENCES OF DISTRIBUTIONS
403(b) Annuities. Voluntary salary reduction amounts accumulated after
December 31, 1988, and earnings on voluntary contributions before and after that
date, may not be distributed before one of the following:
(1) attainment of age 59 1/2;
(2) separation from service;
(3) death;
(4) disability, or
(5) hardship (hardship distributions are limited to salary reduction
contributions only, exclusive of earnings thereon).
Similar restrictions will apply to all amounts transferred from a section
403(b)(7) custodial account other than rollover contributions.
Distributions are taxed as ordinary income to the recipient in accordance
with Section 72.
401(a) and 403(a) Qualified Plans. Distributions from Contracts purchased
under qualified plans are taxable as ordinary income, except to the extent
allocable to an employee's after-tax contributions (investment in the Contract).
If you or your Beneficiary receive a "lump sum distribution" (legally defined
term), the taxable portion may be subject to special 5-year or 10-year income
averaging treatment. Five-year forward averaging is unavailable for
distributions occurring after December 31, 1999. Ten-year income averaging uses
tax rates in effect for 1986, allows 20% capital gains treatment for the taxable
portion of a lump sum distribution attributable to years of service before 1974,
and is available if you were 50 or older on January 1, 1986.
408(b) IRAs, SEPs and SIMPLE IRAs. Distributions are generally taxed as
ordinary income to the recipient. Rollovers from an IRA to a Roth IRA, and
conversions of an IRA to a Roth IRA, where permitted, are generally taxable in
the year of the rollover or conversion. Such rollovers of conversions completed
in 1998 are generally eligible for pro-rata federal income taxation over four
years. Individuals with adjusted gross income over $100,000 are generally
ineligible for such conversions, regardless of marital status, as are married
individuals who file separately.
408A "Roth" IRAs. "Qualified" distributions upon attainment of age 59 1/2,
upon death, disability or for first-time homebuyer expenses are tax-free as long
as five or more years have passed since the first contribution to taxpayer's
first 408A "Roth" IRA. A later date may apply to distributions from a Roth IRA
which contains one or more rollover contributions from a traditional IRA, to
determine if the distribution is qualified distribution. Qualified distributions
may be subject to state income tax in some states. Other distributions are
generally taxable to the extent that the distribution exceeds purchase payments.
457 Plans. Amounts received from an EDCP are includible in gross income for
the taxable year in which are paid or otherwise made available to the recipient.
Unfunded Deferred Compensation Plans. Amounts received are includible in
gross income for the taxable year in which are paid or otherwise made available
to the recipient.
Non-Qualified Contracts. Partial redemptions from a Non-Qualified Contract
purchased after August 13, 1982 (or allocated to post-August 13, 1982 Purchase
Payments under a pre-existing Contract), generally are taxed as ordinary income
to the extent of the accumulated income or gain under the Contract if they are
not received as an annuity. Partial redemptions from a Non-Qualified Contract
purchased before August 14, 1982 are taxed only after the Contract Owner has
received all of his pre-August 14, 1982 investment in the Contract. The amount
received in a complete redemption of a Non-Qualified Contract (regardless of the
date of purchase) will be taxed as ordinary income to the extent that it exceeds
the Contract Owners's investment in the Contract. Two or more Contracts
purchased from VALIC (or an affiliated company) by a Contract Owner within the
same calendar year,
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after October 21, 1988, are treated as a single Contract for purposes of
measuring the income on a partial redemption or complete surrender.
When payments are received as an annuity, the Contract Owner's investment
in the Contract is treated as received ratably and excluded ratably from gross
income as a tax-free return of capital, over the expected payment period of the
annuity. Individuals who begin receiving annuity payments on or after January 1,
1987 can exclude from income only their unrecovered investment in the Contract.
Upon death prior to recovering tax-free their entire investment in the Contract,
such individuals generally are entitled to deduct the unrecovered amount on
their final tax return.
SPECIAL TAX CONSEQUENCES -- EARLY
DISTRIBUTION
403(b) Annuities, 401(a) and 403(a) Qualified Plans, 408(b) IRAs, SEPs and
SIMPLE IRAs. Taxable distributions received before the recipient attains age
59 1/2 generally are subject to a 10% penalty tax in addition to regular income
tax. Distributions on account of the following generally are excepted from this
penalty tax:
(1) death;
(2) disability;
(3) separation from service after a participant reaches age 55 (only applies to
403(b), 401(a) 403(a));
(4) separation from service at any age if the distribution is in the form of
substantially equal periodic payments over the life (or life expectancy) of
the Participant (or the Participant and Beneficiary), and
(5) distributions which do not exceed the employee's tax deductible medical
expenses for the taxable year of receipt.
Separation from service is not required for distributions from an IRA, SEP or
SIMPLE IRA under #4 above. Certain distributions from a SIMPLE IRA within two
years after first participating in the plan may be subject to a 20% penalty,
rather than a 10% penalty.
After 1997, distributions from 408(b) IRAs on account of the following
additional reasons are also excepted from this penalty tax:
(6) distributions up to $10,000 (in the aggregate) to cover costs of acquiring,
constructing or reconstructing the residence of a first-time homebuyer, and
(7) distributions to cover certain costs of higher education tuition, fees,
books, supplies and equipment for the IRA owner, a spouse, child or
grandchild, and
(8) distributions to cover certain medical care or long term care insurance
premiums, for individuals who have received federal or state unemployment
compensation for 12 consecutive months.
408A "Roth" IRAs. Distributions, other than "qualified" distributions where
the five-year holding rule is met, are generally subject to the same 10% penalty
tax as other IRAs. Distributions of rollover or conversion contributions from an
IRA which are not qualified distributions, may be subject to additional penalty
taxes.
457 Plans. Distributions generally may be made under an EDCP prior to
separation from service only for unforeseeable emergencies, or for amounts under
$5,000 for inactive Participants, and are includible in the recipient's gross
income in the year paid.
Non-Qualified Contracts. A 10% penalty tax applies to the taxable portion
of a distribution received before age 59 1/2 under a Non-Qualified Contract,
unless the distribution is:
(1) to a Beneficiary on or after the Contract Owner's death;
(2) upon the Contract Owner's disability;
(3) part of a series of substantially equal annuity payments for the life or
life expectancy of the Contract Owner, or the lives or joint life expectancy
of the Contract Owner and Beneficiary;
(4) made under an immediate annuity contract, or
(5) allocable to Purchase Payments made before August 14, 1982.
SPECIAL TAX CONSEQUENCES -- REQUIRED
DISTRIBUTIONS
403(b) Annuities. Generally, minimum required distributions must commence
no later than April 1 of the calendar year following the later of the calendar
year in which the Participant attains age 70 1/2 or the calendar year in which
the Participant retires. Required distributions must be made over a period that
does not exceed the life or life
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expectancies of the Participant (or lives or joint life expectancies of the
Participant and Beneficiary). The minimum amount payable can be determined
several different ways. A penalty tax of 50% is imposed on the amount by which
the minimum required distribution in any year exceeds the amount actually
distributed in that year.
Amounts accumulated under a Contract on December 31, 1986 may be paid in a
manner that meets the above rule or, alternatively:
(i) must begin to be paid when Participant attains age 75; and
(ii) the present value of payments expected to be made over the life of the
Participant, (under the option chosen) must exceed 50% of the present value
of all payments expected to be made (the "50% rule").
The 50% rule will not apply if a Participant's spouse is the joint annuitant.
Notwithstanding these pre-January 1, 1987 rules the entire contract balance must
meet the minimum distribution incidental benefit requirement of Section
403(b)(10).
At the Participant's death before payout has begun, Contract amounts
generally either must be paid to the Beneficiary within 5 years, or must begin
within 1 year of death and be paid over the life or life expectancy of the
Beneficiary. If death occurs after commencement of (but before full) payout,
distributions generally must continue at least as rapidly as under the method
elected by the Participant and in effect at the time of death.
A participant generally may aggregate his or her 403(b) contracts and
accounts for purposes of satisfying these requirements, and withdraw the
required distribution in any combination from such contracts or accounts, unless
the plan, contract, or account otherwise provides.
401(a) and 403(a) Qualified Plans. Minimum distribution requirements for
Qualified Plans, are generally the same as described for 403(b) Annuities,
except that there is no exception for pre-1987 amounts, and multiple plans may
not be aggregated to satisfy the requirement.
408(b) IRAs, SEPs and SIMPLE IRAs. Minimum distribution requirements are
generally the same as described above for 403(b) Annuities, except that:
(1) there is no exception for pre-1987 amounts; and
(2) there is no available postponement, past April 1 of the calendar year
following the calendar year in which age 70 1/2 is attained.
A participant generally may aggregate his or her IRAs for purposes of
satisfying these requirements, and withdraw the required distribution in any
combination from such contracts or accounts, unless the contract or account
otherwise provides.
408A "Roth" IRAs. Minimum distribution requirements generally applicable to
403(b) Annuities, 401(a) and 403(a) Qualified Plans, 408(b) IRAs, SEPs and 457
Plans do not apply to 408A "Roth" IRAs during the owner's lifetime, but
generally do apply at the owner's death.
A participant generally may aggregate his or her Roth IRAs for purposes of
satisfying these requirements, and withdraw the required distribution in any
combination from such contracts or accounts, unless the contract or account
otherwise provides.
457 Plans. Beginning January 1, 1989, the minimum distribution requirements
for EDCP's are generally the same as described above for 403(b) Annuities except
that there is no exception for pre-1987 amounts, and multiple plans may not be
aggregated to satisfy the requirement.
Non-Qualified Contracts. Non-Qualified Contracts do not require
commencement of distributions at any particular time during the Owner's
lifetime, provided that the Owner is a natural person, and generally do not
limit the duration of annuity payments.
At the Participant's death before payout has begun, Contract amounts
generally either must be paid to the Beneficiary within 5 years, or must begin
within 1 year of death and be paid over the life or life expectancy of the
Beneficiary. If death occurs after commencement of (but before full) payout,
distributions generally must continue at least as rapidly as under the method
elected by the Participant at the time of death.
TAX-FREE ROLLOVERS, TRANSFERS AND
EXCHANGES
403(b) Annuities. Tax free transfers between 403(b) annuity contracts
and/or 403(b)(7) custo-
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dial accounts, and tax-free rollovers from 403(b) programs to 408(b) IRAs or
other 403(b) programs, are permitted under certain circumstances.
401(a) and 403(a) Qualified Plans. The taxable portion of certain
distributions may be transferred in a tax-free rollover to an 408(b) individual
retirement account or annuity, or to another such plan.
408(b) IRAs. Funds may be transferred tax-free to an 408(b) IRA Contract,
from a 403(b) Annuity, or 401(a) or 403(a) Qualified Plan, under certain
conditions. These amounts may subsequently be rolled over on a tax-free basis to
another such plan or 403(b) Annuity Contract from this "conduit" IRA. In
addition, tax-free rollovers may be made from one 408(b) IRA (other than a Roth
IRA) to another provided that no more than one such rollover is made during any
twelve-month period.
408A "Roth" IRAs. Funds may be transferred over tax-free from one 408A
"Roth" IRA to another. Funds in a 408(b) IRA may be rolled in a taxable
transaction to a 408A "Roth" IRA by individuals who:
(i) have adjusted gross income of $100,000 or less, whether single or married
filing jointly;
(ii) are not married filing separately.
Special, complicated rules governing holding periods, escape from the 10%
penalty tax and ratable recognition of 1998 income also apply to rollovers from
408(b) IRAs to 408A "Roth" IRAs, and may be subject to further modification by
Congress. You should consult your tax advisor regarding the application of these
rules.
SEPs. Funds may be rolled over tax free from one SEP only to another SEP or
408(b) IRA.
457 Plans. Tax-free transfer of EDCP amounts are permitted only to another
EDCP.
Unfunded Deferred Compensation Plans. Tax-free transfers or rollovers are
not allowed from these plans.
Non-Qualified Contracts. Certain of the Non-Qualified single payment
deferred annuity Contracts permit the Contract Owner to exchange the Contract
for a new deferred annuity contract prior to the commencement of annuity
payments. The exchange of one annuity contract for another is a tax-free
transaction under Section 1035, but is reportable to the IRS.
EXCHANGE PRIVILEGE
In the prospectus we described generally how under certain conditions we
will allow you to exchange from other fixed and/or variable contracts we issue
(other contracts) to Portfolio Director. These other contracts are listed in the
prospectus. A more detailed comparison of the features, charges and restrictions
between each of these listed other contracts and Portfolio Director is provided
below.
EXCHANGES FROM INDEPENDENCE PLUS
CONTRACTS
Sales/Surrender Charges. Under an Independence Plus Contract, no sales
charge is deducted at the time a Purchase Payment is made, but a surrender
charge may be imposed on partial or total surrenders. The surrender charge may
not exceed 5% of any Purchase Payments withdrawn within five years of the date
such Purchase Payments were made. The most recent Purchase Payments are deemed
to be withdrawn first. Up to 10% of the Account Value may be surrendered in a
Participant Year without any surrender charge being imposed. Portfolio Director
imposes a similar surrender charge upon total or partial surrenders. Both the
Portfolio Director and Independence Plus Contracts have other similar provisions
where surrender charges are not imposed. However, Portfolio Director provides at
least one additional provision, not included in Independence Plus Contracts,
under which no surrender charge will be imposed. An additional provision allows
election of a systematic withdrawal method without surrender charges. (See
"Surrender Charge" in the prospectus.) For purposes of satisfying the
fifteen-year and five-year holding requirements described under "Surrender
Charge" in the prospectus, Portfolio Director will be deemed to have been issued
on the same date as the Independence Plus Contract or certificate thereunder,
but no earlier than January 1, 1982. Purchase Payments exchanged into Portfolio
Director and which were made within five years before the date of exchange will
be treated as Purchase Payments under Portfolio Director for purposes of
calculating the surrender charge. Exchanged payments will be deemed to have been
made under Portfolio Director on the date they were made to Independence Plus
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Contracts for purposes of calculating the surrender charge under Portfolio
Director.
Other Charges. Under the Independence Plus Contracts, a maintenance charge
of $20 is assessed for the first year and an annual charge of $15 is assessed
for the second and later years during the accumulation period. The charge is due
in quarterly installments. A daily fee is charged at the annual rate of 1% of
the daily net asset value allocable to the Variable Subaccounts to cover
administrative expenses (other than those covered by the annual charge) and
mortality risks assumed by the Company. For Portfolio Director, a quarterly
account maintenance fee of $3.75 is assessed for each calendar quarter during
the Purchase Period during which any Variable Account Option Account Value is
credited to a Participant's Account. The fee is to reimburse the Company for
some of the administrative expenses associated with the Variable Account
Options. No fee is assessed for any calendar quarter if the Account Value is
credited only to the Fixed Account Options throughout the quarter. Such fee
begins immediately if an exchange is made into any Variable Account Option
offered under Portfolio Director. The fee may also be reduced or waived by the
Company for Portfolio Director if the administrative expenses are expected to be
lower for that Contract. (See "Reduction or Waiver of Account Maintenance Fee,
Surrender, Mortality and Expense Risk Fee or Administration and Distribution Fee
Charges" in the prospectus.) To cover expenses not covered by the account
maintenance fee and to compensate the Company for assuming mortality risks and
administration and distribution expenses under Portfolio Director, an additional
daily charge with an annualized rate of 1.00% to 1.25%, depending upon the
Variable Account Options selected, if any, on the daily net asset value of VALIC
Separate Account A is attributable to Portfolio Director. (See "Separate Account
Charges" in the prospectus)
Investment Options. Under Independence Plus Contracts ten divisions of
VALIC Separate Account A are available variable investment alternatives, each
investing in shares of a different underlying fund of the Series Company
portfolio. The ten mutual funds are managed by the Company for advisory fees at
annual rates ranging from .28% to .50% of each respective portfolio's average
daily net assets. In addition, two fixed investment options are available. Under
Portfolio Director, sixteen divisions of VALIC Separate Account A are available,
thirteen of which invest in a different investment portfolio of the Series
Company and three divisions of which invest in other mutual fund portfolios.
These mutual fund portfolios are managed either by the Company, the Dreyfus
Corporation, or Templeton Investment Counsel Inc. for advisory fees at annual
rates ranging from .28% to .90% of each portfolio's or mutual fund's average
daily net assets. Two fixed investment options are also available.
Annuity Options. Annuity options under Independence Plus Contracts provide
for payments on a fixed or variable basis, or a combination of both. The
Independence Plus Contract permits annuity payments for a designated period
between 3 and 30 years on a fixed basis only. Portfolio Director permits annuity
payments for a designated period between of 5 and 30 years on a fixed basis
only. Independence Plus Contracts and Portfolio Director both provide for
"betterment of rates." Under this provision, annuity payments for fixed
annuities will be based on mortality tables then being used by the Company, if
more favorable to the Annuitant than those included in the Contract.
EXCHANGES FROM V-PLAN CONTRACTS
Sales/Surrender Charges. Under a V-Plan Contract, no sales charge is
deducted at the time a Purchase Payment is made, but a surrender charge may be
imposed on partial or total surrenders. The surrender charge is equal to 7% of
the Purchase Payments withdrawn within five years of the date such Purchase
Payments were made. The most recent Purchase Payments are deemed to be withdrawn
first. Up to 10% of the account value may be surrendered in a Participant Year
without any surrender charge being imposed. Portfolio Director also imposes a
surrender charge upon total or partial surrenders. However, the surrender charge
under Portfolio Director may not exceed 5% of any Purchase Payments withdrawn
within the most recent five years prior to the receipt of the surrender request
by the Company at its Home Office. V-Plan Contracts have other provisions where
surrender charges are not imposed. However, Portfolio Director provides at least
two additional provisions, not included in V-Plan Contracts, under which no
surrender charge will be imposed. Those Portfolio Director provisions include no
surrender charges on an election of the no charge systematic withdrawal method,
and where an employee-participant has maintained the account for a period of
five years and has attained the age 59 1/2. (See "Surrender
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Charge" in the prospectus.) For purposes of satisfying the fifteen-year and
five-year holding requirements, Portfolio Director will be deemed to have been
issued on the same date as the V-Plan Contract or certificate thereunder, but no
earlier than January 1, 1982.
If there is a total or partial surrender, Purchase Payments exchanged into
Portfolio Director and which were made within five years before the date of
exchange will be treated as Purchase Payments under Portfolio Director for
purposes of calculating the surrender charge. Exchanged payments will be deemed
to have been made under Portfolio Director on the date they were made to the
V-Plan Contract for purposes of calculating the surrender charge under Portfolio
Director.
Other Charges. There are no administrative and risk charges under V-Plan
Contracts. For Portfolio Director, a quarterly account maintenance fee of $3.75
is assessed for each calendar quarter during the Purchase Period during which
any Variable Account Option Account Value is credited to a Participant's
Account. The fee is to reimburse the Company for some of the administrative
expenses associated with the Variable Account Options. No fee is assessed for
any calendar quarter if the Account Value is credited only to the Fixed Account
Options throughout the quarter. Such fees begin immediately if an exchange is
made into any Variable Account Option offered under Portfolio Director. The fee
may also be reduced or waived by the Company on Portfolio Director if the
administrative expenses are expected to be lower for that Contract. (See
"Reduction or Waiver of Account Maintenance Fee, Surrender, Mortality and
Expense Risk Fee or Administration and Distribution Fee Charges" in the
prospectus.) To cover expenses not covered by the account maintenance fee and to
compensate the Company for assuming mortality risks and administration and
distribution expenses under Portfolio Director, an additional daily charge with
an annualized rate of 1.00% to 1.25%, depending upon the Variable Account
Options selected, if any, on the daily net asset value of the VALIC Separate
Account A is attributable to Portfolio Director. (See "Separate Account Charges"
in the prospectus.)
Investment Options. There are no variable investment alternatives provided
under V-Plan Contracts.
Annuity Options. Annuity options under V-Plan Contracts provide for
payments on a fixed basis only. The V-Plan Contract permits annuity payments for
a designated period of 1 to 15 years. Under a V-Plan Contract, the designated
period option may, subject to adverse tax consequences, be commuted at any time
for its remaining value. Portfolio Director permits Payout Payments for a
designated period of between 5 and 30 years on a fixed basis only. Under
Portfolio Director, Payout Payments may be made on a fixed or variable basis, or
a combination of both. Portfolio Director does not provide for commutation.
V-Plan Contracts and Portfolio Director both provide for "betterment of rates."
Under this provision, Payout Payments for fixed annuities will be based on
mortality tables then being used by the Company, if more favorable to the
Annuitant than those included in the Contract.
EXCHANGES FROM SA-1 AND SA-2 CONTRACTS
(GUP-64, GUP-74, GTS VA CONTRACTS)
Sales/Surrender Charges. Under the SA-1 and SA-2 Contracts a sales and
administrative charge is deducted from each Purchase Payment. This charge ranges
from 5% of the first $5,000 of Purchase Payments to 3% of Purchase Payments in
excess of $15,000. If a SA-1 or SA-2 Contract is exchanged for Portfolio
Director the surrender charge under Portfolio Director will not apply to the
amount of Account Value applied to Portfolio Director ("Exchanged Amount").
Purchase Payments made to Portfolio Director, however, would be subject to a
surrender charge. In the case of a partial surrender, all Purchase Payments to
Portfolio Director will be deemed to be withdrawn before any Exchanged Amount is
deemed to be withdrawn. No exchange pursuant to this offer will be allowed
within 120 days of a transfer of fixed accumulations under a SA-1 or SA-2
Contract to the variable portion of such Contract. Under Portfolio Director, no
sales charge is deducted at the time a Purchase Payment is made, but a surrender
charge may be imposed on partial or total surrenders. The surrender charge may
not exceed 5% of any Purchase Payments withdrawn within the most recent five
years prior to the receipt of the surrender request by the Company at its Home
Office. For purposes of this surrender charge, the most recent Purchase Payments
are deemed to be withdrawn first. (See "Surrender Charge" in the prospectus.)
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Other Charges. A charge of a percentage of each Purchase Payment is made
for administrative expenses for SA-1 and SA-2 Contracts. The charge is generally
1.25% and is included in the above sales and administrative charge. An
additional daily charge (at an annual rate of 1% of total net assets
attributable to SA-1 Contracts and ranging from .21% to .85% of total net assets
attributable to SA-2 Contracts) is made for mortality and expense risks assumed
by the Company under the variable portion of the Contract. The total of these
expenses and other charges is limited to a maximum of the rate imposed on SA-1
and SA-2 Contracts on April 1, 1987. (See prospectus for SA-1 and SA-2 contracts
dated April 20, 1987.) For Portfolio Director, a quarterly account maintenance
fee of $3.75 is assessed for each calendar quarter during the Purchase Period
during which any Variable Account Option Account Value is credited to a
Participant's Account. The fee is to reimburse the Company for some of the
administrative expenses associated with the Variable Account Options. No fee is
assessed for any calendar quarter if the Account Value is credited only to the
Fixed Account Options throughout the quarter. Such fee begins immediately if an
exchange is made into any Variable Account Option offered under Portfolio
Director. The fee may also be reduced or waived by the Company on Portfolio
Director if the administrative expenses are expected to be lower for that
Contract. (See "Reduction or Waiver of Account Maintenance Fee, Surrender,
Mortality and Expense Risk Fee or Administration and Distribution Fee Charges"
in the prospectus.) To cover expenses not covered by the account maintenance fee
and to compensate the Company for assuming mortality risks and administration
and distribution expenses under Portfolio Director, an additional daily charge
with an annualized rate of 1.00% to 1.25%, depending upon the Variable Account
Options selected, if any, on the average daily net asset value of the Separate
Account is attributable to Portfolio Director. (See "Separate Account Charges"
in the prospectus.)
Investment Options. Under SA-1 and SA-2 Contracts only one division of
VALIC Separate Account A is available as a variable investment alternative. This
division invests in a portfolio of the Series Company. This portfolio is managed
by the Company for advisory fees at an annual rate of .29% of the portfolio's
average daily net assets. (Under a "grandfathering" arrangement, the total
advisory fees and certain other charges imposed against these Contracts are
limited to a maximum of the rate charged on April 1, 1987. See the prospectus
for these Contracts dated April 20, 1987.) Under Portfolio Director, sixteen
divisions of VALIC Separate Account A are available, thirteen of which invest in
a different investment portfolio of the Series Company and three divisions of
which invest in other mutual fund portfolios. These mutual fund portfolios are
managed by either the Company, The Dreyfus Corporation, or Templeton Investment
Counsel Inc., for advisory fees at annual rates ranging from .28% to .90% of
each portfolio's or mutual fund's average daily net assets. Additionally, two
fixed investment options are available under Portfolio Director.
Annuity Options. Annuity options under the SA-1 and SA-2 Contracts provide
for payments on a fixed or variable basis, or a combination of both. The SA-1
Contract annuity payments under a designated period option are limited to 15
years on a fixed basis only. Under this Contract, the designated period option
may, subject to adverse tax consequences, be commuted at any time for its
remaining value. SA-2 Contracts do not provide a designated period option nor do
they provide for commutation. Portfolio Director permits Payout Payments for a
designated period of between 5 and 30 years on a fixed basis only. Portfolio
Director does not provide for commutation. The SA-1 and SA-2 Contracts make no
provision for transfers from a separate account to a fixed annuity during the
annuity period. This option, subject to certain conditions, is available under
Portfolio Director. The SA-1 Contracts provide an option for monthly variable
annuity payments to be made at a level payment basis during each year of the
annuity period. Portfolio Director does not provide this option. SA-1 and
Portfolio Director, but not SA-2 Contracts, both provide for "betterment of
rates." Under this provision, Payout Payments for fixed annuities will be based
on mortality tables then being used by the Company, if more favorable to the
Annuitant than those included in the Contract.
EXCHANGES FROM IMPACT CONTRACTS
Sales/Surrender Charges. Under an Impact Contract, no sales charge is
deducted at the time a Purchase Payment is made, but a surrender charge may be
imposed on partial or total surrenders. The surrender charge is equal to 5% of
the Purchase Payments withdrawn within three years of the date
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such Purchase Payments were made. The most recent Purchase Payments are deemed
to be withdrawn first. Portfolio Director also imposes a surrender charge upon
total or partial surrenders which may not exceed 5% of any Purchase Payments
withdrawn within the most recent five years prior to the receipt of the
surrender request by the Company at its Home Office. Portfolio Director also has
other provisions where surrender charges are not imposed. (See "Exceptions to
Surrender Charge" in the prospectus.) For purposes of satisfying the fifteen-
year and five-year holding requirements, Portfolio Director will be deemed to
have been issued on the same date as the Impact Contract, or certificate
thereunder, but no earlier than January 1, 1982. Only Purchase Payments
exchanged into a Portfolio Director which were made within three years before
the date of exchange will be treated as Purchase Payments under Portfolio
Director for purposes of calculating the surrender charge. Exchanged payments
will be deemed to have been made under Portfolio Director on the date they were
made to Impact Contracts for purposes of calculating the surrender charge under
Portfolio Director.
Other Charges. Under Impact Contracts, a $30 annual charge is assessed once
a year to cover administrative expenses. The charge may, with prior regulatory
approval if required, be increased or decreased. In addition, a daily charge is
made at an annual rate of 1% of the net asset value allocable to the Impact
Contracts to cover administrative expenses (other than those covered by the
annual charge) and mortality risks assumed by the Company. For Portfolio
Director, a quarterly account maintenance fee of $3.75 is assessed for each
calendar quarter during the Purchase Period during which any Variable Account
Option Account Value is credited to a Participant's Account. The fee is to
reimburse the Company for some of the administrative expenses associated with
the Variable Account Options. No fee is assessed for any calendar quarter if the
Account Value is credited only to the Fixed Account Options throughout the
quarter. Such fee begins immediately if an exchange is made into any Variable
Account Option offered under Portfolio Director. The fee may also be reduced or
waived by the Company on Portfolio Director if the administrative expenses are
expected to be lower for that Contract. (See "Reduction or Waiver of Account
Maintenance Fee, Surrender, Mortality and Expense Risk Fee or Administration and
Distribution Fee Charges" in the prospectus.) To cover expenses not covered by
the account maintenance fee and to compensate the Company for assuming mortality
risks and administration and distribution expenses under Portfolio Director, an
additional daily charge with an annualized rate of 1.00% to 1.25%, depending
upon the Variable Account Options selected, if any, on the daily net asset value
of the Separate Account is attributable to Portfolio Director. (See "Separate
Account Charges" in the prospectus.)
Investment Options. Under the Impact Contract five divisions of Separate
Account A are available as variable investment alternatives, each investing in
shares of a different underlying fund of the Series Company portfolio. The five
mutual funds are managed by the Company for advisory fees at annual rates
ranging from .28% to .50% of each respective portfolio's average daily net
assets. Under Portfolio Director, sixteen divisions of VALIC Separate Account A
are available, thirteen of which invest in a different investment portfolio of
the Series Company and three divisions of which invest in other mutual fund
portfolios. These mutual fund portfolios are managed by either the Company, The
Dreyfus Corporation, or Templeton Investment Counsel Inc., for advisory fees at
annual rates ranging from .29% to .90% of each portfolio's or mutual fund's
average daily net assets. In addition, two fixed investment options are
available under Portfolio Director.
Annuity Options. Annuity options under Impact Contracts provide for
payments on a fixed or variable basis, or a combination of both. The Impact
Contract permits annuity payments for a designated period of 1 to 15 years on a
fixed basis only. Under an Impact Contract, the designated period option may,
subject to adverse tax consequences, be commuted at any time for its remaining
value. Portfolio Director permits Payout Payments for a designated period of
between 5 and 30 years on a fixed basis only. Portfolio Director does not
provide for commutation. Impact Contracts and the Portfolio Director both
provide for "betterment of rates." Under this provision, Payout Payments for
fixed annuities will be based on mortality tables then being used by the
Company, if more favorable to the Annuitant than those included in the Contract.
EXCHANGES FROM COMPOUNDER CONTRACTS
Sales/Surrender Charges. Under a Compounder Contract a sales and
administrative charge is deducted from each Purchase Payment. This
17
<PAGE> 368
charge ranges from 5% of the first $5,000 of Purchase Payments to 3% of Purchase
Payments in excess of $15,000. If a Compounder Contract is exchanged for
Portfolio Director the surrender charge under Portfolio Director will not apply
to the amount of Account Value applied to Portfolio Director. Purchase Payments
made to Portfolio Director, however, would be subject to the surrender charge
under Portfolio Director. In the case of a partial surrender, all Purchase
Payments to Portfolio Director will be deemed to be withdrawn before any
Exchanged Amount is deemed to be withdrawn. Under Portfolio Director, no sales
charge is deducted at the time a Purchase Payment is made, but a surrender
charge may be imposed on partial or total surrenders. The surrender charge may
not exceed 5% of any Purchase Payments withdrawn within the most recent five
years prior to the receipt of the surrender request by the Company at its Home
Office. For purposes of this surrender charge, the most recent Purchase Payments
are deemed to be withdrawn first. (See "Surrender Charge" in the prospectus.)
Other Charges. A charge of a percentage of each Purchase Payment is made
for administrative expenses under a Compounder Contract. The charge is 1.25% and
is included in the above sales charge. For Portfolio Director, a quarterly
account maintenance fee of $3.75 is assessed for each calendar quarter during
the Purchase Period during which any Variable Account Option Account Value is
credited to a Participant's Account. The fee is to reimburse the Company for
some of the administrative expenses associated with the Variable Account
Options. No fee is assessed for any calendar quarter if the Account Value is
credited only to the Fixed Account Options throughout the quarter. Such fee
begins immediately if an exchange is made into any Variable Account Option
offered under Portfolio Director. The fee may also be reduced or waived by the
Company for Portfolio Director if the administrative expenses are expected to be
lower for that Contract. (See "Reduction or Waiver of Account Maintenance Fee,
Surrender, Mortality and Expense Risk Fee or Administration and Distribution Fee
Charges" in this prospectus.) To cover expenses not covered by the account
maintenance fee and to compensate the Company for assuming mortality risks and
administration and distribution expenses under Portfolio Director, an additional
daily charge with an annualized rate of 1.00% to 1.25%, depending upon the
Variable Account Options selected, if any, on the daily net asset value of the
Separate Account is attributable to Portfolio Director. (See "Separate Account
Charges" in the prospectus.)
Investment Options. There are no variable investment alternatives provided
under Compounder Contracts.
Annuity Options. Payout Payments under a Compounder Contract are on a fixed
basis only and the designated period option is limited to a period of 15 years.
However, under a Compounder Contract, the designated period option may, subject
to adverse tax consequences, be commuted at any time for its remaining value.
Portfolio Director allows Payout Payments be made on a fixed or variable basis,
or both. One option under the Portfolio Director provides for a designated
period of 5 and 30 years on a fixed basis only. Portfolio Director does not
provide for commutation. Unlike Portfolio Director, the Compounder Contracts
contain no "betterment of rates" provision.
INFORMATION WHICH MAY BE APPLICABLE TO
ANY EXCHANGE
Guaranteed Annuity Rates. Mortality rates have improved since annuity rates
were developed for the other contracts. Therefore, the annuity rates guaranteed
in Portfolio Director are less favorable to Contract Owners and Annuitants than
those guaranteed in the other contracts. However, the current annuity rates
being charged for fixed annuities under the "betterment of rates" provisions
discussed above are more favorable than those guaranteed under Portfolio
Director or the other contracts. Of course, no assurance can be given that this
will continue to be true at the time of annuitization for a given contract.
Guaranteed annuity rate tables are set forth in your Contract or in current
endorsements thereto. Those guaranteed for Portfolio Director are set forth
therein, and copies may be obtained from one of the Company's Regional Offices
listed on the inside back cover of this prospectus.
To satisfy a Federal tax law requirement, non-spouse beneficiaries under
Portfolio Director generally must receive the entire benefit payable upon the
death of the Annuitant over their life expectancy or within five years of the
Annuitant's death. This requirement may be inapplicable to certain other
contracts or certificates issued before January 19, 1985 if not exchanged.
18
<PAGE> 369
CALCULATION OF SURRENDER CHARGE
The surrender charge is discussed in the Prospectus under "Fees and Charges
- -- Surrender Charge." Examples of calculation of the Surrender Charge upon total
and partial surrender are set forth below:
ILLUSTRATION OF SURRENDER CHARGE ON TOTAL SURRENDER
Example 1.
TRANSACTION HISTORY
<TABLE>
<CAPTION>
DATE TRANSACTION AMOUNT
---- ----------- ------
<S> <C> <C>
2/1/92.......................... Purchase Payment $10,000
2/1/93.......................... Purchase Payment 5,000
2/1/94.......................... Purchase Payment 15,000
2/1/95.......................... Purchase Payment 2,000
2/1/96.......................... Purchase Payment 3,000
2/1/97.......................... Purchase Payment 4,000
7/1/97.......................... Total Purchase Payments (Assumes
Account Value is $50,000) 39,000
</TABLE>
Surrender Charge is lesser of (a) or (b):
<TABLE>
<S> <C> <C> <C>
a. Surrender Charge calculated on 60 months of Purchase Payments
1. Surrender Charge against Purchase Payment of 2/1/92......... $ 0
2. Surrender Charge against Purchase Payment of 2/1/93 (0.05 X
$5,000)..................................................... $ 250
3. Surrender Charge against Purchase Payment of 2/1/94 (0.05 X
$15,000).................................................... $ 750
4. Surrender Charge against Purchase Payment of 2/1/95 (0.05 X
$2,000)..................................................... $ 100
5. Surrender Charge against Purchase Payment of 2/1/96 (0.05 X
$3,000)..................................................... $ 150
6. Surrender Charge against Purchase Payment of 2/1/97 (0.05 X
$4,000)..................................................... $ 200
Surrender Charge based on Purchase Payments (1 + 2 + 3 + 4 +
5 + 6)...................................................... $1,450
b. Surrender Charge calculated on the excess over 10% of the Account
Value at the time of surrender:
Account Value at time of surrender $ 50,000
Less 10% not subject to Surrender Charge -5,000
-----------
Subject to Surrender Charge 45,000
X .05
-----------
Surrender Charge based on Account
Value $ 2,250 ....................................... $2,250
c. Surrender Charge is the lesser of a or b......................... $1,450
</TABLE>
ILLUSTRATION OF SURRENDER CHARGE ON A 10% PARTIAL SURRENDER FOLLOWED BY A FULL
SURRENDER
Example 2.
TRANSACTION HISTORY (ASSUMES NO INTEREST EARNED)
<TABLE>
<CAPTION>
DATE TRANSACTION AMOUNT
---- ----------- ------
<S> <C> <C>
2/1/92.......................... Purchase Payment $10,000
2/1/93.......................... Purchase Payment 5,000
2/1/94.......................... Purchase Payment 15,000
2/1/95.......................... Purchase Payment 2,000
2/1/96.......................... Purchase Payment 3,000
2/1/97.......................... Purchase Payment 4,000
7/1/97.......................... 10% Partial Surrender (Assumes 3,900
Account Value is $39,000)
8/1/97.......................... Full Surrender 35,100
</TABLE>
a. Since this is the first partial surrender in this participant year,
calculate the excess over 10% of the value of the Purchase Units
10% of $39,000 = $3,900 [no charge on this 10% withdrawal]
b. The Account Value upon which Surrender Charge on the Full Surrender may
be calculated (levied) is $39,000 - $3,900 = $35,100
c. The Surrender Charge calculated on the Account Value withdrawn $35,100 X
.05 = $1,755
d. Since only $29,000 has been paid in Purchase Payments in the 60 months
prior to the Full Surrender, the charge can only be calculated on
$29,000. The $3,900 partial withdrawal does not reduce this amount.
Thus, the charge is $29,000 X (0.05) = $1,450.
19
<PAGE> 370
PURCHASE UNIT VALUE
The calculation of Purchase Unit value is discussed in the Prospectus under
"Purchase Period." The following illustrations show a calculation of a new Unit
value and the purchase of Purchase Units (using hypothetical examples):
ILLUSTRATION OF CALCULATION OF PURCHASE UNIT VALUE
Example 3.
<TABLE>
<S> <C>
1. Purchase Unit value, beginning of period................. $ 1.800000
2. Value of Fund share, beginning of period................. $ 21.200000
3. Change in value of Fund share............................ $ .500000
4. Gross investment return (3)/(2).......................... .023585
5. Daily separate account*.................................. .000027
* Mortality and Expense Risk Fee and Administration
and Distribution fee of 1% per annum used for
illustrative purposes.
6. Net investment return (4)-(5)............................ .023558
7. Net investment factor 1.000000+(6)....................... 1.023558
8. Purchase Unit value, end of period (1)X(7)............... $ 1.842404
</TABLE>
ILLUSTRATION OF PURCHASE OF PURCHASE UNITS (ASSUMING NO STATE PREMIUM TAX)
Example 4.
<TABLE>
<S> <C>
1. First Periodic Purchase Payment.......................... $ 100.00
2. Purchase Unit value on effective date of purchase (see
Example 3)............................................... $ 1.800000
3. Number of Purchase Units purchased (1)/(2)............... 55.556
4. Purchase Unit value for valuation date following purchase
(see Example 3).......................................... $ 1.842404
5. Value of Purchase Units in account for valuation date
following
purchase (3)X(4)......................................... $ 102.36
</TABLE>
PERFORMANCE CALCULATIONS
AGSPC MONEY MARKET DIVISION YIELDS
CALCULATION OF CURRENT YIELD FOR AGSPC MONEY MARKET DIVISION SIX
7-Day Current Yield: 4.22%
ILLUSTRATION OF CALCULATION OF CURRENT YIELD FOR AGSPC MONEY MARKET DIVISION SIX
Example 5.
The current yield quotation above is based on the seven days ended December
31, 1997, the date of the most recent balance sheet included in the registration
statement ("base period"). It is computed by determining the net change,
exclusive of capital changes, in the value of a hypothetical pre-existing
account having a balance of one Purchase Unit at the beginning of the period,
subtracting a hypothetical charge reflecting deductions from Contract Owner
accounts, and dividing the difference by the value of the account at the
beginning of the base period to obtain the base period return and then
multiplying the base period return by 365/7.
CALCULATION OF EFFECTIVE YIELD FOR AGSPC MONEY MARKET DIVISION SIX
7-Day Effective Yield: 4.31%
ILLUSTRATION OF CALCULATION OF EFFECTIVE YIELD FOR AGSPC MONEY MARKET DIVISION
SIX
Example 6.
The effective yield quotation above is based on the seven days ended
December 31, 1997, the date of the most recent balance sheet included in the
registration statement ("base period"). It is com-
20
<PAGE> 371
puted by determining the net change, exclusive of capital changes, in the value
of a hypothetical pre-existing account having a balance of one Purchase Unit at
the beginning of the period, subtracting a hypothetical charge reflecting
deductions from Contract Owner accounts, and dividing the difference by the
value of the account at the beginning of the base period to obtain the base
period return and then 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.......................................... 5.45% 4.87% 3.60%
</TABLE>
ILLUSTRATION OF CALCULATION OF STANDARDIZED YIELD FOR DIVISIONS SEVEN, EIGHT AND
THIRTEEN
Example 7.
The standardized yield quotation based on a 30-day period ended December
31, 1997, the date of the most recent balance sheet of the Registrant included
in the registration statement is computed
by dividing the net investment income per Purchase Unit earned during the period
by the maximum offering price per Unit on the last day of the period, according
to the following formula:
YIELD = 2 [( a - b + 1)6 - 1]
cd
Where:
<TABLE>
<S> <C>
a = net investment income earned during the period by the Fund
attributable to shares owned by the Division
b = expenses accrued for the period (net of reimbursements)
c = the average daily number of Purchase Units outstanding
during the period
d = the maximum offering price per Purchase Unit on the last day
of the period
</TABLE>
Yield on each Division is earned from dividends declared and paid by the
Fund, which are
automatically reinvested in Fund shares.
21
<PAGE> 372
CALCULATION OF AVERAGE ANNUAL TOTAL RETURN
Average Annual Total Return quotations for the 1, 3, 5, and 10 year periods
ended December 31, 1997, the date of the most recent balance sheet included in
this registration statement, are computed by finding the average annual com-
pounded rates of over the 1, 3, 5, and 10 year periods that would equate the
initial amount invested to the ending redeemable value, according to the
following formula:
P (1+T)n = ERV
Where:
<TABLE>
<S> <C>
P = a hypothetical initial Purchase Payment of $1,000
T = average annual total return
n = number of years
ERV = redeemable value at the end of the 1, 3, 5 or 10 year
periods of a hypothetical $1,000 Purchase Payment made at
the beginning of the 1, 3, 5, or 10 year periods (or
fractional portion thereof)
</TABLE>
The Company may advertise standardized average annual total return which,
includes the surrender charge of up to 5% of Gross Purchase Payments received
during the most recent 60 months as well as non-standardized average annual
total returns which does not include a surrender charge or maintenance fee.
There is no sales charge for reinvested dividends. All recurring fees have
been deducted. For fees which vary with the account size, an account size equal
to that of the median account size has been assumed. Ending redeemable value has
been determined assuming a complete redemption at the end of the 1, 3, 5 or 10
year period and deduction of all nonrecurring charges at the end of each such
period.
PERFORMANCE INFORMATION
HYPOTHETICAL $10,000 ACCOUNT VALUE AND
CUMULATIVE RETURN AS COMPARED TO BENCHMARKS TABLES.
The following tables show the Hypothetical $10,000 Account Value and
Cumulative Return of each Division as compared to the benchmarks shown.
These performance calculations for the Divisions, and the methods used for
calculating them, are explained in the prospectus. (See "How To Review
Investment Performance of Separate Account Divisions" and "Variable Account
Options" in the prospectus.)
These tables compare hypothetical investment performance and percentage
changes in Purchase Unit values with the results of several benchmarks,
representing unmanaged market indices. The performance information has been
adjusted to reflect mortality and expense risk fees and administration and
distribution fees, net of any expense reimbursements from Dreyfus Small Cap.
Surrender charges, maintenance fees and premium taxes are not deducted. The
effect of these charges is to reduce total return to a Contract Owner. The
comparisons should be considered in light of the investment policies and
objectives of the Funds. Rates of return for the Divisions include reinvestment
of investment income, including capital gains, interest and dividends. The rates
of return on the market indices also have been adjusted to reflect reinvestment
of interest and dividends.
Price returns for the market indices are calculated by subtracting the
price level at the beginning of the year from the price level at the end of the
year and dividing the difference by the price level at the beginning of the
year. To calculate dollar values for the indices' Hypothetical $10,000 Account
Value presentation, price index values were substituted for Unit values in the
calculation described in the prospectus, and where applicable, dividend yields
were then added to determine the total returns applied in the dollar value
calculations. Similarly, to calculate Cumulative Return for the
22
<PAGE> 373
indices, the Cumulative Return calculation described in the prospectus for Unit
values of the Divisions is used, substituting the Hypothetical $10,000 Account
Value at the end of each year for the Purchase Unit Value. No sales load,
administrative charges, or any other expenses have been deducted from the index
calculations.
Additionally, the performance of a Division may from time to time be
compared with other Indexes which have been deemed by the Company relevant to
the Division.
These benchmarks do not reflect any charges for investment advisory fees,
brokerage commissions or other fees and expenses of the type charged at either
the Separate Account or Fund level. Therefore, the comparisons with these
benchmarks are of limited use.
THE PERFORMANCE RESULTS SHOWN IN THIS SECTION ARE NOT AN ESTIMATE OR
GUARANTEE OF FUTURE INVESTMENT PERFORMANCE, AND DO NOT REPRESENT THE ACTUAL
EXPERIENCE OF AMOUNTS INVESTED BY A PARTICULAR PARTICIPANT.
PERFORMANCE COMPARED TO MARKET INDICES
The performance of AGSPC Asset Allocation Division Five may be compared to
a benchmark comprised of a weighted average of three market sectors in which the
Division, through the AGSPC Asset Allocation Fund, will invest. The base
allocation is: 55% in equity securities, 35% in intermediate or long-term debt
securities and 10% in money market or short-term debt securities. The Division's
actual asset allocation is determined daily by the Bankers Trust Asset
Allocation Model. The performance of the equity securities sector of the
Division may be compared to the S&P 500(R) 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 5,000 corporate
and government bond holdings. The average maturity of these corporate bond
holdings is approximately 10 years. The performance of the money market or
short-term debt securities sector may be compared to the Certificate of Deposit
Primary Offering by New York City Banks, 30 Day Index.
The performance of AGSPC 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 4,300 corporate
bond holdings of which assets are rated AAA to BBB-. The average years to
maturity of these corporate bond holdings are approximately 12 years.
Performance of AGSPC Government Securities Division Eight may be compared
to the Lehman Brothers U.S. Treasury Composite Index. The Lehman Brothers U.S.
Treasury Composite Index consists of an index of approximately 170 government
Treasury securities issues with all such issues having a maturity of greater
than one year.
The performance of AGSPC Growth Division Fifteen, the AGSPC Growth & Income
Division Sixteen, AGSPC Social Awareness Division Twelve, the AGSPC Science &
Technology Division Seventeen and the AGSPC Stock Index Division Ten, may be
compared to the record of the Standard & Poor's(R) Corporation ("S&P(R)")*
Composite Stock Price Index ("S&P 500 Index"). The S&P 500(R) Index is a well
known measure of the price performance of 500 leading larger domestic stocks
which represents approximately 73% 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 AGSPC 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 approximately 1,100 companies from Europe,
Australia and the Far East. The index is capitalization weighted. It is a well
known measure for international stock performance. Total returns (with income
reinvested) for the EAFE Index are published using two methods. The first method
includes gross income (income earned without subtracting foreign income taxes
which may be withheld from foreign inves-
- ---------------
* "Standard & Poor's(R)", "S&P(R)", "S&P 500(R)" and "S&P MidCap 400(R)" are
trademarks of Standard and Poor's ("S&P"). Neither the AGSPC MidCap Index Fund
nor the AGSPC 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.
23
<PAGE> 374
tors). The second method includes net income (income earned after subtracting
estimated foreign taxes). The Division currently compares its performance with
the index using the second method.
The performance of the AGSPC International Government Bond Fund Division
Thirteen may be compared to the Salomon Brothers Non-US Dollar World Government
Bond Index ("Salomon Index"). Total returns with income reinvested for the
Salomon Index are published using two methods. The first method includes gross
income (income earned without subtracting foreign income taxes which may be
withheld from foreign investors). The second method includes net income (income
earned after subtracting estimated foreign taxes). The Division currently
compares its performance with the index using the second method. The Salomon
Index is an unmanaged aggregate index composed of 667 issues from sixteen
foreign countries. These countries include Austria, Australia, Belgium, Canada,
Denmark, Finland, France, Germany, Ireland, Italy, Japan, the Netherlands,
Spain, Sweden, Switzerland and the United Kingdom.
The performance of AGSPC 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 $1.998 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 AGSPC 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 the AGSPC Small Cap Index Division Fourteen and the
Dreyfus Small Cap Division Eighteen may be compared with the Russell 2000(R)
Index ("Russell 2000").** The Russell 2000 was developed in 1984 by the Frank
Russell Company to track the stock market performance of small capitalization
domestic stocks. The Russell 2000 is market weighted and consists of
approximately 2000 stocks. Stocks included in the Russell 2000 are chosen by the
Frank Russell Company on the basis of their market size.
The performance of the Templeton Asset Allocation Division Nineteen may be
compared to a benchmark comprised of a weighted average of three market sectors.
The base allocation of the index is: 55% in equity securities, 35% in
intermediate or long-term debt securities and 10% in money market or short-term
debt securities. There are no minimum or maximum percentages as to the amount of
the fund's assets which may be invested in each of the market segments. The
performance of the equity securities sector of the Division may be compared to
the Morgan Stanley Capital International World Index ("MSCI World Index"). The
performance of the intermediate or long-term debt securities sector may be
compared to the Salomon Brothers Non-US Dollar World Government Bond Index
("Salomon World Index"). The performance of the money market or short-term debt
securities sector may be compared to the Certificate of Deposit Primary Offering
by New York City Banks, 30 Day Index. Total returns (with income reinvested) for
the MSCI World Index and the Salomon World Index are published using two
methods. The first method includes gross income (income earned without
subtracting foreign income taxes which may be withheld from foreign investors).
The second method includes net income (income earned after subtracting estimated
foreign taxes). The Division currently compares its performance with these
indexes using the second method. The MSCI World Index is an unmanaged
capitalization weighted index consisting of more than 1,500 issues from 22
countries as well as certain South African gold mining issues. The countries
include Australia, Austria, Belgium, Canada, Denmark, Finland, France, Germany,
Hong Kong, Ireland, Italy, Japan, Malaysia, The Netherlands, New Zealand,
Norway, Singapore, Spain, Sweden, Switzerland, the United Kingdom, and the
United States. The Salomon World Index is an unmanaged aggregate index composed
of approximately 667 issues from
- ---------------
** The Russell 2000(R) Index is a trademark/service mark of the Frank Russell
Trust Company. Russell TM is a trademark of the Frank Russell Company.
24
<PAGE> 375
sixteen countries. The countries include Australia, Austria, Belgium, Canada,
Denmark, Finland, France, Ireland, Germany, Italy, Japan, The Netherlands,
Spain, Sweden, Switzerland, and the United Kingdom.
The performance of the Templeton International Division Twenty may be
compared to the Morgan Stanley Capital International World Index ("MSCI World
Index"). Total returns (with income reinvested) for the MSCI World Index is
published using two methods. The first method includes gross income (income
earned without subtracting foreign income taxes which may be withheld from
foreign investors). The second method includes net income (income earned after
subtracting estimated foreign taxes). The Division currently compares its
performance with the index using the second method. The MSCI World Index is an
unmanaged capitalization weighted index consisting of more than 1,500 issues
from 22 countries as well as certain South African gold mining issues. The
countries include Australia, Austria, Belgium, Canada, Denmark, Finland, France,
Germany, Hong Kong, Ireland, Italy, Japan, Malaysia, The Netherlands, New
Zealand, Norway, Singapore, Spain, Sweden, Switzerland, the United Kingdom, and
the United States.
25
<PAGE> 376
See "How to Review Investment Performance of Separate Account Divisions" in the
prospectus for information about how these returns were calculated.
AGSPC Asset Allocation* 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>
ASSET ALLOCATION 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
12/31/97.............................................. 32,193 93,345 63,251
</TABLE>
CUMULATIVE RETURN COMPARED TO MARKET INDEX
(PERIOD ENDED DECEMBER 31, 1997)
<TABLE>
<CAPTION>
SINCE
INCEPTION** 10 YEARS 5 YEARS 3 YEARS 1 YEAR
----------- -------- ------- ------- ------
<S> <C> <C> <C> <C> <C>
Investment Division
AGSPC Asset Allocation Division
Five................................ 221.93% 150.29% 74.39% 64.96% 21.40%
Benchmark Comparison
S&P 500 Index......................... 833.45% 425.69% 151.63% 125.62% 33.36%
Blended Index*........................ 532.51% 262.01% 93.97% 76.83% 21.94%
</TABLE>
- ---------------
* The AGSPC Asset Allocation Fund was formerly known as the Timed Opportunity
Fund.
** 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.
26
<PAGE> 377
AGSPC 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 18,779
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
12/31/97................................................... 19,622 30,925
</TABLE>
CUMULATIVE RETURN COMPARED TO MARKET INDEX
(PERIOD ENDED DECEMBER 31, 1997)
<TABLE>
<CAPTION>
SINCE
INCEPTION** 10 YEARS 5 YEARS 3 YEARS 1 YEAR
----------- -------- ------- ------- ------
<S> <C> <C> <C> <C> <C>
Investment Division
AGSPC Capital Conservation Divi-
sion Seven..................... 96.22% 92.64% 33.47% 29.50% 7.49%
Benchmark Comparison
Merrill Lynch Corporate Master
Index.......................... 209.25% 161.57% 50.75% 38.76% 10.39%
</TABLE>
- ---------------
* This Division was initiated on January 16, 1986.
27
<PAGE> 378
AGSPC 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
12/31/97................................................... 19,578 27,770
</TABLE>
CUMULATIVE RETURN COMPARED TO MARKET INDEX
(PERIOD ENDED DECEMBER 31, 1997)
<TABLE>
<CAPTION>
SINCE
INCEPTION* 10 YEARS 5 YEARS 3 YEARS 1 YEAR
---------- -------- ------- ------- ------
<S> <C> <C> <C> <C> <C>
Investment Division
AGSPC Government Securities
Division Eight............. 95.78% 93.46% 31.26% 26.54% 7.83%
Benchmark Comparison
U.S. Treasury Composite
Index...................... 177.70% 134.11% 42.40% 33.15% 9.47%
</TABLE>
- ---------------
* This Division was initiated on January 16, 1986.
AGSPC Growth Division Fifteen Performance Compared to S&P 500 Index
HYPOTHETICAL $10,000 ACCOUNT VALUE
ANNUAL VALUE OF A $10,000 STIPULATED PAYMENT MADE APRIL 29, 1994
<TABLE>
<CAPTION>
GROWTH S&P 500
DIVISION FIFTEEN INDEX
- --------------------------------------------------------------------- --------
<S> <C> <C>
04/29/94................................................... $10,000 $10,000
12/31/94................................................... 10,018 10,532
12/31/95................................................... 14,667 14,489
12/31/96................................................... 17,333 17,817
12/31/97................................................... 20,765 23,761
</TABLE>
CUMULATIVE RETURN COMPARED TO MARKET INDEX
(PERIOD ENDED DECEMBER 31, 1997)
<TABLE>
<CAPTION>
SINCE
INCEPTION* 5 YEARS 3 YEARS 1 YEAR
---------- ------- ------- ------
<S> <C> <C> <C> <C>
Investment Division
AGSPC Growth Division Fifteen................ 107.65% -- 107.27% 19.80%
Benchmark Comparison
S&P 500 Index................................ 137.61% -- 125.62% 33.36%
</TABLE>
- ---------------
* The Fund underlying this Division was initiated on April 29, 1994.
28
<PAGE> 379
AGSPC Growth & Income Division Sixteen Performance Compared to S&P 500 Index
HYPOTHETICAL $10,000 ACCOUNT VALUE
ANNUAL VALUE OF A $10,000 STIPULATED PAYMENT MADE APRIL 29, 1994
<TABLE>
<CAPTION>
GROWTH & INCOME S&P 500
DIVISION SIXTEEN INDEX
- --------------------------------------------------------------------- --------
<S> <C> <C>
04/29/94................................................... $10,000 $10,000
12/31/94................................................... 9,932 10,532
12/31/95................................................... 12,966 14,489
12/31/96................................................... 15,831 17,817
12/31/97................................................... 19,409 23,761
</TABLE>
CUMULATIVE RETURN COMPARED TO MARKET INDEX
(PERIOD ENDED DECEMBER 31, 1997)
<TABLE>
<CAPTION>
SINCE
INCEPTION* 5 YEARS 3 YEARS 1 YEAR
---------- ------- ------- ------
<S> <C> <C> <C> <C>
Investment Division
AGSPC Growth & Income Division Sixteen.... 94.09% -- 95.43% 22.60%
Benchmark Comparison
S&P 500 Index............................. 137.61% -- 125.62% 33.36%
</TABLE>
- ---------------
* The Fund underlying this Division was initiated on April 29, 1994.
AGSPC 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
12/31/97................................................. 12,373 13,532
</TABLE>
CUMULATIVE RETURN COMPARED TO MARKET INDEX
(PERIOD ENDED DECEMBER 31, 1997)
<TABLE>
<CAPTION>
SINCE
INCEPTION* 5 YEARS 3 YEARS 1 YEAR
---------- ------- ------- ------
<S> <C> <C> <C> <C>
Investment Division
AGSPC International Equities Division Eleven... 23.73% 61.29% 17.34% 1.18%
Benchmark Comparison
EAFE Index..................................... 35.32% 71.49% 20.03% 1.78%
</TABLE>
- ---------------
* This Division was initiated on October 2, 1989.
29
<PAGE> 380
AGSPC 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
12/31/97................................................... 14,906 16,568
</TABLE>
CUMULATIVE RETURN COMPARED TO MARKET INDEX
(PERIOD ENDED DECEMBER 31, 1997)
<TABLE>
<CAPTION>
SINCE
INCEPTION* 5 YEARS 3 YEARS 1 YEAR
---------- ------- ------- ------
<S> <C> <C> <C> <C>
Investment Division
AGSPC International Government Bond Division
Thirteen................................... 49.06% 33.95% 14.55% (5.79)%
Benchmark Comparison
Salomon Bros. Non-U.S. Dollar World
Government Bond Index...................... 65.68% 43.57% 18.35% (4.41)%
</TABLE>
- ---------------
* This Division was initiated on October 1, 1991.
30
<PAGE> 381
AGSPC MidCap Index Division Four Performance Compared to S&P 500 Index and S&P
MidCap 400 Index
HYPOTHETICAL $10,000 ACCOUNT VALUE
ANNUAL VALUE OF A $10,000 STIPULATED PAYMENT MADE OCTOBER 13, 1982
<TABLE>
<CAPTION>
S&P
S&P MIDCAP
MIDCAP INDEX 500 400
DIVISION FOUR INDEX INDEX
- --------------------------------------------------- ------- -------
<S> <C> <C> <C>
10/13/82.................................. $10,000 $10,000 $10,000
12/31/82.................................. 10,096 11,352 11,564
12/31/83.................................. 11,608 13,913 14,583
12/31/84.................................. 11,721 14,786 14,755
12/31/85.................................. 13,195 19,477 20,004
12/31/86.................................. 13,516 23,113 23,247
12/31/87.................................. 12,827 24,326 22,774
12/31/88.................................. 14,502 28,367 27,527
12/31/89.................................. 17,127 37,355 37,310
12/31/90.................................. 15,380 36,195 35,401
12/31/91.................................. 18,580 47,223 53,136
12/31/92.................................. 20,213 50,820 59,466
12/31/93.................................. 22,594 55,943 67,762
12/31/94.................................. 21,532 56,681 65,332
12/31/95.................................. 27,827 77,981 85,547
12/31/96.................................. 32,726 95,892 102,009
12/31/97.................................. 42,691 127,881 134,894
</TABLE>
CUMULATIVE RETURN COMPARED TO MARKET INDEX
(PERIOD ENDED DECEMBER 31, 1997)
<TABLE>
<CAPTION>
SINCE
INCEPTION 10 YEARS 5 YEARS 3 YEARS 1 YEAR
--------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C>
Investment Division
AGSPC MidCap Index Division
Four......................... 326.91% 232.83% 111.21% 98.27% 30.45%
Benchmark Comparison
S&P 500 Index.................. 1,178.81% 425.69% 151.63% 125.62% 33.36%
S&P MidCap 400 Index........... 1,248.94% 492.31% 126.84% 106.48% 32.24%
</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
purchase unit data for the last ten years for this Division appears in the
prospectus. Figures appearing above for the S&P MidCap 400 Index for years prior
to 1991 are based on estimates provided by Standard & Poor's for illustrative
purposes.
31
<PAGE> 382
AGSPC 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
12/31/97................................................... 16,736 18,840
</TABLE>
CUMULATIVE RETURN COMPARED TO MARKET INDEX
(PERIOD ENDED DECEMBER 31, 1997)
<TABLE>
<CAPTION>
SINCE
INCEPTION 10 YEARS 5 YEARS 3 YEARS 1 YEAR
--------- -------- ------- ------- ------
<S> <C> <C> <C> <C> <C>
Investment Division
AGSPC Money Market Division Six........ 67.36% 53.92% 18.22% 13.15% 4.13%
Benchmark Comparison
Primary CD Index....................... 88.40% 67.42% 22.13% 14.95% 4.78%
</TABLE>
AGSPC Science & Technology Division Seventeen Performance Compared to S&P 500
Index
HYPOTHETICAL $10,000 ACCOUNT VALUE
ANNUAL VALUE OF A $10,000 STIPULATED PAYMENT MADE APRIL 29, 1994
<TABLE>
<CAPTION>
SCIENCE & TECHNOLOGY S&P 500
DIVISION SEVENTEEN INDEX
- --------------------------------------------------------------------- -------
<S> <C> <C>
04/29/94................................................... $10,000 $10,000
12/31/94................................................... 12,477 10,532
12/31/95................................................... 19,972 14,489
12/31/96................................................... 22,505 17,817
12/31/97................................................... 22,857 23,761
</TABLE>
CUMULATIVE RETURN COMPARED TO MARKET INDEX
(PERIOD ENDED DECEMBER 31, 1997)
<TABLE>
<CAPTION>
SINCE
INCEPTION* 5 YEARS 3 YEARS 1 YEAR
---------- ------- ------- ------
<S> <C> <C> <C> <C>
Investment Division
AGSPC Science & Technology Division
Seventeen............................... 128.57% -- 83.19% 1.57%
Benchmark Comparison
S&P 500 Index............................. 137.61% -- 125.62% 33.36%
</TABLE>
- ---------------
* The Fund underlying this Division was initiated on April 29, 1994.
32
<PAGE> 383
AGSPC Small Cap Index Division Fourteen Performance Compared to Russell 2000
Index(R)
HYPOTHETICAL $10,000 ACCOUNT VALUE
ANNUAL VALUE OF A $10,000 STIPULATED PAYMENT MADE MAY 1, 1992
<TABLE>
<CAPTION>
RUSSELL
SMALL CAP INDEX 2000
DIVISION FOURTEEN INDEX
- ------------------------------------------------------------------------ -------------
<S> <C> <C>
05/01/92................................................. $ 10,000 $ 10,000
12/31/92................................................. 11,128 11,416
12/31/93................................................. 12,772 13,571
12/31/94................................................. 12,223 13,324
12/31/95................................................. 15,449 17,114
12/31/96................................................. 17,854 19,937
12/31/97................................................. 21,636 24,396
</TABLE>
CUMULATIVE RETURN COMPARED TO MARKET INDEX
(PERIOD ENDED DECEMBER 31, 1997)
<TABLE>
<CAPTION>
SINCE
INCEPTION* 5 YEARS 3 YEARS 1 YEAR
---------- ------- ------- --------
<S> <C> <C> <C> <C>
Investment Division
AGSPC Small Cap Index Division Fourteen..... 116.36% 94.43% 77.01% 21.18%
Benchmark Comparison
Russell 2000................................ 143.96% 113.70% 83.10% 22.36%
</TABLE>
- ---------------
* This Division was initiated May 1, 1992.
AGSPC 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
12/31/97................................................... 29,853 34,967
</TABLE>
CUMULATIVE RETURN COMPARED TO MARKET INDEX
(PERIOD ENDED DECEMBER 31, 1997)
<TABLE>
<CAPTION>
SINCE
INCEPTION* 5 YEARS 3 YEARS 1 YEAR
---------- ------- ------- ------
<S> <C> <C> <C> <C>
Investment Division
AGSPC Social Awareness Division Twelve....... 198.53% 133.32% 123.81% 32.52%
Benchmark Comparison
S&P 500 Index................................ 249.67% 151.63% 125.62% 33.36%
</TABLE>
- ---------------
* This Division was initiated on October 2, 1989.
33
<PAGE> 384
AGSPC 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
12/31/97................................................. 37,534 45,852
</TABLE>
CUMULATIVE RETURN COMPARED TO MARKET INDEX
(PERIOD ENDED DECEMBER 31, 1997)
<TABLE>
<CAPTION>
SINCE
INCEPTION 10 YEARS 5 YEARS 3 YEARS 1 YEAR
--------- -------- ------- ------- ------
<S> <C> <C> <C> <C> <C>
Investment Division
AGSPC Stock Index Division
Ten.......................... 275.34% 338.36% 136.11% 117.70% 31.77%
Benchmark Comparison
S&P 500 Index.................. 358.52% 425.69% 151.63% 125.62% 33.36%
</TABLE>
Dreyfus Small Cap Division Eighteen Performance Compared to Russell 2000
HYPOTHETICAL $10,000 ACCOUNT VALUE*
ANNUAL VALUE OF A $10,000 STIPULATED PAYMENT MADE AUGUST 31, 1990
<TABLE>
<CAPTION>
DREYFUS SMALL CAP RUSSELL
DIVISION EIGHTEEN INDEX
- -------------------------------------------------------------------- --------
<S> <C> <C>
08/31/90.................................................. $ 10,000 $10,000
12/31/90.................................................. 10,168 9,577
12/31/91.................................................. 26,105 13,996
12/31/92.................................................. 44,181 16,572
12/31/93.................................................. 73,477 19,701
12/31/94.................................................. 78,125 19,341
12/31/95.................................................. 99,825 24,844
12/31/96.................................................. 114,938 28,942
12/31/97.................................................. 132,607 35,414
</TABLE>
CUMULATIVE RETURN COMPARED TO MARKET INDEX*
(PERIOD ENDED DECEMBER 31, 1997)
<TABLE>
<CAPTION>
SINCE
INCEPTION* 5 YEARS 3 YEARS 1 YEAR
---------- ------- ------- ------
<S> <C> <C> <C> <C>
Investment Division
Dreyfus Small Cap Division Eighteen........ 1,226.07% 200.14% 69.74% 15.37%
Benchmark Comparison
Russell 2000............................... 254.14% 113.70% 83.10% 22.36%
</TABLE>
- ---------------
* The hypothetical account illustration and cumulative returns were calculated
on a pro forma basis. Therefore, the inception date used for the Dreyfus Small
Cap Portfolio Division 18 was August 31, 1990, the inception of the underlying
fund. Current contract charges have been assessed in determining pro forma
hypothetical account values and cumulative returns.
34
<PAGE> 385
Templeton Asset Allocation Division Nineteen Performance Compared to MSCI World
Index, Salomon Brothers World Government Bond Index and Certificate of Deposit
Primary Offering by New York City Banks, 30 Day Index
HYPOTHETICAL $10,000 ACCOUNT VALUE*
ANNUAL VALUE OF A $10,000 STIPULATED PAYMENT MADE AUGUST 24, 1988
<TABLE>
<CAPTION>
MSCI
TEMPLETON ASSET ALLOCATION WORLD BLENDED
DIVISION NINETEEN INDEX INDEX**
- -------------------------------------------------------------- -------- --------
<S> <C> <C> <C>
08/24/88............................................ $10,000 $10,000 $10,000
12/31/88............................................ 10,237 11,432 11,074
12/31/89............................................ 11,450 13,330 12,346
12/31/90............................................ 10,405 11,062 11,737
12/31/91............................................ 13,124 13,084 13,649
12/31/92............................................ 14,009 12,401 13,553
12/31/93............................................ 17,453 15,191 15,883
12/31/94............................................ 16,714 15,962 16,522
12/31/95............................................ 20,227 19,270 19,578
12/31/96............................................ 23,746 21,867 21,355
12/31/97............................................ 27,087 25,314 23,328
</TABLE>
CUMULATIVE RETURN COMPARED TO MARKET INDEX*
(PERIOD ENDED DECEMBER 31, 1997)
<TABLE>
<CAPTION>
SINCE
INCEPTION* 5 YEARS 3 YEARS 1 YEAR
---------- ------- ------- ------
<S> <C> <C> <C> <C>
Investment Division
Templeton Asset Allocation Division
Nineteen................................ 170.87% 93.36% 62.07% 14.07%
Benchmark Comparison**
MSCI World Index.......................... 153.14% 104.13% 58.59% 15.76%
Blended Index............................. 133.28% 72.12% 41.20% 9.24%
</TABLE>
- ---------------
* The hypothetical account illustration and cumulative returns were calculated
on a pro forma basis. Therefore, the inception date used for the Templeton
Asset Allocation Fund Division 19 was August 24, 1988, the inception of the
underlying fund. Current contract charges have been assessed in determining
pro forma hypothetical account values and cumulative returns.
** The Blended Index reflects an allocation of investments in the following
Indexes: 55% of investments included in the MSCI World Index, 35% of
investments included in the Salomon Brothers World Government Bond Index and
10% of investments included in the Certificate of Deposit Primary Offering by
New York City Bank, 30 Day index.
35
<PAGE> 386
Templeton International Division Twenty Performance Compared to MSCI World
Index
HYPOTHETICAL $10,000 ACCOUNT VALUE*
ANNUAL VALUE OF A $10,000 STIPULATED PAYMENT MADE MAY 1, 1992
<TABLE>
<CAPTION>
MSCI
TEMPLETON INTERNATIONAL WORLD
DIVISION TWENTY INDEX
- --------------------------------------------------------------------- --------
<S> <C> <C>
05/01/92................................................... $10,000 $10,000
12/31/92................................................... 9,311 10,182
12/31/93................................................... 13,549 12,474
12/31/94................................................... 13,077 13,107
12/31/95................................................... 14,952 15,823
12/31/96................................................... 18,317 17,955
12/31/97................................................... 20,613 20,786
</TABLE>
CUMULATIVE RETURN COMPARED TO MARKET INDEX*
(PERIOD ENDED DECEMBER 31, 1997)
<TABLE>
<CAPTION>
SINCE
INCEPTION* 5 YEARS 3 YEARS 1 YEAR
---------- ------- ------- ------
<S> <C> <C> <C> <C>
Investment Division
Templeton International Division Twenty...... 106.13% 121.37% 57.63% 12.54%
Benchmark Comparison
MSCI World Index............................. 107.86% 104.13% 58.59% 15.76%
</TABLE>
- ---------------
* The hypothetical account illustration and cumulative returns were calculated
on a pro forma basis. Therefore, the inception date used for the Templeton
International Fund Division 20 was May 1, 1992, the inception of the
underlying fund. Current contract charges have been assessed in determining
pro forma hypothetical account values and cumulative returns.
PAYOUT PAYMENTS
ASSUMED INVESTMENT RATE
The discussion concerning the amount of payout payments which follows this
section is based on an Assumed Investment Rate of 3 1/2% per annum. However, the
Company will permit each Annuitant choosing a variable payout option to select
an Assumed Investment Rate permitted by state law or regulations other than the
3 1/2% rate described in this prospectus as follows: 3%, 4 1/2%, 5% or 6% per
annum. (Note: an Assumed Investment Rate higher than 5% may not be selected
under individual Contracts.) The foregoing Assumed Investment Rates are used
merely in order to determine the first monthly payment per thousand dollars of
value. It should not be inferred that such rates will bear any relationship to
the actual net investment experience of VALIC Separate Account A.
AMOUNT OF PAYOUT PAYMENTS
The amount of the first variable annuity payment to the Annuitant will
depend on the amount of the Account Value applied to effect the variable annuity
as of the tenth day immediately preceding the date payout payments commence, the
amount of any premium tax owed, the annuity option selected, and the age of the
Annuitant.
The Contracts contain tables indicating the dollar amount of the first
payout payment under each payout option for each $1,000 of Account Value (after
the deduction for any premium tax) at various ages. These tables are based upon
the 1983 Table A (promulgated by the Society of Actuaries) and an Assumed
Investment Rate of 3%, 3 1/2%, 4% and 5% per annum (3 1/2% in the group
Contract).
36
<PAGE> 387
The portion of the first monthly variable payout payment derived from a
Division of VALIC Separate Account A is divided by the Payout Unit value for
that Division (calculated ten days prior to the date of the first monthly
payment) to determine the number of Payout Units in each Division represented by
the payment. The number of such units will remain fixed during the Payout
Period, assuming the Annuitant makes no transfers of Payout Units to provide
Payout Units under another Division or to provide a fixed annuity.
In any subsequent month, the dollar amount of the variable payout payment
derived from each Division is determined by multiplying the number of Payout
Units in that Division by the value of such Payout Unit on the tenth day
preceding the due date of such payment. The Payout Unit value will increase or
decrease in proportion to the net investment return of the Division or Divisions
underlying the variable payout since the date of the previous payout payment,
less an adjustment to neutralize the 3 1/2% or other Assumed Investment Rate
referred to above.
Therefore, the dollar amount of variable payout payments after the first
will vary with the amount by which the net investment return is greater or less
than 3 1/2% per annum. For example, if a Division has a cumulative net
investment return of 5% over a one year period, the first payout payment in the
next year will be approximately 1 1/2 percentage points greater than the payment
on the same date in the preceding year, and subsequent payments will continue to
vary with the investment experience of the Division. If such net investment
return is 1% over a one year period, the first payout payment in the next year
will be approximately 2 1/2 percentage points less than the payment on the same
date in the preceding year, and subsequent payments will continue to vary with
the investment experience of the applicable Division.
Each deferred Contract provides that, when fixed payout payments are to be
made under one of the first four payout options, the monthly payment to the
Annuitant will not be less than the monthly payment produced by the then current
settlement option rates, which will not be less than the rates used for a
currently issued single payment immediate annuity contract. The purpose of this
provision is to assure the Annuitant that, at retirement, if the fixed payout
purchase rates then required by the Company for new single payment immediate
annuity contracts are significantly more favorable than the annuity rates
guaranteed by a Contract, the Annuitant will be given the benefit of the new
annuity rates.
PAYOUT UNIT VALUE
The value of a Payout Unit is calculated at the same time that the value of
an Purchase Unit is calculated and is based on the same values for Fund shares
and other assets and liabilities. (See "Purchase Period" in the prospectus.) The
calculation of Payout Unit value is discussed in the prospectus under "Payout
Period."
The following illustrations show, by use of hypothetical examples, the
method of determining the Payout Unit value and the amount of variable annuity
payments.
ILLUSTRATION OF CALCULATION OF PAYOUT UNIT VALUE
Example 8.
<TABLE>
<S> <C>
1. Payout Unit value, beginning of period.................. $ .980000
2. Net investment factor for Period (see Example 3)........ 1.023558
3. Daily adjustment for 3 1/2% Assumed Investment Rate..... .999906
4. (2)X(3)................................................. 1.023462
5. Payout Unit value, end of period (1)X(4)................ $1.002993
</TABLE>
37
<PAGE> 388
ILLUSTRATION OF PAYOUT PAYMENTS
Example 9. Annuitant age 65, Life Annuity with 120 Payments Certain
<TABLE>
<S> <C>
1. Number of Purchase Units at Payout Date................. 10,000.00
2. Purchase Unit value (see Example 3)..................... $ 1.800000
3. Account Value of Contract (1)X(2)....................... $18,000.00
4. First monthly Payout Payment per $1,000 of Account
Value..................................................... $ 5.63
5. First monthly Payout Payment (3)X(4)/1,000.............. $ 101.34
6. Payout Unit value (see Example 10)...................... $ .980000
7. Number of Payout Units (5)/(6).......................... 103.408
8. Assume Payout Unit value for second month equal to...... $ .997000
9. Second monthly Payout Payment (7)X(8)................... $ 103.10
10. Assume Payout Unit value for third month equal to....... $ .953000
11. Third monthly Payout Payment (7)X(10)................... $ 98.55
</TABLE>
DISTRIBUTION OF VARIABLE ANNUITY CONTRACTS
The Company has qualified or intends to qualify the Contracts for sale in
all fifty states and the District of Columbia and will commence offering the
Contracts promptly upon qualification in each such jurisdiction.
The Contracts are sold in a continuous offering by licensed insurance
agents who are registered representatives of broker-dealers which are members of
the National Association of Securities Dealers, Inc. (the "NASD"). The principal
underwriter for VALIC Separate Account A is the Underwriter as defined above, a
wholly-owned subsidiary of the Company. The Underwriter's address is 2929 Allen
Parkway, Houston, Texas 77019. The Underwriter is a Texas corporation organized
in 1970 and is a member of the NASD.
The licensed agents who sell the Contracts will be compensated for such
sales by commissions ranging up to 5% of each Purchase Payment. Managers who
supervise the agents will receive overriding commissions ranging up to 1% of
Purchase Payments. (These various commissions are paid by the Company and do not
result in any charge to Contract Owners or to VALIC Separate Account A in
addition to the charges described under "Fees and Charges" in the prospectus.)
Pursuant to its underwriting agreement with the Underwriter and VALIC
Separate Account A, the Company reimburses the Underwriter for reasonable sales
expenses, including overhead expenses. Sales commissions paid for the years
1995, 1996 and 1997 were $44,476,000, $52,963,000 and $34,105,000, respectively.
EXPERTS
The consolidated financial statements of the Company at December 31, 1997
and 1996 and for each of the three years in the period ended December 31, 1997,
and the financial statements of the Company's Separate Account A at December 31,
1997 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.
38
<PAGE> 389
COMMENTS ON FINANCIAL STATEMENTS
The financial statements of The Variable Annuity Life Insurance Company
should be considered only as bearing upon the ability of the Company to meet its
obligations under the Contracts, which include death benefits, and its
assumption of the mortality and expense risks.
Divisions Four, Five, Six, Seven, Eight, Ten, Eleven, Twelve, Thirteen,
Fourteen, Fifteen, Sixteen, Seventeen, Eighteen, Nineteen, and Twenty are the
only Divisions available under the Contracts described in the Prospectus. The
Separate Account financial statements contained herein reflect the composition
of the Separate Account as of December 31, 1997, and for the fiscal year then
ended.
39
<PAGE> 390
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, 1997
and 1996, 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, 1997. 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, 1997
and 1996, and the consolidated results of their operations and their cash flows
for each of the three years in the period ended December 31, 1997, in conformity
with generally accepted accounting principles.
/s/ ERNST & YOUNG LLP
Houston, Texas
February 18, 1998
- --------------------------------------------------------------------------------
1
<PAGE> 391
THE VARIABLE ANNUITY LIFE INSURANCE COMPANY
CONSOLIDATED BALANCE SHEET
AT DECEMBER 31
IN THOUSANDS
<TABLE>
<CAPTION>
1997 1996
----------- -----------
<S> <C> <C>
ASSETS Investments - Notes 2, 6, 7, 8:
Fixed maturity securities
(amortized cost: $20,651,381 in 1997 and $19,667,491 in 1996) $21,641,084 $20,189,473
Equity securities (cost: $5,581 in 1997 and $8,624 in 1996) 5,456 8,589
Mortgage loans on real estate 1,259,029 1,349,855
Real estate, net of accumulated depreciation
of $69 in 1997 and $69 in 1996 28,569 37,130
Policy loans 719,127 639,200
Other long-term invested assets 45,474 35,945
Short-term investments 60,904 53,000
----------- -----------
Total investments 23,759,643 22,313,192
----------- -----------
Investment income receivable 347,358 315,118
Cash 32,181 24,360
Receivable for securities sold 32,825 18,654
Deferred policy acquisition costs - Note 3 392,346 557,748
Due from reinsurer, net 14,545 15,700
Other assets 52,104 45,798
Assets held in Separate Accounts 10,564,220 7,134,412
----------- -----------
Total assets $35,195,222 $30,424,982
----------- -----------
LIABILITIES Policy reserves for fixed annuity investment contracts $21,994,804 $21,067,429
Payable for securities purchased 19,027 575
Remittances not allocated 79,392 66,473
Commissions, general expenses, and taxes (other than income taxes) 39,546 41,642
Other liabilities 61,756 75,636
Income tax liabilities - Note 4 377,072 265,160
Liabilities related to Separate Accounts 10,564,220 7,134,412
----------- -----------
Total liabilities 33,135,817 28,651,327
----------- -----------
STOCKHOLDER'S Common stock (voting) par value $1 per share, 5,000 shares authorized
EQUITY and 3,575 issued and outstanding in 1997 and 1996 - Note 5 3,575 3,575
Additional paid-in capital 710,624 459,281
Retained earnings 1,038,731 1,143,947
Net unrealized gains - Note 2 306,475 166,852
----------- -----------
Total stockholder's equity 2,059,405 1,773,655
----------- -----------
Total liabilities and stockholder's equity $35,195,222 $30,424,982
----------- -----------
</TABLE>
See notes to consolidated financial statements.
- --------------------------------------------------------------------------------
2
<PAGE> 392
THE VARIABLE ANNUITY LIFE INSURANCE COMPANY
CONSOLIDATED STATEMENT OF INCOME
FOR THE YEARS ENDED DECEMBER 31,
IN THOUSANDS
<TABLE>
<CAPTION>
1997 1996 1995
----------- ----------- -----------
<S> <C> <C> <C>
REVENUES Surrender charges $ 12,405 $ 12,348 $ 9,967
Mortality charges 94,162 59,955 34,965
Expense charges 6,102 5,654 5,122
Net investment income - Note 2 1,729,541 1,654,496 1,597,681
Net reinsurance income 1,303 1,528 1,573
Realized investment gains (losses) - Note 2 20,235 21,551 (7,149)
Other income 15,320 10,920 6,878
----------- ----------- -----------
Total revenues 1,879,068 1,766,452 1,649,037
----------- ----------- -----------
COSTS AND Policy costs:
EXPENSES Increase in policy reserves for fixed annuity contracts 1,286,010 1,243,993 1,203,986
----------- ----------- -----------
Total costs 1,286,010 1,243,993 1,203,986
----------- ----------- -----------
Expenses:
Commissions 110,960 97,630
84,670
Salaries 58,873 54,016 48,227
Data processing 14,876 12,088 13,200
Postage and telephone 12,253 11,308 10,710
Sales promotion 10,161 10,394 9,361
Depreciation expense on furniture and equipment 8,964 8,920 8,924
Rent 7,931 7,524 7,477
Taxes, licenses, and fees 6,874 6,208 4,989
Printing and supplies 4,496 5,290 4,721
Guaranty association assessments - Note 9 30 2,678 18,961
Other expenses 35,172 27,223 22,665
Amortization of deferred policy acquisition costs - Note 3 42,101 31,201 16,841
Policy acquisition costs deferred - Note 3 (137,655) (116,818) (104,702)
----------- ----------- -----------
Total expenses 175,036 157,662 146,044
----------- ----------- -----------
Total costs and expenses 1,461,046 1,401,655 1,350,030
----------- ----------- -----------
EARNINGS Income before income tax expense 418,022 364,797 299,007
Income tax expense - Note 4 144,238 124,370 99,720
----------- ----------- -----------
Net income $ 273,784 $ 240,427 $ 199,287
----------- ----------- -----------
</TABLE>
See notes to consolidated financial statements.
- --------------------------------------------------------------------------------
3
<PAGE> 393
THE VARIABLE ANNUITY LIFE INSURANCE COMPANY
CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDER'S EQUITY
FOR THE YEARS ENDED DECEMBER 31,
IN THOUSANDS
<TABLE>
<CAPTION>
1997 1996 1995
----------- ----------- -----------
<S> <C> <C> <C>
COMMON STOCK Balance at beginning and end of year $ 3,575 $ 3,575 $ 3,575
----------- ----------- -----------
ADDITIONAL Balance at beginning of year 459,281 384,126 382,733
PAID-IN-CAPITAL Capital contribution from stockholder 251,343 75,155 1,393
----------- ----------- -----------
Balance at end of year 710,624 459,281 384,126
----------- ----------- -----------
RETAINED Balance at beginning of year 1,143,947 1,014,520 910,233
EARNINGS Net income 273,784 240,427 199,287
Dividends paid to stockholder (379,000) (111,000) (95,000)
----------- ----------- -----------
Balance at end of year 1,038,731 1,143,947 1,014,520
----------- ----------- -----------
NET UNREALIZED Balance at beginning of year 166,852 396,620 (563,481)
INVESTMENT Change during year 139,623 (229,768) 960,101
GAINS(LOSSES) ----------- ----------- -----------
Balance at end of year 306,475 166,852 396,620
----------- ----------- -----------
STOCKHOLDER'S
EQUITY Balance at end of year $ 2,059,405 $ 1,773,655 $ 1,798,841
----------- ----------- -----------
</TABLE>
See notes to consolidated financial statements.
- --------------------------------------------------------------------------------
4
<PAGE> 394
THE VARIABLE ANNUITY LIFE INSURANCE COMPANY
CONSOLIDATED STATEMENT OF CASH FLOWS
FOR THE YEARS ENDED DECEMBER 31,
IN THOUSANDS
<TABLE>
<CAPTION>
1997 1996 1995
------------ ------------ ------------
<S> <C> <C> <C>
OPERATING Net income $ 273,784 $ 240,427 $ 199,287
ACTIVITIES Reconciling adjustments to net cash provided by operating
activities:
Insurance and annuity liabilities 1,286,010 1,243,993 1,203,986
Deferred policy acquisition costs (95,554) (85,617) (87,861)
Other, net (51,241) (50,233) 28,179
------------ ------------ ------------
Net cash provided by operating activities 1,412,999 1,348,570 1,343,591
------------ ------------ ------------
INVESTING Investment purchases (18,403,013) (14,883,271) (9,671,304)
ACTIVITIES Investment calls, maturities, and sales 17,500,312 13,897,479 8,025,420
Net (increase) decrease in short-term investments (7,904) (13,722) 120,745
------------ ------------ ------------
Net cash used for investing activities (910,605) (999,514) (1,525,139)
------------ ------------ ------------
FINANCING Policyholder account deposits 3,385,303 2,896,090 2,553,928
ACTIVITIES Policyholder account withdrawals (1,427,005) (1,276,008) (996,324)
Transfers to Separate Accounts (2,325,214) (1,936,727) (1,273,778)
Capital contribution from stockholder 251,343 75,155 1,607
Dividends paid (379,000) (111,000) (95,000)
------------ ------------ ------------
Net cash used for or provided by financing activities (494,573) (352,490) 190,433
------------ ------------ ------------
NET CHANGE Net increase (decrease) in cash 7,821 (3,434) 8,885
IN CASH Cash at beginning of year 24,360 27,794 18,909
------------ ------------ ------------
Cash at end of year $ 32,181 $ 24,360 $ 27,794
------------ ------------ ------------
</TABLE>
See notes to consolidated financial statements.
- --------------------------------------------------------------------------------
5
<PAGE> 395
THE VARIABLE ANNUITY LIFE INSURANCE COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1997
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 1997
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 ACCOUNTING CHANGES
NEW ACCOUNTING STANDARDS NOT YET ADOPTED. In June 1997, the Financial
Accounting Standards Board (FASB) issued SFAS 130, "Reporting Comprehensive
Income," which establishes standards for reporting and displaying comprehensive
income and its components in the financial statements. Beginning first quarter
1998, VALIC must adopt this statement for all periods presented. Application of
this statement will not change recognition or measurement of net income and,
therefore, will not impact VALIC's consolidated results of operations or
financial position.
1.4 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.
Loans for which VALIC determines that collection of all amounts due under
the contractual terms is not probable are considered to be impaired.
VALIC generally looks to the underlying collateral for repayment of impaired
loans. Therefore, impaired loans are considered to be collateral dependent and
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.
1.5 DERIVATIVES RELATED TO INVESTMENTS
VALIC's use of derivative financial instruments is generally limited to
interest rate and currency swap agreements, and options to enter into interest
rate swap agreements (call swaptions). VALIC accounts for its derivative
financial instruments as hedges.
INTEREST RATE AND CURRENCY SWAP AGREEMENTS. Interest rate swap agreements
convert specific investment securities from a floating to a fixed-rate basis, or
vice versa. Currency swap agreements are used to convert cash flows from
specific investment securities denominated in foreign currencies into U.S.
dollars at specified exchange rates, and to hedge against currency rate
fluctuations on anticipated security purchases.
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.
- --------------------------------------------------------------------------------
6
<PAGE> 396
THE VARIABLE ANNUITY LIFE INSURANCE COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
December 31, 1997
1.5 DERIVATIVES RELATED TO INVESTMENTS-(CONTINUED)
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.
CALL SWAPTIONS. Options to enter into interest rate swap agreements are
used to limit VALIC's exposure to reduced spreads between investment yields and
interest crediting rates should interest rates decline significantly over
prolonged periods. During such periods, the spread between investment yields and
interest crediting rates may be reduced as a result of certain limitations on
VALIC's ability to manage interest crediting rates. Call swaptions allow VALIC
to enter into interest rate swap agreements to receive fixed rates and pay lower
floating rates, effectively increasing the spread between investment yields and
interest crediting rates.
Premiums paid to purchase call swaptions are included in investments and
are amortized to net investment income over the exercise period of the
swaptions. If a call swaption is terminated, any gain is deferred and amortized
to insurance and annuity benefits over the expected life of the insurance and
annuity contracts and any unamortized premium is charged to income. If a call
swaption ceases to be an effective hedge, any gain or loss is recognized in
income.
1.6 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) in 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.
1.7 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.
1.8 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%.
1.9 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.
1.10 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.
- --------------------------------------------------------------------------------
7
<PAGE> 397
THE VARIABLE ANNUITY LIFE INSURANCE COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
December 31, 1997
1.11 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>
1997 1996 1995
---------- ---------- ----------
<S> <C> <C> <C>
Net income $ 237,719 $ 213,686 $ 157,622
---------- ---------- ----------
Stockholder's equity $1,189,278 $1,077,366 $ 926,654
---------- ---------- ----------
</TABLE>
2
- --------------------------------------------------------------------------------
INVESTMENTS
- --------------------------------------------------------------------------------
2.1 INVESTMENT INCOME
Income by type of investment was as follows:
<TABLE>
<CAPTION>
1997 1996 1995
---------- ---------- ----------
<S> <C> <C> <C>
Non-affiliated fixed
maturity securities $1,562,802 $1,471,879 $1,414,644
Affiliated fixed
maturity securities 2,588 2,851 3,181
Equity securities 483 782 4,281
Mortgage loans on
real estate 123,591 140,492 149,974
Other 53,543 51,040 36,473
---------- ---------- ----------
Gross investment income 1,743,007 1,667,044 1,608,553
Investment expenses 13,466 12,548 10,872
---------- ---------- ----------
Net investment income $1,729,541 $1,654,496 $1,597,681
---------- ---------- ----------
</TABLE>
The carrying value of investments that produced no investment income during
1997 totaled $12,516 or 0.05% 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, 1997.
2.2 REALIZED INVESTMENT GAINS (LOSSES)
Realized investment gains (losses) were as follows:
<TABLE>
<CAPTION>
1997 1996 1995
-------- -------- --------
<S> <C> <C> <C>
Fixed maturity securities $ 6,075 $ 1,417 $ 832
Equity securities 21 15,795 7,706
Mortgage loans on
real estate 21,647 4,635 (24,465)
Real estate 3,802 389 3,767
Other (11,310) (685) 5,011
-------- -------- --------
Realized investment gains
(losses) before taxes 20,235 21,551 (7,149)
Income tax expense (benefit) 7,082 7,543 (1,414)
-------- -------- --------
Net realized investment
gains (losses) $ 13,153 $ 14,008 $ (5,735)
-------- -------- --------
</TABLE>
Proceeds from sales of fixed maturity securities were $3,269,801,
$3,052,550, and $1,432,183 during 1997, 1996, and 1995, respectively. Gross
gains of $23,967, $28,173, and $15,722 and gross losses of $22,489, $36,802, and
$30,518, were realized on those sales during 1997, 1996, and 1995, respectively.
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
------------------------- ---------------------
1997 1996 1997 1996
----------- ----------- ---------- --------
<S> <C> <C> <C> <C>
U.S. Treasury securities and
obligations of U.S. government
corporations and agencies $ 175,771 $ 219,426 $ 25,101 $ 20,025
Obligations of states and
political subdivisions 32,264 32,308 1,193 840
Debt securities issued by
foreign governments 248,838 241,908 14,018 10,958
Corporate securities 15,207,118 13,211,735 755,877 457,461
Mortgage-backed securities 4,959,198 5,932,878 214,418 150,021
Affiliated fixed maturity securities 28,192 29,236 67 --
----------- ----------- ---------- --------
Total fixed maturity securities $20,651,381 $19,667,491 $1,010,674 $639,305
----------- ----------- ---------- --------
Equity securities $ 5,581 $ 8,624 $ 114 $ 61
----------- ----------- ---------- --------
<CAPTION>
Gross Unrealized Losses Fair Value
----------------------- -------------------------
1997 1996 1997 1996
--------- ---------- ----------- -----------
<S> <C> <C> <C> <C>
U.S. Treasury securities and
obligations of U.S. government
corporations and agencies $ (3) $ (465) $ 200,869 $ 238,986
Obligations of states and
political subdivisions _ (197) 33,457 32,951
Debt securities issued by
foreign governments (1,988) (122) 260,868 252,744
Corporate securities (16,179) (76,389) 15,946,816 13,592,807
Mortgage-backed securities (2,801) (40,150) 5,170,815 6,042,749
Affiliated fixed maturity securities -- -- 28,259 29,236
-------- --------- ----------- -----------
Total fixed maturity securities $(20,971) $(117,323) $21,641,084 $20,189,473
-------- --------- ----------- -----------
Equity securities $ (239) $ (96) $ 5,456 $ 8,589
-------- --------- ----------- -----------
</TABLE>
- --------------------------------------------------------------------------------
8
<PAGE> 398
THE VARIABLE ANNUITY LIFE INSURANCE COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
DECEMBER 31, 1997
2.3 FIXED MATURITY AND EQUITY SECURITIES (CONTINUED)
MATURITIES. The contractual maturities of fixed maturity securities at
December 31, 1997 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 $ 103,239 $ 104,677
In years two through five 4,106,448 4,284,682
In years six through ten 7,443,520 7,812,438
After ten years 3,842,984 4,067,083
Mortgage-backed securities 5,155,190 5,372,204
----------- -----------
Total fixed maturity securities $20,651,381 $21,641,084
----------- -----------
</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>
1997 1996
----------- -----------
<S> <C> <C>
Gross unrealized gains $ 1,010,788 $ 639,366
Gross unrealized losses (21,210) (117,419)
DPAC adjustments (511,037) (261,363)
Deferred federal income taxes (172,066) (93,732)
----------- -----------
Net unrealized gains
on securities $ 306,475 $ 166,852
----------- -----------
</TABLE>
2.5 MORTGAGE LOANS ON REAL ESTATE
Diversification. Diversification of the geographic location and type of
property collateralizing mortgage loans reduces the concentration of credit
risk. For new loans, VALIC requires loan-to-value ratios of 75% or less, based
on management's credit assessment of the borrower.
2.5 MORTGAGE LOANS ON REAL ESTATE (CONTINUED)
At December 31 the mortgage loan portfolio was distributed as follows:
<TABLE>
<CAPTION>
1997 1996
----------- -----------
<S> <C> <C>
Geographic distribution:
Atlantic $ 614,627 $ 656,073
Pacific and Mountain 355,006 406,948
Central 310,535 331,411
Allowance for losses (21,139) (44,577)
----------- -----------
Total mortgage loans $ 1,259,029 $ 1,349,855
----------- -----------
Property type:
Office $ 467,326 $ 456,818
Retail 396,934 451,668
Industrial 246,241 221,532
Apartments 145,272 190,583
Residential and other 24,395 73,831
Allowance for losses (21,139) (44,577)
----------- -----------
Total mortgage loans $ 1,259,029 $ 1,349,855
----------- -----------
</TABLE>
ALLOWANCE. Activity in the allowance for mortgage loan losses was as
follows:
<TABLE>
<CAPTION>
1997 1996 1995
----------- ----------- -----------
<S> <C> <C> <C>
Balance at January 1 $ 44,577 $ 54,213 $ 55,665
Provision for mortgage
loan losses (18,178) (2,967) 25,418
Deductions (5,260) (6,669) (26,870)
----------- ----------- -----------
Balance at December 31 $ 21,139 $ 44,577 $ 54,213
----------- ----------- -----------
</TABLE>
IMPAIRED LOANS. Impaired mortgage loans on real estate and related interest
income were as follows:
<TABLE>
<CAPTION>
1997 1996
---------- ----------
<S> <C> <C>
Impaired loans:
With allowance* $ 28,317 $ 46,346
Without allowance -- 236
---------- ----------
Total impaired loans $ 28,317 $ 46,582
---------- ----------
Average investment $ 37,449 $ 56,163
Interest income earned 2,887 4,816
Interest income - cash basis -- 4,617
---------- ----------
</TABLE>
* Represents gross amounts before allowance for mortgage loan losses of $9,317
and $6,848, respectively.
- --------------------------------------------------------------------------------
9
<PAGE> 399
THE VARIABLE ANNUITY LIFE INSURANCE COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
DECEMBER 31, 1997
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>
1997 1996 1995
--------- --------- ---------
<S> <C> <C> <C>
Balance at January 1 $ 557,748 $ 182,546 $ 910,479
Deferrals:
Commissions 76,327 62,760 52,959
Other acquisition costs 61,328 54,058 51,743
Amortization:
Accretion of interest 65,388 59,810 54,086
Operating earnings (107,489) (91,011) (70,927)
Offset to realized
(gains) losses (11,282) (676) 4,991
Effect of net unrealized
(gains) losses on securities (249,674) 290,261 (820,785)
--------- --------- ---------
Balance at December 31 $ 392,346 $ 557,748 $ 182,546
--------- --------- ---------
</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>
1997 1996
--------- ---------
<S> <C> <C>
Current tax liabilities (assets) $ 2,027 $ (4,551)
--------- ---------
Deferred tax liabilities, applicable to:
Basis differential of investments 368,591 201,122
DPAC 134,541 192,815
Other 18,576 8,025
--------- ---------
Total deferred tax liabilities 521,708 401,962
--------- ---------
Deferred tax assets, applicable to:
Policy reserves (138,555) (118,595)
Basis differential of investments (1,545) (6,219)
Other (6,563) (7,437)
--------- ---------
Total deferred tax assets (146,663) (132,251)
--------- ---------
Net deferred tax liabilities 375,045 269,711
--------- ---------
Total income tax liabilities $ 377,072 $ 265,160
--------- ---------
</TABLE>
4.3 TAX EXPENSE
Components of income tax expense were as follows:
<TABLE>
<CAPTION>
1997 1996 1995
---------- ---------- ----------
<S> <C> <C> <C>
Current:
Federal $ 114,138 $ 99,560 $ 99,273
State 3,099 2,842 3,224
---------- ---------- ----------
Total current income
tax expense 117,237 102,402 102,497
---------- ---------- ----------
Deferred, applicable to:
DPAC 29,113 29,308 32,174
Policy reserves (14,920) (18,581) (28,780)
Basis differential of
investments 3,569 2,754 (786)
Other, net 9,239 8,487 (5,385)
---------- ---------- ----------
Total deferred income
tax expense (benefit) 27,001 21,968 (2,777)
---------- ---------- ----------
Income tax expense $ 144,238 $ 124,370 $ 99,720
---------- ---------- ----------
</TABLE>
A reconciliation between the federal income tax rate and the effective tax
rate follows:
<TABLE>
<CAPTION>
1997 1996 1995
--------- --------- ---------
<S> <C> <C> <C>
Federal income tax rate 35% 35% 35%
Income tax expense at
applicable rate $ 146,308 $ 127,679 $ 104,652
Dividends received
deduction (5,212) (4,935) (3,883)
Tax-exempt interest (ESOP) (3,326) (3,865) (4,426)
State income taxes 3,695 3,311 2,918
Other items 2,773 2,180 459
--------- --------- ---------
Income tax expense $ 144,238 $ 124,370 $ 99,720
--------- --------- ---------
</TABLE>
Federal income taxes paid in 1997, 1996, and 1995 were $106,338, $114,478,
and $52,790, respectively. State income taxes paid in 1997, 1996, and 1995 were
$2,978, $3,060, and $2,653, respectively.
- --------------------------------------------------------------------------------
10
<PAGE> 400
THE VARIABLE ANNUITY LIFE INSURANCE COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
DECEMBER 31, 1997
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 1998 is
$233,582.
6
- --------------------------------------------------------------------------------
DERIVATIVE FINANCIAL INSTRUMENTS
- --------------------------------------------------------------------------------
Interest rate and currency swap agreements related to investment securities
at December 31, 1997 were as follows:
<TABLE>
<S> <C>
Interest rate swap agreements to pay fixed rate
Notional amount $ 107,000
Average receive rate 6.92%
Average pay rate 6.25
-----------
Currency swap agreements (receive U.S.$/pay Canadian$)
Notional amount (in U.S.$) $ 123,326
Average exchange rate 1.49
-----------
</TABLE>
During 1997, VALIC purchased call swaptions that expire in 1998. These call
swaptions had a notional amount of $1.15 billion and strike rates ranging from
4.5% to 5.5% at December 31, 1997. Should the strike rates remain below market
rates, the call swaptions will expire and VALIC's exposure would be limited to
the premiums paid.
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>
1997 1996
-------------------------- --------------------------
Fair Carrying Fair Carrying
Value Amount Value Amount
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
Assets
Fixed maturity and equity securities $21,646,540* $ 21,646,540* $20,198,062* $20,198,062
Mortgage loans on real estate 1,288,702 1,259,029 1,352,994 1,349,855
Policy loans 721,089 719,127 637,870 639,200
Liabilities
Insurance investment contracts 21,536,809 21,994,804 19,753,088 21,067,429
----------- ----------- ----------- -----------
</TABLE>
* Includes derivative financial instruments with negative fair value of $2,967
in 1997 and negative fair value of $7,872 in 1996.
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> 401
THE VARIABLE ANNUITY LIFE INSURANCE COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
DECEMBER 31, 1997
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, 1997 were as follows:
Operating expenses include $22,061 in 1997, $17,533 in 1996, and $21,173 in
1995 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 $501 in 1997, $455 in 1996, and $1,662 in 1995.
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, 1997, 1996, and 1995. VALIC recognized $1,292 in interest income
during 1997, $1,372 for 1996, and $1,452 for 1995.
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, 1997, 1996, and 1995.
VALIC recognized $1,296, $1,479, and $1,729 of interest income on the note
during 1997, 1996, and 1995, respectively.
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.
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.
VALIC paid common stock dividends of $379,000, $106.01 per share; $111,000,
$31.05 per share; and $95,000, $26.57 per share, in 1997, 1996, and 1995,
respectively.
VALIC received capital contributions of $250,000 and $75,000 from AGL on
March 31, 1997 and December 30, 1996, respectively.
VALIC acquired from American General Life and Accident Insurance Company
bonds of various issuers at a cost of $22,154 and $25,892 on January 30, 1997
and April 8, 1997, respectively.
On December 5, 1997, VALIC acquired from Western National Life Insurance
Company bonds of various issuers at a cost of $129,715.
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 $30, $2,678, and $18,961, for the
years ended December 31, 1997, 1996, and 1995, respectively. The accrued
liability for anticipated assessments was $7,402, $13,661, and $20,249, at
December 31, 1997, 1996, and 1995, respectively. The 1997 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 continue annually no more than the maximum amount that can be
deducted for federal income tax purposes.
- --------------------------------------------------------------------------------
12
<PAGE> 402
THE VARIABLE ANNUITY LIFE INSURANCE COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
DECEMBER 31, 1997
10.1 PENSION PLANS - (CONTINUED)
The components of pension expense and underlying assumptions for the
defined benefit plan were as follows:
<TABLE>
<CAPTION>
1997 1996 1995
---------- ---------- ----------
<S> <C> <C> <C>
Service cost (benefits earned)
during period $ 1,045 $ 917 $ 601
Interest cost on projected
benefit obligation 1,034 843 635
Actual return on plan assets (2,734) (2,785) (1,249)
Amortization of unrecognized
net asset existing at date of
initial application -- (23) (72)
Amortization of unrecognized
prior service cost 45 44 44
Deferral of net asset gain 1,933 2,210 749
---------- ---------- ----------
Total pension expense $ 1,323 $ 1,206 $ 708
---------- ---------- ----------
Weighted-average discount rate
on benefit obligation 7.25% 7.50 % 7.25%
Rate of increase in
compensation levels 4.00% 4.00 % 4.00%
Expected long-term rate of
return on plan assets 10.00% 10.00 % 10.00%
---------- ---------- ----------
</TABLE>
The following table sets forth the funded status and amounts recognized in
the Consolidated Balance Sheet at December 31, 1997 and 1996 for VALIC's defined
benefit pension plan:
<TABLE>
<CAPTION>
1997 1996
----------- -----------
<S> <C> <C>
Actuarial present value of benefit obligation:
Vested $ 10,919 $ 8,265
Nonvested 1,485 1,251
----------- -----------
Accumulated benefit obligation 12,404 9,516
Effect of increase in compensation levels 3,340 2,474
----------- -----------
Projected benefit obligation 15,744 11,990
Plan assets at fair value 11,759 9,120
----------- -----------
Projected benefit obligation in excess of
plan assets (3,985) (2,870)
Unrecognized net gain 1,367 1,266
Unrecognized prior service cost 18 62
----------- -----------
Net pension liability $ (2,600) $ (1,542)
----------- -----------
</TABLE>
Equity and fixed maturity securities were 63% and 28%, 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 1997, 1996, and
1995 was $295, $282, and $228, respectively.
The plans' combined funded status and the accrued postretirement benefit
cost included in other liabilities at December 31 were as follows:
<TABLE>
<CAPTION>
1997 1996
--------- ---------
<S> <C> <C>
Actuarial present value of benefit obligations
Retirees $ 8 $ 21
Fully eligible active plan participants 151 103
Other active plan participants 2,082 1,479
--------- ---------
Accumulated postretirement
benefit obligations 2,241 1,603
Unrecognized net gain (452) (66)
Net funding (5) (17)
--------- ---------
Accrued benefit cost $ 1,784 $ 1,520
--------- ---------
Discount rate on postretirement
benefit obligations 7.25% 7.50%
--------- ---------
</TABLE>
11
- --------------------------------------------------------------------------------
IMPACT OF YEAR 2000 (UNAUDITED)
- --------------------------------------------------------------------------------
VALIC is in the process of modifying its computer systems to be Year 2000
compliant and expects to substantially complete this project during 1998. During
1997, VALIC incurred and expensed $6.0 million (pretax) related to this project.
VALIC estimates that it will incur future costs in excess of $9.3 million
(pretax) for additional internal staff, third-party vendors, and other expenses
to render its systems Year 2000 compliant.
The costs of the project and the date on which VALIC believes it will
complete the Year 2000 modifications are based on management's best estimates,
which were derived utilizing numerous assumptions of future events, including
the continued availability of certain resources and other factors. However,
there can be no guarantee that these estimates will be achieved and actual
results could differ materially from those anticipated. Specific factors that
might cause such material differences include, but are not limited to, the
availability and cost of personnel trained in this area, the ability to locate
and correct all relevant computer codes, and similar uncertainties.
- --------------------------------------------------------------------------------
<PAGE> 403
================================================================================
PRESIDENT'S LETTER 1
================================================================================
TO OUR PARTICIPANTS:
We are pleased to present the December 31, 1997, 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.
During 1997 equity markets produced returns well above those of 1996. The stock
market, as measured by the Standard & Poor's 500 Index (S&P 500(R)) had a total
return of 33.36%. The mid-sized companies followed closely, with the Standard &
Poor's MidCap 400 (MidCap 400) earning 32.24% and the Russell 2000(R) producing
22.36%.
The average mutual fund returns showed greater variability than that evidenced
by the broader averages. In the large capitalization area, growth and value were
rather close with one year returns of 26.45% and 26.60% respectively. However,
the mid-cap sector experienced wide variability with growth returning 15.53% and
value returning 26.80%. A somewhat similar experience occurred in the small-cap
arena where growth funds provided average returns of 14.42% while the value
sector returned 27.75%. The orientation of any specific fund was a major factor
in the performance differences.
The yield on the 30-year treasury bond opened the year at 6.64% and rose during
the spring on fears the strengthening economy would force the Federal Reserve
(Fed) to push up short-term rates. On March 25, the Fed raised the Fed Funds
rate 0.25%; subsequently on April 14, the 30-year T-bond yield hit 7.17%. Later
in April, as fears of further rate hikes subsided and inflation fell, yields
began to fall and bond prices rose.
The second half of the year, marked by low inflation and little fear of Fed
action, was a good period for the fixed-income investor. A strong dollar, aided
by the turmoil and uncertainty in Asia, encouraged investors to flee to the
safety of U.S. bonds.
The European markets were positive throughout the year as home market and cross
border mergers boosted returns and dollar-sensitive exporters had strong sales
and profits. Asian markets were decimated in the fourth quarter as a fearsome
currency, banking and debtor crisis started in Thailand and spread to most
Pacific Rim economies.
Throughout the developed world international bond prices rallied and yields
declined to thirty year lows. Inflation was minimal and most nations pursued
sound fiscal policy. The Asian crisis helped as investors bought high quality
government bonds as a safe haven asset allocation.
If you have any questions about your contract or this report, we would be happy
to hear from you.
Respectfully,
/s/ THOMAS L. WEST, JR.
Thomas L. West, Jr., President and CEO
The Variable Annuity Life Insurance Company
February 6, 1998
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.
<PAGE> 404
================================================================================
2 PRESIDENT'S LETTER
================================================================================
<TABLE>
<CAPTION>
ONE YEAR
TOTAL RETURNS
GROUP PORTFOLIO PORTFOLIO FOR YEAR ENDING
UNIT INDEPENDENCE DIRECTOR DIRECTOR DECEMBER 31,
PURCHASE IMPACT PLUS 1 2 ------------------
DIVISION DIVISION DIVISION DIVISION DIVISION 1997 1996
- -------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
INTERNATIONAL GROWTH
AGSPC International Equities Fund........... -- -- 11 11 -- 1.18% 5.75%
Putnam Global Growth Fund................... -- -- -- -- 28 12.20 15.37
Templeton Foreign Fund...................... -- -- -- -- 32 5.57 16.74
Templeton International Fund................ -- -- -- 20 -- 12.54 22.50
AGGRESSIVE GROWTH
AGSPC Science & Technology Fund............. -- -- -- 17 17 1.57 12.68
AGSPC Small Cap Index Fund.................. -- -- 14 14 -- 21.18 15.57
Dreyfus Small Cap Portfolio................. -- -- -- 18 -- 15.37 15.14
Putnam New Opportunities Fund............... -- -- -- -- 26 21.31 9.70
Putnam OTC & Emerging Growth Fund........... -- -- -- -- 27 9.08 3.53
GROWTH
AGSPC Growth Fund........................... -- -- -- 15 15 19.80 18.18
AGSPC MidCap Index Fund..................... -- 4 4 4 -- 30.45 17.61
American Century -
Twentieth Century Ultra Fund............. -- -- -- -- 31 21.74 12.43
Founders Growth Fund........................ -- -- -- -- 30 25.25 15.35
GROWTH & INCOME
AGSPC Growth & Income Fund.................. -- -- -- 16 -- 22.60 22.10
AGSPC Social Awareness Fund................. -- -- 12 12 12 32.52 22.75
AGSPC Stock Index Fund ..................... 10A, 10B 10D 10C 10C 10C 31.77 21.53
Neuberger&Berman Guardian Trust............. -- -- -- -- 29 16.66 16.54
Scudder Growth and Income Fund.............. -- -- -- -- 21 28.80 20.63
Vanguard/Windsor II......................... -- -- -- -- 24 30.70 22.56
BALANCED GROWTH - INTERNATIONAL
Templeton Asset Allocation Fund............. -- -- -- 19 -- 14.07 17.40
BALANCED GROWTH - DOMESTIC
AGSPC Asset Allocation Fund................. -- 5 5 5 -- 21.40 9.99
Vanguard/Wellington Fund.................... -- -- -- -- 25 21.65 14.69
CURRENT INCOME
AGSPC Intl Government Bond Fund............. -- -- 13 13 13 (5.79) 3.36
CURRENT INCOME & CAPITAL PRESERVATION
AGSPC Capital Conservation Fund............. -- 1 7 7 -- 7.49 0.75
AGSPC Government Securities Fund............ -- -- 8 8 -- 7.83 0.90
Vanguard Fixed Income Securities Fund -
Long-Term Corporate Portfolio............ -- -- -- -- 22 12.32 (0.72)
Vanguard Fixed Income Securities Fund -
Long-Term U. S. Treasury Portfolio....... -- -- -- -- 23 12.44 (3.08)
LIQUIDITY & CAPITAL PRESERVATION
AGSPC Money Market Fund..................... -- 2 6 6 6 4.13 3.97
</TABLE>
The total returns 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.
<PAGE> 405
================================================================================
FINANCIAL STATEMENTS 3
================================================================================
<TABLE>
<CAPTION>
STATEMENT OF NET ASSETS
December 31, 1997
ASSETS: ALL DIVISIONS
---------------
<S> <C>
Total investment in shares of mutual funds, at market
(cost $8,087,103,381) ........................................ $10,324,166,205
Balance due from VALIC general account .......................... 3,148,203
---------------
NET ASSETS ...................................................... $10,327,314,408
===============
CONTRACT OWNER RESERVES:
Reserves for redeemable annuity contracts
(Net of applicable contract loans-- partial
withdrawals with right of reinvestment) ............... $10,307,955,440
Reserves for annuity contracts on benefit ....................... 19,358,968
---------------
TOTAL CONTRACT OWNER RESERVES ................................... $10,327,314,408
===============
</TABLE>
<TABLE>
<CAPTION>
STATEMENT OF OPERATIONS
For the year ended December 31, 1997
INVESTMENT INCOME: ALL DIVISIONS
---------------
<S> <C>
Dividends from mutual funds ..................................... $ 121,206,942
---------------
EXPENSES:
Mortality and expense charges ................................... 92,522,835
Reimbursement of expenses (Note C) .............................. (2,073,989)
===============
Total expenses ......................................... 90,448,846
===============
NET INVESTMENT INCOME ........................................... 30,758,096
---------------
REALIZED AND UNREALIZED GAIN ON INVESTMENTS:
Net realized gain on investments ................................ 161,505,567
Capital gains distributions from mutual funds ................... 289,703,358
Net unrealized appreciation of investments during the year ...... 1,001,756,337
===============
Net realized and unrealized gain on investments ........ 1,452,965,262
===============
INCREASE IN NET ASSETS RESULTING FROM OPERATIONS ................ $ 1,483,723,358
===============
</TABLE>
<TABLE>
<CAPTION>
STATEMENTS OF CHANGES IN NET ASSETS ALL DIVISIONS
-------------------------------------
1997 1996
---------------- ----------------
<S> <C> <C>
OPERATIONS:
Net investment income .................................................................... $ 30,758,096 $ 31,159,663
Net realized gain on investments ......................................................... 161,505,567 96,618,063
Capital gains distributions from mutual funds ............................................ 289,703,358 175,625,286
Net unrealized appreciation of investments during the year ............................... 1,001,756,337 539,282,575
---------------- ----------------
Increase in net assets resulting from operations ................................ 1,483,723,358 842,685,587
================ ================
PRINCIPAL TRANSACTIONS:
Purchase payments ........................................................................ 1,798,552,034 1,307,543,093
Surrenders of accumulation units by terminations, withdrawals, and maintenance fees ...... (328,105,329) (210,060,345)
Annuity benefit payments ................................................................. (2,273,125) (1,897,648)
Amounts transferred from VALIC general account ........................................... 518,857,110 647,659,402
---------------- ----------------
Increase in net assets resulting from principal transactions .................... 1,987,030,690 1,743,244,502
---------------- ----------------
TOTAL INCREASE IN NET ASSETS ............................................................. 3,470,754,048 2,585,930,089
================ ================
NET ASSETS:
Beginning of year ........................................................................ 6,856,560,360 4,270,630,271
---------------- ----------------
End of year .............................................................................. $ 10,327,314,408 $ 6,856,560,360
================ ================
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS.
<PAGE> 406
================================================================================
4 FINANCIAL STATEMENTS
================================================================================
<TABLE>
<CAPTION>
AGSPC PUTNAM
INTERNATIONAL GLOBAL TEMPLETON TEMPLETON
STATEMENTS OF NET ASSETS EQUITIES GROWTH FOREIGN INTERNATIONAL
December 31, 1997 FUND FUND FUND FUND
DIVISION 11 DIVISION 28 DIVISION 32 DIVISION 20
------------- ------------- ------------- -------------
<S> <C> <C> <C> <C>
ASSETS:
Investment in shares of mutual funds, at market ............ $ 152,510,209 $ 58,836,553 $ 180,677,558 $ 731,342,182
Balance due (to) from VALIC general account ................ (509,427) (2,145) 174,443 (1,602,995)
------------- ------------- ------------- -------------
NET ASSETS ................................................. $ 152,000,782 $ 58,834,408 $ 180,852,001 $ 729,739,187
============= ============= ============= =============
CONTRACT OWNER RESERVES:
Reserves for redeemable annuity contracts (Net of applicable
contract loans -- partial withdrawals with
right of reinvestment) .................................. $ 151,837,305 $ 58,803,197 $ 180,817,115 $ 729,577,415
Reserves for annuity contracts on benefit .................. 163,477 31,211 34,886 161,772
------------- ------------- ------------- -------------
TOTAL CONTRACT OWNER RESERVES .............................. $ 152,000,782 $ 58,834,408 $ 180,852,001 $ 729,739,187
============= ============= ============= =============
</TABLE>
<TABLE>
<CAPTION>
AMERICAN CENTURY - AGSPC AGSPC
TWENTIETH FOUNDERS GROWTH & SOCIAL
STATEMENTS OF NET ASSETS CENTURY ULTRA GROWTH INCOME AWARENESS
December 31, 1997 FUND FUND FUND FUND
DIVISION 31 DIVISION 30 DIVISION 16 DIVISION 12
------------- ------------- ------------- -------------
<S> <C> <C> <C> <C>
ASSETS:
Investment in shares of mutual funds, at market ............ $ 123,498,148 $ 170,135,993 $ 256,933,935 $ 243,460,767
Balance due (to) from VALIC general account ................ 270,241 332,238 162,040 119,205
------------- ------------- ------------- -------------
NET ASSETS ................................................. $ 123,768,389 $ 170,468,231 $ 257,095,975 $ 243,579,972
============= ============= ============= =============
CONTRACT OWNER RESERVES:
Reserves for redeemable annuity contracts (Net of
applicable contract loans -- partial withdrawals
with right of reinvestment) ............................. $ 123,739,369 $ 170,431,273 $ 257,042,890 $ 243,534,821
Reserves for annuity contracts on benefit .................. 29,020 36,958 53,085 45,151
------------- ------------- ------------- -------------
TOTAL CONTRACT OWNER RESERVES .............................. $ 123,768,389 $ 170,468,231 $ 257,095,975 $ 243,579,972
============= ============= ============= =============
</TABLE>
<TABLE>
<CAPTION>
AGSPC AGSPC
STATEMENTS OF NET ASSETS TEMPLETON ASSET VANGUARD/ INTERNATIONAL
December 31, 1997 ASSET ALLOCATION ALLOCATION WELLINGTON GOVERNMENT
FUND FUND FUND BOND FUND
DIVISION 19 DIVISION 5 DIVISION 25 DIVISION 13
------------- ------------- ------------- -------------
<S> <C> <C> <C> <C>
ASSETS:
Investment in shares of mutual funds, at market ............ $ 316,804,111 $ 184,445,969 $ 155,754,286 $ 166,189,923
Balance due (to) from VALIC general account ................ 70,174 132,023 290,261 9,834
------------- ------------- ------------- -------------
NET ASSETS ................................................. $ 316,874,285 $ 184,577,992 $ 156,044,547 $ 166,199,757
============= ============= ============= =============
CONTRACT OWNER RESERVES:
Reserves for redeemable annuity contracts (Net of applicable
contract loans -- partial withdrawals with right of
reinvestment) ........................................... $ 316,576,446 $ 184,488,524 $ 156,028,597 $ 166,177,986
Reserves for annuity contracts on benefit .................. 297,839 89,468 15,950 21,771
------------- ------------- ------------- -------------
TOTAL CONTRACT OWNER RESERVES .............................. $ 316,874,285 $ 184,577,992 $ 156,044,547 $ 166,199,757
============= ============= ============= =============
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS.
<PAGE> 407
================================================================================
SEPARATE ACCOUNT A 5
================================================================================
<TABLE>
<CAPTION>
AGSPC AGSPC PUTNAM PUTNAM OTC & AGSPC
SCIENCE & SMALL CAP DREYFUS NEW EMERGING AGSPC MIDCAP
TECHNOLOGY INDEX SMALL CAP OPPORTUNITIES GROWTH GROWTH INDEX
FUND FUND PORTFOLIO FUND FUND FUND FUND
DIVISION 17 DIVISION 14 DIVISION 18 DIVISION 26 DIVISION 27 DIVISION 15 DIVISION 4
- -------------- -------------- -------------- -------------- -------------- -------------- --------------
<S> <C> <C> <C> <C> <C> <C>
$ 911,151,116 $ 230,728,350 $ 850,402,328 $ 164,603,317 $ 97,480,884 $ 941,261,746 $ 730,544,269
(1,489,662) (659,600) (578,020) 233,261 (24,754) 161,723 69,416
- -------------- -------------- -------------- -------------- -------------- -------------- --------------
$ 909,661,454 $ 230,068,750 $ 849,824,308 $ 164,836,578 $ 97,456,130 $ 941,423,469 $ 730,613,685
============== ============== ============== ============== ============== ============== ==============
$ 909,365,168 $ 229,944,880 $ 849,635,667 $ 164,825,889 $ 97,416,344 $ 941,014,035 $ 730,300,161
296,286 123,870 188,641 10,689 39,786 409,434 313,524
- -------------- -------------- -------------- -------------- -------------- -------------- --------------
$ 909,661,454 $ 230,068,750 $ 849,824,308 $ 164,836,578 $ 97,456,130 $ 941,423,469 $ 730,613,685
============== ============== ============== ============== ============== ============== ==============
</TABLE>
<TABLE>
<CAPTION>
NEUBERGER& SCUDDER
BERMAN GROWTH AND
AGSPC STOCK INDEX FUND GUARDIAN INCOME VANGUARD/
- ------------------------------------------------------------------------- TRUST FUND WINDSOR II
DIVISION 10A DIVISION 10B DIVISION 10C DIVISION 10D DIVISION 29 DIVISION 21 DIVISION 24
- -------------- -------------- -------------- -------------- -------------- -------------- --------------
<S> <C> <C> <C> <C> <C> <C>
$ 470,449,397 $ 36,956,225 $2,310,257,611 $ 49,705,360 $ 46,258,362 $ 135,121,244 $ 275,114,738
(666,014) (10,194) 69,889 (32,333) 48,461 263,157 282,461
- -------------- -------------- -------------- -------------- -------------- -------------- --------------
$ 469,783,383 $ 36,946,031 $2,310,327,500 $ 49,673,027 $ 46,306,823 $ 135,384,401 $ 275,397,199
============== ============== ============== ============== ============== ============== ==============
$ 456,754,846 $ 35,140,766 $2,308,562,536 $ 49,487,144 $ 46,292,017 $ 135,309,549 $ 275,307,672
13,028,537 1,805,265 1,764,964 185,883 14,806 74,852 89,527
- -------------- -------------- -------------- -------------- -------------- -------------- --------------
$ 469,783,383 $ 36,946,031 $2,310,327,500 $ 49,673,027 $ 46,306,823 $ 135,384,401 $ 275,397,199
============== ============== ============== ============== ============== ============== ==============
</TABLE>
<TABLE>
<CAPTION>
VANGUARD VANGUARD
AGSPC FIXED INCOME FIXED INCOME
GOVERNMENT SECURITIES FUND - SECURITIES FUND -
AGSPC CAPITAL CONSERVATION FUND SECURITIES L/T CORPORATE L/T U.S. TREASURY AGSPC MONEY MARKET FUND
- --------------------------------- FUND PORTFOLIO PORTFOLIO ---------------------------------
DIVISION 1 DIVISION 7 DIVISION 8 DIVISION 22 DIVISION 23 DIVISION 2 DIVISION 6
- -------------- -------------- -------------- -------------- -------------- -------------- --------------
<S> <C> <C> <C> <C> <C> <C>
$ 6,412,016 $ 55,381,861 $ 88,209,203 $ 20,418,430 $ 23,933,498 $ 4,526,778 $ 134,659,838
15,510 36,867 (41,915) 21,619 (295,284) 52,979 6,244,744
- -------------- -------------- -------------- -------------- -------------- -------------- --------------
$ 6,427,526 $ 55,418,728 $ 88,167,288 $ 20,440,049 $ 23,638,214 $ 4,579,757 $ 140,904,582
============== ============== ============== ============== ============== ============== ==============
$ 6,422,800 $ 55,418,728 $ 88,167,288 $ 20,440,049 $ 23,628,181 $ 4,579,757 $ 140,887,025
4,726 -- -- -- 10,033 -- 17,557
- -------------- -------------- -------------- -------------- -------------- -------------- --------------
$ 6,427,526 $ 55,418,728 $ 88,167,288 $ 20,440,049 $ 23,638,214 $ 4,579,757 $ 140,904,582
============== ============== ============== ============== ============== ============== ==============
</TABLE>
<PAGE> 408
================================================================================
6 FINANCIAL STATEMENTS
================================================================================
<TABLE>
<CAPTION>
AGSPC PUTNAM
STATEMENTS OF OPERATIONS INTERNATIONAL GLOBAL TEMPLETON TEMPLETON
For the year ended December 31, 1997 EQUITIES GROWTH FOREIGN INTERNATIONAL
FUND FUND FUND FUND
DIVISION 11 DIVISION 28 DIVISION 32 DIVISION 20
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
INVESTMENT INCOME:
Dividends from mutual funds ............................. $ 3,295,464 $ 1,207,561 $ 4,714,678 $ 15,319,152
------------ ------------ ------------ ------------
EXPENSES:
Mortality and expense risk charge ....................... 1,749,279 476,142 1,434,900 8,274,446
Reimbursement of expenses (Note C) ...................... -- (94,544) (286,433) --
------------ ------------ ------------ ------------
Total expenses ....................................... 1,749,279 381,598 1,148,467 8,274,446
------------ ------------ ------------ ------------
NET INVESTMENT INCOME (LOSS) ............................ 1,546,185 825,963 3,566,211 7,044,706
------------ ------------ ------------ ------------
REALIZED AND UNREALIZED GAIN
(LOSS) ON INVESTMENTS:
Net realized gain (loss) on investments ................. 8,844,811 172,968 180,290 24,143,886
Capital gains distributions from mutual funds ........... 4,593,062 9,300,593 12,359,374 6,157,699
Net unrealized appreciation (depreciation)
of investments during the year ....................... (11,693,489) (7,591,166) (16,286,999) 33,826,345
------------ ------------ ------------ ------------
Net realized and unrealized gain (loss) on investments .. 1,744,384 1,882,395 (3,747,335) 64,127,930
------------ ------------ ------------ ------------
INCREASE (DECREASE) IN NET ASSETS
RESULTING FROM OPERATIONS ............................ $ 3,290,569 $ 2,708,358 $ (181,124) $ 71,172,636
============ ============ ============ ============
</TABLE>
<TABLE>
<CAPTION>
AMERICAN CENTURY - AGSPC AGSPC
STATEMENTS OF OPERATIONS TWENTIETH FOUNDERS GROWTH & SOCIAL
For the year ended December 31, 1997 CENTURY ULTRA GROWTH INCOME AWARENESS
FUND FUND FUND FUND
DIVISION 31 DIVISION 30 DIVISION 16 DIVISION 12
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
INVESTMENT INCOME:
Dividends from mutual funds ............................. $ 46,196 $ 679,687 $ 1,001,521 $ 1,994,870
------------ ------------ ------------ ------------
EXPENSES:
Mortality and expense risk charge ....................... 807,995 1,135,755 2,207,637 1,713,350
Reimbursement of expenses (Note C) ...................... (128,556) (226,231) -- --
------------ ------------ ------------ ------------
Total expenses ....................................... 679,439 909,524 2,207,637 1,713,350
------------ ------------ ------------ ------------
NET INVESTMENT INCOME (LOSS) ............................ (633,243) (229,837) (1,206,116) 281,520
------------ ------------ ------------ ------------
REALIZED AND UNREALIZED GAIN
ON INVESTMENTS:
Net realized gain on investments ........................ 316,651 270,661 3,270,580 1,158,707
Capital gains distributions from mutual funds ........... 24,559,704 21,678,474 2,863,622 9,560,562
Net unrealized appreciation (depreciation)
of investments during the year ....................... (16,326,801) (6,466,051) 38,217,716 33,369,211
------------ ------------ ------------ ------------
Net realized and unrealized gain on investments ......... 8,549,554 15,483,084 44,351,918 44,088,480
------------ ------------ ------------ ------------
INCREASE IN NET ASSETS
RESULTING FROM OPERATIONS ............................ $ 7,916,311 $ 15,253,247 $ 43,145,802 $ 44,370,000
============ ============ ============ ============
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS.
<PAGE> 409
================================================================================
SEPARATE ACCOUNT A 7
================================================================================
<TABLE>
<CAPTION>
AGSPC AGSPC PUTNAM PUTNAM OTC & AGSPC
SCIENCE & SMALL CAP DREYFUS NEW EMERGING AGSPC MIDCAP
TECHNOLOGY INDEX SMALL CAP OPPORTUNITIES GROWTH GROWTH INDEX
FUND FUND PORTFOLIO FUND FUND FUND FUND
DIVISION 17 DIVISION 14 DIVISION 18 DIVISION 26 DIVISION 27 DIVISION 15 DIVISION 4
- ------------- ------------- ------------- ------------- ------------- ------------- -------------
<S> <C> <C> <C> <C> <C> <C>
$ -- $ 2,345,234 $ 905,477 $ -- $ -- $ 301,605 $ 6,916,070
- ------------- ------------- ------------- ------------- ------------- ------------- -------------
8,359,405 2,023,765 9,406,874 1,313,649 899,240 7,852,023 6,380,871
-- -- (624,143) (261,355) (179,227) -- --
- ------------- ------------- ------------- ------------- ------------- ------------- -------------
8,359,405 2,023,765 8,782,731 1,052,294 720,013 7,852,023 6,380,871
- ------------- ------------- ------------- ------------- ------------- ------------- -------------
(8,359,405) 321,469 (7,877,254) (1,052,294) (720,013) (7,550,418) 535,199
- ------------- ------------- ------------- ------------- ------------- ------------- -------------
27,202,326 7,403,801 10,514,976 242,887 (47,363) 6,207,654 19,471,600
-- 17,477,318 47,781,324 3,494,327 -- 15,041,175 39,891,431
(11,571,856) 13,195,192 56,534,602 18,445,868 8,912,297 132,575,644 109,426,279
- ------------- ------------- ------------- ------------- ------------- ------------- -------------
15,630,470 38,076,311 114,830,902 22,183,082 8,864,934 153,824,473 168,789,310
- ------------- ------------- ------------- ------------- ------------- ------------- -------------
$ 7,271,065 $ 38,397,780 $ 106,953,648 $ 21,130,788 $ 8,144,921 $ 146,274,055 $ 169,324,509
============= ============= ============= ============= ============= ============= =============
</TABLE>
<TABLE>
<CAPTION>
NEUBERGER & SCUDDER
BERMAN GROWTH AND
AGSPC STOCK INDEX FUND GUARDIAN INCOME VANGUARD/
- ----------------------------------------------------------------------- TRUST FUND WINDSOR II
DIVISION 10A DIVISION 10B DIVISION 10C DIVISION 10D DIVISION 29 DIVISION 21 DIVISION 24
- ------------- ------------- ------------- ------------- ------------- ------------- -------------
<S> <C> <C> <C> <C> <C> <C>
$ 6,376,307 $ 509,353 $ 28,785,179 $ 696,438 $ 163,304 $ 1,817,754 $ 4,925,455
- ------------- ------------- ------------- ------------- ------------- ------------- -------------
4,346,291 195,472 19,442,387 474,226 328,578 854,677 1,887,542
-- (85,996) -- -- (65,533) (121,971) --
- ------------- ------------- ------------- ------------- ------------- ------------- -------------
4,346,291 109,476 19,442,387 474,226 263,045 732,706 1,887,542
- ------------- ------------- ------------- ------------- ------------- ------------- -------------
2,030,016 399,877 9,342,792 222,212 (99,741) 1,085,048 3,037,913
- ------------- ------------- ------------- ------------- ------------- ------------- -------------
23,392,823 2,137,197 19,691,626 3,421,747 406,993 269,953 741,743
2,365,369 185,844 11,611,427 249,976 3,161,542 8,952,194 18,541,072
89,338,679 6,910,324 475,943,738 9,003,055 (1,574,737) 4,003,711 16,110,878
- ------------- ------------- ------------- ------------- ------------- ------------- -------------
115,096,871 9,233,365 507,246,791 12,674,778 1,993,798 13,225,858 35,393,693
- ------------- ------------- ------------- ------------- ------------- ------------- -------------
$ 117,126,887 $ 9,633,242 $ 516,589,583 $ 12,896,990 $ 1,894,057 $ 14,310,906 $ 38,431,606
============= ============= ============= ============= ============= ============= =============
</TABLE>
<PAGE> 410
================================================================================
8 FINANCIAL STATEMENTS
================================================================================
<TABLE>
<CAPTION>
AGSPC AGSPC
STATEMENTS OF OPERATIONS TEMPLETON ASSET VANGUARD/ INTERNATIONAL
For the year ended December 31, 1997 ASSET ALLOCATION ALLOCATION WELLINGTON GOVERNMENT
FUND FUND FUND BOND FUND
DIVISION 19 DIVISION 5 DIVISION 25 DIVISION 13
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
INVESTMENT INCOME:
Dividends from mutual funds ............................... $ 6,145,468 $ 5,564,660 $ 4,059,866 $ 6,334,867
------------ ------------ ------------ ------------
EXPENSES:
Mortality and expense risk charge ......................... 3,318,569 1,796,304 1,047,948 1,739,103
Reimbursement of expenses (Note C) ........................ -- -- -- --
------------ ------------ ------------ ------------
Total expenses ......................................... 3,318,569 1,796,304 1,047,948 1,739,103
------------ ------------ ------------ ------------
NET INVESTMENT INCOME ..................................... 2,826,899 3,768,356 3,011,918 4,595,764
------------ ------------ ------------ ------------
REALIZED AND UNREALIZED GAIN
(LOSS) ON INVESTMENTS:
Net realized gain (loss) on investments ................... 982,063 5,941,975 713,048 (3,911,328)
Capital gains distributions from mutual funds ............. 11,661,872 10,546,782 7,375,024 136,607
Net unrealized appreciation (depreciation)
of investments during the year ......................... 13,366,704 14,486,554 3,998,391 (11,068,351)
------------ ------------ ------------ ------------
Net realized and unrealized gain (loss) on investments .... 26,010,639 30,975,311 12,086,463 (14,843,072)
------------ ------------ ------------ ------------
INCREASE (DECREASE) IN NET ASSETS
RESULTING FROM OPERATIONS .............................. $ 28,837,538 $ 34,743,667 $ 15,098,381 $(10,247,308)
============ ============ ============ ============
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS.
<PAGE> 411
================================================================================
SEPARATE ACCOUNT A 9
================================================================================
<TABLE>
<CAPTION>
VANGUARD VANGUARD
AGSPC FIXED INCOME FIXED INCOME
GOVERNMENT SECURITIES FUND - SECURITIES FUND -
AGSPC CAPITAL CONSERVATION FUND SECURITIES L/T CORPORATE L/T U.S. TREASURY AGSPC MONEY MARKET FUND
- -------------------------------- FUND PORTFOLIO PORTFOLIO --------------------------------
DIVISION 1 DIVISION 7 DIVISION 8 DIVISION 22 DIVISION 23 DIVISION 2 DIVISION 6
- ------------- ------------- ------------- ------------- ------------- ------------- -------------
<S> <C> <C> <C> <C> <C> <C>
$ 408,376 $ 3,451,243 $ 5,076,640 $ 621,319 $ 708,134 $ 235,282 $ 6,599,782
- ------------- ------------- ------------- ------------- ------------- ------------- -------------
63,768 537,683 846,335 114,664 140,570 46,769 1,306,618
-- -- -- -- -- -- --
- ------------- ------------- ------------- ------------- ------------- ------------- -------------
63,768 537,683 846,335 114,664 140,570 46,769 1,306,618
- ------------- ------------- ------------- ------------- ------------- ------------- -------------
344,608 2,913,560 4,230,305 506,655 567,564 188,513 5,293,164
- ------------- ------------- ------------- ------------- ------------- ------------- -------------
23,005 (805,486) (985,278) 36,716 94,335 -- --
-- -- -- 156,984 -- -- --
90,579 1,739,391 3,130,717 643,127 1,066,785 -- --
- ------------- ------------- ------------- ------------- ------------- ------------- -------------
113,584 933,905 2,145,439 836,827 1,161,120 -- --
- ------------- ------------- ------------- ------------- ------------- ------------- -------------
$ 458,192 $ 3,847,465 $ 6,375,744 $ 1,343,482 $ 1,728,684 $ 188,513 $ 5,293,164
============= ============= ============= ============= ============= ============= =============
</TABLE>
<PAGE> 412
================================================================================
10 FINANCIAL STATEMENTS
================================================================================
STATEMENTS OF CHANGES IN NET ASSETS
<TABLE>
<CAPTION>
AGSPC
INTERNATIONAL EQUITIES
FUND PUTNAM GLOBAL GROWTH FUND
--------------------------------- ----------------------------------
DIVISION 11 DIVISION 28
--------------------------------- ----------------------------------
1997 1996 1997 1996*
------------- ------------- ------------- -------------
OPERATIONS:
<S> <C> <C> <C> <C>
Net investment income (loss) ...................... $ 1,546,185 $ 1,591,421 $ 825,963 $ 354,551
Net realized gain on investments .................. 8,844,811 10,405,298 172,968 1,237
Capital gains distributions from mutual funds ..... 4,593,062 6,021,502 9,300,593 765,977
Net unrealized appreciation (depreciation)
of investments during the year ................. (11,693,489) (6,663,813) (7,591,166) (504,554)
------------- ------------- ------------- -------------
Increase (decrease) in net assets resulting
from operations ............................ 3,290,569 11,354,408 2,708,358 617,211
------------- ------------- ------------- -------------
PRINCIPAL TRANSACTIONS:
Purchase payments ................................. 21,604,936 34,022,917 18,196,466 3,174,282
Surrenders of accumulation units by terminations,
withdrawals, and maintenance fees .............. (8,085,959) (8,616,063) (812,004) (15,952)
Annuity benefit payments .......................... (10,712) (13,432) (1,799) --
Amounts transferred interdivision, and (to) from
VALIC general account .......................... (56,024,580) (45,208,742) 21,134,329 13,833,517
------------- ------------- ------------- -------------
Increase (decrease) in net assets
resulting from principal transactions ...... (42,516,315) (19,815,320) 38,516,992 16,991,847
------------- ------------- ------------- -------------
TOTAL INCREASE (DECREASE) IN NET ASSETS ........... (39,225,746) (8,460,912) 41,225,350 17,609,058
NET ASSETS:
Beginning of year ................................. 191,226,528 199,687,440 17,609,058 --
------------- ------------- ------------- -------------
End of year ....................................... $ 152,000,782 $ 191,226,528 $ 58,834,408 $ 17,609,058
============= ============= ============= =============
CHANGE IN UNITS OUTSTANDING:
Accumulation units beginning of year .............. 156,226,314 172,564,018 16,648,600 --
Purchase payments ................................. 17,325,859 28,526,458 15,748,353 3,377,941
Surrenders ........................................ (6,456,410) (7,207,422) (675,628) (16,466)
Transfers -- interdivision and (to) from VALIC
general account ................................ (44,379,019) (37,656,740) 17,827,407 13,287,125
------------- ------------- ------------- -------------
Accumulation units end of year .................... 122,716,744 156,226,314 49,548,732 16,648,600
============= ============= ============= =============
<CAPTION>
DECEMBER 31: DECEMBER 31:
--------------------------------- ----------------------------------
1997 1996 1997 1996
------------- ------------- ------------- -------------
<S> <C> <C> <C> <C>
Accumulation unit value .......................... $ 1.237299 $ 1.222906 $ 1.186775 $ 1.057690
============= ============= ============= =============
Annuity unit value assuming a 3.5%
discount factor .................................. $ 0.931882 $ 0.953246 $ 1.127017 $ 1.039552
============= ============= ============= =============
</TABLE>
* For the period from July 1, 1996 to December 31, 1996.
SEE NOTES TO FINANCIAL STATEMENTS.
<PAGE> 413
================================================================================
SEPARATE ACCOUNT A 11
================================================================================
<TABLE>
<CAPTION>
AGSPC
AGSPC SMALL CAP
TEMPLETON FOREIGN FUND TEMPLETON INTERNATIONAL FUND SCIENCE & TECHNOLOGY FUND INDEX FUND
- ----------------------------- ------------------------------ ------------------------------ -----------------------------
DIVISION 32 DIVISION 20 DIVISION 17 DIVISION 14
- ----------------------------- ------------------------------ ------------------------------ -----------------------------
1997 1996* 1997 1996 1997 1996 1997 1996
- ------------- ------------- ------------- ------------- ------------- ------------- ------------- -------------
<S> <C> <C> <C> <C> <C> <C> <C>
$ 3,566,211 $ 482,633 $ 7,044,706 $ (394,601) $ (8,359,405) $ (5,521,307) $ 321,469 $ 637,395
180,290 125 24,143,886 3,551,468 27,202,326 20,659,560 7,403,801 4,544,601
12,359,374 285,587 6,157,699 1,324,253 -- 32,117,202 17,477,318 11,216,991
(16,286,999) 1,121,790 33,826,345 78,888,709 (11,571,856) 15,569,750 13,195,192 7,711,563
- ------------- ------------- ------------- ------------- ------------- ------------- ------------- -------------
(181,124) 1,890,135 71,172,636 83,369,829 7,271,065 62,825,205 38,397,780 24,110,550
- ------------- ------------- ------------- ------------- ------------- ------------- ------------- -------------
63,929,059 9,386,263 127,443,761 121,376,573 203,196,325 181,422,903 26,031,893 31,004,229
(2,231,179) (122,577) (21,498,080) (9,699,818) (27,661,660) (14,164,178) (8,101,115) (7,478,000)
(1,149) -- (6,675) (3,367) (17,353) (40,073) (6,381) (563)
79,881,321 28,301,252 22,603,734 84,599,243 15,908,913 105,706,951 (10,731,749) (15,148,966)
- ------------- ------------- ------------- ------------- ------------- ------------- ------------- -------------
141,578,052 37,564,938 128,542,740 196,272,631 191,426,225 272,925,603 7,192,648 8,376,700
- ------------- ------------- ------------- ------------- ------------- ------------- ------------- -------------
141,396,928 39,455,073 199,715,376 279,642,460 198,697,290 335,750,808 45,590,428 32,487,250
39,455,073 -- 530,023,811 250,381,351 710,964,164 375,213,356 184,478,322 151,991,072
- ------------- ------------- ------------- ------------- ------------- ------------- ------------- -------------
$ 180,852,001 $ 39,455,073 $ 729,739,187 $ 530,023,811 $ 909,661,454 $ 710,964,164 $ 230,068,750 $ 184,478,322
============= ============= ============= ============= ============= ============= ============= =============
36,671,828 -- 378,581,949 219,124,926 315,809,646 187,862,232 103,320,842 98,335,995
55,441,897 10,156,940 81,609,273 97,229,761 88,179,109 84,389,312 13,258,805 18,844,484
(1,875,284) (116,295) (13,712,830) (7,187,616) (11,448,429) (6,049,987) (4,191,154) (4,305,572)
68,962,666 26,631,183 16,695,958 69,414,878 5,302,633 49,608,089 (6,109,416) (9,554,065)
- ------------- ------------- ------------- ------------- ------------- ------------- ------------- -------------
159,201,107 36,671,828 463,174,350 378,581,949 397,842,959 315,809,646 106,279,077 103,320,842
============= ============= ============= ============= ============= ============= ============= =============
<CAPTION>
DECEMBER 31: DECEMBER 31: DECEMBER 31: DECEMBER 31:
- ----------------------------- ------------------------------ ------------------------------ -----------------------------
1997 1996 1997 1996 1997 1996 1997 1996
- ------------- ------------- ------------- ------------- ------------- ------------- ------------- -------------
<S> <C> <C> <C> <C> <C> <C> <C>
$ 1.135778 $ 1.075896 $ 1.575168 $ 1.399702 $ 2.285739 $ 2.250471 $ 2.163595 $ 1.785442
============= ============= ============= ============= ============= ============= ============= =============
$ 1.078588 $ 1.057446 $ 1.397849 $ 1.285567 $ 2.014348 $ 2.052612 $ 1.780625 $ 1.520786
============= ============= ============= ============= ============= ============= ============= =============
</TABLE>
<PAGE> 414
================================================================================
12 FINANCIAL STATEMENTS
================================================================================
STATEMENTS OF CHANGES IN NET ASSETS
<TABLE>
<CAPTION>
DREYFUS SMALL CAP PORTFOLIO PUTNAM NEW OPPORTUNITIES FUND
----------------------------- ------------------------------
DIVISION 18 DIVISION 26
----------------------------- ------------------------------
1997 1996 1997 1996*
------------- ------------- ------------- -------------
<S> <C> <C> <C> <C>
OPERATIONS:
Net investment income (loss) ...................................... $ (7,877,254) $ (5,324,689) $ (1,052,294) $ (91,811)
Net realized gain (loss) on investments ........................... 10,514,976 1,994,033 242,887 9,737
Capital gains distributions from mutual funds ..................... 47,781,324 19,221,026 3,494,327 333,297
Net unrealized appreciation (depreciation)
of investments during the year ................................. 56,534,602 56,124,110 18,445,868 (1,619,779)
------------- ------------- ------------- -------------
Increase (decrease) in net assets resulting from operations .. 106,953,648 72,014,480 21,130,788 (1,368,556)
------------- ------------- ------------- -------------
PRINCIPAL TRANSACTIONS:
Purchase payments ................................................. 152,268,343 168,538,535 51,769,269 11,510,093
Surrenders of accumulation units by terminations,
withdrawals, and maintenance fees .............................. (25,995,894) (13,795,343) (2,540,805) (87,148)
Annuity benefit payments .......................................... (13,079) (8,413) (61) --
Amounts transferred interdivision, and (to) from VALIC general
account ........................................................ (41,774,769) 74,732,906 44,254,408 40,168,590
------------- ------------- ------------- -------------
Increase (decrease) in net assets
resulting from principal transactions ...................... 84,484,601 229,467,685 93,482,811 51,591,535
------------- ------------- ------------- -------------
TOTAL INCREASE IN NET ASSETS ...................................... 191,438,249 301,482,165 114,613,599 50,222,979
NET ASSETS:
Beginning of year ................................................. 658,386,059 356,903,894 50,222,979 --
------------- ------------- ------------- -------------
End of year ....................................................... $ 849,824,308 $ 658,386,059 $ 164,836,578 $ 50,222,979
============= ============= ============= =============
CHANGE IN UNITS OUTSTANDING:
Accumulation units beginning of year .............................. 428,883,250 267,735,219 53,001,699 --
Purchase payments ................................................. 92,300,416 117,376,109 49,995,408 13,342,250
Surrenders ........................................................ (15,764,818) (8,756,141) (2,517,125) (87,502)
Transfers -- interdivision and (to) from VALIC general account .... (25,567,323) 52,528,063 42,915,084 39,746,951
------------- ------------- ------------- -------------
Accumulation units end of year .................................... 479,851,525 428,883,250 143,395,066 53,001,699
============= ============= ============= =============
<CAPTION>
DECEMBER 31: DECEMBER 31:
---------------------------- ------------------------------
1997 1996 1997 1996*
------------- ------------- ------------- -------------
<S> <C> <C> <C> <C>
Accumulation unit value .......................................... $ 1.770622 $ 1.534694 $ 1.149453 $ 0.947573
============= ============= ============= =============
Annuity unit value assuming a 3.5% discount factor ............... $ 1.571300 $ 1.409551 $ 1.091574 $ 0.931324
============= ============= ============= =============
</TABLE>
* For the period from July 1, 1996 to December 31, 1996.
SEE NOTES TO FINANCIAL STATEMENTS.
<PAGE> 415
================================================================================
SEPARATE ACCOUNT A 13
================================================================================
<TABLE>
<CAPTION>
PUTNAM OTC & EMERGING AGSPC AGSPC AMERICAN CENTURY -
GROWTH FUND GROWTH FUND MIDCAP INDEX FUND TWENTIETH CENTURY ULTRA FUND
- ------------------------------ ------------------------------ ------------------------------ ------------------------------
DIVISION 27 DIVISION 15 DIVISION 4 DIVISION 31
- ------------------------------ ------------------------------ ------------------------------ ------------------------------
1997 1996* 1997 1996 1997 1996 1997 1996*
- ------------------------------ ------------------------------ ------------------------------ ------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
$ (720,013) $ (87,360) $ (7,550,418) $ (2,278,501) $ 535,199 $ 1,513,296 $ (633,243) $ (37,059)
(47,363) 9,014 6,207,654 130,878 19,471,600 17,436,698 316,651 18,993
-- 2,846,114 15,041,175 11,891,551 39,891,431 33,690,174 24,559,704 884,238
8,912,297 (4,620,592) 132,575,644 58,161,783 109,426,279 33,029,566 (16,326,801) (659,907)
- ------------------------------ ------------------------------ ------------------------------ ------------------------------
8,144,921 (1,852,824) 146,274,055 67,905,711 169,324,509 85,669,734 7,916,311 206,265
- ------------------------------ ------------------------------ ------------------------------ ------------------------------
32,976,492 11,571,920 185,814,571 164,255,730 66,141,090 76,583,041 43,175,072 4,513,492
(1,887,137) (77,988) (24,997,689) (10,378,550) (24,993,718) (21,727,656) (1,444,132) (29,941)
(1,777) -- (18,116) (38,688) (20,499) (19,036) (950) --
14,456,676 34,125,847 (764,959) 172,227,639 (45,549,090) (55,201,966) 56,804,430 12,627,842
- ------------------------------ ------------------------------ ------------------------------ ------------------------------
45,544,254 45,619,779 160,033,807 326,066,131 (4,422,217) (365,617) 98,534,420 17,111,393
- ------------------------------ ------------------------------ ------------------------------ ------------------------------
53,689,175 43,766,955 306,307,862 393,971,842 164,902,292 85,304,117 106,450,731 17,317,658
43,766,955 -- 635,115,607 241,143,765 565,711,393 480,407,276 17,317,658 --
- ------------------------------ ------------------------------ ------------------------------ ------------------------------
$ 97,456,130 $ 43,766,955 $941,423,469 $635,115,607 $730,613,685 $565,711,393 $123,768,389 $ 17,317,658
============================== ============================== ============================== ==============================
48,902,828 -- 366,272,509 164,417,848 172,816,978 172,613,690 16,654,076 --
36,775,163 13,681,504 99,349,760 101,043,809 17,600,471 25,301,831 36,243,458 4,747,541
(2,370,530) (82,877) (12,033,793) (5,693,969) (6,688,206) (7,030,990) (1,152,164) (27,374)
16,477,580 35,304,201 (415,986) 106,504,821 (12,663,586) (18,067,553) 45,999,912 11,933,909
- ------------------------------ ------------------------------ ------------------------------ ------------------------------
99,785,041 48,902,828 453,172,490 366,272,509 171,065,657 172,816,978 97,745,282 16,654,076
============================== ============================== ============================== ==============================
<CAPTION>
DECEMBER 31: DECEMBER 31: DECEMBER 31: DECEMBER 31:
- ------------------------------ ------------------------------ ------------------------------ ------------------------------
1997 1996 1997 1996 1997 1996 1997 1996
- ------------------------------ ------------------------------ ------------------------------ ------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
$ 0.976262 $ 0.894978 $ 2.076503 $ 1.733324 $ 4.269122 $ 3.272588 $ 1.265937 $ 1.039845
- ------------------------------ ------------------------------ ------------------------------ ------------------------------
$ 0.927104 $ 0.879630 $ 1.829953 $ 1.580931 $ 2.577196 $ 2.044683 $ 1.202193 $ 1.022013
============================== ============================== ============================== ==============================
</TABLE>
<PAGE> 416
================================================================================
14 FINANCIAL STATEMENTS
================================================================================
STATEMENTS OF CHANGES IN NET ASSETS
<TABLE>
<CAPTION>
AGSPC
FOUNDERS GROWTH FUND GROWTH & INCOME FUND
------------------------------ ------------------------------
DIVISION 30 DIVISION 16
------------------------------ ------------------------------
1997 1996* 1997 1996
------------------------------ ------------------------------
<S> <C> <C> <C> <C>
OPERATIONS:
Net investment income (loss)................................... $ (229,837) $ (28,065) $ (1,206,116) $ (402,222)
Net realized gain on investments............................... 270,661 -- 3,270,580 483,596
Capital gains distributions from mutual funds.................. 21,678,474 2,106,129 2,863,622 3,131,642
Net unrealized appreciation (depreciation)
of investments during the year.............................. (6,466,051) (1,697,540) 38,217,716 19,205,904
------------------------------ ------------------------------
Increase in net assets resulting from operations.......... 15,253,247 380,524 43,145,802 22,418,920
------------------------------ ------------------------------
PRINCIPAL TRANSACTIONS:
Purchase payments.............................................. 54,770,398 8,595,522 44,825,180 41,180,652
Surrenders of accumulation units by terminations,
withdrawals, and maintenance fees........................... (1,863,811) (36,494) (8,344,519) (2,962,157)
Annuity benefit payments....................................... (66) -- (2,954) (1,598)
Amounts transferred (to) from VALIC general account............ 70,189,987 23,178,924 5,944,261 43,756,812
------------------------------ ------------------------------
Increase (decrease) in net assets
resulting from principal transactions................... 123,096,508 31,737,952 42,421,968 81,973,709
------------------------------ ------------------------------
TOTAL INCREASE IN NET ASSETS................................... 138,349,755 32,118,476 85,567,770 104,392,629
NET ASSETS:
Beginning of year.............................................. 32,118,476 -- 171,528,205 67,135,576
------------------------------ ------------------------------
End of year.................................................... $170,468,231 $ 32,118,476 $257,095,975 $171,528,205
============================== ==============================
CHANGE IN UNITS OUTSTANDING:
Accumulation units beginning of year........................... 31,197,464 -- 108,341,635 51,779,089
Purchase payments.............................................. 45,575,203 9,274,157 24,988,066 28,095,895
Surrenders..................................................... (1,491,261) (32,596) (4,697,640) (1,842,881)
Transfers - interdivision and (to) from VALIC general account.. 56,885,756 21,955,903 3,802,494 30,309,532
------------------------------ ------------------------------
Accumulation units end of year................................. 132,167,162 31,197,464 132,434,555 108,341,635
============================== ==============================
<CAPTION>
DECEMBER 31: DECEMBER 31:
------------------------------ ------------------------------
1997 1996 1997 1996
------------------------------ ------------------------------
<S> <C> <C> <C> <C>
Accumulation unit value........................................ $ 1.289513 $ 1.029522 $ 1.940905 $ 1.583056
------------------------------ ------------------------------
Annuity unit value assuming a 3.5% discount factor............. $ 1.224581 $ 1.011867 $ 1.710454 $ 1.443874
============================== ==============================
</TABLE>
* For the period from July 1, 1996 to December 31, 1996.
SEE NOTES TO FINANCIAL STATEMENTS.
<PAGE> 417
================================================================================
SEPARATE ACCOUNT A 15
================================================================================
<TABLE>
<CAPTION>
AGSPC
SOCIAL AWARENESS FUND AGSPC STOCK INDEX FUND
- ------------------------------ ---------------------------------------------------------------
DIVISION 12 DIVISION 10A DIVISION 10B
- ------------------------------ ------------------------------ ------------------------------
1997 1996 1997 1996 1997 1996
- ------------------------------ ------------------------------ ------------------------------
<S> <C> <C> <C> <C> <C>
$ 281,520 $ 546,469 $ 2,030,016 $ 3,186,584 $ 399,877 $ 462,074
1,158,707 778,115 23,392,823 12,767,086 2,137,197 2,085,848
9,560,562 10,715,745 2,365,369 2,739,498 185,844 222,372
33,369,211 4,483,540 89,338,679 51,675,655 6,910,324 3,182,195
- ------------------------------ ------------------------------ ------------------------------
44,370,000 16,523,869 117,126,887 70,368,823 9,633,242 5,952,489
- ------------------------------ ------------------------------ ------------------------------
44,746,508 18,543,307 3,670,819 4,265,439 231,218 501,306
(5,475,293) (3,798,307) (24,373,318) (22,309,652) (2,331,031) (2,364,484)
- - (1,717,390) (1,401,028) (285,785) (250,350)
55,022,728 13,547,350 (3,572,644) (13,443,730) (1,027,537) (1,406,730)
- ------------------------------ ------------------------------ ------------------------------
94,293,943 28,292,350 (25,992,533) (32,888,971) (3,413,135) (3,520,258)
- ------------------------------ ------------------------------ ------------------------------
138,663,943 44,816,219 91,134,354 37,479,852 6,220,107 2,432,231
104,916,029 60,099,810 378,649,029 341,169,177 30,725,924 28,293,693
- ------------------------------ ------------------------------ ------------------------------
$243,579,972 $104,916,029 $469,783,383 $378,649,029 $ 36,946,031 $ 30,725,924
============================== ============================== ==============================
46,574,016 32,750,120 27,379,389 29,995,363 1,380,401 1,560,525
16,505,152 9,143,695 226,321 323,038 9,647 26,729
(1,970,414) (1,827,332) (1,529,579) (1,822,126) (92,576) (123,291)
20,468,350 6,507,533 (240,198) (1,116,886) (40,498) (83,562)
- ------------------------------ ------------------------------ ------------------------------
81,577,104 46,574,016 25,835,933 27,379,389 1,256,974 1,380,401
============================== ============================== ==============================
<CAPTION>
DECEMBER 31: DECEMBER 31: DECEMBER 31:
- ------------------------------ ------------------------------ ------------------------------
1997 1996 1997 1996 1997 1996
- ------------------------------ ------------------------------ ------------------------------
<S> <C> <C> <C> <C> <C>
$ 2.985333 $ 2.252673 $ 17.679054 $ 13.413891 $ 27.956641 $ 21.070956
- ------------------------------ ------------------------------ ------------------------------
$ 2.248428 $ 1.755941 $ 4.932202 $ 3.873132 $ 6.632506 $ 5.173716
============================== ============================== ==============================
</TABLE>
<PAGE> 418
================================================================================
16 FINANCIAL STATEMENTS
================================================================================
STATEMENTS OF CHANGES IN NET ASSETS
<TABLE>
<CAPTION>
AGSPC Stock Index Fund
------------------------------------------------------------------
DIVISION 10C DIVISION 10D
--------------------------------- ------------------------------
1997 1996 1997 1996
--------------------------------- ------------------------------
<S> <C> <C> <C> <C>
OPERATIONS:
Net investment income (loss)................................... $ 9,342,792 $ 11,741,408 $ 222,212 $ 363,909
Net realized gain on investments............................... 19,691,626 10,129,542 3,421,747 2,391,364
Capital gains distributions from mutual funds.................. 11,611,427 11,061,404 249,976 307,213
Net unrealized appreciation (depreciation)
of investments during the year.............................. 475,943,738 222,475,966 9,003,055 4,964,983
--------------------------------- ------------------------------
Increase in net assets resulting from operations.......... 516,589,583 255,408,320 12,896,990 8,027,469
--------------------------------- ------------------------------
PRINCIPAL TRANSACTIONS:
Purchase payments.............................................. 264,734,800 210,185,191 789,193 1,004,698
Surrenders of accumulation units by terminations,
withdrawals, and maintenance fees........................... (73,944,144) (49,624,470) (2,598,402) (2,219,367)
Annuity benefit payments....................................... (120,896) (61,625) (13,201) (10,433)
Amounts transferred (to) from VALIC general account............ 72,721,787 47,055,243 (3,872,680) (5,536,446)
--------------------------------- ------------------------------
Increase (decrease) in net assets
resulting from principal transactions................... 263,391,547 207,554,339 (5,695,090) (6,761,548)
--------------------------------- ------------------------------
TOTAL INCREASE IN NET ASSETS................................... 779,981,130 462,962,659 7,201,900 1,265,921
NET ASSETS:
Beginning of year.............................................. 1,530,346,370 1,067,383,711 42,471,127 41,205,206
--------------------------------- ------------------------------
End of year.................................................... $2,310,327,500 $1,530,346,370 $ 49,673,027 $ 42,471,127
================================= ==============================
CHANGE IN UNITS OUTSTANDING:
Accumulation units beginning of year........................... 536,806,965 455,255,243 8,381,704 9,885,873
Purchase payments.............................................. 77,757,636 80,768,570 132,628 231,458
Surrenders..................................................... (20,920,257) (18,096,464) (430,026) (486,940)
Transfers - interdivision and (to) from VALIC general account.. 21,408,780 18,879,616 (645,769) (1,248,687)
--------------------------------- ------------------------------
Accumulation units end of year................................. 615,053,124 536,806,965 7,438,537 8,381,704
================================= ==============================
<CAPTION>
DECEMBER 31: DECEMBER 31:
--------------------------------- ------------------------------
1997 1996 1997 1996
--------------------------------- ------------------------------
<S> <C> <C> <C> <C>
Accumulation unit value........................................ $ 3.753436 $ 2.848437 $ 6.652806 $ 5.049088
--------------------------------- ------------------------------
Annuity unit value assuming a 3.5% discount factor............. $ 2.655080 $ 2.085358 $ 3.860513 $ 3.032347
================================= ==============================
</TABLE>
*For the period from July 1, 1996 to December 31, 1996.
SEE NOTES TO FINANCIAL STATEMENTS.
<PAGE> 419
================================================================================
SEPARATE ACCOUNT A 17
================================================================================
<TABLE>
<CAPTION>
NEUBERGER&BERMAN SCUDDER GROWTH AND
GUARDIAN TRUST INCOME FUND VANGUARD/WINDSOR II
- ------------------------------ -------------------------------- --------------------------------
DIVISION 29 DIVISION 21 DIVISION 24
- ------------------------------ -------------------------------- --------------------------------
1997 1996* 1997 1996* 1997 1996*
- ------------------------------ -------------------------------- --------------------------------
<S> <C> <C> <C> <C> <C>
$ (99,741) $ 15,594 $ 1,085,048 $ 120,254 $ 3,037,913 $ 488,057
406,993 10,864 269,953 22,419 741,743 11,774
3,161,542 128,127 8,952,194 607,596 18,541,072 1,554,790
(1,574,737) 348,451 4,003,711 84,718 16,110,878 (217,368)
- ------------------------------ -------------------------------- --------------------------------
1,894,057 503,036 14,310,906 834,987 38,431,606 1,837,253
- ------------------------------ -------------------------------- --------------------------------
14,861,097 2,108,685 37,754,331 4,643,308 82,698,118 10,178,409
(661,852) (21,439) (1,502,937) (23,004) (3,075,223) (103,527)
-- -- (2,106) -- (1,497) --
21,010,215 6,613,024 66,400,722 12,968,194 115,544,417 29,887,643
- ------------------------------ -------------------------------- --------------------------------
35,209,460 8,700,270 102,650,010 17,588,498 195,165,815 39,962,525
- ------------------------------ -------------------------------- --------------------------------
37,103,517 9,203,306 116,960,916 18,423,485 233,597,421 41,799,778
9,203,306 -- 18,423,485 -- 41,799,778 --
- ------------------------------ -------------------------------- --------------------------------
$ 46,306,823 $ 9,203,306 $ 135,384,401 $ 18,423,485 $ 275,397,199 $ 41,799,778
============================== ================================ ================================
8,211,592 -- 16,524,046 -- 37,292,761 --
11,711,541 2,109,025 28,874,922 4,726,075 63,199,633 10,359,662
(501,980) (19,267) (1,088,301) (21,254) (2,242,658) (91,924)
15,985,510 6,121,834 49,915,317 11,819,225 89,680,132 27,025,023
- ------------------------------ -------------------------------- --------------------------------
35,406,663 8,211,592 94,225,984 16,524,046 187,929,868 37,292,761
============================== ================================ ================================
<CAPTION>
DECEMBER 31: DECEMBER 31: DECEMBER 31:
- ------------------------------ -------------------------------- --------------------------------
1997 1996 1997 1996 1997 1996
- ------------------------------ -------------------------------- --------------------------------
<S> <C> <C> <C> <C> <C>
$ 1.307438 $ 1.120770 $ 1.436011 $ 1.114950 $ 1.464949 $ 1.120855
- ------------------------------ -------------------------------- --------------------------------
$ 1.241604 $ 1.101550 $ 1.363703 $ 1.095830 $ 1.391183 $ 1.101634
============================== ================================ ================================
<CAPTION>
TEMPLETON ASSET
ALLOCATION FUND
- --------------------------------
DIVISION 19
- --------------------------------
1997 1996
- --------------------------------
<S> <C>
$ 2,826,899 $ 1,458,222
982,063 430,651
11,661,872 2,566,073
13,366,704 19,843,521
- --------------------------------
28,837,538 24,298,467
- --------------------------------
61,278,823 46,026,342
(9,457,167) (3,839,217)
(19,742) (39,584)
41,633,946 33,529,527
- --------------------------------
93,435,860 75,677,068
- --------------------------------
122,273,398 99,975,535
194,600,887 94,625,352
- --------------------------------
$ 316,874,285 $ 194,600,887
================================
137,384,670 78,494,505
38,574,901 35,369,271
(5,822,716) (2,676,756)
26,014,091 26,197,650
- --------------------------------
196,150,946 137,384,670
================================
<CAPTION>
DECEMBER 31:
- --------------------------------
1997 1996
- --------------------------------
<C> <C>
$ 1.613943 $ 1.414844
- --------------------------------
$ 1.432259 $ 1.299474
================================
</TABLE>
<PAGE> 420
================================================================================
18 FINANCIAL STATEMENTS
================================================================================
STATEMENTS OF CHANGES IN NET ASSETS
<TABLE>
<CAPTION>
AGSPC
ASSET ALLOCATION
FUND VANGUARD/WELLINGTON FUND
-------------------------------- --------------------------------
DIVISION 5 DIVISION 25
-------------------------------- --------------------------------
1997 1996 1997 1996*
-------------------------------- --------------------------------
<S> <C> <C> <C> <C>
OPERATIONS:
Net investment income.................................... $ 3,768,356 $ 4,134,407 $ 3,011,918 $ 326,600
Net realized gain (loss) on investments.................. 5,941,975 7,668,485 713,048 --
Capital gains distributions from mutual funds............ 10,546,782 18,741,770 7,375,024 818,129
Net unrealized appreciation (depreciation)
of investments during the year........................ 14,486,554 (13,565,417) 3,998,391 (444,072)
-------------------------------- --------------------------------
Increase (decrease) in net assets resulting
from operations.................................. 34,743,667 16,979,245 15,098,381 700,657
-------------------------------- --------------------------------
PRINCIPAL TRANSACTIONS:
Purchase payments........................................ 11,497,764 15,126,160 51,882,204 7,042,246
Surrenders of accumulation units by terminations,
withdrawals, and maintenance fees..................... (10,611,952) (11,037,733) (2,456,686) (12,075)
Annuity benefit payments................................. (8,301) (7,329) (68) --
Amounts transferred (to) from VALIC general account...... (24,272,661) (30,784,573) 66,331,198 17,458,690
-------------------------------- --------------------------------
Increase (decrease) in net assets
resulting from principal transactions............. (23,395,150) (26,703,475) 115,756,648 24,488,861
-------------------------------- --------------------------------
TOTAL INCREASE (DECREASE) IN NET ASSETS.................. 11,348,517 (9,724,230) 130,855,029 25,189,518
NET ASSETS:
Beginning of year........................................ 173,229,475 182,953,705 25,189,518 --
-------------------------------- --------------------------------
End of year.............................................. $ 184,577,992 $ 173,229,475 $ 156,044,547 $ 25,189,518
================================ ================================
CHANGE IN UNITS OUTSTANDING:
Accumulation units beginning of year..................... 65,292,617 75,851,431 22,866,634 --
Purchase payments........................................ 3,898,053 6,003,535 42,072,769 7,335,077
Surrenders............................................... (3,591,047) (4,376,494) (1,913,812) (12,748)
Transfers - interdivision and (to) from VALIC
general account....................................... (8,292,272) (12,185,855) 53,404,190 15,544,305
-------------------------------- --------------------------------
Accumulation units end of year........................... 57,307,351 65,292,617 116,429,781 22,866,634
================================ ================================
<CAPTION>
DECEMBER 31: DECEMBER 31:
-------------------------------- --------------------------------
1997 1996 1997 1996
-------------------------------- --------------------------------
<S> <C> <C> <C> <C>
Accumulation unit value.................................. $ 3.219282 $ 2.651899 $ 1.340109 $ 1.101584
-------------------------------- --------------------------------
Annuity unit value assuming a 3.5% discount factor....... $ 1.971210 $ 1.680570 $ 1.272630 $ 1.082693
================================ ================================
</TABLE>
* For the period from July 1, 1996 to December 31, 1996.
SEE NOTES TO FINANCIAL STATEMENTS.
<PAGE> 421
================================================================================
SEPARATE ACCOUNT A 19
================================================================================
<TABLE>
<CAPTION>
AGSPC AGSPC
INTERNATIONAL GOVERNMENT AGSPC GOVERNMENT SECURITIES
BOND FUND CAPITAL CONSERVATION FUND FUND
- -------------------------------- ------------------------------------------------------------- ------------------------------
DIVISION 13 DIVISION 1 DIVISION 7 DIVISION 8
- -------------------------------- ---------------------------- ------------------------------ ------------------------------
1997 1996 1997 1996 1997 1996 1997 1996
- -------------------------------- ---------------------------- ------------------------------ ------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
$ 4,595,764 $ 6,561,676 $ 344,608 $ 385,044 $ 2,913,560 $ 3,053,956 $ 4,230,305 $ 4,076,937
(3,911,328) 1,815,703 23,005 60,355 (805,486) (425,696) (985,278) (378,294)
136,607 295,588 -- -- -- -- -- --
(11,068,351) (2,362,017) 90,579 (428,426) 1,739,391 (2,170,354) 3,130,717 (2,658,037)
- -------------------------------- ---------------------------- ------------------------------ ------------------------------
(10,247,308) 6,310,950 458,192 16,973 3,847,465 457,906 6,375,744 1,040,606
- -------------------------------- ---------------------------- ------------------------------ ------------------------------
40,582,861 48,300,297 366,816 280,092 7,324,860 10,990,401 12,424,460 18,451,360
(6,757,210) (4,925,561) (389,473) (624,478) (3,026,469) (2,515,394) (3,958,609) (3,354,710)
(274) (33) (526) (512) -- -- -- --
(35,550,483) 16,174,338 (509,353) (953,654) (8,016,607) (7,231,500) (12,246,246) (2,269,092)
- -------------------------------- ---------------------------- ------------------------------ ------------------------------
(1,725,106) 59,549,041 (532,536) (1,298,552) (3,718,216) 1,243,507 (3,780,395) 12,827,558
- -------------------------------- ---------------------------- ------------------------------ ------------------------------
(11,972,414) 65,859,991 (74,344) (1,281,579) 129,249 1,701,413 2,595,349 13,868,164
178,172,171 112,312,180 6,501,870 7,783,449 55,289,479 53,588,066 85,571,939 71,703,775
- -------------------------------- ---------------------------- ------------------------------ ------------------------------
$ 166,199,757 $ 178,172,171 $ 6,427,526 $ 6,501,870 $ 55,418,728 $ 55,289,479 $ 88,167,288 $ 85,571,939
================================ ============================ ============================== ==============================
112,601,593 73,369,250 1,991,536 2,402,085 30,286,494 29,573,808 47,130,169 39,847,053
27,009,353 31,815,367 109,285 87,169 3,840,755 6,098,740 6,646,726 10,391,393
(4,696,042) (3,112,236) (116,952) (196,821) (1,555,673) (1,343,357) (2,143,349) (1,871,516)
(23,434,313) 10,529,212 (151,908) (300,897) (4,328,978) (4,042,697) (6,598,652) (1,236,761)
- -------------------------------- ---------------------------- ------------------------------ ------------------------------
111,480,591 112,601,593 1,831,961 1,991,536 28,242,598 30,286,494 45,034,894 47,130,169
================================ ============================ ============================== ==============================
</TABLE>
<TABLE>
<CAPTION>
DECEMBER 31: DECEMBER 31: DECEMBER 31: DECEMBER 31:
- -------------------------------- ---------------------------- ------------------------------ ------------------------------
1997 1996 1997 1996 1997 1996 1997 1996
- -------------------------------- ---------------------------- ------------------------------ ------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
$ 1.490645 $ 1.582230 $ 3.505970 $ 3.262402 $ 1.962239 $ 1.825549 $ 1.957755 $ 1.815651
- -------------------------------- ---------------------------- ------------------------------ ------------------------------
$ 1.203136 $ 1.321708 $ 1.863379 $ 1.794552 $ 1.303657 $ 1.255251 $ 1.300676 $ 1.248443
================================ ============================ ============================== ==============================
</TABLE>
<PAGE> 422
================================================================================
20 FINANCIAL STATEMENTS
================================================================================
STATEMENTS OF CHANGES IN NET ASSETS
<TABLE>
<CAPTION>
VANGUARD FIXED INCOME VANGUARD FIXED INCOME
SECURITIES FUND - L/T SECURITIES FUND - L/T
CORPORATE PORTFOLIO U.S. TREASURY PORTFOLIO
------------------------------ ----------------------------
DIVISION 22 DIVISION 23
------------------------------ ----------------------------
1997 1996* 1997 1996*
------------------------------ ----------------------------
<S> <C> <C> <C> <C>
OPERATIONS:
Net investment income.......................................... $ 506,655 $ 36,167 $ 567,564 $ 46,282
Net realized gain on investments............................... 36,716 2,260 94,335 2,349
Capital gains distributions from mutual funds.................. 156,984 31,298 -- --
Net unrealized appreciation (depreciation)
of investments during the year.............................. 643,127 (11,407) 1,066,785 33,654
------------------------------ ----------------------------
Increase in net assets resulting from operations.......... 1,343,482 58,318 1,728,684 82,285
------------------------------ ----------------------------
PRINCIPAL TRANSACTIONS:
Purchase payments.............................................. 6,013,744 1,030,635 6,985,216 1,117,289
Surrenders of accumulation units by terminations,
withdrawals, and maintenance fees........................... (167,812) (3,212) (265,787) (9,447)
Annuity benefit payments....................................... -- -- (176) --
Amounts transferred (to) from VALIC general account............ 9,719,778 2,445,116 10,813,576 3,186,574
------------------------------ ----------------------------
Increase (decrease) in net assets
resulting from principal transactions................... 15,565,710 3,472,539 17,532,829 4,294,416
------------------------------ ----------------------------
TOTAL INCREASE (DECREASE) IN NET ASSETS........................ 16,909,192 3,530,857 19,261,513 4,376,701
NET ASSETS:
Beginning of year.............................................. 3,530,857 -- 4,376,701 --
------------------------------ ----------------------------
End of year.................................................... $ 20,440,049 $ 3,530,857 $ 23,638,214 $ 4,376,701
============================== ============================
CHANGE IN UNITS OUTSTANDING:
Accumulation units beginning of year........................... 3,370,441 -- 4,174,369 --
Purchase payments.............................................. 5,633,849 1,099,573 6,619,458 1,138,211
Surrenders..................................................... (151,626) (3,347) (227,789) (9,203)
Transfers - interdivision and (to) from VALIC general account.. 8,518,743 2,274,215 9,475,882 3,045,361
------------------------------ ----------------------------
Accumulation units end of year................................. 17,371,407 3,370,441 20,041,920 4,174,369
============================== ============================
<CAPTION>
DECEMBER 31: DECEMBER 31:
------------------------------ ----------------------------
1997 1996 1997 1996
------------------------------ ----------------------------
<S> <C> <C> <C> <C>
Accumulation unit value........................................ $ 1.176649 $ 1.047595 $ 1.178938 $ 1.048470
------------------------------ ----------------------------
Annuity unit value assuming a 3.5% discount factor............. $ 1.117400 $ 1.029630 $ 1.119575 $ 1.030490
============================== ============================
</TABLE>
* For the period from July 1, 1996 to December 31, 1996.
SEE NOTES TO FINANCIAL STATEMENTS.
<PAGE> 423
================================================================================
SEPARATE ACCOUNT A 21
================================================================================
<TABLE>
<CAPTION>
AGSPC
MONEY MARKET FUND
- ------------------------------------------------------------
DIVISION 2 DIVISION 6
- ---------------------------- ----------------------------
1997 1996 1997 1996
- ---------------------------- ----------------------------
<S> <C> <C> <C>
$ 188,513 $ 216,537 $ 5,293,164 $ 3,525,805
-- -- -- --
-- -- -- --
-- -- -- --
- ---------------------------- ----------------------------
188,513 216,537 5,293,164 3,525,805
- ---------------------------- ----------------------------
123,738 163,293 58,442,609 40,448,483
(277,223) (465,203) (16,317,039) (13,617,200)
-- -- (1,592) (1,584)
(334,772) (1,426,148) (27,271,186) 10,145,727
- ---------------------------- ----------------------------
(488,257) (1,728,058) 14,852,792 36,975,426
- ---------------------------- ----------------------------
(299,744) (1,511,521) 20,145,956 40,501,231
4,879,501 6,391,022 120,758,626 80,257,395
- ---------------------------- ----------------------------
$ 4,579,757 $ 4,879,501 $ 140,904,582 $120,758,626
============================ ============================
2,142,534 2,917,361 75,124,095 51,907,757
53,405 73,255 35,256,772 25,572,924
(119,264) (208,252) (10,205,685) (8,565,366)
(145,236) (639,830) (15,992,661) 6,208,780
- ---------------------------- ----------------------------
1,931,439 2,142,534 84,182,521 75,124,095
============================ ============================
<CAPTION>
DECEMBER 31: DECEMBER 31:
- ---------------------------- ----------------------------
1997 1996 1997 1996
- ---------------------------- ----------------------------
<S> <C> <C> <C>
$ 2.371163 $ 2.277444 $ 1.673590 $ 1.607212
- ---------------------------- ----------------------------
$ 1.407542 $ 1.399179 $ 1.099730 $ 1.093041
============================ ============================
</TABLE>
<PAGE> 424
================================================================================
22 NOTES TO FINANCIAL STATEMENTS
================================================================================
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 Asset Allocation Fund (formerly 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)
American Century - 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 assumed investment rates between 3.0% and 6.0%,
as regulated by the applicable state laws.
<PAGE> 425
================================================================================
SEPARATE ACCOUNT A 23
================================================================================
NOTE C -- TRANSACTIONS WITH AFFILIATES
VALIC serves as investment adviser, transfer agent, and accounting services
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 21, 26 through 30 and
Division 32, 0.25%; for Division 31, 0.20% (effective December 8, 1997 the
expense reduction for Division 31 became 0.20% on the first $75,000,000, and
0.25% on the excess over $75,000,000); for Division 18, 0.15% (commencing
July 1, 1997).
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, 1997 and December 31, 1996, VALIC reduced expenses of
Division 10B by $85,996 and $73,695, 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 $4,510,903 and $3,625,368 for the years ended December
31, 1997, and December 31, 1996, respectively.
VALIC received surrender charges of $2,769,370 and $1,998,356 for the years
ended December 31, 1997 and December 31, 1996, respectively. In addition, VALIC
received $63,727 and $7,426 for the year ended December 31, 1997, in sales load
on variable annuity purchase payments for Divisions 10A and 10B, respectively.
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.
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, 1997:
<TABLE>
<CAPTION>
UNREALIZED
MARKET APPRECIATION
UNDERLYING FUND DIVISION SHARES PRICE MARKET COST (DEPRECIATION)
- ----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
AGSPC International Equities Fund........ 11 14,442,247 $ 10.56 $ 152,510,209 $ 159,616,851 (7,106,642)
Putnam Global Growth Fund................ 28 5,907,316 9.96 58,836,553 66,932,273 (8,095,720)
Templeton Foreign Fund................... 32 18,158,539 9.95 180,677,558 195,842,767 (15,165,209)
Templeton International Fund............. 20 36,240,937 20.18 731,342,182 597,457,072 133,885,110
AGSPC Science & Technology Fund.......... 17 45,443,952 20.05 911,151,116 863,149,718 48,001,398
AGSPC Small Cap Index Fund............... 14 13,430,059 17.18 230,728,350 186,936,772 43,791,578
Dreyfus Small Cap Portfolio.............. 18 14,882,781 57.14 850,402,328 690,666,534 159,735,794
Putnam New Opportunities Fund............ 26 3,383,421 48.65 164,603,317 147,777,228 16,826,089
Putnam OTC & Emerging Growth Fund........ 27 6,050,956 16.11 97,480,884 93,189,180 4,291,704
AGSPC Growth Fund........................ 15 46,551,005 20.22 941,261,746 711,090,283 230,171,463
AGSPC MidCap Index Fund.................. 4 31,073,774 23.51 730,544,269 505,009,548 225,534,721
American Century - Twentieth Century
Ultra Fund............................ 31 4,523,746 27.30 123,498,148 140,484,856 (16,986,708)
Founders Growth Fund..................... 30 9,845,834 17.28 170,135,993 178,299,584 (8,163,591)
AGSPC Growth & Income Fund............... 16 13,572,839 18.93 256,933,935 190,630,650 66,303,285
AGSPC Social Awareness Fund.............. 12 12,327,131 19.75 243,460,767 197,838,989 45,621,778
AGSPC Stock Index Fund................... 10A,B,C,D 96,544,410 29.70 2,867,368,593 1,632,114,793 1,235,253,800
Neuberger&Berman Guardian Trust.......... 29 2,673,859 17.30 46,258,362 47,484,648 (1,226,286)
Scudder Growth and Income Fund........... 21 4,944,060 27.33 135,121,244 131,032,815 4,088,429
Vanguard/Windsor II...................... 24 9,612,687 28.62 275,114,738 259,221,228 15,893,510
Templeton Asset Allocation Fund.......... 19 14,174,679 22.35 316,804,111 272,387,404 44,416,707
AGSPC Asset Allocation Fund.............. 5 14,166,349 13.02 184,445,969 161,483,128 22,962,841
Vanguard/Wellington Fund................. 25 5,288,776 29.45 155,754,286 152,199,967 3,554,319
AGSPC Intl Government Bond Fund.......... 13 14,931,704 11.13 166,189,923 177,006,856 (10,816,933)
AGSPC Capital Conservation Fund.......... 1 & 7 6,430,166 9.61 61,793,877 60,854,930 938,947
AGSPC Government Securities Fund......... 8 8,785,778 10.04 88,209,203 86,589,002 1,620,201
Vanguard Fixed Income Securities Fund:
Long-Term Corporate Portfolio......... 22 2,205,013 9.26 20,418,430 19,786,709 631,721
Long-Term U.S. Treasury Portfolio .... 23 2,249,389 10.64 23,933,498 22,833,059 1,100,439
AGSPC Money Market Fund.................. 2 & 6 139,186,616 1.00 139,186,616 139,186,616 -
10,324,166,205 8,087,103,460 2,237,062,745
</TABLE>
<PAGE> 426
================================================================================
24 NOTES TO FINANCIAL STATEMENTS - continued
================================================================================
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, 1997, the aggregate cost of purchases and
proceeds from sales of investments were:
<TABLE>
<CAPTION>
PURCHASES SALES
---------------------------------
<S> <C> <C>
AGSPC International Equities Fund Division 11 ................ $ 86,790,464 $ 122,541,754
Putnam Global Growth Fund Division 28 ........................ 50,459,460 1,699,287
Templeton Foreign Fund Division 32 ........................... 160,310,836 2,593,318
Templeton International Fund Division 20 ..................... 218,671,212 74,944,745
AGSPC Science & Technology Fund Division 17 .................. 258,533,591 72,590,864
AGSPC Small Cap Index Fund Division 14 ....................... 52,449,672 26,841,519
Dreyfus Small Cap Portfolio Division 18 ...................... 157,428,080 31,479,333
Putnam New Opportunities Fund Division 26 .................... 98,274,415 2,172,704
Putnam OTC & Emerging Growth Fund Division 27 ................ 49,539,022 4,465,936
AGSPC Growth Fund Division 15 ................................ 181,937,002 13,277,956
AGSPC MidCap Index Fund Division 4 ........................... 85,646,062 49,680,500
American Century - Twentieth Century Ultra Fund Division 31 .. 123,895,156 1,646,296
Founders Growth Fund Division 30 ............................. 146,266,635 1,807,870
AGSPC Growth & Income Fund Division 16 ....................... 51,440,343 7,278,659
AGSPC Social Awareness Fund Division 12 ...................... 107,158,295 2,998,054
AGSPC Stock Index Fund:
Division 10A .............................................. 21,747,453 42,886,487
Division 10B .............................................. 1,302,470 4,114,905
Division 10C .............................................. 322,262,616 37,384,769
Division 10D .............................................. 2,169,786 7,370,870
Neuberger&Berman Guardian Trust Division 29 .................. 40,109,321 1,827,836
Scudder Growth and Income Fund Division 21 ................... 113,908,912 1,386,588
Vanguard/Windsor II Division 24 .............................. 219,813,022 2,987,200
Templeton Asset Allocation Fund Division 19 .................. 112,031,546 3,848,099
AGSPC Asset Allocation Fund Division 5 ....................... 19,398,830 28,526,541
Vanguard/Wellington Fund Division 25 ......................... 132,887,405 6,870,260
AGSPC International Government Bond Fund Division 13 ......... 54,824,769 51,676,974
AGSPC Capital Conservation Fund:
Division 1 ................................................ 696,514 886,751
Division 7 ................................................ 10,599,204 11,407,082
AGSPC Government Securities Fund Division 8 .................. 14,228,467 13,735,066
Vanguard Fixed Income Securities Fund:
Long-Term Corporate Portfolio Division 22 ................. 17,995,829 1,785,593
Long-Term U.S. Treasury Portfolio Division 23 ............. 20,859,345 2,676,268
AGSPC Money Market Fund:
Division 2 ................................................ 2,451,062 2,794,492
Division 6 ................................................ 315,474,364 301,193,083
---------------------------------
Total .................................................. $3,251,561,160 $ 939,377,659
=================================
</TABLE>
NOTE G -- YEAR 2000 (UNAUDITED)
VALIC is in the process of modifying its information technology to be ready
for the year 2000. VALIC expects the project to be substantially complete by
late 1998. All costs associated with required modifications will be paid for by
VALIC.
<PAGE> 427
================================================================================
REPORT OF INDEPENDENT AUDITORS 25
================================================================================
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, 1997. 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 have audited the statements of changes in
net assets for the year ended December 31, 1997 and 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, 1997, 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, 1997, 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
February 6, 1998
<PAGE> 428
THE VARIABLE ANNUITY LIFE INSURANCE COMPANY
SEPARATE ACCOUNT A
CONTRACT FORM
PORTFOLIO DIRECTOR AND
PORTFOLIO DIRECTOR 2
PART C. OTHER INFORMATION
ITEM 24. FINANCIAL STATEMENTS AND EXHIBITS
(a) Financial Statements
Filed with Part A:
Selected Purchase Unit Data for each Fund for the last ten years or
since inception
Filed with Part B:
(i) Audited Financial Statements
The Variable Annuity Life Insurance Company
Report of Independent Auditors
Consolidated Balance Sheets
Consolidated Statements of Income
Consolidated Statements of Changes in Stockholder Equity
Consolidated Statements of Cash Flows
Notes to Consolidated Financial Statements
(ii) Audited Financial Statements
The Variable Annuity Life Insurance Company Separate Account A --
Statement of Net Assets
Statement of Operations
Statements of Changes in Net Assets
Notes to Financial Statements
Report of Independent Auditors
All other schedules for which provision is made in the applicable
accounting regulation of the Securities and Exchange Commission are not
required under the related instructions, are inapplicable, or the related
information is included in the financial statements and therefore such
schedules have been omitted.
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(b) Exhibits
<TABLE>
<C> <S>
1. -- Resolutions adopted by The Variable Annuity Life
Insurance Company Board of Directors at its Annual
Meeting of April 18, 1979 establishing The Variable
Annuity Life Insurance Company Separate Account A,
incorporated herein by reference to Post-Effective
Statement No. 5 filed with the Securities and Exchange
Commission ("SEC") on March 1, 1996 (File No.
33-75292/811-3240)
2. -- Not Applicable.
3. -- Underwriting Agreement between The Variable Annuity Life
Insurance Company, The Variable Annuity Life Insurance
Company Separate Account A and The Variable Annuity
Marketing Company, incorporated herein by reference to
Post-Effective Amendment No. 5 filed with the SEC on
March 1, 1996 (File No. 33-75292/811-3240).
4(a). -- Specimen Individual Annuity Contract. (Form UIT-194),
incorporated herein by reference to Post-Effective
Amendment No. 5 filed with the SEC on March 1, 1996 (File
No. 33-75292/811-3240).
4(b)(i). -- Specimen Group Annuity Contract. (Form UITG-194),
incorporated herein by reference to Post-Effective
Amendment No. 5 filed with the SEC on March 1, 1996 (File
No. 33-75292/811-3240).
4(b)(ii). -- Specimen Individual Non-Qualified Annuity Contract. (Form
UITN-194), incorporated herein by reference to
Post-Effective Amendment No. 5 filed with the SEC on
March 1, 1996 (File No. 33-75292/811-3240).
4(b)(iii). -- Specimen Certificate of Participation under Group Annuity
Contract. (Form UITG-194P), incorporated herein by
reference to Post-Effective Amendment No. 5 filed with
the SEC on March 1, 1996 (File No. 33-75292/811-3240).
4(b)(iv). -- Specimen Individual Retirement Account Annuity Contract.
(Form UIT-IRA-194), incorporated herein by reference to
Post-Effective Amendment No. 5 filed with the SEC on
March 1, 1996 (File No. 33-75292/811-3240).
4(b)(v). -- Specimen Simplified Employee Pension Contract (Form
UIT-SEP-194), incorporated herein by reference to
Post-Effective Amendment No. 5 filed with the SEC on
March 1, 1996 (File No. 33-75292/811-3240).
4(b)(vi). -- Specimen Endorsement to Group Annuity Contract or
Certificate of Participation under Group Annuity
Contract. (Form UITG-194-RSAC), effective upon issu-
ance; incorporated herein by reference to Post-Effective
Amendment. No. 11 filed with the SEC on December 23, 1997
(File No. 33-75292/811-3240).
5(a)(i). -- Specimen Application for Portfolio Director/Portfolio
Director 2 Fixed and Variable Annuity for use with all
plan types except Individual Retirement Annuities (IRA),
Simplified Employee Pension Plan (SEP), and Non-Qualified
Deferred Annuities (NQDA).
5(a)(ii). -- Specimen Application for Portfolio Director/Portfolio
Director 2 Fixed and Variable Annuity for use with
Individual Retirement Annuities (IRA), Simplified
Employee Pension Plans (SEP), and Non-Qualified Deferred
Annuities (NQDA).
5(b). -- Specimen Group Master Application, incorporated herein by
reference to Post-Effective Amendment No. 5 filed with
the SEC on March 1, 1996 (File No. 33-75292/811-3240).
6(a). -- Copy of Amended and Restated Articles of Incorporation of
The Variable Annuity Life Insurance Company, incorporated
herein by reference to Post-Effective Amendment No. 5
filed with the SEC on March 1, 1996 (File No.
33-75292/811-3240).
</TABLE>
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<TABLE>
<C> <S>
6(b). -- Copy of Amendment Number One to Amended and Restated Articles of Incorporation of The
Variable Annuity Life Insurance Company (as amended through April 28, 1989) effective
March 28, 1990, incorporated herein by reference to Post- Effective Amendment No. 5
filed with the SEC on March 1, 1996 (File No. 33-75922/811-3240).
6(c). -- Copy of Amended and Restated Bylaws of The Variable Annuity Life Insurance Company as
amended through March 4, 1992; incorporated herein by reference to Post-Effective
Amendment No. 11 filed with the SEC on December 23, 1997 (File No. 33-75292/811-3240).
7. -- Not Applicable.
8(a). -- Participation Agreement between The Variable Annuity Life Insurance Company and
Templeton Variable Products Series Fund, incorporated herein by reference to
Post-Effective Amendment No. 5 filed with the SEC on March 1, 1996 (File No.
33-75292/811-3240).
8(b). -- (1) Participation Agreement between The Variable Annuity Life Insurance Company and
Dreyfus Variable Investment Fund, incorporated herein by reference to Post-Effective
Amendment No. 5 filed with the SEC on March 1, 1994 (File No. 33-75292/811-3420).
(2) Agreement between The Variable Annuity Life Insurance Company and The Dreyfus
Corporation dated July 1, 1997.
8(c). -- (1) Order Transmission Agreement between The Variable Annuity Life Insurance Company
and Scudder Service Corporation, incorporated herein by reference to Post-Effective
Amendment No. 8 filed with the SEC on June 28, 1996 (File No. 33-75292/811-3240).
(2) Amendment to Order Transmission Agreement between The Variable Annuity Life Insurance
Company and Scudder Service Corporation, effective July 1, 1997, incorporated herein by
reference to Post-Effective Amendment No. 11 filed with the SEC on December 23, 1997
(File No. 33-75292/811-3240).
8(d). -- (1) Fund Participation Agreement between The Variable Annuity Life Insurance Company
and Putnam Mutual Funds Corp., incorporated herein by reference to Post-Effective
Amendment No. 8 filed with the SEC on June 28, 1996 (File No. 33-75292/811-3240).
(2) Amendment No. 1 to Fund Participation Agreement between The Variable Annuity Life
Insurance Company and Putnam Mutual Funds Corp., effective August 18, 1997;
incorporated herein by reference to Post-Effective Amendment No. 11 filed with the SEC
on December 23, 1997 (File No. 33-75292/811-3240).
8(e). -- (1) Fund Participation Agreement between The Variable Annuity Life Insurance Company
and Twentieth Century Investors Inc., incorporated herein by reference to
Post-Effective Amendment No. 8 filed with the SEC on June 28, 1996 (File No.
33-75292/811-3240).
(2) Amendment No. 1 to Fund Participation Agreement between The Variable Annuity Life
Insurance Company and American Century Mutual Funds, Inc. and American Century
Investment Management, Inc., effective December 8, 1997; incorporated herein by
reference to Post-Effective Amendment No. 11 filed with the SEC on December 23, 1997
(File No. 33-75292/811-3240).
8(f). -- (1) Participation Agreement between The Variable Annuity Life Insurance Company and
Founders Growth Fund Inc., incorporated herein by reference to Post-Effective Amendment
No. 8 filed with the SEC on June 28, 1996 (File No. 33-75292/811-3240).
</TABLE>
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<TABLE>
<C> <S>
(2) Consent to Assignment between The Variable Annuity Life
Insurance Company and Premier Mutual Fund Services, Inc.
dated April 1, 1998.
8(g). -- Master Shareholder Services Agreement between The
Variable Annuity Life Insurance Company and Franklin
Templeton Group of Funds, incorporated herein by
reference to Post-Effective Amendment No. 8 filed with
the SEC on June 28, 1996 (File No. 33-75292/811-3240).
8(h). -- Participation Agreement between The Variable Annuity Life
Insurance Company and Vanguard Group, Inc., incorporated
herein by reference to Post-Effective Amendment No. 8
filed with the SEC on June 28, 1996 (File No.
33-75292/811-3240).
8(i). -- Agreement between The Variable Annuity Life Insurance
Company and Neuberger & Berman Management Inc., incorporated
herein by reference to Post-Effective Amendment No. 8 filed
with the SEC on June 28, 1996 (File No. 33-75292/811-3240).
9. -- Written Consent and Opinion of Cynthia A. Toles, Senior
Associate General Counsel and Secretary.
10. -- Consent of Independent Auditors.
11. -- Not Applicable.
12. -- Not Applicable.
13. -- Calculation of standard and nonstandard performance
information; incorporated herein by reference to
Post-Effective Amendment No. 11 filed with the SEC on
December 23, 1997 (File No. 33-75292/811-3240).
14. -- Not Applicable.
15. -- Supplemental Information Form which discloses Section
403(b)(11) withdrawal restrictions as set forth in a
no-action letter issued by the SEC on November 28, 1988,
and which requires the signed acknowledgement of
participants who purchase Section 403(b) annuities with
regard to these withdrawal restrictions.
16(a). -- Copies of manually signed powers of attorney for The
Variable Annuity Life Insurance Company Directors Robert
M. Devlin and Joe C. Osborne, incorporated herein by
reference to Post-Effective Amendment No. 5 filed with
the SEC on March 1, 1996 (File No. 33-75292/811-3240).
16(b). -- Copy of manually signed power of attorney for The
Variable Annuity Life Insurance Company Director Craig R.
Rodby; incorporated herein by reference to Post-
Effective Amendment No. 11 filed with the SEC on December
23, 1997 (File No. 33-75292/811-3240).
16(c). -- Copy of manually signed power of attorney for The
Variable Annuity Life Insurance Company Director James S.
D'Agostino, Jr.; incorporated herein by reference to
Post-Effective Amendment No. 11 filed with the SEC on
December 23, 1997 (File No. 33-75292/811-3240).
16(d). -- Copy of manually signed power of attorney for The
Variable Annuity Life Insurance Company Director Jon P.
Newton incorporated herein by reference to Post-
Effective Amendment No. 6 filed with the SEC on April 19,
1996 (File No. 33-75292/811-3240).
16(e). -- Copy of manually signed powers of attorney for The
Variable Annuity Life Insurance Company Directors Brent
C. Nelson, Thomas L. West, Jr., Bruce R. Abrams, Michael
G. Atnip, John A. Graf, Patrick E. Grady and Richard W.
Scott.
</TABLE>
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ITEM 25. DIRECTORS AND OFFICERS OF THE DEPOSITOR
The directors and principal officers of the Company are set forth below,
together with their current principal occupations including any position with
American General Corporation ("AGC"), the indirect parent of The Variable
Annuity Life Insurance Company ("VALIC"), the depositor of the Registrant, and
The Variable Annuity Marketing Company ("VAMCO"), the principal underwriter of
the Contracts issued through the Registrant. The business address of each
officer and director is 2929 Allen Parkway, Houston, Texas 77019.
<TABLE>
<CAPTION>
NAMES AND PRINCIPAL
BUSINESS ADDRESS POSITIONS AND OFFICES HELD WITH DEPOSITOR
------------------- -----------------------------------------
<S> <C>
James S. D'Agostino, Jr................ Senior Chairman of the Board of Directors, VALIC.
Director and President, American General Corporation.
Thomas L. West, Jr..................... Chairman and Chief Executive Officer, VALIC.
Chairman of the Board of Directors, VAMCO.
Jon P. Newton.......................... Vice Chairman of the Board of Directors, VALIC. Vice
Chairman of the Board of Directors, American General
Corporation.
Craig R. Rodby......................... Vice Chairman of the Board of Directors and Chief
Financial Officer, VALIC.
John A. Graf........................... Director and President, VALIC.
Robert M. Devlin....................... Director, VALIC.
Chairman of the Board of Directors and Chief Executive
Officer, American General Corporation.
Bruce R. Abrams........................ Director and Executive Vice President -- Marketing, VALIC.
Michael G. Atnip....................... Director and Executive Vice President -- Administration
and Information Systems, VALIC.
Joe C. Osborne......................... Director and Executive Vice President -- Marketing, VALIC.
Director and President, VAMCO.
Patrick E. Grady....................... Director, Senior Vice President and Treasurer, VALIC.
Brent C. Nelson........................ Director, Senior Vice President and Controller, VALIC.
Richard W. Scott....................... Director, Vice President and Chief Investment Officer,
VALIC.
Executive Vice President and Chief Investment Officer,
American General Corporation.
Dwight L. Cramer, II................... Senior Vice President -- Specialty Markets, VALIC.
Stephen G. Kellison.................... Senior Vice President and Chief Actuary, VALIC.
Charles D. Robinson.................... Senior Vice President -- Institutional Marketing, VALIC.
Donald L. Sharps....................... Senior Vice President -- Systems, VALIC.
Harry N. Bragg......................... Vice President -- Strategic Systems, VALIC.
J. David Crank......................... Vice President -- Group Plan Administration, VALIC.
Norman Jaskol.......................... Vice President and Managing Director -- Investments,
VALIC.
Jack L. Rochelle....................... Vice President -- Information Technology Services, VALIC.
Phillip W. Schraub..................... Vice President -- Customer Service, VALIC.
Conway R. Shaw......................... Vice President -- Group Marketing, VALIC.
Norman A. Skinrood, Jr................. Vice President -- Strategic Projects, VALIC.
Cynthia A. Toles....................... Vice President and Secretary, VALIC.
Director, Secretary and Assistant Treasurer, VAMCO.
William C. Vetterling.................. Vice President -- Sales Administration, VALIC.
</TABLE>
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<TABLE>
<CAPTION>
NAMES AND PRINCIPAL
BUSINESS ADDRESS POSITIONS AND OFFICES HELD WITH DEPOSITOR
------------------- -----------------------------------------
<S> <C>
Garry B. Watts......................... Vice President -- Independent Agents/Brokers.
William A. Wilson...................... Vice President -- Government Affairs, VALIC.
Jane E. Bates.......................... Chief Compliance Officer, VALIC.
Treasurer and Chief Compliance Officer, VAMCO.
D. Lynne Walters....................... Tax Officer, VALIC.
Tax Officer, VAMCO.
Vice President -- Taxes, American General Corporation.
</TABLE>
ITEM 26. PERSON CONTROLLED BY OR UNDER COMMON CONTROL WITH THE DEPOSITOR OR
REGISTRANT
No person is controlled by the Registrant. The Registrant is a segregated
asset account of the Company ("Depositor") established in accordance with the
Texas Insurance Code. The Registrant supports benefits payable under the
Portfolio Director Variable Annuity Contracts investing in American General
Series Portfolio Company (the "Series Company"), the Templeton Asset Allocation
Fund and Templeton International Fund (each a separate series of Templeton
Variable Products Series Fund), and Small Cap Portfolio of the Dreyfus Variable
Investment Fund. The Registrant votes Series Company shares and shares held in
Templeton Variable Products Series Fund and Dreyfus Variable Investment Fund
only as directed by the contract owner. (See "Voting Rights" in the Prospectus
for these Contracts.)
The Registrant also supports benefits payable under the Portfolio Director
2 Variable Annuity Contracts investing in American General Series Portfolio
Company (the "Series Company"); American Century Investment Management, Inc.,
American Century -- Twentieth Century Ultra Fund; Founders Funds, Inc., Founders
Growth Fund; Neuberger&Berman Management, Inc., Neuberger&Berman Guardian Trust;
Putnam Investments; Putnam Global Growth Fund, New Opportunities Fund, and OTC &
Emerging Growth Fund; Scudder, Kemper Investments, Inc., Scudder Growth and
Income Fund; Templeton Funds, Inc., Templeton Foreign Fund, and The Vanguard
Group, Inc., Vanguard Fixed Income Securities Fund -- Long-Term Corporate
Portfolio, Vanguard Fixed Income Securities Fund -- Long-Term U.S. Treasury
Portfolio, Vanguard/Wellington Fund and Vanguard/Windsor II. The Registrant
votes shares held in the above Funds only as directed by the contract owner.
(See "Voting Rights" in the Prospectus for these Contracts.)
The Depositor is indirectly wholly-owned by AGC (formerly American General
Insurance Company.) Therefore, the Depositor and various companies affiliated
with the Depositor may be deemed to be under common control with the Registrant.
These companies, together with their state of incorporation and the identity of
the owners of their common stock, are set forth in an exhibit entitled,
"Subsidiaries of American General Corporation," of the Form 10-K of AGC filed
for the year ended December 31, 1997 (File No. 1-7981), which is incorporated
herein by reference.
ITEM 27. NUMBER OF CONTRACT OWNERS
As of March 31, 1998, a date within 90 days prior to the date of filing,
there were 207,698 individual Contract Owners, 3,743 group Contract Owners of
the qualified Contracts, offered by the Portfolio Director prospectus of the
Registrant, and 15,608 individual Contract Owners and 12 group Contract Owners
of the non-qualified Contracts offered by the Portfolio Director prospectus. As
of a date within 90 days prior to the date of filing, there were 145,059
individual Contract Owners, 3,639 group Contract Owners of the qualified
Contracts, offered by the Portfolio Director 2 prospectus of the Registrant, and
0 individual Contract Owners and 0 group Contract Owners of the non-qualified
Contracts offered by the Portfolio Director 2 prospectus. The Registrant issues
different contracts through other Registration Statements.
ITEM 28. INDEMNIFICATION
Set forth below is a summary of the general effect of applicable provisions
of the Depositor's Bylaws regarding indemnification of, and advancement of legal
expenses to, the Depositor's officers, directors and employees (collectively,
"Indemnitees").
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The Depositor shall indemnify any Indemnitee who was or is a named
defendant or respondent or is threatened to be made a party to any threatened,
pending or completed action, suit or proceeding, whether civil, criminal,
administrative, arbitrative, or investigative (including any action by or in the
right of the Depositor), or any appeal of such action, suit or proceeding and
any inquiry or investigation that could lead to such an action, suit or
proceeding, by reason of the fact that the Indemnitee is or was a director, or
officer or employee of the Depositor, or is or was serving at the request of the
Depositor as a director, officer, partner, venturer, proprietor, trustee,
employee, or similar functionary of another foreign or domestic corporation or
nonprofit corporation, partnership, joint venture, sole proprietorship, trust,
employee benefit plan or other enterprise, against judgments, penalties
(including excise and similar taxes), fines, amounts paid in settlement, and
reasonable expenses (including court costs and attorneys' fees) actually
incurred by him in connection with such action, suit or proceeding, if
Indemnitee acted in good faith and in a manner he reasonably believed, (i) in
the case of conduct in his official capacity as a director of the Depositor, to
be in the best interests of the Depositor and (ii) in all other cases, to be not
opposed to the best interests of the Depositor; and, with respect to any
criminal action or proceeding, if Indemnitee had no reasonable cause to believe
his conduct was unlawful; provided, however that in the case of any threatened,
pending or completed action, suit or proceeding by or in the right of the
Depositor, the indemnity shall be limited to reasonable expenses (including
court costs and attorneys' fees) actually incurred in connection with such
action, suit or proceeding; and no indemnification shall be made in respect of
any claim, issue or matter as to which such person shall have been adjudged to
be liable to the Depositor or liable on the basis that personal benefit was
improperly received by him, whether or not the benefit resulted from an action
taken in the person's official capacity as a director or officer. The
termination of any action, suit or proceeding by judgment, order, settlement, or
conviction, or on a plea of nolo contendere or its equivalent shall not, of
itself, create a presumption that the Indemnitee did not act in good faith and
in a manner which Indemnitee reasonably believed to be in the best interests of
the Depositor; and, with respect to any criminal action or proceeding, shall not
create a presumption that the person had reasonable cause to believe that his
conduct was unlawful.
Where an Indemnitee of the Depositor or other person entitled to indemnity
hereunder has been wholly successful, on the merits or otherwise, in defense of
any such action, suit or proceeding, Indemnitee shall be indemnified against
reasonable expenses (including court costs and attorneys' fees) actually
incurred by him in connection therewith.
Any indemnification (unless otherwise ordered by a court of competent
jurisdiction) shall be made by the Depositor only as authorized in a specific
case upon a determination that the applicable standard of conduct has been met.
Such determination shall be made (i) by the Board of Directors by a majority
vote of a quorum consisting of directors who at the time of the vote have not
been named as defendants or respondents in such action, suit or proceeding, or
(ii) if such a quorum cannot be obtained, by a majority vote of a committee of
the Board of Directors, designated to act in the matter by a majority vote of
all directors, consisting solely of two or more directors who at the time of the
vote are not named defendants or respondents in such action, suit or proceeding,
or (iii) by special legal counsel selected by the Board of Directors (or a
committee thereof) by vote in the manner set forth in subparagraphs (i) and (ii)
immediately above or if such a quorum cannot be obtained and such a committee
cannot be established, by a majority vote of all directors, or (iv) by the
shareholders in a vote that excludes the shares held by any Indemnitee who is
named as a defendant or respondent in such action, suit or proceeding.
Reasonable expenses incurred by an Indemnitee of the Depositor or other
person entitled to indemnity hereunder, who was, is or is threatened to be made
a named defendant or respondent in any such action, suit or proceeding described
above may be paid by the Depositor in advance of the final disposition thereof
upon (i) receipt of a written affirmation by the Indemnitee of his good faith
belief that he has met the standard of conduct necessary for indemnification
under this article and a written undertaking by or on behalf of the Indemnitee
to repay such amount unless it shall ultimately be determined that he is
entitled to be indemnified by the Depositor as authorized under this article and
(ii) a determination that the facts then known to those making the determination
would not preclude indemnification under this article.
Notwithstanding any other provision of this article, the Depositor may pay
or reimburse expenses incurred by any Indemnitee of the Depositor or any other
person entitled to indemnity hereunder in
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connection with his appearance as a witness or other participation in any
action, suit or a proceeding described above at a time when he is not named
defendant or respondent in such action, suit or proceeding.
Insofar as indemnification for liabilities arising under the Securities Act
of 1933, as amended, may be permitted to directors, officers and controlling
persons of the Registrant, as provided above or otherwise, the Registrant has
been advised that in the opinion of the Securities and Exchange Commission such
indemnification by the Depositor is against public policy, as expressed in the
Act, and therefore may be unenforceable. In the event (a) that a claim for such
indemnification (except insofar as it provides for the payment by the Depositor
of expenses incurred or paid by a director, officer or controlling person in the
successful defense of any action, suit or proceeding) is asserted against the
Depositor by such director, officer or controlling person; and (b) the
Securities and Exchange Commission is still of the same opinion that the
Depositor or Registrant will, unless in the opinion of its counsel the matter
has been settled by controlling precedent, submit such cause to a court of
appropriate jurisdiction, the question of whether such indemnification by the
Depositor is against public policy as expressed in the Act will be governed by
the final adjudication of such issue.
ITEM 29. PRINCIPAL UNDERWRITERS
(a) VAMCO acts as exclusive distributor and principal underwriter of the
Registrant and as principal underwriter for the Series Company, a registered
investment company.
(b) The following information is furnished with respect to each officer and
director of VAMCO:
<TABLE>
<CAPTION>
NAME AND PRINCIPAL POSITIONS AND OFFICES
BUSINESS ADDRESS WITH VAMCO
---------------- ----------
<S> <C>
Thomas L. West, Jr.(1)................... Chairman of the Board of Directors
Joe C. Osborne(1)........................ Director and President
Cynthia A. Toles(1)...................... Director, Secretary and Assistant
Treasurer
Jane E. Bates(1)......................... Treasurer and Chief Compliance Officer
D. Lynne Walters(1)...................... Tax Officer
Todd M. Adams............................ Vice President
8500 Normandale Lake Blvd.
Suite 750
Bloomington, MN 55437
F. William Scott......................... Vice President
Two Summit Park Drive
Suite 410
Independence, OH 44131
Edward K. Boero.......................... Vice President
222 South Harbor Blvd.
10th Floor
Anaheim, CA 92805
Steven P. Boero.......................... Vice President
1900 O'Farrell Street
Suite 390
San Mateo, CA 94403-1311
Joe H. Connell........................... Vice President
10851 N. Black Canyon Hwy.
Suite 700
Phoenix, AZ 85029
James J. Costello........................ Vice President
1767 Sentry Parkway West 19
Suite 300
Blue Bell, PA 19422
</TABLE>
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<TABLE>
<CAPTION>
NAME AND PRINCIPAL POSITIONS AND OFFICES
BUSINESS ADDRESS WITH VAMCO
---------------- ----------
<S> <C>
Paige T. Davis........................... Vice President
7310 Ritchie Highway
Suite 800
Glen Burnie, MD 21061
Fred Roberts............................. Vice President
100 Ashford Center North
Suite 100
Atlanta, GA 30338
Robert G. Fillmore....................... Vice President
90 Woodbridge Center Dr.
Suite 300
Woodbridge, NJ 07095
James M. Garrison........................ Vice President
Two International Plaza
Suite 601
Nashville, TN 37217
James K. Graham.......................... Vice President
1301 West Long Lake Road
Suite 340
Troy, MI 48098
James T. Griffin......................... Vice President
3535 Grandview Parkway
Suite 200
Birmingham, AL 35243
Richard R. Gumpert....................... Vice President
5400 LBJ Freeway
Suite 1340
Dallas, TX 75240
Ernest Jordan III........................ Vice President
4266 Interstate 55N
Suite 108
Jackson, MS 39211
Thomas N. Lange.......................... Vice President
10006 N. Dale Mabry Hwy.
Suite 113
Tampa, FL 33618
Alden D. Lewis........................... Vice President
1800 S.W. First Avenue
Suite 505
Portland, OR 97201
David R. Lyle............................ Vice President
University Tower
3100 Tower Blvd.
Suite 1601, Box 50
Durham, NC 27707
Sharon J. Novickas....................... Vice President
230 West Monroe
Suite 1900
Chicago, IL 60606
</TABLE>
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<TABLE>
<CAPTION>
NAME AND PRINCIPAL POSITIONS AND OFFICES
BUSINESS ADDRESS WITH VAMCO
---------------- ----------
<S> <C>
Robert A. Obester........................ Vice President
800 Gessner
Suite 1280
Houston, TX 77024
Evan Cole................................ Vice President
410 Amherst Street
Suite 250
Nashua, NH 03063
William G. Tubbs......................... Vice President
11711 N. Meridian St.
Suite 300
Carmel, IN 46032
Donald R. Van Putten..................... Vice President
165 South Union Blvd.
Suite 1050
Lakewood, CO 80228
</TABLE>
- ---------------
(1) 2929 Allen Parkway, Houston, Texas 77019
(c) VAMCO is the principal underwriter for the Registrant. The licensed
agents who sell the forms of Contract covered by this registration statement are
compensated for such sales by commissions paid by Depositor. These commissions
do not result in any charge to the Registrant or to Contract Owners,
Participants, Annuitants or Beneficiaries in addition to the charges described
in the prospectuses for the Contract.
ITEM 30. LOCATION OF ACCOUNTS AND RECORDS
The books or other documents required to be maintained by Section 31(a) of
the Investment Company Act of 1940 and the Rules promulgated thereunder will be
in the physical possession of:
The Variable Annuity Life Insurance Company
2929 Allen Parkway
Houston, Texas 77019
ITEM 31. MANAGEMENT SERVICES
There have been no management-related services provided to the Separate
Account for the last three fiscal years.
ITEM 32. UNDERTAKINGS
a. VALIC hereby commits itself, on behalf of the Contract Owners, to the
following undertakings:
1. To file a post-effective amendment to this registration statement
as frequently as necessary to ensure that the audited financial statements
in the registration statement are never more than 16 months old for so long
as payments under the variable annuity contracts may be accepted;
2. To include either (1) as part of any application to purchase a
contract offered by the prospectus, a space that an applicant can check to
request a Statement of Additional Information; or (2) a post card or
similar written communication affixed to or included in the prospectus that
the applicant can remove to send for a Statement of Additional Information;
3. To deliver any Statement of Additional Information and any
financial statements required to be made available under this form promptly
upon written or oral request.
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b. The Company hereby represents that the fees and charges deducted under
the contract, in the aggregate, are reasonable in relation to the services
rendered, the expenses expected to be incurred and the risks assumed by the
Company.
ITEM 33. WITHDRAWAL RESTRICTIONS FOR 403(B) PLANS
The Tax Reform Act of 1986 added to the Internal Revenue Code a new Section
403(b)(11) which applies to tax years beginning after December 31, 1988. This
paragraph provides that withdrawal restrictions apply to contributions made and
interest earned subsequent to December 31, 1988. Such restrictions require that
distributions not begin before age 59 1/2, separation from service, death,
disability, or hardship (only employee contributions without accrued interest
may be withdrawn in case of hardship). These withdrawal restrictions appear in
the Section "Federal Tax Matters" in either the Prospectus or the Statement of
Additional Information for Contracts of this Registration Statement.
The Company relies on a no-action letter issued by the Securities and
Exchange Commission on November 28, 1988 stating that no enforcement action
would be taken under sections 22(e), 27(c)(1), or 27(d) of the Investment
Company Act of 1940 (the "Act") if, in effect, the Company permits restrictions
on cash distributions from elective contributions to the extent necessary to
comply with Section 403(b)(11) of the Internal Revenue Code in accordance with
the following conditions:
(1) Include appropriate disclosure regarding the redemption
restrictions imposed by Section 403(b)(11) in each registration statement,
including the prospectus, used in connection with the offer of the
Contract;
(2) Include appropriate disclosure regarding the redemption
restrictions imposed by Section 403(b)(11) in any sales literature used in
connection with the offer of the Contract;
(3) Instruct sales representatives who solicit participants to
purchase the Contract specifically to being the redemption restrictions
imposed by Section 403(b)(11) to the attention of the potential
participants;
(4) Obtain from each plan participant who purchases a Section 403(b)
annuity Contract, prior to or at the time of such purchase, a signed
statement acknowledging the participant's understanding of (1) the
restrictions on redemption imposed by Section 403(b)(11), and (2) the
investment alternatives available under the employer's Section 403(b)
arrangement, to which the participant may elect to transfer his contract
value.
The Company has complied, and is complying, with the provisions of
paragraphs (1)-(4) above.
The Company relies on Rule 6c-7 of the Act which states that a registered
separate account, and any depositor of or underwriter for such account, shall be
exempt from the provisions of sections 22(e), 27(c)(1) and 27(d) of the Act with
respect to this Contract participating in this account to the extent necessary
to permit compliance with the Texas Optional Retirement Program (Program) in
accordance with the following conditions:
(a) include appropriate disclosure regarding the restrictions on
redemption imposed by the Program in each registration statement, including
the prospectus, used in connection with the Program;
(b) include appropriate disclosure regarding the restrictions on
redemption imposed by the Program in any sales literature used in
connection with the offer of this Contract to Program participants;
(c) instruct salespeople who solicit Program participants to purchase
this Contract specifically to bring the restrictions on redemption imposed
by the Program to the attention of potential Program participants;
(d) obtain from each Program participant who purchases this Contract
in connection with the Program, prior to or at the time of such purchase, a
signed statement acknowledging the restrictions on redemption imposed by
the Program.
C-11
<PAGE> 439
The Company has complied, and is complying, with the provisions of
paragraphs (a)-(d) above.
The Company relies on an order issued by the Securities and Exchange
Commission on May 19, 1993 exempting it from the provisions of section 22(e),
27(c)(1) and 27(d) of the Act with respect to this Contract participating in
this account to the extent necessary to permit compliance with the Optional
Retirement Program of the State University System of Florida ("Florida ORP") as
administered by the Division of Retirement of the Florida Department of
Management Services ("Division") in accordance with the following conditions:
(a) include appropriate disclosure regarding the restrictions on
redemption imposed by the Division in each registration statement,
including the prospectus, relating to the Contracts issued in connection
with the Florida ORP;
(b) include appropriate disclosure regarding the restrictions on
redemption imposed by the Division in any sales literature used in
connection with the offer of Contracts to Eligible Employees;
(c) instruct salespeople who solicit Eligible Employees to purchase
the Contracts specifically to bring the restrictions on redemption imposed
by the Division to the attention of the Eligible Employees;
(d) obtain from each Participant in the Florida ORP who purchases a
Contract, prior to or at the time of such purchase, a signed statement
acknowledging the Participant's understanding: (i) of the restrictions on
redemption imposed by the Division, and (ii) that other investment
alternatives are available under the Florida ORP, to which the Participant
may elect to transfer his or her Contract values.
The Company has complied, and is complying, with the provisions of
paragraphs (a)-(d) above.
C-12
<PAGE> 440
As required by the Securities Act of 1933 and the Investment Company Act of
1940, the Registrant, The Variable Annuity Life Insurance Company Separate
Account A, certifies that it meets the requirements of Securities Act Rule
485(b) for effectiveness of this Registration Statement, and has duly caused
this amendment to be signed on its behalf by the undersigned thereunto duly
authorized, and its seal to be hereunto affixed and attested, all in the City of
Houston, State of Texas, on the 27th day of April, 1998.
THE VARIABLE ANNUITY LIFE
INSURANCE COMPANY SEPARATE
ACCOUNT A
THE VARIABLE ANNUITY LIFE
INSURANCE COMPANY
<TABLE>
<S> <C>
Attest: /s/ CYNTHIA A. TOLES By: /s/ THOMAS L. WEST, JR.
---------------------------------------------- -------------------------------------------------
Cynthia A. Toles Thomas L. West, Jr.
Vice President and Secretary Chairman and Chief Executive Officer
</TABLE>
<PAGE> 441
As required by the Securities Act of 1933 and the Investment Company Act of
1940, the Depositor, The Variable Annuity Life Insurance Company, certifies that
it meets the requirements of Securities Act Rule 485(b) for effectiveness of
this Registration Statement, and has duly caused this amendment to be signed on
its behalf by the undersigned thereunto duly authorized, and its seal to be
hereunto affixed and attested, all in the City of Houston, State of Texas, on
the 27th day of April, 1998.
THE VARIABLE ANNUITY LIFE
INSURANCE COMPANY
<TABLE>
<S> <C>
Attest: /s/ CYNTHIA A. TOLES By: /s/ THOMAS L. WEST, JR.
---------------------------------------------- -------------------------------------------------
Cynthia A. Toles Thomas L. West, Jr.
Vice President and Secretary Chairman and Chief Executive Officer
</TABLE>
<PAGE> 442
Pursuant to the requirements of the Securities Act of 1933, this amendment
has been signed below by the following persons in the capacities and on the date
indicated.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
--------- ----- ----
<C> <S> <C>
/s/ THOMAS L. WEST, JR. Chairman and Chief Executive April 27, 1998
- ----------------------------------------------------- Officer
Thomas L. West, Jr.
/s/ JOHN A. GRAF President and Director April 27, 1998
- -----------------------------------------------------
John A. Graf
/s/ BRENT C. NELSON Senior Vice President, Controller April 27, 1998
- ----------------------------------------------------- and Director
Brent C. Nelson
/s/ BRENT C. NELSON Principal Accounting Officer April 27, 1998
- -----------------------------------------------------
Brent C. Nelson
** Senior Chairman of the Board of April , 1998
- ----------------------------------------------------- Directors
James S. D'Agostino, Jr.
* Vice Chairman of the Board of April , 1998
- ----------------------------------------------------- Directors
Jon P. Newton
</TABLE>
<PAGE> 443
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
--------- ----- ----
<C> <S> <C>
/s/ CRAIG R. RODBY Vice Chairman of the Board of April 27, 1998
- ----------------------------------------------------- Directors and Chief Financial
Craig R. Rodby Officer
* Executive Vice President -- April , 1998
- ----------------------------------------------------- Marketing and Director
Bruce R. Abrams
* Executive Vice President -- April , 1998
- ----------------------------------------------------- Administration and Information
Michael G. Atnip System and Director
* Executive Vice President -- April , 1998
- ----------------------------------------------------- Marketing and Director
Joe C. Osborne
* Senior Vice President, Treasurer April , 1998
- ----------------------------------------------------- and Director
Patrick E. Grady
* Vice President, Chief Investment April , 1998
- ----------------------------------------------------- Officer and Director
Richard W. Scott
* Director April , 1998
- -----------------------------------------------------
Robert M. Devlin
*By: /s/ CYNTHIA A. TOLES April 27, 1998
-----------------------------------------------
Cynthia A. Toles
Attorney-in-Fact
**By: /s/ THOMAS L. WEST, JR. April 27, 1998
------------------------------------------------
Thomas L. West, Jr.
Attorney-in-Fact
</TABLE>
<PAGE> 444
EXHIBIT INDEX
<TABLE>
<CAPTION>
SEQUENTIALLY
NUMBERED
EXHIBIT NO. PAGES
----------- ------------
<C> <S> <C>
5(a)(i). -- Specimen Application for Portfolio Director/Portfolio
Director 2 Fixed and Variable Annuity for use with all
plan types except Individual Retirement Annuities (IRA),
Simplified Employee-Pension Plans (SEP), and Non-Quali-
fied Deferred Annuities (NQDA).
5(a)(ii). -- Specimen Application for Portfolio Director/Portfolio
Director 2 Fixed and Variable Annuity for use with
Individual Retirement Annuities (IRA), Simplified
Employee Pension Plans (SEP), and Non-Qualified Deferred
Annuities (NQDA).
8(b). (2) Agreement between The Variable Annuity Life Insurance
Company and The Dreyfus Corporation dated July 1, 1997.
8(f). (2) Consent to Assignment between The Variable Annuity Life
Insurance Company and Premier Mutual Fund Services, Inc.
dated April 1, 1998.
9. -- Written Consent and Opinion of Cynthia A. Toles, Senior
Associate General Counsel and Secretary.
10. -- Consent of Independent Auditors.
15. -- Supplemental Information Form which discloses Section
403(b)(11) withdrawal restrictions as set forth in a
no-action letter issued by the SEC on November 28, 1988,
and which requires the signed acknowledgement of
participants who purchase Section 403(b) annuities with
regard to these withdrawal restrictions.
16(e). -- Copy of manually signed powers of attorney for The
Variable Annuity Life Insurance Company Directors Brent
C. Nelson, Thomas L. West, Jr., Bruce R. Abrams, Michael
G. Atnip, John A. Graf, Patrick E. Grady and Richard W.
Scott.
</TABLE>
<PAGE> 1
EXHIBIT 5(a)(i)
ANNUITY APPLICATION
PORTFOLIO DIRECTOR/PORTFOLIO DIRECTOR 2
FIXED AND VARIABLE ANNUITY
FOR USE WITH ALL PLAN TYPES EXCEPT
INDIVIDUAL RETIREMENT ANNUITIES (IRA),
SIMPLIFIED EMPLOYEE PENSION PLANS (SEP), AND
NON-QUALIFIED DEFERRED ANNUITIES (NQDA).
PLEASE PRINT CLEARLY. DUE TO THE PROCESSING USED BY VALIC, DO NOT
HIGHLIGHT ANY INFORMATION ON THIS FORM OR WRITE IN MARGINS.
[VALIC LOGO]
<PAGE> 2
ANNUITY APPLICATION [VALIC LOGO]
APPLICANT/ANNUITANT INFORMATION
SS# or Tax ID#:
-------------------------------------------------
Name:
-----------------------------------------------------------
Address:
--------------------------------------------------------
City: State: Zip:
-------------------------------- ------ ----------
Home Phone: ( ) Date of birth: / /
--- -------------------- --- --- ---
Sex: [ ] Male [ ] Female Marital Status: [ ] Married [ ] Single
EMPLOYMENT INFORMATION
Employer or Plan Name:
------------------------------------------
Date of Hire: / / Annual Salary:
--- --- ---- --------------------
Work Phone: ( )
--- ---------------------
Expected Annuity Date: / /
--- --- -----
(In the absence of an election age 75 will be used.)
CONTRIBUTION INFORMATION
<TABLE>
<S> <C>
Group #: Is there an expected Capital Transfer Rollover?
------------------- [ ] No [ ] Yes If yes, complete transfer rollover form VA 4300
</TABLE>
INVESTOR PROFILE
Investment Objectives (check one):
[ ] Safety of Principal
[ ] Retirement Income
[ ] Long-term growth
[ ] Other:
----------------------------------------------------
Occupation:
-----------------------------------------------------
Financial Situations (approximate amounts in thousands):
<TABLE>
<CAPTION>
Under $50 $50-$100 Over $100
--------- -------- ---------
<S> <C> <C> <C>
Household Income [ ] [ ] [ ]
Net Worth [ ] [ ] [ ]
Life Insurance [ ] [ ] [ ]
Dependents: Number: Age(s):
------ ----------------------
Tax Bracket: %
-----
</TABLE>
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------------------
Exclude Product Provide investment option name, division
Contribution Contribution # of Annualized Date pymt periods type number,and the percent to be allocated to each.
Source % or $ pymts amount begins from-to (choose one)(Percents must be whole numbers totaling 100%)
- ------------------- ------------ ----- ---------- --------- ------- ------------ ----------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
Periodic [ ]Portfolio __________________________ _____ _________%
-------- ------------ ----- ---------- --------- ------- Director __________________________ _____ _________%
Employee __________________________ _____ _________%
Voluntary __________________________ _____ _________%
(1) __________________________ _____ _________%
Single [ ]Portfolio __________________________ _____ _________%
Sum Director2* __________________________ _____ _________%
-------- ------------ ----- ---------- --------- -------
-------------------------------------------------------------------------------------------------------------------------
This line is for VALIC
administrative use only. Product: Plan type: Plan #: Sub Group: Account#:
------- ------- ----- ------ -----------------
- ------------------------------------------------------------------------------------------------------------------------------------
Periodic [ ]Portfolio __________________________ _____ _________%
-------- ------------ ----- ---------- --------- ------- Director __________________________ _____ _________%
Employee __________________________ _____ _________%
Mandatory __________________________ _____ _________%
or __________________________ _____ _________%
Matched Single [ ]Portfolio __________________________ _____ _________%
(2) Sum Director2* __________________________ _____ _________%
-------- ------------ ----- ---------- --------- -------
-------------------------------------------------------------------------------------------------------------------------
This line is for VALIC
administrative use only. Product: Plan type: Plan #: Sub Group: Account#:
------- ------- ----- ------ -----------------
- ------------------------------------------------------------------------------------------------------------------------------------
Periodic [ ]Portfolio __________________________ _____ _________%
-------- ------------ ----- ---------- --------- ------- Director __________________________ _____ _________%
Employer __________________________ _____ _________%
Basic __________________________ _____ _________%
(3) __________________________ _____ _________%
Single [ ]Portfolio __________________________ _____ _________%
Sum Director2* __________________________ _____ _________%
-------- ------------ ----- ---------- --------- -------
-------------------------------------------------------------------------------------------------------------------------
This line is for VALIC
administrative use only. Product: Plan type: Plan #: Sub Group: Account#:
------- ------- ----- ------ -----------------
- ------------------------------------------------------------------------------------------------------------------------------------
Periodic [ ]Portfolio __________________________ _____ _________%
-------- ------------ ----- ---------- --------- ------- Director __________________________ _____ _________%
Employer __________________________ _____ _________%
Supple- __________________________ _____ _________%
mental __________________________ _____ _________%
or Single [ ]Portfolio __________________________ _____ _________%
Matching Sum Director2* __________________________ _____ _________%
(4) -------- ------------ ----- ---------- --------- -------
-------------------------------------------------------------------------------------------------------------------------
This line is for VALIC
administrative use only. Product: Plan type: Plan #: Sub Group: Account#:
------- ------- ----- ------ -----------------
- ------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
* Portfolio Director 2 is not available under certain plan [ILLEGIBLE].
<PAGE> 3
=============================================
ANNUITY APPLICATION [VALIC LOGO]
=============================================
BENEFICIARY INFORMATION
INDICATE NAME, ADDRESS, RELATIONSHIP, DATE OF BIRTH, AND SOCIAL SECURITY/TAX
IDENTIFICATION NUMBER for any person or entity named as a beneficiary see
information and instructions page. If additional space is needed, you may use a
separate signed and dated sheet and attach it to this form.
If your plan is covered by ERISA, you are married and are naming someone other
than your spouse as your primary beneficiary, please complete the ERISA spousal
consent section.
PRIMARY BENEFICIARY
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
CONTINGENT BENEFICIARY
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
ERISA SPOUSAL CONSENT
ERISA COVERED PLANS: Your spouse must be your primary beneficiary unless
spousal consent to waive Pre-retirement Death Benefits is given. Complete the
following section if naming someone other than spouse as the primary
beneficiary.
FOR MISSING SPOUSE: I hereby affirm that I have made all reasonable attempts to
locate my spouse and have not been able to do so, and I have no reason to
believe that I will be able to do so.
- ----------------------------------------------------- -----------------------
Applicant/Annuitant's Signature Date
SPOUSAL CONSENT TO WAIVER OF PRE-RETIREMENT DEATH BENEFITS:
I, the spouse of the named applicant/annuitant, hereby consent to the
applicant/annuitant's waiver of the qualified pre-retirement survivor annuity
provided under federal law. I understand that in accordance with this waiver,
any death benefits named prior to the time annuity payments begin, shall be
paid to the beneficiary designated by the applicant/annuitant. if
applicant/annuitant is under age 35, the law requires that the spouse receive at
least 50% of the death benefit.
Name of Spouse:
-----------------------------------------------------------------
- ----------------------------------------------------- -----------------------
Spousal Signature Date
State of County of
----------------------------- -------------------------------
on this day of , 19
---------------- ------------------------------------ -------
- --------------------------------------------------------------------------------
Plan Administrator or Notary Signature (required)
REPLACEMENT
Is this a replacement of an existing annuity or life insurance contract?
[ ] No [ ] Yes If yes, complete the following:
Insured's Name:
-----------------------------------------------------------------
Policy Number(s):
---------------------------------------------------------------
Insurer's (Company) Name:
-------------------------------------------------------
APPLICANT/ANNUITANT AFFIRMATIONS AND STATEMENTS
This application is subject to acceptance by the Company at its Home Office.
Proof of age must be furnished before Annuity Payments begin. Upon written
request, we will provide you with factual information regarding the benefits
and provisions of the annuity contract for which you are applying. If you are
not satisfied with your annuity contract for any reason, you may return it
within 20 days after receipt for a refund of premium (applicable to all
individual and some group contracts). A current prospectus for the Company's
Separate account was provided with the application. Also, a current prospectus
was provided for each Fund available under this Plan. The prospectus for the
Separate account gives sales expenses and other data.
ANNUITY PAYMENTS OR SURRENDER VALUES ARE VARIABLE WHEN BASED ON THE INVESTMENT
EXPERIENCE OF THE SEPARATE ACCOUNT. THEY ARE NOT GUARANTEED AS TO DOLLAR AMOUNT.
BY SIGNING THIS FORM, I REPRESENT THAT ALL STATEMENTS AND ANSWERS MADE IN THE
APPLICATION ARE COMPLETE AND TRUE TO THE BEST OF MY KNOWLEDGE AND BELIEF. I
HEREBY ACKNOWLEDGE THAT I HAVE READ AND UNDERSTAND THE INFORMATION PROVIDED IN
THE INFORMATION AND INSTRUCTIONS PAGE ON THE FOLLOWING SUBJECTS:
o FRAUD WARNINGS
o TEXAS OPTIONAL RETIREMENT PROGRAM (IF APPLICABLE)
o SALARY REDUCTION AGREEMENT FOR 403(b) and 401(k) PLANS
o WITHDRAWAL RESTRICTIONS FOR 403(b) PLANS
[ ] Check if you own or participate in another VALIC Annuity Contract.
- --------------------------------------------------------------------------------
Applicant/Annuitant's Signature
Dated at , date , 19
----------------------------- ------------------------- -----
REPRESENTATIVE OF RECORD
No.: Issue State (Abv):
--------------------------------- ------------------------
Region Code:
-------------------------
As representative I [ ] do [ ] do not have reason to believe that replacement
of existing life insurance or annuity may be involved.
- --------------------------------------------------------------------------------
Licensed Agent/Registered Representative Signature
State License ID No.:
-----------------------------------------------------------
- ----------------------------------------------------- -----------------------
Principal Approval Date
Date of Input:
---------------------------------------
Week Ending:
-----------------------------------------
<PAGE> 4
INFORMATION AND INSTRUCTIONS
FRAUD WARNING
IN SOME STATES WE ARE REQUIRED TO ADVISE YOU OF THE FOLLOWING: Any person who
knowingly intends to defraud or facilitates a fraud against an insurer by
submitting an application or filing a false claim, or makes an incomplete or
deceptive statement of a material fact, may be guilty of insurance fraud.
FLORIDA RESIDENTS ONLY: Any person who knowingly and with intent to injure,
defraud or deceive any insurer, files a statement of claim or an application
containing any false, incomplete or misleading information, is guilty of a
felony of the third degree.
NEW JERSEY RESIDENTS ONLY: Any person who includes any false or misleading
information on an application for an insurance policy is subject to criminal
and civil penalties.
COLORADO, KENTUCKY AND PENNSYLVANIA RESIDENTS ONLY: Any person who knowingly
and with intent to defraud any insurance company or other person files an
application for insurance or statement of claim containing any materially false
information or conceals for the purpose of misleading, information concerning
any fact material thereto, commits a fraudulent insurance act, which is a crime
and subjects each person to criminal and civil penalties.
TEXAS OPTIONAL RETIREMENT PROGRAM REDEMPTION INFORMATION:
o Benefits in the Texas Optional Retirement program vest after one year of
participation in one or more optional retirement plans.
o Benefits under the Texas Optional Retirement Program are available to you
only after you attain the age of 70 1/2 years, or terminate participation by
death, retirement, or termination of employment in all Texas institutions of
higher education.
o VALIC will require written verification from the program administrator of
your qualification for any requested redemption of any annuity benefits
purchased under the Texas Optional Retirement Program.
WITHDRAWAL RESTRICTIONS FOR 403(b) PARTICIPANTS
According to the federal laws regulating certain 403(b) plans, any interest and
earnings credited to your account after 12/31/88 and any elective contributions
made after that date may be withdrawn only under any of the following
circumstances.
o Separation from service o Death o Hardship (Contributions only)
o Age 59 1/2 or older o Disability
Your employer's plan may contain other withdrawal restrictions. Additionally,
some employer plans have alternative investment options among which plan
participants may transfer contract values.
BENEFICIARY DESIGNATIONS (Primary and/or Contingent)
A beneficiary should always be designated. Beneficiary categories are:
PRIMARY BENEFICIARY - One who receives any benefits after the Annuitant dies.
CONTINGENT BENEFICIARY - One who receives any benefits if the primary
beneficiary dies before the annuitant dies.
Beneficiaries can be an INDIVIDUAL, an INSTITUTION, or a TRUSTEE.
NAMING YOUR BENEFICIARY
INDIVIDUAL as beneficiary: Jane A. Doe
INSTITUTION as beneficiary (Full legal name and address should be stated;
also state whether the institution is a corporation):
The Evergreen Company, a Texas Corporation
TRUSTEE as beneficiary (Named inter vivos [living] trust agreement):
XYZ Bank and Trust Company or its successors, as Trustee under trust
agreement dated January 31, 1982.
SALARY REDUCTION AGREEMENT FOR 403(b) AND 401(k) PLANS
The Employer is hereby or by a separate document authorized and directed to
reduce your pay in the amount indicated under Contribution Information
beginning on the date indicated on this form and to purchase a non-transferable
annuity contract qualified under Section 403(b) of the Internal Revenue Code
(IRC) or a non-transferable annuity contract to provide retirement benefits
under IRC Section 401(k) from The Variable Annuity Life Insurance Company. This
agreement shall be effective for only those amounts not currently available as
of the date indicated on this form. This agreement shall terminate any prior
salary reduction agreement executed between you and the Employer. This
agreement shall be legally binding as to both the parties hereto while
employment continues; provided, however, that either party may change or
terminate this agreement with respect to amounts that have not become
currently available and payable by the Employer and in accordance with the
Employer's reasonable administrative procedures. Salary reductions are to be
effective with respect to pay dates on or after the date listed under Date
Payment Begins (which is subsequent to this agreement). Only amounts not
currently available to the employee are eligible for salary reduction.
CONTRIBUTION INFORMATION
o Contribution Sources:
EE(1) - Employee Voluntary;
EE(2) - Employee Mandatory or Matched;
ER(3) - Employer Basic;
ER(4) - Employer Supplemental or Matching
Note: Separate account numbers must be set up for each Contribution Source.
o Choose either a percent of salary or an amount, and fill in the number of
payments, and the date you will begin making payment.
o When the contract applied for is to be used as a periodic payment (salary
reduction or deduction) type plan, please indicate the "from-to" dates for the
Exclude Periods, when applicable.
o Complete Product, Plan Type, and Plan Number
INVESTMENT OPTION ALLOCATION
Purchase payments may be allocated to the Fixed Investment Options and/or
Variable Investment Options. Purchase Payments may be allocated among as many
as seven investment options within the product selected. The following
indicates the current Purchase Payment allocation choices of this application
form:
PORTFOLIO DIRECTOR
Fixed Account Plus................................. Subaccount 1
Short Term Fixed Account........................... Subaccount 2
MidCap Index Fund.................................. Division 4
Timed Opportunity Fund............................. Division 5
Money Market Fund.................................. Division 6
Capital Conservation Fund.......................... Division 7
Government Securities Fund......................... Division 8
Stock Index Fund................................... Division 10
International Equities Fund........................ Division 11
Social Awareness Fund.............................. Division 12
International Government Bond Fund................. Division 13
Small Cap Index Fund............................... Division 14
Growth Fund (T. Rowe Price)........................ Division 15
Growth and Income Fund (Value Line)................ Division 16
Science and Technology Fund (T. Rowe Price)........ Division 17
Dreyfus Small Cap Portfolio........................ Division 18
Templeton Asset Allocation Fund.................... Division 19
Templeton International Fund....................... Division 20
PORTFOLIO DIRECTOR 2 (Not available for individual NQDAs and certain plan
types)
Fixed Account Plus................................. Subaccount 1
Short Term Fixed Account........................... Subaccount 2
AGSPC Growth Fund (T. Rowe Price).................. Division 15
AGSPC International Government Bond Fund........... Division 13
AGSPC Money Market Fund............................ Division 6
AGSPC Science and Technology Fund (T. Rowe Price).. Division 17
AGSPC Social Awareness Fund........................ Division 12
AGSPC Stock Index Fund............................. Division 10
American Century - Twentieth Century Ultra Fund.... Division 31
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
Vanguard Fixed Income Securities Fund -
Long-term Corporate Portfolio................... Division 22
Vanguard Fixed Income Securities Fund -
Long-term U.S. Treasury Portfolio............... Division 23
Vanguard/Wellington Fund........................... Division 25
Vanguard/Windsor II................................ Division 24
VALIC HOME OFFICE
2929 Allen Parkway o Houston, TX 77019
Contact your Regional Office for customer assistance at 1-800-44-VALIC.
<PAGE> 1
EXHIBIT 5(a)(ii)
- ----------------------------------
IRA/SEP/NQDA ANNUITY APPLICATION
- ----------------------------------
Portfolio Director/Portfolio Director 2
Fixed and Variable Annuity
For use with Individual Retirement Annuities (IRA),
Simplified Employee Pension Plans (SEP), and
Non-Qualified Deferred Annuities (NQDA).
PLEASE PRINT CLEARLY. DUE TO THE PROCESSING USED BY VALIC, DO NOT
HIGHLIGHT ANY INFORMATION ON THIS FORM OR WRITE IN MARGINS.
[VALIC LOGO]
The Variable Annuity Life
<PAGE> 2
================================== [VALIC LOGO]
IRA/SEP/NQDA ANNUITY APPLICATION
==================================
APPLICANT/ANNUITANT INFORMATION
SS# OR Tax ID#:
---------------------------------------------
Name:
-------------------------------------------------------
Address:
----------------------------------------------------
City:
-------------------------------------------------------
State: Zip: -
---------------------------- ---------- -----------
Home Phone: ( )
-------------------------------------------------
Date of birth: / /
------- ------ -------
Sex: [ ] Male [ ] Female
Marital Status: [ ] Married [ ] Single
EMPLOYMENT INFORMATION
Employer or Plan Name:
--------------------------------------
Date of Hire: / /
------ ------ ------
Annual Salary: $
--------------------------------------------
Work Phone: ( )
-------------------------------------------------
Expected Annuity Date: / /
------ ------ ------
(in the absence of an election, age 85 for NQDA and age 75 for IRA.)
OWNER INFORMATION
(Individual NQDAs only: Complete this section if the owner is
someone other than the annuitant.)
OWNER
Name:
-------------------------------------------------------
Address:
----------------------------------------------------
City:
-------------------------------------------------------
State: Zip: -
---------------------------- ---------- -----------
Date of birth: / /
------ ------ ------
SS# or Tax ID#:
---------------------------------------------
Home Phone: ( )
-------------------------------------------------
Work Phone: ( )
-------------------------------------------------
CONTINGENT OWNER
Name:
-------------------------------------------------------
Address:
----------------------------------------------------
City:
-------------------------------------------------------
State: Zip: -
---------------------------- ---------- -----------
Date of birth: / /
------ ------ ------
SS# or Tax ID#:
---------------------------------------------
Home Phone: ( )
-------------------------------------------------
Work Phone: ( )
-------------------------------------------------
CONTRIBUTION INFORMATION:
Group #:
----------------------------------------------------
Is there an expected Capital Transfer Rollover? [ ] No [ ] Yes
If yes, complete transfer rollover form VA 4300.
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------------------
Exclude Product Provide investment option name, division
Contribution Contribution # of Annualized Date pymt periods type number,and the percent to be allocated to each.
Source % or $ pymts amount begins from-to (choose one)(Percents must be whole numbers totaling 100%)
- ------------------- ------------ ----- ---------- --------- ------- ------------ ----------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
Periodic [ ]Portfolio __________________________ _____ _________%
-------- ------------ ----- ---------- --------- ------- Director __________________________ _____ _________%
Employee __________________________ _____ _________%
Voluntary [ ] Single __________________________ _____ _________%
(1) Sum __________________________ _____ _________%
[ ]Portfolio __________________________ _____ _________%
[ ] Flex Director2* __________________________ _____ _________%
Pay
-------- ------------ ----- ---------- --------- -------
-------------------------------------------------------------------------------------------------------------------------
This line is for VALIC
administrative use only. Product: Plan type: Plan #: Sub Group: Account#:
------- ------- ----- ------ -----------------
- ------------------------------------------------------------------------------------------------------------------------------------
Periodic [ ]Portfolio __________________________ _____ _________%
-------- ------------ ----- ---------- --------- ------- Director __________________________ _____ _________%
Employer __________________________ _____ _________%
Basic [ ] Single __________________________ _____ _________%
(3) Sum __________________________ _____ _________%
[ ]Portfolio __________________________ _____ _________%
[ ] Flex Director2* __________________________ _____ _________%
Pay
-------- ------------ ----- ---------- --------- -------
-------------------------------------------------------------------------------------------------------------------------
This line is for VALIC
administrative use only. Product: Plan type: Plan #: Sub Group: Account#:
------- ------- ----- ------ -----------------
- ------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
*Not available for Individual NQDAs
<PAGE> 3
=============================================
IRA/SEP/NQDA ANNUITY APPLICATION [VALIC LOGO]
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BENEFICIARY INFORMATION
INDICATE NAME, ADDRESS, RELATIONSHIP, DATE OF BIRTH, AND SOCIAL SECURITY/TAX
IDENTIFICATION NUMBER for any person or entity named as a beneficiary (see
information and instructions page). If additional space is needed, you may use a
separate signed and dated sheet and attach it to this form.
PRIMARY BENEFICIARY
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CONTINGENT BENEFICIARY
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REPLACEMENT
Is this a replacement of an existing annuity or life insurance contract?
[ ] No [ ] Yes If yes, complete the following:
Insured's Name:
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Policy Number(s):
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Insurer's (Company) Name:
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INVESTOR PROFILE
Investment Objectives (check one):
[ ] Safety of Principal [ ] Retirement Income
[ ] Long-term growth [ ] Other:
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Occupation:
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Financial Situations (approximate amounts in thousands):
<TABLE>
<CAPTION>
Under $50 $50-$100 Over $100
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<S> <C> <C> <C>
Household Income [ ] [ ] [ ]
Net Worth [ ] [ ] [ ]
Life Insurance [ ] [ ] [ ]
</TABLE>
Dependents: Number: Age(s):
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Tax Bracket:
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APPLICANT/ANNUITANT AFFIRMATIONS AND STATEMENTS
This application is subject to acceptance by the Company at its Home Office.
Proof of age must be furnished before Annuity Payments begin. Upon written
request, we will provide you with information regarding the benefits and
provisions of the annuity contract for which you are applying. If you are not
satisfied with your annuity contract for any reason, you may return it within 20
days after receipt for a refund of premium (applicable to all individual and
some group contracts). A current prospectus for the Company's Separate Account
was provided with the application. Also, a current prospectus was provided for
each Fund available under this Plan. The prospectus for the Separate Account
gives sales expenses and other data.
ANNUITY PAYMENTS OR SURRENDER VALUES ARE VARIABLE WHEN BASED ON THE INVESTMENT
EXPERIENCE OF THE SEPARATE ACCOUNT. THEY ARE NOT GUARANTEED AS TO DOLLAR AMOUNT.
BY SIGNING THIS FORM, I HEREBY ACKNOWLEDGE THAT I HAVE READ AND UNDERSTAND THE
FRAUD WARNING PROVIDED IN THE INFORMATION AND INSTRUCTIONS PAGE. I REPRESENT
THAT ALL STATEMENTS AND ANSWERS MADE IN THE APPLICATION ARE COMPLETE AND TRUE TO
THE BEST OF MY KNOWLEDGE AND BELIEF.
[ ] Check if you own or participate in another VALIC Annuity Contract.
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Applicant/Annuitant's Signature
Dated at , date , 19
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Owner's Signature
Dated at , date , 19
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REPRESENTATIVE OF RECORD
No.: Issue State (Abv):
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Region Code:
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As representative I [ ] do [ ] do not have reason to believe that replacement
of existing life insurance or annuity may be involved.
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Print Licensed Agent/Registered Representative Name
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Licensed Agent/Registered Representative Signature
State License ID No.:
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Principal Approval Date
Date of Input: Week Ending:
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<PAGE> 4
INFORMATION AND INSTRUCTIONS
FRAUD WARNING
IN SOME STATES WE ARE REQUIRED TO ADVISE YOU OF THE FOLLOWING: Any person who
knowingly intends to defraud or facilitates a fraud against an insurer by
submitting an application or filing a false claim, or makes an incomplete or
deceptive statement of a material fact, may be guilty of insurance fraud.
FLORIDA RESIDENTS ONLY: Any person who knowingly and with intent to injure,
defraud or deceive any insurer, files a statement of clam or an application
containing any false, incomplete or misleading information, is guilty of a
felony in the third degree.
NEW JERSEY RESIDENTS ONLY: Any person who includes any false or misleading
information on an application for an insurance policy is subject to criminal and
civil penalties.
COLORADO, KENTUCKY AND PENNSYLVANIA RESIDENTS ONLY: Any person who knowingly
and with intent to defraud any insurance company or other person files an
application for insurance or statement of claim containing any materially false
information or conceals for the purpose of misleading, information concerning
any fact material thereto, commits a fraudulent Insurance act, which is a crime
and subjects each person to criminal and civil penalties.
BENEFICIARY DESIGNATIONS (Primary and/or Contingent)
A beneficiary should always be designated. Beneficiary categories are:
PRIMARY BENEFICIARY - One who receives any benefits after the Annuitant dies.
CONTINGENT BENEFICIARY - One who receives any benefits if the primary
beneficiary dies before the Annuitant dies.
Beneficiaries can be an INDIVIDUAL, an INSTITUTION, or a TRUSTEE.
NAMING YOUR BENEFICIARY
INDIVIDUAL as beneficiary: Jane A. Doe
INSTITUTION as beneficiary (Full legal name and address should be stated;
also state whether the institution is a corporation):
The Evergreen Company, a Texas Corporation
TRUSTEE as beneficiary (Named inter vivos [living] trust agreement):
XYZ Bank and Trust Company or its successors, as Trustee under trust
agreement dated January 31, 1982.
CONTRIBUTION INFORMATION
o Contribution Sources:
EE(1) - Employee voluntary;
ER(3) - Employer Basic;
Note: Separate account numbers must be set up for each Contribution
Source.
o Choose either a percent of salary or an amount, and fill in the number of
payments, and the date you will begin making payment.
o When the contract applied for is to be used as a periodic payment (salary
reduction or deduction) type plan, please indicate the "from-to" dates for
the Exclude Periods, when applicable.
o Complete Product, Plan Type, and Plan Number
OWNER VS. annuitant (NQDAs only)
The owner and the annuitant may be different only for Non-Qualified Deferred
annuities (NQDAs). The owner has most rights under the contract. The annuitant
is the person upon whose life expectancy the contract benefits are based.
INVESTMENT OPTION ALLOCATION
Purchase payments may be allocated to the Fixed Investment Options and/or
Variable Investment Options. Purchase Payments may be allocated among as many as
seven investment options within the product selected. The following indicates
the current Purchase Payment allocation choices of this application form:
<TABLE>
<CAPTION>
PORTFOLIO DIRECTOR
<S> <C>
Fixed Account Plus ............................................. Subaccount 1
Short Term Fixed Account ....................................... Subaccount 2
MidCap Index Fund .............................................. Division 4
Asset Allocation Fund .......................................... Division 5
Money Market Fund .............................................. Division 6
Capital Conservation Fund ...................................... Division 7
Government Securities Fund ..................................... Division 8
Stock Index Fund ............................................... Division 10
International Equities Fund .................................... Division 11
Social Awareness Fund .......................................... Division 12
International Government Bond Fund ............................. Division 13
Small Cap Index Fund ........................................... Division 14
Growth Fund (T. Rowe Price) .................................... Division 15
Growth and Income Fund (Value Line) ............................ Division 16
Science and Technology Fund (T. Rowe Price) .................... Division 17
Dreyfus Small Cap Portfolio .................................... Division 18
Templeton Asset Allocation Fund ................................ Division 19
Templeton International Fund ................................... Division 20
PORTFOLIO DIRECTOR 2 (Not available for individual NQDAs)
Fixed Account Plus ............................................. Subaccount 1
Short Term Fixed Account ....................................... Subaccount 2
AGSPC Growth Fund (T. Rowe Price) .............................. Division 15
AGSPC International Government Bond Fund ....................... Division 13
AGSPC Money Market Fund ........................................ Division 6
AGSPC Science and Technology Fund (T. Rowe Price) .............. Division 17
AGSPC Social Awareness Fund .................................... Division 12
AGSPC Stock Index Fund ......................................... Division 10
American Century - Twentieth Century Ultra Fund ................ Division 31
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
Vanguard Fixed Income Securities Fund -
Long-Term Corporate Portfolio ................................ Division 22
Vanguard Fixed Income Securities Fund -
Long-Term U.S. Treasury Portfolio ............................ Division 23
Vanguard / Wellington Fund ..................................... Division 25
Vanguard / Windsor II .......................................... Division 24
</TABLE>
VALIC HOME OFFICE
2929 Allen Parkway o Houston, TX 77019
Contact your Regional Office for customer assistance at 1-800-44-VALIC.
<PAGE> 1
EXHIBIT 8(b)(2)
AGREEMENT
AGREEMENT made as of the 1st day of July, 1997 by and between (i) The
Dreyfus Corporation ("Dreyfus"), a New York corporation; and (ii) Variable
Annuity Life Insurance Company ("Client"), a Texas corporation.
WITNESSETH:
WHEREAS, each of the investment companies listed on Schedule A hereto as such
Schedule may be amended from time to time (collectively the "Dreyfus Funds,"
each a "Fund") are investment companies registered under the Investment Company
Act of 1940, as amended (the "Act"); and
WHEREAS, Client has entered into a Fund Participation Agreement (the
"Participation Agreement") with each of the Dreyfus Funds listed on Schedule A
hereto; and
WHEREAS, Dreyfus provides investment advisory and/or administrative services to
the Dreyfus Funds; and
WHEREAS, Premier Mutual Fund Services, Inc. ("Premier") is the distributor for
the Dreyfus Funds; and
WHEREAS, the parties hereto have agreed to arrange separately for the
performance of sub-accounting services for owners of shares of the Dreyfus
Funds who maintain their shares in a variable annuity account with Client; and
WHEREAS, Dreyfus desires Client to perform such services and Client is willing
and able to furnish such services on the terms and conditions hereinafter set
forth.
NOW, THEREFORE, in consideration of the premises and mutual covenants
hereinafter contained, each party hereto severally agrees as follows:
1. Client agrees to perform the administrative services specified in Exhibit A
hereto (the "Administrative Services") for the benefit of the shareholders of
the Dreyfus Funds who maintain their shares of any such Dreyfus Funds in
variable annuity and variable life insurance accounts with Client and whose
shares are included in the master account ("Master Account") referred to in
paragraph 1 of Exhibit A (collectively, the "Client Customers").
2. Client represents and agrees that it will maintain and preserve all records
as required by law to be maintained and preserved in connection with providing
the Administrative Services, and will otherwise comply with all laws, rules and
regulations applicable to the Administrative
1
<PAGE> 2
Services. Upon the request of Dreyfus or its representatives, Client shall
provide copies of all the historical records relating to transactions between
the Dreyfus Funds and Client Customers, and written communications regarding
the Fund(s) to or from such Customers and other materials, in each case as may
reasonably be requested to enable Dreyfus or its representatives, including
without limitation its auditors, legal counsel or distributor, to monitor and
review the Administrative Services, or to comply with any request of the board
of directors, or trustees or general partners (collectively, the "Directors")
of any Fund or of a governmental body, self-regulatory organization or a
shareholder. Client agrees that it will permit Dreyfus, the Dreyfus Funds or
their representatives to have reasonable access to its personnel and records in
order to facilitate the monitoring of the quality of the services.
3. Client may, with the consent of Dreyfus, contract with or establish
relationships with other parties for the provision of the Administrative
Services or other activities of Client required by the Agreement, provided that
Client shall be fully responsible for the acts and omissions of such other
parties.
4. Client hereby agrees to notify Dreyfus promptly if for any reason it is
unable to perform fully and promptly any of its obligations under this
Agreement.
5. Client hereby represents and covenants that it does not, and will not, own
or hold or control with power to vote any shares of the Dreyfus Funds which are
registered in the name of Client or the name of its nominee and which are
maintained in Client variable annuity accounts, unless Client determines,
consistent with the Act and the rules and interpretations thereunder, that
Client is permitted to vote such shares in its own right and elects to do so.
Client represents further that it is registered as a broker-dealer under the
Securities Exchange Act of 1934, as amended (the "1934 Act"), and any
applicable state securities laws, and as a transfer agent under the 1934 Act,
or is not required to be so registered, including as a result of entering into
this Agreement and performing the Administrative Services.
6. The provisions of the Agreement shall in no way limit the authority of
Dreyfus, or any Dreyfus Fund or Premier to take such action as any of such
parties may deem appropriate or advisable in connection with all matters
relating to the operations of any of such Funds and/or sale of its shares.
7. In consideration of the performance of the Administrative Services by
Client, Dreyfus agrees to pay Client a monthly fee at an annual rate of .15% of
the value of each Fund's average daily net assets deposited and maintained in
the Master Account for Client Customers. Payment shall be made within 30 days
following the end of each month.
2
<PAGE> 3
8. Client shall indemnify and hold harmless the Dreyfus Funds, The Dreyfus
Corporation, Dreyfus Service Corporation ("DSC"), Premier, and each of their
respective officers, directors, employees and agents from and against any and
all losses, claims, damages, expenses, or liabilities that any one or more of
them may incur including without limitation reasonable attorneys' fees, expenses
and costs arising out of or related to the performance or non-performance of
Client of its responsibilities under this Agreement.
9. This Agreement may be terminated without penalty at any time by Client or by
Dreyfus as to all of the Dreyfus Funds collectively, upon 180 days written
notice to the other party. The provisions of paragraph 2 and paragraph 8 shall
continue in full force and effect after termination of this Agreement.
Notwithstanding the foregoing, this Agreement shall not require Client to
preserve any records (in any medium or format) relating to this Agreement beyond
the time periods otherwise required by the laws to which Client or the Dreyfus
Funds are subject provided that such records shall be offered to the Dreyfus
Funds in the event Client decides to no longer preserve such records following
such time periods.
10. After the date of any termination of this Agreement in accordance with
paragraph 9, no fee will be due with respect to any amounts first placed in the
Master Account for Client Customers after the date of such termination. However,
notwithstanding any such termination, Dreyfus will remain obligated to pay
Client the fee specified in paragraph 7 with respect to the value of each Fund's
average daily net assets maintained in the Master Account as of the date of such
termination, for so long as such amounts are held in the Master Account and
Client continues to provide the Administrative Services with respect to such
amounts in conformity with this Agreement. This Agreement, or any provision
hereof, shall survive termination to the extent necessary for each party to
perform its obligations with respect to amounts for which a fee continues to be
due subsequent to such termination.
11. Dreyfus may add to the Dreyfus Funds any other investment company for which
Dreyfus serves as investment adviser or administrator by giving written notice
to Client that it has elected to do so.
12. Client understands and agrees that the obligations of Dreyfus under this
Agreement are not binding upon any of the Dreyfus Funds, upon any of their
Board members or upon any shareholder of any of the Funds.
3
<PAGE> 4
13. It is understood and agreed that in performing the services under this
Agreement Client, acting in its capacity described herein, shall at no time be
acting as an agent for Dreyfus, or DSC, or Premier or any of the Dreyfus Funds.
Client agrees, and agrees to cause its agents, not to make any representations
concerning a Fund except those contained in the Fund's then-current prospectus
or in current sales literature furnished by the Fund, Dreyfus or Premier to
Client.
14. This Agreement, including the provisions set forth herein in Section 7, may
only be amended pursuant to a written instrument signed by the party to be
charged. This Agreement may not be assigned by a party hereto, by operation of
law or otherwise, without the prior, written consent of the other party.
15. This Agreement shall be governed by the laws of the State of New York,
without giving effect to the principles of conflicts of law of such
jurisdiction.
16. This Agreement, including its Exhibit and Schedule, constitutes the entire
agreement between the parties with respect to the matters dealt with herein, and
supersedes any previous agreements and documents with respect to such matters.
IN WITNESS HEREOF, the parties hereto have executed and delivered this Agreement
as of the date first above written.
VARIABLE ANNUITY LIFE INSURANCE COMPANY
By: /s/ CYNTHIA A. TOLES
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Authorized Signatory
CYNTHIA A. TOLES
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Print or Type Name
THE DREYFUS CORPORATION
By: /s/ LAWRENCE S. KASH
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Authorized Signatory
LAWRENCE S. KASH
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Print or Type Name
4
<PAGE> 5
SCHEDULE A
<TABLE>
<CAPTION>
<S> <C>
Fund Fund Name
Code
121 Dreyfus Variable Investment Fund - Small Cap Portfolio
</TABLE>
<PAGE> 6
EXHIBIT A
Pursuant to the Agreement by and among the parties hereto, Client shall perform
the following Administrative Services:
1. Maintain separate records for each Client Customer, which records shall
indirectly reflect shares purchased and redeemed and share balances through
variable annuity contract units ("Units"). Client shall maintain the Master
Account with the transfer agent of the Fund on behalf of Client Customers and
such Master Account shall be in the name of Client or its nominee as the record
owner of the shares owned by such Client Customers.
2. For each Fund, disburse or credit to the benefit of Client Customers all
proceeds of redemptions of shares of the Fund and all dividends and other
distributions not reinvested in shares of the Fund.
3. Prepare and transmit to Client Customers periodic account statements showing
the total number of Units attributable to Fund shares owned by the Customer as
of the statement closing date, purchases and redemptions of Units attributable
to Fund shares by the Customer during the period covered by the statement, and
which reflect the dividends and other distributions paid to the benefit of
Customer during the statement period (whether paid in cash or reinvested in
Fund shares).
4. Transmit to Client Customers proxy materials and reports and other
information received by Client from any of the Funds and required to be sent to
shareholders under the federal securities laws and, upon request of the Fund's
transfer agent, transmit to Client Customers material fund communications
deemed by the Fund, through its Board of Directors or other similar governing
body, to be necessary and proper for receipt by all fund beneficial
shareholders.
5. Transmit to the Fund's transfer agent purchase and redemption orders on
behalf of Client Customers.
6. Provide to the Funds, or to the transfer agent for any of the Funds, or any
of the agents designated by any of them, such periodic reports as shall
reasonably be concluded to be necessary to enable each of the Funds and its
distributor to comply with State Blue Sky requirements.
<PAGE> 1
EXHIBIT 8(f)(2)
Founders Asset Management, Inc.
2930 East Third Avenue
Denver, CO 80206
Premier Mutual Fund Services, Inc.
60 State Street, Suite 1300
Boston, MA 02109
Ladies and Gentlemen:
Effective from and after the consummation of the transactions contemplated by
the Agreement and Plan of Reorganization dated as of December 11, 1997, pursuant
to which Founders Asset Management, Inc. has agreed to merge with a subsidiary
of Mellon Bank, N.A. (the "Effective Time"), we hereby consent to the assignment
by Founders Asset Management, Inc. ("Founders") of the agreement(s) (the
"Agreement") between Founders and us to Premier Mutual Fund Services, Inc.
("Premier"). Upon any termination of the Agreement as the result of such
assignment, we agree, from and after the Effective Time, that the terms of the
Agreement shall be deemed to be in full force and effect, except that Premier
shall replace Founders as the party to the Agreement. Notices in the future
should be sent to Premier Mutual Fund Services, Inc., 60 State Street, Suite
1300, Boston, MA 02109, Attention: President, with a copy to General Counsel.
Very truly yours,
The Variable Annuity Life Insurance Company
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(Print or Type Name of Institution)
By: /s/ CYNTHIA A. TOLES 1/23/98
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(Authorized Signature) (Date)
Cynthia A. Toles
Senior Associate General Counsel and Secretary
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(Print or Type Name and Title)
Premier Mutual Fund Services, Inc. agrees, effective from and after the
Effective Time, to be deemed a party to, and to be bound by the terms of, and
the Agreement as if it had been named in place of Founders Asset Management,
Inc. therein.
PREMIER MUTUAL FUND SERVICES, INC.
By: /s/ [ILLEGIBLE] 4/1/98
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(Authorized Signature) (Date)
<PAGE> 1
EXHIBIT 9
[VALIC LETTERHEAD]
April 27, 1998
Cynthia A. Toles
Senior Associate General
Counsel and Secretary
Board of Directors
The Variable Annuity Life
Insurance Company
2929 Allen Parkway
Houston, TX 77019
Gentlemen:
This opinion is furnished in connection with the filing of a registration
statement on Form N-4 ("Registration Statement") by The Variable Annuity Life
Insurance Company ("VALIC") and The Variable Annuity Life Insurance Company
Separate Account A ("Separate Account A"). The securities being registered
under the Registration Statement are units of interest ("Units") to be issued
by Separate Account A pursuant to certain single payment and flexible payment
individual and group variable annuity contracts ("Contracts") described in the
Registration Statement.
I am Senior Associate General Counsel and Secretary of VALIC, and in such
capacity I am familiar with VALIC's Articles of Incorporation and By-Laws and
have reviewed all statements, records, instruments and documents which I have
deemed it necessary to examine for the purpose of this opinion. I have
examined the form of the Registration Statement to be filed with the Securities
and Exchange Commission in connection with the registration under the
Securities Act of 1933, as amended, of an indefinite number of Units to be
issued by Separate Account A in connection with the Contracts. I am familiar
with the proceedings taken and proposed to be taken in connection with the
authorization, issuance and sale of the Units. Based upon a review of these
documents and such laws that I consider appropriate, I am of the opinion that:
1. VALIC is a duly incorporated life insurance company under the laws of
the State of Texas.
2. Separate Account A is duly organized under the provisions of the Texas
Insurance Code, under which income, gains, or losses, whether realized
or unrealized, from assets allocated to the Separate Account, are, in
accordance with the terms of the Contracts, credited to or charged
against Separate Account A without regard to the income, gains, or
losses to VALIC.
<PAGE> 2
Board of Directors
April 27, 1998
Page Two
3. The portion of the assets to be held in Separate Account A equal to
the reserves and other liabilities under the Contracts will not be
chargeable with liabilities arising out of any other business VALIC
may conduct.
4. The Contracts have been duly authorized by VALIC and, when issued in
the manner contemplated by the Registration Statement, the Units
thereunder will constitute legal, validly issued, and binding
obligations of VALIC in accordance with the terms of the Contracts.
I hereby consent to the use of this opinion as an exhibit to the Registration
Statement.
Respectfully submitted
/s/ CYNTHIA A. TOLES
Cynthia A. Toles
<PAGE> 1
EXHIBIT 10
CONSENT OF INDEPENDENT AUDITORS
We consent to the reference to our firm under the caption "Experts" and to the
use of our reports dated February 18, 1998 as to The Variable Annuity Life
Insurance Company and February 6, 1998 as to The Variable Annuity Life Insurance
Company Separate Account A in Post-Effective Amendment No. 12 to the
Registration Statement (Form N-4 No. 33-75292/811-3240) of The Variable Annuity
Life Insurance Company Separate Account A.
/s/ ERNST & YOUNG LLP
Ernst & Young LLP
Houston, Texas
April 27, 1998
<PAGE> 1
EXHIBIT 15
THIS FORM MUST ACCOMPANY APPLICATIONS FOR ANY PRODUCT
WHICH OFFERS ALLOCATION OF PURCHASE PAYMENTS TO A VARIABLE ACCOUNT
================================================================================
[VALIC LOGO] THE VARIABLE ANNUITY
LIFE INSURANCE COMPANY SUPPLEMENTAL INFORMATION FORM
P.O. Box 3206 o Houston, Texas 77253
================================================================================
PLEASE PRINT ALL INFORMATION
1. ANNUITANT/PARTICIPANT:
Name:___________________________________ Social Security No.:_____________
LAST FIRST MIDDLE INITIAL
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2. SPECIAL INFORMATION FOR 403(b) PARTICIPANTS:
According to federal tax laws regulating certain 403(b) plans, any interest
and earnings credited to your account after 12/31/88 and any elective
contributions made after that date be withdrawn under any of the following
circumstances:
o Separation from service
o Death
o Age 59 1/2 or older
o Disability
o Hardship (Contributions only)
Your employer's plan may contain other withdrawal restriction.
Additionally, some employer plans have alternate investment options among
which plan participants may transfer contract values.
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3. TEXAS OPTIONAL RETIREMENT PROGRAM REDEMPTION ACKNOWLEDGEMENT:
I understand that:
o Benefits in the Texas Optional Retirement Program vest after one
year of participation in one or more optional retirement plans;
o Benefits under the Texas Optional Retirement Program are available
to me only after I obtain the age of 70 1/2 years, or terminate
participation by death, retirement, or termination of employment in
all Texas institutions of higher education;
o VALIC will require written verification of my qualification for any
requested redemption of any annuity benefits purchased under the
Texas Optional Retirement Program from the program administrator.
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4. INVESTOR PROFILE (Needed for NQDA and IRA Plans only)
a. INVESTMENT OBJECTIVES (check one):
[ ] Safety of Principal [ ] Income [ ] Long-term growth [ ] Retirement Income
[ ] Other: __________________________________________________________________
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b. FINANCIAL SITUATION (approximate amounts):
Household Income Net Worth Life Insurance in Force
---------------- --------- -----------------------
[ ] Under $50,000 [ ] Under $50,000 [ ] Under $50,000
[ ] 50,000 -- 100,000 [ ] 50,000 -- 100,000 [ ] 50,000 -- 100,000
[ ] Over 100,000 [ ] Over 100,000 [ ] Over 100,000
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c. DEPENDENTS
Number: ________
Ages: ________
________
________
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d. OCCUPATION:
_____________________________________________________________
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5. I acknowledge the above information and statements and represent that
information provided by me is correct to the best of my knowledge and
belief.
________________________________________________ ______________________
PARTICIPANT'S SIGNATURE DATE
<PAGE> 1
EXHIBIT 16(e)
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that the undersigned, an officer and/or
director of The Variable Annuity Life Insurance Company, a life insurance
corporation organized and existing under Chapter 3 of the Texas Insurance Code,
does hereby constitute and appoint James S. D'Agostino, Jr., Thomas L. West, Jr.
and Cynthia A. Toles, and each of them, with full power of substitution as his
true and lawful attorney and agent, to do any and all acts and things and to
execute any and all instruments which said attorney and agent may deem necessary
or advisable:
(i) to enable the said corporation to comply with the Securities Act of
1933, as amended, and any rules, regulations and requirements of the Securities
and Exchange Commission in respect thereof, in connection with the registration
under the said Securities Act of variable annuity contracts of the said
corporation, interests under benefit plans for employees and agents and
managers of said corporation and of its affiliates, and the variable annuity
contracts of the said corporation with respect to such benefit plans
(hereinafter collectively called "VALIC Securities"), including specifically,
but without limiting the generality of the foregoing, the power and authority
to sign for and on behalf of the undersigned the name of the undersigned as
officer and/or director of the said corporation to a registration statement or
to any amendment thereto filed with the Securities and Exchange Commission in
respect to said VALIC Securities and to any instrument or document filed as a
part of, as an exhibit to or in connection with, said registration statement or
amendment; and
(ii) to register or qualify said VALIC Securities for sale and to register
or license said corporation or any subsidiary thereof as a broker or dealer in
said VALIC Securities under the securities or Blue Sky Laws of all such states
as may be necessary or appropriate to permit therein the offering and sale of
said VALIC Securities as contemplated by said registration statement, including
specifically, but without limiting the generality of the foregoing, the power
and authority to sign for and on behalf of the undersigned the name of the
undersigned as an officer and/or director of said corporation to any
application, statement, petition, prospectus, notice or other instrument or
document, or to any amendment thereto, or to any exhibit filed as a part
thereto or in connection therewith, which is required to be signed by the
undersigned and to be filed with the public authority or authorities
administering said securities or Blue Sky Laws for the purpose of so
registering or qualifying said VALIC Securities or registering or licensing
said corporation;
and the undersigned does hereby ratify and confirm as his own act and deed all
that said attorney and agent shall do or cause to be done by virtue hereof.
IN WITNESS WHEREOF, the undersigned has subscribed these presents this
12th day of December __, 1997.
/s/ BRENT C. NELSON
_____________________________
Brent C. Nelson
In the Presence of:
/s/ CAROLA RIELS
______________________________
Carola Riels
<PAGE> 2
EXHIBIT 16(e)
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that the undersigned, an officer and/or
director of The Variable Annuity Life Insurance Company, a life insurance
corporation organized and existing under Chapter 3 of the Texas Insurance Code,
does hereby constitute and appoint James S. D'Agostino, Jr., Thomas L. West,
Jr. and Cynthia A. Toles, and each of them, with full power of substitution as
his true and lawful attorney and agent, to do any and all acts and things and
to execute any and all instruments which said attorney and agent may deem
necessary or advisable:
(i) to enable the said corporation to comply with the Securities Act of
1933, as amended, and any rules, regulations and requirements of the Securities
and Exchange Commission in respect thereof, in connection with the registration
under the said Securities Act of variable annuity contracts of the said
corporation, interests under benefit plans for employees and agents and
managers of said corporation and of its affiliates, and the variable annuity
contracts of the said corporation with respect to such benefit plans
(hereinafter collectively called "VALIC Securities"), including specifically,
but without limiting the generality of the foregoing, the power and authority
to sign for and on behalf of the undersigned the name of the undersigned as
officer and/or director of the said corporation to a registration statement or
to any amendment thereto filed with the Securities and Exchange Commission in
respect to said VALIC Securities and to any instrument or document filed as a
part of, as an exhibit to or in connection with, said registration statement or
amendment; and
(ii) to register or qualify said VALIC Securities for sale and to register
or license said corporation or any subsidiary thereof as a broker or dealer in
said VALIC Securities under the securities or Blue Sky Laws of all such states
as may be necessary or appropriate to permit therein the offering and sale of
said VALIC Securities as contemplated by said registration statement, including
specifically, but without limiting the generality of the foregoing, the power
and authority to sign for and on behalf of the undersigned the name of the
undersigned as an officer and/or director of said corporation to any
application, statement, petition, prospectus, notice or other instrument or
document, or to any amendment thereto, or to any exhibit filed as a part
thereto or in connection therewith, which is required to be signed by the
undersigned and to be filed with the public authority or authorities
administering said securities or Blue Sky Laws for the purpose of so
registering or qualifying said VALIC Securities or registering or licensing
said corporation;
and the undersigned does hereby ratify and confirm as his own act and deed all
that said attorney and agent shall do or cause to be done by virtue hereof.
IN WITNESS WHEREOF, the undersigned has subscribed these presents this
13th day of December __, 1997.
/s/ THOMAS L. WEST, JR.
_____________________________
Thomas L. West, Jr.
In the Presence of:
/s/ LORI LAKE
______________________________
Lori Lake
<PAGE> 3
EXHIBIT 16(e)
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that the undersigned, an officer and/or
director of The Variable Annuity Life Insurance Company, a life insurance
corporation organized and existing under Chapter 3 of the Texas Insurance Code,
does hereby constitute and appoint James S. D'Agostino, Jr., Thomas L. West,
Jr. and Cynthia A. Toles, and each of them, with full power of substitution as
his true and lawful attorney and agent, to do any and all acts and things and
to execute any and all instruments which said attorney and agent may deem
necessary or advisable:
(i) to enable the said corporation to comply with the Securities Act of
1933, as amended, and any rules, regulations and requirements of the Securities
and Exchange Commission in respect thereof, in connection with the registration
under the said Securities Act of variable annuity contracts of the said
corporation, interests under benefit plans for employees and agents and
managers of said corporation and of its affiliates, and the variable annuity
contracts of the said corporation with respect to such benefit plans
(hereinafter collectively called "VALIC Securities"), including specifically,
but without limiting the generality of the foregoing, the power and authority
to sign for and on behalf of the undersigned the name of the undersigned as
officer and/or director of the said corporation to a registration statement or
to any amendment thereto filed with the Securities and Exchange Commission in
respect to said VALIC Securities and to any instrument or document filed as a
part of, as an exhibit to or in connection with, said registration statement or
amendment; and
(ii) to register or qualify said VALIC Securities for sale and to register
or license said corporation or any subsidiary thereof as a broker or dealer in
said VALIC Securities under the securities or Blue Sky Laws of all such states
as may be necessary or appropriate to permit therein the offering and sale of
said VALIC Securities as contemplated by said registration statement, including
specifically, but without limiting the generality of the foregoing, the power
and authority to sign for and on behalf of the undersigned the name of the
undersigned as an officer and/or director of said corporation to any
application, statement, petition, prospectus, notice or other instrument or
document, or to any amendment thereto, or to any exhibit filed as a part
thereto or in connection therewith, which is required to be signed by the
undersigned and to be filed with the public authority or authorities
administering said securities or Blue Sky Laws for the purpose of so
registering or qualifying said VALIC Securities or registering or licensing
said corporation;
and the undersigned does hereby ratify and confirm as his own act and deed all
that said attorney and agent shall do or cause to be done by virtue hereof.
IN WITNESS WHEREOF, the undersigned has subscribed these presents this
18th day of December __, 1997.
/s/ MICHAEL G. ATNIP
---------------------------------
Michael G. Atnip
In the Presence of:
/s/ Illegible
- ---------------------------
<PAGE> 4
EXHIBIT 16(e)
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that the undersigned, an officer and/or
director of The Variable Annuity Life Insurance Company, a life insurance
corporation organized and existing under Chapter 3 of the Texas Insurance Code,
does hereby constitute and appoint James S. D'Agostino, Jr., Thomas L.
West, Jr. and Cynthia A. Toles, and each of them, with full power of
substitution as his true and lawful attorney and agent, to do any and all acts
and things and to execute any and all instruments which said attorney and agent
may deem necessary or advisable:
(i) to enable the said corporation to comply with the Securities Act of
1933, as amended, and any rules, regulations and requirements of the Securities
and Exchange Commission in respect thereof, in connection with the
registration under the said Securities Act of variable annuity contracts of the
said corporation, interests under benefit plans for employees and agents and
managers of said corporation and of its affiliates, and the variable annuity
contracts of the said corporation with respect to such benefit plans
(hereinafter collectively called "VALIC Securities"), including specifically,
but without limiting the generality of the foregoing, the power and authority
to sign for and on behalf of the undersigned the name of the undersigned as
officer and/or director of the said corporation to a registration statement or
to any amendment thereto filed with the Securities and Exchange Commission in
respect to said VALIC Securities and to any instrument or document filed as a
part of, as an exhibit to or in connection with, said registration statement or
amendment; and
(ii) to register or qualify said VALIC Securities for sale and to register
or license said corporation or any subsidiary thereof as a broker or dealer in
said VALIC Securities under the securities or Blue Sky Laws of all such states
as may be necessary or appropriate to permit therein the offering and sale of
said VALIC Securities as contemplated by said registration statement, including
specifically, but without limiting the generality of the foregoing, the power
and authority to sign for and on behalf of the undersigned the name of the
undersigned as an officer and/or director of said corporation to any
application, statement, petition, prospectus, notice or other instrument or
document, or to any amendment thereto, or to any exhibit filed as a part
thereto or in connection therewith, which is required to be signed by the
undersigned and to be filed with the public authority or authorities
administering said securities or Blue Sky Laws for the purpose of so
registering of qualifying said VALIC Securities or registering or licensing
said corporation;
and the undersigned does hereby ratify and confirm as his own act and deed all
that said attorney and agent shall do or cause to be done by virtue hereof.
IN WITNESS WHEREOF, the undersigned has subscribed these presents this 1st
day of April, 1998.
/s/ PATRICK E. GRADY
--------------------
Patrick E. Grady
In the Presence of:
/s/ TOM S. ROCK
- ---------------
Tom S. Rock
<PAGE> 5
EXHIBIT 16(e)
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that the undersigned, an officer and/or
director of The Variable Annuity Life Insurance Company, a life insurance
corporation organized and existing under Chapter 3 of the Texas Insurance Code,
does hereby constitute and appoint James S. D'Agostino, Jr., Thomas L.
West, Jr. and Cynthia A. Toles, and each of them, with full power of
substitution as his true and lawful attorney and agent, to do any and all acts
and things and to execute any and all instruments which said attorney and agent
may deem necessary or advisable:
(i) to enable the said corporation to comply with the Securities Act of
1933, as amended, and any rules, regulations and requirements of the Securities
and Exchange Commission in respect thereof, in connection with the
registration under the said Securities Act of variable annuity contracts of the
said corporation, interests under benefit plans for employees and agents and
managers of said corporation and of its affiliates, and the variable annuity
contracts of the said corporation with respect to such benefit plans
(hereinafter collectively called "VALIC Securities"), including specifically,
but without limiting the generality of the foregoing, the power and authority
to sign for and on behalf of the undersigned the name of the undersigned as
officer and/or director of the said corporation to a registration statement or
to any amendment thereto filed with the Securities and Exchange Commission in
respect to said VALIC Securities and to any instrument or document filed as a
part of, as an exhibit to or in connection with, said registration statement or
amendment; and
(ii) to register or qualify said VALIC Securities for sale and to register
or license said corporation or any subsidiary thereof as a broker or dealer in
said VALIC Securities under the securities or Blue Sky Laws of all such states
as may be necessary or appropriate to permit therein the offering and sale of
said VALIC Securities as contemplated by said registration statement, including
specifically, but without limiting the generality of the foregoing, the power
and authority to sign for and on behalf of the undersigned the name of the
undersigned as an officer and/or director of said corporation to any
application, statement, petition, prospectus, notice or other instrument or
document, or to any amendment thereto, or to any exhibit filed as a part
thereto or in connection therewith, which is required to be signed by the
undersigned and to be filed with the public authority or authorities
administering said securities or Blue Sky Laws for the purpose of so
registering of qualifying said VALIC Securities or registering or licensing
said corporation;
and the undersigned does hereby ratify and confirm as his own act and deed all
that said attorney and agent shall do or cause to be done by virtue hereof.
IN WITNESS WHEREOF, the undersigned has subscribed these presents this 1st
day of April, 1998.
/s/ BRUCE R. ABRAMS
-------------------
Bruce R. Abrams
In the Presence of:
/s/ DEBRA M. GREEN
- ------------------
Debra M. Green
<PAGE> 6
EXHIBIT 16(e)
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that the undersigned, an officer and/or
director of The Variable Annuity Life Insurance Company, a life insurance
corporation organized and existing under Chapter 3 of the Texas Insurance Code,
does hereby constitute and appoint James S. D'Agostino, Jr., Thomas L.
West, Jr. and Cynthia A. Toles, and each of them, with full power of
substitution as his true and lawful attorney and agent, to do any and all acts
and things and to execute any and all instruments which said attorney and agent
may deem necessary or advisable:
(i) to enable the said corporation to comply with the Securities Act of
1933, as amended, and any rules, regulations and requirements of the Securities
and Exchange Commission in respect thereof, in connection with the
registration under the said Securities Act of variable annuity contracts of the
said corporation, interests under benefit plans for employees and agents and
managers of said corporation and of its affiliates, and the variable annuity
contracts of the said corporation with respect to such benefit plans
(hereinafter collectively called "VALIC Securities"), including specifically,
but without limiting the generality of the foregoing, the power and authority
to sign for and on behalf of the undersigned the name of the undersigned as
officer and/or director of the said corporation to a registration statement or
to any amendment thereto filed with the Securities and Exchange Commission in
respect to said VALIC Securities and to any instrument or document filed as a
part of, as an exhibit to or in connection with, said registration statement or
amendment; and
(ii) to register or qualify said VALIC Securities for sale and to register
or license said corporation or any subsidiary thereof as a broker or dealer in
said VALIC Securities under the securities or Blue Sky Laws of all such states
as may be necessary or appropriate to permit therein the offering and sale of
said VALIC Securities as contemplated by said registration statement, including
specifically, but without limiting the generality of the foregoing, the power
and authority to sign for and on behalf of the undersigned the name of the
undersigned as an officer and/or director of said corporation to any
application, statement, petition, prospectus, notice or other instrument or
document, or to any amendment thereto, or to any exhibit filed as a part
thereto or in connection therewith, which is required to be signed by the
undersigned and to be filed with the public authority or authorities
administering said securities or Blue Sky Laws for the purpose of so
registering of qualifying said VALIC Securities or registering or licensing
said corporation;
and the undersigned does hereby ratify and confirm as his own act and deed all
that said attorney and agent shall do or cause to be done by virtue hereof.
IN WITNESS WHEREOF, the undersigned has subscribed these presents this 1st
day of April, 1998.
/s/ JOHN A. GRAF
----------------
John A. Graf
In the Presence of:
/s/ DEBRA M. GREEN
- ------------------
Debra M. Green
<PAGE> 7
EXHIBIT 16(e)
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that the undersigned, an officer and/or
director of The Variable Annuity Life Insurance Company, a life insurance
corporation organized and existing under Chapter 3 of the Texas Insurance Code,
does hereby constitute and appoint James S. D'Agostino, Thomas L. West, Jr. and
Cynthia A. Toles, and each of them, with full power of substitution as his true
and lawful attorney and agent to do any and all acts and things and to execute
any and all instruments which said attorney and agent may deem necessary or
advisable:
(i) to enable the said corporation to comply with the Securities Act of
1933, as amended, and any rules, regulations and requirements of the Securities
and Exchange Commission in respect thereof, in connection with the registration
under the said Securities Act of variable annuity contracts of the said
corporation, interests under benefit plans for employees and agents and managers
of said corporation and of its affiliates, and the variable annuity contracts of
the said corporation with respect to such benefit plans (hereinafter
collectively called "VALIC Securities"), including specifically, but without
limiting the generality of the foregoing, the power and authority to sign for
and on behalf of the undersigned the name of the undersigned as officer and/or
director of the said corporation to a registration statement or to any amendment
thereto filed with the Securities and Exchange Commission in respect to said
VALIC Securities and to any instrument or document filed as a part of, as an
exhibit to or in connection with, said registration statement or amendment; and
(ii) to register or qualify said VALIC Securities for sale and to register
or license said corporation or any subsidiary thereof as a broker or dealer in
said VALIC Securities under the securities or Blue Sky Laws of all such states
as may be necessary or appropriate to permit therein the offering and sale of
said VALIC Securities as contemplated by said registration statement, including
specifically, but without limiting the generality of the foregoing, the power
and authority to sign for and on behalf of the undersigned the name of the
undersigned as an officer and/or director of said corporation to any
application, statement, petition, prospectus, notice or other instrument or
document, or to any amendment thereto, or to any exhibit filed as a part thereto
or in connection therewith, which is required to be signed by the undersigned
and to be filed with the public authority or authorities administering said
securities or Blue Sky Laws for the purpose of so registering or qualifying said
VALIC Securities or registering or licensing said corporation;
and the undersigned does hereby ratify and confirm as his own act and deed all
that said attorney and agent shall do or cause to be done by virtue hereof.
IN WITNESS WHEREOF, the undersigned has subscribed these presents this 14th
day of April, 1998.
/s/ RICHARD W. SCOTT
-------------------------------
Richard W. Scott
In the Presence of:
/s/ [ILLEGIBLE]
- ------------------------------
