<PAGE> 1
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON APRIL 27, 1998
REGISTRATION NO. 2-96223/811-3240
================================================================================
FORM N-4
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
------------------
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933 [ ]
PRE-EFFECTIVE AMENDMENT NO. ___ [ ]
POST-EFFECTIVE AMENDMENT NO. 27 [X]
AND/OR
REGISTRATION STATEMENT UNDER [ ]
THE INVESTMENT COMPANY ACT OF 1940 [X]
AMENDMENT NO. 57
------------------
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
P.O. BOX 3206, HOUSTON, TEXAS 77253
(NAME AND ADDRESS OF AGENT FOR SERVICE)
------------------
It is proposed that this filing will become effective:
___ immediately upon filing pursuant to paragraph (b)
of Rule 485
___ on (date) pursuant to paragraph (a)(1) of Rule 485
___ 60 days after filing pursuant to paragraph (a)(1) of Rule
485
X on May 1, 1998 pursuant to paragraph (b) of Rule 485
TITLE OF SECURITIES BEING REGISTERED:
Group and Individual Variable Annuity Contracts
Sequential Numbering System: Page ___ of ___ Pages
Exhibit Index on Sequential Page Number ___
================================================================================
<PAGE> 2
THE VARIABLE ANNUITY LIFE INSURANCE COMPANY
SEPARATE ACCOUNT A
CONTRACT FORM UIT-981
FORM N-4
UNDER
THE SECURITIES ACT OF 1933 AND
THE INVESTMENT COMPANY ACT OF 1940
---------------------
CROSS REFERENCE SHEET
PURSUANT TO RULE 481(A) UNDER THE SECURITIES ACT OF 1933
PART A
<TABLE>
<CAPTION>
ITEM NO. PROSPECTUS CAPTION
-------- ------------------
<C> <S> <C>
1. Cover Page..................................... Cover Page
2. Definitions.................................... Definitions
3. Synopsis....................................... Introduction
4. Condensed Financial Information................ Selected Accumulation Unit Data
5. General Description of Registrant, Depositor
and Portfolio Companies...................... The Company and the Separate Account; The
Funds
6. Deductions and Expenses........................ Charges Under Variable Annuity Contracts;
Surrender
7. General Description of Variable Annuity
Contracts.................................... Transfers Among Investment Options;
Accumulation Period; Annuity Period;
Surrender; Other Contract Features
8. Annuity Period................................. Annuity Period
9. Death Benefit.................................. Accumulation Period; Annuity Period
10. Purchase and Contract Value.................... Charges to the Separate Account; Accumulation
Period
11. Redemptions.................................... Surrender; Suspension of Purchase Payments
12. Taxes.......................................... Federal Tax Matters
13. Legal Proceedings.............................. Not Applicable
14. Table of Contents of the Statement of
Additional Information....................... Contents of the Statement of Additional
Information
</TABLE>
PART B
<TABLE>
<CAPTION>
STATEMENT OF ADDITIONAL
ITEM NO. INFORMATION CAPTION
-------- -----------------------
<C> <S> <C>
15. Cover Page..................................... Cover Page
16. Table of Contents.............................. Table of Contents
17. General Information and History................ General Information
18. Services....................................... Experts; Distribution of Variable Annuity
Contracts
19. Purchase of Securities Being Offered........... Calculation of Surrender Charge; Accumulation
Unit Value
20. Underwriters................................... Distribution of Annuity Contracts
21. Calculation of Yield Quotations of Money Market
Subaccounts.................................... Not Applicable
22. Annuity Payments............................... Annuity Payments
23. Financial Statements........................... Financial Statements
</TABLE>
<PAGE> 3
THE VARIABLE ANNUITY LIFE INSURANCE COMPANY
SEPARATE ACCOUNT A
INDEPENDENCE PLUS CONTRACT SERIES
FORM N-4
UNDER
THE SECURITIES ACT OF 1933 AND
THE INVESTMENT COMPANY ACT OF 1940
---------------------
CROSS REFERENCE SHEET
PURSUANT TO RULE 481(A) UNDER THE SECURITIES ACT OF 1933
PART A
<TABLE>
<CAPTION>
ITEM NO. PROSPECTUS CAPTION
-------- ------------------
<C> <S> <C>
1. Cover Page..................................... Cover Page
2. Definitions.................................... Definitions
3. Synopsis....................................... Introduction
4. Condensed Financial Information................ Selected Accumulation Unit Data
5. General Description of Registrant, Depositor
and Portfolio Companies...................... The Company and the Separate Account; The
Funds
6. Deductions and Expenses........................ Charges Under Variable Annuity Contracts;
Surrender
7. General Description of Variable Annuity
Contracts.................................... Transfers Among Investment Options;
Accumulation Period; Annuity Period;
Surrender; Other Contract Features
8. Annuity Period................................. Annuity Period
9. Death Benefit.................................. Accumulation Period; Annuity Period
10. Purchase and Contract Value.................... Charges to the Separate Account; Accumulation
Period
11. Redemptions.................................... Surrender; Suspension of Purchase Payments
12. Taxes.......................................... Federal Tax Matters
13. Legal Proceedings.............................. Not Applicable
14. Table of Contents of the Statement of
Additional Information....................... Contents of the Statement of Additional
Information
</TABLE>
PART B
<TABLE>
<CAPTION>
STATEMENT OF ADDITIONAL
ITEM NO. INFORMATION CAPTION
-------- -----------------------
<C> <S> <C>
15. Cover Page..................................... Cover Page
16. Table of Contents.............................. Table of Contents
17. General Information and History................ General Information
18. Services....................................... Experts; Distribution of Variable Annuity
Contracts
19. Purchase of Securities Being Offered........... Calculation of Surrender Charge; Accumulation
Unit Value; Exchange Offers
20. Underwriters................................... Distribution of Variable Annuity Contracts
21. Calculation of Yield Quotations of Money Market
Subaccounts.................................. Not Applicable
22. Annuity Payments............................... Annuity Payments
23. Financial Statements........................... Financial Statements
</TABLE>
<PAGE> 4
THE VARIABLE ANNUITY LIFE INSURANCE COMPANY
UNITS OF INTEREST UNDER INDIVIDUAL VARIABLE
ANNUITY CONTRACTS
(CONTRACT FORM UIT-981)
SEPARATE ACCOUNT A
PROSPECTUS MAY 1, 1998
The individual Variable Annuity Contracts (the "Contracts") offered by The
Variable Annuity Life Insurance Company (the "Company") in connection with this
prospectus are available to the public only through participation in retirement
programs which receive favorable tax deferred treatment under federal income tax
law. The Contracts are available on a flexible payment deferred, single payment
deferred, or single payment immediate annuity basis.
The Contracts provide benefits related to the Company's General Account and to
the Divisions of the Company's Separate Account A (the "Separate Account"). The
Divisions of the Separate Account available under the Contracts are invested in
Stock Index Fund, MidCap Index Fund, Asset Allocation Fund, Capital Conservation
Fund and Money Market Fund which are separate portfolios of American General
Series Portfolio Company (the "Series Company").
- --------------------------------------------------------------------------------
This prospectus provides investors the information they should know before
investing in the Contracts. Investors should read and retain this prospectus for
future reference.
Additional information, including a Statement of Additional Information dated
May 1, 1998, has been filed with the Securities and Exchange Commission and
contains further information about Separate Account A. The Statement of
Additional Information is incorporated herein by reference. A copy may be
obtained without charge by completing and returning the form at the back of this
prospectus or by calling 1-800-44-VALIC.
NO PERSON HAS BEEN AUTHORIZED TO GIVE ANY INFORMATION OR TO MAKE ANY
REPRESENTATIONS OTHER THAN THOSE CONTAINED IN THIS PROSPECTUS IN CONNECTION WITH
THE OFFER CONTAINED IN THIS PROSPECTUS, AND IF GIVEN OR MADE, SUCH INFORMATION
OR REPRESENTATION MUST NOT BE RELIED UPON AS HAVING BEEN AUTHORIZED. THIS
PROSPECTUS DOES NOT CONSTITUTE AN OFFER IN ANY JURISDICTION TO ANY PERSON TO
WHOM SUCH OFFER WOULD BE UNLAWFUL THEREIN.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION NOR HAS THE COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY
OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
THIS PROSPECTUS IS ACCOMPANIED BY THE CURRENT PROSPECTUS FOR THE FUNDS BEING
CONSIDERED. EACH OF THESE PROSPECTUSES SHOULD BE READ CAREFULLY AND RETAINED FOR
FUTURE REFERENCE.
1
<PAGE> 5
[THIS PAGE INTENTIONALLY LEFT BLANK]
<PAGE> 6
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Definitions............................ 3
Fee Table.............................. 5
Introduction........................... 7
Selected Accumulation Unit Data........ 9
Average Annual Total Return............ 10
Performance Information................ 10
Endorsements and Published
Ratings......................... 11
Annual and Cumulative Change in
Accumulation Unit Value.............. 12
The Company and the Separate
Account.............................. 13
Transfers Among Investment Options..... 13
Transfers During the Accumulation
Period.......................... 13
Transfers During the Annuity
Period.......................... 13
Other Requirements................ 14
The Funds.............................. 14
Performance Data.................. 14
Stock Index Fund (Division Ten)... 16
MidCap Index Fund (Division
Four)........................... 17
Asset Allocation Fund
(Division Five)................. 18
Capital Conservation Fund
(Division One).................. 19
Money Market Fund (Division
Two)............................ 20
Charges Under Variable Annuity
Contracts............................ 21
Charge for Premium Taxes.......... 21
Charge for Partial and Total
Surrenders...................... 21
Charge for Annual Contract
Maintenance..................... 22
Charge to the Separate Account.... 22
Miscellaneous..................... 22
Charge for Income Taxes........... 22
Accumulation Period.................... 22
Death Benefits During Accumulation
Period.......................... 24
Suspension of Purchase Payments... 25
</TABLE>
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Annuity Period......................... 25
Fixed or Variable Annuity
Payments........................ 25
Annuity Date...................... 25
Annuity Payment Options........... 25
Enhancements Under Annuity
Options......................... 27
Death of Annuitant During Annuity
Period.......................... 27
Surrender.............................. 27
Other Contract Features................ 28
Change of Beneficiary............. 28
Revocation........................ 28
Reservation of Rights............. 28
Relationship to Employer's Plan... 28
Federal Tax Matters.................... 28
General........................... 28
Taxes Payable by Participants and
Annuitants...................... 29
Section 403(b) Annuities for
Employees of Certain Tax-Exempt
Organizations or Public
Educational Institutions........ 29
Section 401 Qualified Pension,
Profit-Sharing or Annuity
Plans........................... 30
Section 408(b) Individual
Retirement Annuities (other than
Roth IRAs)...................... 31
Simplified Employee Pension
Plans........................... 31
Section 457 Unfunded Deferred
Compensation Plans of Public
Employers and Tax-Exempt
Organizations................... 32
Private Employer Unfunded Deferred
Compensation Plans.............. 32
Effect of Tax Deferred
Accumulations................... 33
Fund Diversification.............. 34
Voting Rights..................... 34
Year 2000.............................. 35
Year 2000 Risks................... 35
</TABLE>
2
<PAGE> 7
DEFINITIONS
Accumulation Period -- the period between the date of the first Purchase
Payment for a Variable Annuity Contract and the Annuity Date.
Accumulation Unit ("Unit") -- an interest of a Contract Owner in a Division
of the Separate Account before Annuity Payments begin. The value of an
Accumulation Unit will vary in proportion to the net investment experience of
the respective Division of the Separate Account. (See the Statement of
Additional Information for an example of calculation of Accumulation Unit
value.)
Accumulation Value -- the Accumulation Value of a Contract on any given
date is equal to the sum of the General Account value and the Separate Account
value under the Contract.
Annuitant -- the person to whom Annuity Payments are or will be made.
Annuity Date -- the date on which Annuity Payments begin.
Annuity Option -- one of several forms in which Annuity Payments can be
made.
Annuity Payments -- payments made by the Company to an Annuitant at regular
intervals during the Annuity Period.
Annuity Period -- the period during which Annuity Payments are made.
Annuity Unit -- a measuring unit used in calculating the amount of Annuity
Payments. The value of an Annuity Unit will change in accordance with the net
investment experience of the Divisions selected, adjusted for the Contract's
3 1/2% initial Assumed Investment Rate. (See the Statement of Additional
Information for an example of calculation of Annuity Unit value.)
Assumed Investment Rate -- the rate used to determine the first monthly
Annuity Payment per thousand dollars of Accumulation Value. The Company will
permit each Annuitant to select an Assumed Investment Rate permitted by state
law or regulations other than the 3 1/2% rate described in this prospectus as
follows: 4 1/2%, 5%, or 6%. Unless otherwise selected, the Assumed Investment
Rate shall equal 3 1/2%, and the information herein is based on that rate.
Beneficiary -- the person to whom benefits, if any, will be paid upon the
death of an Annuitant, including any contingent Beneficiary, i.e., one who
stands in the place of a Beneficiary in the event of the primary Beneficiary's
death.
Contract -- an individual Variable Annuity Contract offered by this
prospectus.
Contract Owner -- the person or entity to whom a Contract is issued. Unless
otherwise provided in an application, the Contract Owner is the Annuitant. Two
Contract Owners may be designated as co-owners when the Contract is issued
pursuant to an employer's retirement program. When co-ownership is designated
the rights vested in the Contract Owner must be jointly exercised.
Contract Year -- a 12-month period beginning with the date of issue of a
Contract, and any anniversary of that date.
Divisions of the Separate Account -- the individual subaccounts into which
the Separate Account is divided and to which Net Purchase Payments and
Accumulation Values may be allocated under a Variable Annuity Contract.
Fixed Annuity -- a series of Annuity Payments to the Annuitant made at
regular intervals which remain fixed throughout the Annuity Period and which do
not vary with investment experience.
Fund -- a mutual fund or investment portfolio of a mutual fund which is the
underlying investment medium for Net Purchase Payments and Accumulation Values
allocated to a Division of the Separate Account.
3
<PAGE> 8
General Account -- the assets of the Company other than those in the
Separate Account or any other separate account. Reserves for any Fixed Annuity
are maintained in the General Account.
Home Office -- the Home Office of the Company shall mean its main office
located at 2929 Allen Parkway, Houston, Texas 77019.
Net Purchase Payment -- a gross Purchase Payment less any applicable taxes.
Purchase Payment -- an amount paid to the Company prior to any premium tax
or other deductions.
Separate Account -- the segregated asset account referred to as Separate
Account A which was established by the Company under the Texas Insurance Code to
receive and invest the Net Purchase Payments made under Variable Annuity
Contracts.
Surrender Value -- the Accumulation Value of a Contract less the surrender
charge, if any.
Variable Annuity -- a series of Annuity Payments, the amounts of which will
increase or decrease to reflect the net investment experience of the Divisions
of the Separate Account selected.
Variable Annuity Contract -- a Contract providing for the payment of a
Variable Annuity.
4
<PAGE> 9
FEE TABLE
CONTRACT OWNER TRANSACTION EXPENSES(1)
Surrender Charge (as a % of the lesser
of all purchase payments received
during the last 36 months or the
amount withdrawn(2))................. 5%
ACCOUNT MAINTENANCE FEE(2)............. $30
SEPARATE ACCOUNT ANNUAL EXPENSES (as a
% of average account value)
Mortality and Expense Risk Charge...... 1.00%
SERIES COMPANY ANNUAL EXPENSES (as a % of Fund average net assets)
<TABLE>
<CAPTION>
STOCK MIDCAP ASSET CAPITAL MONEY
INDEX INDEX ALLOCATION CONSERVATION MARKET
EXPENSES FUND FUND FUND(6) FUND FUND
-------- ----- ------ ---------- ------------ ------
<S> <C> <C> <C> <C> <C>
Management fees(3)................................. .27% .34% .50% .50% .50%
Other expenses(4).................................. .07 .06 .07 .07 .07
Company Reduction of Fund Expenses(5).............. .00 .00 .00 .00 .00
--- --- --- --- ---
Total Fund Expenses (after Reduction).............. .34% .40% .57% .57% .57%
</TABLE>
Example #1 -- Assuming Surrender at the end of the period shown:
Total Expenses. You would pay the following expenses on a $1,000 investment
under a typical UIT-981 Contract invested in a Separate Account Division as
listed below, assuming a 5% annual return on assets:
<TABLE>
<CAPTION>
1 YEAR 3 YEARS 5 YEARS 10 YEARS
------ ------- ------- --------
<S> <C> <C> <C> <C>
Stock Index Division........................................ $61 $ 94 $76 $168
MidCap Index Division....................................... 61 96 80 175
Asset Allocation Division(6)................................ 63 101 89 193
Capital Conservation Division............................... 63 101 89 193
Money Market Division....................................... 63 101 89 193
</TABLE>
5
<PAGE> 10
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 UIT-981 Contract without a surrender charge imposed invested in
a Separate Account Division as listed below, assuming a 5% annual return on
assets:
<TABLE>
<CAPTION>
1 YEAR 3 YEARS 5 YEARS 10 YEARS
------ ------- ------- --------
<S> <C> <C> <C> <C>
Stock Index Division........................................ $14 $44 $76 $168
MidCap Index Division....................................... 15 46 80 175
Asset Allocation Division(6)................................ 17 51 89 193
Capital Conservation Division............................... 17 51 89 193
Money Market Division....................................... 17 51 89 193
</TABLE>
- ------------
(1) Premium taxes are not shown here, but may be charged by some states either
on purchase payments or on amounts annuitized. See "Charge for Premium
Taxes."
(2) Reductions in the surrender charge and the account maintenance fees are
available if certain conditions are met. The surrender charge is not
incurred on annuitization or upon payment of death benefits. No annual
account maintenance fee will be assessed during the Annuity Period. The
first partial surrender per Contract year of 10% or less of Accumulation
Value with respect to a Contract Owner Account will not be subject to a
surrender charge. See "Charge for Total and Partial Surrender" and "Charge
for Annual Account Maintenance."
(3) Annual management fees for the MidCap Index Fund and the Stock Index Fund
are based on each Fund's average annual net asset value at the following
rates: 0.35% of the first $500 million and 0.25% on the excess over $500
million. The annual management fees for the Capital Conservation Fund, Money
Market Fund and Asset Allocation Fund are flat rates as shown regardless of
the amount of Fund assets.
(4) Includes custody, accounting, reports to shareholders, audit, legal, and
other miscellaneous expenses.
(5) The Company has undertaken to reimburse Contract Owners for ordinary
business expenses of the following Funds for any fiscal year which exceed
certain levels as set forth below:
<TABLE>
<S> <C>
Capital Conservation Fund................ 0.95% of first $75 million plus 0.85% of excess
over $75 million of average net assets
Money Market Fund........................ 1.00% of average net assets
Stock Index Fund......................... 1.50% of the first $30 million plus 1.00% of
excess over $30 million of average net assets
</TABLE>
Additionally, to the extent that any of the Series Company Funds accrued
expenses for a given month exceed on an annualized basis 2% of estimated
average daily net assets, the Company has voluntarily undertaken to reduce
expenses of any such Fund, in an amount equal to the difference between such
accrued expenses and 2% of the Fund's average daily net assets for that
month. The Company may withdraw this voluntary undertaking upon 30 days
written notice to the Series Company.
(6) The 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 the Separate Account or for any Fund. Actual expenses may be
greater or less than those shown above. Similarly, the 5% annual rate of return
assumed in the examples is not an estimate or guarantee of future investment
performance. The purpose of the Fee Table above is to help Contract Owners
understand the various expenses of the Separate Account and the Funds which are,
in effect, passed on to Contract Owners.
This Fee Table, including the examples above, shows all charges and expenses
which are deducted from purchase payments, from the assets of the Separate
Account and from the Funds in which the Separate Account invests. For a further
description of these charges and expenses, see "Charges Under Variable Annuity
Contracts" in this prospectus and "Investment Adviser" in the Series Company
prospectus. Any and all limitations on total charges and expenses are reflected
in the Fee Table.
6
<PAGE> 11
INTRODUCTION
THE CONTRACTS ARE COMBINATION FIXED/VARIABLE CONTRACTS OFFERING
VARIABLE OR FIXED ACCUMULATIONS AND VARIABLE OR FIXED BENEFITS OR COMBINATIONS
OF BOTH. THIS PROSPECTUS DESCRIBES ONLY THE VARIABLE ASPECTS OF THE CONTRACTS,
EXCEPT WHERE FIXED ASPECTS ARE SPECIFICALLY NOTED.
The Contracts are designed to provide individuals with retirement benefits
through the accumulation of Net Purchase Payments on a fixed or variable basis,
and by the application of such accumulations to provide fixed or variable
annuity payments. The purpose of variable accumulations and annuity payments is
to provide returns to investors which offset or exceed the effects of inflation.
There is, however, no guarantee that this objective will in fact be achieved.
The Funds. Five Separate Account Divisions investing in portfolios of the
Series Company (the "Funds") are available under the Contracts in addition to
the Company's General Account. The five Funds currently underlying the available
Separate Account Divisions are: Capital Conservation Fund, Money Market Fund,
MidCap Index Fund, Asset Allocation Fund and Stock Index Fund.
Accumulation of Purchase Payments. Prior to retirement, the Contract Owner
pursues various investment options on a variable or fixed basis by electing to
deposit Purchase Payments in up to three Divisions of the Separate Account, or
in the General Account and up to two Divisions of the Separate Account. Those
payments allocated to the Separate Account will be applied to purchase shares of
the Funds as chosen by the Contract Owner in which such Divisions of the
Separate Account invest. As the value of the investment in the Funds increases
or decreases, the value of accumulated Net Purchase Payments will increase or
decrease. The value of such accumulations is subject to deduction for charges
summarized below. (For information as to how the Contracts may be purchased, and
certain minimums that apply to Purchase Payments and Accumulation Values, see
"Accumulation Period.") Contract Owners may exercise a 10-day revocation right
(in some states this may be a 20-day revocation right). (See "Revocation.")
Surrenders. The Contract Owner may, subject to applicable law and the terms
of the employer's plan, make a total or partial surrender at any time during the
Accumulation Period by giving a written request to the Company. (See "Surrender"
and "Federal Tax Matters.") The Contract must be returned to the Company before
a total surrender can be effected. A surrender charge may be assessed for a
partial or total surrender, or upon the election of a lump sum payment during
the Annuity Period under the fifth annuity option, depending on the length of
time the Contract has been in force.
Surrender Charge. A surrender charge of up to 5% of Purchase Payments
received during the most recent 36 months may be assessed for a partial or total
surrender. The surrender charge is designed to help defray sales and
distribution expenses incurred by the Company. (See "Charge for Partial and
Total Surrenders.")
Fixed and Variable Annuity Payments. On the Annuity Date, the Accumulation
Value, at the Annuitant's option, may be applied to purchase any combination of
fixed and/or variable annuities, subject to the Company's minimum annuity
payment and other requirements for any one annuity form. (See "Fixed or Variable
Annuity Payments" and "Annuity Payment Options.") Up to three Divisions of the
Separate Account, or the General Account and up to two Divisions of the Separate
Account may be utilized to provide annuity payments.
Transfers. The Company has the right to limit transfers. The Company's
current policy is that at any time during the Accumulation Period, a Contract
Owner may transfer all or part of the Accumulation Value among Divisions of the
Separate Account or to the General Account. After a transfer to the General
Account, at least 90 days must elapse before any subsequent transfer from the
General Account will be permitted.
During the Annuity Period, an Annuitant may also transfer all or part of
the Contract's Accumulation Value among Divisions of the Separate Account or to
the General Account once every 365 days. Transfers from the General Account
during the Annuity Period are not permitted.
Transfers are not subject to any charge. (See "Transfers Among Investment
Options" for addi-
7
<PAGE> 12
tional conditions and limitations regarding transfers.) The transfer privilege
may be suspended or terminated at any time.
Other Charges. An annual contract maintenance charge, which is currently
$30, but may be increased or decreased, is assessed on the last day of the
calendar quarter in which the first Purchase Payment is made and annually on
that date throughout the Accumulation Period for the cost of administrative
expenses with respect to each Contract. This charge will reduce the Surrender
Value of the Contract. No annual contract maintenance charge will be assessed
during the annuity period.
A daily charge at an annual rate of 1% of the average daily net asset value
of the Separate Account allocable to a Contract is imposed for certain
additional expenses and for assumption by the Company of mortality risks. In
addition, in certain states a deduction for premium taxes is made. (See "Charge
to the Separate Account" and "Charge for Premium Taxes.")
A daily charge, based on a percentage of average daily net assets, is paid
by each Fund to its investment adviser for investment management. These charges,
and other Fund charges and expenses more fully described in the prospectuses for
the Funds and summarized in the Fee Table above, are borne indirectly by the
Contract Owners.
8
<PAGE> 13
SELECTED ACCUMULATION UNIT DATA
The information presented below reflects the Accumulation Unit information
for Divisions of the Separate Account through December 31, 1997.
The unit value of each Division of the Separate Account will not be the
same on any given day as the net asset value per share of the underlying Fund in
which that Division invests. This is because each Unit Value consists of the
underlying share's net asset value minus the charges to the Separate Account. In
addition, dividends declared by the underlying Fund are reinvested by the
Division in additional shares. These distributions have the effect of reducing
the value of each share of the Fund and increasing the number of Fund shares
outstanding. However, the total cash value in the Separate Account does not
change as a result of such distribution.
<TABLE>
<CAPTION>
MIDCAP ASSET CAPITAL MONEY
STOCK INDEX INDEX ALLOCATION* CONSERVATION MARKET
DIVISION 10(1) DIVISION 4(2) DIVISION 5 DIVISION 1 DIVISION 2
-------------- ------------- ----------- ------------ ----------
<S> <C> <C> <C> <C> <C>
December 31, 1997
Accumulation Units in Force................... 7,438,537 171,065,657 57,307,351 1,831,961 1,931,439
Accumulation Unit Value....................... $6.652806 $4.269122 $3.219282 $3.505970 $2.371163
December 31, 1996
Accumulation Units in Force................... 8,381,704 172,816,978 65,292,617 1,991,536 2,142,534
Accumulation Unit Value....................... $5.049088 $3.272588 $2.651899 $3.262402 $2.277444
December 31, 1995
Accumulation Units in Force................... 9,885,873 172,613,690 75,851,431 2,402,085 2,917,361
Accumulation Unit Value....................... $4.155057 $2.782677 $2.411022 $3.238370 $2.190686
December 31, 1994
Accumulation Units in Force................... 12,207,684 171,442,018 89,377,860 2,953,861 3,442,237
Accumulation Unit Value....................... $3.056808 $2.153183 $1.951533 $2.709029 $2.096416
December 31, 1993
Accumulation Units in Force................... 14,043,516 134,621,879 93,899,802 3,590,916 4,129,981
Accumulation Unit Value....................... $3.066025 $2.259378 $1.997266 $2.913980 $2.040131
December 31, 1992
Accumulation Units in Force................... 16,275,183 81,007,871 80,637,090 4,086,583 5,536,887
Accumulation Unit Value....................... $2.818583 $2.021271 $1.846025 $2.628509 $2.006700
December 31, 1991
Accumulation Units in Force................... 17,981,945 49,106,844 76,624,765 4,464,580 7,282,083
Accumulation Unit Value....................... $2.746708 $1.858030 $1.878219 $2.444253 $1.963118
December 31, 1990
Accumulation Units in Force................... 20,409,931 42,958,640 72,284,139 5,092,258 9,234,995
Accumulation Unit Value....................... $2.097328 $1.538017 $1.563444 $1.995673 $1.879911
December 31, 1989
Accumulation Units in Force................... 23,982,977 40,618,028 68,361,149 6,710,808 11,155,035
Accumulation Unit Value....................... $2.189419 $1.712671 $1.618165 $2.228459 $1.762208
December 31, 1988
Accumulation Units in Force................... 30,359,436 38,747,706 65,817,325 9,409,294 10,834,647
Accumulation Unit Value....................... $1.715045 $1.450217 $1.397280 $2.561043 $1.633242
</TABLE>
- ---------------
* The Asset Allocation Fund was formerly known as the Timed Opportunity Fund.
(1) Effective with the merger of the Quality Growth Fund into the Stock Index
Fund on May 1, 1992 Quality Growth Division 3 was renamed Stock Index
Division 10.
(2) Effective October 1, 1991 the Fund underlying this Division changed its name
from the Capital Accumulation Fund to the MidCap Index Fund and amended its
investment objective, investment program and investment restrictions
accordingly. Historical accumulation unit values prior to October 1, 1991
reflect investment experience prior to these changes.
9
<PAGE> 14
AVERAGE ANNUAL TOTAL RETURN
WITH SURRENDER CHARGE AND ACCOUNT MAINTENANCE FEE IMPOSED
CALCULATION OF AVERAGE ANNUAL TOTAL RETURN
<TABLE>
<CAPTION>
NO. OF YEARS DIV 1 DIV 2 DIV 4 DIV 5 DIV 10
------------ ----- ----- ----- ----- ------
<S> <C> <C> <C> <C> <C>
1 Year................................... 2.56% -0.64% 25.36% 16.31% 26.67%
3 Years.................................. 7.45 2.53 24.44 16.84 28.47
5 Years.................................. 5.81 3.28 16.00 11.64 18.61
10 Years................................. 4.10 4.27 12.61 9.45 14.68
Since Inception.......................... 8.06 5.43 16.12 8.37 12.89
</TABLE>
- ------------
- - Division One was initiated on February 11, 1982. From that date until December
18, 1990, historical performance for the Division was that of the American
General High Yield Accumulation Fund Inc. On December 18, 1990, the American
General High Yield Accumulation Fund Inc. changed its name to the American
General Fixed-Income Accumulation Fund Inc. From December 18, 1990 to October
1, 1991, historical performance for the Division was that of the American
General Fixed Income Accumulation Fund Inc. On October 1, 1991, pursuant to a
substitution, Division One commenced investing in shares of the Capital
Conservation Fund. Historical performance for the Division since October 1,
1991 is that of the Capital Conservation Fund.
- - Division Two was initiated on February 4, 1982. On October 1, 1991, pursuant
to a substitution, Division Two commenced investing in shares of the Money
Market Fund. Historical performance for the Division since October 1, 1991 is
that of the Money Market Fund.
- - Division Four was initiated on October 13, 1982. Effective October 1, 1991,
the Capital Accumulation Fund changed its name to the MidCap Index Fund and
revised its investment objective, investment program and investment
restrictions accordingly, pursuant to contract owner vote.
- - Division Five was initiated on September 6, 1983. Effective October 1, 1997
the Timed Opportunity Fund changed its name to the Asset Allocation Fund.
- - Division Ten was initiated as Division Three on July 28, 1982. Effective May
1, 1992, AGSPC Quality Growth Fund merged with AGSPC Stock Index Fund and
Division Three was renamed Division Ten.
PERFORMANCE INFORMATION
The Separate Account may from time to time advertise certain performance
information concerning its various Divisions. The Separate Account and certain
Divisions have been offering contracts for periods prior to the commencement of
the offering of the Contracts described in this Prospectus. The performance
information is based on historical results and is not intended to indicate past
performance under an actual Contract or future performance. Each Division may
also, from time to time, advertise its performance relative to certain
performance rankings and indices compiled by independent organizations. More
detailed information as to the calculation of performance information, as well
as comparisons with unmanaged market indices, appears in the Statement of
Additional Information.
Each Division may advertise total return performance information for
various periods of time. Total return performance information is based on the
overall dollar or percentage change in value of a hypothetical investment in the
specific Division over a given period of time. In general, a Division's total
return reflects the overall change in value of the Division from the beginning
of the relevant period to the end of that period.
Average annual total return information shows the average percentage change
in the value of an investment in the Division from the beginning date of the
measuring period to the end of that period. The standardized version of average
annual total return reflects all historical investment results, less all charges
and deductions applied against the Division (including any surrender charge that
would apply if a Contract Owner terminated the Contract at the end of each
period indicated, but excluding any deductions for premium taxes). The rate is
computed for each Division comparing an initial hypothetical investment of
$1,000 in the Division to the redeemable value of that investment at the end of
specifically identified 1, 3, 5 and 10 year periods. In order to calculate
average annual total return, the Company divides the value of a Division under a
Contract terminated on a particular date by a hypothetical $1,000 investment in
the Division made by the Contract Owner at the beginning of the period
illustrated. The resulting total growth rate for the period is then annualized
to obtain the average annual percentage increase (or decrease) during the
period. Annualization assumes that the application of a single rate of return
each year during the period will produce the ending value, taking into account
the effect of compounding.
10
<PAGE> 15
The Divisions may, in addition, advertise total return performance
information computed on different bases. First, the Divisions may present total
return information computed on the same basis as described above, except
deductions will not include the surrender charge or the maintenance charge. (The
Company refers to this presentation as "Cumulative Return.") This presentation
assumes that the investment in the Contract persists beyond the period when the
surrender charge applies, consistent with the long-term investment and
retirement objectives of the Contract. This presentation may assume 1, 3, 5 and
10 year periods and is based on a hypothetical $10,000 initial investment.
Second, the Divisions may present total return information calculated by
subtracting a Division's Accumulation Unit value at the beginning of a year from
the Accumulation Unit value of that Division at the end of the year and dividing
the difference by the Accumulation Unit value at the beginning of the year. (The
Company refers to this presentation as "Annual Change in Accumulation Unit
Value.") This computation results in a total growth rate for the period which
the Company annualizes (as described above) in order to obtain the average
annual percentage change in the Accumulation Unit value for that period.
Surrender charges, premium taxes, and maintenance charges are not deducted from
the Accumulation Unit values. These charges, if applicable, are imposed by the
cancellation of Accumulation Units attributable to an individual Contract
Owner's account. The effect of these charges is to reduce total return to the
Contract Owner.
Third, the Divisions may present aggregate total return figures for various
periods, reflecting the cumulative change in value of an investment in the
Division for the specified period. This calculation is the same as that for the
Annual Change in Accumulation Unit Value but is based on the Accumulation Unit
value at the beginning and end of a period of years in excess of one year. (The
Company refers to this presentation as "Cumulative Change in Accumulation Unit
Value.")
Finally, the Divisions may present a hypothetical example that applies the
Annual Change in Accumulation Unit Value to an initial investment of $10,000.
(VALIC refers to this presentation as "Hypothetical $10,000 Account Value.")
Each Division other than the Money Market Division may advertise
standardized yield performance in addition to total return information. A
Division's yield is one way of showing the rate of income the Division earns as
a percentage of the value of the Division's Accumulation Units. The yield of
each Division is computed by dividing the average daily net investment income
per Accumulation Unit of the Division earned during a specifically identified
30-day base period, less a maintenance charge, by the Accumulation Unit value on
the last day of the period, and annualizing that result. This calculation takes
into account the average daily number of Accumulation Units outstanding during
the period. The yield of each Division reflects the deduction of all charges,
expenses and fees applicable against the Division, but does not take into
account the surrender charge and premium taxes.
The Money Market Division may advertise yield and effective yield
performance information. The yield of the Money Market Division refers to the
income generated by an investment in the Money Market Division over a
specifically identified 7-day period. (The yield does not take into account the
surrender charge, the maintenance charge or premium taxes.) This income is
annualized by assuming that the amount of income generated by the investment
during that week is generated each week over a 52-week period and is shown as a
percentage of the investment. The seven day current yield for the seven days
ended December 31, 1997 was 4.22%. The effective yield of the Money Market
Division is calculated in a similar manner, but when annualizing such yield,
income earned by the Money Market Division is assumed to be reinvested. This
compounding effect will cause effective yield to be higher than current yield.
The seven day effective yield for the seven days ended December 31, 1997 was
4.31%.
ENDORSEMENTS AND PUBLISHED RATINGS
From time to time, in advertisements or in reports to Contract Owners, the
Company may refer to endorsements. Endorsements are often in the form of a list
of organizations, individuals or other parties which recommend the Company or
the Contracts. The endorser's name will be used only with the endorser's
consent. It should be noted that the list of endorsements may change from time
to time.
Also from time to time, the rating of the Company as an insurance company
by A. M. Best may be referred to in advertisements or in reports to Contract
Owners. Each year the A.M. Best Company reviews the financial status of
thousands of insurers, culminating in the assignment of Best's Ratings. These
ratings reflect their current opinion
11
<PAGE> 16
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 & Poor's Ratings Group may be referred to in advertisements or in
reports to Contract Owners. A Standard & Poor's insurance claims-paying ability
rating is an assessment of an operating insurance company's financial capacity
to meet the obligations of its insurance policies in accordance with their
terms. Standard & Poor's ratings range from AAA to D.
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
Service ratings range from Aaa to C. The Company may, from time to time, refer
to a general investment strategy known as indexing. Several of the Divisions
employ this investment strategy. The Company may compare the performance of
these Divisions to the S&P 500 Index, S&P MidCap 400 Index, Russell 2000 Index,
Morgan Stanley Capital International Europe, Australia and Far East (EAFE)
Index, or any other appropriate market index. The indexes are not managed funds
and have no identifiable investment objectives.
ANNUAL AND CUMULATIVE CHANGE IN ACCUMULATION UNIT VALUE
<TABLE>
<CAPTION>
STOCK MIDCAP ASSET CAPITAL MONEY
INDEX INDEX ALLOCATION* CONSERVATION MARKET
FOR EACH FISCAL DIVISION 10 DIVISION 4(1) DIVISION 5(2) DIVISION 1 DIVISION 2
PERIOD ------------------- ------------------- ------------------- ------------------- -------------------
END SINCE CUM- CUM- CUM- CUM- CUM-
12/31/87 ANNUAL ULATIVE ANNUAL ULATIVE ANNUAL ULATIVE ANNUAL ULATIVE ANNUAL ULATIVE
-------- ------ ------- ------ ------- ------ ------- ------ ------- ------ -------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
12-31-97........... 31.76% 299.17% 30.45% 232.83% 21.40% 150.29% 7.47% 51.69% 4.12% 54.26%
12-31-96........... 21.52 202.95 17.61 155.14 9.99 106.18 0.74 41.16 3.96 48.16
12-31-95........... 35.93 149.30 29.24 116.95 23.55 87.45 19.54 40.12 4.50 42.52
12-31-94........... (0.30) 83.41 (4.70) 67.87 (2.29) 51.73 (7.03) 17.21 2.76 36.38
12-31-93........... 8.78 83.96 11.78 76.15 8.19 55.28 10.86 26.08 1.67 32.72
12-31-92........... 2.62 69.12 8.79 57.58 (1.71) 43.52 7.54 13.73 2.22 30.55
12-31-91........... 30.96 64.80 20.81 44.86 20.13 46.03 22.48 5.76 4.43 27.71
12-31-90........... (4.21) 25.84 (10.20) 19.91 (3.38) 21.55 (10.45) (13.65) 6.68 22.30
12-31-89........... 27.66 31.37 18.10 33.52 15.81 25.81 (12.99) (3.58) 7.90 14.64
12-31-88........... 2.90 2.90 13.06 13.06 8.63 8.63 10.81 10.81 6.25 6.25
</TABLE>
- ---------------
For the year in which the Division was initiated, less than a full year's
performance has been reflected. Actual, not annualized, performance is
reflected.
* The Asset Allocation Fund was formerly known as the Timed Opportunity Fund.
(1) Initiated 10/13/82. Effective October 1, 1991 the Fund underlying this
Division changed its name from the Capital Accumulation Fund to the MidCap
Index Fund and amended its investment objective, investment program and
investment restrictions accordingly. Historical data prior to October 1,
1991 reflect investment experience prior to these changes. Investment
experience for MidCap Index Division 4 subsequent to October 1, 1991 has
been as follows: from the period of October 1, 1991 to December 31, 1991 the
change in accumulation value was 11.63%; for the period from October 1, 1991
to December 31, 1992 the cumulative change in accumulation unit value was
21.43%, for the period from October 1, 1991 to December 31, 1993 the
cumulative change in accumulation unit value was 35.74%; for the period from
October 1, 1991 to December 31, 1995 the cumulative change in accumulation
unit value was 67.18%; for the period from October 1, 1991 to December 31,
1996 the cumulative change in accumulation unit value was 96.61%; for the
period from October 1, 1991 to December 31, 1997 the cumulative change in
accumulation unit value was 156.48%.
(2) Initiated 9/6/83.
12
<PAGE> 17
THE COMPANY AND
THE SEPARATE ACCOUNT
The Company is a stock life insurance company organized under the laws of
the State of Texas as the successor to Variable Annuity Life Insurance Company
of America, a District of Columbia life insurance company organized in 1955. The
Company is engaged primarily in the offering and issuance of fixed and variable
retirement annuity contracts and combinations thereof. The Company's executive
office is located at 2929 Allen Parkway, Houston, Texas 77019; its mailing
address is P.O. Box 3206, Houston, Texas 77253.
The Company is an indirect wholly-owned subsidiary of American General
Corporation. However, the assets of American General Corporation do not support
the obligations of the Company under the Contracts. Members of the American
General Corporation group of companies operate in each of the 50 states and
Canada, and collectively are engaged in substantially all forms of financial
services, with activities heavily weighted toward insurance.
On April 18, 1979, the Board of Directors of the Company established the
Separate Account in accordance with the Texas Insurance Code. The Separate
Account is registered with the U.S. Securities and Exchange Commission as a unit
investment trust under the Investment Company Act of 1940 (the "1940 Act").
Units of interest in the Separate Account under the Contracts are similarly
registered as securities under the Securities Act of 1933 (the "1933 Act").
Under the Texas Insurance Code and the Contracts, the assets of the Separate
Account will not be chargeable with liabilities arising out of any other
business which the Company may conduct, but will be held exclusively for the
benefit of the Contract Owners, Annuitants and Beneficiaries of the Contracts.
Each Division of the Separate Account is administered and accounted for as
part of the general business of the Company; however, the income, capital gains,
or capital losses of each Division of the Separate Account are credited to or
charged against the assets held in that Division in accordance with the terms of
each Contract without regard to the income, capital gains, or capital losses of
any other Division or arising out of any other business the Company may conduct.
Each Division of the Separate Account available under the Contracts will
invest in the shares of a specific Fund. The Separate Account currently is made
up of eighteen Divisions, five of which are available as variable investment
options under the Contracts to receive Net Purchase Payments allocated to the
five variable subaccounts (Divisions One, Two, Four, Five, and Ten). All of the
investment portfolios underlying these Divisions are also available under other
variable annuity contracts issued by the Company. (For a description of the
Divisions available under the Contracts and the specific Fund in which each
respective Division invests, see "The Funds.")
Each Fund is one of thirteen investment portfolios of American General
Series Portfolio Company (the "Series Company"), an open-end, management
investment company registered under the 1940 Act.
TRANSFERS AMONG INVESTMENT OPTIONS
Transfers of Accumulation Units and Annuity Units among Divisions of the
Separate Account, or between the General Account and the Separate Account, are
permitted subject to the conditions discussed below. The right to make transfers
is exercisable by the Contract Owner during the Accumulation Period and by the
Annuitant during the Annuity Period. The Company reserves the right to limit or
restrict transfers to the extent such limitation or restriction is allowed by
the Contract.
TRANSFERS DURING THE ACCUMULATION PERIOD
The Company's current policy is that transfers among Divisions of the
Separate Account or from the Separate Account to the General Account may be made
at any time during the Accumulation Period.
Transfers to the General Account from a Division of the Separate Account
will result in no further transfers from the General Account being permitted for
a period of 90 days.
Plan loans from the portion of the Contract attributable to the General
Account may be permitted by your employer's plan. Refer to your plan for a
description of charges and further information.
TRANSFERS DURING THE ANNUITY PERIOD
During the Annuity Period, transfers among Divisions of the Separate
Account or from the Separate Account to the General Account are accomplished by
transferring Annuity Units among the Separate Account's Divisions or to the
General Account. These transfers may be made at intervals of at least 365 days.
During the Annuity Period, transfers from the General Account are not permitted.
13
<PAGE> 18
OTHER REQUIREMENTS
Transfers among investment options or changes of future allocation of
Purchase Payments ("reallocations") may be made upon
receipt by the Company, at its Home Office,
of written instructions or by telephone at
1-800-621-7792. Request for transfers or reallocations by telephone will be
automatically permitted unless the Company has been
notified otherwise in writing or by telephone at 1-800-621-7792. If, after
notifying the Company that telephone transfers or reallocations are not to be
allowed, the Contract Owner or Participant wishes to have the right to effect
telephone transfers or reallocations reactivated, he or she must notify the
Company in writing.
Prior to the Company's effecting a transfer request or reallocation by
telephone instruction, the Company will employ reasonable procedures to confirm
that instructions communicated by telephone are genuine by requiring certain
identifying information about the Contract Owner or Participant. Unless the
Contract Owner instructs the Company not to accept telephone transfers or
reallocations, anyone who represents that he or she is authorized by the
Contract Owner or Participant to effect a transfer or reallocation may do so if
they have the requisite Contract Owner or Participant account information.
Officers, directors, agents, representatives and employees of the Company may
not give or be authorized to give telephone instructions on behalf of Contract
Owners or Participants (other than for contracts within their immediate family)
without prior written permission of the Company.
It is the responsibility of the Contract Owner or Participant to verify the
accuracy of all confirmations of transfers and to promptly advise the Company of
any inaccuracies within one business day of receipt of the confirmation. The
Company will send to the Contract Owner or Participant a confirmation of the
transfer within five (5) days from the date of the instruction.
Any telephone instructions reasonably believed by the Company to be genuine
will be the Contract Owner's or Participant's responsibility, including losses
arising from any errors in the communication of instructions. As a result of
this policy, the Contract Owner or Participant will bear the risk of loss. If
the Company does not employ reasonable procedures to confirm that instructions
communicated by telephone are genuine, it may be liable for any losses due to
unauthorized or fraudulent instructions.
Transfers or reallocations will be effected pursuant to the Contract
Owner's or Participant's written or telephone transfer request as of the day
when received by the Company if received by the Company's Home Office before the
close of regular trading of the New York Stock Exchange, generally 4:00 p.m. New
York time, on a day Accumulation values are calculated; otherwise the next
calculated Accumulation Unit or Annuity Unit Value will be used. Telephone
transfer requests will not be accepted during the Annuity Period. The Company
reserves the right to discontinue the telephone transfer facility at any time.
Up to three Divisions of the Separate Account or two Divisions of the
Separate Account and the General Account may be used at any one time during the
Accumulation Period or the Annuity Period. (For additional requirements with
respect to investment options during the Annuity Period, see "Fixed or Variable
Annuity Payments" and "Annuity Payment Options.")
THE FUNDS
The Company serves as the investment adviser to the Series Company, five
portfolios of which are the five Funds constituting Divisions One, Two, Four,
Five and Ten of the Separate Account. Each of these five investment portfolios
is, in effect, a separate "fund" for which the Series Company issues a separate
series (class) of stock. These five Funds also serve as investment media for
variable annuity contracts issued by affiliates of the Company.
A brief summary of the principal characteristics of each Fund appears
below. For more complete information about these Funds, including their charges
and expenses, refer to their respective Prospectuses, additional copies of which
can be obtained from the Company (P.O. Box 3206, Houston, Texas 77253; or
contact any Regional Office at 1-800-44-VALIC or at the address shown on the
inside back cover of the Prospectus).
PERFORMANCE DATA. Certain performance data related to each Division follows
the description of investment objectives of the Fund in which that Division
invests. (See "Performance Information" for a description of the methods of
calculating the performance data shown and the fees and charges included.)
14
<PAGE> 19
The information presented does not reflect the advantage under the
Contracts of deferring Federal income tax on increases in account value due to
earnings attributable to Purchase Payments. (See "Federal Tax Matters -- Effect
of Tax-Deferred Accumulation.") The information presented also does not reflect
the advantage under Qualified Contracts of deferring federal income tax on
Purchase Payments. (See "Federal Tax Matters -- Effect of Tax-Deferred
Accumulation.")
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 Contract owner.
15
<PAGE> 20
STOCK INDEX FUND (DIVISION TEN*). This Fund seeks long-term capital growth
through investment in common stocks that, as a group, are expected to provide
investment results closely corresponding to the performance of the S&P 500
Index.
HYPOTHETICAL $10,000 ACCOUNT
INVESTED IN STOCK INDEX DIVISION 10 AT JANUARY 1, 1988
<TABLE>
<CAPTION>
ANNUAL VALUE OF A
$10,000 STIPULATED PAYMENT VALUE AT MONTHLY INTERVALS OF A $10,000
MADE JANUARY 1, 1988 STIPULATED PAYMENT MADE JANUARY 1, 1988
- ---------------------------------- ---------------------------------------
<S> <C> <C> <C>
01/01/88................ $10,000
12/31/88................ 10,290
12/31/89................ 13,137
12/31/90................ 12,584
12/31/91................ 16,480
12/31/92................ 16,912
12/31/93................ 18,396
12/31/94................ 18,341
12/31/95................ 24,930
12/31/96................ 30,295
12/31/97................ 39,917
</TABLE>
LOGO
CUMULATIVE RETURN
<TABLE>
<CAPTION>
SINCE
INCEPTION** 10 YEARS 5 YEARS 3 YEARS 1 YEAR
----------- -------- ------- ------- ------
<S> <C> <C> <C> <C> <C>
Cumulative Return........................ 565.28% 299.17% 136.03% 117.64% 31.76%
</TABLE>
- ------------
* "Standard & Poor's(R)", "S&P(R)", "S&P 500(R)" and "S&P MidCap 400 Index" are
trademarks of Standard & Poor's Corporation. Neither the MidCap Index Fund
nor the Stock Index Fund is sponsored, endorsed, sold or promoted by S&P and
S&P makes no representation regarding the advisability of investing in these
Funds.
** This Division was initiated on July 28, 1982.
16
<PAGE> 21
MIDCAP INDEX FUND (DIVISION FOUR). This Fund seeks to provide growth of
capital through investments primarily in a diversified portfolio of common
stocks that, as a group, are expected to provide investment results closely
corresponding to the performance of the Standard & Poor's(R) Corporation
(S&P(R)) MidCap 400 Index. Effective October 1, 1991, the Capital Accumulation
Fund changed its name to the MidCap Index Fund and revised its investment
objective, investment program and investment restrictions accordingly, pursuant
to contract owner vote. Hypothetical performance information from October 1,
1991 and from January 1, 1988 are shown below.
HYPOTHETICAL $10,000 ACCOUNT
INVESTED IN MIDCAP INDEX DIVISION 4 AT OCTOBER 1, 1991
<TABLE>
<CAPTION>
ANNUAL VALUE OF A $10,000
STIPULATED PAYMENT MADE VALUE AT MONTHLY INTERVALS OF A $10,000
OCTOBER 1, 1991 STIPULATED PAYMENT MADE OCTOBER 1, 1991
- ---------------------------------- ---------------------------------------
<S> <C> <C> <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>
LOGO
HYPOTHETICAL $10,000 ACCOUNT
INVESTED IN MIDCAP INDEX DIVISION 4 AT JANUARY 1, 1988
<TABLE>
<CAPTION>
ANNUAL VALUE OF A $10,000
STIPULATED PAYMENT MADE VALUE AT MONTHLY INTERVALS OF A $10,000
JANUARY 1, 1988 STIPULATED PAYMENT MADE JANUARY 1, 1988
- ---------------------------------- ---------------------------------------
<S> <C> <C> <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>
LOGO
CUMULATIVE RETURN
<TABLE>
<CAPTION>
SINCE
CUMULATIVE RETURN INCEPTION* 10 YEARS 5 YEARS 3 YEARS 1 YEAR
- ---------------------------------------------- ---------- -------- ------- ------- ------
<S> <C> <C> <C> <C> <C>
Period from 10/01/91 through 12/31/97......... 156.48% -- 111.21% 98.27% 30.45%
Period from 10/13/82 through 12/31/97......... 326.91% 232.83% 111.21% 98.27% 30.45%
</TABLE>
- ------------
Selected accumulation unit data for the last ten years for this Fund appears on
page 9 of this Prospectus.
* This Division was initiated on October 13, 1982.
17
<PAGE> 22
ASSET ALLOCATION FUND (DIVISION FIVE). This Fund seeks maximum aggregate
rate of return over the long-term through controlled investment risk by
adjusting its investment mix among stocks, long-term debt securities and
short-term money market securities.
HYPOTHETICAL $10,000 ACCOUNT
INVESTED IN ASSET ALLOCATION DIVISION 5 AT JANUARY 1, 1988
<TABLE>
<CAPTION>
ANNUAL VALUE OF A $10,000
STIPULATED PAYMENT MADE VALUE AT MONTHLY INTERVALS OF A $10,000
JANUARY 1, 1988 STIPULATED PAYMENT MADE JANUARY 1, 1988
- ---------------------------------- ---------------------------------------
<S> <C> <C> <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>
LOGO
CUMULATIVE RETURN
<TABLE>
<CAPTION>
SINCE
INCEPTION* 10 YEARS 5 YEARS 3 YEARS 1 YEAR
---------- -------- ------- ------- ------
<S> <C> <C> <C> <C> <C>
Cumulative Return..................... 221.93% 150.29% 74.39% 64.96% 21.40%
</TABLE>
- ------------
* This Division was initiated on September 6, 1983. Effective October 1, 1997
the Timed Opportunity Fund changed its name to the Asset Allocation Fund.
18
<PAGE> 23
CAPITAL CONSERVATION FUND (DIVISION ONE*).
This Fund seeks the highest possible total return consistent with preservation
of capital through current income and capital gains on investments in
intermediate and long-term debt instruments and other income producing
securities.
HYPOTHETICAL $10,000 ACCOUNT
INVESTED IN CAPITAL CONSERVATION DIVISION 1 AT JANUARY 1, 1988
<TABLE>
<CAPTION>
ANNUAL VALUE OF A
$10,000 STIPULATED PAYMENT VALUE AT MONTHLY INTERVALS OF A $10,000
MADE JANUARY 1, 1988 STIPULATED PAYMENT MADE JANUARY 1, 1988
- ---------------------------------- ---------------------------------------
<S> <C> <C> <C>
01/01/88................ $10,000
12/31/88................ 11,081
12/31/89................ 9,642
12/31/90................ 8,635
12/31/91................ 10,576
12/31/92................ 11,373
12/31/93................ 12,608
12/31/94................ 11,721
12/31/95................ 14,012
12/31/96................ 14,116
12/31/97................ 15,169
</TABLE>
LOGO
CUMULATIVE RETURN
<TABLE>
<CAPTION>
SINCE
INCEPTION** 10 YEARS 5 YEARS 3 YEARS 1 YEAR
----------- -------- ------- ------- ------
<S> <C> <C> <C> <C> <C>
Cumulative Return...................... 250.60% 51.69% 33.38% 29.42% 7.47%
</TABLE>
- ------------
* This Division changed its name and investment policies, effective December
18, 1990, to provide for investment in longer term higher rated securities.
Effective October 1, 1991, the Division substituted AGSPC Capital
Conservation Fund for the A. G. Fixed-Income Accumulation Fund.
** This Division was initiated on February 11, 1982.
19
<PAGE> 24
MONEY MARKET FUND (DIVISION TWO*). This Fund seeks liquidity, protection of
capital and current income through investments in short-term money market
instruments. Shares of the Money Market Fund are neither insured nor guaranteed
by the U.S. Government. There is no assurance that this Fund will be able to
maintain a stable net asset value of $1.00 per share.
Money Market Division Return Calculations
(7 days ended 12/31/97):
7-Day Current Yield for Money Market
Division 2: 4.22%
7-Day Effective Yield For Money
Market Division 2: 4.31%
HYPOTHETICAL $10,000 ACCOUNT
INVESTED IN MONEY MARKET DIVISION 2 AT JANUARY 1, 1988
<TABLE>
<CAPTION>
ANNUAL VALUE OF A
$10,000 STIPULATED PAYMENT VALUE AT MONTHLY INTERVALS OF A $10,000
MADE JANUARY 1, 1988 STIPULATED PAYMENT MADE JANUARY 1, 1988
- ---------------------------------- ---------------------------------------
<S> <C> <C> <C>
01/01/88................ $10,000
12/31/88................ 10,625
12/31/89................ 11,464
12/31/90................ 12,230
12/31/91................ 12,771
12/31/92................ 13,055
12/31/93................ 13,272
12/31/94................ 13,638
12/31/95................ 14,252
12/31/96................ 14,816
12/31/97................ 15,426
</TABLE>
LOGO
CUMULATIVE RETURN
<TABLE>
<CAPTION>
SINCE
INCEPTION** 10 YEARS 5 YEARS 3 YEARS 1 YEAR
----------- -------- ------- ------- ------
<S> <C> <C> <C> <C> <C>
Cumulative Return........................ 137.12% 54.26% 18.16% 13.11% 4.12%
</TABLE>
- ------------
* Effective October 1, 1991, the Division substituted AGSPC Money Market Fund
for A. G. Money Market Accumulation Fund.
** This Division was initiated on February 4, 1982.
20
<PAGE> 25
CHARGES UNDER VARIABLE
ANNUITY CONTRACTS
All charges under the Contracts are described below.
CHARGE FOR PREMIUM TAXES
Premium taxes ranging from zero to 3% are currently imposed by certain
states and municipalities on Purchase Payments made under the Contracts.
Under deferred Contracts subject to premium tax, an amount for the tax will
be deducted, either from Purchase Payments when received, or from the amount
applied to effect an annuity at the time annuity payments commence, depending on
applicable state law. If an amount for any premium taxes is deducted but
subsequently is determined not to be due, the Company will adjust the excess
amount to reflect investment experience from the date of the deduction to the
date the determination is made. The Company will then apply the amount deducted,
as adjusted, to increase the number of Accumulation Units or Annuity Units under
the Contract at the time such determination is made.
CHARGE FOR PARTIAL AND TOTAL SURRENDERS
Except as provided below, a total or partial surrender is subject to a
surrender charge calculated as a percentage of the dollar amount of previous
Purchase Payments with respect to a Contract which are withdrawn. Except as
provided below it is assumed that the most recent Purchase Payments are
withdrawn first, and no surrender charge is ever imposed on any amount not
actually withdrawn.
Amounts exchanged to this Contract from other variable annuity contracts
issued by the Company pursuant to any exchange offered by the Company are not
considered to be Purchase Payments for purposes of calculating a surrender
charge. For such Contract exchanges, exchanged amounts shall be deemed to be
withdrawn only after all other Purchase Payments have been withdrawn.
The surrender charge is equal to 5% of the lesser of (a) all Purchase
Payments received during the most recent 36 months prior to the receipt of the
surrender request by the Company at its Home Office, or (b) the amount
withdrawn. For purposes of this charge, the Company treats withdrawals of
Purchase Payments before any earnings. Additionally, the most recent Purchase
Payments are treated as withdrawn first.
The first partial surrender per Contract Year of 10% or less of
Accumulation Value will not be subject to a surrender charge. These 10%
withdrawals without charge do not reduce Purchase Payments for purposes of
computing the charge. However, if the first partial surrender (or total
surrender, if there have been no partial surrenders) exceeds 10% of Accumulation
Value, the surrender charge will be applied to the lesser of (a) the amount in
excess of 10%, or (b) the amount of the surrender attributable to Purchase
Payments received during the most recent 36 months. The second or any subsequent
surrenders during a Contract Year may be subject to a surrender charge.
If a surrender charge is assessed against any Purchase Payment, that
Purchase Payment (or, if the surrender charge is assessed against less than the
entire Purchase Payment, that portion against which such charge is assessed)
will not be subject to any further surrender charge in the event of a subsequent
withdrawal.
The surrender charge is not imposed upon annuitization of a Contract at the
Annuity Date or upon any payments received by an Annuitant or Beneficiary in
lieu of annuity payments during the Annuity Period except when a lump sum
payment is elected by the Annuitant during the Annuity Period under the fifth
annuity option. (See "Annuity Payment Options" and "Death of Annuitant During
Annuity Period.") Nor is the surrender charge imposed on the payment of benefits
to a Beneficiary when an Annuitant dies during the Accumulation Period. (See
"Death Benefits During Accumulation Period.")
The surrender charge reimburses the Company for part or all of its expenses
related to distributing the Contracts. The Company believes, however, that the
amount of such expenses will exceed the amount of revenues generated by the
surrender charge. The Company will pay such excess out of its general surplus
which, among other things, would include any gains from the asset charge
described below under "Charge to the Separate Account."
This surrender charge will not be assessed on surrenders under Contracts
purchased by American General Corporation's Thrift and Incentive Plan, an
employee benefit program under section 401 of the Internal Revenue Code (the
"Code"), because no sales representative was involved in the sale of such
Contracts and the Company paid no sales commissions to any party in connection
with such sales.
21
<PAGE> 26
Examples of calculation of the surrender charges upon partial and total
surrenders are set forth in the Statement of Additional Information --
"Calculation of Surrender Charge."
CHARGE FOR ANNUAL CONTRACT MAINTENANCE
A Contract maintenance charge of $30 will be assessed on each Contract by
the Company on the last day of the calendar quarter in which the Company
receives the first Purchase Payment, and annually on that date thereafter during
the Accumulation Period. This charge will be assessed proportionately among the
Divisions of the Separate Account and the General Account which make up the
Accumulation Value of the Contract. The Contract maintenance charge is not
guaranteed and may, with prior regulatory approval if required, be changed for
future years. Any change to this charge will apply to Contracts purchased both
before and after such change. This charge is to reimburse the Company for the
cost of administrative expenses, including the expenses incurred in establishing
and maintaining the records relating to the Contract. The Company does not
expect that the revenues it will derive from this charge will exceed such
expenses.
The annual Contract maintenance charge may be reduced or waived on
Contracts purchased by American General Corporation's Thrift and Incentive Plan
because such Contracts do not occasion the administrative expenses which the
Contract maintenance charge usually covers. For example, these Contracts are
purchased in large numbers only once a year, thereby dramatically lowering the
cost of processing such Contracts.
CHARGE TO THE SEPARATE ACCOUNT
To cover administrative expenses not covered by the maintenance charge
discussed above, and to compensate the Company for assuming mortality risks
under the Contracts, the Separate Account will incur a daily charge at an
annualized rate of 1% on the daily net asset value of the Separate Account
attributable to the Contracts. This charge is guaranteed and may not be
increased by the Company.
In assuming the mortality risks, the Company is taking the chance that its
actuarial estimate of mortality rates during the Annuity Period may prove
erroneous and that the Annuitant will live longer than expected or that the
Annuitant will die during the Accumulation Period at a time when the death
benefit guaranteed by the Company is higher than the Accumulation Value of the
Contract. The Company does not expect to earn a profit on that portion of the
charge which is for administrative expenses, but the Company does expect to
derive a profit from the portion which is for assumption of mortality risks.
There is no necessary relationship between the amount of administrative charges
imposed on a given Contract and the amount of expenses actually attributable to
that Contract.
MISCELLANEOUS
A daily charge based on a percentage of average daily net assets is payable
by each Fund to the Company for investment management. These charges, and other
Fund charges and expenses more fully described in the prospectus for the Series
Company, are borne indirectly by the Contract Owners.
CHARGE FOR INCOME TAXES
Currently, no charge is made against the Separate Account for the Company's
federal income taxes, or provisions for such taxes that may be attributable to
the Separate Account. Under existing federal income tax law, the investment
income and capital gains from the sale of investments realized by the Separate
Account are not taxable. The Company may charge each Division in the Separate
Account for its portion of any income tax charged to the Company or the Division
or its assets. Under present laws, the Company may incur state and local taxes
(in addition to federal taxes) in several states. At present, these taxes are
not significant. If they increase, however, the Company may decide to make
charges for such taxes or provisions for such taxes against the Separate
Account. Any such charges against the Separate Account or its Divisions could
have an adverse effect on the investment performance of such Division.
ACCUMULATION PERIOD
During the period before the commencement of annuity payments (the
"Accumulation Period"), the Contract Owner or employer may make Purchase
Payments from time to time, and on such dates and in such amounts as may be
determined pursuant to the retirement plan for which the Contract has been
purchased.
In all cases, the initial Purchase Payment must be preceded by or
accompanied by a properly com-
22
<PAGE> 27
pleted application. Except in the case of IRAs, Purchase Payments are generally
remitted through or by an employer and the Company must also receive a premium
flow report which identifies the amount to be credited to each individual
Contract held pursuant to the employer's retirement plan.
The initial and subsequent Purchase Payments for a periodic payment
Contract must be at least $30. This minimum applies separately to the amount of
each Purchase Payment directed to each Division of the Separate Account or the
General Account. For single payment Contracts, the minimum Purchase Payment is
$1,000 per Contract. However, these minimums may be waived where one purchaser,
such as an employer, purchases a number of Contracts.
When an initial Purchase Payment accompanies an application to purchase a
Contract (and, if required, a premium flow report), the Company will, within two
business days after receipt of the application at its Home Office, either (a)
process and accept the application, issue the Contract, and credit Accumulation
Units to the Contract as of the date of acceptance; (b) reject the application
and return the Purchase Payment; or (c) request additional documents or
information if the application is not complete or is incorrectly completed.
If the Company receives Purchase Payments from your employer before the
Company receives your completed application or enrollment form, the Company will
not be able to open an account for you. Under these circumstances, the Company
will take one of the following actions:
Return Purchase Payments. If the Company does not have your name, address or
social security number, the Company will return the Purchase Payment to your
employer unless this information is immediately provided to the Company.
Employer-Directed Account. If the Company has your name, address and social
security number and the Company has an Employer-Directed Account Agreement
from your employer, generally the Company will deposit your Purchase Payment
in an "Employer-Directed" account invested in the Money Market Division
Option. You may not transfer these amounts until the Company has received a
completed application or enrollment form.
Starter Account. If the Company has your name, address and social security
number, but the Company does not have an Employer-Directed Account Agreement
from your employer, the Company will deposit your Purchase Payment in a
"starter" account invested in the Money Market Division. The Company will send
you follow-up letters requesting the information necessary to complete the
application, including your allocation instructions. Unless a completed
application or enrollment form is received by the Company within 105 days of
establishment of your starter account, the account balance, including
earnings, will be returned to your employer. The Company is not responsible
for any adverse tax consequences to you that may result from the return of
your employer's contributions.
For initial and subsequent payments, Accumulation Units will be credited at
the Accumulation Unit value calculated as of the day the Purchase Payment was
received by the Company, if received at the Company's Home Office before the
close of regular trading of the New York Stock Exchange, generally 4:00 p.m. New
York time on a day Accumulation Unit values are calculated; otherwise, the next
calculated Accumulation Unit value is used. As a result, the Participant Account
will be credited with the investment experience of the Separate Account from the
date of the Company's receipt of the Purchase Payment.
Unless otherwise restricted by the Contract, a Participant may allocate
and/or accumulate amounts in up to seven of the fifteen available subaccounts
(the thirteen Variable Investment Options and the two Fixed Interest Options).
The Accumulation Value of a Participant's Account or Contract during the
Accumulation Period is the sum of values of the Fixed Interest Options and the
Variable Investment Options.
A Participant may allocate all or a portion of Purchase Payments to the
Fixed Subaccount. The Fixed Subaccount consists of two Fixed Interest Options
which are part of the Company's General Account. Each Fixed Interest Option pays
interest at a declared rate which may differ depending upon the Fixed Interest
Option selected. The Company bears the full amount of the investment risk for
amounts allocated to either of the Fixed Interest Options. Earned interest on
amounts allocated to the Fixed Subaccount will be paid regardless of the actual
investment experience of the General Account. Because of exemptive and
exclusionary provisions, interests in the Fixed Subaccount have not
23
<PAGE> 28
been registered under the Securities Act of 1933, and neither the Fixed
Subaccount nor the General Account has been registered as an investment company
under the Investment Company Act of 1940. Accordingly, interests in the Fixed
Subaccount are not subject to regulation under these Acts. As a result, the
staff of the SEC has not reviewed the disclosures which are included in this
Prospectus and which relate to the General Account and the Fixed Subaccount.
These disclosures, however, may be subject to certain provisions of federal
securities law relating to the accuracy and completeness statements made in this
Prospectus.
The value of a Participant's Account attributable to the Fixed Subaccount
during the Accumulation Period is the sum of all net Purchase Payments allocated
to either of the Fixed Interest Options in the Fixed Subaccount, amounts
transferred from the Separate Account's Variable Investment Options to any Fixed
Interest Option, and all earned interest. This amount is reduced by amounts
transferred out or withdrawn and may be further reduced by the deduction of
certain charges.
A Participant may allocate all or a portion of Purchase Payments to the
Variable Investment Options. The value of the Contract and of an individual's
account attributable to the Variable Investment Options can be determined at any
time by multiplying the number of Accumulation Units outstanding in each
Separate Account Division under the Contract or account by the current
Accumulation Unit value of that Separate Account Division adding the results
plus any amounts attributable to the General Accounts. During the Accumulation
Period, the value of the Contract attributable to the Variable Investment
Options varies with the performance of the investments of the Separate Account
Divisions, and there is no assurance that such value will equal or exceed
Purchase Payments. The number of Accumulation Units credited will not be changed
by any subsequent change in the value of an Accumulation Unit, but the dollar
value of an Accumulation Unit may vary from day to day depending upon the
investment experience of the Separate Account Division.
The Accumulation Unit value is calculated as follows. First, a gross
investment rate is determined from the investment performance of each Separate
Account Division. The gross investment rate is calculated as of 4:00 p.m. New
York time on each business day when the New York Stock Exchange is open (except
the Friday following Thanksgiving, the Friday following Christmas if Christmas
falls on a Thursday and the Monday before Christmas if Christmas falls on a
Tuesday). Such rate is (i) the investment income and capital gains and losses,
whether realized or unrealized on such day, from the assets attributable to each
Separate Account Division, divided by (ii) the value of the Separate Account
Division for the immediately preceding day on which such values were calculated.
The net investment rate for any day is determined by deducting from the gross
investment rate, a factor representing the mortality risk and expense charges
described herein. (See "Charge to the Separate Account"), and any applicable
income taxes. The Accumulation Unit value for a given day is then determined by
multiplying the Accumulation Unit value for the preceding day by a net
investment factor equal to the net investment rate plus 1.00.
Illustrations showing the calculation of an Accumulation Unit value and the
purchase of Accumulation Units (using hypothetical examples) are contained in
the Statement of Additional Information -- "Accumulation Unit Value."
DEATH BENEFITS DURING ACCUMULATION PERIOD
If an Annuitant under a Contract dies during the Accumulation Period, there
will be an amount payable to the Beneficiary equal to the greater of (a) the
Accumulation Value of the Contract on the date proof of death is received by the
Company; or (b) 100% of Purchase Payments, reduced by the amount deducted in
connection with any partial surrenders. (See "Surrender.") The Beneficiary may
exercise the right to receive the death benefit as a lump-sum settlement or in
the form of any of the annuity options provided in the Contract. (See "Annuity
Payment Options.") Beneficiaries other than the spouse of an Annuitant must
receive the death benefit in full by the date five years after the Annuitant's
death unless payments commence within one year of the Annuitant's death under a
life annuity, a life annuity with payments certain or payments for a designated
period. Payments certain or payments for a designated period in any case cannot
be selected for a period exceeding the Beneficiary's life expectancy. The
Beneficiary thereafter will be entitled to exercise many of the investment
options and other rights the Annuitant would have under the Contract.
24
<PAGE> 29
SUSPENSION OF PURCHASE PAYMENTS
Flexible payment Contracts contain provisions protecting against
forfeiture. If, at any time, additional Purchase Payments are not made, the
number of Accumulation Units outstanding under the Contract at that time will
remain constant (so long as no transfer election is made), and the value of the
Units will continue to vary. The Accumulation Value will continue to be subject
to charges during the period of suspension. The Contract Owner may resume making
Purchase Payments at any time during the Accumulation Period, so long as the
Contract has not been surrendered and the Contract has not otherwise been
terminated.
Under individual Contracts, the Company may cause such automatic surrender
if all of the following conditions are satisfied: (1) the total of Purchase
Payments, reduced by amounts deducted in connection with any partial surrenders,
falls below $300; (2) the total of Accumulation Value, reduced by amounts
deducted in connection with any partial surrenders, falls below $300; and (3) no
Purchase Payments have been made for two Participant Years.
ANNUITY PERIOD
FIXED OR VARIABLE ANNUITY PAYMENTS
If the plan so permits, the Annuitant may elect to have any portion of the
Accumulation Value applied to provide either a variable annuity or a fixed
annuity, or a combination of both.
Fixed annuity payments are monthly payments from the Company to an
individual, the amount of which is fixed and guaranteed by the Company. The
amount of the monthly payments will depend only on the form and duration of
annuity payments chosen, the age of the Annuitant or the Beneficiary (and sex,
under individual retirement annuity ("IRA") contracts), the total Accumulation
Value applied to purchase the annuity, the applicable annuity rates. If it would
produce greater benefits, the amount of the monthly payment will be that
produced by a then currently issued immediate annuity of the same form.
Variable annuity payments are similar to fixed annuity payments, except
that the amount of each monthly payment from the Company will vary reflecting
the net investment experience of each Division of the Separate Account in which
the Net Purchase Payments are accumulated. (See Statement of Additional
Information -- "Amount of Annuity Payments" and "Annuity Unit Value.") If the
net investment experience for a given month, after all charges summarized below,
exceeds the Assumed Investment Rate (3 1/2% per annum unless a different rate is
selected), the monthly payment will be greater than the previous payment. If the
net investment experience for a month is less than such Assumed Investment Rate,
the monthly payment will be less than the previous monthly payment. (See the
Statement of Additional Information -- "Assumed Investment Rate.")
The use of an Assumed Investment Rate higher than 3 1/2% per annum would
cause the first annuity payment to be larger, but subsequent payments would
increase more slowly or decrease more quickly and ultimately be less than they
would under a 3 1/2% Assumed Investment Rate, provided that annuity payments
continue for a sufficient period of time. A 3 1/2% Assumed Investment Rate will
be used in the absence of a selection otherwise.
Up to three Divisions of the Separate Account, or two Divisions of the
Separate Account and the General Account may be selected to provide an annuity.
The first payment provided under the variable and the fixed annuity must each be
at least $25.
ANNUITY DATE
Annuity payments under deferred Contracts may begin on the first day of any
month before the Annuitant's 75th birthday, as selected by the Contract Owner on
a form approved by the Company. However, special rules apply to payments under
403(b), 401, 403(a) and 457 plans or simplified employee pension plans ("SEPs").
(See the discussion of required distributions for each plan type under "Federal
Tax Matters.")
ANNUITY PAYMENT OPTIONS
The Annuitant may elect to have the Accumulation Value of the Contract
applied on the Annuity Date to any one of the options listed below. The amount
applied to effect an annuity will be the Accumulation Value on the tenth day
preceding the Annuity Date.
In most cases, if the Annuitant does not specify one of the options at
least thirty days prior to the Annuity Date, annuity payments are made in
accordance with the second option, with payments being guaranteed for a ten year
period. If the Contract is issued under certain retirement plans, however, fed-
25
<PAGE> 30
eral pension law may require that payments be made pursuant to the fourth option
unless otherwise elected. Tax laws and regulations may impose further
restrictions to assure that the primary purpose of the plan is distribution of
the accumulated funds to the employee. Absent a contrary election at least
thirty days in advance, General Account accumulations will be used to provide a
fixed annuity, and Separate Account accumulations will be used to provide a
variable annuity based on the same Divisions of the Separate Account in which
the Contract was invested immediately prior thereto. An Annuitant wishing to
receive a lump sum rather than an annuity may surrender the Contract as
described below under "Surrender."
An Annuitant or Beneficiary receiving Annuity Payments under the fifth
option can elect at any time, if the Annuitant or Beneficiary has previously
elected rights of commutation, to terminate such option and receive the current
value of all remaining Annuity Payments owed under the Contract, discounted to
present value (at the Assumed Investment Rate previously selected) based on
values next determined after the request for such payment is received at the
Company's Home Office. A surrender charge will be imposed on the Purchase
Payments made within 36 months preceding such election by an Annuitant.
First Option -- Life Annuity. Variable annuity payments are payable monthly
during the lifetime of the Annuitant, and the annuity terminates with the last
payment preceding death. This option offers the maximum amount per variable
annuity payment since there is no provision for a death benefit for
Beneficiaries. It would be possible under this option for the Annuitant to
receive only one annuity payment if he died prior to the date of the second
payment, two if he died before the third annuity payment date, etc.
Second Option -- Life Annuity with 60, 120, 180 or 240 Monthly Payments
Certain. Variable annuity payments are payable monthly during the lifetime of an
Annuitant with the provision that, if the Annuitant dies during the certain
period, the Beneficiary may receive monthly payments for the remainder of the
certain period.
Third Option -- Unit Refund Life Annuity. Variable annuity payments are
payable monthly during the lifetime of an Annuitant with an additional payment
to the Beneficiary at the death of the Annuitant equal to the then-current value
of any Annuity Units credited to the Contract at the Annuity Date which have not
theretofore been paid out in the form of annuity payments. For this purpose, the
number of Annuity Units credited to the Contract at the Annuity Date will be the
total value applied to this option divided by the Annuity Unit value at the date
used to calculate the first annuity payment.
Fourth Option -- Joint and Last Survivor Life Annuity. Variable annuity
payments are payable monthly during the joint lifetimes of two Annuitants and
continue during the lifetime of the surviving Annuitant. This option is designed
primarily for couples who require maximum possible variable annuity payments
during their joint lives and who are not concerned with providing for
Beneficiaries at the death of the last to survive. It would be possible under
this option for the joint Annuitants to receive only one payment if both
Annuitants died prior to the date of the second payment, or for the joint
Annuitants to receive only one payment and the surviving Annuitant to receive
only one payment if one Annuitant died prior to the date of the second payment
and the surviving Annuitant died prior to the date of the third payment, etc.
Fifth Option -- Payments for Designated Period. Annuity payments are
payable monthly for a selected number of years between three and fifteen. At any
time during such period, if the Annuitant or Beneficiary has previously elected
rights of commutation, the Annuitant may elect to receive in one sum the present
value of the remaining payments, calculated on the basis of an interest rate per
annum equal to that rate used to calculate the Annuitant's first annuity
payment. If an election to receive such present value is made by an Annuitant,
the surrender charge will be applied to Purchase Payments made within 36 months
of the time of the election. Under the federal tax laws, the election of this
lump-sum option may be treated in the same manner as a surrender of the
Contract. If the Contract is surrendered, usually the full amount received would
be includable in income for that year, and, to the extent so included, would be
taxed at ordinary rates, subject to possible special tax treatment for some
distributions from retirement programs. If payments would amount to less than
$25 each, the Company may make payments less frequently than monthly.
26
<PAGE> 31
ENHANCEMENTS UNDER ANNUITY OPTIONS
Enhancements of the annuity options described above recently have been made
available under the Contracts. These include partial annuitization, flexible
payments of varying amounts and inflation protection payments. To the extent
some or all of these options do not result in "substantially equal payments"
over the life expectancy of the Annuitant, electing such options may result in
unfavorable tax consequences to Annuitants under age 59 1/2. (See "Federal Tax
Matters.") Additionally certain options may be available with a one to twenty
payment certain periods. Further, Option Four is available with a one to twenty
payment certain period. Not all of the enhancements are available under each
option.
DEATH OF ANNUITANT DURING ANNUITY PERIOD
If the Annuitant dies during the Annuity Period, the Beneficiary may be
entitled to payment of an additional amount or amounts, and may be entitled to
certain alternatives discussed below. If, prior to death, the Annuitant had been
receiving payments under the first or fourth options, no additional amounts
would be due. If, however, the Annuitant had been receiving payments under the
second, the third or the fifth options, the Beneficiary may elect one of the
following three alternatives:
1. elect to receive in a lump sum the present value, discounted at the
Assumed Investment Rate, of any remaining annuity payments owed under
the Contract based on the then-current Annuity Unit value;
2. elect to continue receiving annuity payments under the terms of the
Contract, in which case the Beneficiary would be entitled at any time
thereafter to receive the present value of remaining annuity payments,
discounted at the Assumed Investment Rate, based on the Annuity Unit
value next determined after request for such payment is received at the
Company's Home Office; or
3. elect to have the present value, discounted at the Assumed Investment
Rate, of any annuity payments owed on the Contract, based on the
then-current Annuity Unit value, applied to the fifth option, either on
a fixed or variable basis, or a combination of both, for a period
shorter than the period remaining under the annuity option selected by
the Annuitant.
SURRENDER
All or part of the Surrender Value of a Contract may be withdrawn by the
Contract Owner at any time before the commencement of annuity payments, provided
that the Annuitant is alive at the time of surrender. This right is subject to
any restrictions on surrender under applicable law and the employer's plan. The
Contract must be returned to and be received by the Company before a total
surrender will be effected. (See "Charge for Partial and Total Surrenders" for
an explanation of charges which may be assessed upon surrender.)
The Surrender Value of a Contract at any time is equal to the Accumulation
Value under the Contract at the time of surrender, less any surrender charge.
For this purpose, the value of an Accumulation Unit is that next computed after
the request for surrender is received at the Company's Home Office. There is no
assurance that the Surrender Value will equal or exceed the aggregate amount of
Purchase Payments at any time.
A partial surrender will result in a reduction of the Accumulation Value
credited to a Contract. The reduction will equal the dollar amount surrendered
plus the surrender charge, if any, and will be allocated among the General
Account value and the values in the Divisions in the same proportion as the
surrender requested by the Contract Owner. The reduction in the number of
Accumulation Units credited to a Division of the Separate Account will equal the
amount surrendered from that Division plus the surrender charge allocable to
that Division, if any, divided by the applicable Accumulation Unit value next
computed after the written request for surrender is received at the Company's
Home Office. If the entire value under a Division is surrendered in a partial
surrender, the dollar amount surrendered will be reduced by the surrender charge
allocable to that Division.
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 or in many Section 403(b)
Contracts, no surrender or partial surrender will be allowed except for
termination of employment, retirement or death.
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<PAGE> 32
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.
For an explanation of possible adverse tax consequences from a partial
redemption or surrender, see "Federal Tax Matters."
Payments of Surrender Values as well as lump-sum payments available under
an annuity option will be made within seven calendar days after receipt of the
written request by the Company at its Home Office; however, payments
attributable to a Division may be suspended or postponed at any time when
redemption of the Fund's shares is suspended or postponed. (See "Offering,
Purchase and Redemption of Fund Shares" in the Series Company Statement of
Additional Information for a discussion of the circumstances under which each
Fund may suspend or postpone redemption of its shares.) Payments attributable to
a Division of the Separate Account may also be suspended or postponed during any
period when trading on the New York Stock Exchange is suspended or restricted,
when an emergency makes it impracticable for the company fairly to determine the
value of its net assets or for such time as the Securities and Exchange
Commission may by order permit.
Occasionally, the Company may receive a request for total or partial
surrender which includes Accumulation Values derived from Purchase Payments
which have not cleared the banking system. The Company may delay mailing that
portion of the Surrender Value which relates to such amounts until the check for
the payment has cleared. The Accumulation Unit value used to determine the
remaining Surrender Value to be remitted will be on the basis of the valuation
next computed after receipt of the request for surrender.
OTHER CONTRACT FEATURES
CHANGE OF BENEFICIARY
The Beneficiary is designated in the application by the Contract Owner, and
may be changed at any time unless such designation has been made irrevocable.
Under certain retirement programs, however, spousal consent may be required to
name or change a Beneficiary, and the right to name a Beneficiary other than the
spouse may be subject to applicable tax laws and regulations. If no Beneficiary
is living at the time of an Annuitant's death, any benefits otherwise payable
under the Contract to the Beneficiary will be payable to the Annuitant's estate.
If a Beneficiary dies while receiving payments under the Contract, and if no
other Beneficiary is then living, any remaining benefits owed under the Contract
will be paid to such Beneficiary's estate.
REVOCATION
The Contract Owner may revoke the Contract by returning it to the Company
within ten days of delivery or such longer revocation period as is required by
state law. The Company will refund any Purchase Payments received for the
Contract, unless a larger refund is required by state law.
RESERVATION OF RIGHTS
The Company reserves the right to amend the Contract (1) to conform with
substitutions of investments or (2) to comply with tax or other laws applicable
to these types of Contracts. The Company also reserves the right (3) to operate
the Separate Account as a management investment company under the 1940 Act, in
consideration of receipt of an investment management fee, or in any other form
permitted by law, and (4) to deregister the Separate Account under the 1940 Act
in the event such registration is no longer required.
RELATIONSHIP TO EMPLOYER'S PLAN
Since it is contemplated that all Contracts offered by this prospectus will
be used for retirement programs, reference should be made to specific plan
provisions and restrictions, if any, contained in the employers' plan in
connection with this description of the Contracts.
Plan loans from the portion of the Contract attributable to the General
Account may be permitted by your employer's plan. Refer to your plan for a
description of charges and further information.
FEDERAL TAX MATTERS
GENERAL
Major changes in federal income tax laws in the past several years may
affect the tax treatment of investments in the Contracts. It is not feasible to
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<PAGE> 33
comment on all of these changes, and Contract Owners should consult a qualified
tax advisor for more complete information. Contract Owners should also be aware
that future legislation may change some of the rules discussed in the following
materials.
TAXES PAYABLE BY PARTICIPANTS AND
ANNUITANTS
The Contracts offered in connection with this prospectus are used with
retirement programs which receive favorable tax deferred treatment under federal
income tax law.
Annuity payments, or other amounts received under all Contracts generally
are subject to some form of federal income tax withholding. The withholding
requirement will vary among recipients depending on the type of program, the tax
status of the individual and the type of payments from which taxes are withheld.
Additionally, annuity payments or other amounts received under all contracts may
be subject to state income tax withholding requirements.
SECTION 403(B) ANNUITIES FOR EMPLOYEES
OF CERTAIN TAX-EXEMPT ORGANIZATIONS OR
PUBLIC EDUCATIONAL INSTITUTIONS
Purchase Payments. Under section 403(b) of the Code, payments made by
certain employers (i.e., tax-exempt organizations, meeting the requirements of
section 501(c)(3) of the Code and public educational institutions) to purchase
annuity Contracts for their employees are excludable from the gross income of
employees to the extent that the aggregate Purchase Payments do not exceed the
limitations prescribed by section 402(g), section 403(b)(2), and section 415 of
the Code. This gross income exclusion applies to employer contributions and
voluntary salary reduction contributions.
An individual's voluntary salary reduction contributions under section
403(b) are generally limited to $10,000 ($9,500 before 1998); 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 percent of salary; or, an exclusion
allowance which takes into account a number of factors. In addition, for plan
years beginning after December 31, 1988, employer contributions must comply with
various nondiscrimination rules; these rules may have the effect of further
limiting the rate of employer contributions for highly compensated employees.
Taxation of Distributions. Distributions of voluntary salary reduction
amounts are restricted. The restrictions apply to amounts accumulated after
December 31, 1988 (including voluntary contributions after that date and
earnings on prior and current voluntary contributions). These restrictions
require that no distributions will be permitted prior to one of the following
events: (1) attainment of age 59 1/2, (2) separation from service, (3) death,
(4) disability, or (5) hardship (hardship distributions will be limited to the
amount of salary reduction contributions exclusive of earnings thereon). Similar
restrictions will apply to all amounts transferred from a Section 403(b)(7)
custodial account other than rollover contributions.
Distributions from a section 403(b) annuity contract are taxed as ordinary
income to the recipient in accordance with section 72 of the Code. Distributions
received before the recipient attains age 59 1/2 generally are subject to a 10%
penalty tax in addition to regular income tax. Certain distributions are
excepted from this penalty tax, including distributions following (1) death, (2)
disability, (3) separation from service during or after the year the participant
reaches age 55, (4) separation from service at any age if the distribution is in
the form of substantially equal periodic payments over the life (or life
expectancy) of the Participant (or the Participant and Beneficiary), and (5)
distributions in excess of tax deductible medical expenses.
Required Distributions. Generally, distributions from section 403(b)
annuities must commence no later than April 1 of the calendar year following the
later of the calendar year in which the Participant attains age 70 1/2 or the
calendar year in which the Participant retires. Such distributions must be made
over a period that does not exceed the life expectancy of the Participant (or
joint life expectancy of the Participant and Beneficiary). Upon the death of the
Contract Owner prior to the commencement of annuity payments, the amount
accumulated under the Contract must be distributed within five years or, if
distributions to a beneficiary designated under the Contract commence within one
year of the Contract Owner's death, distributions are permitted over the life of
the beneficiary or over a period not extending beyond the
29
<PAGE> 34
beneficiary's life expectancy. If the Contract Owner has commenced receiving
annuity distributions prior to his death, distributions must continue at least
as rapidly as under the method in effect at the date of his death. However,
amounts accumulated under a Contract on December 31, 1986, are not subject to
these minimum distribution requirements. Pre-January 1, 1987 amounts may be paid
in a manner that meets the above rule or (i) must begin to be paid when the
Participant attains age 75; and (ii) the present value of payments expected to
be made over the life of the Participant under the option chosen must exceed 50%
of the present value of all payments expected to be made (the "50% rule"). The
50% rule will not apply to joint annuitants, if a Participant's spouse is the
joint annuitant. Notwithstanding these rules for pre-January 1, 1987 amounts
held under 403(b) Contracts, the entire Contract balance must meet the minimum
distribution incidental benefit requirement of section 403(b)(10). A penalty tax
of 50% will be imposed on the amount by which the minimum required distribution
in any year exceeds the amount actually distributed in that year.
Tax-Free Transfers and Rollovers. The IRS has ruled (Revenue Ruling 90-24)
that total or partial amounts may be transferred tax free between section 403(b)
annuity contracts and/or 403(b)(7) custodial accounts under certain conditions.
In addition, section 403(b)(8) of the Code permits tax-free rollovers from
section 403(b) programs to IRAs or other section 403(b) programs under certain
circumstances. Such a rollover must be completed within 60 days of receipt of
the distribution. The portion of any distribution which is eligible to be rolled
over to an IRA or another 403(b) program is subject to 20% federal income tax
withholding unless the Participant elects a direct rollover of such distribution
to an IRA or other section 403(b) program.
SECTION 401 QUALIFIED PENSION, PROFIT-
SHARING OR ANNUITY PLANS
Purchase Payments. Purchase Payments made by an employer (or a
self-employed individual) under a pension, profit-sharing or annuity plan
qualified under section 401 or section 403(a) of the Code are excluded from the
gross income of the employee for federal income tax purposes. Payments made by
an employee generally are made on an after-tax basis, unless they are made on a
pre-tax basis by reason of Sections 401(k) or 414(h).
Taxation of Distributions. Distributions from Contracts purchased under
qualified plans are taxable as ordinary income, except to the extent allocable
to an employee's after-tax contributions (which constitute "investment in the
Contract"). However, if an employee or the Beneficiary receives a lump sum
distribution, as defined in the Code, from an exempt employees' trust, the
taxable portion of the distribution may be subject to special tax treatment. For
most individuals receiving lump sum distributions after attainment of age
59 1/2, the rate of tax may be determined under a special 5-year income
averaging provision; however, 5-year forward averaging has been repealed for
distributions occurring after December 31, 1999. Those who attained age 50 by
January 1, 1986 may instead elect to use a 10-year income averaging provision
based on the income tax rates in effect for 1986. In addition, individuals who
attained age 50 by January 1, 1986 may elect capital gains treatment (at a 20%
rate) for the taxable portion of a lump sum distribution attributable to years
of service before 1974; such capital gains treatment has otherwise been
repealed. Taxable distributions received under a Contract purchased under a
qualified plan prior to attainment of age 59 1/2 are subject to the same 10%
penalty tax (and the same exceptions) as described with respect to section
403(b) annuity Contracts.
Required Distributions. The minimum distribution requirements for qualified
plans are generally the same as described with respect to section 403(b) annuity
Contracts, except that no amounts are exempted from the minimum distribution
requirements.
Tax-Free Rollovers. The taxable portion of certain distributions from a
plan qualified under section 401 or 403(a), may be transferred in a tax-free
rollover to an individual retirement account or annuity or to another such plan.
Such a rollover must be completed within 60 days of receipt of the qualifying
distribution. The portion of any distribution which is eligible to be rolled
over to an IRA or section 401(a) or 403(a) plan is subject to 20% federal income
tax withholding unless the Participant elects a direct rollover of such
distribution to an IRA or other section 401(a) or 403(a) plan.
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<PAGE> 35
SECTION 408(B) INDIVIDUAL RETIREMENT ANNUITIES
(OTHER THAN ROTH IRAS)
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.
Taxation of Distributions. Distributions from IRA Contracts are taxed as
ordinary income to the recipient. In addition, a 10% penalty tax will be imposed
on taxable distributions received before the year in which the recipient attains
age 59 1/2, except that distributions made on account of certain events,
including death, disability or in the form of substantially equal periodic
payments over the life (life expectancy) of the participant (or the participant
and beneficiary), are not subject to the penalty tax.
Required Distributions. The minimum distribution requirements for IRA
Contracts are generally the same as described with respect to section 403(b)
Annuity Contracts, except that no amounts are exempted from the minimum
distribution requirements and, in all events, such distributions must commence
no later than April 1 of the calendar year following the calendar year in which
the Participant attains age 70 1/2.
Tax-Free Rollovers. Federal law permits funds to be transferred in a
tax-free rollover from a qualified employer pension, profit-sharing or annuity
Contracts or plan or a section 403(b) annuity Contract to an IRA Contract under
certain conditions. Amounts accumulated under such a rollover IRA generally may
subsequently be rolled over on a tax-free basis to another such plan or section
403(b) annuity Contract. In addition, a tax-free rollover may be made from one
IRA to another, provided that not more than one such rollover may be made during
any twelve-month period. In order to qualify for tax-free treatment, all
rollovers must be completed within 60 days after the distribution is received.
SIMPLIFIED EMPLOYEE PENSION PLANS
Purchase Payments. Under section 408(k) of the Code, employers may
establish a type of IRA plan referred to as a simplified employee pension plan
(SEP). Employer contributions under an SEP, which generally must be made at a
rate representing a uniform percent of the compensation and participating
employees, are excluded from the gross income of employees for Federal income
tax purposes. Employer contributions to a SEP cannot exceed the lesser of
$30,000 or 15% of an employee's compensation for plan years beginning after
December 31, 1993.
Salary Reduction SEPs. Federal tax law allows employees of certain small
employers to have contributions made to the SEP on their behalf on a
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<PAGE> 36
salary reduction basis. These salary reduction contributions may not exceed
$7,000, indexed for inflation in later years. Employees of tax-exempt
organizations are not eligible for this type of SEP. No new salary reduction
SEPs may be established after 1996.
Taxation of Distributions. SEP distributions are subject to taxation in the
same manner as other IRA distributions.
Required Distributions. SEP distributions are subject to the same minimum
required distribution rules applicable to other IRAs.
Tax-Free Rollovers. Funds may be rolled over tax free from one SEP to
another as long as the rollover is completed within 60 days after the
distribution is received and is done no more frequently than once every twelve
months.
SECTION 457 UNFUNDED DEFERRED
COMPENSATION PLANS OF PUBLIC
EMPLOYERS AND TAX-EXEMPT
ORGANIZATIONS
Purchase Payments. Under section 457 of the Code, individuals who perform
services for a unit of a state or local government may participate in a deferred
compensation program. Tax-exempt employers may establish deferred compensation
plans under section 457 only for a select group of management or highly
compensated employees and/or independent contractors.
This type of program allows individuals to defer the receipt of
compensation which would otherwise be presently payable and to therefore defer
the payment of federal income taxes on the amounts. Assuming that the program
meets the requirements to be considered an eligible deferred compensation plan
(an "EDCP"), an individual may contribute (and thereby defer from current income
for tax purposes) the lesser of $8,000 (indexed for inflation) or 33 1/3% of the
individual's includible compensation. (Includible compensation means
compensation from the employer which is currently includable in gross income for
federal tax purposes.) During the last three years before an individual attains
normal retirement age, additional catch-up deferrals are permitted.
The amounts which are deferred may be used by the employer to purchase the
Contracts offered by this prospectus. 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 creditors until 1999. The employee has no present rights or
vested interest in the Contract and is only entitled to payment in accordance
with the EDCP provisions.
Taxation of Distributions. Amounts received by an individual from an EDCP
are includible in gross income for the taxable year in which such amounts are
paid or otherwise made available.
Distributions Before Separation From Service. Distributions generally are
not permitted under an EDCP prior to separation from service except for
unforeseeable emergencies or in amounts under $3,500 for inactive Participants.
These distributions are includible in the gross income of the individual in the
year in which paid.
Required Distributions. Beginning January 1, 1989, the minimum distribution
requirements for EDCP's are generally the same as those for qualified plans and
section 403(b) annuity contracts except that no amounts are exempted from
minimum distribution requirements.
Tax-Free Transfers and Rollovers. Federal income tax law permits the
tax-free transfer of EDCP amounts to another EDCP, but not to an IRA or other
type of plan.
PRIVATE EMPLOYER UNFUNDED DEFERRED
COMPENSATION PLANS
Purchase Payments. Private taxable employers may establish unfunded and
non-qualified deferred compensation plans for a select group of management or
highly compensated employees and/or for independent contractors.
Certain arrangements of nonprofit employers entered into prior to August
16, 1986, and not subsequently modified, are subject to the rules for private
taxable employer deferred compensation plans discussed below.
Where a Contract is purchased under a 457 or private employer unfunded
deferred compensation plan, it constitutes a non-qualified contract ("Non-
Qualified Contract"). Ordinary Non-Qualified Contracts, not sold pursuant to
such an employer's plan, are not available under this Contract. Purchase
Payments made under ordinary Non-Qualified Contracts are not excludible from the
gross income of the Contract Owner or deductible
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<PAGE> 37
for tax purposes. Private employer unfunded deferred compensation plans,
however, allow individuals to defer receipt of up to 100% of compensation which
would otherwise be includable in income and to therefore defer the payment of
federal income taxes on the amounts. Increases in the Accumulation Value of
Non-Qualified Contracts resulting from the investment performance of the
Separate Account are not taxable to the Contract Owner until received by him.
Contract Owners that are not natural persons, however, are currently taxable on
any increase in the Accumulation Value.
Deferred compensation plans represent a bare contractual promise on the
part of the employer to pay current wages at some future time. The Contract is
owned by the employer and is subject to the claims of the employer's creditors.
The individual has no present right or vested interest in the Contract and is
only entitled to payment in accordance with plan provisions.
Taxation of Distributions. Amounts received by an individual from a private
employer deferred compensation plan are includible in gross income for the
taxable year in which such amounts are paid or otherwise made available.
Tax-Free Transfers and Rollovers. Federal income tax law does not allow
tax-free transfers or rollovers for amounts accumulated in a private employer
deferred compensation plan.
EFFECT OF TAX-DEFERRED ACCUMULATIONS
The charts below compare accumulations attributable to contributions to (1)
Contracts purchased with pre-tax contributions under tax-favored retirement
programs, (2) Non-Qualified Contracts purchased with after tax contributions and
(3) conventional savings vehicles such as savings accounts.
TAX-DEFERRED ACCUMULATION
[CHART]
This hypothetical chart compares the results of contributing $100 per month
($138.89 for the tax-favored program because contributions are before-tax). It
assumes a 28% tax rate and an 8% fixed rate of return (before fees and charges).
The deduction of fees and charges is reflected in the chart. The dotted lines
represent amounts remaining after withdrawal and payment of taxes and any
surrender charges. An additional 10% tax penalty may apply to withdrawals before
age 59 1/2.
Unlike savings accounts, contributions to tax-favored retirement programs
and non-qualified contracts provide tax-deferred treatment on earnings. In
addition, contributions to tax-favored retirement programs ordinarily are not
subject to income tax until withdrawn. As shown above, investing in a tax-
favored program increases the accumulation power of savings over time. The more
taxes saved and reinvested in the program, the more the accumulation power
effectively grows over the years.
To further illustrate the advantages of tax-deferred savings using a 28%
federal tax bracket, an annual fixed yield (BEFORE THE DEDUCTION OF ANY FEES OR
CHARGES) of 8% under a tax-favored retirement program in which tax savings were
reinvested has an equivalent 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 shows the actual
after-tax amounts that would be received.
As indicated above, contributions to tax-favored retirement programs are
not subject to federal income tax unless and until withdrawn. Accumulations
under tax-favored retirement programs are not required to be withdrawn until the
later of age 70 1/2 or retirement. There may be restrictions on withdrawals of
certain types of contributions before age 59 1/2, separation from service,
death, disability or hardship. Withdrawals before age 59 1/2 generally are
subject to a 10% penalty tax in addition to regular income tax, but withdrawals
may be eligible for total or partial rollover to an IRA or another retirement
program.
By taking into account the current deferral of taxes, contributions to
tax-favored retirement programs increase the amount available for savings by
decreasing the relative current out-of-pocket cost of the investment. The chart
below illustrates this principle:
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<PAGE> 38
PAYCHECK COMPARISON
<TABLE>
<CAPTION>
TAX-FAVORED
RETIREMENT SAVINGS
PROGRAM ACCOUNT
----------- -------
<S> <C> <C>
Set Aside...................... $2,500 $2,500
Tax deferred until
withdrawal................... (700) --
Current Out-of-Pocket.......... $1,800 $2,500
</TABLE>
This chart assumes a 28% federal income tax rate. 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.
FUND DIVERSIFICATION
Non-qualified contracts, as discussed above, are not sold under this
Contract. Separate Account investments for non-qualified contracts are available
under other Company Contracts, however.
Separate Account investments must be adequately diversified in order for
the increase in the value of non-qualified contracts to receive tax-deferred
treatment. In order to be adequately diversified, each portfolio must, as of the
end of each calendar quarter or within 30 days thereafter, have no more than 55%
of its assets invested in any one investment, 70% in any two investments, 80% in
any three investments and 90% in any four investments. Failure of a Fund
portfolio to meet the diversification requirements could result in tax liability
to non-qualified contract Owners. The Fund expects to meet the diversification
requirements above and assure tax deferred treatment for holders of any
Non-Qualified Contracts.
The investment opportunities of the Fund could conceivably be limited by
adhering to the above diversification requirements. This would affect all
Contract Owners, including those owners of Qualified Contracts for whom
diversification is not a requirement for tax-deferred treatment.
VOTING RIGHTS
The Contract Owner during the Accumulation Period, the Annuitant during the
Annuity Period, or the Beneficiary after the Annuitant's death, will be entitled
to give instructions to the Company as to how Fund shares held in the Divisions
of the Separate Account attributable to the Contract should be voted at meetings
of shareholders of the Fund or the Series Company. Those persons entitled to
give voting instructions will be determined as of the record date for the
meeting.
During the Accumulation Period, each Annuitant (other than Annuitants under
Contracts issued in connection with non-qualified and unfunded deferred
compensation plans) will have the right to give instructions for those votes,
notwithstanding that the Contract Owner may be the Annuitant's employer.
Contract Owners will instruct the Company in accordance with such instructions.
The number of Fund shares held in a Division deemed attributable to a
Contract prior to the Annuity Date and during the lifetime of the Annuitant will
be determined on the basis of the value of Accumulation Units credited to the
Contract as of the record date. On or after the Annuity Date or after the death
of the Annuitant, the number of Fund shares deemed attributable to the Contract
will be based on the liability for future variable annuity payments to the payee
under the Contract as of the record date. Such liability for future payments
will be calculated on the basis of the mortality assumptions and the Assumed
Investment Rate used in determining the number of Annuity Units credited to the
Contract and the applicable Annuity Unit value on the record date. During the
Annuity Period, the number of votes attributable to a Contract will generally
decrease since funds set aside for an Annuitant will decrease.
Persons who are entitled to vote will receive proxy material and a form on
which voting instructions may be given. Fund shares held in the Separate Account
or any other registered separate account of the Company or its affiliates that
are or are not attributable to annuity contracts as to which no instructions
have been received will be voted for or against any proposition in the same
proportion as the shares for which voting instructions have been received by
that separate account. Fund shares held in unregistered separate accounts of the
Company or its affiliates will be voted in the same proportion as the aggregate
of (i) the shares for which voting instructions are received and (ii) the shares
that are voted in proportion to such voting instructions. However, if the
Company or an affiliate determines that it is permitted to vote any such shares
of the Fund in its own right, it may elect to do so, subject
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<PAGE> 39
to the then current interpretation of the 1940 Act and the rules thereunder.
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.
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<PAGE> 40
CONTENTS OF THE STATEMENT OF ADDITIONAL INFORMATION
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
General Information......................................... 2
Types of Variable Annuity Contracts......................... 2
Calculation of Surrender Charge............................. 3
Illustration of Surrender Charge on Total Surrender.... 3
Illustration of Surrender Charge on Partial
Surrender............................................. 3
Accumulation Unit Value..................................... 4
Illustration of Calculation of Accumulation Unit
Value................................................. 4
Illustration of Purchase of Accumulation Units......... 4
Performance Calculations.................................... 4
Calculation of Yield for Money Market Division Two..... 4
Illustration of Calculation of Yield for Money Market
Division Two.......................................... 4
Calculation of Effective Yield for Money Market
Division Two.......................................... 4
Illustration of Calculation of Effective Yield for
Money Market Division Two............................. 4
Standardized Yield for Capital Conservation Division
One................................................... 5
Calculation of Standardized Yield................. 5
Illustration of Calculation of Standardized
Yield............................................. 5
Calculation of Average Annual Total Return........ 5
Performance Information..................................... 6
Performance Compared to Market Indices................. 6
Stock Index Division Ten Performance Compared to S&P
500 Index............................................. 7
MidCap Index Division Four Performance Compared to
Relevant Index........................................ 8
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......... 9
Capital Conservation Division One Performance Compared
to Merrill Lynch U.S. Corporate High Yield Index and
Merrill Lynch Corporate Master Index.................. 10
Money Market Division Two Performance Compared to
Certificate of Deposit Primary Offering by New York
City Banks, 30 Day Index.............................. 11
Annuity Payments............................................ 11
Assumed Investment Rate................................ 11
Amount of Annuity Payments............................. 11
Annuity Unit Value..................................... 12
Illustration of Calculation of Annuity Unit Value...... 12
Illustration of Annuity Payments....................... 13
Distribution of Variable Annuity Contracts.................. 13
Experts..................................................... 13
Comments on Financial Statements............................ 14
</TABLE>
<PAGE> 41
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 The Variable Annuity Life Insurance Company not to
accept any telephone instructions to transfer Accumulation Values among
investment options or change the allocation of future Purchase Payments from me,
anyone representing me or anyone representing himself or herself to be me. I
understand that as a result of executing this form that the transfer of
Accumulation Values or Annuity Values among investment options or changes in the
allocation of future Purchase Payments may only be effected upon the receipt by
VALIC of my written instructions.
<TABLE>
<S> <C>
- ------------------------------------------------------------ ------------------------------
Participant/Contract Owner Signature Date
</TABLE>
Mail this form to any Regional Office (see the last page of your prospectus for
addresses) or to the Home Office at the following address: VALIC, Customer
Service A3-01, 2929 Allen Parkway, Houston, TX 77019.
<PAGE> 42
Please tear off, complete and return the form below to order a Statement of
Additional Information for the Contracts offered under the prospectus (Contract
Forms UIT-981). Address the form to any Regional Office, the addresses of which
appear on the inside back cover of this prospectus. A Statement of Additional
Information may also be ordered by calling 1-800-44-VALIC.
- --------------------------------------------------------------------------------
UIT-981 CONTRACTS
Please send me a free copy of the Statement of Additional Information for The
Variable Annuity Life Insurance Company Separate Account A (Contract Form
UIT-981).
(Please Print or Type)
- --------------------------------------------------------------------------------
<TABLE>
<S> <C>
Name: G.A. #
------------------------------------------------ ------------------------------------------------
Address: Policy: #
------------------------------------------------ ------------------------------------------------
------------------------------------------------
Social Security Number:
------------------------------------------------
</TABLE>
- --------------------------------------------------------------------------------
<PAGE> 43
================================================================================
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 Harbour 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
1711 N. Meridian Street
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 I-55 North
Suite 108
Jackson, MS 39211
(601) 981-5801
410 Amherst Street
Suite 250
Nashua, NH 03063
(603) 883-3840
90 Woodbridge Center 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 Drive
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
================================================================================
<PAGE> 44
[VALIC LOGO]
Printed Matter
Printed in U.S.A. VA 2620 REV 5/98
(C)The Variable Annuity Life Insurance Company, Houston, Texas
<PAGE> 45
THE VARIABLE ANNUITY LIFE INSURANCE COMPANY
SEPARATE ACCOUNT A
UNITS OF INTEREST UNDER
INDIVIDUAL VARIABLE ANNUITY CONTRACTS
(CONTRACT FORM UIT-981)
----------------------------------------------------------------
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 and more detailed than that set forth in the
Prospectus for the Contracts dated May 1, 1998 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 or
1-800-44-VALIC. Prospectuses are also available from regional sales offices of
the Underwriters or from its registered sales representatives.
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
----
<S> <C>
General Information..................... 2
Types of Variable Annuity Contracts..... 2
Calculation of Surrender Charge......... 3
Illustration of Surrender Charge on
Total Surrender.................... 3
Illustration of Surrender Charge on
Partial Surrender.................. 3
Accumulation Unit Value................. 4
Illustration of Calculation of
Accumulation Unit Value............ 4
Illustration of Purchase of
Accumulation
Units.............................. 4
Performance Calculations................ 4
Calculation of Current Yield for
Money Market Division Two........ 4
Illustration of Calculation of
Current Yield for Money Market
Division Two..................... 4
Calculation of Effective Yield for
Money Market Division Two........ 4
Illustration of Calculation of
Effective Yield for Money Market
Division Two..................... 4
Standardized Yield for Capital
Conservation Division One............. 5
Calculation of Standardized
Yield............................ 5
Illustration of Calculation of
Standardized Yield............... 5
Calculation of Average Annual Total
Return........................... 5
Performance Information................. 6
Performance Compared to Market
Indices............................ 6
</TABLE>
<TABLE>
<CAPTION>
Page
----
<S> <C>
Stock Index Division Ten Performance
Compared to S&P 500 Index.......... 7
MidCap Index Division Four Performance
Compared to Relevant Index......... 8
Asset Allocation Division Five
Performance Compared to S&P 500(R)
Index, Merrill Lynch Corporate and
Government Master Index and
Certificate of Deposit Primary
Offering by New York City Banks, 30
Day Index.......................... 9
Capital Conservation Division One
Performance Compared to Merrill
Lynch U.S. Corporate High Yield
Index and Merrill Lynch Corporation
Master Index....................... 10
Money Market Division Two Performance
Compared to Certificate of Deposit
Primary Offering by New York City
Banks, 30 Day Index................ 11
Annuity Payments........................ 11
Assumed Investment Rate............... 11
Amount of Annuity Payments............ 11
Annuity Unit Value.................... 12
Illustration of Calculation of
Annuity Unit Value............... 12
Illustration of Annuity Payments... 13
Distribution of Variable Annuity
Contracts............................. 13
Experts................................. 13
Comments on Financial Statements........ 14
</TABLE>
VA 2620-1, Rev. 5/98
1
<PAGE> 46
GENERAL INFORMATION
The Variable Annuity Life Insurance Company ("the Company") is a stock life
insurance company organized under the laws of the State of Texas and is engaged
primarily in the offering and issuance of fixed and variable retirement annuity
contracts and combinations thereof. The Company also is licensed to write life
insurance in all states (other than Connecticut) and the District of Columbia,
and annuities in all fifty states and the District of Columbia. The Company is
an indirectly wholly owned subsidiary of American General Corporation (formerly
American General Insurance Company).
On April 18, 1979, the Board of Directors of the Company established
Separate Account A (the "Separate Account") in accordance with the Texas
Insurance Code. The Separate Account is registered with the U.S. Securities and
Exchange Commission as a unit investment trust under the Investment Company Act
of 1940 ("the 1940 Act").
Each Division of the Separate Account invests in the shares of a
diversified, open-end, management-type investment company registered under the
1940 Act, or one of thirteen investment portfolios of a diversified, open-end,
management investment company registered under the 1940 Act. The Separate
Account currently is made up of 33 Divisions, five of which are available as
variable investment options under the Contracts (Divisions One, Two, Four, Five
and Ten). Divisions Four, Five and Ten also are available through certain other
variable annuity contracts issued by the Company through the Separate Account.
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.
2
<PAGE> 47
CALCULATION OF SURRENDER CHARGE
The surrender charge is discussed in the prospectus under "Charges Under
Variable Annuity Contracts -- Charge for Partial and Total Surrenders." Examples
of calculation of the surrender charge upon total and partial surrender are set
forth below:
ILLUSTRATION OF SURRENDER CHARGE ON TOTAL SURRENDER
Example 1.
TRANSACTION HISTORY
<TABLE>
<CAPTION>
DATE TRANSACTION AMOUNT
---- ----------- ------
<S> <C> <C>
2/1/94.......................... Purchase Payment $10,000
2/1/95.......................... Purchase Payment 5,000
2/1/96.......................... Purchase Payment 15,000
2/1/97.......................... Purchase Payment 2,000
7/1/97.......................... Total Surrender Assumes
Accumulation is $38,000
</TABLE>
Surrender Charge is lesser of (a) or (b):
<TABLE>
<S> <C> <C> <C>
a. Surrender Charge calculated on 36 months of Purchase Payments
prior to surrender:
1. Surrender Charge against Purchase Payment of 2/1/94......... $ 0
2. Surrender Charge against Purchase Payment of 2/1/95 (0.05 X
$5,000)..................................................... $ 250
3. Surrender Charge against Purchase Payment of 2/1/96 (0.05 X
$15,000).................................................... $ 750
4. Surrender Charge against Purchase Payment of 2/1/97 (0.05 X
$2,000)..................................................... $ 100
Surrender Charge based on Purchase Payments (1+2+3+4)....... $1,100
b. Surrender Charge calculated on the excess over 10% of the
Accumulation Value at the time of surrender:
Accumulation Value at time of surrender $ 38,000
Less 10% not subject to surrender charge -3,800
-----------
Subject to Surrender Charge 34,200
X .05
-----------
Surrender Charge based on Accumulation
Value $ 1,710 .......................... $1,710
c. Surrender Charge is the lesser of a or b......................... $1,100
</TABLE>
ILLUSTRATION OF SURRENDER CHARGE ON PARTIAL SURRENDER
Example 2.
TRANSACTION HISTORY
<TABLE>
<CAPTION>
DATE TRANSACTION AMOUNT
---- ----------- ------
<S> <C> <C>
2/1/94.......................... Purchase Payment $ 4,000
2/1/95.......................... Purchase Payment 0
2/1/96.......................... Purchase Payment 0
2/1/97.......................... Purchase Payment 1,000
7/1/97.......................... Partial Surrender (Assumes $ 2,500
Accumulation Value is $10,000)
</TABLE>
a. Since this is the first partial surrender in this contract year, calculate
the excess over 10% of the value of the accumulation units 10% of $10,000 =
$1,000
b. The maximum amount upon which surrender charge may be calculated (levied)
is $2,500 - $1,000 = $1,500
c. Since only $1,000 has been paid in purchase payments in the 36 months prior
to the surrender, the charge can only be calculated on $1,000. Thus, the
charge is $1,000 X (0.05) = $50.00
3
<PAGE> 48
ACCUMULATION UNIT VALUE
The calculation of Accumulation Unit value is discussed in the Prospectus
under "Accumulation Period." The following illustrations show a calculation of a
new Unit value and the purchase of Accumulation Units (using hypothetical
examples):
ILLUSTRATION OF CALCULATION OF ACCUMULATION UNIT VALUE
Example 3.
<TABLE>
<S> <C> <C>
1. Accumulation Unit value, beginning of period................ $ 1.800000
2. Value of Fund share, beginning of period.................... $21.200000
3. Change in value of Fund share............................... $ .500000
4. Gross investment return (3)/(2)............................. .023585
5. Daily mortality risk and expense charge..................... .000027
6. Net investment return (4)-(5)............................... .023558
7. Net investment factor 1.000000+(6).......................... 1.023558
8. Accumulation Unit value, end of period (1)X(7).............. $ 1.842404
</TABLE>
ILLUSTRATION OF PURCHASE OF ACCUMULATION UNITS (ASSUMING NO STATE PREMIUM TAX)
Example 4.
<TABLE>
<S> <C> <C>
1. First Periodic Purchase Payment............................. $ 100.00
2. Accumulation Unit value on effective date of purchase (see
Example 3).................................................. $ 1.800000
3. Number of Accumulation Units purchased (1)/(2).............. 55.556
4. Accumulation Unit value for valuation date following
purchase (see Example 3).................................... $ 1.842404
5. Value of Accumulation Units in account for valuation date
following
purchase (3)X(4)............................................ $ 102.36
</TABLE>
PERFORMANCE CALCULATIONS
MONEY MARKET DIVISION YIELDS
CALCULATION OF CURRENT YIELD FOR MONEY MARKET DIVISION TWO
7-Day Current Yield: 4.22%
ILLUSTRATION OF CALCULATION OF CURRENT YIELD FOR MONEY MARKET DIVISION TWO
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 Accumulation Unit at the beginning of the
period, subtracting a hypothetical charge reflecting deductions from Contract
Owner accounts, and dividing the difference by the value of the account at the
beginning of the base period to obtain the base period return and then
multiplying the base period return by 365/7.
CALCULATION OF EFFECTIVE YIELD FOR MONEY MARKET DIVISION TWO
7-Day Effective Yield: 4.31%
ILLUSTRATION OF CALCULATION OF EFFECTIVE YIELD FOR MONEY MARKET DIVISION TWO
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 Accumulation Unit at the beginning of
the period, subtracting a hypothetical charge reflecting deductions from
Contract Owner accounts, and dividing the difference by the value of the account
at the beginning of the base period to obtain the base period return and then
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
4
<PAGE> 49
STANDARDIZED YIELD FOR CAPITAL CONSERVATION DIVISION ONE
CALCULATION OF STANDARDIZED YIELD
Standardized Yield: 5.45%
ILLUSTRATION OF CALCULATION OF STANDARDIZED YIELD
Example 7.
The standardized yield quotation based on a 30-day period ending December
31, 1997, the date of the most recent balance sheet of the Registrant included
in the registration statement is computed by divid-
ing the net investment income per Accumulation Unit earned during the period by
the maximum offering price per Unit on the last day of the period, according to
the following formula:
YIELD = 2 [ ( a - b + 1 )6 -1 ]
cd
Where:
<TABLE>
<S> <C> <C>
a = net investment income earned during the period by the Fund
attributable to shares owned by the Division
b = expenses accrued for the period (net of reimbursements)
c = the average daily number of Accumulation Units outstanding
during the period
d = the maximum offering price per Accumulation Unit on the last
day of the period
</TABLE>
Yield is earned from dividends declared and paid by the Fund, which are
automatically reinvested in Fund shares.
CALCULATION OF AVERAGE ANNUAL TOTAL RETURN
Example 8.
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 return over the 1, 3, 5, and 10 year periods that would
equate the initial amount invested to the ending redeemable value, according to
the following formula:
P (1+T)n = ERV
Where:
<TABLE>
<S> <C> <C>
P = a hypothetical initial Purchase Payment of $1,000
T = average annual total return
n = number of years
ERV = redeemable value at the end of the 1, 3, 5 or 10 year period
of a hypothetical $1,000 Purchase Payment made at the
beginning of the 1, 3, 5, or 10 year period (or fractional
portion thereof)
</TABLE>
The calculation above applies to Contracts offered through the Prospectus
and includes the surrender charge of up to 5% of Gross Purchase Payments
received during the most recent 36 months.
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 1, 3, 5 or 10 year
period and deduction of all nonrecurring charges at the end of each such period.
5
<PAGE> 50
PERFORMANCE INFORMATION
PERFORMANCE COMPARED TO MARKET INDICES
The following tables show the Hypothetical $10,000 Account Value and
Cumulative Return of each Division as compared to the benchmarks shown.
These performance calculations for the Divisions, and the methods used for
calculating them, are explained in the Prospectus. (See, "Performance
Information" and "The Funds.")
These tables compare hypothetical investment performance and percentage
changes in Accumulation Unit values with the results of several benchmarks,
representing unmanaged market indices. The comparisons should be considered in
light of the investment policies and objectives of the Funds. Rates of return
for the Divisions include reinvestment of investment income, including capital
gains, interest and dividends. The rates of return on the market indices also
have been adjusted to reflect reinvestment of interest and dividends.
Price returns for the market indices are calculated by subtracting the
price level at the beginning of the year from the price level at the end of the
year and dividing the difference by the price level at the beginning of the
year. To calculate dollar values for the indices' Hypothetical $10,000 Account
Value presentation, price index values were substituted for Unit values in the
calculation described in the Prospectus, and where applicable, dividend yields
were then added to determine the total returns applied in the dollar value
calculations. Similarly, to calculate Cumulative Return for the indices, the
Cumulative Return calculation described in the Prospectus for Unit values of the
Divisions is used, substituting the Hypothetical $10,000 Account Value at the
end of each year for the Accumulation Unit value. No sales load, administrative
charges, or other expenses have been deducted from the index calculations.
THE PERFORMANCE RESULTS SHOWN IN THIS SECTION ARE NOT AN ESTIMATE OR
GUARANTEE OF FUTURE INVESTMENT PERFORMANCE, AND DO NOT REPRESENT THE ACTUAL
EXPERIENCE OF AMOUNTS INVESTED BY A PARTICULAR PARTICIPANT.
The performance of Capital Conservation Division One may be compared to the
Merrill Lynch Corporate Master Index. The Merrill Lynch Corporate Master Index
consists 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.
The performance of Money Market Division Two 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 MidCap Index Division Four may be compared to the record
of the Standard & Poor's(R) Corporation (S&P(R)) **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 Composite
Stock Price Index ("S&P 500(R) Index") are included in the S&P MidCap 400 Index.
The performance of Stock Index Division Ten may be compared to the record
of the S&P 500 Index. The S&P 500 Index is a well known measure of the price
performance of 500 leading larger domestic stocks which represents approximately
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 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 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 Index. The performance of the intermediate or long-term debt sector
may be compared to the Merrill Lynch Corporate and Government Master Index. The
Merrill Lynch Corpo-
6
<PAGE> 51
rate 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 may be compared to the Certificate of Deposit Primary
Offering by New York Banks, 30 Day Index.
Additionally, the performance of a Division may from time to time be
compared with other Indexes which have been deemed by the Company relevant to
the Division.
These benchmarks do not reflect any charges for investment advisory fees,
brokerage commissions or other fees and expenses of the type charged at either
the Separate Account or Fund level. Therefore, the comparisons with these
benchmarks are of limited use.
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 JULY 28, 1982
<TABLE>
<CAPTION>
STOCK INDEX S&P 500
DIVISION TEN INDEX
- -------------------------------------------------------------------- --------
<S> <C> <C>
07/28/82.................................................. $10,000 $ 10,000
12/31/82.................................................. 11,880 13,395
12/31/83.................................................. 13,789 16,416
12/31/84.................................................. 13,746 17,446
12/31/85.................................................. 16,289 22,981
12/31/86.................................................. 16,030 27,271
12/31/87.................................................. 16,667 28,703
12/31/88.................................................. 17,150 33,470
12/31/89.................................................. 21,894 44,076
12/31/90.................................................. 20,973 42,707
12/31/91.................................................. 27,467 55,719
12/31/92.................................................. 28,186 59,964
12/31/93.................................................. 30,660 66,008
12/31/94.................................................. 30,568 66,879
12/31/95.................................................. 41,551 92,011
12/31/96.................................................. 50,491 113,144
12/31/97.................................................. 66,528 150,889
</TABLE>
CUMULATIVE RETURN COMPARED TO MARKET INDEX
<TABLE>
<CAPTION>
SINCE
INCEPTION*** 10 YEARS 5 YEARS 3 YEARS 1 YEAR
------------ -------- -------- -------- --------
<S> <C> <C> <C> <C> <C>
Investment Division
Stock Index Division Ten..... 565.28% 299.17% 136.03% 117.64% 31.76%
Benchmark Comparison
S&P 500 Index................ 1408.89% 425.69% 151.63% 125.62% 33.36%
</TABLE>
- ---------------
* Effective May 1, 1992, AGSPC Quality Growth Fund merged with AGSPC Stock
Index Fund, and Division Three was renamed Division Ten.
** "Standard & Poor's(R)", "S&P(R)", "S&P 500(R)" and "S&P MidCap 400 Index"
are trademarks of Standard and Poor's Corporation. Neither the MidCap Index
Fund nor the Stock Index Fund is sponsored, endorsed, sold or promoted by
S&P and S&P makes no representation regarding the advisability of investing
in these Funds.
*** This Division was initiated on July 28, 1982.
7
<PAGE> 52
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 500 S&P MIDCAP 400
DIVISION FOUR INDEX INDEX
- ------------------------------------------------------- --------------- --------------
<S> <C> <C> <C>
10/13/82................................ $ 10,000 $ 10,000 $ 10,000
12/31/82................................ 10,096 11,352 11,564
12/31/83................................ 11,608 13,913 14,583
12/31/84................................ 11,721 14,786 14,755
12/31/85................................ 13,195 19,477 20,004
12/31/86................................ 13,516 23,113 23,247
12/31/87................................ 12,827 24,326 22,774
12/31/88................................ 14,502 28,367 27,527
12/31/89................................ 17,127 37,355 37,310
12/31/90................................ 15,380 36,195 35,401
12/31/91................................ 18,580 47,223 53,136
12/31/92................................ 20,213 50,820 59,466
12/31/93................................ 22,594 55,943 67,762
12/31/94................................ 21,532 56,681 65,332
12/31/95................................ 27,827 77,981 85,547
12/31/96................................ 32,726 95,892 102,009
12/31/97................................ 42,691 127,881 134,894
</TABLE>
CUMULATIVE RETURN COMPARED TO MARKET INDEX
<TABLE>
<CAPTION>
SINCE
INCEPTION** 10 YEARS 5 YEARS 3 YEARS 1 YEAR
----------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C>
Investment Division
Division Four.................. 326.91% 232.83% 111.21% 98.27% 30.45%
Benchmark Comparison
S&P 500 Index.................. 1178.81% 425.69% 151.63% 125.62% 33.36%
S&P MidCap 400 Index........... 1248.94% 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 accumulation unit data for the last ten years for this
Division appears in the Prospectus. Figures appearing above for the S&P
MidCap 400 Index for years prior to 1991 are based on estimates provided by
Standard & Poor's for illustrative purposes.
** This Division was initiated on October 13, 1982.
8
<PAGE> 53
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
<TABLE>
<CAPTION>
SINCE
INCEPTION** 10 YEARS 5 YEARS 3 YEARS 1 YEAR
----------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C>
Investment Division
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 Blended Index reflects an allocation of investments in the following
Indexes: 55% of investments, included in the S&P 500 Index, 35% of
investments included in the Merrill Lynch Corporate and Government Master
Index, and 10% of investments included in the Certificate of Deposit Primary
Offering by New York City Banks, 30 Day Index.
** This Division was initiated on September 6, 1983. Effective October 1, 1997
the Timed Opportunity Fund changed its name to the Asset Allocation Fund.
9
<PAGE> 54
Capital Conservation Division One Performance Compared to Merrill Lynch U.S.
Corporate High Yield Index and Merrill Lynch Corporate Master Index
HYPOTHETICAL $10,000 ACCOUNT VALUE
ANNUAL VALUE OF A $10,000 STIPULATED PAYMENT MADE FEBRUARY 11, 1982
<TABLE>
<CAPTION>
MERRILL LYNCH U.S. MERRILL LYNCH
CAPITAL CONSERVATION CORPORATE HIGH YIELD CORPORATE MASTER
DIVISION ONE INDEX** INDEX
- --------------------------------------------------------- -------------------- ----------------
<S> <C> <C> <C>
02/11/82.................................. $ 10,000 N/A $ 10,000
12/31/82.................................. 14,604 N/A 13,477
12/31/83.................................. 16,618 N/A 14,733
10/31/84.................................. 17,493 $ 17,493 16,574
12/31/84.................................. 17,709 17,769 17,121
12/31/85.................................. 21,854 22,143 21,462
12/31/86.................................. 23,417 25,762 24,960
12/31/87.................................. 23,112 26,964 25,420
12/31/88.................................. 25,610 30,597 27,900
12/31/89.................................. 22,285 31,890 31,838
12/31/90.................................. 19,957 30,504 34,185
12/31/91.................................. 24,443 41,053 40,420
12/31/92.................................. 26,285 48,506 44,106
12/31/93.................................. 29,140 56,842 49,588
12/31/94.................................. 27,090 56,163 47,920
12/31/95.................................. 32,384 67,330 58,261
12/31/96.................................. 32,624 74,819 60,236
12/31/97.................................. 35,060 84,414 66,492
</TABLE>
CUMULATIVE RETURN COMPARED TO MARKET INDEX
<TABLE>
<CAPTION>
SINCE
INCEPTION* 10 YEARS 5 YEARS 3 YEARS 1 YEAR
---------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C>
Investment Division
Capital Conservation Division One........ 250.60% 51.69% 33.38% 29.42% 7.47%
Benchmark Comparison
Merrill Lynch U.S. Corp High Yield
Index.................................. ** 213.07% 74.03% 50.30% 12.82%
Merrill Lynch Corporate Master Index..... 564.92% 161.57% 50.75% 38.76% 10.39%
</TABLE>
- ------------
* This Division was initiated on February 11, 1982.
** The Merrill Lynch U.S. Corporate High Yield Index commenced on October 31,
1984. The cumulative return since commencement through December 31, 1997 was
382.56%.
For comparative purposes the hypothetical account value of the A.G. High
Yield Accumulation Division was used as the October 31, 1984 initial account
value of the Merrill Lynch U.S. Corporate High Yield Index benchmark.
10
<PAGE> 55
Money Market Division Two 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 FEBRUARY 4, 1982
<TABLE>
<CAPTION>
CERTIFICATE OF DEPOSIT
MONEY MARKET PRIMARY OFFERING BY NEW YORK
DIVISION TWO CITY BANKS, 30 DAY INDEX
- --------------------------------------------------------- ----------------------------
<S> <C> <C>
02/04/82.................................. $ 10,000 $ 10,000
12/31/82.................................. 11,032 11,074
12/31/83.................................. 11,893 12,068
12/31/84.................................. 12,972 13,291
12/31/85.................................. 13,859 14,330
12/31/86.................................. 14,590 15,221
12/31/87.................................. 15,372 16,173
12/31/88.................................. 16,332 17,366
12/31/89.................................. 17,622 18,871
12/31/90.................................. 18,799 20,381
12/31/91.................................. 19,631 21,493
12/31/92.................................. 20,067 22,171
12/31/93.................................. 20,401 22,745
12/31/94.................................. 20,964 23,556
12/31/95.................................. 21,907 24,721
12/31/96.................................. 22,774 25,842
12/31/97.................................. 23,712 27,077
</TABLE>
CUMULATIVE RETURN COMPARED TO MARKET INDEX
<TABLE>
<CAPTION>
SINCE
INCEPTION* 10 YEARS 5 YEARS 3 YEARS 1 YEAR
---------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C>
Investment Division Money Market Division
Two...................................... 137.12% 54.26% 18.16% 13.11% 4.12%
Benchmark Comparison Certificate of Deposit
Primary Offering by
New York City Banks, 30 Day Index...... 170.77% 67.42% 22.13% 14.95% 4.78%
</TABLE>
- ------------
* This Division was initiated on February 4, 1982.
ANNUITY PAYMENTS
ASSUMED INVESTMENT RATE
The discussion concerning the amount of annuity payments which follows this
section is based on an Assumed Investment Rate of 3 1/2% per annum. However, the
Company will permit each Annuitant choosing a variable annuity payment option to
select an Assumed Investment Rate permitted by state law or regulations other
than the 3 1/2% rate described in this Prospectus as follows: 4 1/2%, 5% or 6%
per annum. 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 the Separate Account.
AMOUNT OF ANNUITY PAYMENTS
The amount of the first variable annuity payment to the Annuitant will
depend on the amount of the Accumulation Value applied to effect the variable
annuity as of the tenth day immediately preceding the date annuity payments
commence, the amount of any premium tax owed, the annuity option selected, and
the age of the Annuitant. The Contracts contain tables indicating the dollar
amount of the first annuity payment under each annuity option for each $1,000 of
Accumulation Value (after the deduction for any premium tax) at various ages.
These tables are based upon the Progressive Annuity Table assuming births for
the year
11
<PAGE> 56
1900 and an Assumed Investment Rate of 3 1/2% per annum, unless otherwise
selected.
The portion of the first monthly variable annuity payment derived from a
Division of the Separate Account is divided by the Annuity Unit value for that
Division (calculated ten days prior to the date of the first monthly payment) to
determine the number of Annuity Units in each Division represented by the
payment.
The number of such units will remain fixed during the Annuity Period,
assuming the Annuitant makes no transfers out of the Division.
In any subsequent month, the dollar amount of the variable annuity payment
derived from each Division is determined by multiplying the number of Annuity
Units in that Division by the value of such Annuity Unit on the tenth day
preceding the due date of such payment. The Annuity Unit value will increase or
decrease in proportion to the net investment return of the Division or Divisions
of the Separate Account underlying the variable annuity since the date of the
previous annuity payment, less an adjustment to neutralize the 3 1/2% or other
Assumed Investment Rate referred to above.
Therefore, the dollar amount of variable annuity payments after the first
will vary with the amount by which the net investment return is greater or less
than 3 1/2% per annum. For example, if a Division has a cumulative net
investment return of 5% over a one year period, the first annuity payment in the
next year will be approximately 1 1/2 percentage points greater than the payment
on the same date in the preceding year, and subsequent payments will continue to
vary with the investment experience of the Division. If such net investment
return is 1% over a one year period, the first annuity payment in the next year
will be approximately 2 1/2 percentage points less than the payment on the same
date in the preceding year, and subsequent payments will continue to vary with
the investment experience of the applicable Division.
Each deferred Contract provides that, when fixed annuity payments are to be
made under one of the first four annuity options, the monthly payment to the
Annuitant will not be less than the monthly payment produced by the then current
settlement option rates, which will not be less than the rates used for a
currently issued single payment immediate annuity contract. The purpose of this
provision is to assure the Annuitant that, at retirement, if the fixed annuity
purchase rates then required by the Company for new single payment immediate
annuity contracts are significantly more favorable than the annuity rates
guaranteed by a Contract, the Annuitant will be given the benefit of the new
annuity rates.
ANNUITY UNIT VALUE
The value of an Annuity Unit is calculated at the same time that the value
of an Accumulation Unit is calculated and is based on the same values for Fund
shares and other assets and liabilities. (See "Accumulation Period" in the
Prospectus.) The calculation of Annuity Unit value is discussed in the
Prospectus under "Annuity Period."
The following illustrations show, by use of hypothetical examples, the
method of determining the Annuity Unit value and the amount of variable annuity
payments.
ILLUSTRATION OF CALCULATION OF ANNUITY UNIT VALUE
Example 9.
<TABLE>
<C> <S> <C>
1. Annuity Unit value, beginning of period..................... $ .980000
2. Net investment factor for Period (see Example 3)............ 1.023558
3. Daily adjustment for 3 1/2% Assumed Investment Rate......... .999906
4. (2)X(3)..................................................... 1.023462
5. Annuity Unit value, end of period (1)X(4)................... $ 1.002993
</TABLE>
12
<PAGE> 57
ILLUSTRATION OF ANNUITY PAYMENTS
Example 10. Any Annuitant age 65, Life Annuity with 120 Payments Certain
<TABLE>
<C> <S> <C>
1. Number of Accumulation Units at Annuity Date................ 10,000.00
2. Accumulation Unit value (see Example 9)..................... $ 1.800000
3. Accumulation Value of Contract (1)X(2)...................... $18,000.00
4. First monthly annuity payment per $1,000 of Accumulation
Value..................................................... $ 6.57
5. First monthly annuity payment (3)X(4)/1,000................. $ 118.26
6. Annuity Unit value (see Example 5).......................... $ .980000
7. Number of Annuity Units (5)/(6)............................. 120.673
8. Assume Annuity Unit value for second month equal to......... $ .997000
9. Second monthly Annuity Payment (7)X(8)...................... $ 120.31
10. Assume Annuity Unit value for third month equal to.......... $ .953000
11. Third monthly Annuity Payment (7)X(10)...................... $ 115.00
</TABLE>
DISTRIBUTION OF VARIABLE ANNUITY CONTRACTS
The Company has qualified the Contracts for sale in all fifty states and
the District of Columbia. The Contracts are sold in a continuous offering by
licensed insurance agents who are registered representatives of broker-dealers
which are members of the National Association of Securities Dealers, Inc. (the
"NASD"). The principal underwriter for the Separate Account is the Underwriter
as defined above, a wholly-owned subsidiary of the Company. VAMCO's address is
2929 Allen Parkway, Houston, Texas 77019. The Underwriter is a Texas corporation
organized in 1970 and is a member of the NASD.
The licensed agents who sell the Contracts will be compensated for such
sales by commissions ranging from 1% to 4.5% of each Purchase Payment. Managers
who supervise the agents will receive overriding commissions ranging to 1% of
Purchase Payments. (These various commissions are paid by the Company and do not
result in any charge to Contract Owners or to the Separate Account in addition
to the charges described in the Prospectus under "Charges Under Variable Annuity
Contracts.")
Pursuant to its underwriting agreement with the Underwriter and the
Separate Account, the Company reimburses the Underwriter for reasonable sales
expenses, including overhead expenses. Sales commissions attributable to the
Contracts paid by the Company for the years 1995, 1996, and 1997 were $61,000,
$42,000 and $31,000 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.
13
<PAGE> 58
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 One, Two, Four, Five and Ten are the only Divisions available
under Contracts described in the Prospectus. The Separate Account financial
statements contained herein reflect the composition of the Separate Account as
of December 31, 1997.
14
<PAGE> 59
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> 60
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> 61
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> 62
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> 63
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> 64
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> 65
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> 66
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> 67
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> 68
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> 69
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> 70
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> 71
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.
- --------------------------------------------------------------------------------
13
<PAGE> 72
================================================================================
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> 73
================================================================================
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> 74
================================================================================
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> 75
================================================================================
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> 76
================================================================================
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> 77
================================================================================
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> 78
================================================================================
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> 79
================================================================================
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> 80
================================================================================
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> 81
================================================================================
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> 82
================================================================================
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> 83
================================================================================
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> 84
================================================================================
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> 85
================================================================================
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> 86
================================================================================
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> 87
================================================================================
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> 88
================================================================================
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> 89
================================================================================
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> 90
================================================================================
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> 91
================================================================================
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> 92
================================================================================
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> 93
================================================================================
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> 94
================================================================================
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> 95
================================================================================
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> 96
================================================================================
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> 97
[EVI LOGO]
PRINTED MATTER
PRINTED IN U.S.A. VA 2620-1 REV 5/98
(C)The Variable Annuity Life Insurance Company, Houston, Texas
Recycled Paper LOGO
<PAGE> 98
THE VARIABLE ANNUITY LIFE INSURANCE COMPANY
UNITS OF INTEREST UNDER GROUP AND INDIVIDUAL
VARIABLE ANNUITY CONTRACTS
(INDEPENDENCE PLUS CONTRACT SERIES)
SEPARATE ACCOUNT A
PROSPECTUS MAY 1, 1998
The group and individual Variable Annuity Contracts (the "Contracts") offered by
The Variable Annuity Life Insurance Company ("the Company") in connection with
this prospectus are available to the public primarily through participation in
retirement programs which receive favorable tax deferred treatment under federal
income tax law but include non-qualified contracts as well. The Contracts are
available on a flexible payment deferred, single payment deferred, or single
payment immediate annuity basis. The Independence Plus Contract Series is
composed of Contract forms UIT-585-96 and UITG-585-96.
The Contracts provide benefits related to the Company's General Account and to
the Divisions of the Company's Separate Account A (the "Separate Account"). The
Divisions of the Separate Account available under the Contracts are invested in
the Stock Index Fund, the MidCap Index Fund, the Small Cap Index Fund, the
International Equities Fund, the Social Awareness Fund, the Asset Allocation
Fund, the Capital Conservation Fund, the Government Securities Fund, the
International Government Bond Fund and the Money Market Fund, which are separate
portfolios of American General Series Portfolio Company (the "Series Company").
- --------------------------------------------------------------------------------
This prospectus provides investors the information they should know before
investing in the Contracts. Investors should read and retain this prospectus for
future reference.
Additional information, including a Statement of Additional Information dated
May 1, 1998, has been filed with the Securities and Exchange Commission and
contains further information about Separate Account A. The Statement of
Additional Information is incorporated herein by reference. A copy may be
obtained without charge by completing and returning the form at the back of this
prospectus or by calling 1-800-44-VALIC.
NO PERSON HAS BEEN AUTHORIZED TO GIVE ANY INFORMATION OR TO MAKE ANY
REPRESENTATIONS OTHER THAN THOSE CONTAINED IN THIS PROSPECTUS IN CONNECTION WITH
THE OFFER CONTAINED IN THIS PROSPECTUS, AND IF GIVEN OR MADE, SUCH INFORMATION
OR REPRESENTATION MUST NOT BE RELIED UPON AS HAVING BEEN AUTHORIZED. THIS
PROSPECTUS DOES NOT CONSTITUTE AN OFFER IN ANY JURISDICTION TO ANY PERSON TO
WHOM SUCH OFFER WOULD BE UNLAWFUL THEREIN.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION NOR HAS THE COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY
OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
THIS PROSPECTUS IS ACCOMPANIED BY THE CURRENT PROSPECTUS FOR THE FUNDS BEING
CONSIDERED. EACH OF THESE PROSPECTUSES SHOULD BE READ CAREFULLY AND RETAINED FOR
FUTURE REFERENCE.
1
<PAGE> 99
[THIS PAGE INTENTIONALLY LEFT BLANK]
2
<PAGE> 100
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
----
<S> <C>
Definitions................................ 4
Fee Table.................................. 6
Selected Accumulation Unit Data............ 8
Introduction............................... 10
The Company and the Separate Account....... 11
The Funds.................................. 12
Performance Information.................... 13
Average Annual Total Return with
Surrender Charge and Maintenance Fee
Imposed.............................. 15
Average Annual Total Return with No
Surrender Charge and Maintenance
Fee Imposed.......................... 15
Cumulative Return...................... 16
Annual and Cumulative Change in
Accumulation Unit Value.............. 17
Hypothetical $10,000 Account Value
Invested at Inception of Division.... 18
Endorsements and Published Ratings......... 24
Transfers Among Investment Options......... 25
Transfers During the Accumulation Period... 25
Transfers During the Annuity Period.... 25
Other Requirements..................... 25
Charges Under Variable Annuity Contracts... 27
Charge for Premium Taxes............... 27
Charge for Partial and Total
Surrenders........................... 27
Fee for Annual Account Maintenance..... 28
Charge to the Separate Account......... 29
Miscellaneous.......................... 29
Charge for Income Taxes................ 30
Accumulation Period........................ 30
Death Benefits During Accumulation
Period............................... 32
Suspension of Purchase Payments........ 32
Annuity Period............................. 32
Fixed or Variable Annuity Payments..... 32
Annuity Date........................... 33
Annuity Payment Options................ 33
</TABLE>
<TABLE>
<CAPTION>
Page
----
<S> <C>
Enhancements Under Annuity Options..... 34
Death of Annuitant During Annuity
Period............................... 34
Surrender.................................. 34
Other Contract Features.................... 35
Change of Beneficiary.................. 35
Revocation............................. 35
Reservation of Rights.................. 35
Relationship to Employer's Plan........ 36
Federal Tax Matters........................ 36
General................................ 36
Taxes Payable by Participants and
Annuitants........................... 36
Section 403(b) Annuities for Employees
of Certain Tax-Exempt Organizations
or Public Educational Institutions... 36
Section 401 Qualified Pension,
Profit-Sharing or Annuity Plans...... 37
Section 403(b) Individual Retirement
Annuities (other than Roth IRAs)..... 38
Simplified Employee Pension Plans...... 38
Section 457 Unfunded Deferred
Compensation Plans of Public
Employers and Tax-Exempt
Organizations........................ 39
Private Employer Unfunded Deferred
Compensation Plans................... 39
Non-Qualified Contracts................ 40
Effect of Tax-Deferred Accumulations... 41
Fund Diversification................... 41
Voting Rights.............................. 42
Other Variable Annuity Contracts........... 42
Exchange Offers............................ 42
General................................ 42
Differences Between New and Existing
Contracts............................ 43
Agents' and Managers' Retirement Plan
Exchange Offer....................... 45
Taxes and Conversion Costs............. 46
Availability of Offer.................. 46
Year 2000.................................. 47
Year 2000 Risks........................ 47
Appendix................................... 48
</TABLE>
3
<PAGE> 101
DEFINITIONS
Accumulation Period -- the time between the date of the first Purchase
Payment with respect to an Annuitant and the Annuity Date.
Accumulation Unit ("Unit") -- a unit of interest in a Separate Account
Division which is accumulated in a Variable Subaccount before annuity payments
begin. The value of a Unit will vary with the net investment experience of the
respective Separate Account Division.
Accumulation Value -- the sum of the values of the Fixed Subaccounts and
the Variable Subaccounts allocated to a Participant Account.
Annuitant -- the Participant on whose life annuity payments will be based
under a group Contract; the individual named in the application for whom
Purchase Payments are made and on whose life annuity payments will be based
under an individual Contract. Annuity payments will be paid to the Annuitant. If
the Annuitant dies before the Annuity Date, the Beneficiary may receive
payments.
Annuity Date -- the date elected by a Contract Owner on which annuity
payments start.
Annuity Period -- the time during which annuity payments are made.
Annuity Unit -- a measuring unit used in calculating the amount of annuity
payments. The value of an Annuity Unit for a Variable Subaccount will vary with
the net investment experience of the Separate Account Division selected. The
value will be adjusted according to the Assumed Investment Rate chosen by the
Annuitant.
Assumed Investment Rate -- the rate used to determine the first monthly
annuity payment per thousand dollars of Accumulation Value in the Variable
Subaccount(s). (See the Statement of Additional Information for a description of
the effect of the Assumed Investment Rate on the level of payments.)
Beneficiary -- the person who will receive payments, if any, on the
Annuitant's death.
Contract -- an individual or group variable annuity contract offered by
this prospectus.
Contract Owner -- the employer, or other organization, which makes
application for a group Contract; the Annuitant under an individual Contract
unless otherwise stated in the application.
Fixed Subaccount -- a particular subaccount under a Participant Account
into which net Purchase Payments and Accumulation Value under a fixed annuity
Contract may be allocated during the Accumulation Period. Allocations to the
Fixed Subaccounts are guaranteed to earn interest of at least 4 1/2% per annum.
Reserves for these allocations are held in the Company's General Account.
Fixed Subaccount One (Fixed Account Plus) -- a Fixed Subaccount which is
suitable for those wishing to make more than a short-term commitment to a fixed
return option. Up to 20% of the Accumulation Value under Fixed Account Plus may
be transferred during each Participant Year. VALIC may permit transfers in
excess of this limit by prior written notice to all Contract Owners. (For a more
complete discussion of transfers and the limitations thereon, see "Transfers
Among Investment Options.") The total interest rates paid by the Company from
time to time on amounts deposited in Fixed Account Plus are expected to more
closely resemble the then-current returns available on intermediate-term debt
investments than would be the case with respect to the Short Term Fixed Account.
Fixed Subaccount Two (Short Term Fixed Account) -- a Fixed Subaccount which
is suitable primarily for those wishing to make only a shorter-term commitment
to a fixed return option. After a transfer to Short Term Fixed Account, no
further transfers from Short Term Fixed Account may be made for 90 days. (For a
more complete discussion of transfers and the limitations thereon, see
"Transfers Among Investment Options.")
Fund -- an investment portfolio which is the underlying investment medium
for net Purchase Payments credited to a Separate Account Division.
4
<PAGE> 102
(For a more complete description of variable investment options, see "The
Funds.")
General Account -- the assets of the Company other than those in the
Separate Account or any other separate account. Reserves for any fixed annuity
are maintained in the General Account.
Home Office -- the main office of the Company at 2929 Allen Parkway,
Houston, Texas 77019.
Participant -- an individual who makes Purchase Payments or for whom
Purchase Payments are made under a group Contract; the Contract Owner under an
individual Contract, usually the Annuitant, unless another person is provided
for in the application.
Participant Account -- an individual account which is established for a
Participant under a group Contract to record the Accumulation Value for the
Participant or, in the case of an individual Contract, the entire Contract.
Participant Year -- a twelve month period starting with the issue date of a
Participant's certificate under a group Contract or the issue date of an
individual Contract and each anniversary of that date.
Purchase Payment -- an amount paid to the Company by, or on behalf of, an
Annuitant.
Separate Account -- the segregated asset account referred to as Separate
Account A. Separate Account A was established by the Company under the Texas
Insurance Code to receive and invest the net Purchase Payments and Accumulation
Value allocated to variable annuity contracts.
Separate Account Divisions ("Divisions") -- subdivisions of the Separate
Account, each of which invests in a different Fund with a particular investment
objective and strategy, and into which the net Purchase Payments and
Accumulation Value under a variable annuity may be applied.
Surrender Value -- the Accumulation Value of a Participant Account less the
surrender charge, if any, which is the amount payable upon surrender of a
Participant Account.
Variable Subaccount -- a particular subaccount under a Participant Account
into which net Purchase Payments and accumulated value under a variable annuity
Contract may be allocated. Amounts in each Variable Subaccount are invested in
one of several Separate Account Divisions. (See "Accumulation Period.")
5
<PAGE> 103
FEE TABLE
<TABLE>
<S> <C>
CONTRACT OWNER/PARTICIPANT TRANSACTION EXPENSES(1)
Surrender Charge (as a % of the lesser of all purchase
payments received during the last 60 months or the amount
withdrawn(2).............................................. 5%
ACCOUNT MAINTENANCE FEE (reduces to $15 after first contract
year)(2).................................................. $ 20
SEPARATE ACCOUNT ANNUAL EXPENSES (as a % of average account
value)
Mortality and Expense Risk Charge........................... 1.00%
</TABLE>
SERIES COMPANY ANNUAL EXPENSES (as a % of Fund average net assets)
<TABLE>
<CAPTION>
INTER-
NATIONAL
SMALL INTER- SOCIAL CAPITAL GOVERN- GOVERN-
STOCK MIDCAP CAP NATIONAL AWARE- ASSET CONSER- MENT MENT MONEY
INDEX INDEX INDEX EQUITIES NESS ALLOCATION VATION SECURITIES BOND MARKET
EXPENSES FUND FUND FUND FUND FUND FUND(6) FUND FUND FUND FUND
-------- ---- ---- ---- ---- ---- ------- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Management fees(3)..... 0.27% 0.34% 0.35% 0.35% 0.50% 0.50% 0.50% 0.50% 0.50% 0.50%
Other expenses(4)...... 0.07 0.06 0.06 0.07 0.06 0.07 0.07 0.06 0.06 0.07
Company
Reduction of
Fund Expenses(5)..... .00 .00 .00 .00 .00 .00 .00 .00 .00 .00
---- ---- ---- ---- ---- ---- ---- ---- ---- ----
Total Fund Expenses
(after Reduction).... 0.34% 0.40% 0.41% 0.42% 0.56% 0.57% 0.57% 0.56% 0.56% 0.57%
</TABLE>
Example #1--Assuming surrender at the end of the period shown:
Total Expenses: You would pay the following expenses on a $1,000 investment
under a typical Independence Plus Contract invested in a Separate Account
Division as listed below, assuming a 5% annual return on assets:
<TABLE>
<CAPTION>
1 YEAR 3 YEARS 5 YEARS 10 YEARS
------ ------- ------- --------
<S> <C> <C> <C> <C>
Stock Index Division........................................ $61 $ 94 $126 $168
MidCap Index Division....................................... 61 95 129 172
Small Cap Index Division.................................... 62 96 130 176
International Equities Division............................. 62 97 131 177
Social Awareness Division................................... 63 101 138 192
Asset Allocation Division(6)................................ 63 101 139 193
Capital Conservation Division............................... 63 101 139 193
Government Securities Division.............................. 63 101 138 192
International Government Bond Division...................... 63 101 138 192
Money Market Division....................................... 63 101 139 193
</TABLE>
6
<PAGE> 104
Example #2--Assuming no surrender at the end of the period shown:
Total Expenses. You would pay the following expenses on a $1,000 investment
under a typical Independence Plus Contract without a surrender charge imposed,
invested in a Separate Account Division as listed below, assuming a 5% annual
return on assets:
<TABLE>
<CAPTION>
1 YEAR 3 YEARS 5 YEARS 10 YEARS
------ ------- ------- --------
<S> <C> <C> <C> <C>
Stock Index Division........................................ $14 $44 $76 $168
MidCap Index Division....................................... 15 45 79 172
Small Cap Index Division.................................... 15 46 80 176
International Equities Division............................. 15 47 81 177
Social Awareness Division................................... 16 51 88 192
Asset Allocation Division(6)................................ 17 51 89 193
Capital Conservation Division............................... 17 51 89 193
Government Securities Division.............................. 16 51 88 192
International Government Bond Division...................... 16 51 88 192
Money Market Division....................................... 17 51 89 193
</TABLE>
- ---------------
Additional Fee Table Examples are shown in the Appendix to this Prospectus.
(1) Premium taxes are not shown here, but may be charged by some states either
on purchase payments or on amounts annuitized. See "Charge for Premium
Taxes."
(2) Reductions in the surrender charge and account maintenance fee are available
if certain conditions are met. See "Appendix." The surrender charge will
disappear after the 15th Participant Year or after the 7th Participant Year
for an individual aged 59 1/2 years. There will be no surrender charge
incurred if no purchase payments were received during the 60 months
immediately prior to the date of surrender. No annual account maintenance
fee will be assessed during the Annuity Period. The first partial surrender
per Participant Year of 10% or less of Accumulation Value with respect to a
Participant Account will not be subject to a surrender charge. See "Charge
for Total and Partial Surrenders" and "Fee for Annual Account Maintenance".
(3) The annual management fees for the MidCap Index Fund, Stock Index Fund,
Small Cap Index Fund and International Equities Fund are based on each
Fund's average daily net asset value at the following rates: 0.35% of the
first $500 million and 0.25% on the excess over $500 million. The annual
management fees for Social Awareness Fund, Asset Allocation Fund, Capital
Conservation Fund, Government Securities Fund, International Government Bond
Fund and Money Market Fund are flat rates as shown regardless of the amount
of Fund assets.
(4) Includes custody, accounting, reports to shareholders, audit, legal, and
other miscellaneous expenses.
(5) To the extent that any of the Series Company Funds accrued expenses for a
given month exceed on an annualized basis 2% of estimated average daily net
assets, calculated on a monthly basis, the Company has voluntarily
undertaken to reduce expenses of any such Fund, in an amount equal to the
difference between such accrued expenses and 2% of the Fund's average daily
net assets for that month. The Company may withdraw this voluntary
undertaking upon 30 days' written notice to the Series Company.
(6) The 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 the Separate Account or for any Fund. Actual expenses may be
greater or less than those shown above. Similarly, the 5% annual rate of return
assumed in the examples is not an estimate or guarantee of future investment
performance. The purpose of the Fee Table above is to help Contract Owners and
Participants understand the various expenses of the Separate Account and the
Funds which are, in effect, passed on to the Contract Owners and Participants.
This Fee Table, including the examples above, shows all charges and expenses
which are deducted from purchase payments, from the assets of the Separate
Account and from the Funds in which the Separate Account invests. For a further
description of these charges and expenses, see "Charges Under Variable Annuity
Contracts" in this prospectus and "Investment Adviser" in the Series Company
prospectus. Any and all limitations on total charges and expenses are reflected
in this Fee Table.
7
<PAGE> 105
SELECTED ACCUMULATION UNIT DATA
<TABLE>
<CAPTION>
STOCK MIDCAP
INDEX INDEX
DIVISION 10(2) DIVISION 4(1)
-------------- -------------
<S> <C> <C>
December 31, 1997
Accumulation Units in Force............................... 615,053,124 171,065,657
Accumulation Unit Value................................... $3.753436 $4.269122
December 31, 1996
Accumulation Units in Force............................... 536,806,965 172,816,978
Accumulation Unit Value................................... $2.848437 $3.272588
December 31, 1995
Accumulation Units in Force............................... 455,255,243 172,613,690
Accumulation Unit Value................................... $2.343900 $2.782677
December 31, 1994
Accumulation Units in Force............................... 416,234,288 171,442,018
Accumulation Unit Value................................... $1.724134 $2.153183
December 31, 1993
Accumulation Units in Force............................... 369,550,060 134,621,879
Accumulation Unit Value................................... $1.729327 $2.259378
December 31, 1992
Accumulation Units in Force............................... 283,808,045 81,007,871
Accumulation Unit Value................................... $1.589718 $2.021271
May 1, 1992
Accumulation Unit Value(3)................................ -- --
December 31, 1991
Accumulation Units in Force............................... 90,526,907 49,106,844
Accumulation Unit Value................................... $1.505641 $1.858030
October 1, 1991
Accumulation Unit Value(3)................................ -- --
December 31, 1990
Accumulation Units in Force............................... 46,016,297 42,958,640
Accumulation Unit Value................................... $1.179000 $1.538017
December 31, 1989
Accumulation Units in Force............................... 22,325,990 40,618,028
Accumulation Unit Value................................... $1.238782 $1.712671
October 2, 1989
Accumulation Unit Value(3)................................ -- --
December 31, 1988
Accumulation Units in Force............................... 9,213,178 38,747,706
Accumulation Unit Value................................... $.968670 $1.450217
</TABLE>
- ---------------
* The Asset Allocation Fund was formerly known as the Timed Opportunity Fund.
(1) Effective October 1, 1991, the Fund underlying this Division changed its
name from the Capital Accumulation Fund to the MidCap Index Fund and amended
its investment objective, investment program and investment restrictions
accordingly. Historical Accumulation Unit values prior to October 1, 1991
reflect investment experience prior to these changes.
(2) Effective with the merger of Quality Growth Fund into Stock Index Fund on
May 1, 1992, Quality Growth Division 9 was merged into Stock Index Division
10. The merger of Divisions was accomplished by an exchange of units of
Quality Growth Division 9 for units of Stock Index Division 10 of equivalent
value as calculated at the close of business on April 30, 1992.
(3) Accumulation Unit Value At Date Of Inception.
The information presented reflects the Accumulation Unit Information
through December 31, 1997 for Divisions of the Separate Account available under
these Contracts.
8
<PAGE> 106
<TABLE>
<CAPTION>
INTER- SOCIAL INTERNATIONAL
SMALL CAP NATIONAL AWARE- ASSET CAPITAL GOVERNMENT GOVERNMENT MONEY
INDEX EQUITIES NESS ALLOCATION* CONSERVATION SECURITIES BOND MARKET
DIVISION 14 DIVISION 11 DIVISION 12 DIVISION 5 DIVISION 7 DIVISION 8 DIVISION 13 DIVISION 6
----------- ----------- ----------- ---------- ---------- ---------- ----------- ----------
<S> <C> <C> <C> <C> <C> <C> <C>
106,279,077 122,716,744 81,577,104 57,307,351 28,242,598 45,034,894 111,480,591 84,182,521
$2.163595 $1.237299 $2.985333 $3.219282 $1.962239 $1.957755 $1.490645 $1.673590
103,320,842 156,226,314 46,574,016 65,292,617 30,286,494 47,130,169 112,601,593 75,124,095
$1.785442 $1.222906 $2.252673 $2.651899 $1.825549 $1.815651 $1.582230 $1.607212
98,335,995 172,564,018 32,750,120 75,851,431 29,573,808 39,847,053 73,369,250 51,907,757
$1.544896 $1.156454 $1.835102 $2.411022 $1.812011 $1.799475 $1.530780 $1.545802
100,383,839 187,749,916 29,015,764 89,377,860 26,859,219 26,667,073 25,691,713 75,765,781
$1.222329 $1.054460 $1.333899 $1.951533 $1.515278 $1.547150 $1.301357 $1.479129
56,159,647 117,215,227 26,230,566 93,899,802 24,628,606 26,563,166 18,155,381 24,799,810
$1.277199 $0.986387 $1.366979 $1.997266 $1.630069 $1.636228 $1.258340 $1.439327
9,723,477 52,524,165 16,956,437 80,637,090 14,922,749 16,609,444 6,245,713 23,414,474
$1.112790 $0.767135 $1.279516 $1.846025 $1.470167 $1.491537 $1.112826 $1.415690
$1.000000 -- -- -- -- -- -- --
-- 27,011,169 8,447,711 76,624,765 11,069,044 11,694,890 953,038 25,545,494
-- $0.895250 $1.250634 $1.878219 $1.366905 $1.405236 $1.090499 $1.384882
-- -- -- -- -- -- $1.000000 --
-- 13,776,769 2,947,418 72,284,139 9,321,049 8,460,327 -- 25,246,481
-- $0.813423 $0.987666 $1.563444 $1.178361 $1.237104 -- $1.325393
-- 2,247,450 212,636 68,361,149 7,502,717 5,556,464 -- 15,949,534
-- $1.028405 $1.010003 $1.618165 $1.193583 $1.179231 -- $1.240599
-- $1.000000 $1.000000 -- -- -- -- --
-- -- -- 65,817,325 3,996,455 3,408,919 -- 9,429,191
-- -- -- $1.397280 $1.078919 $1.062082 -- $1.149516
</TABLE>
Financial statements of the Separate Account are included in the Statement
of Additional Information, which is available upon request. Accumulation units
shown are for an Accumulation Unit outstanding throughout the year under a
representative contract of the type invested in each column shown. The unit
value of each Division of the Separate Account will not be the same on any given
day as the net asset value per share of the underlying Fund of American General
Series Portfolio Company in which that Division invests. This is because each
unit value consists of the underlying share's net asset value minus the charges
to the Separate Account. In addition, dividends declared by the underlying Fund
are reinvested by the Division in additional shares. These distributions have
the effect of reducing the value of each share of the Fund and increasing the
number of Fund shares outstanding. However, the total cash value in the Separate
Account does not change as a result of such distribution.
9
<PAGE> 107
INTRODUCTION
THIS PROSPECTUS DESCRIBES BOTH GROUP AND INDIVIDUAL CONTRACTS THROUGH WHICH
UNITS OF INTEREST IN THE COMPANY'S SEPARATE ACCOUNT A ARE OFFERED. BOTH GROUP
AND INDIVIDUAL CONTRACTS ARE COMBINATION FIXED/VARIABLE CONTRACTS OFFERING
VARIABLE OR FIXED ACCUMULATIONS AND VARIABLE OR FIXED BENEFITS OR A COMBINATION
OF BOTH. THIS PROSPECTUS DESCRIBES ONLY THE VARIABLE ASPECTS OF THE CONTRACTS,
EXCEPT WHERE FIXED ASPECTS ARE SPECIFICALLY MENTIONED.
The Contracts are designed to provide individuals with retirement benefits
through the accumulation of net Purchase Payments on a fixed or variable basis,
and by the application of such accumulations to provide fixed or variable
annuity payments. The purpose of variable accumulations and annuity payments is
to provide returns to investors which offset or exceed the effects of inflation.
There is, however, no guarantee that this objective will in fact be achieved.
Certain Fund options are indexed funds, a popular approach to investing among
individuals saving for retirement.
The Funds. Ten Separate Account Divisions investing in separate portfolios
(the "Funds") of American General Series Portfolio Company are available under
the Contracts in addition to the Company's General Account. The ten Funds
underlying the available Separate Account Divisions are Stock Index Fund, MidCap
Index Fund, Small Cap Index Fund, International Equities Fund, Social Awareness
Fund, Timed Opportunity Fund, Capital Conservation Fund, Government Securities
Fund, International Government Bond Fund and Money Market Fund.
Accumulation of Purchase Payments. Prior to retirement, the Participant
pursues various investment options on a variable or fixed basis by directing net
Purchase Payments to various Variable or Fixed Subaccounts. Variable investments
are accomplished by allocating or transferring amounts to Variable Subaccounts.
Fixed investments are accomplished by allocating or transferring amounts to
Fixed Subaccounts. Amounts in each of the ten Variable Subaccounts are invested
in a corresponding Separate Account Division which invests, in turn, in an
underlying Fund. As the value of the investment in the Funds increases or
decreases, the value of the Variable Subaccounts accumulations will increase or
decrease. The value of such accumulations is subject to deduction for charges
summarized below. Amounts in each of the two Fixed Subaccounts earn various
rates of interest, with the minimum being the guaranteed rate. The Participant
may pursue up to seven investment options at any one time by allocating and/or
accumulating amounts in up to seven of the twelve available subaccounts. (For
information as to how the Contracts may be purchased, and certain minimums that
apply to Purchase Payments and Accumulation Values, see "Accumulation Period.")
Owners of individual Contracts may exercise a 10-day revocation right (in some
states this may be a 20-day revocation right). (See "Revocation.")
Surrenders. The Participant may, subject to applicable law and the terms of
the employer's plan, make a total or partial surrender at any time during the
Accumulation Period by giving a written request to the Company. (See "Surrender"
and "Federal Tax Matters.") An individual Contract must be returned to the
Company before a total surrender can be effected. A surrender charge may be
assessed.
Surrender Charge. A surrender charge of up to 5% of Purchase Payments
received during the most recent 60 months may be assessed for a partial or total
surrender. The surrender charge is designed to help defray sales and
distribution expenses incurred by the Company. The Company intends to decrease
or eliminate the surrender charge applicable to a particular Contract if it
estimates that its sales expenses will be lower. (See "Charge for Partial and
Total Surrenders.")
Fixed and Variable Annuity Payments. On the Annuity Date, the Accumulation
Value, at the Annuitant's option, may be applied to purchase any combination of
fixed and/or variable annuities, subject to the Company's minimum annuity
payment and other requirements for any one annuity form. (See "Fixed or Variable
Annuity Payments" and "Annuity Payment Options.") Up to seven Divisions, or six
Divisions if a fixed annuity is also selected, may be utilized to provide
annuity payments.
Transfers. During the Accumulation Period, all or part of the Accumulation
Value may be
10
<PAGE> 108
transferred among variable investment options or from variable investment
options to fixed investment options. Transfers may be made from fixed investment
options subject to certain conditions. (See "Transfers Among Investment
Options.")
During the Annuity Period, an Annuitant may also transfer amounts among the
variable investment options underlying a variable annuity, or all or part of
amounts underlying a variable annuity to provide a fixed annuity, once every 365
days. Transfers of amounts providing a fixed annuity may not be made to provide
a variable annuity during the Annuity Period.
Transfers are not subject to any charge. (See "Transfers Among Investment
Options" for additional conditions and limitations regarding transfers.) The
transfer privilege may be suspended or terminated at any time.
Other Charges. An annual account maintenance fee, which is currently $20
for the first Participant Year and $15 per Participant Year thereafter during
the Accumulation Period, is due in quarterly installments beginning the first
day of the calendar quarter following the first date a Purchase Payment is
credited to the Participant Account; however, it is not deducted until the last
day of the calendar quarter in which it is due. A full quarterly charge will be
assessed if the Participant Account is surrendered during a calendar quarter.
This fee will reduce the Surrender Value of the Participant Account. This fee
contributes to offsetting the cost of administrative expenses with respect to
each Contract and may be increased or decreased. Contract Owners will be sent
notice of any increase or decrease in this fee. No annual account maintenance
fee will be assessed during the Annuity Period.
The Company intends to decrease or eliminate the annual account maintenance
fee applicable to a particular Contract if it estimates that its administrative
expenses will be lower. (See "Fee for Annual Account Maintenance.")
A daily fee is charged at the annual rate of 1% of the average daily net
asset value allocable to the Variable Subaccounts. This fee is imposed for
certain additional expenses and for assumption by the Company of certain
mortality risks. Additionally, in certain states a deduction for premium tax is
made. (See "Charge to the Separate Account" and "Charge for Premium Taxes.")
A daily charge, based on a percentage of average daily net assets, is paid
by each Fund to its investment adviser for investment management. These charges,
and other Fund charges and expenses more fully described in the prospectuses for
the Funds and summarized in the preceding Fee Table, are borne indirectly by the
Contract Owners.
THE COMPANY AND THE
SEPARATE ACCOUNT
The Company is a stock life insurance company organized under the laws of
the State of Texas as the successor to Variable Annuity Life Insurance Company
of America, a District of Columbia life insurance company organized in 1955. The
Company is engaged primarily in the offering and issuance of fixed and variable
retirement annuity contracts and combinations thereof. The Company's executive
office is located at 2929 Allen Parkway, Houston, Texas 77019; its mailing
address is P.O. Box 3206, Houston, Texas 77253.
The Company is an indirect wholly-owned subsidiary of American General
Corporation. However, the assets of American General Corporation do not support
the obligations of the Company under the Contracts. Members of the American
General Corporation group of companies operate in each of the 50 states, the
District of Columbia and Canada, and collectively are engaged in substantially
all forms of financial services, with activities heavily weighted toward
insurance.
On April 18, 1979, the Board of Directors of the Company established the
Separate Account in accordance with the Texas Insurance Code. The Separate
Account is registered with the U.S. Securities and Exchange Commission as a unit
investment trust under the Investment Company Act of 1940 (the "1940 Act").
Units of interest in the Separate Account under the Contracts are registered as
securities under the Securities Act of 1933 (the "1933 Act"). Under the Texas
Insurance Code and the Contracts, the assets of the Separate Account will not be
chargeable with liabilities arising out of any other business which the Company
may conduct, but will be held exclusively for the benefit of the Contract
Owners, Participants, Annuitants, and the Beneficiaries of the Contracts.
Each Division of the Separate Account is administered and accounted for as
part of the general business of the Company, however, the income, capital gains,
or capital losses of each Division of
11
<PAGE> 109
the Separate Account are credited to or charged against the assets held in that
Division in accordance with the terms of each Contract without regard to the
income, capital gains, or capital losses of any other Division or arising out of
any other business the Company may conduct.
Each Division of the Separate Account available under the Contracts will
invest in the shares of a specific Fund. The Separate Account currently is made
up of eighteen Divisions, ten of which are available as variable investment
options under the Contracts to receive net Purchase Payments (Divisions Four,
Five, Six, Seven, Eight, Ten, Eleven, Twelve, Thirteen and Fourteen). All of the
investment portfolios underlying these Divisions are also available under other
variable annuity contracts issued by the Company. (For a description of the
Divisions available under the Contracts and the specific Fund in which each
respective Division invests, see "The Funds.")
The above listed Funds are one of thirteen investment portfolios of
American General Series Portfolio Company (the "Series Company"), a diversified,
open-end, management investment company registered under the 1940 Act.
THE FUNDS
The Company serves as the investment adviser to American General Series
Portfolio Company (the "Series Company"), ten of whose investment portfolios
(the "Funds") act as investment media for Divisions Four, Five, Six, Seven,
Eight, Ten, Eleven, Twelve, Thirteen and Fourteen of the Separate Account.
Certain Funds act as investment media for other variable annuity contracts
issued by the Company and not offered pursuant to this prospectus. Also, certain
of the Funds act as investment media for variable annuity contracts issued by
affiliates of the Company. Each investment portfolio is, in effect, a separate
"fund" for which the Series Company issues a separate series (class) of stock.
A brief summary of the investment objectives of each Fund appears below.
For more complete information about these Funds, including charges and expenses,
refer to your American General Series Portfolio Company prospectus, additional
copies of which are available from The Variable Annuity Marketing Company, P.O.
Box 3206, Houston, Texas 77253 or contact any Regional Office at 1-800-44-VALIC
or at the address shown on the inside back cover of this prospectus. Read the
prospectus carefully before you invest or send money.
STOCK INDEX FUND (DIVISION TEN). This Fund seeks long-term capital growth
through investment in common stocks that, as a group, are expected to provide
investment results closely corresponding to the performance of the S&P 500(R)
Index.
MIDCAP INDEX FUND (DIVISION FOUR). This Fund seeks to provide growth of
capital through investments primarily in a diversified portfolio of common
stocks that, as a group, are expected to provide investment results closely
corresponding to the performance of the Standard & Poor's(R) Corporation
(S&P(R)) MidCap 400 Index. Effective October 1, 1991, the Capital Accumulation
Fund changed its name to the MidCap Index Fund and revised its investment
objective, investment program and investment restrictions accordingly, pursuant
to contract owner vote.
SMALL CAP INDEX FUND (DIVISION FOURTEEN). This Fund seeks to provide growth
of capital through investments primarily in a diversified portfolio of common
stocks that, as a group, are expected to provide investment results closely
corresponding to the performance of the Russell 2000(R)** Index.
INTERNATIONAL EQUITIES FUND (DIVISION ELEVEN). The Fund seeks to provide
long-term growth of capital through investments primarily in a diversified
portfolio of equity and equity related securities of foreign issuers that, as a
group, are expected to provide investment results closely corresponding to the
performance of the Morgan Stanley Capital International Europe, Australia and
Far East Index ("EAFE Index").
SOCIAL AWARENESS FUND (DIVISION TWELVE). This Fund seeks growth of capital
through investment, primarily in common stocks, in companies
- ---------------
* "Standard & Poor's(R)", "S&P(R)", "S&P 500(R)" and "S&P MidCap 400 Index" are
trademarks of Standard and Poor's Corporation. Neither the MidCap Index Fund
nor the Stock Index Fund is sponsored, endorsed, sold or promoted by S&P and
S&P makes no representation regarding the advisability of investing in these
Funds.
** The Russell 2000 Index is a trademark/service mark of the Frank Russell
Company. RussellTM is a trademark of the Frank Russell Company.
12
<PAGE> 110
which meet the social criteria established for the Fund.
ASSET ALLOCATION FUND (DIVISION FIVE). This Fund seeks maximum aggregate
rate of return over the long-term through controlled investment risk by
adjusting its investment mix among stocks, long-term debt securities and
short-term money market securities.
CAPITAL CONSERVATION FUND (DIVISION SEVEN). This Fund seeks the highest
possible total return consistent with preservation of capital through current
income and capital gains on investments in intermediate and long-term debt
instruments and other income producing securities.
GOVERNMENT SECURITIES FUND (DIVISION EIGHT). This Fund seeks high current
income and protection of capital through investments in intermediate and
long-term U.S. Government debt securities.
INTERNATIONAL GOVERNMENT BOND FUND
(DIVISION THIRTEEN). This Fund seeks high current income through investments
primarily in high quality debt securities issued or guaranteed by foreign
governments.
MONEY MARKET FUND (DIVISION SIX). This Fund seeks liquidity, protection of
capital and current income through investments in short-term money market
instruments. Shares of the Money Market Fund are neither insured nor guaranteed
by the U.S. Government. There is no assurance that this Fund will be able to
maintain a stable net asset value of $1.00 per share.
PERFORMANCE INFORMATION
The Separate Account may from time to time advertise certain performance
information concerning its various Divisions. The Separate Account and certain
Divisions have been offering contracts for periods prior to the commencement of
the offering of the Contracts described in this Prospectus. The performance
information is based on historical results and is not intended to indicate past
performance under an actual Contract or future performance. Each Division may
also, from time to time, advertise its performance relative to certain
performance rankings and indices compiled by independent organizations. More
detailed information as to the calculation of performance information, as well
as comparisons with unmanaged market indices, appears in the Statement of
Additional Information.
Each Division may advertise total return performance information for
various periods of time. Total return performance information is based on the
overall dollar or percentage change in value of a hypothetical investment in the
specific Division over a given period of time. In general, a Division's total
return reflects the overall change in value of the Division from the beginning
of the relevant period to the end of that period.
Average annual total return information shows the average percentage change
in the value of an investment in the Division from the beginning date of the
measuring period to the end of that period. This standardized version of average
annual total return reflects all historical investment results, less all charges
and deductions applied against the Division (including any maintenance charge
and surrender charge that would apply if a Contract Owner terminated the
Contract at the end of each period indicated, but excluding any deductions for
premium taxes). The rate is computed for each Division comparing an initial
hypothetical investment of $1,000 in the Division to the redeemable value of
that investment at the end of specifically identified 1, 3, 5 and 10 year
periods. In order to calculate average annual total return, the Company divides
the value of a Division under a Contract terminated on a particular date by a
hypothetical $1,000 investment in the Division made by the Contract Owner at the
beginning of the period illustrated. The resulting total growth rate for the
period is then annualized to obtain the average annual percentage increase (or
decrease) during the period. Annualization assumes that the application of a
single rate of return each year during the period will produce the ending value,
taking into account the effect of compounding.
The Divisions may advertise total return performance information computed
on different bases. First, the Divisions may present total return information
computed on the same basis as described above, except deductions will not
include the surrender charge or the maintenance charge. (The Company refers to
this presentation as "Cumulative Return.") This presentation assumes that the
investment in the Contract persists beyond the period when the surrender charge
applies, consistent with the long-term investment and retirement objectives of
the Contract. This presentation may assume 1, 3, 5 and 10 year periods and is
based on a hypothetical $10,000 initial investment.
13
<PAGE> 111
Second, the Divisions may present a nonstandardized average annual total
return that reflects all historical investment results without deduction for
surrender charges, premium taxes or account maintenance fees. The rate for the
nonstandardized version of average annual total return is otherwise computed for
each Division in the same manner as stated above for the standardized version of
average annual total return.
Third, the Divisions may also advertise total return performance
information computed on different bases. For example, the Divisions may present
cumulative total return information computed on the same basis as described
above for total return performance information, except deductions will not
include the surrender charge. (The Company refers to this presentation as
"Cumulative Return.") This presentation assumes that the investment in the
Contract persists beyond the period when the Surrender Charge applies,
consistent with the long-term investment and retirement objectives of the
Contract. This presentation may assume 1, 3, 5 and 10 year periods and is based
on a hypothetical $10,000 initial investment.
Fourth, the Divisions may present total return information calculated by
subtracting a Division's Accumulation Unit value at the beginning of a year from
the Accumulation Unit value of that Division at the end of the year and dividing
the difference by the Accumulation Unit value at the beginning of the year. (The
Company refers to this presentation as "Annual Change in Accumulation Unit
Value.") This computation results in a total growth rate for the period which
the Company annualizes (as described above) in order to obtain the average
annual percentage change in the Accumulation Unit value for that period.
Surrender charges, premium taxes, and maintenance fees are not deducted from the
Accumulation Unit values. These charges, if applicable, are imposed by the
cancellation of Accumulation Units attributable to an individual Contract
Owner's account. The effect of these charges is to reduce total return to the
Contract Owner.
Fifth, the Divisions may present aggregate total return figures for various
periods, reflecting the cumulative change in value of an investment in the
Division for the specified period. This calculation is the same as that for the
Annual Change in Accumulation Unit Value but is based on the Accumulation Unit
value at the beginning and end of a period of years in excess of one year. (The
Company refers to this presentation as "Cumulative Change in Accumulation Unit
Value.")
Sixth, the Divisions may present total return information based on
different amounts of periodic investments into the Division. For example the
Division may present total return information based on a $100 a month investment
for a specified period into the Division.
Finally, the Divisions may present a hypothetical example that applies the
Annual Change in Accumulation Unit Value to an initial investment of $10,000.
(The Company refers to this presentation as "Hypothetical $10,000 Account
Value.")
Each Division other than the Money Market Division may advertise
standardized yield performance in addition to total return information. A
Division's yield is one way of showing the rate of income the Division earns as
a percentage of the value of the Division's Accumulation Units. The yield of
each Division is computed by dividing the average daily net investment income
per Accumulation Unit of the Division earned during a specifically identified
30-day base period, less a maintenance charge, by the Accumulation Unit value on
the last day of the period, and annualizing that result. This calculation takes
into account the average daily number of Accumulation Units outstanding during
the period. The yield of each Division reflects the deduction of all charges,
expenses and fees applicable against the Division, but does not take into
account the surrender charge and premium taxes.
The Money Market Division may advertise current yield and effective yield
performance information. The yield of the Money Market Division refers to the
income generated by an investment in the Money Market Division over a
specifically identified 7-day period. (The yield does not take into account the
surrender charge, the maintenance charge or premium taxes.) This income is
annualized by assuming that the amount of income generated by the investment
during that week is generated each week over a 52-week period and is shown as a
percentage of the investment. The 7 day current yield for the seven days ended
December 31, 1997 was 4.22%. The effective yield of the Money Market Division is
calculated in a similar manner but, when annualizing such yield, income earned
by the Money Market Division is assumed to be reinvested. This compounding
effect will cause effective yield to be higher than current yield. The
14
<PAGE> 112
7 day effective yield for the seven days ended December 31, 1997 was 4.31%.
Certain performance data related to each Division is printed in the tables
below. (See "Performance Calculation" in the Statement of Additional Information
for certain other performance data.)
The information presented does not reflect the advantage under the
Contracts of deferring Federal income tax on increases in Account Value due to
earnings attributable to Purchase Payments. (See "Federal Tax Matters -- Effect
of Tax Deferred Accumulation.") The information presented also does not reflect
the advantage under Qualified Contracts of deferring federal income tax on
Purchase Payment Contributions (See "Federal Tax Matters -- Effect of Tax
Deferred Accumulation.")
The performance results shown in this section are not an estimate or
guarantee of future investment performance, and do not represent the actual
experience of amounts invested by a particular Participant.
AVERAGE ANNUAL TOTAL RETURN
WITH SURRENDER CHARGE AND MAINTENANCE FEE IMPOSED
(FOR PERIOD ENDED DECEMBER 31, 1997)
<TABLE>
<CAPTION>
NO.
OF YEARS DIV 4 DIV 5 DIV 6 DIV 7 DIV 8 DIV 10 DIV 11 DIV 12 DIV 13 DIV 14
-------- ----- ----- ----- ----- ----- ------ ------ ------ ------ ------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
1 Year............... 25.36% 16.31% (0.63)% 2.58% 2.90% 26.68% (3.44)% 27.43% (10.09)% 16.09%
3 Years.............. 24.43 16.82 2.53 7.46 6.60 28.47 3.84 29.68 2.97 19.69
5 Years.............. 15.44 10.99 2.40 5.02 4.65 18.11 9.22 17.82 5.10 13.50
10 Years.............. 12.64 9.48 4.28 6.65 6.70 15.79 -- -- -- --
Since Inception*...... 9.91 8.42 4.29 5.69 5.67 13.07 2.52 14.20 6.48 14.46
</TABLE>
AVERAGE ANNUAL TOTAL RETURN
WITH NO SURRENDER CHARGE AND MAINTENANCE FEE IMPOSED
(FOR PERIOD ENDED DECEMBER 31, 1997)
<TABLE>
<CAPTION>
NO.
OF YEARS DIV 4 DIV 5 DIV 6 DIV 7 DIV 8 DIV 10 DIV 11 DIV 12 DIV 13 DIV 14
-------- ----- ----- ----- ----- ----- ------ ------ ------ ------ ------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
1 Year................ 30.45% 21.40% 4.13% 7.49% 7.83% 31.77% 1.18% 32.52% (5.79)% 21.18%
3 Years............... 25.63 18.16 4.20 9.00 8.16 29.60 5.47 30.80 4.63 20.97
5 Years............... 16.13 11.76 3.40 5.94 5.59 18.75 10.03 18.46 6.02 14.22
10 Years............... 12.78 9.61 4.41 6.78 6.82 15.93 -- -- -- --
Since Inception*....... 10.04 8.55 4.42 5.82 5.80 13.20 2.64 14.33 6.60 14.59
</TABLE>
- ---------------
* Division Four was initiated on October 13, 1982. Effective October 1, 1991 the
Capital Accumulation Fund changed its name to the MidCap Index Fund and
revised its investment objective, investment program and investment
restrictions accordingly, pursuant to contract owner vote. Division Five was
initiated on September 6, 1983. Divisions Six, Seven and Eight were initiated
on January 16, 1986. Division Ten was initiated on April 20, 1987. Divisions
Eleven and Twelve were initiated on October 2, 1989. Division Thirteen was
initiated on October 1, 1991. Division Fourteen was initiated on May 1, 1992.
15
<PAGE> 113
CUMULATIVE RETURN
(FOR PERIOD ENDED DECEMBER 31, 1997)
<TABLE>
<CAPTION>
SINCE
DIVISION INCEPTION* 10 YEARS 5 YEARS 3 YEARS 1 YEAR
-------- ---------- -------- ------- ------- ------
<S> <C> <C> <C> <C> <C>
Stock Index Fund (Division 10).................. 275.34% 338.36% 136.11% 117.70% 31.77%
MidCap Index Fund (Division 4)
Period from 10/01/91 through 12/31/97......... 156.48 -- 111.21 98.27 30.45
Period from 10/13/82 through 12/31/97......... 326.91 232.83 111.21 98.27 30.45
Small Cap Index Fund (Division 14).............. 116.36 -- 94.43 77.01 21.18
International Equities Fund (Division 11)....... 23.73 -- 61.29 17.34 1.18
Social Awareness Fund (Division 12)............. 198.53 -- 133.32 123.81 32.52
Asset Allocation Fund (Division 5)**............ 221.93 150.29 74.39 64.96 21.40
Capital Conservation Fund (Division 7).......... 96.22 92.64 33.47 29.50 7.49
Government Securities Fund (Division 8)......... 95.78 93.46 31.26 26.54 7.83
International Government Bond Fund (Division
13)........................................... 49.06 -- 33.95 14.55 (5.79)
Money Market Fund (Division 6).................. 67.36 53.92 18.22 13.15 4.13
</TABLE>
- ---------------
* See footnote for Average Annual Total Return for the inception date of each
Division.
** The Asset Allocation Fund was formerly known as the Timed Opportunity Fund.
16
<PAGE> 114
ANNUAL AND CUMULATIVE CHANGE IN ACCUMULATION UNIT VALUE
<TABLE>
<CAPTION>
INTER-
MIDCAP SMALL CAP NATIONAL SOCIAL
STOCK INDEX INDEX INDEX EQUITIES AWARENESS
DIVISION 10(1) DIVISION 4(2) DIVISION 14(3) DIVISION 11(4) DIVISION 12(4)
-------------- ------------- -------------- -------------- --------------
<S> <C> <C> <C> <C> <C>
ANNUAL CHANGE
YEAR ENDED:
12/31/97.............. 31.77% 30.45% 21.18% 1.18% 32.52%
12/31/96.............. 21.53 17.61 15.57 5.75 22.75
12/31/95.............. 35.95 29.24 26.39 9.67 37.57
12/31/94.............. (0.30) (4.70) (4.30) 6.90 (2.42)
12/31/93.............. 8.78 11.78 14.77 28.58 6.84
12/31/92.............. 5.58 8.79 11.28 (14.31) 2.31
12/31/91.............. 27.70 20.81 -- 10.06 26.63
12/31/90.............. (4.83) (10.20) -- (20.90) (2.21)
12/31/89.............. 27.88 18.10 -- 2.84 1.00
12/31/88.............. 13.13 13.06 -- -- --
CUMULATIVE
CHANGE
For each period end
since 12/31/87
12/31/97.............. 338.36% 232.83% 116.36% 23.73% 198.53%
12/31/96.............. 232.67 155.14 78.54 22.29 125.27
12/31/95.............. 173.74 116.95 54.49 15.65 83.51
12/31/94.............. 101.36 67.87 22.23 5.45 33.39
12/31/93.............. 101.97 76.15 27.72 (1.36) 36.70
12/31/92.............. 85.66 57.58 11.28 (23.29) 27.95
12/31/91.............. 75.84 44.86 -- (10.48) 25.06
12/31/90.............. 37.70 19.91 -- (18.66) (1.23)
12/31/89.............. 44.68 33.52 -- 2.84 1.00
12/31/88.............. 13.13 13.06 -- -- --
<CAPTION>
INTER-
NATIONAL
ASSET CAPITAL GOVERNMENT GOVERNMENT MONEY
ALLOCATION* CONSERVATION SECURITIES BOND MARKET
DIVISION 5(5) DIVISION 7(6) DIVISION 8(6) DIVISION 13(7) DIVISION 6(6)
------------- ------------- ------------- -------------- -------------
<S> <C> <C> <C> <C> <C>
ANNUAL CHANGE
YEAR ENDED:
12/31/97.............. 21.40% 7.49% 7.83% (5.79%) 4.13%
12/31/96.............. 9.99 0.75 0.90 3.36 3.97
12/31/95.............. 23.55 19.58 16.31 17.63 4.51
12/31/94.............. (2.29) (7.04) (5.44) 3.42 2.77
12/31/93.............. 8.19 10.88 9.70 13.08 1.67
12/31/92.............. (1.71) 7.55 6.14 2.05 2.22
12/31/91.............. 20.13 16.00 13.59 9.05 4.49
12/31/90.............. (3.38) (1.28) 4.91 -- 6.83
12/31/89.............. 15.81 10.63 11.03 -- 7.92
12/31/88.............. 8.63 5.92 4.95 -- 5.72
CUMULATIVE
CHANGE
For each period end
since 12/31/87
12/31/97.............. 150.29% 92.64% 93.46% 49.06% 53.92%
12/31/96.............. 106.18 79.22 79.42 58.22 47.82
12/31/95.............. 87.45 77.89 77.82 53.08 42.17
12/31/94.............. 51.73 48.76 52.88 30.14 36.04
12/31/93.............. 55.28 60.03 61.69 25.83 32.38
12/31/92.............. 43.52 44.33 47.39 11.28 30.20
12/31/91.............. 46.03 34.19 38.86 9.05 27.37
12/31/90.............. 21.55 15.68 22.25 -- 21.90
12/31/89.............. 25.81 17.18 16.53 -- 14.10
12/31/88.............. 8.63 5.92 4.95 -- 5.72
</TABLE>
- ---------------
For the year in which a Division was initiated, less than a full year's
performance has been reflected. Actual, not annualized, performance is
reflected.
* The Asset Allocation Fund was formerly known as the Timed Opportunity Fund.
(1) Initiated 4/20/87.
(2) Initiated 10/13/82 (formerly the Capital Accumulation Division). Effective
October 1, 1991, the Fund underlying this Division changed its name from the
Capital Accumulation Fund to the MidCap Index Fund and amended its
investment objective, investment program and investment restrictions
accordingly. Historical data prior to October 1, 1991 reflect investment
experience prior to these changes. Investment experience, for MidCap Index
Division 4 subsequent to October 1, 1991 has been as follows: for the period
from October 1, 1991 to December 31, 1991 the change in accumulation unit
value was 11.63%, for the period from October 1, 1991 to December 31, 1992
the cumulative change in accumulation unit value was 21.43%, for the period
from October 1, 1991 to December 31, 1993 the cumulative change in
accumulation unit value was 35.74%; for the period from October 1, 1991 to
December 31, 1994 the cumulative change in accumulation unit value was
29.36%; for the period from October 1, 1991 to December 31, 1995 the
cumulative change in accumulation unit value was 67.18%; for the period from
October 1, 1991 to December 31, 1996 the cumulative change in accumulation
unit value was 96.61%; and for the period from October 1, 1991 to December
31, 1997 the cumulative change in accumulation unit value was 156.48%.
(3) Initiated 5/1/92.
(4) Initiated 10/2/89.
(5) Initiated 9/6/83.
(6) Initiated 1/16/86.
(7) Initiated 10/1/91.
17
<PAGE> 115
HYPOTHETICAL $10,000 ACCOUNT VALUE
INVESTED AT INCEPTION OF DIVISION
The tables and graphs below show the change in accumulation value of a
hypothetical $10,000 investment in each of the Divisions since the inception of
the Division.
STOCK INDEX FUND (DIVISION 10)
<TABLE>
<CAPTION>
ANNUAL VALUE OF A $10,000
STIPULATED PAYMENT MADE VALUE AT MONTHLY INTERVALS OF A $10,000
JANUARY 1, 1988 STIPULATED PAYMENT MADE JANUARY 1, 1988
- ---------------------------------- ---------------------------------------
<S> <C> <C> <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>
[CHART]
18
<PAGE> 116
MIDCAP INDEX FUND (DIVISION 4)
The performance information for the MidCap Index Division is shown in two
separate sets of tables and graphs for the ten year period beginning January 1,
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 accumulation unit data for the last ten years for the MidCap
Index Division appears on page 8 of this Prospectus.
<TABLE>
<CAPTION>
ANNUAL VALUE OF A $10,000
STIPULATED PAYMENT MADE VALUE AT MONTHLY INTERVALS OF A $10,000
OCTOBER 1, 1991 STIPULATED PAYMENT MADE OCTOBER 1, 1991
- ---------------------------------- ---------------------------------------
<S> <C> <C> <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>
[CHART]
<TABLE>
<CAPTION>
ANNUAL VALUE OF A $10,000
STIPULATED PAYMENT MADE VALUE AT MONTHLY INTERVALS OF A $10,000
JANUARY 1, 1988 STIPULATED PAYMENT MADE JANUARY 1, 1988
- ---------------------------------- ---------------------------------------
<S> <C> <C> <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>
[CHART]
19
<PAGE> 117
SMALL CAP INDEX FUND (DIVISION 14)
<TABLE>
<CAPTION>
ANNUAL VALUE OF A $10,000
STIPULATED PAYMENT MADE VALUE AT MONTHLY INTERVALS OF A $10,000
MAY 1, 1992 PAYMENT MADE MAY 1, 1992
- ---------------------------------- ---------------------------------------
<S> <C> <C> <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>
[CHART]
INTERNATIONAL EQUITIES FUND (DIVISION 11)
<TABLE>
<CAPTION>
ANNUAL VALUE OF A $10,000
STIPULATED PAYMENT MADE VALUE AT MONTHLY INTERVALS OF A $10,000
OCTOBER 2, 1989 STIPULATED PAYMENT MADE OCTOBER 2, 1989
- ---------------------------------- ---------------------------------------
<S> <C> <C> <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>
[CHART]
20
<PAGE> 118
SOCIAL AWARENESS FUND (DIVISION 12)
<TABLE>
<CAPTION>
ANNUAL VALUE OF A $10,000
STIPULATED PAYMENT MADE VALUE AT MONTHLY INTERVALS OF A $10,000
OCTOBER 2, 1989 STIPULATED PAYMENT MADE OCTOBER 2, 1989
- ---------------------------------- ---------------------------------------
<S> <C> <C> <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>
[CHART]
ASSET ALLOCATION FUND (DIVISION 5)*
<TABLE>
<CAPTION>
ANNUAL VALUE OF A $10,000
STIPULATED PAYMENT MADE VALUE AT MONTHLY INTERVALS OF A $10,000
JANUARY 1, 1988 STIPULATED PAYMENT MADE JANUARY 1, 1988
- ---------------------------------- ---------------------------------------
<S> <C> <C> <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>
[CHART]
* Effective October 1, 1997 the Timed Opportunity Fund changed its name to the
Asset Allocation Fund.
21
<PAGE> 119
CAPITAL CONSERVATION FUND (DIVISION 7)
<TABLE>
<CAPTION>
ANNUAL VALUE OF A $10,000
STIPULATED PAYMENT MADE VALUE AT MONTHLY INTERVALS OF A $10,000
JANUARY 1, 1988 STIPULATED PAYMENT MADE JANUARY 1, 1988
- ---------------------------------- ---------------------------------------
<S> <C> <C> <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>
[CHART]
GOVERNMENT SECURITIES FUND (DIVISION 8)
<TABLE>
<CAPTION>
ANNUAL VALUE OF A $10,000
STIPULATED PAYMENT MADE VALUE AT MONTHLY INTERVALS OF A $10,000
JANUARY 1, 1988 STIPULATED PAYMENT MADE JANUARY 1, 1988
- ---------------------------------- ---------------------------------------
<S> <C> <C> <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>
[CHART]
22
<PAGE> 120
INTERNATIONAL GOVERNMENT BOND FUND (DIVISION 13)
<TABLE>
<CAPTION>
ANNUAL VALUE OF A $10,000
STIPULATED PAYMENT MADE VALUE AT MONTHLY INTERVALS OF A $10,000
OCTOBER 1, 1991 STIPULATED PAYMENT MADE OCTOBER 1, 1991
- ---------------------------------- ---------------------------------------
<S> <C> <C> <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>
[CHART]
MONEY MARKET FUND (DIVISION 6)
<TABLE>
<CAPTION>
ANNUAL VALUE OF A $10,000
STIPULATED PAYMENT MADE VALUE AT MONTHLY INTERVALS OF A $10,000
JANUARY 1, 1988 STIPULATED PAYMENT MADE JANUARY 1, 1988
- ---------------------------------- ---------------------------------------
<S> <C> <C> <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>
[CHART]
23
<PAGE> 121
ENDORSEMENTS AND PUBLISHED RATINGS
From time to time, in advertisements or in reports to Contract Owners, the
Company may refer to endorsements. Endorsements are often in the form of a list
of organizations, individuals or other parties which recommend the Company or
the Contracts. The endorser's name will be used only with the endorser's
consent. It should be noted that the list of endorsements may change from time
to time.
Also from time to time, the rating of the Company as an insurance company
by A. M. Best may be referred to in advertisements or in reports to Contract
Owners. Each year the A. M. Best Company reviews the financial status of
thousands of insurers, culminating in the assignment of Best's Ratings. These
ratings reflect their current opinion of the relative financial strength and
operating performance of an insurance company in comparison to the norms of the
life/health insurance industry. Best's Ratings range from A++ to F. An A++
rating means, in the opinion of A. M. Best, that the insurer has demonstrated
the strongest ability to meet its respective policyholder and other contractual
obligations.
In addition, the claims-paying ability of the Company as measured by the
Standard and Poor's Ratings Group may be referred to in advertisements or in
reports to Contract Owners. A Standard and Poor's insurance claims-paying
ability rating is an assessment of an operating insurance company's financial
capacity to meet the obligations of its insurance policies in accordance with
their terms. Standard and Poor's ratings range from AAA to D.
Further, from time to time the Company may refer to Moody's Investor's
Service's rating of the Company. Moody's Investor's Service's financial strength
ratings indicate an insurance company's ability to discharge senior policyholder
obligations and claims and are based on an analysis of the insurance company and
its relationship to its parent, subsidiaries and affiliates. Moody's Investor's
Service's ratings range from Aaa to C.
The Company will additionally refer to its Duff & Phelp's rating. A Duff &
Phelp's rating is an assessment of a Company's insurance claims-paying ability.
Duff & Phelp's ratings range from AAA to CCC. An AAA rating reflects that the
Company has the highest claims-paying ability.
The Company may from time to time, refer to Lipper Analytical Services
Incorporated ("Lipper"), Morningstar, Inc. ("Morningstar") and CDA/Wiesenberger
Investment Companies ("CDA/Wiesenberger") when discussing the performance of its
Divisions. Lipper, Morningstar and CDA/Wiesenberger are leading publishers of
statistical data about the investment company industry in the United States.
Additionally, the Company may compare the performance of the Divisions to
categories published by Lipper and Morningstar. The published categories which
may be utilized in comparison with the performance of the Divisions include the
Morningstar Growth and Income Mutual Fund Category, Morningstar Aggressive
Growth Mutual Fund Category, Morningstar Growth Mutual Fund Category,
Morningstar International Stock Mutual Fund Category, Lipper Growth and Income
Mutual Fund Category, Lipper Small Company Growth Mutual Fund Category, Lipper
Growth Mutual Fund Category and Lipper International Mutual Fund Category.
Additional Lipper or Morningstar categories may be utilized if they are deemed
by the Company relevant to the performance of the Company's Divisions.
The Company may, from time to time, refer to The Variable Annuity Research
& Data Services (VARDS) Report. The VARDS Report offers monthly analysis of the
variable annuity industry, including marketing and performance information.
VARDS currently tracks over 900 variable separate accounts totaling over $260
Billion in variable annuity assets.
The Company may, from time to time, refer to Bankers Trust Company's
Tactical Asset Allocation Model's historical performance and compare such
performance to that of the S&P 500 Index. Neither the Model nor the S&P 500
Index is a managed fund and neither have identifiable investment objectives.
The Company may, from time to time, refer to a general investment strategy
known as indexing. Several of the Divisions employ this investment strategy. The
Company may compare the performance of these Divisions to the S&P 500 Index, S&P
MidCap 400 Index, Russell 2000 Index, Morgan Stanley Capital International
Europe, Australia and Far East (EAFE) Index, or any other appropriate market
index. The indexes are not managed
24
<PAGE> 122
funds and have no identifiable investment objectives.
Finally the Company will utilize as a comparative measure for the
performance of its Funds the Consumer Price Index ("CPI"). The CPI is a measure
of change in consumer prices, as determined in a monthly survey of the U.S.
Bureau of Labor Statistics. Housing costs, transportation, food, electricity,
changes in taxes and labor costs are among the CPI components. The CPI provides
a tool for determining the impact of inflation on an individual's purchasing
power.
TRANSFERS AMONG INVESTMENT OPTIONS
Transfers of Accumulation Value and Annuity Units among investment options
are permitted subject to the conditions discussed below. The right to make
transfers is exercisable by the Participant during the Accumulation Period and
by the Annuitant during the Annuity Period. The Company reserves the right to
limit or restrict transfers to the extent such limitation or restriction is
allowed by the Contract.
TRANSFERS DURING THE ACCUMULATION PERIOD
Transfers among investment options during the Accumulation Period are
accomplished by transferring Accumulation Value among Variable Subaccounts
(which are invested in Divisions) or Fixed Subaccounts.
The Company has the right to limit transfers. The Company's current policy
is that transfers among Variable Subaccounts or from Variable Subaccount(s) to
Fixed Subaccount(s) currently may be made at any time during the Accumulation
Period.
Transfers from a Fixed Subaccount to one or more Variable Subaccounts or
another Fixed Subaccount may be made during the Accumulation Period, subject to
restrictions. Specifically, during the Accumulation Period, transfers of up to
20% of the Accumulation Value allocated to Fixed Account Plus may be made each
Participant Year. VALIC may permit transfers in excess of this limit by prior
written notice to all Contract Owners. However, if the transfer would result in
a Fixed Account Plus Accumulation Value of less than $500, the entire Fixed
Account Plus Accumulation Value may be transferred at that time. A transfer to
Short Term Fixed Account currently will result in no further transfers from
Short Term Fixed Account being permitted for a period of 90 days. Otherwise,
transfers from Short Term Fixed Account may be made at any time during the
Accumulation Period provided, however, that the 90 day transfer period may be
changed at any time. However, the transfer period may not exceed 180 days.
Plan loans from the Fixed Subaccounts may be permitted by your employer's
plan. Refer to your plan for a description of charges and further information.
TRANSFERS DURING THE ANNUITY PERIOD
During the Annuity Period, transfers among investment options are
accomplished by transferring Annuity Units among the Separate Account's
Divisions or to a fixed annuity. These transfers may be made at intervals of at
least 365 days. During the Annuity Period, transfers from a fixed annuity are
not permitted.
OTHER REQUIREMENTS
Transfers among investment options or changes of future allocation of
Purchase Payments ("reallocations") may be made upon receipt by the Company, at
its Home Office, of written instructions or by telephone at 1-800-621-7792.
Requests for transfers or reallocations by telephone will be automatically
permitted unless the Company has been notified otherwise in writing or by
telephone at 1-800-621-7792. If, after notifying the Company that telephone
transfers or reallocations are not to be allowed, the Contract Owner or
Participant wishes to have the right to effect telephone transfers or
reallocations reactivated, he or she must notify the Company in writing.
Prior to the Company's effecting a transfer request or reallocation by
telephone instruction, the Company will employ reasonable procedures to confirm
that instructions communicated by telephone are genuine by requiring certain
identifying information about the Contract Owner or Participant. Unless the
Contract Owner or Participant has instructed the Company not to accept telephone
transfers or reallocations, anyone who represents that he or she is authorized
by the Contract Owner or Participant to effect a transfer or reallocation may do
so if they have the requisite Contract Owner
25
<PAGE> 123
or Participant account information. Officers, directors, agents, representatives
and employees of the Company may not give or be authorized to give telephone
instructions on behalf of Contract Owners or Participants (other than for
contracts within their immediate family) without prior written permission of the
Company.
It is the responsibility of the Contract Owner or Participant to verify the
accuracy of all confirmations of transfers and to promptly advise the Company of
any inaccuracies within one business day of receipt of the confirmation. The
Company will send to the Contract Owner or Participant a confirmation of the
transfer within five (5) days from the date of any instruction.
Any telephone instructions reasonably believed by the Company to be genuine
will be the Contract Owner's or Participant's responsibility, including losses
arising from any errors in the communication of instructions. As a result of
this policy, the Contract Owner or Participant will bear the risk of loss. If
the Company does not employ reasonable procedures to confirm that instructions
communicated by telephone are genuine, it may be liable for any losses due to
unauthorized or fraudulent instructions.
Transfers or reallocations will be effected pursuant to the Contract
Owner's or Participant's written or telephone transfer request as of the day
when received by the Company if received by the Company's Home Office before the
close of regular trading of the New York Stock Exchange, generally 4:00 p.m. New
York time, on a day Accumulation Unit values are calculated; otherwise the next
calculated Accumulation Unit or Annuity Unit value will be used. Telephone
transfer requests will not be accepted during the Annuity Period. The Company
reserves the right to discontinue the telephone transfer facility at any time.
Up to seven fixed or variable investment options may be used by a
Participant at any one time during the Accumulation Period or the Annuity
Period. (For additional requirements with respect to investment options during
the Annuity Period, see "Fixed or Variable Annuity Payments," "Annuity Payment
Options" and "Death of Annuitant During Annuity Period.")
26
<PAGE> 124
CHARGES UNDER VARIABLE ANNUITY CONTRACTS
All charges under the Contracts are described below.
CHARGE FOR PREMIUM TAXES
Premium taxes ranging from zero to 3% are currently imposed by certain
states and municipalities on Purchase Payments made under the Contracts.
Under deferred Contracts subject to premium tax, an amount for the tax will
be deducted, either from Purchase Payments when received, or from the amount
applied to effect an annuity at the time annuity payments commence, depending on
applicable state law. If an amount for any premium taxes is deducted but
subsequently is determined not to be due, the Company will adjust the excess
amount to reflect investment experience from the date of the deduction to the
date the determination is made. The Company will then apply the excess amount
deducted, as adjusted, to increase the number of Accumulation Units or Annuity
Units under the Participant Account at the time such determination is made.
CHARGE FOR PARTIAL AND TOTAL SURRENDERS
Except as provided below, a total or partial surrender is subject to a
surrender charge calculated as a percentage of the dollar amount of previous
Purchase Payments with respect to a Participant Account which are withdrawn, or
the dollar amount of the surrender, if less. Except as provided below it is
assumed that the most recent Purchase Payments are withdrawn first, and no
surrender charge is ever imposed on any amount not actually withdrawn.
Amounts exchanged to this Contract from other variable annuity contracts
issued by the Company are not considered to be Purchase Payments for purposes of
calculating the surrender charge. For such Contract exchanges, exchanged amounts
shall be deemed to be withdrawn only after all subsequent Purchase Payments have
been withdrawn. See "Exchange Offers" for more complete information about these
exchanges and surrender charges on exchanged amounts.
The surrender charge with respect to any Participant Account may not exceed
5% of the lesser of (a) all Purchase Payments received during the most recent 60
months prior to the receipt of the surrender request by the Company at its Home
Office, or (b) the amount withdrawn. For purposes of this charge, the Company
treats withdrawals of Purchase Payments before any earnings. Additionally, the
most recent Purchase Payments are treated as withdrawn first.
The first partial surrender per Participant Year of 10% or less of
Accumulation Value with respect to a Participant Account will not be subject to
a surrender charge. These 10% withdrawals without charge do not reduce Purchase
Payments for purposes of computing the charge. However, if the first partial
surrender (or total surrender, if there have been no partial surrenders within
the current Participant Year) exceeds 10% of Accumulation Value, the surrender
charge will be applied to the lesser of (a) the amount in excess of 10%, or (b)
the amount of the surrender attributable to Purchase Payments received during
the most recent 60 months. The second or any subsequent surrenders during a
Participant Year may be subject to a surrender charge.
If a surrender charge is assessed against any Purchase Payment, that
Purchase Payment (or, if the surrender charge is assessed against less than the
entire Purchase Payment, that portion against which such charge is assessed)
will not be subject to any further surrender charge in the event of a subsequent
withdrawal.
The surrender charge is not imposed upon annuitization at the Annuity Date
or upon any payments received by an Annuitant or Beneficiary in lieu of annuity
payments during the Annuity Period. Nor is the surrender charge imposed on the
payment of benefits to a Beneficiary or an Annuitant when a Participant dies
during the Accumulation Period. (See "Death Benefits During Accumulation
Period.") There is no surrender charge in any of the following situations: (a)
if no Purchase Payments have been received during the 60 months immediately
prior to surrender; (b) if the Participant Account has been in effect for 15
years or longer; or (c) if the Participant Account has been in effect for 5
years or longer and the Annuitant has attained age 59 1/2. No surrender charge
is imposed if the Annuitant has qualified to receive Social Security disability
benefits as evidenced by a certified copy of a
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Social Security Administration determination or a doctor's verification of such
disability. For employer sponsored groups, i.e. in the case of Contracts other
than Non-Qualified contracts or IRA contracts, no surrender charges will apply
if the Participant has been in the Contract for 5 or more years, the Participant
has separated from service of his or her employer and the Participant has
attained age 55.
The amount of surrender charges for a particular Contract may be reduced or
eliminated when the Contract is issued pursuant to a retirement plan or similar
arrangement and sales are made to individuals or groups of individuals in a
manner that results in savings of sales expenses. The entitlement to such a
reduction or elimination of surrender charges will be determined by the Company
in the following manner:
1. The size of the group to which such sales are to be made will be
considered. Generally, the sales expenses for a larger group are smaller
than for a smaller group because of the ability to establish a larger
number of Participant Accounts with fewer sales contacts.
2. The total amount of Purchase Payments to be received from a group will
be considered. Per Participant Account sales expenses are likely to be
less on larger Purchase Payments than on smaller ones.
3. The purpose for which the Contracts are being purchased will be
considered. Certain types of qualified plans are more likely to be
stable than are others. Such stability reduces the number of sales
contracts required, reduces sales administration and results in fewer
Participant Account terminations. As a result, sales expenses can be
reduced.
4. The nature of the group for which the Contracts are being purchased will
be considered. Certain types of employee and professional groups are
more likely to continue Contract participation for longer periods than
are other groups with more mobile membership. If fewer Participant
Accounts are surrendered in a given group, the Company's sales expenses
are reduced.
5. The use of mass enrollment procedures or the performance of sales or
related administrative functions by the employer will be considered.
Sales expenses are likely to be lower on Contracts where the need for
individual sales contacts is minimized.
6. There may be other circumstances of which the Company is not presently
aware, which could result in reduced sales expenses.
If, after consideration of the foregoing factors, the Company determines
that a group purchase would result in reduced or eliminated sales expenses, such
a group would be entitled to a reduction or elimination of the charge.
In no event will reduction or elimination of the charge be permitted where
such reduction or elimination will be unfairly discriminatory to any person.
The surrender charge reimburses the Company for part or all of its expenses
related to distributing the Contracts. The Company believes, however, that the
amount of such expenses will exceed the amount of revenues generated by the
surrender charge. The Company will pay such excess out of its general surplus
which, among other things, would include any gains from the asset charge
described below under "Charge to the Separate Account."
Examples of calculation of the surrender charge upon partial and total
surrender are set forth in the Statement of Additional Information--"Calculation
of Surrender Charge."
FEE FOR ANNUAL ACCOUNT MAINTENANCE
An annual account maintenance fee of $20 will be assessed each Contract by
the Company for the first Participant Year. The fee will be reduced to $15 for
the second and later years during the Accumulation Period. The fee is due in
quarterly installments beginning on the first day of the calendar quarter
following the first date a Purchase Payment is credited to the Participant
Account. The fee is assessed on the last day of the calendar quarter in which it
is due. This fee will be assessed proportionately among the Variable and Fixed
Subaccounts which make up the Accumulation Value. The maintenance fee is not
guaranteed and may, with prior regulatory approval if required, be
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changed for future years. Any change to this fee will apply to Contracts
purchased both before and after such change. This fee is to reimburse the
Company for the cost of administrative expenses, including the expenses incurred
in establishing and maintaining the records relating to the Contract. The
Company does not expect that the revenues it will derive from this fee will
exceed such expenses.
The annual account maintenance fee may be reduced or waived on Contracts
issued under a retirement plan or similar arrangement which does not occasion
all the administrative expenses that otherwise would be incurred. The
entitlement to such a reduction in maintenance fee will be determined by the
Company in the following manner:
1. The purposes for which the Contracts are being purchased will be
considered. Certain types of qualified plans are more likely to be
stable than are others. Such stability reduces sales administration and
results in fewer Participant Account terminations. As a result,
administrative expenses can be reduced.
2. The nature of the group for which the Contracts are being purchased will
be considered. Certain types of employees and professional groups are
more likely to continue Contract participation for longer periods than
are other groups with more mobile membership. If fewer Participant
Accounts are surrendered in a given group, the Company's administrative
expenses are reduced.
3. The frequency of Purchase Payments will be considered. If Participant
Accounts are established or Purchase Payments are received in large
numbers only once a year, administrative costs are dramatically reduced.
4. The performance of administrative functions by the employer or the use
by an employer of automated techniques in submitting Purchase Payments
or information related to Purchase Payments on behalf of its employees
can reduce the Company's administrative expenses associated with a
Contract.
5. There may be other circumstances of which the Company is not presently
aware, which could result in reduced administrative expenses.
If, after consideration of the foregoing factors, the Company determines
that a group purchase would result in reduced administrative expenses, such a
group would be entitled to a reduction of the fee. In no event will reductions
of the fees be permitted where such reductions will be unfairly discriminatory
to any person.
If two or more Participant Accounts are established for the same Annuitant
under the same group Contracts, the Company and the Contract Owner may agree to
assess the maintenance fees related to some or all such Participant Accounts
against one such account.
CHARGE TO THE SEPARATE ACCOUNT
To cover administrative expenses not covered by the maintenance fee
discussed above, and to compensate the Company for assuming mortality risks
under the Contracts, the Separate Account will incur a daily charge at an
annualized rate of 1% on the average daily net asset value of the Separate
Account attributable to the Contracts. This charge is guaranteed and may not be
increased by the Company.
In assuming the mortality risks, the Company is taking the risk that its
actuarial estimate of mortality rates during the Annuity Period may prove
erroneous and that the Annuitant will live longer than expected or that the
Annuitant will die during the Accumulation Period at a time when the death
benefit guaranteed by the Company is higher than the Accumulation Value of the
Participant Account. The Company does not expect to earn a profit on that
portion of the charge which is for administrative expenses, but the Company does
expect to derive a profit from the portion which is for assumption of mortality
risks. There is no necessary relationship between the amount of administrative
charges imposed on a given Contract and the amount of expenses actually
attributable to that Contract.
MISCELLANEOUS
A daily charge based on a percentage of average daily net assets is payable
by each Fund to the Company for investment management. These charges, and other
Fund charges and expenses more fully described in the prospectus for the Series
Company, are borne indirectly by Participants.
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CHARGE FOR INCOME TAXES
Currently, no charge is made against the Separate Account for the Company's
federal income taxes, or provisions for such taxes that may be attributable to
the Separate Account. The Company may charge each Division in the Separate
Account for its portion of any income tax charged to the Company or the Division
on its assets. Under present laws, the Company may incur state and local taxes
(in addition to premium taxes) in several states. At present, these taxes are
not significant. If they increase, however, the Company may decide to make
charges for such taxes or provisions for such taxes against the Separate
Account. Any such charges against the Separate Account or its Divisions could
have an adverse effect on the investment performance of such Division.
ACCUMULATION PERIOD
During the period before the commencement of annuity payments (the
"Accumulation Period"), the Participant or employer may make Purchase Payments
from time to time, and on such dates and in such amounts as may be determined
pursuant to the retirement plan for which the Contract has been purchased.
In all cases, the initial Purchase Payment must be preceded or accompanied
by a properly completed application. Except in the case of IRAs and some
Non-Qualified Contracts, Purchase Payments are generally remitted through or by
an employer and the Company must also receive a premium flow report which
identifies the amount to be credited to each Participant Account held pursuant
to the employer's retirement plan.
The initial and subsequent Purchase Payments for a periodic payment
Contract must be at least $30 per Participant Account. This minimum applies
separately to the amount of each Purchase Payment directed to each Variable
Subaccount or Fixed Subaccount. For single pay ment Contracts, the minimum
Purchase Payment is $1,000 per Participant Account. However, these minimums may
be waived where one purchaser, such as an employer, purchases a number of
Contracts.
When an initial Purchase Payment accompanies an application (and, if
required, a premium flow report) the Company will, within two business days
after receipt of the application at its Home Office, either (a) process and
accept the application, issue the Contract to the Contract Owner, establish
Participant Accounts and credit amounts or Accumulation Units to those accounts
as of the date of acceptance; (b) reject the application and return the Purchase
Payment; or (c) request additional documents or information if the application
is not complete or is incorrectly completed.
If the Company receives Purchase Payments from your employer before the
Company receives your completed application or enrollment form, the Company will
not be able to open an account for you. Under these circumstances, the Company
will take one of the following actions:
Return Purchase Payments. If the Company does not have your name, address or
social security number, the Company will return the Purchase Payment to your
employer unless this information is immediately provided to the Company
Employer-Directed Account. If the Company has your name, address and social
security number and the Company has an Employer-Directed Account Agreement
from your employer, generally the Company will deposit your Purchase Payment
in an "Employer-Directed" account invested in the Money Market Division
Option. You may not transfer these amounts until the Company has received a
completed application or enrollment form.
Starter Account. If the Company has your name, address and social security
number, but the Company does not have an Employer-Directed Account Agreement
from your employer, the Company will deposit your Purchase Payment in a
"starter" account invested in the Money Market Division. The Company will send
you follow-up letters requesting the information necessary to complete the
application, including your allocation instructions. Unless a completed
application or enrollment form is received by the Company within 105 days of
establishment of your starter account, the account balance, including
earnings, will be returned to your employer. The Company is not responsible
for any adverse tax consequences to you that may result from the return of
your employer's contributions.
For initial and subsequent payments, Accumulation Units will be credited at
the Accumulation Unit value calculated as of the day the Purchase Payment was
received by the Company if received at the Company's Home Office before the
close of
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regular trading of the New York Stock Exchange, generally 4:00 p.m. New York
Time on a day Accumulation Unit values are calculated; otherwise, the next
calculated Accumulation Unit value is used. As a result, the Participant Account
will be credited with the investment experience of the Separate Account from the
date of the Company's receipt of the Purchase Payment.
Unless otherwise restricted by the Contract, a Participant may allocate
and/or accumulate amounts in up to seven of the fifteen available subaccounts
(the thirteen Variable Investment Options and the two Fixed Interest Options).
The Accumulation Value of a Participant's Account or Contract during the
Accumulation Period is the sum of values of the Fixed Interest Options and the
Variable Investment Options.
A Participant may allocate all or a portion of Purchase Payments to the
Fixed Subaccount. The Fixed Subaccount consists of two Fixed Interest Options
which are part of the Company's General Account. Each Fixed Interest Option pays
interest at a declared rate which may differ depending upon the Fixed Interest
Option selected. The Company bears the full amount of the investment risk for
amounts allocated to either of the Fixed Interest Options. Earned interest on
amounts allocated to the Fixed Subaccount will be paid regardless of the actual
investment experience of the General Account. Because of exemptive and
exclusionary provisions, interests in the Fixed Subaccount have not been
registered under the Securities Act of 1933, and neither the Fixed Subaccount
nor the General Account has been registered as an investment company under the
Investment Company Act of 1940. Accordingly, interests in the Fixed Subaccount
are not subject to regulation under these Acts. As a result, the staff of the
SEC has not reviewed the disclosures which are included in this Prospectus and
which relate to the General Account and the Fixed Subaccount. These disclosures,
however, may be subject to certain provisions of federal securities law relating
to the accuracy and completeness statements made in this Prospectus.
The value of a Participant's Account attributable to the Fixed Subaccount
during the Accumulation Period is the sum of all net Purchase Payments allocated
to either of the Fixed Interest Options in the Fixed Subaccount, amounts
transferred from the Separate Account's Variable Investment Options to any Fixed
Interest Option, and all earned interest. This amount is reduced by amounts
transferred out or withdrawn and may be further reduced by the deduction of
certain charges.
A Participant may allocate all or a portion of Purchase Payments to the
Variable Investment Options. The value of the Contract and of a Participant's
Account attributable to the Variable Investment Options can be determined at any
time by multiplying the number of Accumulation Units outstanding under the
Contract or account by the current Accumulation Unit value. During the
Accumulation Period, the value of the Contract varies with the performance of
the investments of the Separate Account, and there is no assurance that such
value will equal or exceed Purchase Payments. The number of Accumulation Units
credited will not be changed by any subsequent change in the value of an
Accumulation Unit, but the dollar value of an Accumulation Unit may vary from
day to day depending upon the investment experience of the Separate Account.
The Accumulation Unit value is calculated as follows. First, a gross
investment rate is determined from the investment performance of the Separate
Account. The gross investment rate is calculated as of 4:00 p.m. New York time
on each business day when the New York Stock Exchange is open (except the Friday
following Thanksgiving, the Friday following Christmas if Christmas falls on a
Thursday and the Monday before Christmas if Christmas falls on a Tuesday). Such
rate is (i) the Separate Account's investment income and capital gains and
losses, whether realized or unrealized on such day, from the assets attributable
to each Separate Account Division, divided by (ii) the value of the Separate
Account Division for the immediately preceding day on which such values were
calculated. The net investment rate for any day is determined by deducting from
the gross investment rate, a factor representing the mortality risk and expense
charges described herein (see "Charge to the Separate Account"), and any
applicable income taxes. The Accumulation Unit value for a given day is then
determined by multiplying the Accumulation Unit value for the preceding day by a
net investment factor equal to the net investment rate plus 1.00.
Illustrations showing the calculation of an Accumulation Unit value and the
purchase of Accumulation Units (using hypothetical examples)
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are contained in the Statement of Additional Information -- "Accumulation Unit
Value."
DEATH BENEFITS DURING ACCUMULATION PERIOD
If an Annuitant under a Contract dies during the Accumulation Period, there
will be an amount payable to the Beneficiary equal to the greater of (a) the
Accumulation Value of the Participant Account on the date proof of death is
received by the Company; or (b) 100% of Purchase Payments, reduced by the amount
deducted in connection with any partial surrenders. (See "Surrender.") The
Beneficiary may exercise the right to receive the death benefit as a lump-sum
settlement or in the form of any of the annuity options provided in the Contract
(within such time limits required by federal tax law). (See "Annuity Payment
Options.") Beneficiaries other than the spouse of an Annuitant must receive the
death benefit in full by the date five years after the Annuitant's death unless
payments commence within one year of the Annuitant's death under a life annuity,
a life annuity with payments certain or payments for a designated period.
Payments certain or payments for a designated period in any case cannot be
selected for a period exceeding the Beneficiary's life expectancy. The
Beneficiary thereafter will be entitled to exercise many of the investment
options and other rights an Annuitant would have under the Contract.
SUSPENSION OF PURCHASE PAYMENTS
Flexible payment Contracts contain provisions protecting against
forfeiture. If, at any time, additional Purchase Payments are not made, the
number of Accumulation Units outstanding under the Participant Account at that
time will remain constant (so long as no transfer election is made), and the
value of the Units will continue to vary. The Accumulation Value will continue
to be subject to charges during the period of suspension. The Contract Owner may
resume making Purchase Payments at any time during the Accumulation Period, so
long as the Participant Account (or Contract) has not been surrendered and the
Contract has not otherwise been terminated.
Under group Contracts, if the Accumulation Value of a Participant Account
falls below $300, the Company, at its option, may cause the Participant Account
to be automatically surrendered, in which case a surrender charge may be
deducted from the amount paid to the Participant. Under individual Contracts,
the Company may cause such automatic surrender if all of the following
conditions are satisfied: (1) The total of Purchase Payments, reduced by amounts
deducted in connection with any partial surrenders, falls below $300; (2) the
total of Accumulation Value, reduced by amounts deducted in connection with any
partial surrenders, falls below $300; and (3) no Purchase Payments have been
made for two Participant Years.
ANNUITY PERIOD
FIXED OR VARIABLE ANNUITY PAYMENTS
If the plan so permits, the Annuitant may elect to have any portion of the
Accumulation Value applied to provide either a variable annuity or a fixed
annuity, or a combination of both.
Fixed annuity payments are monthly payments from the Company to an
individual, the amount of which is fixed and guaranteed by the Company. The
amount of the monthly payments will depend only on the form and duration of
annuity payments chosen, the age of the Annuitant or the Beneficiary (and sex,
under individual retirement annuity ("IRA") contracts), the total Accumulation
Value applied to purchase the annuity, and the applicable annuity rate. If it
would produce greater benefits, the amount of the monthly payment will be that
produced by a then currently issued immediate annuity of the same form.
Variable annuity payments are similar to fixed annuity payments, except
that the amount of each monthly payment from the Company will vary reflecting
the net investment experience of each Division of the Separate Account in which
the net Purchase Payments are accumulated. (For an illustration of the
calculation of annuity payments and Annuity Unit value see the Statement of
Additional Information -- "Amount of Annuity Payments" and "Annuity Unit
Value.") The value of an Annuity Unit is calculated at the same time that the
value of an Accumulation Unit is calculated and is based on the same values for
Fund shares and other assets and liabilities. (See "Accumulation Period.") If
the net investment experience for a given month, after all charges summarized
below, exceeds the Assumed Investment Rate (3 1/2% per annum unless a different
rate is selected), the monthly payment will be greater than the previous
payment. If the net investment experience for a month is less than such Assumed
Investment Rate, the monthly payment will be less than the previous monthly
payment.
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(See the Statement of Additional Information -- "Assumed Investment Rate.")
The use of an Assumed Investment Rate higher than 3 1/2% per annum would
cause the first annuity payment to be larger, but subsequent payments would
increase more slowly or decrease more quickly and ultimately be less than they
would under a 3 1/2% Assumed Investment Rate, provided that annuity payments
continue for a sufficient period of time. A 3 1/2% Assumed Investment Rate will
be used in the absence of a selection otherwise.
Up to seven Divisions may be applied to provide a variable annuity, or up
to six Divisions if a fixed annuity is also selected. The first payment provided
under a fixed annuity and each portion of a variable annuity based on a Division
must each be at least $25.
ANNUITY DATE
Annuity payments under deferred Contracts may begin on the first day of any
month before the Annuitant's 75th birthday, as selected by the Contract Owner on
a form approved by the Company. However, special rules apply to payments under
403(b), 401, 403(a) and 457 plans or simplified employee plans ("SEPs"). (See
the discussion of required distributions for each plan type under "Federal Tax
Matters.")
ANNUITY PAYMENT OPTIONS
The Annuitant may elect to have the Accumulation Value of the Participant
Account applied on the Annuity Date to any one of the options listed below. The
amount applied to effect an annuity will be the Accumulation Value on the tenth
day preceding the Annuity Date.
In most cases, if the Annuitant does not specify one of the options at
least thirty days prior to the Annuity Date, annuity payments are made in
accordance with the second option, with payments being guaranteed for a ten year
period. If the Contract is issued under certain retirement plans, however,
federal pension law may require that payments be made pursuant to the fourth
option unless otherwise elected. Tax laws and regulations may impose further
restrictions to assure that the primary purpose of the plan is distribution of
the accumulated funds to the employee. Absent a contrary election at least
thirty days in advance, Fixed Subaccount accumulations will be used to provide a
fixed annuity, and Variable Subaccount accumulations will be used to provide a
variable annuity based on the same Divisions in which the Variable Subaccount(s)
were invested immediately prior thereto. If the fifth annuity option is
selected, annuity payments must be made on a fixed basis. An Annuitant wishing
to receive a lump sum rather than an annuity may surrender the Contract as
described below under "Surrender."
Once annuity payments have begun, an annuity option may not be terminated.
First Option -- Life Annuity. Variable annuity payments are payable monthly
during the lifetime of the Annuitant, and the annuity terminates with the last
payment preceding death. This option offers the maximum amount per variable
annuity payment since there is no provision for a death benefit for
Beneficiaries. It would be possible under this option for the annuitant to
receive only one annuity payment if he died prior to the date of the second
payment, two if he died before the third annuity payment date, etc.
Second Option -- Life Annuity With 60, 120, 180 or 240 Monthly Payments
Certain. Variable annuity payments are payable monthly during the lifetime of an
Annuitant with the provision that, if the Annuitant dies during the certain
period, the Beneficiary may receive monthly payments for the remainder of the
certain period.
Third Option -- Unit Refund Life Annuity. Variable annuity payments are
payable monthly during the lifetime of the Annuitant with an additional payment
to the Beneficiary at the death of the Annuitant equal to the then-current value
of any Annuity Units credited to the Participant Account at the Annuity Date
which have not theretofore been paid out in the form of annuity payments. For
this purpose, the number of Annuity Units credited to the Participant Account at
the Annuity Date will be the total value applied to this option divided by the
Annuity Unit value at the date used to calculate the first annuity payment.
Fourth Option -- Joint and Last Survivor Life Annuity. Variable annuity
payments are payable monthly during the joint lifetimes of two Annuitants and
continue during the lifetime of the surviving Annuitant. This option is designed
primarily for couples who require maximum possible variable annuity payments
during their joint lives and who are not concerned with providing for
Beneficiaries at
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the death of the last to survive. It would be possible under this option for the
joint Annuitants to receive only one payment if both Annuitants died prior to
the date of the second payment, or for the joint Annuitants to receive only one
payment and the surviving Annuitant to receive only one payment if one Annuitant
died prior to the date of the second payment and the surviving Annuitant died
prior to the date of the third payment, etc.
Fifth Option -- Payments for Designated Period. Annuity payments are
payable monthly for a selected number of years between three and thirty.
Payments under this option may be made on a fixed basis only. If payments would
amount to less than $25 each, the Company may make payments less frequently than
monthly.
ENHANCEMENTS UNDER ANNUITY OPTIONS
Enhancements of the annuity options described above recently are available
under the Contracts. These include partial annuitization, flexible payments of
varying amounts and inflation protection payments. To the extent some or all of
these options do not result in "substantially equal payments" over the life
expectancy of the Annuitant, electing such options may result in unfavorable tax
consequences to Annuitants under age 59 1/2. (See "Federal Tax Matters.")
Additionally certain options may be available with a one to twenty payment
certain period. The Fourth Option also may be available with a one to twenty
payment certain option. Not all of the enhancements are available under each
option.
DEATH OF ANNUITANT DURING ANNUITY PERIOD
If the Annuitant dies during the Annuity Period, the Beneficiary may be
entitled to payment of an additional amount or amounts, and may be entitled to
certain alternatives discussed below. If, prior to death, the Annuitant had been
receiving payments under the first or fourth options, no additional amounts
would be due. If, however, the Annuitant had been receiving payments under the
second, the third or the fifth options, the Beneficiary may:
1. elect to receive in a lump sum the present value, discounted at the
Assumed Investment Rate, of any remaining annuity payments owed under
the Contract based on the then-current Annuity Unit value;
2. elect to continue receiving annuity payments under the terms of the
Contract, in which case the Beneficiary would be entitled, any time
thereafter, to receive the present value of remaining variable annuity
payments, discounted at the Assumed Investment Rate, based on the
Annuity Unit value next determined after request for such payment is
received at the Company's Home Office; or
3. elect to have the present value, discounted at the Assumed Investment
Rate, of any annuity payments owed on the Contract, based on the
then-current Annuity Unit value, applied to the fifth option for a
period shorter than the period remaining under the annuity option
selected by the Annuitant.
SURRENDER
All or part of the Surrender Value of a Participant Account may be
withdrawn by the Participant at any time before the commencement of annuity
payments, provided that the Annuitant is alive at the time of surrender. This
right is subject to any restrictions on surrender under applicable law and the
employer's plan. An individual Contract must be returned to and be received by
the Company before a total surrender will be effected. (See "Charge for Partial
and Total Surrenders" for an explanation of charges which may be assessed upon
surrender.)
The Surrender Value of a Participant Account at any time is equal to the
Accumulation Value under the Participant Account at the time of surrender, less
any surrender charge. For this purpose, the value of an Accumulation Unit is
that next computed after the request for surrender is received at the Company's
Home Office. There is no assurance that the Surrender Value under Variable
Subaccounts will equal or exceed the aggregate amount of Purchase Payments at
any time.
A partial surrender under a Participant Account will result in a reduction
of the Accumulation Value credited to a Participant Account. The reduction will
equal the dollar amount surrendered plus the surrender charge, if any, and will
be allocated among subaccounts in the same proportion as the surrender requested
by the Participant. The reduction in the number of Accumulation Units credited
to a Variable Subaccount will equal the amount surrendered from that subaccount
plus the surrender charge allocable to that subaccount, if any,
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divided by the applicable Accumulation Unit value next computed after the
written request for surrender is received at the Company's Home Office. If the
entire value under a subaccount is surrendered in a partial surrender, the
dollar amount surrendered will be reduced by the surrender charge allocable to
that subaccount. The Surrender Value will be reduced by a full quarterly
maintenance charge assessment in the case of a full surrender during a calendar
quarter.
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 or 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.
For an explanation of possible adverse tax consequences from a partial
redemption or surrender see "Federal Tax Matters."
Payments of Surrender Values as well as lump-sum payments available under
an annuity option will be made within seven calendar days after receipt of the
written request by the Company at its Home Office; however, payments
attributable to a Division may be suspended or postponed at any time when
redemption of the Fund's shares is suspended or postponed. See "Offering,
Purchase and Redemption of Fund Shares" in the Series Company's Statement of
Additional Information for a discussion of the circumstances under which the
Series Company may suspend or postpone redemption of its shares.
Occasionally, the Company may receive a request for total or partial
surrender which includes Accumulation Values derived from Purchase Payments
which have not cleared the banking system. The Company may delay mailing that
portion of the Surrender Value which relates to such amounts until the check for
the payment has cleared. The Accumulation Unit value used to determine the
remaining Surrender Value to be remitted will be on the basis of the valuation
next computed after receipt of the request for surrender.
OTHER CONTRACT FEATURES
CHANGE OF BENEFICIARY
Once a Participant Account has been established, the Contract Owner, the
Participant and the Annuitant may not be changed.
The Beneficiary is designated by the Participant. The Annuitant generally
may change the Beneficiary designation at any time unless such designation has
been made irrevocable. Under certain retirement programs, however, spousal
consent may be required to name or change a Beneficiary, and the right to name a
Beneficiary other than the spouse may be subject to applicable tax laws and
regulations. If no Beneficiary is living at the time of an Annuitant's death,
any benefits otherwise payable under the Contract to the Beneficiary will be
payable to the Annuitant's estate. If a Beneficiary dies while receiving
payments under the Contract, and if no other Beneficiary is then living, any
remaining benefits owed under the Contract will be paid to such Beneficiary's
estate.
REVOCATION
Individual Contracts allow the Contract Owner to revoke the Contract by
returning it to the Company within ten days of delivery or such longer
revocation period as is required by state law. The Company will refund any
Purchase Payments received for the Contract without regard to investment
results, unless a larger refund is required by state law.
RESERVATION OF RIGHTS
The Company reserves the right to amend the Contract to conform with
substitutions of investments or to comply with tax or other laws applicable to
these types of Contracts. The Company also reserves the right to operate the
Separate Account as a management investment company under the 1940 Act, in
consideration of receipt of an investment management fee, or in any other form
permitted by law, and to deregister the Separate Account
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<PAGE> 133
under the 1940 Act, in the event such registration is no longer required.
RELATIONSHIP TO EMPLOYER'S PLAN
Since it is contemplated that most Contracts offered by this prospectus
will be used for retirement programs, reference should be made to specific plan
provisions and restrictions, if any, contained in the employer's plan in
connection with this description of the Contracts.
Plan loans from the Fixed Subaccounts may be permitted by your employer's
plan. Refer to your plan for a description of charges and further information.
FEDERAL TAX MATTERS
GENERAL
Major changes in federal income tax laws in the past several years may
affect the tax treatment of investments in the Contracts. It is not feasible to
comment on all of these changes, and Contract owners should consult a qualified
tax advisor for more complete information. Contract owners should also be aware
that future legislation may change some of the rules discussed in the following
materials.
TAXES PAYABLE BY PARTICIPANTS
AND ANNUITANTS
The Contracts offered in connection with this prospectus are primarily used
with retirement programs which receive favorable tax deferred treatment under
federal income tax law, although deferred annuity contracts may be purchased
with after tax dollars.
Annuity payments or other amounts received under all Contracts generally
are subject to some form of federal income tax withholding. The withholding
requirement will vary among recipients depending on the type of program, the tax
status of the individual and the type of payments from which taxes are withheld.
Additionally, annuity payments or other amounts received under all Contracts may
be subject to state income tax withholding requirements.
SECTION 403(B) ANNUITIES FOR EMPLOYEES OF CERTAIN TAX-EXEMPT ORGANIZATIONS OR
PUBLIC EDUCATIONAL INSTITUTIONS
Purchase Payments. Under section 403(b) of the Code, payments made by
certain employers (i.e., tax-exempt organizations meeting the requirements of
section 501(c)(3) of the Code
and public educational institutions) to purchase annuity Contracts for their
employees are excludable from the gross income of employees to the extent that
the aggregate Purchase Payments do not exceed the limitations prescribed by
section 402(g), section 403(b)(2) and section 415 of the Code. This gross income
exclusion applies to employer contributions and voluntary salary reduction
contributions.
An individual's voluntary salary reduction contributions under section
403(b) are generally limited to $10,000 ($9,500 before 1998); 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 percent of salary; or, an exclusion
allowance which takes into account a number of factors. In addition, for plan
years beginning after December 31, 1988, employer contributions must comply with
various nondiscrimination rules; these rules may have the effect of further
limiting the rate of employer contributions for highly compensated employees.
Taxation of Distributions. Distributions of voluntary salary reduction
amounts are restricted. The restrictions apply to amounts accumulated after
December 31, 1988 (including voluntary contributions after that date and
earnings on prior and current voluntary contributions). These restrictions
require that no distributions will be permitted prior to one of the following
events: (1) attainment of age 59 1/2, (2) separation from service, (3) death,
(4) disability, or (5) hardship (hardship distributions will be limited to the
amount of salary reduction contributions exclusive of earnings thereon). Similar
restrictions will apply to all amounts transferred from a Section 403(b)(7)
custodial account other than rollover contributions.
Distributions from a section 403(b) annuity Contract are taxed as ordinary
income to the recipient in accordance with section 72 of the Code. Distributions
received before the recipient attains age 59 1/2 generally are subject to a 10%
penalty tax in addition to regular income tax. Certain distributions are
excepted from this penalty tax, including distributions following (1) death, (2)
disability, (3) separation from service during or after the year the participant
reaches age 55, (4) separation from service at any age if the distribution is in
the form of
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<PAGE> 134
substantially equal periodic payments over the life (or life expectancy) of the
Participant (or the Participant and Beneficiary), and (5) distributions in
excess of tax deductible medical expenses.
Required Distributions. Generally, distributions from section 403(b)
annuities must commence no later than April 1 of the calendar year following the
later of the calendar year in which the Participant attains age 70 1/2 or the
calendar year in which the Participant retires. Such distributions must be made
over a period that does not exceed the life expectancy of the Participant (or
joint life expectancy of the Participant and Beneficiary). Following the death
of the Participant, the distribution requirements are generally the same as
those described with respect to Non-Qualified Contracts. However, amounts
accumulated under a Contract on December 31, 1986, are not subject to these
minimum distribution requirements. Pre-January 1, 1987 amounts may be paid in a
manner that meets the above rule or (i) must begin to be paid when the
Participant attains age 75; and (ii) the present value of payments expected to
be made over the life of the Participant under the option chosen must exceed 50%
of the present value of all payments expected to be made (the "50% rule".) The
50% rule will not apply to joint Annuitant if a Participant's spouse is the
joint Annuitant. Notwithstanding these rules for pre-January 1, 1987 amounts
held under 403(b) Contracts, the entire Contract balance must meet the minimum
distribution incidental benefit requirement of Section 403(b)(10). A penalty tax
of 50% will be imposed on the amount by which the minimum required distribution
in any year exceeds the amount actually distributed in that year.
Tax-Free Transfers and Rollovers. The IRS has ruled (Revenue Rulings 90-24)
that total or partial amounts may be transferred tax free between section 403(b)
annuity contracts and/or 403(b)(7) custodial accounts under certain
circumstances. In addition, section 403(b)(8) of the Code permits tax-free
rollovers from section 403(b) programs to IRAs or other section 403(b) programs
under certain circumstances. Such a rollover must be completed within 60 days of
receipt of the distribution. The portion of any distribution which is eligible
to be rolled over to an IRA or another 403(b) program is subject to 20% federal
income tax withholding unless the Participant elects a direct rollover of such
distribution to an IRA or other section 403(b) program.
SECTION 401 QUALIFIED PENSION, PROFIT-
SHARING OR ANNUITY PLANS
Purchase Payments. Purchase Payments made by an employer (or a
self-employed individual) under a pension, profit-sharing or annuity plan
qualified under section 401(a) or section 403(a) of the Code are excluded from
the gross income of the employee for Federal income tax purposes. Payments made
by an employee generally are made on an after-tax basis unless they are made on
a pre-tax basis by reason of sections 401(k) or 414(h) of the Code.
Taxation of Distributions. Distributions from Contracts purchased under
qualified plans are taxable as ordinary income, except to the extent allocable
to an employee's after-tax contributions (which constitute "investment in the
Contract.") However, if an employee or the Beneficiary receives a lump sum
distribution, as defined in the Code, from an exempt employees' trust, the
taxable portion of the distribution may be subject to special tax treatment. For
most individuals receiving lump sum distributions after attainment of age
59 1/2, the rate of tax may be determined under a special 5-year income
averaging provision; however, 5-year forward averaging has been repealed for
distributions occurring after December 31, 1999. Those who attained age 50 by
January 1, 1986 may instead elect to use a 10-year income averaging provision
based on the income tax rates in effect for 1986. In addition, individuals who
attained age 50 by January 1, 1986 may elect capital gains treatment (at a 20%
rate) for the taxable portion of a lump sum distribution attributable to years
of service before 1974; such capital gains treatment has otherwise been
repealed. Taxable distributions received under a Contract purchased under a
qualified plan prior to attainment of age 59 1/2 are subject to the same 10%
penalty tax (and the same exceptions) as described with respect to section
403(b) annuity Contracts.
Required Distributions. The minimum distribution requirements for qualified
plans are generally the same as described with respect to section 403(b) annuity
Contracts, except that no amounts are exempted from the minimum distribution
requirements.
Tax-Free Rollovers. The taxable portion of certain distributions from a
plan qualified under section 401 or 403(a) may be transferred in a tax-free
rollover to an individual retirement account or annuity or to another such plan.
Such a rollover
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<PAGE> 135
must be completed within 60 days of receipt of the qualifying distribution. The
portion of any distribution which is eligible to be rolled over to an IRA or
another section 401(a) or 403(a) plan is subject to 20% federal income tax
withholding unless the Participant elects a direct rollover of such distribution
to an IRA or other section 401(a) or 403(a) plan.
SECTION 408(B) INDIVIDUAL RETIREMENT ANNUITIES
(OTHER THAN ROTH IRAS)
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 unlimited contributions of eligible rollover amounts from
other qualified plans and contracts. See Tax-Free Rollovers, Transfers and
Exchanges.
Taxation of Distributions. Distributions from IRA Contracts are taxed as
ordinary income to the recipient. In addition, a 10% penalty tax will be imposed
on taxable distributions received before the year in which the recipient attains
age 59 1/2, except that distributions made on account of certain events,
including death, disability or in the form of substantially equal periodic
payments over the life (or life expectancy) of the Participant (or the
Participant and Beneficiary), are not subject to the penalty tax.
Required Distributions. The minimum distribution requirements for IRA
Contracts are generally the same as described with respect to Section 403(b)
annuity Contracts, except that no amounts are exempted from the minimum
distribution requirements and in all events such distributions must commence no
later than April 1 of the calendar year following the calendar year in which the
Participant attains age 70 1/2.
Tax Free Rollovers. Federal law permits funds to be transferred in a tax
free rollover from a qualified employer pension, profit-sharing, or annuity
plan, or a Section 403(b) annuity Contract to an IRA Contract under certain
conditions. Amounts accumulated under such a rollover IRA generally may
subsequently be rolled over on a tax-free basis to another such plan or Section
403(b) annuity Contract. In addition, a tax-free rollover may be made from one
IRA to another, provided that not more than one such rollover may be made during
any twelve month period. In order to qualify for tax-free treatment, all
rollovers must be completed within 60 days after the distribution is received.
SIMPLIFIED EMPLOYEE PENSION PLANS
Purchase Payments. Under section 408(k) of the Code, employers may
establish a type of IRA plan referred to as a simplified employee pension plan
(SEP). Employer contributions under a SEP, which generally must be made at a
rate representing a uniform percent of the compensation of participating
employees, are excluded from the gross income of employees for federal income
tax purposes. Employer contributions to a SEP cannot exceed the lesser of
$30,000 or 15% of an employee's compen-
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<PAGE> 136
sation for plan years beginning after December 31, 1993.
Salary Reduction SEPs. Federal tax law allows employees of certain small
employers to have contributions made to the SEP on their behalf on a salary
reduction basis. These salary reduction contributions may not exceed $7,000,
indexed for inflation in later years. Employees of tax-exempt organizations are
not eligible for this type of SEP. No new salary reduction SEPs may be
established after 1996.
Taxation of Distributions. SEP distributions are subject to taxation in the
same manner as other IRA distributions.
Required Distributions. SEP distributions are subject to the same minimum
required distribution rules applicable to other IRAs.
Tax Free Rollovers. Funds may be rolled over tax free from one SEP to
another as long as the rollover is completed within 60 days after the
distribution is received and is done no more frequently than once every twelve
months.
SECTION 457 UNFUNDED DEFERRED
COMPENSATION PLANS OF PUBLIC
EMPLOYERS AND TAX-EXEMPT
ORGANIZATIONS
Purchase Payments. Under section 457 of the Code, individuals who perform
services for a unit of a state or local government may participate in a deferred
compensation program. Tax-exempt employers may establish deferred compensation
plans under section 457 only for a select group of management or highly
compensated employees and/or independent contractors.
This type of program allows individuals to defer the receipt of
compensation which would otherwise be presently payable and to therefore defer
the payment of federal income taxes on the amounts. Assuming that the program
meets the requirements to be considered an eligible deferred compensation plan
(an "EDCP"), an individual may contribute (and thereby defer from current income
for tax purposes) the lesser of $8,000 (indexed for inflation) or 33 1/3% of the
individual's includible compensation. (Includible compensation means
compensation from the employer which is currently includible in gross income for
federal tax purposes.) During the last three years before an individual attains
normal retirement age, additional catch-up deferrals are permitted.
The amounts which are deferred may be used by the employer to purchase the
Contracts offered by this prospectus. 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 creditors until 1999. The employee has no present rights or
vested interest in the Contract and is only entitled to payment in accordance
with the EDCP provisions.
Taxation of Distributions. Amounts received by an individual from an EDCP
are includible in gross income for the taxable year in which such amounts are
paid or otherwise made available.
Distributions Before Separation from Service. Distributions generally are
not permitted under an EDCP prior to separation from service except for
unforeseeable emergencies or in amounts under $3,500 for inactive Participants.
These distributions are includible in the gross income of the individual in the
year in which paid.
Required Distributions. Beginning January 1, 1989, the minimum distribution
requirements for EDCP's are generally the same as those for qualified plans and
section 403(b) annuity Contracts, except that no amounts are exempted from
minimum distribution requirements.
Tax Free Transfers and Rollovers. Federal income tax law permits the tax
free transfer of EDCP amounts to another EDCP, but not to an IRA or other type
of plan.
PRIVATE EMPLOYER UNFUNDED DEFERRED
COMPENSATION PLANS
Purchase Payments. Private taxable employers may establish unfunded and
non-qualified deferred compensation plans for a select group of management or
highly compensated employees and/or for independent contractors.
Certain arrangements of nonprofit employers entered into prior to August
16, 1986, and not subsequently modified, are subject to the rules for private
taxable employer deferred compensation plans discussed below.
Deferred compensation plans represent a bare contractual promise on the
part of the employer to pay current wages at some future time. The Contract is
owned by the employer and is subject to the claims of the employer's creditors.
The individual has no present right or vested interest in the Contract and is
only entitled to payment in accordance with plan provisions. Private taxable
employers that are not natural persons, however, are currently taxable on any
increase in the Accumulation Value
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<PAGE> 137
attributable to Purchase Payments made to such Contracts after February 28,
1986.
Taxation of Distributions. Amounts received by an individual from a private
employer deferred compensation plan are includible in gross income for the
taxable year in which such amounts are paid or otherwise made available.
Tax Free Transfers and Rollovers. Federal income tax law does not allow tax
free transfers or rollovers for amounts accumulated in a private employer
deferred compensation plan.
NON-QUALIFIED CONTRACTS
Purchase Payments. Purchase Payments made under certain Contracts are not
excludible from the gross income of the Contract Owner or deductible for tax
purposes ("Non-Qualified Contracts"). However, any increase in the Accumulation
Value of a Non-Qualified Contract resulting from the investment performance of
the Separate Account is not taxable to the Contract Owner until received by him.
Contract Owners that are not natural persons, however, are currently taxable on
any increase in the Accumulation Value attributable to Purchase Payments made to
such Contracts after February 28, 1986.
Taxation of Distributions. In general, partial redemptions under a
Non-Qualified Contract purchased after August 13, 1982 (or allocated to post-
August 13 Purchase Payments under a pre-existing Contract) that are not received
as an annuity are taxed as ordinary income to the extent of the accumulated
income or gain under the Contract. Partial redemptions from a Non-Qualified
Contract purchased before August 14, 1982, are taxed only after the Contract
Owner has received all of his pre-August 14, 1982 "investment in the Contract"
(Purchase Payments less any amounts previously received and excluded from gross
income.)
In the case of a complete redemption of a Non-Qualified Contract
(regardless of the date of purchase), the amount received will be taxed as
ordinary income to the extent that it exceeds the Contract Owner's investment in
the Contract.
If a Contract Owner purchases two or more Contracts from the Company (or an
affiliated company) within the same calendar year, after October 21, 1988, those
Contracts are treated as a single Contract for purposes of measuring the income
on a partial redemption or complete surrender.
When payments are received as an annuity, the Contract Owner's investment
in the Contract is treated as received ratably over the expected payment period
of the annuity and excluded from gross income as a tax-free return of capital.
Individuals who start receiving annuity payments on or after January 1, 1987,
can exclude from income only their unrecovered investment in the Contract. Where
such individuals die before they have recovered their entire investment in the
Contract on a tax-free basis, they generally are entitled to a deduction of the
unrecovered amount on their final tax return.
In addition to regular income taxes, there is a 10% penalty tax on the
taxable portion of a distribution received before age 59 1/2 under a
Non-Qualified Contract, unless the distribution is: (1) made to a Beneficiary on
or after death of the Contract Owner; (2) made upon the disability of the
Contract Owner; (3) part of a series of substantially equal annuity payments for
the life or life expectancy of the Contract Owner or the Contract Owner and
Beneficiary; (4) made under an immediate annuity contract; or (5) allocable to
Purchase Payments made prior to August 14, 1982.
Required Distributions. In contrast with the required distribution rules
described above for Contracts purchased under employer-sponsored retirement
programs, the Code does not require a Contract Owner under a Non-Qualified
Contract to commence receiving distributions at any particular time during the
Contract Owner's lifetime, provided that the Contract Owner is a natural person,
and generally does not limit the duration of annuity payments. However, upon the
death of the Contract Owner prior to the commencement of annuity payments, the
amount accumulated under the Contract must be distributed within five years or,
if distributions to a beneficiary designated under the Contract start within one
year of the Contract Owner's death, distributions are permitted over the life of
the beneficiary or over a period not extending beyond the beneficiary's life
expectancy. If the Contract Owner has started receiving annuity distributions
prior to his death, distributions must continue at least as rapidly as under the
method in effect at the date of his death.
Tax-Free Exchanges. Certain of the Non-Qualified single payment deferred
annuity contracts permit the Contract Owner to exchange his contract for a new
deferred annuity contract prior to the
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commencement of annuity payments. Under section 1035 of the Code, the exchange
of one annuity contract for another is not a taxable transaction, but is
reportable to the IRS.
EFFECT OF TAX-DEFERRED ACCUMULATIONS
The charts below compare accumulations attributable to contributions to (1)
Contracts purchased with pre-tax contributions under tax-favored retirement
programs, (2) Non-Qualified Contracts purchased with after tax contributions and
(3) conventional savings vehicles such as savings accounts.
TAX-DEFERRED ACCUMULATION
[CHART]
This hypothetical chart compares the results of contributing $100 per month
($138.89 for the tax-favored program because contributions are before-tax). It
assumes a 28% tax rate and an 8% fixed rate of return (before fees and charges).
The deduction of fees and charges is reflected in the chart. The dotted lines
represent amounts remaining after withdrawal and payment of taxes and any
surrender charges. An additional 10% tax penalty may apply to withdrawals before
age 59 1/2.
Unlike savings accounts, contributions to tax-favored retirement programs
and Non-Qualified Contracts provide tax-deferred treatment on earnings. In
addition, contributions to tax-favored retirement programs ordinarily are not
subject to income tax until withdrawn. As shown above, investing in a
tax-favored program increases the accumulation power of savings over time. The
more taxes saved and reinvested in the program, the more the accumulation power
effectively grows over the years.
To further illustrate the advantages of tax-deferred savings using a 28%
federal tax bracket, an annual fixed yield (BEFORE THE DEDUCTION OF ANY FEES OR
CHARGES) of 8% under a tax-favored retirement program in which tax savings were
reinvested has an equivalent 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 shows the actual
after-tax amounts that would be received.
As indicated above, contributions to tax-favored retirement programs are
not subject to federal income tax unless and until withdrawn. Accumulations
under tax-favored retirement programs are not required to be withdrawn until the
later of age 70 1/2 or retirement. There may be restrictions on withdrawals of
certain types of contributions until age 59 1/2, separation from service, death,
disability or hardship. Withdrawals before age 59 1/2 generally are subject to a
10% penalty tax in addition to regular income tax, but withdrawals may be
eligible for total or partial rollover to an IRA or another retirement program.
By taking into account the current deferral of taxes, these contributions
to tax-favored retirement programs, increase the amount available for savings by
decreasing the relative current out-of-pocket cost of the investment. The chart
below illustrates this principle:
PAYCHECK COMPARISON
<TABLE>
<CAPTION>
TAX-FAVORED
RETIREMENT SAVINGS
PROGRAM ACCOUNT
----------- -------
<S> <C> <C>
Set Aside...................... $2,500 $2,500
Tax Deferred until
withdrawal................... (700) --
Current Out-of-Pocket.......... $1,800 $2,500
</TABLE>
This chart assumes a 28% federal income tax rate. 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.
FUND DIVERSIFICATION
Separate Account investments must be adequately diversified in order for
the increase in the value of Non-Qualified Contracts to receive tax-deferred
treatment. In order to be adequately diversified, each portfolio of the Fund
must, as of the end of each calendar quarter or within 30 days thereafter, have
no more than 55% of its assets invested in any one investment, 70% in any two
investments, 80% in any three investments and 90% in any four investments.
Failure of a Fund portfolio to meet the
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diversification requirements could result in tax liability to Non-Qualified
Contract Owners.
Each of the portfolios of the Fund expects to meet the diversification
requirements above and assure tax deferred treatment for holders of any
Non-Qualified Contracts.
The investment opportunities of the Fund could conceivably be limited by
adhering to the above diversification requirements. This would affect all
Contract Owners, including those owners of Qualified Contracts for whom
diversification is not a requirement for tax-deferred treatment.
VOTING RIGHTS
The Contract Owner during the Accumulation Period, the Annuitant during the
Annuity Period, or the Beneficiary after the Annuitant's death, will be entitled
to give instructions to the Company as to how Fund shares held in the Divisions
attributable to the Participant Account or variable annuity should be voted at
meetings of shareholders of the Series Company. Those persons entitled to give
voting instructions will be determined as of the record date for the meeting.
During the Accumulation Period, each Annuitant (other than Annuitants under
Contracts issued in connection with non-qualified and unfunded deferred
compensation plans) will have the right to give instructions for those votes,
notwithstanding that the Contract Owner may be the Annuitant's employer.
Contract Owners will instruct the Company in accordance with such instructions.
The number of Fund shares held in a Division deemed attributable to a
Participant Account prior to the Annuity Date and during the lifetime of the
Annuitant will be determined on the basis of the value of Accumulation Units
credited to the Participant Account as of the record date. On or after the
Annuity Date or after the death of the Annuitant, the number of Fund shares
deemed attributable to the Participant Account will be based on the liability
for future variable annuity payments to the payee under the Contract as of the
record date. Such liability for future payments will be calculated on the basis
of the mortality assumptions and the Assumed Investment Rate used in determining
the number of Annuity Units credited to the Participant Account and the
applicable Annuity Unit value on the record date. During the Annuity Period, the
number of votes attributable to a variable annuity will generally decrease since
funds set aside for an Annuitant will decrease.
Persons who are entitled to vote will receive proxy material and a form on
which voting instructions may be given. Fund shares held in the Separate Account
or any other registered separate account of the Company or its affiliates that
are or are not attributable to annuity contracts as to which no instructions
have been received will be voted for or against any proposition in the same
proportion as the shares for which voting instructions have been received by
that separate account. Fund shares held in unregistered separate accounts of the
Company or its affiliates will be voted in the same proportion as the aggregate
of (a) the shares for which voting instructions are received and (b) the shares
that are voted in proportion to such voting instructions. However, if the
Company or an affiliate determines that it is permitted to vote any such shares
of the Fund in its own right, it may elect to do so, subject to the then current
interpretation of the 1940 Act and the rules thereunder.
OTHER VARIABLE ANNUITY
CONTRACTS
In addition to the Contracts described in this prospectus, the Company has
made the Separate Account available to fund other group and individual variable
annuity contracts, formerly funded through the Company's Separate Account One
and the Company's Separate Account Two. These Contracts, which are funded
exclusively through Division Ten of the Separate Account, impose different
charges at the Separate Account level than the ones imposed on the Contracts
described in this prospectus.
The other contracts listed above are described in and offered pursuant to
separate prospectuses.
EXCHANGE OFFERS
GENERAL
The Company is making an exchange offer to annuitants and contract owners
under certain of its outstanding fixed annuity contracts (including both "Fixed
Contracts" and "Compounder Contracts") or under certain outstanding variable
annuity contracts formerly issued through the Company's Separate Account One
("SA-1 Contracts"), Separate Account Two ("SA-2 Contracts"), and certain
variable annuity contracts currently issued through Separate Account A ("UIT-981
Contracts"). The exchange will be available only as to contracts under which the
Company has not yet started making
42
<PAGE> 140
annuity payments. Eligible annuitants and contract owners may exchange their
current Fixed, Compounder SA-1, SA-2, and/or UIT-981 Contracts ("Existing
Contracts") for one of the new variable annuity Contracts ("New Contracts") of
the type described in this prospectus.
The New Contract will have the same accumulation value as the exchanged
Existing Contract and, in addition, will have certain new features which may
prove advantageous. Annuitants under New Contracts may choose up to seven of the
ten available investment options, including two fixed accumulation options,
whereas fewer options are available under the Existing Contracts. Also, the New
Contracts have a surrender charge rather than the front end sales load imposed
under the SA-1, SA-2 and Compounder Contracts. Fees and charges under the New
Contracts are different from those under Existing Contracts, and in some cases
may be higher, and the guaranteed annuity rates may be less favorable.
Differences between New and Existing Contracts are described more fully below.
DIFFERENCES BETWEEN NEW AND EXISTING CONTRACTS
If you currently have a Fixed or a Compounder Contract, you should refer to
the form of contract (or certificate thereunder) for its terms and conditions.
You should refer to the most recently dated prospectus for a complete
description of your variable annuity contract's terms and conditions. That
prospectus is incorporated herein by reference, and you may obtain an additional
copy free of charge by contacting the nearest Regional Office of the Company.
(The addresses for these offices appear on the inside back cover of this
prospectus.) The most important differences between Existing Contracts and New
Contracts are discussed below.
Sales Charges. Under the SA-1, SA-2 and Compounder Contracts, a sales and
administrative charge is deducted from each purchase payment. This charge ranges
from 5% on the first $5,000 of purchase payments to 3% of purchase payments in
excess of $15,000.
Under the Fixed and UIT-981 Contracts, no sales charge is deducted at the
time a purchase payment is made, but a surrender charge may be imposed on total
or partial surrenders. The surrender charge under UIT-981 Contracts is equal to
5% of any purchase payments withdrawn within three years of the date such
purchase payments were made. The surrender charge under the Fixed Contracts is
equal to 7% of purchase payments withdrawn within five years of the date such
purchase payments were made. For these purposes, the most recent purchase
payments are deemed to be withdrawn first. A partial surrender of up to 10% of
the account value may be made once in a Participant Year without any surrender
charge being imposed. No surrender charge is imposed if an account under a Fixed
Contract has been in effect for fifteen years, if an individual type Existing
Contract is exchanged for a group type New Contract, different state
nonforfeiture law provisions may be applicable, which could result in a lesser
amount being payable on surrender than otherwise would be the case.
The New Contracts also impose a charge upon total or partial surrenders and
do not deduct a sales charge at the time a purchase payment is made. The
surrender charge under the New Contracts may not exceed 5% of any purchase
payments which are withdrawn within five years of the date such purchase
payments were made. The most recent purchase payments are deemed to be withdrawn
first. Furthermore, a partial surrender of up to 10% of the account value may be
made once in a Participant Year free of any surrender charge which would
otherwise apply. The Company may decrease the surrender charge applicable to a
particular New Contract if it estimates that its expenses will be lower for that
Contract. No surrender charge is imposed: (a) if an account has been in effect
for fifteen years, (b) if the employee has maintained the account for a period
of seven years and has attained the age of 59 1/2, or (c) the Participant is
disabled. For purposes of satisfying these fifteen-year and seven-year holding
period requirements, the New Contract or certificate thereunder will be deemed
to have been issued on the same date as the Existing Contract or certificate
thereunder, but no earlier than January 1, 1982.
A sales charge has already been paid on purchase payments made in the past
under SA-1, SA-2 and Compounder Contracts. Therefore, if an SA-1, SA-2 or
Compounder Contract is exchanged for a New Contract, the surrender charge under
the New Contract will not apply to the amount of accumulation value applied to
the New Contracts (the "Exchanged Amount.") Purchase payments made subsequent to
the exchange, however, will be subject to the surrender charge under the New
Contracts. In the case of a partial surrender, all such subsequent purchase
payments will be deemed to be withdrawn before any of the Exchanged Amount is
43
<PAGE> 141
deemed to be withdrawn. No exchange pursuant to this offer will be allowed
within 120 days of a transfer of fixed accumulations under an SA-1 or SA-2
contract to the variable portion of such contract.
If a UIT-981 or Fixed Contract is exchanged for a New Contract, the
surrender charge under the UIT-981 or Fixed Contract will not apply to the
exchanged amount. However, in the case of a total or partial surrender, Purchase
Payments under the UIT-981 Contract or under the Fixed Contract, which were
exchanged into a New Contract and which were made within three years before the
date of the exchange in the case of the UIT-981 Contract or within five years
before the date of the exchange in the case of the Fixed Contract (Exchanged
Purchase Payments) will be subject to a surrender charge under the New Contract
if withdrawn within five years of the date the Exchanged Purchase Payments were
made. Exchanged Purchase Payments will be deemed to have been made under the New
Contract on the date they were made to the Fixed or the UIT-981 Contract for
purposes of calculating the surrender charge under the New Contracts. A 2%
additional surrender charge will be imposed on Exchanged Purchase Payments which
were made under a Fixed Contract within the preceding five years, which were not
previously subject to any surrender charge, and which are withdrawn within one
year after a Fixed Contract is exchanged for a New Contract. For purposes of
this 2% charge, such Exchanged Purchase Payments will be deemed to be withdrawn
first.
Administrative and Risk Charges. Under the SA-1, SA-2 and Compounder
Contracts, a charge of a percentage of each purchase payment is made for
administrative expenses. For Compounder Contracts and most SA-1 and SA-2
Contracts, the charge is 1.25%. For SA-1 and SA-2 Contracts, the charges are
included in the sales charges (see discussion above). An additional daily charge
(at an annual rate of 1% of total net assets attributable to a SA-1 Contract and
ranging from .21% to .85% of total net assets attributable to a SA-2 Contract)
is made for mortality and expense risks assumed by the Company. The total of
these expense charges and certain other charges imposed against SA-1 and SA-2
Contracts is limited to a maximum of the rate imposed on SA-1 and SA-2 Contracts
which was charged on April 1, 1987. (See prospectus for SA-1 and SA-2 Contracts,
dated April 20, 1987.)
Under UIT-981 Contracts, a $30 annual charge is assessed once a year to
cover administrative expenses. The charge may, with prior regulatory approval if
required, be increased or decreased. In addition, a daily charge is made at an
annual rate of 1% of the net asset value allocable to the UIT-981 Contracts to
cover administrative expenses (other than those covered by the annual charge)
and the mortality risk assumed by the Company.
There are no administrative and risk charges under the Fixed Contracts.
Under the New Contracts, a maintenance fee of $20 is assessed for the first
year and an annual fee of $15 is assessed for the second and later years during
the accumulation period. The fee is due in quarterly installments. The fee may,
with prior regulatory approval, if necessary, be increased or decreased and may
be reduced or waived on particular New Contracts if the Company's administrative
expenses are expected to be lower for that contract.
If a UIT-981 Contract is exchanged for a New Contract on or after the
annual fee is assessed, the maintenance fee will not be refunded. In addition,
the New Contract will be subject to the maintenance fee under the New Contract.
Variable Investment Alternatives. Under SA-1 and SA-2 Contracts, only one
division of Separate Account A is available, which invests in a portfolio of the
Series Company. This portfolio is managed by the Company for advisory fees at
annual rates ranging from .35% to .75% of the portfolio's average monthly net
assets. (Under a "grandfathering" arrangement, the total advisory fees and
certain other charges imposed against SA-1 and SA-2 Contracts are limited to a
maximum of the rate charged on April 1, 1987. (See the prospectus for those
Contracts dated April 20, 1987.))
Under UIT-981 Contracts, five divisions of Separate Account A are
available, each investing in shares of a different underlying mutual fund of the
Series Company portfolio. The five mutual funds are managed by the Company for
advisory fees at annual rates ranging from .32% to .75% of each respective
portfolio's average daily net assets.
Under the New Contracts, ten divisions of Separate Account A are available,
each investing in a different investment portfolio of the Series Company. The
investment portfolios are managed by the Company for advisory fees at annual
rates ranging from .35% to .75% of each portfolio's average
44
<PAGE> 142
monthly net assets. In addition, two fixed investment options are available.
Annuity payments under SA-1, SA-2 and UIT-981 Contracts and the New
Contracts may be made on a fixed or variable basis, or a combination of both.
During the period following commencement of annuity payments (the annuity
period), SA-1 and SA-2 Contracts make no provision for transfers from a separate
account to provide a fixed annuity. The option, subject to certain conditions,
is available under the New Contracts as well as under UIT-981 Contracts.
Annuity Options. One option under the New Contracts provides for annuity
payments to be made for a selected number of years between 3 and 30 on a fixed
basis only. Under SA-1, UIT-981, Fixed and Compounder Contracts, this option is
limited to 15 years. Under the SA-1 and SA-2 Contracts, such payments may be on
either a fixed or variable basis. SA-2 Contracts do not provide a designated
period option. Under the UIT-981, SA-1, Fixed and Compounder Contracts, the
designated period option may, subject to adverse tax consequences, be commuted
at any time for its remaining value. No such commutation is available under the
New Contracts.
The SA-1 Contracts provide an option for monthly variable annuity payments
to be made at a level payment basis during each year of the annuity period. The
New Contracts do not provide this option.
To satisfy a federal tax law requirement, non-spouse beneficiaries under a
New Contract generally must receive the entire benefit payable upon the death of
the Annuitant over their life expectancy or within five years of the Annuitant's
death. This requirement is inapplicable to Existing Contracts or certificates
issued before January 19, 1985 if not exchanged.
Betterment of Rates. The New Contracts, the UIT-981 Contracts and the Fixed
Contracts provide that annuity payments for fixed annuities will be based on
mortality tables then being used by the Company, if more favorable to the
Annuitant than those included in the Contract. The SA-1 Contracts contain a
similar "betterment of rates" provision which is applicable to both fixed and
variable annuities. The Compounder and SA-2 Contracts contain no betterment of
rates provision.
Guaranteed Annuity Rates. Mortality rates have improved since annuity rates
were developed for the Existing Contracts. Therefore, the annuity rates
guaranteed in the New Contracts are less favorable to Contract Owners and
annuitants than those guaranteed in the Existing Contracts. However, the current
annuity rates being charged for fixed annuities under the "betterment of rates"
provisions discussed above are more favorable than those guaranteed under the
New or the Existing Contracts. Of course, no assurance can be given that this
will continue to be true at the time of annuitization for a given contract.
Guaranteed annuity rate tables are set forth in your Existing Contract or in
current endorsements thereto. Those guaranteed for New Contracts are set forth
therein, and copies may be obtained from one of the Company's Regional Offices
listed on the inside back cover of this prospectus.
AGENTS' AND MANAGERS' RETIREMENT PLAN
EXCHANGE OFFER
General. All eligible agents and managers of the Company are allowed to
participate in the Company's Agents' and Managers' Retirement Plan ("Plan"). The
Company is granting to participants in the Plan the right to effect a voluntary
exchange of their units of interest under the SA-1 contracts for the equivalent
units of interest in the New Contracts.
Participants who enter into the voluntary exchange will not incur under the
New Contracts any surrender charges or annual maintenance fees. Other
individuals who are not eligible agents and managers of the Company who may
exchange their units of interest under the SA-1 contracts for the equivalent
units of interest in the New Contracts may have imposed under the New Contract
such charges and fees. All other provisions with regard to exchange offers
referenced in the section entitled "Exchange Offers" will apply to the Agents'
and Managers' Retirement Plan Exchange Offer.
Pursuant to this voluntary exchange offer, participants in the Plan will
have three options to choose from. As to the funding vehicle for their purchase
payment plan, the participant may choose to:
1. remain in the SA-1 contract.
2. leave current assets in the SA-1 contract and direct future purchase
payments to the New Contract; or
45
<PAGE> 143
3. transfer all current assets and future purchase payments to the New
Contract.
If the participant chooses to remain in the SA-1 contract, future purchase
payments and current assets will be controlled by the provisions of the SA-1
contract. If the participant chooses to leave current assets in the SA-1
contract and direct future purchase payments to the New Contract, the current
assets will be controlled by the provisions of the SA-1 contract. The future
purchase payments will be controlled by the terms of the New Contract subject to
the exception that surrender charges and annual maintenance fees will not be
imposed under the New Contract. If the participant chooses to transfer all
current assets and future purchase payments to the New Contract, such current
assets and future purchase payments will be controlled by the provisions of the
New Contract subject to the exception that surrender charges and annual
maintenance fees will not be imposed under the New Contract.
Once a participant transfers assets and future purchase payments to the New
Contract the participant will not be permitted to exchange back to the SA-1
contract. If a participant chooses to transfer future purchase payments but not
current assets to the New Contract, the participant will be allowed at a later
date to transfer the current assets to the New Contract. For a complete analysis
of the differences between the SA-1 contract and the New Contract, you should
refer to the section entitled "Differences Between New and Existing Contracts"
and the form of the contract or certificate for its terms and conditions.
TAXES AND CONVERSION COSTS
The Company will impose no fee or charge in connection with conversion.
Please see discussion of "Federal Tax Matters" in the prospectus regarding the
federal income tax treatment of the New Contracts.
AVAILABILITY OF OFFER
Current owners or annuitants wishing to exchange should contact any
Regional Office at 1-800-44-VALIC for assistance. Partial exchanges are not
permitted and, once this privilege has been exercised, any exchange back to the
Existing Contract will not be made on these terms. This exchange offer is not
applicable to any outstanding fixed annuity contracts except the Compounder
series contracts (Contract Forms C-I-75 and IFA-78) and those fixed contracts on
forms GFA-582 and IFA-582. THE COMPANY RESERVES THE RIGHT TO TERMINATE OR
SUSPEND THE EXCHANGE OFFER AT ANY TIME.
46
<PAGE> 144
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.
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<PAGE> 145
APPENDIX
Additional Fee Table Example for Independence Plus Contract without a
surrender charge or maintenance fees imposed.
Example #3 -- Assuming no surrender charge or maintenance fees.
Total Expenses. You would pay the following expenses on a $1,000 investment
under a typical Independence Plus Contract without a surrender charge or
maintenance fees imposed, invested in a Separate Account Division as listed
below, assuming a 5% annual return on assets:
<TABLE>
<CAPTION>
1 YEAR 3 YEARS 5 YEARS 10 YEARS
------ ------- ------- --------
<S> <C> <C> <C> <C>
Stock Index Division..................................... $14 $42 $74 $162
MidCap Index Division(1)................................. 14 44 76 166
Small Cap Index Division................................. 14 45 77 170
International Equities Division.......................... 14 45 78 171
Social Awareness Division................................ 16 49 85 186
Asset Allocation Division(2)............................. 16 50 86 187
Capital Conservation Division............................ 16 50 86 187
Government Securities Division........................... 16 49 85 186
International Government Bond Division................... 16 49 85 186
Money Market Division.................................... 16 50 86 187
</TABLE>
- ---------------
(1) Effective October 1, 1991 the Capital Accumulation Fund changed its name to
the MidCap Index Fund and amended its investment objective, investment
program and investment restrictions accordingly. Total Fund expenses
expressed as a percentage of Fund assets represent expenses of the Capital
Accumulation Fund prior to October 1, 1991.
(2) Effective October 1, 1997 the Timed Opportunity Fund changed its name to the
Asset Allocation Fund.
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<PAGE> 146
CONTENTS OF STATEMENT OF ADDITIONAL INFORMATION
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
General Information......................................... 2
Marketing Information....................................... 2
Types of Variable Annuity Contracts......................... 3
Calculation of Surrender Charge............................. 5
Illustration of Surrender Charge on Total Surrender.... 5
Illustration of Surrender Charge on a 10% Partial
Surrender Followed by a Full Surrender................ 6
Accumulation Unit Value..................................... 7
Illustration of Calculation of Accumulation Unit
Value................................................. 7
Illustration of Purchase of Accumulation Units......... 7
Performance Calculations.................................... 7
Money Market Division Yields........................... 7
Calculation of Yield for Money Market Division
Six................................................ 7
Illustration of Calculation of Yield for Money
Market Division Six................................ 7
Calculation of Effective Yield for Money Market
Division Six....................................... 7
Illustration of Calculation of Effective Yield for
Money Market Division Six.......................... 7
Standardized Yield for Divisions Seven, Eight and
Thirteen.............................................. 8
Calculation of Standardized Yield for Divisions
Seven, Eight and Thirteen.......................... 8
Illustration of Calculation of Standardized Yield
for Divisions Seven, Eight and Thirteen............ 8
Calculation of Average Annual Total Return........ 8
Performance Information..................................... 9
Performance Compared to Market Indices................. 9
Stock Index Division Ten Performance Compared to S&P
500 Index............................................. 11
MidCap Index Division Four Performance Compared to
Relevant Index........................................ 12
Small Cap Index Division Fourteen Performance Compared
to Russell 2000 Index................................. 13
International Equities Division Eleven Performance
Compared to EAFE Index................................ 13
Social Awareness Division Twelve Performance Compared
to S&P 500 Index...................................... 14
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.................... 15
Capital Conservation Division Seven Performance
Compared to Merrill Lynch
Corporate Master Index............................... 16
Government Securities Division Eight Performance
Compared to Lehman Brothers
U.S. Treasury Composite Index........................ 17
International Government Bond Division Thirteen
Performance Compared to Salomon
Brothers Non U.S. Dollar World Government Bond
Index................................................. 17
Money Market Division Six Performance Compared to
Certificate of Deposit Primary
Offering by New York City Banks, 30 Day Index........ 18
Annuity Payments............................................ 18
Assumed Investment Rate................................ 18
Amount of Annuity Payments............................. 19
Annuity Unit Value..................................... 20
Illustration of Calculation of Annuity Unit Value...... 20
Illustration of Annuity Payments....................... 20
Distribution of Variable Annuity Contracts.................. 20
Experts..................................................... 20
Comments on Financial Statements............................ 21
</TABLE>
49
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50
<PAGE> 148
REVOCATION OF TELEPHONE ASSET TRANSFER AUTHORITY
Participant/Contract Owner Name:
------------------------------------------------------------------------
Social Security Number:
------------------------------------------------------------------------
Birth Date:
I am the Participant under or Contract Owner of one or more variable
annuity contracts issued by The Variable Annuity Life Insurance Company
("VALIC"). I hereby instruct VALIC not to accept any telephone instructions to
transfer Accumulation Values among investment options or change the allocation
of future Purchase Payments from me, anyone representing me or anyone
representing himself or herself to be me. I understand as a result of executing
this form that the transfer of Accumulation Values or Annuity Values among
investment options or changes in the allocation of future Purchase Payments may
only be effected upon the receipt by VALIC of my written instructions.
<TABLE>
<S> <C>
- ------------------------------------------------------------ ------------------------
Participant/Contract Owner Signature Date
Mail this form to any Regional Office (see the last page of your prospectus for addresses)
or to the Home Office at the following address: VALIC, Customer Service A3-01, 2929 Allen
Parkway, Houston, TX 77019.
</TABLE>
51
<PAGE> 149
[THIS PAGE INTENTIONALLY LEFT BLANK]
52
<PAGE> 150
\
Please tear off, complete and return the form below to one of our Regional
Offices at the address shown on the inside back cover of this Prospectus. A
Statement of Additional Information may also be ordered by calling
1-800-44-VALIC.
................................................................................
INDEPENDENCE PLUS CONTRACTS
Please send me a free copy of the Statement of Additional Information for The
Variable Annuity Life Insurance Company Separate Account A (Independence Plus
Contract Series).
(Please Print or Type)
- --------------------------------------------------------------------------------
Name: G.A. #
------------------------------------ --------------------------------
Address: Policy #
------------------------------------ --------------------------------
------------------------------------
Social Security Number:
------------------------------------
- --------------------------------------------------------------------------------
53
<PAGE> 151
[THIS PAGE INTENTIONALLY LEFT BLANK]
54
<PAGE> 152
================================================================================
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 I-55 North
Suite 108
Jackson, MS 39211
(601) 981-5801
410 Amherst Street
Suite 250
Nashua, NH 03063
(603) 883-3840
90 Woodbridge Center 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 Drive
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
================================================================================
<PAGE> 153
[VALIC LOGO]
Printed Matter
Printed in U.S.A. VA 9079 REV 5/98
(C)The Variable Annuity Life Insurance Company, Houston, Texas
Recycled Paper LOGO
<PAGE> 154
THE VARIABLE ANNUITY LIFE INSURANCE COMPANY
SEPARATE ACCOUNT A
UNITS OF INTEREST UNDER GROUP AND
INDIVIDUAL VARIABLE ANNUITY CONTRACTS
INDEPENDENCE PLUS CONTRACT SERIES
----------------------------------------------------------------
STATEMENT OF ADDITIONAL INFORMATION
----------------------------------------------------------------
FORM N-4 PART B
MAY 1, 1998
This Statement of Additional Information is not a prospectus but contains
information in addition to that set forth in the Prospectus for the Independence
Plus Contract Series* dated May 1, 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 or 1-800-44-VALIC. Prospectuses are also available from regional
sales offices of the Underwriter or from its registered sales representatives.
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
General Information.............................. 2
Marketing Information............................ 2
Types of Variable Annuity Contracts.............. 3
Calculation of Surrender Charge.................. 5
Illustration of Surrender Charge on Total
Surrender.................................... 5
Illustration of Surrender Charge on a 10%
Partial Surrender Followed by a Full
Surrender.................................... 6
Accumulation Unit Value.......................... 7
Illustration of Calculation of Accumulation
Unit Value................................... 7
Illustration of Purchase of Accumulation
Units........................................ 7
Performance Calculations......................... 7
Money Market Division Yields................... 7
Calculation of Current Yield for Money Market
Division Six................................. 7
Illustration of Calculation of Current Yield
for Money Market Division Six................ 7
Calculation of Effective Yield for Money Market
Division Six................................. 7
Illustration of Calculation of Effective Yield
for
Money Market Division Six.................... 7
Standardized Yield for Divisions Seven, Eight and
Thirteen....................................... 8
Calculation of Standardized Yield for Divisions
Seven, Eight and Thirteen.................... 8
Illustration of Calculation of Standardized
Yield for Divisions Seven, Eight and
Thirteen..................................... 8
Calculation of Average Annual Total Return..... 8
Performance Information.......................... 9
Performance Compared to Market Indices......... 9
Stock Index Division Ten Performance Compared
to S&P 500 Index............................. 11
MidCap Index Division Four Performance
Compared to Relevant Index................... 12
</TABLE>
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Small Cap Index Division Fourteen Performance
Compared to Russell 2000([) Index............ 13
International Equities Division Eleven
Performance Compared to EAFE Index........... 13
Social Awareness Division Twelve Performance
Compared to S&P 500 Index.................... 14
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............ 15
Capital Conservation Division Seven Performance
Compared to Merrill Lynch Corporate Master
Index........................................ 16
Government Securities Division Eight
Performance Compared to Lehman Brothers U.S.
Treasury Composite Index..................... 17
International Government Bond Division Thirteen
Performance Compared to Salomon Brothers Non
U.S. Dollar World Government Bond Index...... 17
Money Market Division Six Performance Compared
to Certificate of Deposit Primary Offering by
New York City Banks, 30 Day Index............ 18
Annuity Payments................................. 18
Assumed Investment Rate........................ 18
Amount of Annuity Payments..................... 19
Annuity Unit Value............................. 20
Illustration of Calculation of Annuity Unit
Value........................................ 20
Illustration of Annuity Payments............... 20
Distribution of Variable Annuity Contracts..... 20
Experts........................................ 20
Comments on Financial Statements............... 21
</TABLE>
(*The Independence Plus Contract Series is composed of Contract Forms UIT-585-96
and UITG-585-96.)
VA 9079-1, REV. 5/98
1
<PAGE> 155
GENERAL INFORMATION
The Variable Annuity Life Insurance Company ("the Company") is a stock life
insurance company organized under the laws of the State of Texas and is engaged
primarily in the offering and issuance of fixed and variable retirement annuity
contracts and combinations thereof. The Company also is licensed to write life
insurance in all states (other than Connecticut) and the District of Columbia,
and annuities in all fifty states and the District of Columbia. The Company is
an indirectly wholly owned subsidiary of American General Corporation (formerly
American General Insurance Company).
On April 18, 1979, the Board of Directors of the Company established
Separate Account A (the Separate Account) in accordance with the Texas Insurance
Code. The Separate Account is registered with the U.S. Securities and Exchange
Commission as a unit investment trust under the Investment Company Act of 1940
(the "1940 Act").
Each Division of the Separate Account invests in the shares of a
diversified, open-end, management-type investment company registered under the
1940 Act, or one of thirteen investment portfolios of a diversified, open-end,
management investment company registered under the 1940 Act. The Separate
Account currently is made up of 33 Divisions, ten of which are available as
variable investment options under the Contracts (Divisions Four, Five, Six,
Seven, Eight, Ten, Eleven, Twelve, Thirteen and Fourteen), except that Division
Eight is currently not available to Non-Qualified Contracts.
MARKETING INFORMATION
The Company has targeted not-for-profit organizations as the central focus
of its marketing efforts for its Contracts. The Company has utilized as its
general marketing theme the concept that the Company is "America's Retirement
Plan Specialists." Specifically, the Company's marketing thrust is aimed at
individuals and groups associated with public and private schools, colleges and
universities, not-for-profit health care organizations, state and local
governments and other not-for-profit organizations.
This marketing concept has proven to be successful. In the aggregate,
premium deposits to the Company have grown from $37,000 in 1956 to more than
$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 $33 billion.
The Company's growth can also be reviewed by examining the growth in each
market segment that the Company targets.
As of December 31, 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 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
2
<PAGE> 156
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, 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 149 percent and cash
values increased 147 percent to more than $1.8 billion. In addition, during this
time period annual ORP premiums more than doubled.
The Company, in its marketing efforts to each of the market segments, may
from time to time design sales literature and material specifically for that
market segment, e.g., the health care segment of the not-for-profit organization
market. This sales literature and material may also be specific to a certain
group. For example, sales literature and material may be designed for a specific
hospital. The sales literature and material would address specifically the
group's contract and retirement plan.
From time to time the Company may refer to the diversifying process of
asset allocation based on the Modern Portfolio Theory developed by Nobel Prize
winning economist Harry Markowitz. The basic assumptions of Modern Portfolio
Theory are the selection of individual investments has little impact on
portfolio performance, market timing strategies seldom work, markets are
efficient, and portfolio selection should be made among asset classes. Modern
Portfolio Theory allows an investor to determine an efficient portfolio
selection that will provide a higher return with the same risk or the same
return with lower risk.
When presenting the asset allocation process the Company may outline the
process of personal and investment risk analysis including determining
individual risk tolerances and a discussion of the different types of investment
risk. The Company may classify investors into five categories based on their
risk tolerance and will quote various industry experts on which types of
investments are best suited to each of the five risk categories. The industry
experts quoted may include Ibbotson Associates, CDA Investment Technologies,
Lipper Analytical Services, 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, the performance of these indexes over time, and
the performance of 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.
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 re-
3
<PAGE> 157
quired to be made after the first payment. Purchase Payments are subject to any
minimum payment requirements under the Contract.
Under deferred annuity contracts, Purchase Payments are invested and
accumulate on a fixed or variable basis until the date the Contract Owner
selects to commence annuity payments.
Under immediate annuity Contracts, the first annuity payment is made on the
first day of the second month after the Purchase Payment is received. During the
period before the Annuity Date, the Purchase Payments are invested in the same
manner, and the other terms and conditions (including the options and rights of
Contract Owners, Annuitants and Beneficiaries) are the same under immediate
annuity Contracts as under deferred annuity Contracts.
The Contracts are non-participating and will not share in any of the
profits of the Company.
4
<PAGE> 158
CALCULATION OF SURRENDER CHARGE
The surrender charge is discussed in the Prospectus under "Charges Under
Variable Annuity Contracts -- Charge for Partial and Total Surrenders." Examples
of calculation of the surrender charge upon total and partial surrender are set
forth below:
ILLUSTRATION OF SURRENDER CHARGE ON TOTAL SURRENDER
Example 1.
TRANSACTION HISTORY
<TABLE>
<CAPTION>
DATE TRANSACTION AMOUNT
---- ----------- ------
<S> <C> <C>
2/1/92.......................... 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
Accumulation Value is $50,000)
Surrender Charge is lesser of (a) or (b):
a. Surrender Charge calculated on 60 months of Purchase Payments
1. Surrender Charge against Purchase Payment of 2/1/92......... $ 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
Accumulation Value at the time of surrender:
Accumulation Value at time of surrender $50,000
Less 10% not subject to surrender charge -5,000
--------
Subject to surrender charge 45,000
X .05
--------
Surrender Charge based on Accumulation
Value $2,250 .......................... $2,250
c. Surrender Charge is the lesser of a or b......................... $1,450
</TABLE>
5
<PAGE> 159
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 $ 5,000
2/1/93.......................... Purchase Payment 15,000
2/1/94.......................... Purchase Payment 2,000
2/1/95.......................... Purchase Payment 3,000
2/1/96.......................... Purchase Payment 4,000
2/1/97.......................... Purchase Payment 10,000
7/1/97.......................... 10% Partial Surrender (Assumes 3,900
Accumulation Value is $39,000)
8/1/96.......................... Full Surrender 35,100
</TABLE>
a. Since this is the first partial surrender in this participant year,
calculate the excess over 10% of the value of the Accumulation Units.
10% of $39,000 = $3,900 [no charge on this 10% withdrawal]
b. The Accumulation Value upon which Surrender Charge on the Full Surrender
may be calculated (levied) is $39,000 - $3,900 = $35,100
c. The Surrender Charge calculated on the Accumulation Value withdrawn
$35,100 X .05 = $1,755
d. Since only $29,000 has been paid in Purchase Payments in the 60 months
prior to the Full Surrender, the charge can only be calculated on
$29,000. The $3,900 partial withdrawal does not reduce this amount.
Thus, the charge is $29,000 X (0.05) = $1,450.
6
<PAGE> 160
ACCUMULATION UNIT VALUE
The calculation of Accumulation Unit value is discussed in the Prospectus
under "Accumulation Period." The following illustrations show a calculation of a
new Unit value and the purchase of Accumulation Units (using hypothetical
examples):
ILLUSTRATION OF CALCULATION OF ACCUMULATION UNIT VALUE
Example 3.
<TABLE>
<S> <C>
1. Accumulation Unit value, beginning of period............. $ 1.800000
2. Value of Fund share, beginning of period................. 21.200000
3. Change in value of Fund share............................ .500000
4. Gross investment return (3)/(2).......................... .023585
5. Daily mortality and expense charge....................... .000027
6. Net investment return (4)-(5)............................ .023558
7. Net investment factor 1.000000+(6)....................... 1.023558
8. Accumulation Unit value, end of period (1)X(7)........... $ 1.842404
</TABLE>
ILLUSTRATION OF PURCHASE OF ACCUMULATION UNITS (ASSUMING NO STATE PREMIUM TAX)
Example 4.
<TABLE>
<S> <C>
1. First Periodic Purchase Payment.......................... $100.00
2. Accumulation Unit value on effective date of purchase
(see Example 3)........................................... $ 1.800000
3. Number of Accumulation Units purchased (1)/(2)........... 55.556
4. Accumulation Unit value for valuation date following
purchase
(see Example 3).......................................... $ 1.842404
5. Value of Accumulation Units in account for valuation date
following
purchase (3)X(4)......................................... $102.36
</TABLE>
PERFORMANCE CALCULATIONS
MONEY MARKET DIVISION YIELDS
CALCULATION OF CURRENT YIELD FOR MONEY MARKET DIVISION SIX
7-Day Current Yield: 4.22%
ILLUSTRATION OF CALCULATION OF CURRENT YIELD FOR 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 Accumulation Unit at the beginning of the
period, subtracting a hypothetical charge reflecting deductions from Contract
Owner accounts, and dividing the difference by the value of the account at the
beginning of the base period to obtain the base period return and then
multiplying the base period return by 365/7.
CALCULATION OF EFFECTIVE YIELD FOR MONEY MARKET DIVISION SIX
7-Day Effective Yield: 4.31%
ILLUSTRATION OF CALCULATION OF EFFECTIVE YIELD FOR MONEY MARKET DIVISION SIX
Example 6.
The effective yield quotation above is based on the seven days ended
December 31, 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 Accumulation Unit at the beginning of
the period, subtracting a hypothetical charge reflecting deductions from
Contract Owner accounts, and dividing the difference by the value of the account
at the beginning of the base period to obtain the base period return and
7
<PAGE> 161
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 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
Accumulation Unit earned during the period by the maximum offering price per
Unit on the last day of the period, according to the following formula:
YIELD = 2 [ ( a - b + 1 )6 - 1 ]
-----------------------------------------------
cd
Where:
<TABLE>
<S> <C>
a = net investment income earned during the period by the Fund
attributable to shares owned by the Division
b = expenses accrued for the period (net of reimbursements)
c = the average daily number of Accumulation Units outstanding
during the period
d = the maximum offering price per Accumulation Unit on the last
day of the period
</TABLE>
Yield on each Division is earned from dividends declared and paid by the
Fund, which are automatically reinvested in Fund shares.
CALCULATION OF AVERAGE ANNUAL TOTAL RETURN
Average Annual Total Return quotations for the 1, 3, 5, and 10 year periods
ended December 31, 1997, the date of the most recent balance sheet included in
this registration statement, are computed by finding the average annual
compounded rates of return over the 1, 3, 5, and 10 year periods that would
equate the initial amount invested to the ending redeemable value, according to
the following formula:
P (1+T)n = ERV
Where:
<TABLE>
<S> <C>
P = a hypothetical initial Purchase Payment of $1,000
T = average annual total return
n = number of years
ERV = redeemable value at the end of the 1, 3, 5 or 10 year
periods of a hypothetical $1,000 Purchase Payment made at
the beginning of the 1, 3, 5, or 10 year periods (or
fractional portion thereof)
</TABLE>
The Company may advertise standardized average annual total return which
includes the surrender charge of up to 5% of Gross Purchase Payments received
during the most recent 60 months as well as non-standardized average annual
total returns which does not include a surrender charge or maintenance fee.
8
<PAGE> 162
There is no sales charge for reinvested dividends. All recurring fees have
been deducted. For fees which vary with the account size, an account size equal
to that of the median account size has been assumed. Ending redeemable value has
been determined assuming a complete redemption at the end of the 1, 5 or 10 year
period and deduction of all nonrecurring charges at the end of each such period.
PERFORMANCE INFORMATION
PERFORMANCE COMPARED TO MARKET INDICES
The following tables show the Hypothetical $10,000 Account Value and
Cumulative Return of each Division as compared to the benchmarks shown.
These performance calculations for the Divisions, and the methods used for
calculating them, are explained in the Prospectus. (See "Performance
Information" and "The Fund.")
These tables compare hypothetical investment performance and percentage
changes in Accumulation Unit values with the results of several benchmarks,
representing unmanaged market indices. The comparisons should be considered in
light of the investment policies and objectives of the Funds. Rates of return
for the Divisions include reinvestment of investment income, including capital
gains, interest and dividends. The rates of return on the market indices also
have been adjusted to reflect reinvestment of interest and dividends.
Price returns for the market indices are calculated by subtracting the
price level at the beginning of the year from the price level at the end of the
year and dividing the difference by the price level at the beginning of the
year. To calculate dollar values for the indices' Hypothetical $10,000 Account
Value presentation, price index values were substituted for Unit values in the
calculation described in the Prospectus, and where applicable, dividend yields
were then added to determine the total returns applied in the dollar value
calculations. Similarly, to calculate Cumulative Return for the indices, the
Cumulative Return calculation described in the Prospectus for Unit values of the
Divisions is used, substituting the Hypothetical $10,000 Account Value at the
end of each year for the Accumulation Unit Value. No sales load, administrative
charges, or any other expenses have been deducted from the index calculations.
THE PERFORMANCE RESULTS SHOWN IN THIS SECTION ARE NOT AN ESTIMATE OR GUARANTEE
OF FUTURE INVESTMENT PERFORMANCE, AND DO NOT REPRESENT THE ACTUAL EXPERIENCE OF
AMOUNTS INVESTED BY A PARTICULAR PARTICIPANT.
The performance of Stock Index Division Ten and Social Awareness Division
Twelve may be compared to the record of the Standard & Poor's([) Corporation
("S&P([)")* Composite Stock Price Index ("S&P 500 Index"). The S&P 500([) Index
is a well known measure of the price performance of 500 leading larger domestic
stocks which represents approximately 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 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 Money Market Division Six may be compared to the
Certificate of Deposit Primary Offering by New York City Banks, 30 Day Index.
The index is a money market index which reflects the average rate paid by New
York Banks on certificates of deposit of more than $100,000. The Index for 30
days is published daily.
The performance of Capital Conservation Division Seven may be compared to
the Merrill Lynch Corporate Master Index. The Merrill Lynch Corporate Master
Index consists of an index of approximately 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 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.
9
<PAGE> 163
The performance of International Equities Division Eleven may be compared
to the Morgan Stanley Capital International Europe, Australia and Far East Index
("EAFE Index"). The EAFE Index, which commenced in 1969, is an unmanaged stock
index consisting of 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 investors). The second method includes net income (income
earned after subtracting estimated foreign taxes). The Division currently
compares its performance with the index using the second method.
The performance of the International Government Bond Fund Division Thirteen
may be compared to the Salomon Brothers Non-US Dollar World Government Bond
Index ("Salomon Index"). Total returns with income reinvested for the Salomon
Index are published using two methods. The first method includes gross income
(income earned without subtracting foreign income taxes which may be withheld
from foreign investors). The second method includes net income (income earned
after subtracting estimated foreign taxes). The Division currently compares its
performance with the index using the second method. The Salomon Index is an
unmanaged aggregate index composed of 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 the Small Cap Index Division Fourteen may be compared
with the Russell 2000([) Index ("Russell 2000").** The Russell 2000 was
developed in 1984 by the Frank Russell Company to track the stock market
performance of small capitalization domestic stocks. The Russell 2000 is market
weighted and consists of approximately 2000 stocks. Stocks included in the
Russell 2000 are chosen by the Frank Russell Company on the basis of their
market size.
The performance of 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 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 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.
Additionally, the performance of a Division may from time to time be
compared with other Indexes which have been deemed by the Company relevant to
the Division.
These benchmarks do not reflect any charges for investment advisory fees,
brokerage commissions or other fees and expenses of the type charged at either
the Separate Account or Fund level. Therefore, the comparisons with these
benchmarks are of limited use.
- ---------------
* "Standard & Poor's([)", "S&P([)", "S&P 500([)" and "S&P MidCap 400" are
trademarks of Standard and Poor's Corporation. Neither the MidCap Index Fund
nor the Stock Index Fund is sponsored, endorsed, sold or promoted by S&P and
S&P makes no representation regarding the advisability of investing in these
Funds.
** The Russell 2000([) Index is a trademark/service mark of the Frank Russell
Trust Company. RussellTM is a trademark of the Frank Russell Company.
10
<PAGE> 164
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
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>
- ---------------
* This Division was initiated on April 20, 1987.
11
<PAGE> 165
MidCap Index Division Four* Performance Compared to S&P 500 Index and S&P MidCap
400 Index
HYPOTHETICAL $10,000 ACCOUNT VALUE
ANNUAL VALUE OF A $10,000 STIPULATED PAYMENT MADE OCTOBER 13, 1982
<TABLE>
<CAPTION>
S&P S&P
500 MIDCAP 400
DIVISION FOUR INDEX INDEX
- -------------------------------------------------- -------- ----------
<S> <C> <C> <C>
10/13/82................................ $10,000 $ 10,000 $ 10,000
12/31/82................................ 10,096 11,352 11,564
12/31/83................................ 11,608 13,913 14,583
12/31/84................................ 11,721 14,786 14,755
12/31/85................................ 13,195 19,477 20,004
12/31/86................................ 13,516 23,113 23,247
12/31/87................................ 12,827 24,326 22,774
12/31/88................................ 14,502 28,367 27,527
12/31/89................................ 17,127 37,355 37,310
12/31/90................................ 15,380 36,195 35,401
12/31/91................................ 18,580 47,223 53,136
12/31/92................................ 20,213 50,820 59,466
12/31/93................................ 22,594 55,943 67,762
12/31/94................................ 21,532 56,681 65,332
12/31/95................................ 27,827 77,981 85,547
12/31/96................................ 32,726 95,892 102,009
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
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 accumulation unit data for the last ten years for this
Division appears in the Prospectus. Figures appearing above for the S&P
MidCap 400 Index for years prior to 1991 are based on estimates provided by
Standard & Poor's for illustrative purposes.
** This Division was initiated on October 13, 1982.
12
<PAGE> 166
Small Cap Index Division Fourteen Performance Compared to Russell 2000 Index(R)
HYPOTHETICAL $10,000 ACCOUNT VALUE
ANNUAL VALUE OF A $10,000 STIPULATED PAYMENT MADE MAY 1, 1992
<TABLE>
<CAPTION>
RUSSELL
SMALL CAP INDEX 2000
DIVISION 14 INDEX
- --------------------------------------------------------------------- -------
<S> <C> <C>
05/01/92................................................... $10,000 $10,000
12/31/92................................................... 11,128 11,416
12/31/93................................................... 12,772 13,571
12/31/94................................................... 12,223 13,324
12/31/95................................................... 15,449 17,114
12/31/96................................................... 17,854 19,937
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
Small Cap Index Division 14....... 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.
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
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.
13
<PAGE> 167
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
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.
14
<PAGE> 168
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>
TIMED OPPORTUNITY S&P 500 BLENDED
DIVISION FIVE INDEX INDEX**
- ---------------------------------------------------- -------- --------
<S> <C> <C> <C>
09/06/83.................................. $10,000 $10,000 $10,000
12/31/83.................................. 9,857 10,156 10,252
12/31/84.................................. 9,853 10,793 11,269
12/31/85.................................. 11,004 14,217 14,177
12/31/86.................................. 11,987 16,871 16,536
12/31/87.................................. 12,862 17,757 17,472
12/31/88.................................. 13,973 20,706 19,669
12/31/89.................................. 16,182 27,267 24,213
12/31/90.................................. 15,634 26,420 24,748
12/31/91.................................. 18,782 34,470 30,404
12/31/92.................................. 18,460 37,095 32,608
12/31/93.................................. 19,973 40,834 35,770
12/31/94.................................. 19,515 41,373 35,769
12/31/95.................................. 24,110 56,921 45,566
12/31/96.................................. 26,519 69,995 51,871
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
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>
- ---------------
* This Division was initiated on September 6, 1983. Effective October 1, 1997
the Timed Opportunity Fund changed its name to the Asset Allocation 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.
15
<PAGE> 169
Capital Conservation Division Seven Performance Compared to Merrill Lynch
Corporate Master Index
HYPOTHETICAL $10,000 ACCOUNT VALUE
ANNUAL VALUE OF A $10,000 STIPULATED PAYMENT MADE JANUARY 16, 1986
<TABLE>
<CAPTION>
MERRILL LYNCH
CAPITAL CONSERVATION CORPORATE MASTER
DIVISION SEVEN INDEX
- ----------------------------------------------------------------- ----------------
<S> <C> <C>
01/16/86............................................... $10,000 $10,000
12/31/86............................................... 10,477 11,609
12/31/87............................................... 10,186 11,823
12/31/88............................................... 10,789 12,976
12/31/89............................................... 11,936 14,808
12/31/90............................................... 11,784 15,899
12/31/91............................................... 13,669 18,799
12/31/92............................................... 14,702 20,514
12/31/93............................................... 16,301 23,064
12/31/94............................................... 15,153 22,288
12/31/95............................................... 18,120 27,097
12/31/96............................................... 18,255 28,015
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
Capital Conservation Division 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.
16
<PAGE> 170
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
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.
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>
17
<PAGE> 171
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
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.
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
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>
- ---------------
* This Division was initiated on January 16, 1986.
ANNUITY PAYMENTS
ASSUMED INVESTMENT RATE
The discussion concerning the amount of annuity payments which follows this
section is based on an Assumed Investment Rate of 3 1/2% per annum. However, the
Company will permit each Annuitant choosing a variable annuity payment option to
select an Assumed Investment Rate permitted by state law or regulations other
than the 3 1/2% rate described in this prospectus as follows: 4 1/2%, 5% or 6%
per annum. (Note: an Assumed Investment Rate higher than 5% may not be selected
under individual Contracts.) The foregoing Assumed Investment Rates are used
merely in order to determine the first
18
<PAGE> 172
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
the Separate Account.
AMOUNT OF ANNUITY PAYMENTS
The amount of the first variable annuity payment to the Annuitant will
depend on the amount of the Accumulation Value applied to effect the variable
annuity as of the tenth day immediately preceding the date annuity payments
commence, the amount of any premium tax owed, the annuity option selected, and
the age of the Annuitant. The Contracts contain tables indicating the dollar
amount of the first annuity payment under each annuity option for each $1,000 of
Accumulation Value (after the deduction for any premium tax) at various ages.
These tables are based upon the 1983 Table A (promulgated by the Society of
Actuaries) and an Assumed Investment Rate of 3 1/2%, 4% and 5% per annum (3 1/2%
in the group Contract).
The portion of the first monthly variable annuity payment derived from a
Division of the Separate Account is divided by the Annuity Unit value for that
Division (calculated ten days prior to the date of the first monthly payment) to
determine the number of Annuity Units in each Division represented by the
payment. The number of such units will remain fixed during the Annuity Period,
assuming the Annuitant makes no transfers of Annuity Units to provide Annuity
Units under another Division or to provide a fixed annuity.
In any subsequent month, the dollar amount of the variable annuity payment
derived from each Division is determined by multiplying the number of Annuity
Units in that Division by the value of such Annuity Unit on the tenth day
preceding the due date of such payment. The Annuity Unit value will increase or
decrease in proportion to the net investment return of the Division or Divisions
underlying the variable annuity since the date of the previous annuity payment,
less an adjustment to neutralize the 3 1/2% or other Assumed Investment Rate
referred to above.
Therefore, the dollar amount of variable annuity payments after the first
will vary with the amount by which the net investment return is greater or less
than 3 1/2% per annum. For example, if a Division has a cumulative net
investment return of 5% over a one year period, the first annuity payment in the
next year will be approximately 1 1/2 percentage points greater than the payment
on the same date in the preceding year, and subsequent payments will continue to
vary with the investment experience of the Division. If such net investment
return is 1% over a one year period, the first annuity payment in the next year
will be approximately 2 1/2 percentage points less than the payment on the same
date in the preceding year, and subsequent payments will continue to vary with
the investment experience of the applicable Division.
Each deferred Contract provides that, when fixed annuity payments are to be
made under one of the first four annuity options, the monthly payment to the
Annuitant will not be less than the monthly payment produced by the then current
settlement option rates, which will not be less than the rates used for a
currently issued single payment immediate annuity contract. The purpose of this
provision is to assure the Annuitant that, at retirement, if the fixed annuity
purchase rates then required by the Company for new single payment immediate
annuity contracts are significantly more favorable than the annuity rates
guaranteed by a Contract, the Annuitant will be given the benefit of the new
annuity rates.
19
<PAGE> 173
ANNUITY UNIT VALUE
The value of an Annuity Unit is calculated at the same time that the value
of an Accumulation Unit is calculated and is based on the same values for Fund
shares and other assets and liabilities. (See "Accumulation Period" in the
Prospectus.) The calculation of Annuity Unit value is discussed in the
Prospectus under "Annuity Period."
The following illustrations show, by use of hypothetical examples, the
method of determining the Annuity Unit value and the amount of variable annuity
payments.
ILLUSTRATION OF CALCULATION OF ANNUITY UNIT VALUE
Example 8.
<TABLE>
<S> <C>
1. Annuity Unit value, beginning of period................. $ .980000
2. Net investment factor for Period (see Example 3)........ 1.023558
3. Daily adjustment for 3 1/2% Assumed Investment Rate..... .999906
4. (2)X(3)................................................. 1.023462
5. Annuity Unit value, end of period (1)X(4)............... $ 1.002993
</TABLE>
ILLUSTRATION OF ANNUITY PAYMENTS
Example 9. Annuitant age 65, Life Annuity with 120 Payments Certain
<TABLE>
<S> <C>
1. Number of Accumulation Units at Annuity Date............ 10,000.00
2. Accumulation Unit value (see Example 3)................. $ 1.800000
3. Accumulation Value of Contract (1)X(2).................. $18,000.00
4. First monthly annuity payment per $1,000 of Accumulation
Value..................................................... $ 5.63
5. First monthly annuity payment (3)X(4)/1,000............. $ 101.34
6. Annuity Unit value (see Example 10)..................... $ .980000
7. Number of Annuity Units (5)/(6)......................... 103.408
8. Assume Annuity Unit value for second month equal to..... $ .997000
9. Second monthly Annuity Payment (7)X(8).................. $ 103.10
10. Assume Annuity Unit value for third month equal to...... $ .953000
11. Third monthly Annuity Payment (7)X(10).................. $ 98.55
</TABLE>
DISTRIBUTION OF VARIABLE ANNUITY CONTRACTS
The Company has qualified or intends to qualify the Contracts for sale in
all fifty states and the District of Columbia and will commence offering the
Contracts promptly upon qualification in each such jurisdiction.
The Contracts are sold in a continuous offering by licensed insurance
agents who are registered representatives of broker-dealers which are members of
the National Association of Securities Dealers, Inc. (the "NASD"). The principal
underwriter for the Separate Account is the Underwriter as defined above, a
wholly-owned subsidiary of the Company. The Underwriter's address is 2929 Allen
Parkway, Houston, Texas 77019. The Underwriter is a Texas corporation organized
in 1970 and is a member of the NASD.
The licensed agents who sell the Contracts will be compensated for such
sales by commissions ranging from 1% to 4.5% of each Purchase Payment. Managers
who supervise the agents will receive overriding commissions ranging to 1% of
Purchase Payments. (These various commissions are paid by the Company and do not
result in any charge to Contract Owners or to the Separate Account in addition
to the charges described under "Charges Under Variable Annuity Contracts.")
Pursuant to its underwriting agreement with the Underwriter and the
Separate Account, the Company reimburses the Underwriter for reasonable sales
expenses, including overhead expenses. Sales commissions paid for the years
1995, 1996 and 1997 were $10,260,000, $6,038,000 and $4,566,000, 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 Addi-
20
<PAGE> 174
tional 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.
COMMENTS ON FINANCIAL STATEMENTS
The financial statements of The Variable Annuity Life Insurance Company
should be considered only as bearing upon the ability of the Company to meet its
obligations under the Contracts, which include death benefits, and its
assumption of the mortality and expense risks.
Divisions Four, Five, Six, Seven, Eight, Ten, Eleven, Twelve, Thirteen and
Fourteen are the only Divisions available under the Contracts described in the
Prospectus. The Separate Account financial statements contained herein reflect
the composition of the Separate Account as of December 31, 1997.
21
<PAGE> 175
[THIS PAGE INTENTIONALLY LEFT BLANK]
<PAGE> 176
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> 177
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> 178
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> 179
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> 180
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> 181
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> 182
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> 183
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> 184
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> 185
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> 186
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> 187
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> 188
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.
- --------------------------------------------------------------------------------
13
<PAGE> 189
================================================================================
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> 190
================================================================================
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> 191
================================================================================
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> 192
================================================================================
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> 193
================================================================================
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> 194
================================================================================
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> 195
================================================================================
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> 196
================================================================================
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> 197
================================================================================
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> 198
================================================================================
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> 199
================================================================================
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> 200
================================================================================
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> 201
================================================================================
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> 202
================================================================================
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> 203
================================================================================
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> 204
================================================================================
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> 205
================================================================================
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> 206
================================================================================
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> 207
================================================================================
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> 208
================================================================================
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> 209
================================================================================
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> 210
================================================================================
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> 211
================================================================================
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> 212
================================================================================
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> 213
================================================================================
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> 214
[VALIC LOGO
PRINTED MATTER
PRINTED IN U.S.A. VA 9079-1 REV 5/98
(C)The Variable Annuity Life Insurance Company, Houston, Texas
Recycled Paper LOGO
<PAGE> 215
THE VARIABLE ANNUITY LIFE INSURANCE COMPANY
SEPARATE ACCOUNT A
CONTRACT FOR UIT-981
AND
INDEPENDENCE PLUS CONTRACT SERIES
PART C. OTHER INFORMATION
ITEM 24. FINANCIAL STATEMENTS AND EXHIBITS
(a) Financial Statements
Filed with Part A:
Selected Accumulation Unit Data for each Fund
Filed with Part B:
(i) Audited Financial Statements as of December 31, 1997 and for the
fiscal year then ended.
The Variable Annuity Life Insurance Company
Report of Independent Accountants
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 as of December 31, 1997 and for the
fiscal year then ended.
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 Accountants
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.
(b) Exhibits
<TABLE>
<CAPTION>
PAGE*
-----
<S> <C> <C>
1. -- Resolution adopted by The Variable Annuity Life Insurance
Company Board of Directors at its Annual Meeting of April
18, 1979 establishing The Variable Annuity Life Insurance
Company Separate Account A is incorporated herein by
reference to Post-Effective Amendment No. 26 filed with the
SEC on April 18, 1997 (File No. 2-96223/811-3240).
2. -- Not Applicable.
</TABLE>
- ---------------
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C-1
<PAGE> 216
<TABLE>
<CAPTION>
PAGE*
-----
<S> <C> <C>
3. -- Underwriting Agreement between The Variable Annuity Life
Insurance Company, The Variable Annuity Life Insurance
Company Separate Account A and The Variable Annuity
Marketing Company is incorporated herein by reference to
Post-Effective Amendment No. 26 filed with the SEC on April
18, 1997 (File No. 2-96223/811-3240).
4(a). -- Form of Individual Annuity Contract (Form UIT-981) is
incorporated herein by reference to Post-Effective Amendment
No. 26 filed with the SEC on April 18, 1997 (File No.
2-96223/811-3240).
4(b). -- Form of Individual Annuity Contract (Form UIT-585-96) is
incorporated herein by reference to Post-Effective Amendment
No. 26 filed with the SEC on April 18, 1997 (File No.
2-96223/811-3240).
4(c). -- Form of Group Annuity Contract (Form UITG-585-96) is
incorporated herein by reference to Post-Effective Amendment
No. 26 filed with the SEC on April 18, 1997 (File No.
2-96223/811-3240).
4(d). -- Form of Certificate of Participation under Group Annuity
Contract (Form UITG-CB-585-96) is incorporated herein by
reference to Post-Effective Amendment No. 26 filed with the
SEC on April 18, 1997 (File No. 2-96223/811-3240).
5(a). -- Form of Application for Annuity Contract (Form UIT-981,
UIT-585-96 and UITG-CB-585-96).
5(b). -- Form of Group Master Application for Flexible Payment Group
Annuity Contract (Form UITG-585-96) is incorporated herein
by reference to Post-Effective Amendment No. 26 filed with
the SEC on April 18, 1997 (File No. 2-96223/811-3240).
6(a). -- Copy of Amended and Restated Articles of Incorporation of
The Variable Annuity Life Insurance Company, effective as of
April 28, 1989, is incorporated herein by reference to
Post-Effective Amendment No. 26 filed with the SEC on April
18, 1997 (File No. 2-96223/811-3240).
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 is incorporated herein by reference
to Post-Effective Amendment No. 26 filed with the SEC on
April 18, 1997 (File No. 2-96223/811-3240).
6(c). -- Copy of Amended and Restated Bylaws of The Variable Annuity
Life Insurance Company as amended through March 4, 1992.
7. -- Not Applicable.
8. -- Not Applicable.
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 is incorporated herein by reference to
Post-Effective Amendment No. 26 filed with the SEC on April
18, 1997 (File No. 2-96223/811-3240).
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.
Such form requires the signed acknowledgement of
participants who purchase Section 403(b) annuities with
regard to these withdrawal restrictions.
</TABLE>
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C-2
<PAGE> 217
<TABLE>
<CAPTION>
PAGE*
-----
<S> <C> <C>
16. -- Copies of manually signed powers of attorney for The
Variable Annuity Life Insurance Company Directors Robert M.
Devlin, Joe C. Osborne, Brent C. Nelson, Thomas L. West,
Jr., Craig R. Rodby, James S. D'Agostino, Jr., Bruce R.
Abrams, Michael G. Atnip, John A. Graf, Patrick E. Grady,
Richard W. Scott and Jon P. Newton.
</TABLE>
ITEM 25. DIRECTORS AND OFFICERS OF THE DEPOSITOR
The directors and principal officers of the Company are set forth below,
together with their current principal occupations including any position with
American General Corporation ("AGC"), the indirect parent of The Variable
Annuity Life Insurance Company ("VALIC"), the depositor of the Registrant, and
The Variable Annuity Marketing Company ("VAMCO"), the principal underwriter of
the Contracts issued through the Registrant. The business address of each
officer and director is 2929 Allen Parkway, Houston, Texas 77019.
<TABLE>
<CAPTION>
NAME AND PRINCIPAL
BUSINESS ADDRESS POSITION 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.
</TABLE>
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<PAGE> 218
<TABLE>
<CAPTION>
NAME AND PRINCIPAL
BUSINESS ADDRESS POSITION AND OFFICES HELD WITH DEPOSITOR
------------------ ----------------------------------------
<S> <C>
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.
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
Variable Annuity Contracts investing in American General Series Portfolio
Company (the "Series Company"). The Registrant votes Series Company shares only
as directed by the contract owner. (See "Voting Rights" in the Prospectus for
these Contracts.)
The Depositor is indirectly wholly-owned by American General Corporation
(formerly American General Insurance Company). Therefore, the Depositor and
various companies affiliated with the Depositor may be 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 American General Corporation 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 3,940 individual Contract Owners and 0 group Contract Owners of the
qualified Contracts offered by the UIT-981 prospectus of the Registrant; and
1,917 individual Contract Owners and 1,689 group Contract Owners qualified
Contracts offered by the Independence Plus prospectus. As of March 31, 1998
there were 2,313 individual Contract Owners and 3 group Contract Owners of the
non-qualified Contracts offered by the Independence Plus 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").
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,
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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
attorney's 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 amounts unless it shall ultimately be determined that he is
entitled to be indemnified by the Depositor as authorized under this article and
(ii) a determination that the facts then known to those making the determination
would not preclude indemnification under this article.
Notwithstanding any other provision of this article, the Depositor may pay
or reimburse expenses incurred by any Indemnitee of the Depositor or any other
person entitled to indemnity hereunder in connection with his appearance as a
witness or other participation in any action, suit or a proceeding described
above at a time when he is not named defendant or respondent in such action,
suit or proceeding.
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
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<PAGE> 220
indemnification by the Depositor is against public policy, as expressed in the
Act, and therefore may be unenforceable. In the event that a claim of such
indemnification (except insofar as it provides for the payment by the Depositor
of expenses incurred or paid by a director, officer or controlling person in the
successful defense of any action, suit or proceeding) is asserted against the
Depositor by such director, officer or controlling person and the Securities and
Exchange Commission is still of the same opinion that the Depositor or
Registrant will, unless in the opinion of its counsel the matter has been
settled by controlling precedent, submit to a court of appropriate jurisdiction
the question of whether such indemnification by the Depositor is against public
policy as expressed in the Act and will be governed by the final adjudication of
such issue.
ITEM 29. PRINCIPAL UNDERWRITERS
(a) The Variable Annuity Marketing Company ("VAMCO") acts as exclusive
distributor and principal underwriter of the Registrant and as principal
underwriter for the American General Series Portfolio Company, a registered
investment company.
(b) The following information is furnished with respect to each officer and
director of VAMCO:
<TABLE>
<CAPTION>
NAME AND PRINCIPAL POSITION AND OFFICES
BUSINESS ADDRESS WITH VAMCO
------------------ --------------------
<S> <C>
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
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
Evan Cole Vice President
410 Amherst Street
Suite 250
Nashua, NH 03063
Joe H. Connell Vice President
10851 N. Black Canyon Hwy.
Suite 700
Phoenix, AZ 85029
James J. Costello Vice President
1767 Sentry Parkway West 19
Suite 300
Blue Bell, PA 19422
</TABLE>
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<PAGE> 221
<TABLE>
<CAPTION>
NAME AND PRINCIPAL POSITION AND OFFICES
BUSINESS ADDRESS WITH VAMCO
------------------ --------------------
<S> <C>
Paige T. Davis Vice President
7310 Ritchie Highway
Suite 800
Glen Burnie, MD 21061
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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<PAGE> 222
<TABLE>
<CAPTION>
NAME AND PRINCIPAL POSITION AND OFFICES
BUSINESS ADDRESS WITH VAMCO
------------------ --------------------
<S> <C>
Robert A. Obester Vice President
800 Gessner
Suite 1280
Houston, TX 77024
Fred Roberts Vice President
100 Ashford Center North
Suite 100
Atlanta, GA 30338
F. William Scott Vice President
Two Summit Park Drive
Suite 410
Independence, OH 44131
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 Registrant. The licensed agents
who sell the Contract 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 and 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 application can check
to request a Statement of Additional Information; or (2) a post
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<PAGE> 223
card or similar written communication affixed to or included in the
prospectus that the application 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 the form promptly
upon written or oral request.
b. The Company hereby represents that the fees and charges deducted under
these contracts, in the aggregate, are reasonable in relation to the services
rendered, the expenses expected to be incurred and the risks assumed by the
Company.
ITEM 33. WITHDRAWAL RESTRICTIONS FOR 403(B) PLANS
The Tax Reform Act of 1986 added to the Internal Revenue Code a new Section
403(b)(11) which applies to tax years beginning after December 31, 1988. This
paragraph provides that withdrawal restrictions apply to contributions made and
interest earned subsequent to December 31, 1988. Such restrictions require that
distributions not begin before age 59 1/2, separation from service, death,
disability, or hardship (only employee contributions without accrued interest
may be withdrawn in case of hardship). These withdrawal restrictions appear 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 section 22(e), 27(c)(1), or 27(d) of the Investment Company
Act of 1940, 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 bring the redemption restrictions imposed by
Section 403(b)(11) to the attention of the potential participants;
(4) Obtain from each plan participant who purchases a Section 403(b)
annuity Contract, prior to or at the time of such purchase, a signed
statement acknowledging the participant's understanding of (1) the
restrictions on redemption imposed by Section 403(b)(11), and (2) the
investment alternatives available under the employer's Section 403(b)
arrangement, to which the participant may elect to transfer his
contract value.
The Company has complied, and is complying, with the provisions of
paragraphs (1)-(4).
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-9
<PAGE> 224
(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.
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.
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<PAGE> 225
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> 226
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> 227
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> 228
<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> 229
EXHIBIT INDEX
<TABLE>
<CAPTION>
SEQUENTIALLY
NUMBERED
EXHIBIT NO. PAGES
----------- ------------
<S> <C> <C>
5(a). -- Form of Application for Annuity Contract (Form UIT-981,
UIT-585-96 and UITG-CB-585-96).
6(c). -- Copy of Amended and Restated Bylaws of The Variable Annuity
Life Insurance Company as amended through March 4, 1992.
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.
Such form requires the signed acknowledgement of
participants who purchase Section 403(b) annuities with
regard to these withdrawal restrictions.
16. -- Copies of manually signed powers of attorney for The
Variable Annuity Life Insurance Company Directors Robert M.
Devlin, Joe C. Osborne, Brent C. Nelson, Thomas L. West,
Jr., Craig R. Rodby, James S. D'Agostino, Jr., Bruce R.
Abrams, Michael G. Atnip, John A. Graf, Patrick E. Grady,
Richard W. Scott and Jon P. Newton.
</TABLE>
<PAGE> 1
EXHIBIT 5(a)
__________________________________________________________________________
ANNUITY APPLICATION
__________________________________________________________________________
Independence Plus Fixed and Variable Annuity
Impact Fixed and Variable Annuity
GUP Fixed and Variable Annuity
V-Plan Fixed Annuity
Please print clearly. Due to the processing used by VALIC, do not
highlight any information on this form or write in margins.
Upon completion, the original form is sent to VALIC's home office.
One copy goes to the participant and the other copy goes to the field office.
[VALIC LOGO]
<PAGE> 2
- -------------------------------------------------------------------------------
ANNUITY APPLICATION Page 1 of 2
- -------------------------------------------------------------------------------
REGIONAL OFFICE USE ONLY: Date of Input: _______________________________________
APPLICANT/ANNUITANT INFORMATION
SS# or Tax ID#: ________________________________________________________________
Name: __________________________________________________________________________
Address: _______________________________________________________________________
City: __________________________________________________________________________
State: ____________________________________________ Zip: ___________-__________
Date of Birth: ___________/___________/____________
Sex: [ ] Male [ ] Female
Marital Status: [ ] Married [ ] Single
Occupation: ____________________________________________________________________
Home Phone: (_____________)_____________________________________________________
EMPLOYMENT INFORMATION
Employer Name: _________________________________________________________________
Group #: ________________________________ Date of Hire: _______/_______/_______
Work Phone: (_____________)_____________________________________________________
Annual Salary: _________________________________________________________________
Expected Annuity Date: __________/__________/___________
OWNER (NQDA) (Only if other than applicant.)
SS# or Tax ID#: ________________________________________________________________
Name: __________________________________________________________________________
Address: _______________________________________________________________________
City: __________________________________________________________________________
State: ____________________________________________ Zip: ___________-__________
Date of Birth: ___________/___________/____________
Home Phone: (_____________)_____________________________________________________
INVESTOR PROFILE (If required)
Investment Objectives (check one):
[ ] Safety of Principal [ ] Long-term growth
[ ] Retirement Income [ ] Income
[ ] Other_________________________________________________________________
Financial Situations (approximate amounts in thousands):
Under $50 $50-$100 Over $100
Household Income [ ] [ ] [ ]
Net Worth [ ] [ ] [ ]
Life Insurance [ ] [ ] [ ]
Dependents: Number: _______________ Age(s): ___________________________________
<TABLE>
<CAPTION>
______________________________________________________________________________________________________________________________
Provide investment option name,
division number, and the percent to
Date Exclude Product be allocated to each. (Percents must
Contribution Contribution: # of Annualized pymt periods type be whole numbers totaling 100%)
Source % or $ pymts. amount begins from-to (Choose one) Not applicable to V-Plan.
______________________________________________________________________________________________________________________________
<S> <C> <C> <C> <C> <C> <C> <C> <C>
[ ] Indepen- ________________________ ________%
Periodic dence Plus ________________________ ________%
________________________ ________%
Employee _______________________________________________________________ [ ] Impact ________________________ ________%
Voluntary ________________________ ________%
(1) Single [ ] GUP ________________________ ________%
Sum ________________________ ________%
[ ] V-Plan ________________________ ________%
___________________________________________________________________________________________________________________
This line is for VALIC
administrative use only: Product: ________ Plan type: ________ Plan #:_____ Sub Group: _____ Account #: _________
______________________________________________________________________________________________________________________________
[ ] Indepen- ________________________ ________%
Periodic dence Plus ________________________ ________%
________________________ ________%
Employee _______________________________________________________________ [ ] Impact ________________________ ________%
Matched ________________________ ________%
(2) Single [ ] GUP ________________________ ________%
Sum ________________________ ________%
[ ] V-Plan ________________________ ________%
___________________________________________________________________________________________________________________
This line is for VALIC
administrative use only: Product: ________ Plan type: ________ Plan #:_____ Sub Group: _____ Account #: _________
______________________________________________________________________________________________________________________________
[ ] Indepen- ________________________ ________%
Periodic dence Plus ________________________ ________%
________________________ ________%
Employer _______________________________________________________________ [ ] Impact ________________________ ________%
Basic ________________________ ________%
(3) Single [ ] GUP ________________________ ________%
Sum ________________________ ________%
[ ] V-Plan ________________________ ________%
___________________________________________________________________________________________________________________
This line is for VALIC
administrative use only: Product: ________ Plan type: ________ Plan #:_____ Sub Group: _____ Account #: _________
______________________________________________________________________________________________________________________________
[ ] Indepen- ________________________ ________%
Periodic dence Plus ________________________ ________%
________________________ ________%
Employee _______________________________________________________________ [ ] Impact ________________________ ________%
Supple- ________________________ ________%
mental Single [ ] GUP ________________________ ________%
(4) Sum ________________________ ________%
[ ] V-Plan ________________________ ________%
___________________________________________________________________________________________________________________
This line is for VALIC
administrative use only: Product: ________ Plan type: ________ Plan #:_____ Sub Group: _____ Account #: _________
______________________________________________________________________________________________________________________________
</TABLE>
Initial Flexible Payment Amount: _________________________________________
<PAGE> 3
______________________________________________________________________________
ANNUITY APPLICATION Page 2 of 2
______________________________________________________________________________
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:_______________________________________________
BENEFICIARY DESIGNATION
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 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 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.
_____________________________________________ _______________________
Participant Signature Date
Spousal consent to waiver of pre-retirement death benefits: I, the spouse of the
named participant, hereby waive the qualified pre-retirement survivor annuity
provided under Sec. 205 of ERISA as amended by REACT. 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 participant.
If participant 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)
APPLICANT 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 full, complete, and true to the best of my knowledge and belief.
I have read and understand the information provided on the information and
instruction page on the following subjects:
o Fraud Warning
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 currently own or participate in another VALIC Annuity Contract.
________________________________________________________________________
Annuitant's Signature
Dated at ________________________, date ________________________, 19____.
________________________________________________________________________
Owner's Signature
Dated at _________________________, date _______________________, 19___.
REPRESENTATIVE OF RECORD
No. ______________________ Issue State (Abv): __________________________
Region Code: ___________________ Branch Code: __________________________
As representative I [ ] do [ ] do not have reason to believe that replacement
of existing the insurance or annuity may be involved.
________________________________________________________________________
Print Licensed Agent/Registered Representative Name
________________________________________________________________________
Licensed Agent/Registered Representative Signature
State License ID #:_____________________________________________________
_______________________________________________________ _______________
Principal's Approval Date
Date of Input: _________________________________________________________
Week Ending: ___________________________________________________________
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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: An 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.
For 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.
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.
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 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 may be withdrawn only under any of the following
circumstances.
o Separation from service o Disability
o Age 59 1/2 or older o Hardship (Contributions only)
o Death
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
payable by the Employer and in accordance with 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;
EE(3) - Employer Basic;
EE(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 (Not Applicable to V-Plan)
Independence Plus Fixed and Variable Annuity
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. The following indicates the current Purchase
Payment allocation choices available.
1 - Fixed Account Plus 9 - Not in use
2 - Short Term Fixed Account 10 - Stock Index Fund
3 - Not in use 11 - International Equities Fund
4 - MidCap Index Fund 12 - Social Awareness Fund
5 - Asset Allocation Fund 13 - International Government
6 - Money Market Fund Bond Fund
7 - Capital Conservation Fund 14 - Small Cap Index Fund
8 - Government Securities Fund
Impact Fixed and Variable Annuity
Purchase Payments may be allocated to the Short Term Fixed Account, and/or
Separate Account Divisions (Investment Vehicles). Purchase Payments may not be
allocated to more than three Investment Vehicles of the Separate Account, or to
two Investment Vehicles of the Separate Account and the Short Term Fixed
Account, at any one time. The following indicates the current Purchase Payment
allocation choices available.
(1) Vehicle 1 - Capital Conservation Fund
(2) Vehicle 2 - Money Market Fund
(3) Vehicle 3 - Stock Index Fund
(4) Vehicle 4 - MidCap Index Fund
(5) Vehicle 5 - Asset Allocation Fund
(6) Short Term Fixed Account
GUP 64/74 Fixed and Variable Annuity
Purchase Payments may be allocated to the Fixed Account, to the Variable
Account, or any combination (whole percentages) of the two.
OWNER vs. ANNUITANT (NQDAs Only)
The owner and the annuitant may be different only for Non-Qualified Deferred
Annuities (NQDAs). The owner has most of the rights under the contract. The
annuitant is the person upon whose life expectancy the contract benefits are
based.
VALIC HOME OFFICE
2929 Allen Parkway, Houston, TX 77019
Contact your Regional Office for customer assistance at 1-800-44-VALIC.
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EXHIBIT 6(c)
THE VARIABLE ANNUITY LIFE INSURANCE COMPANY
HOUSTON, TEXAS
AMENDED AND RESTATED
BYLAWS
(As amended through March 4, 1992)
Article I - COMPANY
Section 1. Name of Company
The name of this company shall be The Variable Annuity Life Insurance Company.
Section 2. Home Office
The home office of this company shall be in Houston, Texas.
Section 3. Corporate Seal
The corporate seal of this company shall be a five-pointed star, surrounded by
the words "The Variable Annuity Life Insurance Company", so arranged as to form
a circle.
ARTICLE II - CAPITAL STOCK
Section 1. Certificates of Stock
Certificates of stock certifying the number of shares owned shall be issued to
each shareholder in such form not inconsistent with the articles of
incorporation as shall be approved by the board of directors. Such certificates
of stock shall be numbered and registered in the order in which they are issued
and shall be signed by the president or a vice president, and by the secretary
or an assistant secretary, with the seal of the company affixed. In case any
officer or officers who shall have signed any such certificate or certificates
shall cease to be such officer or officers of the company, whether because of
death, resignation, or otherwise, before such certificate or certificates shall
have been delivered by the company, such certificate or certificates may
nevertheless be adopted by the company and be used and delivered as though the
person or persons who signed such certificate or certificates, or whose
facsimile signature or signatures shall have been used thereon, had not ceased
to be such officer or officers of the company.
Section 2. Transfer of Stock
Upon surrender to the company of a certificate for shares duly endorsed or
accompanied by proper evidence of succession, assignment, or authority to
transfer, it shall be the duty of the company to
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issue a new certificate or certificates to the person or persons entitled
thereto, cancel the old certificate, and record the transaction upon its books.
In case of such transfer, the old certificate shall be endorsed and surrendered
by the shareholder, or his duly authorized representative, and marked
"CANCELLED" by the secretary, which old certificate shall be attached to the
stub of the stock book from which it was originally taken, and, in lieu thereof,
a new certificate or certificates for an equal aggregate number of shares shall
be issued as directed by the transferee of such old certificate with new numbers
to correspond to the numbers on the stubs from which such new certificate or
certificates shall be taken.
Section 3. Closing of Transfer Books and Fixing Records Dates
For the purpose of determining shareholders entitled to notice of, or to vote
at, any meeting of shareholders, or any adjournment thereof, or entitled to
receive payment of any dividend or in order to make a determination of
shareholders for any other purpose, the board of directors of the company may
provide that the stock transfer books shall be closed for a stated period but
not to exceed, in any case, 50 days. If the stock transfer books shall be closed
for the purpose of determining shareholders entitled to notice of, or to vote
at, a meeting of shareholders, such books shall be closed for at least 10 days
immediately preceding such meeting. In lieu of closing the stock transfer books,
the board of directors may fix in advance a date as the record date for
determining shareholders entitled to notice, or entitled to receive payment of
any dividend, or in order to make a determination of shareholders for any other
proper purpose other than the right to vote at any meeting of shareholders, such
date in any case to be not more than 50 days prior to the date on which the
particular action requiring such determination of shareholders, is to be taken.
If the stock transfer books are not closed and no record date is fixed for the
determination of shareholders entitled to notice, or shareholders entitled to
receive payment of a dividend, the date on which notice is mailed, or the date
on which the resolution of the board of directors declaring such dividend is
adopted, as the case may be, shall be the record date for such determination of
shareholders.
Section 4. Lost Certificates
In case of loss or destruction of any certificate of capital stock, the owner
shall not be entitled to receive a new certificate in lieu thereof until proof
satisfactory to the secretary of such loss or destruction is made and ample
indemnity, by bond or otherwise, as the president and secretary may prescribe,
has been given to the company. At the option of the company, a new certificate
may not be issued until 60 days after notice of loss is received. Any such new
certificate issued in lieu of one lost or destroyed, shall be marked "DUPLICATE"
on its face. The fact of issuance of such duplicate shall be noted on the stub
of the original certificate.
ARTICLE III - SHAREHOLDERS' MEETING
Section 1. Annual Meeting
The annual meeting of the shareholders shall be held at the home office of the
company in Houston, Texas, on such date (on or before April 30 of each year) as
shall be fixed by the president.
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Section 2. Special Meetings
Special meetings of the shareholders may be called at any time by the president
or upon written request of any 3 directors of the company or by the holders of
not less than 1/10 of all the shares entitled to vote at the meeting and shall
be held at the home office of the company in Houston, Texas.
Section 3. Notice of Meeting
Written or printed notice stating the place, day, and hour of the meeting, and
in case of a special meeting, the purpose or purposes for which the meeting is
called, shall be delivered not less than 10, nor more than 50, days before the
date of the meeting, either personally or by mail, by or at the direction of the
president, the secretary, or the officer or person calling the meeting, to each
shareholder of record entitled to vote at such meeting. If mailed, such notice
shall be deemed to be delivered when deposited in the United States mail
addressed to the shareholder at his address as it appears on the stock transfer
books of the company, with postage thereon prepaid. The failure to give notice,
or irregularity in the notice, of any regular meeting of shareholders shall not
invalidate such meeting or any proceedings thereat.
Section 4. Voting List
The officer or agent having charge of the stock transfer books for shares of the
company shall make, at least 10 days before each meeting of shareholders, a
complete list of the shareholders entitled to vote at such meeting or any
adjournment thereof, arranged in alphabetical order, with the address of and the
number of shares held by each, which list, for a period of 10 days prior to such
meeting, shall be kept on file at the home office of the company and shall be
subject to inspection by any shareholder at any time during usual business
hours. Such list shall also be produced and kept open at the time and place of
the meeting and shall be subject to the inspection of any shareholder during the
whole time of the meeting. The original stock transfer books shall be prima
facie evidence as to who are the shareholders entitled to examine such list or
transfer books or to vote at any meeting of shareholders. Failure to comply with
the requirements of this section shall not affect the validity of any action
taken at such meeting.
Section 5. Quorum and Voting
Unless otherwise provided in the articles of incorporation, the holders of a
majority of the shares entitled to vote, represented in person or by proxy,
shall constitute a quorum at a meeting of shareholders. The vote of the holders
of a majority of the shares entitled to vote and thus represented at a meeting
at which a quorum is present, shall be the act of the shareholders' meeting,
unless the vote of a greater number is required by law, the articles of
incorporation, or a specific provision of these bylaws. Upon demand of any
shareholder, vote upon any question before the meeting shall be held by ballot.
Each outstanding share shall be entitled to one vote on each matter submitted to
a vote at a meeting of shareholders. A shareholder may vote either in person or
by proxy executed in
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writing by the shareholder or by his duly authorized attorney-in-fact. No proxy
shall be valid after 11 months from the date of its execution unless otherwise
expressly provided therein to be irrevocable, and in no event shall it remain
irrevocable for a period of more than 11 months. All proxies shall be filed with
the secretary and kept as a part of his records for a period of 3 years but may
thereafter be destroyed. If at any meeting of shareholders a quorum is not
present those present may adjourn from day to day, for not more than 10 days,
until a quorum is present.
Section 6. Organization
The chairman of the board or the president shall preside over the deliberations
of the shareholders' meetings. If both are absent, the shareholders present
shall elect a chairman from among the vice presidents, or in the absence of the
vice presidents, they shall select one of the shareholders their chairman. The
secretary or an assistant secretary of the company shall in the order of
seniority act as secretary at the shareholders' meetings. If both are absent
from any shareholders' meeting, the chairman of that meeting shall appoint a
person to act as secretary thereof.
Section 7. Order of Business
The order of business at the annual meeting and special meetings of
shareholders, so far as applicable, shall be as follows:
1. Canvass of the stock present
2. Proof of notice of meeting
3. Approval of minutes of previous meeting
4. Report of officers and committees
5. Election of directors
6. Unfinished business
7. New business
8. Adjournment
Section 8. Election of Directors
The board of directors shall consist of not fewer than seven (7) members nor
more than twelve (12) members, the number of directors for the ensuing year to
be the number established by resolution of the board of directors. The directors
elected shall hold office until the next annual meeting of the shareholders and
until their successors have been elected and qualified. Directors need not be
shareholders of the company.
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ARTICLE IV - DIRECTORS MEETINGS
Section 1. Annual Meeting
The annual meeting of the directors shall be held immediately following the
close of the annual meeting of the shareholders.
Section 2. Regular Meetings
Regular meetings of the directors may be held as provided by the board. Any
meeting of the board of directors shall be held at the home office of the
company in Houston, Texas.
Section 3. Special Meetings
Special meetings of the directors may be held at the call of the president or
upon request of 3 or more directors, and shall be held in the home office of the
company at Houston, Texas.
Section 4. Notice of Meetings
Notice of board of directors meetings shall be given at least 5 days prior to
such meetings by letter or telegram addressed to each director.
Section 5. Quorum and Voting
A majority of the number of directors as fixed by these bylaws shall constitute
a quorum for the transaction of business. The act of the majority of the
directors present at a meeting at which a quorum is present shall be the act of
the board of directors, subject to the provisions of Article IV, Sections 8 and
9, of these bylaws as to situations covered thereby. At all meetings of the
board of directors, each director present shall have one vote which shall be
cast by him in person.
Section 6. Organization
The chairman of the board, or the president in the absence of the chairman of
the board, shall preside over the deliberations of the directors meetings. The
secretary or an assistant secretary of the company, in the order named, shall
act as secretary at all directors meetings.
Section 7. Order of Business
At all meetings of the board of directors the order of business shall be as
follows:
1. Roll call
2. Approval of minutes of previous meeting
3. Report of officers
4. Report of committees
5. Unfinished business
6. New business
7. Adjournment
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Section 8. Vacancies
Any vacancy occurring in the board of directors may be filled by the affirmative
vote of a majority of the remaining directors though less than a quorum of the
board of directors. A director elected to fill a vacancy shall be elected for
the unexpired term of his predecessor in office. Any directorship to be filled
by reason of an increase in the number of directors shall be filled by an
election at an annual meeting or at a special meeting of shareholders called for
the purpose.
Section 9. Vacancies Caused by Disaster or Act of War
The board of directors may provide, notwithstanding other provisions of these
bylaws, for filling vacancies in the board in the event that due to act of war
or other disaster the number of directors who are able and available to act is
less than a quorum.
ARTICLE V - OFFICERS
Section 1. Election of Officers
At the annual meeting of the directors they shall, as hereinafter provided,
elect a chairman of the board, president, one or more vice presidents (one of
whom may be designated as an executive vice president), a secretary, and a
treasurer. In addition thereto, the board, in its discretion, shall elect such
other officers with such other duties as the board shall from time to time
determine. Terms of office of each shall be one year, or until his successor
shall be elected or installed, unless removed by the board of directors.
Section 2. Appointment of Officers
All other officers of the company may be either elected by the board of
directors or appointed by the president. Any person may fill more than one
office at a time. The officers shall perform such duties as may be assigned to
them by the president or the executive committee.
ARTICLE VI - EXECUTIVE COMMITTEE
Section 1. Election
The board of directors, at its annual meeting, acting by resolution adopted by a
majority of the full board of directors, shall elect from among its members an
executive committee of not fewer than two (2) nor more than five (5) members.
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Section 2. Duties
The executive committee shall have all of the powers of the directors in the
interim between meetings of the board, except where action of the board of
directors is required by law. It shall keep regular minutes of its proceedings
which shall be reported to the directors at their next meeting.
Section 3. Meetings
The executive committee shall meet at such times as may be fixed by the
committee, or on the call of the chairman of the board or the president.
Section 4. Quorum and Voting
A majority of the members of the executive committee as fixed by these bylaws
shall constitute a quorum for the transaction of business. The act of the
majority of the members of the executive committee present at a meeting at which
a quorum is present shall be the act of the executive committee. At all meetings
of the executive committee, each member present shall have one vote which shall
be cast by him in person.
Section 5. Vacancies
The board of directors, acting by resolution adopted by a majority of the number
of directors fixed by these bylaws, shall fill all vacancies in the executive
committee which may occur from time to time.
ARTICLE VII - INVESTMENT COMMITTEE
Section 1. Election
The board of directors, at its annual meeting, acting by resolution adopted by a
majority of the full board of directors, shall elect an investment committee
composed of three (3) or more persons, none of whom need be either an officer or
director of the company, and this committee shall be charged with the duty of
approving and supervising all investment or loans made by the company except
loans made by the company upon the sole security of a policy of insurance issued
by the company.
Section 2. Meetings
The investment committee shall meet at such times as may be fixed by the
committee or on the call of the chairman of the board or the president.
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Section 3. Quorum and Voting
A majority of the members of the investment committee, as fixed by these bylaws,
shall constitute a quorum for the transaction of business. The act of the
majority of the members present at a meeting at which a quorum is present shall
be the act of the investment committee, except in instances where the vote of a
greater number is specifically required by these bylaws. At all meetings of each
investment committee, each member present shall have one vote which shall be
cast by him in person.
Section 4. Vacancies
The board of directors shall fill all vacancies in the investment committee
which may occur from time to time.
ARTICLE VIII - OTHER COMMITTEES
Section 1. Designation
In addition to the Executive Committee, the board of directors may, from time to
time, by resolution adopted by a majority of the full board of directors,
designate from among its own members such other committees as it shall deem to
be appropriate, each of which shall have and may exercise that authority of the
board of directors which shall have been delegated to it in the resolution
creating such committee, except as may be prohibited by law. The term of office
of each member of any such other committee shall be for the period designated by
the board of directors but shall not be longer than one year or until his
successor shall be appointed, unless such member shall first be removed by the
board of directors or such additional committee shall be dissolved by the
board of directors.
Section 2. Vacancies
The board of directors shall fill all vacancies in such other committees which
may occur from time to time.
ARTICLE IX - EXECUTION OF POLICIES, INSTRUMENTS, AND CONTRACTS
Section 1. Policies
All policies of insurance shall be signed by the president or a vice president
and by the secretary or an assistant secretary whose signatures may be engraved,
printed, or stamped thereon. When signatures are engraved, printed, or stamped,
the policy shall be countersigned by a duly authorized registrar who shall be
appointed by the president, a vice president, or the secretary.
In the event of change in title or registration of any office of the company
whose signature or facsimile signature appears on policies issued by the
company, such policies may nevertheless continue to be issued by the company for
a period not exceeding one year after such change in title or resignations, and
shall be as binding on the company as if the contracts were signed by the person
or persons currently holding such title or titles.
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Section 2. Funds of the Company and Checks
Funds of the company shall be deposited only in the corporate name of the
company and in such banks as the president or the executive committee shall
designate. All checks and drafts shall be signed by one of the following
officers of the company, namely: the president, or a vice president, or the
secretary, or the treasurer, and may be countersigned by an assistant secretary
or assistant treasurer or such other persons as the president or the executive
committee may from time to time provide.
Section 3. Facsimile Signature
The directors may authorize the use of a check-signing machine or any other
mechanical device to imprint on checks and drafts of the company the facsimile
signatures of the president, the vice president, and the secretary, or such
officers as the board of directors may designate. Such authority, when given,
together with such limitations and restrictions as the board of directors may
impose thereon, shall be recorded in the minutes of the board of directors and
may be revoked at any time by the board of directors or by the president.
Section 4. Instruments and Contracts
The senior chairman of the board of the company, the chairman, any vice
chairman, the president, any vice president, and such other officers as the
board of directors may designate by resolution, shall have the power to execute
in the name of the company any contract, agreement, certificate, conveyance,
receipt, release, or any other instrument whatsoever in writing required or
permitted by law to be executed by the company or which it is necessary for it
to execute in the transactions of its business or in the management of its
affairs. Whenever the affixing of the company seal to any instrument is
necessary, the instrument shall be attested by the secretary or an assistant
secretary with the seal of the company affixed.
No authority herein granted shall be construed to supersede or contravene the
control of the directors over the affairs of the company; provided, however,
that any person, firm, or corporation may and shall be entitled to accept and
act upon any document or instrument signed, countersigned, endorsed, or executed
by the officers of the company pursuant to the provisions of these bylaws,
unless, prior to the receipt of such document or instrument, such person, firm,
or corporation has been furnished with a certified copy of a resolution of the
board of directors or the executive committee prescribing a different signature,
countersignature, endorsement, or execution.
Section 5. Voting of Stock by the Company
In all cases where the company owns, holds, or represents, under power of
attorney or proxy, or in any representative capacity, shares of the capital
stock of any corporation, or shares or interests in business trusts,
co-partnerships, or other associations, such shares or interests shall be
represented
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and voted by the president, or in the absence of the president, by a
vice president, and if more than one vice president be present, then by the vice
president who shall have the priority of appointment, or in the absence of a
vice president, by the secretary, or in the absence of the secretary, by the
treasurer; provided, however, that in the absence of any such officer, then any
person specifically appointed by the board of directors for the purpose shall
have the right, if present, to represent and vote such shares or interest.
If it is not possible or desirable to have a representative of the company
present in person, then the president or any vice president shall have authority
to execute in the name of the company a proxy or proxies for the voting of such
shares or interests.
ARTICLE X - MISCELLANEOUS PROVISIONS
Section 1. Salaries Approved by the Board of Directors
No salary, compensation or emolument shall be paid to any officer or director of
the company or to any person, firm or corporation, which, together with any
salary, compensation or emolument from an affiliated domestic company of the
company amounts in any year to more than $50,000, unless such payment be first
authorized by a vote of the board of directors of the company, or by a committee
of the board charged with the duty of authorizing such payments. The limitation
as to time contained herein shall not be construed as preventing the company,
acting through its proper officers, from entering into contracts with its agents
for the payment of renewal commissions.
Section 2. Waiver
Whenever any notice is required to be given, a waiver thereof in writing signed
by the person or persons entitled to such notice, whether before or after the
time stated therein, shall be deemed equivalent to the giving of such notice.
Attendance of a person, either in person or by proxy, at any meeting shall
constitute a waiver of notice of such meeting, except where the person attends a
meeting for the express purpose of objecting to the transaction of any business
because the meeting was not lawfully called or convened.
Section 3. Action Without Meeting
Any action permitted or required, by law, these bylaws, or the Articles of
Incorporation of the company, to be taken at a meeting of shareholders, of the
board of directors or any committee thereof, may be taken without a meeting if a
consent in writing, setting forth the action so taken, is signed by all the
shareholders, or the members of the board of directors, or of the committee, as
the case may be. Such consent shall have the same force and effect as a
unanimous vote at a meeting, and may be stated as such in any documents or
instrument filed with the Secretary of State.
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ARTICLE XI - AMENDMENTS TO BYLAWS
These bylaws may be altered, amended, or repealed by the affirmative vote of the
holders of a majority of the outstanding stock at any annual meeting, or at any
special meeting if notice of the proposed amendment be contained in the notice
of said special meeting, or by the affirmative vote of a majority of the full
board of directors at any regular or special meeting, provided notice of said
proposed amendment be contained in the notice of the meeting.
ARTICLE XII - INDEMNIFICATION OF DIRECTORS AND OFFICERS
Section 1. Actions
The company shall indemnify any person 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
company), 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 he is or was a director, officer or employee of the company, or
is or was serving at the request of the company as a director, officer, partner,
venturer, proprietor, trustee, employee, or similar functionary of another
foreign or domestic corporation or non-profit corporation, partnership, joint
venture, sole proprietorship, trust, employee benefit plan or other enterprise
(any such person acting in any such capacity being hereinafter referred to as
"potential indemnitee"), against judgments, penalties (including excise and
similar taxes), fines, amount 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 he 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 company, to be in the best interests of the
company and (ii) in all other cases, to be not opposed to the best interests of
the company; and, with respect to any criminal action or proceeding, if he had
no reasonable cause to believe his conduct was unlawful; provided, however, that
in connection with any action, suit or proceeding in which the person shall have
been adjudged to be liable to the company 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, (i)
indemnification shall be limited to reasonable expenses (including court costs
or attorneys' fees) actually incurred in connection with such proceeding; and
(ii) indemnification shall be prohibited, if the person is found liable for
willful or intentional misconduct in the performance of his duty to the company.
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 person did not act in good
faith and in a manner which he reasonably believed to be in the best interests
of the company; 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.
11
<PAGE> 12
Section 2. Success on Merits or Otherwise
Where a potential indemnitee has been wholly successful, on the
merits or otherwise, in defense of any such action, suit or proceeding, he shall
be indemnified against reasonable expenses (including court costs and attorneys'
fees) actually incurred by him in connection therewith.
Section 3. Determination that Indemnification is Proper
Any indemnification under Section 1 of this article (unless otherwise ordered by
a court of competent jurisdiction) shall be made by the company 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 manner
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) of this Section 3, or if such 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 director who is named as a defendant or respondent in such action, suit
or proceeding.
Section 4. Expenses Prior to Final Disposition
Reasonable expenses incurred by a director, officer, or employee of the company
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 in Section 1 shall be paid by the company in advance of the final
disposition thereof upon receipt of a written affirmation by the director,
officer, employee or other person 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 director, officer, employee or other
person to repay such amount if it is ultimately determined that the person has
not met such necessary standard of conduct or that indemnification is prohibited
by Section 1 of this article. Determinations with respect to payments under this
Section 4 shall be made in the manner specified by Section 3 for determining
that indemnification is permissible, except as otherwise provided by law.
Section 5. Non-Exclusive Rights - Continuance Beyond Tenure
The indemnification provided by this article shall not be deemed (i) to be
exclusive of any other rights consistent with law to which the person
indemnified may be entitled under the articles of incorporation of the company,
bylaws, any general or specific action of the board of directors, agreement,
authorization of shareholders, or otherwise, or as may be permitted or required
by law, both as to action in his official capacity as a director and as to
action in another capacity while holding such office, or (ii) to be a limitation
upon the power of the company to indemnify and to advance expenses, consistent
with the law. The indemnification provided by this article shall continue as to
a person who has ceased to be a director, officer, or employee of the company or
other
12
<PAGE> 13
person entitled to indemnity hereunder or to serve in such other capacity
in which he was entitled to indemnification hereunder, and shall inure to the
benefit of his heirs and legal representatives.
Section 6. Insurance Authorized
Subject to any restrictions now or hereafter established by applicable law, the
company shall have power to purchase and maintain insurance on behalf of any
person who is or was a director, officer, or employee of the company or who is
or was serving at the request of the company as a director, officer, partner,
venturer, proprietor, trustee, employee, agent, or similar functionary of
another foreign or domestic corporation or non-profit corporation, partnership,
joint venture, sole proprietorship, trust, employee benefit plan, or other
enterprise, against any liability asserted against him and incurred by him in
such a capacity or arising out of his status as such a person, whether or not
the company would have the power to indemnify him against that liability under
the provisions of this article or the Texas Business Corporation Act.
Section 7. Definitions
For purposes of this article, references to "the company" include any domestic
or foreign predecessor entity of the company in a merger, consolidation, or
other transaction in which the liabilities of the predecessor are transferred to
the company by operation of law and in any other transaction in which the
company assumes the liabilities of the predecessor but does not specifically
exclude liabilities that are the subject matter of this article. For purposes of
this article, references to "serving at the request of the company" shall
include any service as a director, officer or employee of the company which
imposes duties on, or involves services by, such director, officer or employee
with respect to an employee benefit plan, its participants or beneficiaries; and
a person who acted in good faith and in a manner he reasonably believed to be in
the interest of the participants and beneficiaries of an employee benefit plan
shall be deemed to have acted in a manner "not opposed to the best interests of
the company" as referred to in this article.
Section 8. Expenses as Witness
Notwithstanding any other provision of this article, the company may pay or
reimburse expenses incurred by any director, officer, or employee of the company
or any other potential indemnitee hereunder in connection with his appearance as
a witness or other participation in any action, suit or a proceeding described
in Section 1 at a time when he is not a named defendant or respondent in such
action, suit or proceeding.
Section 9. Notice to Shareholders
Any indemnification of or advance of expenses to a director in accordance with
this article shall be reported in writing to the shareholders of the company
with or before the notice of waiver of notice of the next shareholders' meeting
or with or before the next submission to shareholders of a consent to action
without a meeting and, in any case, within the twelve-month period immediately
following the date of the indemnification or advance.
13
<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
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. 27 to the
Registration Statement (Form N-4, No. 2-96223/811-3240) 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
- --------------------------------------------------------------------------------
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.
- -------------------------------------------------------------------------------
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.
- --------------------------------------------------------------------------------
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: __________________________________________________________________
-----------------------------------------------------------------------------
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
-----------------------------------------------------------------------------
c. DEPENDENTS
Number: ________
Ages: ________
________
________
-----------------------------------------------------------------------------
d. OCCUPATION:
_____________________________________________________________
- --------------------------------------------------------------------------------
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
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 not 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> 2
EXHIBIT 16
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 not 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> 3
EXHIBIT 16
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 not 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 all acts and
things 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> 4
EXHIBIT 16
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> 5
EXHIBIT 16
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> 6
EXHIBIT 16
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> 7
EXHIBIT 16
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
2nd day of February, 1998.
/s/ JAMES S. D'AGOSTINO, JR.
_____________________________
James S. D'Agostino, Jr.
In the Presence of:
/s/ KAY BECK TOWNS
______________________________
Kay Beck Towns
<PAGE> 8
EXHIBIT 16
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 herby 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
15th day of December __, 1997.
/s/ CRAIG R. RODBY
---------------------------------
Craig R. Rodby
In the Presence of:
/s/ BRANDEE STANDLEY
- --------------------------
Brandee Standley
<PAGE> 9
EXHIBIT 16
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that the undersigned, an officer and/or
director of The Variable Annuity Life 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
- -------------------------
<PAGE> 10
EXHIBIT 16
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
the execute any 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 January 1998.
/s/ Jon P. Newton
-------------------------
Jon P. Newton
In the Presence of:
/s/ Leslie Gregoire
- -------------------------
<PAGE> 11
EXHIBIT 16
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
23rd day of January, 1998.
/s/ JOE C. OSBORNE
--------------------------
Joe C. Osborne
In the Presence of:
/s/ ROBIN SELLERS
- ------------------------
<PAGE> 12
EXHIBIT 16
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 R. Tuerff, Stephen D.
Bickel 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
29th day of March, 1994.
/s/ ROBERT M. DEVLIN
--------------------
Robert M. Devlin
In the Presence of:
/s/ IDA SABEDRA GARCIA
- ------------------------
